UPDATE 2-California Pizza shares rise on better Q1 outlook

Wed Apr 8, 2009 8:00pm EDT

* Raises Q1 outlook because of cost cutting

* Lower cheese prices help

* Shares rise 6 pct (Adds Ruby Tuesday, analyst, changes dateline, previous BANGALORE)

By Sue Zeidler

LOS ANGELES, April 8 (Reuters) - Cheaper cheese and other diminished costs boosted the bottom line for California Pizza Kitchen Inc CPKI.O, which raised its first-quarter outlook on Wednesday in a move that followed other dining chains'.

Analysts said California Pizza and Ruby Tuesday (RT.N), which on Tuesday posted an operating quarterly profit that beat expectations, were surpassing initial expectations by Wall Street analysts as the companies cut costs more aggressively than expected to battle declines in consumer spending.

Shares in California Pizza -- whose yellow-and-black palm-tree insignia marks 250 restaurants around the world -- rose 6 percent after it said in preliminary first-quarter results it foresaw a profit of 9 cents to 10 cents a share for the quarter ended March 29, versus 3 cents to 5 cents a share previously.

Analysts covering the Los Angeles-based purveyor of unconventional menu items such as Thai Chicken and Barbecue Chicken pizzas had been looking for first-quarter earnings of 5 cents per share, according to Reuters Estimates.

Chili's Grill & Bar parent Brinker International Inc (EAT.N) this week also forecast a better-than-expected profit for its most recent quarter.

"Our expectations were relatively modest, but companies responded to the difficult environment by being more aggressive and effective in cutting costs in areas that did not hurt the dining experience," said Destin Tompkins, analyst with Morgan Keegan.

California Pizza has more efficiently managed its labor expenses, costs of operation and waste, while falling prices for meat, dairy and utilities also boosted margins, he said.

Analysts said savings on dairy expenses in particular were a big factor for California Pizza.

"The upside was largely due to the company's new focus on cost savings that aided nearly every line item as well as a 30 percent reduction in cheese costs year over year," said RBC Capital Markets analyst Larry Miller, who raised his 2009 earnings-per-share estimate to 69 cents from 66 cents due to the better-than-expected first-quarter earnings.

California Pizza Kitchen, which added just one full-service restaurant in the first quarter, in Massachusetts, said revenue for the period slipped 2.2 percent to $161.1 million.

Comparable restaurant sales fell about 5.9 percent in the period.

Mid-tier restaurant operators like Ruby Tuesday saw traffic fall before the recession started in December 2007 and have been among the hardest-hit as budget-conscious diners eat at home more or at lower-priced chains to save money.

Analysts believe the entire restaurant industry has seen sales trends improve modestly each month.

"We believe lower gasoline prices, greater stability in the stock market, and beneficial weather supported a sequential improvement," Robert W. Baird's David Tarantino wrote in a research note on Wednesday.

California Pizza Kitchen shares rose to $15.72 in after-hours trading after closing at $14.80 on Nasdaq.

The company will report its final fiscal first-quarter earnings on May 7. (Reporting by Sue Zeidler; Editing by Edwin Chan, Gary Hill)

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