Player Avatar Tastylunch (29.52) Submitted: 5/19/2008 4:42:50 PM : Underperform Start Price: $15.49 CPKI.DL Score: +8.13

'm not a fan of restaurants in this consumer environment (high gas, high food, foreclosed homes). First Madcowmonkey convinced me then, then TMFDeej drove it home and the I finally got off my butt and thumbed some down.I've missed some easy points by procrastinating.California Pizza Kitchen is an interesting concept. It attempts to take a popular multi user low end concept (pizza) and turn it into a single user high end concept. They do this pretty well by combining it with a pleasing trendy atmosphere.Still Pizza itself has some image issue in this age of Type 2 diabetes. While CPK pizzas and portions may be healthier for you than say Domino's , most of their pizzas still aren't that healthy for you. At the very least the food "pizza" is routinely hammered to the public by the medical community as being a very unhealthy food that substantially raises the risk of heart attacks and other fun ailments.CPKI itself has a pretty unique brand, that is pretty well managed, but at this valuation the stock is valued as if it were going to expand rapidly successfully. I don't think that's very likely in this consumer/lending environment.A big problem for CPKI going forward is that they are heavily concentrated in California (42% of their stores as of Q1) which is one of the states worst hit by the subprime crisis and presumably a state with low consumer confidence. To make matters worse their Calfiorni1 stores typically outperform all their other stores by about 9.1% in average sales per store. This makes CPKI especially reliant on their California stores. I think that exposure and the probable dry summer (and possible California wildfires that seem to accompany that) could prompt a significant Q2 and Q3 earnings miss.There seems to be some margin pressure on CPKI as well. Cost of Sales was up considerably over last year (11%). Considering high Feed prices usually take some time before translating into dairy prices, their cost of inventory may experience more continued (and possibly accelerating) pressure this summer .The consumer however is the major problem and I think this is already showing up in their dismal comps. Same store sales only 0.4% over last year, which as you know is significantly less than inflation and far less than their cost of sales increase. This says to me CPKI has to open lots of new stores in order to keep growing profits and offset their rising costs. However the Consumer Confidence index is falling rapidly. As of last month it hit a 28 year low. I think this means you'll likely see a significant % of CPKI customers trade down.CPKI imo could be unusually prone to trading down. Their main food is one consumers have overwhelmingly shown a willingness to pay far less for (CPKI is what 400 mill market cap and how many pizza delivery places are more?), the food is perceived as unhealthy and thus optional by many, many CPK's are located in shopping malls (and malls themselves are doing dismally), and CPKI's main staple is something consumer's can have delivered by competitors (thus saving the customers the cost of gas or so they think), additionally the cPKI taste cna now be had in grocery stores thanks to their frozen pizzas (which could cannibalize sales).I think CPKI will underperform the S&P by at least 10% or probably more in the next year even from these levels..

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