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California Pizza Kitchen's Numbers Taste Gross

By Bibhudutta Subhasish - Updated Apr 6, 2017 at 9:43PM

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California Pizza declares its disappointing results.

Whether it's opening restaurants at airports or revamping its menu items, California Pizza Kitchen (Nasdaq: CPKI) is doing everything to keep itself in the mix as competition in the casual dining space intensifies. Alas, it is failing.

The company recently announced its first-quarter results. These numbers suggest the company is falling behind its competitors. My concern is that this negative momentum is building into a rather not-so-tasty slice for investors.

Analyzing the numbers
Total revenues for California Pizza fell a bit to $156 million this quarter from $156.7 million in the year-ago quarter. Flat revenue is pretty telling on its own, especially considering the fact that the larger industry has begun bucking the recession and has been in a general (but slow) recovery mode over the past two years. Same-store sales were off 2.1%.

California Pizza's net income dropped 15% in the quarter thanks to higher commodity costs, which ate into profits. The net margin slipped to 1.4% from 1.6% in the year-ago quarter.

Taking a look at the greater industry, CPK's net margin is significantly weaker than its peers such as BJ's Restaurants (Nasdaq: BJRI) and P.F.Chang's China Bistro (Nasdaq: PFCB), at 5% and 3.3%, respectively. In other words, the premium that customers are paying for pizzas at CPK is not translating into incremental returns for shareholders. That's a bad situation.

Things look even worse on the cash flow statement.  Operating cash flow showed a massive decline from $2.6 million in 2010 to just $0.7 million this quarter -- well below net income.

The Foolish bottom line
CPK is not showing anything that would encourage me to even think about buying shares. The company is moving against industry trends, and it's not pushing a reasonably profitable model. Furthermore, it's not generally returning money efficiently to shareholders. I love their Thai Chicken pizza, but I wouldn't touch this stock with a 10 foot pole.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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