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CEC Entertainment Reports 5.7% Comparable Store Sales Gain

Second-Quarter Diluted EPS Rises 85% to $0.48

IRVING, Texas--(BUSINESS WIRE)--July 22, 2008--CEC Entertainment, Inc. (NYSE: CEC) today reported net earnings of $11.3 million for its second quarter, which ended on June 29, 2008, as compared to $8.5 million for the second quarter of 2007. The Company's diluted earnings per share increased 85% to $0.48 per diluted share, as compared to $0.26 per diluted share in the second quarter of 2007.

Total quarterly revenue increased 7.0% to $192.5 million, compared with revenue of $179.9 million for the second quarter of fiscal 2007, driven by new store openings and a comparable store sales gain of 5.7%. The Company believes the comparable store sales gain reflects the success of its current strategies, including the ongoing capital initiatives at existing stores, the introduction of an enhanced marketing plan and recent efforts to increase the number of birthday party reservations and fundraising events.

Operating income for the second quarter of 2008 was $22.5 million, or 11.7% of total revenue, as compared to $16.6 million, or 9.2% of total revenue, in the prior year, an increase of 250 basis points as a percentage of total revenue. The increase in operating income as a percentage of total revenue is primarily attributable to the gain in comparable store sales; partially offset by increases in commodity prices, including cheese and dough; advertising expenses and administrative costs.

Richard M. Frank, Chairman and Chief Executive Officer, stated that, "We are pleased with the strong sales performance during the second quarter and first half of this year. We believe this momentum speaks directly to the health and vitality of our brand in the marketplace today and is further evidenced by the fact that each of our five regions posted positive comparable store sales growth for the first six months of fiscal 2008. We are further encouraged by our belief that each of our sales strategies are working and adding to our sales performance. Although we feel confident in our strategies and believe we are well positioned to continue growing sales for the balance of the year, we remain cautious in our outlook given the current economic environment. We are currently estimating comparable store sales growth of 2% to 3% for the remainder of the year."

During the second quarter of 2008, the Company achieved its pre-announced targeted debt-to-Adjusted EBITDA ratio of 2:1, ending the quarter with $394.5 million borrowed on its revolving credit facility. Furthermore, during the second quarter, the Company purchased 2.8 million shares of its common stock, or approximately 11.3% of shares outstanding at the beginning of the quarter, at a cost of $102.2 million.

Business Outlook:

Based on current estimates, the Company expects diluted earnings per share to range from $2.57 to $2.65 per share for the 2008 fiscal year representing 32% to 36% growth from the prior year, after excluding asset impairment charges from fiscal year 2007. In addition, the Company expects diluted earnings per share to range from $0.56 to $0.60 per share and $0.20 to $0.22 per share for the third quarter and fourth quarter of 2008, respectively. This guidance is based on the following assumptions:

  • comparable store sales growth of 2.0% to 3.0% for the second half of 2008;


  • higher cheese and dough costs for the last six months of 2008 compared to the same period in the prior year will be offset by a reduction in cheese and dough usage resulting from certain company initiatives implemented during the first half of the year;


  • labor expenses as a percent of Company store sales is expected to increase 0.5% to 0.7% for the remainder of the 2008 fiscal year driven primarily by minimum wage increases and favorable adjustments to health insurance reserves occurring in the second half of the prior year;


  • opening of five to six new Company stores and four to five new franchise stores during the year;


  • total capital expenditures for the year of $80 to $85 million; and


  • an effective tax rate of 38.0% to 38.5% for the remainder of the year.

Second Quarter Conference Call:

The Company will host a conference call today, July 22, 2008, at 3:30 p.m. Central Time to discuss its second quarter 2008 financial results. A live webcast of the call (listen only) can be accessed through the Company's website, www.chuckecheese.com. Shortly after its conclusion, a replay of the call will be available for a minimum of ninety days on the website.

Non-GAAP Financial Measures:

The Company reports and discusses its operating results using financial measures consistent with generally accepted accounting principles ("GAAP"). From time to time in the course of financial presentations, earnings conference calls or otherwise, the Company may disclose certain non-GAAP financial measures such as Adjusted EBITDA and Free Cash Flow.

Reconciliations of the most directly comparable GAAP financial measure to Adjusted EBITDA and Free Cash Flow and certain other supplemental financial data are set forth in tables accompanying this release.

