The animatronics in a Chuck E. Cheese stage show were more exciting than the third-quarter results that parent company CEC Entertainment (NYSE:CEC) posted on Tuesday. Revenues and earnings were both down significantly, as a result of hurricanes, higher gasoline prices, and poor advertising.

Revenues were $179.6 million for the quarter, $5 million short of consensus analyst estimates and just above the low-end projection of $178.2 million. With customers' pocketbooks taking a hit from rising oil prices, same-store sales took more than a 5% hit. But even though high gas prices kept people away and hurricanes Katrina and Rita exacted their toll by closing stores -- some of which remain closed and may stay that way through the end of the fourth quarter -- a lot of the blame needs to be placed on a failed promotional campaign, which generated just 0.6% in sales, or about $1 million, and was pulled just a month after its launch.

Earnings were just as dismal, coming in at $0.45 per share and well off last year's $0.56 performance. For the year, the company is forecasting per-share earnings of between $2.02 and $2.08, which is, at best, 6% below last year's numbers. Yet those numbers would be even worse if not for the company's having about 2 million fewer shares outstanding. Yes, share buybacks generally benefit stockholders by minimizing or reducing dilution, but it also provides a temporary boost to earnings.

Despite the rather stiff performance, though, there's something about CEC that's hard not to like. When CEC became a Motley Fool Hidden Gems selection earlier this year, it was noted that the company generated strong operating cash flows and margins, along with strong returns on equity and assets. And even in the current slump, those characteristics hold true. It generated year-to-date operating cash flows of $111 million and invested $58 million in its stores for a basic free cash flow calculation of $53 million, and earnings are expected to grow 10% to 12% in 2006. The company also opened 13 new stores and has 15 more under construction.

There's no national direct competitor to the CEC model, with even the likes of kid-centric Disney (NYSE:DIS) failing to be profitable with its similar venture. Yet therein lies a tale of caution for CEC's management, and for investors, too: Parents catering to their children's needs can be fickle about where they spend their dollars, particularly when there are plenty of options to choose from. In addition to various sports and entertainment venues, there are plenty of local and regional play centers.

CEC cannot afford too many mismanaged promotions like the one this past summer. The company noted in its conference call that its coupon promotion with Coca-Cola's (NYSE:KO) Minute Maid was a failure, with a negative impact on revenues as a result. Yet a revised coupon offer in 60 stores in September and an "improved" coupon for 290 stores in October were both said to have positive results. As a consequence, CEC will be expanding the number of coupon offers from 13 in 2005 to 16 in 2006. Investors should hope that the company gets it right this time so that they won't have to hold their noses come next year's earnings report.

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Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. The Motley Fool has a disclosure policy.