I find this hard to believe, but the word inflation did not even come up on the CPKI 1Q11 earnings call. This alone is an indication that the company may be underestimating the impact of inflation on the P&L, at least publicly.
More importantly, the most recent guidance from the company, of 2.5% inflation for the year, was not even in the ballpark of reality, putting CPKI at risk of having to guide down. CPKI is scheduled to report earnings on May 5th, after the market close.
It also should be noted that the Board authorized management to consider a wide range of financial and strategic alternatives to enhance shareholder value. I believe that the chance of anything happening in terms of an acquisition of the firm is very slim.
MANAGEMENT COGS GUIDANCE: With respect to the full year, I have some concluding comments that might be helpful. Starting with commodities, we expect to see an increase of approximately 2.5%, which will impact our cost of goods by 50 basis points compared to last year. We also expect labor expense to decline by 80 basis points, due to our menu optimization initiative which was rolled out nationwide across all stores on February 1.
QUESTION ON MENU PRICING: When we think about your 2011 outlook and the new menu, can you give us a sense if you plan to take any pricing?
ANSWER: But we think that with the type of changes that we're making, it's going to address the value proposition significantly, and we will be looking to defend margins. And so we do intend to take price at that time. In Q3 and Q4, you'll see us build on this success by reenergizing the brand, and although we can't discuss everything for competitive reasons, we do plan to launch a new menu design that Rick mentioned and several other compelling new products. Our research confirms that these improvements will resonate with our guests, drive traffic, and importantly, drive value and lay the foundation for future price increases to help protect margins.
COMMENTS ON SALES TRENDS: Seasonally 1Q is our lowest quarter in terms of weekly sales average and therefore represents our weakest leverage point within the year. Additionally, the month of January resulted in a significant number of store closure days, which equated to over $1 million in lost revenue, and this in turn significantly deleveraged our labor line for the month.
ON CHEESE PRICE GUIDANCE: Did you say that cheese is locked in for the year at $1.63? I'm sorry, did you say?
Answer: No, no. That's our average estimate as we think about the basket of 2.5%. We haven't taken out any forward contracts.