...California Pizza Kitchen Company Background: White-collar criminal defense attorneys Larry Flax and Rick Rosenfield in Beverly Hills, California created California Pizza Kitchen in 1985. Famously known for its hearth-baked barbecue-chicken pizza, the “designer pizza at off-the-rack prices” concept thrived. Over the last twenty years, the company has expanded into 213 locations in 28 states and 6 foreign countries. Although approximately 41% of the U.S. stores are located in California the business model has done well throughout all regions. California Pizza Kitchen derives its revenues from three sources: sales at company-owned stores, royalties from franchised restaurants, and royalties with a partnership with Kraft Foods to sell CPK-branded frozen pizzas in grocery stores. In 1996, CPK extended its brand with franchised ASAPS located in airports that offered a limited selection of pizzas and an assortment of “grab and go” sandwiches and salads. In 2000, CPK launched company owned ASAP locations as well. In 2007, CPK ceased development for any future ASAP locations to focus more on continued expansion of both domestic and international franchised locations. With the recent 10% share price decline, CPK is questioning whether this is an ideal time to repurchase shares and potentially leverage the company’s balance sheet with its prevailing line of credit. CPK is considering repurchasing shares and using debt financing to fund the strong expansion outlined for the company. In...
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...California Pizza Kitchen (CPK) was co-founded in 1985 in Beverly Hills, California by Rick Rosenfield and Larry Flax. Rosenfield and Flax both hold the title of Co-President, Co-CEO, and Co-Chairman of the Board of Directors for California Pizza Kitchen. Susan Collyns, Chief Financial Officer, currently leads the financial team at California Pizza Kitchen which is faced with reducing the corporate income-tax liability while balancing the goal of the management team to grow the business. California Pizza Kitchen is in the food industry business. California Pizza Kitchen is a casual dining restaurant chain that specializes in innovative and non-traditional pizzas. California Pizza Kitchen also provides various soups, salads, pasta, sandwiches, and desserts at higher quality for lower prices. California Pizza Kitchen is in 213 locations in 28 states (41% located in California). California Pizza Kitchen’s core patrons tend to have an average household income of $75,000 (survey results from 2005); creating less of an impact on patron’s dining habits during times of inflated gas and food prices. California Pizza Kitchen’s inventive menu was not the only draw-in for patrons, their below average check (usually around $13.30) was much lower than their competitors such as, The Cheesecake Factory, Olive Garden, P.F. Chang’s, Chili’s, Red Lobster, and Panera Bread to name a few. The California Pizza Kitchen chain was labeled by RBC Capital Markets as the “Price-Value-Experience” leader...
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...The proposed acquisitions of California Pizza Kitchen and Carts of Colorado by Pepsico 1. Should PepsiCo buy California Pizza Kitchen? For both acquisitions it's more about what they add to PepsiCo, not what value PepsiCo adds to them Pros: - needs to acquire CPK to learn casual dining. That's where the growth is, and internal attempts to develop casual dining in Pizza Hut Cafe have failed. whether CPK is merely a passing yuppie fad, or if it is a long-term market segment doesn’t matter to PepsiCo if it merely wants to learn casual dining. - PepsiCo startups failing Cons: - possibly PepsiCo’s failure to develop a casual chain internally, along with the real differences between fast food and sit-down dining, will prevent it from succeeding. •New segment that PepsiCo doesn't know - Yuppie casual dining • $11 check, dinner on pizza dough - PepsiCo ignorant of key success factors •high level waiter service •PR not advertising key to marketing •capital cost $1 - $2m, sales $3m not $800k, $800k. •New untested concept - 25 restaurants, 8 states, $34m sales, $3/4m net income - may be a "fad" •only seven years old - may not stretch beyond Yuppiedom 2. Should they buy Carts of Colorado? Pros: - while CoC's $8m sales is very small for Pepsico, the real market size is the revenue from non-traditional PODs, and this is potentially enormous ($2 billion to PepsiCo alone) The real reason to own CoC is to preempt Coke and MacDonalds in the best locations...
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...William Upham Fin. 461 California Pizza Kitchen Brief Case Analysis “[R]estaurants don’t start out making money─ they build over time. So it’s really about having the capital and the staying power.” ─ Rick Rosenfield, Co-CEO of California Pizza Kitchen. Rosenfield, and longtime business partner Larry Flax, went from being defense attorneys to innovative pizza entrepreneurs. Their idea was to make “designer pizza at off-the-rack prices,” using unusual pizza toppings to create delicious combinations at low prices. California Pizza Kitchen began in 1985 in Beverly Hills, California and took off from there. The company went public in 2000, less than two decades after the opening of its first location, and by the end of the second quarter of 2007, the company had expanded to 213 locations in 28 states and 6 foreign countries. Even though the restaurant industry is constantly battling through macroeconomic changes, California Pizza Kitchen was able to minimize the effects of macroeconomic changes due to its strong business model and conservative financial policy, which created the staying power Rosenfield described. California Pizza Kitchen’s Chief Financial Officer, Susan Collyns, was about to announce near-record profits of over $6 million for the end of the second quarter of 2007. However, despite these strong results the share price had declined 10% during the month of June as a result of industry pressures and the Company was considering a share repurchase program that...
