May 9, 2010
Executives
Mike Magusiak – President & CEO Chris Morris – EVP, CFO & Treasurer Dick Frank – Executive Chairman
Analysts
Brad Ludington – KeyBanc Capital Robert Derrington – Morgan Keegan Mike Gallo – CL King Greg Schroeder – Wisco Research Michael Wolleben – Sidoti & Company
Operator
Ladies and gentlemen, thank you for standing by and welcome to the CEC Entertainment teleconference call. At this time, all participants are in a listen-only mode.
Later, we will conduct a question-and-answer session with instructions given at that time. (Operator instructions) As a reminder, this conference is being recorded.
I would now like to turn the conference over to your host, Mike Magusiak. Please go ahead.
Mike
Thank you. Welcome to our conference call.
I am Mike Magusiak, President and CEO of the company, and I am joined by Dick Frank, our Executive Chairman and Chris Morris, our Executive Vice President and Chief Financial Officer. Before we begin today’s discussion, I would like to make you aware that some of the information presented today may contain forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those implied in the forward-looking statements.
Information regarding the company’s risk factors was included in our press release and is also included in the company’s filings with the SEC. Reconciliation information related to non-GAAP financial measures discussed in this call may be found in the company’s quarter one earnings release and on the company’s Web site under “Investor Information”.
The primary objectives for today’s call are first, to discuss our financial performance during the first quarter. Next, I will present our multifaceted strategic plan to increase comparable store sales and earnings per share.
This plan incorporates sales initiatives that were effective last year as well as new sales initiatives. Third, Chris will discuss our business outlook.
Finally, Dick will provide some concluding remarks and then open the line for a Q&A session. Now, I’d turn the call over to Chris Morris, who will review our financial performance.
Magusiak
Thank you. Welcome to our conference call.
I am Mike Magusiak, President and CEO of the company, and I am joined by Dick Frank, our Executive Chairman and Chris Morris, our Executive Vice President and Chief Financial Officer. Before we begin today’s discussion, I would like to make you aware that some of the information presented today may contain forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those implied in the forward-looking statements.
Information regarding the company’s risk factors was included in our press release and is also included in the company’s filings with the SEC. Reconciliation information related to non-GAAP financial measures discussed in this call may be found in the company’s quarter one earnings release and on the company’s Web site under “Investor Information”.
The primary objectives for today’s call are first, to discuss our financial performance during the first quarter. Next, I will present our multifaceted strategic plan to increase comparable store sales and earnings per share.
This plan incorporates sales initiatives that were effective last year as well as new sales initiatives. Third, Chris will discuss our business outlook.
Finally, Dick will provide some concluding remarks and then open the line for a Q&A session. Now, I’d turn the call over to Chris Morris, who will review our financial performance.
Chris Morris
Thank you, Mike. Good afternoon everyone.
Let’s start with the top line. Comparable store sales on a same calendar week basis were up 0.7% in Q1.
Revenues in the first quarter totaled $246.3 million compared to $248.1 million in Q1 '09. The decline in revenue was primarily due to the shift in calendar weeks between the two quarters caused by the 2009 fiscal year, including an extra operating week, which had the effect of pushing the weeks in the 2010 fiscal year forward one week.
This calendar week shift resulted in a loss of the seasonally high sales volume week from the first quarter of 2010. Our weighted average unit count increased by approximately 3 units in Q1 '10 compared to Q1 '09.
Cost of food and beverage as a percentage of food and beverage sales increased 170 basis points to 22.8% during the first quarter of 2010 and 21.1% in the first quarter of '09, primarily due to a 50 basis point increase in cheese cost associated with a $0.24 per pound increase in cheese prices; a 50 basis point increase in wing cost associated with an increase in wing product mix; and increases in other miscellaneous items. Cost of entertainment merchandise as a percentage of entertainment merchandise sales decreased a 100 basis points to 8.1% during the first quarter of 2010 from 9.1% in the first quarter of 2009, primarily due to charges in the prior year associated with the liquidation of certain prize inventory during the first quarter of 2009.
Labor expense as a percentage of company store sales increased 20 basis points to 24.7% during the first quarter of 2010 compared to 24.5% in the first quarter of 2009, primarily due to higher unemployment taxes and a 3.7% increase in average hourly wage rates at our stores. Depreciation and amortization expense increased 3.7% to $19.6 million primarily due to the ongoing capital investment initiatives occurring at our existing stores and new store development.
Store rent expense increased 3.4% to $17.5 million primarily due to an increase in a number of leased properties resulting from new store development and expansions of existing stores. Other store operating expenses as a percentage of company store sales increased 50 basis points to 12.7% from 12.2% in the prior year, primarily due to a 30 basis point increase in insurance expense resulting from a favorable adjustment to our self-insurance reserves in the first quarter of the prior year.
The balance of the increase is primarily due to the deleveraging effects associated with the decline of revenues. Advertising expenses as a percentage of total revenues decreased 30 basis points to 3.7% in the current year from 4% in the prior year.
General and administrative expenses as a percentage of total revenues decreased 30 basis points to 5.6% during the first quarter 2010 from 5.9% in the first quarter 2009, primarily due to an increase in our stock-based compensation forfeiture estimate in the first quarter of ‘09. Interest expense decreased to $2.7 million during the first quarter of 2010 compared to $3.1 million in first quarter of 2009, primarily due to reduction in our average debt balance outstanding between the two quarters.
