Chuck E. Cheese's Plans To Shift Marketing Focus To Parents

Monday, February 27, 2012

The big topic on CEC Entertainment's earnings call Thursday was Chuck E. Cheese's planned marketing shift from kids to parents.

The company's 2012 strategies are segmented into three major components � initiatives to increase comparative store sales; increase the growth rate of the concept both domestically and internationally; and return capital to shareholders.

Michael Magusiak, president and CEO, said modifications to the company's marketing plan will help it achieve many of those goals. This will be aided by CEC's recently announced new agency, The Richards Group, and Scott McDaniel, who was named chief marketing officer in September.

The company purposefully reduced advertising expenses by about 25 percent in January to test whether it would affect sales. However, comps were similar in January as they were in the fourth quarter of 2011, creating optimism that the company's new marketing plan � geared more toward the adult audience � could transition well throughout 2012 and into 2013.

CEC has already started a radio advertising campaign targeting moms.

"We've already initiated some modifications to our ad strategy, including the reduction of our January 2012 advertising primarily attributable to reduce TV commercials targeting children. The long term significance is that if sales aren't being negatively impacted (by the reduction), then we will reallocate those ad dollars against an adult target audience," Magusiak said.

CEC isalso optimistic about early results from its new Magic Ticket and from the addition of a second Game Blaster at some restaurants.

The Magic Ticket was added in the beginning of the year and is intended to build birthday party sales over time. It's too early to tell results from its impact so far, however, as birthday parties are typically booked two to six weeks in advance.

Chuck E. Cheese's also expanded the test of its second Ticket Blaster, which will be supported with TV ads. The objective is to increase guest frequency and game room revenue, and to enhance the family experience.

CEC also is optimistic about the growth of its concept, and plans to accelerate domestic growth in 2012 and 2013 with an estimated 12 to 15 new or relocated stores per year. This is compared to a total of 19 new or relocated stores in four years, from 2008-2011.

The brand is growing internationally as well, and executives said there is a demand for partners specifically in Latin America, the Middle East and Asia.

Q4 and Fiscal 2011 by the numbers CEC Entertainment Inc.'s financial results for its fourth quarter included a decrease in total revenues by 2.3 percent, to $178.6 million, down from $182.8 million for Q4 2010. Comparable store sales decreased 3.6 percent.

Net income dropped to $2.7 million as compared to $2.8 million for Q4 of 2010.

For the full fiscal year for 2011, total revenues increased 0.5 percent to $821.2 million as compared to $817.2 million for fiscal 2010. Comparable store sales decreased 2.0 percent.

Net income for fiscal year 2011 increased to $55.0 million as compared to $54.0 million in fiscal 2010.

Magusiak said CEC increased its operating cash flow by more than $20 million, while investing close to $95 million in opening four new stores and completing store expansions, major remodels and game enhancements.

"While the decline in comparable store sales in the second half of 2011 was disappointing, we are optimistic that in executing on our 2012 strategic plan � including an enhanced marketing plan, the addition of 12 to 15 new and relocated stores, the continued capital investment in our U.S. store base and increased international expansion � we will strengthen our financial performance," Magusiak added.

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CEC Entertainment, Inc
1707 Market Pl Blvd #200,
Irving, TX

Phone: 972-258-4525

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