California Pizza Kitchen Hopes IPO Yields $70 Million

The Los Angeles-based California Pizza Kitchen chain plans to test the choppy seas of the initial public offering market this summer by selling shares of its stock to raise an estimated $70 million.

Known for its specialty pizzas with toppings ranging from tandoori chicken to grilled garlic shrimp, California Pizza Kitchen said in Thursday’s filing with the Securities and Exchange Commission that the money would be used to pay $40 million in bank debt and buy back preferred stock. The price and number of shares to be sold were not disclosed.

The company, which owns and franchises 100 restaurants, including 41 in California, vowed to carefully choreograph further expansion in coming years, a move that an analyst said could reassure investors who were burned in the 1990s by the stocks of restaurant chains that pursued go-go growth plans while neglecting menus and service.

Analysts said the company could win investor favor by serving up a pleasing combination of ingredients in the form of a proven concept and strong cash flows at a time of growing disenchantment with technology issues that has driven people to put their money into other industries.

In Thursday’s S-1 filing, the company reported 1999 net income of $5.4 million, down from $10.6 million the year before, when the company said it benefited from income tax allowances. It said sales at company-owned restaurants open at least a year grew 4.1% in 1999, down from 6.1% the year before.

The company had cold feet about the IPO when it was initially planned in December because investors were still enamored of technology stocks then, said R. Scott Tilghman, analyst at Ferris Bakers Watts in Baltimore.

Today’s stock market may be more enthusiastic about profitable companies in traditional sectors, including specialty food chains. Krispy Kreme, the North Carolina doughnut chain whose shares rose 76% in first-day trading in early April, may have forged the way. “This is the Krispy Kreme fever--it’s almost that simple,” said Ron Paul, a Chicago restaurant consultant.

Beyond the filing, company executives are prohibited from commenting on the offering, said California Pizza Kitchen spokeswoman Sarah Goldsmith.

Many experts say small investors should avoid IPOs because institutional buyers generally have an edge in scooping them up at the most favorable prices. What’s more, some casual-dining restaurants grew too quickly for their own good and misfired for their investors in the last five years. Shares of Planet Hollywood International were down to less than 7 cents a share from highs of nearly $28 after the entertainment-themed restaurant chain stumbled and was forced to file for bankruptcy. Darden Restaurants, which operates Olive Garden and Red Lobster chains, has under-performed the blue-chip Standard & Poor’s 500 index since 1995.

Chains that have succeeded with investors recently, such as P.F. Chang’s China Bistro and Calabasas Hills-based Cheesecake Factory, are those that have pledged to follow the mantra of cautious expansion.

California Pizza Kitchen’s leadership has not always done so. The company started with its Beverly Hills restaurant in 1985, founded by two former criminal lawyers, Larry Flax and Richard Rosenfield. After PepsiCo bought a controlling stake in the company in 1992, it stepped up growth sharply, opening 60 restaurants in five years--43 in 1993 and 1994 alone--with less than sterling results. At least 16 of the restaurants had to be closed, the company said.

“Our rapid expansion strained our infrastructure,” the filing said, and “led to disappointing operating results and financial performance, including a decline in comparable restaurant sales in 1996.”

PepsiCo sold its stake in the chain in 1997 to New York investment firm Bruckmann, Rosser, Sherrill & Co. The new investors brought in a new CEO, Frederick Hipp, in January 1998, under whom the company scaled back its investments in new stores and focused on customers instead, by increasing pizza sizes by 17% among other steps, the filing said. The company opened only five stores in 1999, down from 10 in 1998. Last fall, it hired a chief development officer with a real estate background.

“The customer experience is paramount to restaurants’ performing well for the long term and maintaining their brand strength and identity,” Tilghman said.

Janet Lowder, president of Restaurant Management Consultants in Rancho Palos Verdes, said the company’s prospects seem strong, especially among the health conscious. “This type of pizza is looked at as lighter than your typical pizza because of their fresh ingredients and vegetarian and barbecue [toppings].”

The company has also tried to use grocery store shelves as a marketing platform, licensing its name to Kraft Foods, which makes frozen pizzas with the California Pizza Kitchen label for sale in supermarkets.

CPK owns 74 restaurants and franchises 26 others, including four in Southeast Asia.