California Pizza Kitchen (NASDAQ:CPKI) served up satisfying second-quarter results, although investors apparently did not find everything the company had to say agreeable.
The specialty restaurant chain operator posted earnings of $0.27 a share, outpacing last year's showing by 18%. As expected, revenue hit $102.5 million, a nice 16.7% gain, while same-store sales jumped 6.6% year over year. Finally, the company tightened its guidance for 2004 earnings to $1.00 to $1.02 per share from a range of $0.98 to $1.02. Even with all of these welcome tidings, the stock tumbled about 6% on Friday.
One issue that might be weighing on investors' minds is new restaurant openings. California Pizza has again put the brakes on expansion and now intends to open seven to nine venues this year. Back in April, the company maintained that it might cut the ribbon on only 10 restaurants after initially hoping to launch as many as 12.
In fact, the more cautious approach should be welcomed. California Pizza ran into trouble in the past when it overextended itself with poorly situated locations. Since taking over as co-CEOs in July last year, co-founders Larry Flax and Richard Rosenfeld have created a much more stringent site selection process and focused on improving the performance of existing restaurants. Already, several of these stragglers are showing signs of a turnaround.
What may be most significant, though, is that with its newest restaurants, the company will be testing a prototype that could greatly improve profitability. As of the end of last year, California Pizza's average guest check amounted to $11.60, including wine and beer. Since the price of most entrees is from $8 to $14, California Pizza has not been pulling in a whole lot from alcohol, which typically is the highest-margin item on a menu. The newest restaurants are designed to address this deficiency by offering a more "adult" atmosphere that caters to the dinner crowd.
Granted, the new restaurants are a risk, and the firm's plans to open as many as eight to 10 of them in the first half of 2005 alone after this year's slow build-out is worth close monitoring. But if the new design is a success, the firm could be enjoying an extra helping of profit.
Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.
