It's getting to the point where what's going on at California Pizza Kitchen Inc. can't really be called a turnaround.
Just 3 & #733; years ago the Los Angeles-based casual dining chain was bleeding red ink and its stock was trading near the all-time low, in the $17 range.
But since the chain's been back under the founders, Rick Rosenfield and Larry Flax, CPK has posted seven consecutive quarters of revenue growth while its sector rivals have struggled. The duo boosted the chain's menu with a variety of offerings under $10, made a commitment to curbside service and benefited from a savvy partnership with Kraft Foods Inc. As a result, the $480 million company's stock traded last week at around $35, just off its 52-week high.
"Our self-serving view is that we're reaping what we've sowed," said Rosenfeld. "We have really good food quality, we are really consistent, and we're very appealing to families at a time when it's good to appeal to families. The demographics are playing for us."
Piper Jaffray & Co. analyst Nicole Miller Regan no longer sees CPK as a turnaround since that's pretty much been accomplished.
"It's a growth story, predicated on successful results from 2003 to 2007," Miller said. "They're on their way to being a purely growth concept."
Ron Paul, president of food industry consulting group Technomic Inc., said that he believes CPK's 7 percent jump in same store sales growth during the fourth quarter of 2006 is particularly significant, since competitors like Cheesecake Factory Inc. and P.F. Chang's China Bistro Inc. were posting flat or negative comps.
"I think they're on a roll," Paul said, noting that the chain's unique trademark d & #233;cor helps. "If you think about the other casual dining restaurants, there's been a bit of a blur. They stand out with their d & #233;cor packages; they don't look like anyone else."
Rosenfield and Flax have always been an integral part of the CPK brand, heading up marketing and product development long after selling their controlling stake in the company to PepsiCo Inc. in 1992. Control passed to venture capital firm Bruckmann Rosser Sherrill & Co. LLC in 1997.
Both of the new owners installed their own chief executives with big business experience, with little success.
The PepsiCo period was marked by growth that outpaced brand recognition and ended with handshakes when the pizza chain was passed on to Bruckmann Rosser. The venture firm's chief executive took CPK public in 2000.
"Ultimately the new CEO wanted less and less involvement by Larry and me," said Rosenfeld. "Everybody wanted us to do the food and the PR but not to run the business."
During that time, the company sought to expand quickly. The relationship between the chief executive and the company founders became strained.
"We had a pretty good blowout at the end of 2002. And that's when Larry and I left," Rosenfield said. The partners moved their offices to Manhattan Beach and began developing LA Food Show, a bar and grill concept now owned by CPK.
By March of 2003, the solid early returns on the new restaurants had evaporated and many of the sites were visibly struggling.
"You open with these honeymoons, particularly with our openings, because they often coincide with new shopping centers," Flax said.
At the request of the board, the founders returned to run the company in 2003.
As Flax and Rosenfield started sorting through the financial reports, they realized that while the older restaurants all had positive comps, the new locations did not.
"When we came back, we broke that out for the Street, and we were applauded for that," Rosenfield said. "That's what stopped the stock slide when people could stop and say, 'look at that transparency.'"
They had to keep the underperforming restaurants because they were locked into leases, but eventually the restaurants came around.
Soon after the two returned, a quietly executed 1998 partnership with Kraft Foods, in which CPK had licensed its name for a line of frozen pizzas, began to take off.
"No one paid any attention to Kraft when we signed that deal," Flax said. "And it's just been in the last couple of years that the Street has said, 'Hey this Kraft thing is pretty interesting.'"
The frozen pizza sales grossed $100 million for Kraft last year. CPK only makes about $4 million in licensing fees, but a provision of the contract requires Kraft to spend 5 percent of its revenues marketing the pizzas. CPK's ad budget runs around $2.5 million, so the roughly $5 million flood of advertising Kraft provided is quite a boost.
"That Kraft advertising, it's the bootstrapping of the brand imaging that's out there," Rosenfield said.
Now the partners are looking for other supermarket aisles to invade, with pasta products the most likely option.
Looking to the future
The chain is rolling out a new restaurant design, already completed in six area locations, including Hollywood and Marina del Rey. The refurbished eateries have flat-screen TVs, granite counter tops and are what Flax calls, "more night-time oriented." There are also more dinner items, including chicken marsala, Milanese and piccata dishes.
Since the founders have been so successful and their likeness is so tied to the brand, some analysts wonder about the future of the company when the sexagenarians slow down.
"They're not going to be there for another 20 years," said Bryan Elliott, analyst with Raymond James Financial Inc. "The success of the business is directly attributable to their decisions."
Neither Rosenfield nor Flax show signs of disengaging, and they signed long-term management contracts last year.
"Given the problems the brand has had when they have not been in the CEO roles, there will be some natural concern when they turn the business over," Elliott said. "And there's nothing anyone will be able to do about that."
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