California Pizza Kitchen - case essay - 2207 Words

Executive Summary California Pizza Kitchen (CPK) was founded in 1985 by Larry Flax and Rick Rosenfield with a vision of offering customers designer pizza at reasonable prices. CPK’s target market is geared towards affluent customers making $75,000 annually, and over the span of 2 decades the business was able to grow from a single location into 213 locations across 28 states and 6 foreign countries. CPK generates revenue from 3 main sources: company restaurants, franchises, and royalties. CPK stands out from its peers because it offers a compelling menu at low prices, does virtually no marketing, and currently generates profits using zero debt. Despite CPK’s positive growth projections, the food industry at the end of 2007 is†¦show more content†¦Even though spending is on the uptick, the industry is experiencing pressure from rising commodity and labor prices with the new increases in minimum wage instituted by the Bush Administration. Despite the financial pressure, CPK still continues to growth under challenging market conditions. Sales grew by 16% from 2005 to 2006 and royalties increased by 36%. Labor as a percentage of sales decreased from 36.6% to 36.3% in the same period. Even with all of these positive metrics CPK’s share price saw a decline in the last month by 10% to $22.10. The decline in share prices was a result of pressure from activist shareholders calling for a buyback of shares via a restructuring of CPK’s capital structure. To respond to this drop in share price I have proposed that we explore the possibility of levering up the company. This could be achieved by issuing debt and repurchasing CPK’s shares, however this is a big step for our business as we have never used debt financing in the past. I decided to analyze the costs and benefits of debt and compute the value of the firm by analyzing the effect of debt financing (and tax shield) at CPK’s WACC. Recent FCF and Pros and Cons of Debt for CPK Prior to determining if changing the CPK capital structure is appropriate, we first need to assess the current free cash flows as well as the pros and cons to taking on debt.Show MoreRelatedCase 33: California Pizza Kitchen Essay1082 Words   |  5 PagesCase 33: California Pizza Kitchen 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 managementRead MorePepsi Co. Strategy4162 Words   |  17 PagesAdmin Issues and Policies (MBAM 613) Case Study – Pepsi Co. 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