Country Style Misses on Both Lines

Zacks

Chongqing, China-based Country Style Cooking Restaurant Chain Co., Ltd. (CCSC) reported second-quarter 2012 earnings (in USD) of 3 cents per share, missing the Zacks Consensus Estimate of 6 cents. However, earnings stood at RMB 0.18 per share, better than the year-ago loss of RMB 0.14 per share.

Quarter Highlights

Total revenue increased 19.4% to RMB 279.7 million compared with year-ago revenue of RMB 234.3 million. The increase was primarily attributable to the development of new units in China. However, revenue (in USD) stood at $44.0 million, missing the Zacks Consensus Estimate of $46.0 million.

Comparable restaurant sales dipped 3.8% year over year due to same store sales decrease in Chengdu market, partially offset by increase in Chongqing market and other areas.

Restaurant-level operating margin increased 50 basis points (bps) to 16.1%. The increase was attributable to the company’s effective cost control measures taken during the reported quarter. Income from operations also jumped 77.0% to RMB 9.1 million in the reported quarter.

Store Update

During the quarter, Country Style Cooking opened nine restaurants and postponed the opening of four new restaurants. At the quarter-end, the company had a total of 217 restaurants across 23 cities. It represents a net increase of five restaurants compared to the year-ago quarter.

Liquidity

Country Style Cooking ended the quarter with cash and cash equivalents of RMB 338.1 million and short- term investments worth RMB 190.0 million.

Outlook

For the third quarter of 2012, Country Style Cooking expects revenues between RMB 315.0 million and RMB 325.0 million. The company’s expectation represents a year-over-year growth in the range of 9% to 12%.

Our Take

We remain cautious about the earnings growth in the upcoming quarters considering the company’s modest second-quarter results. We also expect analysts to revise their estimates downward in the coming days. Currently, the Zacks Consensus Estimate for 2012 and 2013 are pegged at 33 cents and 47 cents, respectively.

One of Country Style Cooking’s peers – Yum! Brands, Inc. (YUM) – reported its second quarter 2012 adjusted earnings of 67 cents per share, missing the Zacks Consensus Estimate by 3 cents. Country Style Cooking currently carries a Zacks #4 Rank, implying a short-term Sell rating. We also reiterate our long-term Underperform recommendation on the stock.
 

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