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...founded California Pizza Kitchen in 1985 in Beverly Hills, California. California Pizza Kitchen is a casual dining, full service restaurant concept that specializes in gourmet pizzas with unique topping combinations. At the end of the second quarter of 2007 they operated 213 locations in 28 states and in 6 foreign countries. The company derives its revenue from three sources: sales at company-owned restaurants, royalties from franchised restaurant, and royalties from a partnership with Kraft Foods to sell California Pizza Kitchen branded frozen pizzas in grocery stores. Although the restaurant industry was going through some difficulties California Pizza Kitchen was really successful, and the quarterly profit was over $6 million, quite a record for the firm. Management believed that its success was due to its dedication to guest satisfaction and menu innovation and sustainable culture of service. A creative menu with high-quality ingredients was a top priority at California Pizza Kitchen. In addition to creating its inventive menu, California Pizza Kitchen had an average check of $13.3, which was below the one of many of its upscale dining casual peers. Also California Pizza Kitchen spent 1% of its sales on advertising, far less than the 3% or 4% spent by the competitors (for instance Olive Garden or Chilli’s Red Lobster) management felt that its attention to the clients and the innovative menus resulted in free but more valuable word of mouth marketing. California Pizza Kitchen...
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...Introduction California Pizza Kitchen (CPK) is a restaurants services company that operates a casual dining chain, with a particular focus on the premium pizza segment. In 1985 the California Pizza Kitchen was created by Rick Rosenfield and Larry Flax in Beverly Hills, California.Rosenfield and Flax both hold the title of Co-President, Co-CEO, and Co-Chairman of the Board of Directors for California Pizza Kitchen. The company is headquartered in Los Angeles, with 213 retail locations in the US and abroad. The operating profit of the company was $22 million during fiscal year 2007, a decrease of 28.3% compared with 2006. The net profit was $15million, a decrease of 29.5% compared with 2006. California Pizza Kitchen derived its revenues from three sources: sales at company owned restaurants, royalties, from franchised restaurants, and royalties from a partnership with Kraft Foods to sell CPK-branded frozen pizza in grocery stores. California Pizza Kitchen is in the food industry business. California Pizza Kitchen is a casual dining restaurant chain that specializes in innovative and non-traditional pizzas. California Pizza Kitchen also provides various soups, salads, pasta, sandwiches, and desserts at higher quality for lower prices. California Pizza Kitchen is in 213 locations in 28 states (41% located in California). California Pizza Kitchen’s core patrons tend to have an average household income of $75,000 (survey results from 2005); creating less of an impact...
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...California Pizza Kitchen Enoch Li & Dong Yi Yuan Table of Contents Introduction2 Question #12-3 Question #23 Question #3 4 Question #44 Conclusion 5 Appendix A ...……………………………………………………………………………………..6 Introduction California Pizza Kitchen (CPK) is an innovative cuisine restaurant that serves pizzas, pastas, soups, sandwiches, and desserts in California since 1985. This casual dining restaurant, led by their chief financial officer Susan Collyns, brought appealing results for CPK’s second quarter in 2007. CPK has 200+ locations opened in different states and international franchises in foreign countries. Their main source of income comes from sales, royalties from franchised restaurants and Kraft foods. However, despite impressive results, CPK’s share price dropped by 10 percent. The company now needs to take amends in different decisions such as repurchasing shares or taking other factors into account to increase the range of obtaining new customers. 1. In what ways can Susan Collyns facilitate the success of CPK? We see that there are couple potential ways for Susan to facilitate CPK’s success. Firstly, we know that CPK is very successful overseas with different locations opened internally. Thus, we suggest that they should continue their expansion to make CPK’s name known globally. With this idea in mind, we also noticed that they barely invested any of its sales on advertisement compared to other casual dining competitors. Advertisement by using...
