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Chuck E. Cheese's Reports Q3 Profits Down 33%; Fewer TV Ads Blamed

Posted On: 11/5/2012

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TAGS: CEC Entertainment Inc., CEC 2012 third quarter, Chuck E. Cheese's, amusement business, Michael Magusiak, game arcade, pizzeria, pizza-arcade, family entertainment center, Chuck E. Cheese's TV advertising, redemption

IRVING, TX -- In its 2012 third-quarter report, CEC Entertainment Inc., owner of the Chuck E. Cheese's chain of restaurant-arcades, said profits dropped by one-third, from $11.7 million to $7.8 million, from July 1 through Sept. 30. Comparable stores sales fell 2.3% for the quarter.

Total revenues for the third quarter decreased 1.7%, or $3.4 million, to $196.6 million from $200 million for the third quarter of 2011. Company officials said the decline was partially offset by additional revenues from six new stores opened or acquired since the end of the third quarter a year ago.

CEC president and chief executive Michael Magusiak said the company saw decreased sales because it made excessively steep cuts in TV advertising aimed at children.

Beginning last February, CEC announced a new marketing strategy that would target mothers with radio spots. | SEE STORY

In May, CEC followed up by announcing an aggressive effort to leverage social media, again targeting mothers. | SEE STORY

Local news media said a Dallas-based advertising firm, the Richards Group, is working with CEC to revise its marketing campaign. Magusiak said CEC would "reverse" its earlier decision to de-emphasize TV and would spend 25% more on media in 2013 to create a stronger branding and value message focused on lower prices and coupons.

He added that CEC would spend $41 million to upgrade 123 existing stores. Of these, 25 will be expanded, five will be extensively remodeled and 93 will get more new games.

Magusiak declined to make any forecasts about company performance for the fourth quarter of 2012. He cited uncertainty regarding fourth-quarter sales, "including the ultimate impact of Superstorm Sandy in our lowest seasonal quarter."

Magusiak said that October sales were strong. He also said the company expects its revamped marketing campaign, new pricing and investment will combine to create a stronger performance in 2013.

Marking its 35th anniversary this year, CEC and its franchisees operate 562 Chuck E. Cheese's stores located in 48 states, and in eight countries or territories.