California Pizza Kitchen worries Wall St. as sales and earnings fall short

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Investors who jumped into shares of California Pizza Kitchen Inc. in early April, after the company said it might sell itself, now are wondering if they set too high a bar for a potential buyer.

The L.A.-based restaurant chain’s shares plunged 11% on Monday after the company warned of disappointing second-quarter sales and earnings.

In a statement, CPK said it expected same-store sales in the quarter ending July 4 to be down 6% to 7% from a year earlier, instead of the 0.5% to 2.5% decline it had forecast on May 6.

Earnings are expected to be 10 cents to 15 cents a share instead of 24 cents to 26 cents.
CPK blamed the steep year-over-year sales decline largely on the fact that it didn’t reintroduce its Thank You Card program, a sort of frequent-diner plan that helped boost business in spring 2009. The company, which has 257 locations worldwide, now says it will reinstate the program in the third quarter.

But Jeff Farmer, who follows CPK for brokerage Jefferies & Co., questioned how management could have been so far off last month in estimating the sales decline from the termination of the Thank You Card program. The company’s revised forecast suggests “there might be an operational issue” at the chain, Farmer said in a report.

CPK said its May same-store sales alone were down 7.9% from a year earlier, a drop that ‘points to issues that can’t be explained away by lapping a [promotion] or heavy California concentration’ of the restaurants, Farmer said.

Co-CEOs Rick Rosenfield and Larry Flax, two lawyers who founded the chain 25 years ago, tried to put the best face on the new second-quarter forecast. They said the company’s “sales initiatives including our call center, expanded wine selections, catering program and Small Cravings menu are achieving excellent results,” although they didn’t elaborate. “Our overall guest satisfaction scores are at record highs,” they said.

But those assurances -- and the possibility that the company may yet be sold -- didn’t stop some investors from bailing out. The stock dived $2.06 to $16.83. The shares now are 21% below their 52-week high of $21.30 reach April 22.

The stock had surged $2.56, or 14%, to $20.74, on April 9 on takeover speculation. The company announced the following week that it was considering a “wide range of financial and strategic alternatives to enhance shareholder value,” including a possible sale of the business.

On Monday CPK said it had nothing new to report on that front. “This process is continuing and the company does not expect to make further comment unless its board of directors has approved a specific course of action,” the firm said in its statement.

Farmer, who rates the stock a ‘hold,’ wondered if the possibility of a sale was affecting workers’ performance at the store level. “We would imagine there would be some distracted employees,” he wrote.

-- Tom Petruno