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...Introduction California Pizza Kitchen (CPK) was founded by Rick Rosenfield and Larry Flax in 1985 in Beverly Hills, California. With the concept of “designer pizza at off-the-rack price” and their inventive food, CPK soon stood out in the casual dining companies and has grown into an international giant in the next two decades. The company had 213 branches located in America and other 6 foreign countries in the middle of 2007. In the first quarter of 2007, CPK achieved 4.7% increase in store sales (Exh. 4), which is a superb performance compared with his competitors. The company remained consistency in the 2nd quarter and earned a 16% increase in revenue. Owing to the strong performance of the first two quarters, CPK decided to open 16 to 18 branches in the second half of 2007, and a capital expenditure of $85 million is required for the expected expanding plan. Susan Collyns, the Chief Financial Officer of the company, needs to make decisions to find an optimal capital structure for CPK. Before 2007, CPK was a company with zero debt. To benefit from the debt financing, CPK decided to level up the leverage by carrying out a shares repurchasing plan. The first part of the report will analyse the effect of the repurchase plan through the changes in return on equity (ROE), cost of capital and share price and emphasize how debt add value to the company. The recommendations on the capital structures will be made based on the analysis. The second part will discuss the effect on CPK’s...
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...UNIVERSITY OF OREGON INVESTMENT GROUP February 26th, 2010 Consumer Goods California Pizza Kitchen BUY Stock Data Price (52 weeks) Symbol/Exchange Beta Shares Outstanding Average daily volume (3 month average) Current market cap Current Price Dividend Dividend Yield Valuation (per share) DCF Analysis Comparables Analysis Target Price Current Price Summary Financials Revenue Operating Cash Flow Net Income 662M 2009A 44.6M 2009A 4.6M 2009A 9.41 – 17.44 CPKI / NYSE 1.25 24,183,000 400,876 365,975,000 $15.07 $0.00 0% $15.18 $17.73 $16.46 $15.07 BUSINESS OVERVIEW California Pizza Kitchen was founded in 1985 by Rick Rosenfield and Larry Flax in Beverly Hills, California. Twenty years later, California Pizza kitchen operates over 250 restaurants around the world and is still run by its initial founders. The largest portion of CPK’s restaurants are still located throughout California, however they are now located in dozens of states as well as internationally in Asia, North America and the Middle East. Almost all of California Pizza Kitchens revenues come from company owned full Covering Analyst: Ari Siegel Email: Asiegel@uoregon.edu The University of Oregon Investment Group (UOIG) is a student run organization whose purpose is strictly educational. Member students are not certified or licensed to give investment advice or analyze securities, nor do they purport to be. Members of UOIG may have clerked, interned or held various employment positions with firms held in UOIG’s...
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...Introduction to California Pizza Kitchen California Pizza Kitchen is known worldwide for its high quality menu and ingredients, with budget friendly prices. They collect their revenues from three different sources. Sales from company owned restaurants, royalties from franchised restaurants and royalties from a partnership with Kraft to sell CPK branded frozen pizza in grocery stores. CPK has a "dedication to guest satisfaction and menu innovation and sustainable culture of service." CPK has the lowest average bill cost of any other casual dining restaurant, of $13.30 per guest. Their menu has very few choices, but the choices that are offered are of high quality and nothing less. Their goal is to extend their franchises to Mexico and South Korea in the coming years being as in the last five years they were capable of increasing total businesses up 38% so a small extension would be of no issue for them. In 1997 they also introduced the idea of an ASAP option. The ASAP options offers guests the most popular items on the menu, pre-made and ready to grab and go. With society becoming more and more fast paced, the ASAP option has been growing steadily. Upcoming decisions for the Chief Financial Officer (CFO) In recent years restaurants in North America have been seeing a large increase in prices of cost of goods sold (COGS), labour and commodities. In 2007 President Bush increased the minimum wage in the United States from $5.15 to $7.25 which was a large increase that...
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...ISDS 4160 Ross Lafont Assignment 3 Disrupting Global Competition In today’s world, we are extremely lucky with the way we can conduct business. Increased technology has led this planet to heights we thought we would never reach. Communication throughout the world is now as easy as pie. Not only do we have the telephone, but we also have email, scan, fax, and wire. All of these communication ways are cheap and it is China, not the United States that knows how to take advantage of this though low labor costs. This is why we do business in China these days. Globalization is the reason why we can outsource to China with great success. China operates better than the United States. A main reason of this is that they have a clear-cut division between ownership and management. In some United States companies, there is confusion that exists right here. Management and ownership also share the same goals in China. Management and ownership are both doing their own individual job to create a marginal profit, we definitely could learn from the Chinese on how to do this. Another man reason is that Chinese companies have not been outer-performing in the world markets as much in recent years. This is occurring because China’s marketplace has been changing. The government in China is very powerful. Many people see this as a bad thing in the United States, but in business perspective it is a good thing. The Chinese government can take control of an economic problem with its...