About CEC Entertainment, Inc.:

Celebrating over 30 years of success as a place Where a Kid can be a Kid(R), CEC Entertainment, Inc. is a nationally recognized leader in full-service family entertainment and dining. The Company's stores feature musical and comic entertainment by robotic and animated characters, games, rides and arcade-style activities intended to appeal to families with children between the ages of two and 12. The Company and its franchisees operate a system of 537 Chuck E. Cheese's stores located throughout the United States (excluding Wyoming and Vermont), Canada and abroad. Currently, 490 locations in the United States and Canada are owned and operated by the Company. For more information, see the Company's website at www.chuckecheese.com.

Forward-Looking Statements:

Certain statements in this press release, other than historical information, may be considered forward-looking statements, within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, and are subject to various risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may differ from those anticipated, estimated or expected. Among the key factors that may have a direct bearing on the Company's operating results, performance or financial condition are its ability to implement its growth strategies; national, regional and local economic conditions affecting the entertainment/dining industry; consumers' health, nutrition and dietary preferences; competition within each of the restaurant and entertainment industries; ability to retain key personnel; success of its franchise operations; negative publicity; disruption of its commodity distribution system; ability to protect its trademarks and other proprietary rights; health epidemics or pandemics; acts of God; terrorists acts; litigation; product liability claims and product recalls; demographic trends; fluctuations in quarterly results of operations, including seasonality; government regulations; weather; school holidays; and increased commodity, utility, insurance, advertising and labor costs.

                       CEC ENTERTAINMENT, INC.
           CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
               (in thousands, except per share amounts)

                                   Quarter Ended    Year To Date Ended
                                 ------------------ ------------------
                                 June 29,  July 1,  June 29,  July 1,
                                   2008      2007     2008     2007
                                 --------- -------- -------- ---------
                                    (Unaudited)        (Unaudited)

REVENUE:
        Company store sales      $ 191,354 $179,091 $435,573 $ 410,950
        Franchise fees and
         royalties                   1,140      774    2,097     1,774
                                 --------- -------- -------- ---------
          Total revenue            192,494  179,865  437,670   412,724
                                 --------- -------- -------- ---------

OPERATING COSTS AND EXPENSES:
Company store operating costs:
        Cost of sales               31,102   28,924   69,199    64,921
        Labor expenses              54,436   51,736  116,672   110,226
        Depreciation and
         amortization               18,241   17,293   36,705    34,150
        Rent expense                16,357   15,779   32,853    31,704
        Other operating expenses    27,811   28,665   58,449    58,297
                                 --------- -------- -------- ---------
          Total Company store
           operating costs         147,947  142,397  313,878   299,298
Advertising expense                  7,902    7,109   18,021    15,549
General and administrative          13,967   12,518   27,255    25,767
Asset impairment costs                 137    1,278      137     1,278
                                 --------- -------- -------- ---------
          Total operating costs
           and expenses            169,953  163,302  359,291   341,892
                                 --------- -------- -------- ---------
Operating income                    22,541   16,563   78,379    70,832
Interest expense, net                4,063    2,865    7,896     5,656
                                 --------- -------- -------- ---------
Income before income taxes          18,478   13,698   70,483    65,176
Income taxes                         7,170    5,150   26,264    24,608
                                 --------- -------- -------- ---------

Net income                       $  11,308 $  8,548 $ 44,219 $  40,568
                                 ========= ======== ======== =========

Earnings per share:
        Basic                    $    0.49 $   0.27 $   1.81 $    1.26
        Diluted                  $    0.48 $   0.26 $   1.78 $    1.22

Weighted average shares
 outstanding:
        Basic                       23,116   32,020   24,439    32,093
        Diluted                     23,608   33,003   24,860    33,356
                       CEC ENTERTAINMENT, INC.
                CONDENSED CONSOLIDATED BALANCE SHEETS
                            (in thousands)

                                               June 29,   December 30,
                                                 2008         2007
                                             ------------ ------------
                   ASSETS                           (Unaudited)

Current assets:
        Cash and cash equivalents            $     17,171 $     18,373
        Other current assets                       46,903       48,646
                                             ------------ ------------
               Total current assets                64,074       67,019
Property and equipment, net                       662,555      668,390
Other assets                                        4,196        2,484
                                             ------------ ------------

               Total assets                  $    730,825 $    737,893
                                             ============ ============

    LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
        Current portion of long-term debt    $        783 $        756
        Other current liabilities                  89,854       78,149
                                             ------------ ------------
               Total current liabilities           90,637       78,905
Long-term debt, less current portion              406,384      329,119
Other liabilities                                 113,166      111,876
                                             ------------ ------------
               Total liabilities                  610,187      519,900

Shareholders' equity                              120,638      217,993
                                             ------------ ------------

               Total liabilities and
                shareholders' equity         $    730,825 $    737,893
                                             ============ ============
                       CEC ENTERTAINMENT, INC.
    RECONCILIATION OF GAAP RESULTS TO NON-GAAP FINANCIAL MEASURES
                AND OTHER SUPPLEMENTAL FINANCIAL DATA
                  (in thousands, except percentages)

The following table sets forth a reconciliation of net income to
 Adjusted EBITDA and certain other supplemental financial data for the
 periods shown:

                                  Quarter Ended    Year to Date Ended
                               ------------------- -------------------
                               June 29,   July 1,  June 29,   July 1,
                                 2008      2007      2008      2007
                               --------- --------- --------- ---------
                                   (Unaudited)         (Unaudited)

Revenues                       $192,494  $179,865  $437,670  $412,724
                               --------- --------- --------- ---------

Net income                     $ 11,308  $  8,548  $ 44,219  $ 40,568
Add:
        Income taxes              7,170     5,150    26,264    24,608
        Interest expense, net     4,063     2,865     7,896     5,656
        Depreciation and
         amortization            18,390    17,589    36,843    34,675
        Asset write-offs            324     2,594       941     3,721
        Stock-based
         compensation             1,527     1,210     2,602     2,084
                               --------- --------- --------- ---------
            Adjusted EBITDA    $ 42,782  $ 37,956  $118,765  $111,312
                               ========= ========= ========= =========

            Adjusted EBITDA
             Margin                22.2%     21.1%     27.1%     27.0%

The following table sets forth a reconciliation of cash provided by operating activities to Free Cash Flow for the periods shown:

                                   Quarter Ended    Year to Date Ended
                                 ------------------ ------------------
                                 June 29,  July 1,  June 29,  July 1,
                                   2008     2007      2008      2007
                                 -------- --------- --------- --------
                                    (Unaudited)        (Unaudited)

Cash provided by operating
 activities                      $ 22,203 $  4,828  $ 103,682 $ 89,577
Less:
        Capital expenditures       21,255   29,607     39,342   58,186
                                 -------- --------- --------- --------
                Free Cash Flow   $    948 $(24,779) $  64,340 $ 31,391
                                 ======== ========= ========= ========

Adjusted EBITDA, a non-GAAP financial measure, is defined by the Company as net income excluding income taxes, net interest expense, depreciation, amortization, asset write-offs and stock-based compensation. Adjusted EBITDA Margin represents Adjusted EBITDA divided by revenues expressed as a percentage.

Free Cash Flow, also a non-GAAP financial measure, is defined by the Company as cash provided by operating activities less capital expenditures.

The Company believes that the non-GAAP financial measures above provide useful information to the Company, investors and other interested parties regarding the Company's operating performance, its capacity to incur and service debt, fund capital expenditures and other corporate uses. The non-GAAP financial measures presented in the schedules above should not be viewed as alternatives or substitutes for the Company's reported GAAP results. Adjusted EBITDA and Free Cash Flow as defined herein may differ from similarly titled measures presented by other companies.

                       CEC ENTERTAINMENT, INC.
                          STORE INFORMATION

                                    Quarter Ended   Year to Date Ended
                                  ----------------- ------------------
                                  June 29,  July 1,  June 29,  July 1,
                                    2008     2007      2008     2007
                                  --------- ------- ---------- -------

Number of Company-owned stores:
        Beginning of period            490     485        490     484
        New                              1       4          1       7
        Closed                          (1)     (2)        (1)     (4)
                                  --------- ------- ---------- -------
        End of period                  490     487        490     487
                                  ========= ======= ========== =======

Number of franchise stores:
        Beginning of period             44      45         44      45
        New                              3       -          3       -
        Closed                           -      (1)         -      (1)
                                  --------- ------- ---------- -------
        End of period                   47      44         47      44
                                  ========= ======= ========== =======

CONTACT: CEC Entertainment, Inc.
Christopher D. Morris, 972-258-4525
Executive Vice President
Chief Financial Officer

SOURCE: CEC Entertainment, Inc.