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Prices Hurting Chuck E. Cheese

June 1, 2001

FORT WORTH, Texas (AP) _ Blaming higher cheese prices, officials at Chuck E. Cheese’s are warning that the company’s earnings will fall short of expectations this year.

Investors reacted by pushing the company’s stock down about 20 percent on Thursday, although shares stabilized in Friday trading.

Officials of Irving, Texas-based CEC Entertainment said wholesale prices for mozzarella cheese have risen 10 percent to $2.07 a pound in the past three months, causing second-quarter costs for the commodity to jump by $750,000. Chuck E. Cheese’s uses 9 million pounds of cheese a year.

``There’s always a lot of fluctuation in the cheese market,″ said CEC chief executive Richard Frank. ``Last year, the price was very favorable, and we benefited from that. Right now, it’s not so favorable.″

CEC said this year’s earnings will be $2.47 to $2.52 per share, below Wall Street analysts’ expectation of $2.56 per share. CEC earned $1.98 per share last year.

The company also said same-store sales fell 3.8 percent in April and rose 0.6 percent in May, compared to year-ago figures.

Shares of CEC finished 30 cents lower at $43 on the New York Stock Exchange Friday. A year ago, the stock traded at $22.38.

Lynn Detrick, an analyst with Sanders Morris Harris in Houston, said the chain will rebound, ``although I can’t predict a time frame. In my mind, the positioning at CEC is as strong as it’s ever been.″

Detrick said CEC has one of the highest profit margins among concept restaurant chains and a brand name that remains strong among kids.

The chain is known for its mouse mascot _ originally a wisecracking rat named Chuck E. _ singing and dancing robotic characters, video games and play areas. CEC owns and franchises about 380 of the pizza restaurants in North America.

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