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...California Pizza Kitchen Case FIN 4385 Eric Lundberg Kelly Deeds Kevin Pope Drew Williams Summary of California Pizza Kitchen Recapitalization Proposal * Brief history of CPK (p.3) * Reasons for CPK’s success (p.3) * Ways to facilitate the success of CPK (p.3-4) * Anticipated effect of changing the capital structure on return on equity (p.4) * Anticipated effect of changing the capital structure on cost of capital (p.5) * Expected number of shares of CPK that can be repurchased (p.6-7) * Anticipated effect of changing the capital structure on CPK’s stock price (p.6-7) * Our recommendation (p.7) In order to explore whether or not California Pizza Kitchen should change their capital structure, we must first look at the brief history of the firm to get a better idea of the corporate culture and the firm’s appetite for risk. California Pizza Kitchen started in 1985 and they have been rather successful given that 95% of all restaurants fail in the first two years. They did not fail and even went public in 2000. In fact, as of the end of the second quarter of 2007, CPK has 213 locations in 28 states and 6 foreign countries (Shumadine). The success of California Pizza Kitchen can be attributed to many factors. First, CPK diversifies its revenue streams. Instead of relying on the main business of operating company owned stores for revenue, they also receive revenues from royalties from franchised locations and royalties from Kraft for selling...
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...California Pizza Kitchen Risk Analysis Based on information provided in the case, we estimated the Weighted Average Cost of Capital for California Pizza Kitchen to be: 9.64% = (1-32.50%)*6%+9.64%*643,773)/643,773 California Pizza Kitchen is an unlevered company that has no debts in the capital structure of the company, and whose sole source of financing is equity. With a return on equity of 10.1% in 2006, CPK earned a return greater than its cost of capital, but did not benefit from financial leverage. Below we will illustrate how levered cost of capital may be a cheaper alternative for CPK. Increases of debts in the capital structure of the company will impact different key variables that the company leverage status would change from unlevered company to the levered company, because before these new issuance of debts, CPK had no debts in the capital structure of the company. In assessing the effect of leverage on the cost of capital, we estimated the Weighted Average Cost of Capital for a leverage of 10% debt to be: 9.26% = (1-32.50%)*6%*22,589+(4.2%+.82*6.4%)*628,516/(22,589+628,516) A leverage of 10% debt would change the unlevered beta 0.85 of CPK to levered beta of 0.82. The decrease in beta would reduce the cost of equity for CPK to 9.45%, because an increase of 10% debt in the capital structure of the company would reduce the risk of the equity investors. A leverage of 20% debt would decrease the Weighted Average Cost of Capital...
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...acquisition of Carts of Colorado and California Pizza Kitchen. The acquisition of these restaurants would expand PepsiCo’s restaurant business, but PepsiCo must consider how each deal will affect the scope of the firm and potential synergies in each deal before making a decision to acquire these firms or not. There are several potential synergies in the Carts of Colorado (COC) deal. Specifically, there are operational synergies and financial synergies, along with a little strategic synergy. There is operational synergy because acquiring COC would create economies of scope. There could be shared resources or activities because PepsiCo could sell items, or at least similar items, from their other restaurants on these food carts. There is some strategic synergy in this deal because making this deal would mean entering a new market, the food cart industry, to extend market power. Even though food carts are also fast food, it is in a new segment that PepsiCo has not yet experienced. Financial synergies are also evident in this deal with COC because since they nearly tripled its income in one period, they could be a valuable asset. By investing in it, PepsiCo will be able to gain much revenue and capital from a new source. For California Pizza Kitchen, there are operational, strategic, and financial synergies. In terms of operational synergies, there are economies of scope because there are shared activities and items, like different kinds of pizza. There are strategic synergies...
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...CALIFORNIA PIZZA KITCHEN Teaching Note Synopsis and Objectives This case examines the question of financial leverage at California Pizza Kitchen (CPK) in July 2007. With a highly profitable business and an aversion to debt, CPK management is considering a debt-financed stock buyback program. The case is intended to provide an introduction to the Modigliani-Miller capital structure irrelevance propositions and the concept of debt tax shields. With the background of a pizza company, the case provides an engaging context to discuss the “pizza graphs” that are commonly used in corporate finance curriculum to illustrate the wealth effects of capital structure decisions. The case serves to motivate the following teaching objectives: • Introduce the Modigliani-Miller intuition of capital structure irrelevance; • Establish how the cost of equity is affected by capital structure decisions by defining financial risk and introducing the levered-beta capital asset pricing model (CAPM) equation; • Discuss interest tax deductibility and the valuation tax shields; • Explore the importance of debt capacity in a growing business. Suggestion for Advance Assignment to Students Students may consider the following study questions: 1. In what ways can Susan Collyns facilitate the success of CPK? 2. Using the scenarios in case Exhibit 9, what role does leverage play in affecting the return on equity (ROE) for CPK? What about the cost of...
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