CEC Entertainment, Inc. (NYSE:CEC)

CEC Entertainment develops, operates, and franchises family restaurant/entertainment centers under the name "Chuck E. Cheese's." The company operates 477 owned-units and 45 franchised units located in 48 U.S. states and 4 countries. The centers offer a fun, family-oriented atmosphere featuring musical and comic entertainment by life-size computer-controlled robotic characters, family oriented arcade games, a toddler play area, and token-operated rides and arcade-style activities. Menu offerings include pizza, sandwiches, a salad bar, appetizers and desserts.

The management's plan for slower unit growth, increased ongoing remodels and more focused operations currently appears to be working as the company reported positive growth in recent quarter. The company is reducing its new store openings, mainly to focus on higher sales and return on investment from its existing stores. Beginning in 2007, the company plans to open approximately 8 to 12 new stores per year in densely populated areas and in its best performing geographic markets. The company is also paying attention on increasing the value to its guests with improved offers and increased distribution of coupons, cross-promotions and direct e-marketing.

The above strategy will help the company to reduce its capital expenditure which will lead to increased free cash flows, which will help them reward the shareholders by share repurchases. The company’s strong business model with EBITDA margins averaging 25% plus over the past five years and an increased focus on remodels should drive same store sales improvement over the next few quarters. Looking at the positive trends shown by the company in the recent quarters it is expected that it will outperform in the future.