June 22, 2010 / 2:00 AM / 9 years ago

California Pizza cuts profit forecast; stock tumbles

LOS ANGELES (Reuters) - California Pizza Kitchen Inc CPKI.O, which has put itself up for sale, cut its second-quarter profit forecast after the absence of a popular promotion contributed to weaker-than-expected sales, and its shares fell 11 percent.

Oppenheimer analyst Matthew DiFrisco said he viewed the company’s warning for the period ending July 4 “as a harbinger of broader industry trends.”

Consumer spending appeared to be on the mend earlier this year and spending at popular restaurants was improving. Since then, stubbornly high U.S. unemployment and worries that Europe’s debt crisis could usher in a double-dip recession have prompted some U.S. consumers to retreat.

California Pizza Kitchen, which offers roasted artichoke and spinach pizza and other offbeat menu items, on Monday said it now expects second-quarter earnings of 10 cents to 15 cents a share, down from its prior forecast of 24 cents to 26 cents. Analysts polled by Thomson Reuters I/B/E/S were expecting, on average, 26 cents.

The company’s new forecast also calls for sales at established full-service restaurants to fall 6 percent to 7 percent in the quarter. It previously forecast a decline of 0.5 percent to 2.5 percent.

Same-restaurant sales in April and May fell 2.7 percent and 7.9 percent, respectively.

California Pizza co-Chief Executives Rick Rosenfield and Larry Flax, in a statement, attributed the weaker-than-forecast May and June-to-date same-store restaurant sales to the absence of the company’s popular Thank You Card promotion, which boosted sales in the year-earlier quarter.

The promotion gave consumers prizes ranging from discounts off a meal, to $50,000.

The executives said they would bring back the Thank You program, with additional prizes for the upcoming quarter.

“We do expect the reintroduction of the Thank You Card program in Q3 to have a positive impact on sales,” RBC Capital Markets Larry Miller wrote in a client note.

Miller also expects a new menu and the August launch of two or three new licensed products to help third-quarter sales.

Also on Monday Morgan Keegan analyst Destin Tompkins cut his second-quarter profit target for California Pizza Kitchen by half, to 13 cents a share.

Tompkins also lowered his full-year target to 55 cents a share from 75 cents a share, “reflecting more cautious expectations in the still volatile consumer spending environment.”

Analysts, on average, were looking for a 2010 profit of 77 cents per share.

The company, which is scheduled to report second-quarter results on August 5, in April said it had hired investment bank Moelis & Co as its exclusive financial adviser to consider changes in capital structure, a possible sale or other business combination.

California Pizza said on Monday the process was continuing and that it would not comment on the matter unless the board of directors approved a specific course of action.

The company’s shares fell $2.06, or 10.9 percent, to $16.83 on the Nasdaq, giving the company market capitalization of $413 million. The Dow Jones U.S. Restaurant and Bars index .DJUSRU finished down 1.6 percent.

Reporting by Lisa Baertlein in Los Angeles and Ben Klayman in Detroit, editing by Dave Zimmerman, John Wallace and Carol Bishopric

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