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Issue Date: Vol. 52, No. 3, March 2012, Posted On: 2/27/2012

Chuck E. Cheese's Marks 35th Year With Expansion Plan

Marcus Webb
CEC Entertainment, Chuck E. Cheese's, Michael Magusiak, arcade business, CEC Entertainment third quarter, amusement business, children's fun center, video game, redemption game, California redemption law, Amusement and Music Operators Association, prize games, California prize legislation

IRVING, TX – The Chuck E. Cheese's chain of pizzerias and arcades marked its 35th anniversary on Feb. 26. But instead of looking back to its 1977 launch by founder Nolan Bushnell, parent company CEC Entertainment Inc. is looking forward and announced that it will accelerate its expansion plan during 2012. After opening or relocating just 19 stores between 2008 and 2011, the company said it intends to open some 30 stores in 2012 and 2013.

The announcement came amid mixed financial news for the chain. CEC executives reported on Feb. 23 that earnings in comparable stores declined 3.6% in its fiscal third quarter, which ended Jan. 1, 2012, compared with the same period last year. Comparable store sales decreased 2% for the full fiscal year 2011 as compared to fiscal 2010. | SEE PRESS RELEASE

Yet some metrics showed increases, due chiefly to aggressive investment and expansion by the company in 2011.

Total revenues for the third quarter dropped $4.2 to $178.6 million, a year-over-year decline of 2.3%. But total revenues for fiscal year 2011 increased 0.5%, or $4 million, to $821.2 million, compared with $817.2 million for fiscal 2010.

Net income for fiscal year 2011 increased to $55 million, compared with $54 million in fiscal 2010. Operating cash flow increased by $20.3 million to $177.2 million.

Last year, CEC invested $94.7 million in opening four new stores and completing store expansions, major remodels and game enhancements in 181 of its existing 507 company-owned stores in the U.S. and Canada.

CEC chief executive Michael Magusiak said the Irving, TX-based company will invest up to $96 million in the coming year, and will add or relocate some 12 to 15 new stores. This includes approximately three relocations and one franchise acquisition. Magusiak predicted comparable store sales would rebound with an increase of 1% to 2% compared with 2011 levels.

In a conference call, Magusiak told investors and analysts that CEC will shift its marketing strategy from TV ads targeting kids to radio spots aimed at moms. The company has already launched this new strategy in part, he said.

CEC has suffered a spate of negative news stories in the past couple of years due to misbehavior by adults in a number of locations. But the company received positive headlines on Valentine's Day when music superstar Justin Bieber and girlfriend Selena Gomez visited the Chuck E. Cheese's in an upscale outdoor mall in the Eagle Rock district of Los Angeles.

In other news, company officials had no comment on reports that CEC is working with California lawmakers to craft new legislation that would alter the state's redemption sector by sharply reducing the permissible value of prize merchandise. VENDING TIMES contacted the Amusement and Music Operators Association for comment on the matter. AMOA officials said they are monitoring the situation.

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