During the first quarter of 2010, the average debt balance outstanding under our revolving credit facility was $323.1 million compared to $370.7 million during the first quarter of ‘09. Net income was $33.9 million in Q1 2010 compared to $34.1 million in Q1 ’09, and diluted earnings per share increased to $1.53 in the current year from $1.48 in the prior year.
The increase in diluted earnings per share benefitted from a 3.9% reduction in diluted shares outstanding associated with share repurchases. Let’s now review a few highlights from our cash flow and balance sheet.
During the quarter, the business generated $92 million of operating cash flow. We invested $22 million in new and existing stores, reduced the outstanding balance on our line of credit by $50 million and used $17 million to repurchase approximately 454,000 shares of company stock, bringing the outstanding balance at end of the first quarter of 2010 on the share repurchase authorization to $201.8 million.
We ended the quarter with a balance of approximately $305 million on the company's revolving line of credit reflecting a leverage ratio of 1.7 to 1.0. With that, I will now turn it over to Mike.
Mike Magusiak
Thanks, Chris. My presentation will focus on our comprehensive strategic plan to increase comparable store sales and earnings per share in 2010.
This plan incorporates sales initiatives that were effective last year as well as new sales initiatives that we’ve been testing in our integral components of what we believe is an enhanced strategic plan. It is difficult to forecast comparable store sales in any operating environment and it is extremely challenging in the current economic environment with high unemployment and a consumer that continues to be cautious.
However, assuming a moderate improvement in the economy this year, minimal anticipated impact from H1N1 swine flu in the current year couple with our belief that we have an enhanced and already strategic plan, we have established a comparable store sales growth goal of approximately 2% for 2010. Year-to-date comparable store sales on a same week basis through 17 weeks are positive 0.5%.
We believe that the timing of Easter and school spring breaks marginally improved first quarter sales results while negatively impacting primarily one week in April. Therefore, we believe that the best indicator of sales performance is the year-to-date same week comp sales of positive 0.5% through the first 17 weeks of 2010.
At this point in time, based on our performance in the first one-third of the year, we believe that we are on track to achieve our sales growth goal of approximately 2% for 2010. As stated earlier, it is difficult to project comparable store sales because many external and internal factors may impact sales either negatively or positively.
However, we believe that comparable store sales will accelerate throughout the remainder of this year due to the following factors. First, comparable store sales comparisons for the remainder of 2010 are significantly easier than the first quarter.
The two-year sales trend for 2008 and 2009 by quarter are as follows. The two-year sales trend in the first quarter is positive 3.5%; the two-year sales trend for 2008 and 2009 in the second quarter is positive 0.3%; in the third quarter, the two-year sales trend is negative 2.0%; and in the fourth quarter, the two-year sales trend is negative 3.5%.
The second factor that we believe will positively impact comparable store sales this year compared to 2009 is a negative impact of swine flu last year. During last year's earnings conference calls, we stated that we believe that the swine flu negatively impacted sales starting around the last week of April.
This is supported by comparable store sales during the second quarter of last year. Comparable store sales by month during the second quarter of last year were, April was negative 1.2%, May was negative 8.8% and June was negative 6.5%.
Same week sales during April of this year were positive 3.2% in week one, negative 15.4% in week two, positive 9.6% in week three, and positive 5.3% in week four. We believe week two’s negative sales performance was attributable to the shift in school breaks that negatively impacted April sales.
The third and probably the most significant factor that we believe will favorably impact comparable store sales is the implementation of our sales strategies throughout 2010. Before we discuss our comprehensive strategic plan, we will provide you with this year's sales results by region.
The sales results on a same calendar week basis by region are as follows. The southeastern region was flat during quarter one and through the first 17 weeks is negative 0.9%, the northern region in the first quarter was positive 0.7% and through the first 17 weeks is positive 0.2%, the central region was positive 1.1% in the first quarter and on a year-to-date basis is positive 0.9%, and the western region was positive 1.0% through the first quarter and on a year-to-date basis through 17 weeks is positive 1.8%.
We are very encouraged regarding the sales trends in our western region which we believe is a reflection of the stabilization of the economic conditions in California and the successful implementation of our sales strategies. A summary of our multifaceted plan to increase comparable store sales and earnings per share include; first, a strong existing store capital plan that will impact approximately 235 stores this year representing approximately 48% of our store base.
Second, the continued focus of increasing birthday party sales by improving the birthday experience with a system-wide rollout of a greatly enhanced birthday party experience including the June rollout of Ticket Blasters and two hour parties. Third, an enhanced marketing plan that incorporates brand messaging along with specific new product advertising, including a national advertising campaign supporting Ticket Blasters and local television advertising supporting new games and rides in all of our stores in Los Angeles and San Diego.
Based on the short-term results of our local television advertising supporting new games and rides in LA and San Diego, we are expanding this test to two or three additional markets this year. Four, our continued focus on increasing week day sales with school fund raising and the recent addition of targeting other non-profit charitable organizations.
And finally, the implementation of increased value menu offerings and a revised discount pricing strategy that has been recently implemented companywide. Our first sales initiative is an aggressive existing store capital plan that totals approximately $65 million to $66 million.
This capital plan will impact 235 stores including 33 expansions, 16 major remodels, 186 game enhancements and includes a capital cost to implement Ticket Blaster in the remaining company stores. Our decision to increase the number of store expansions to approximately 33 stores in 2010 from 26 in 2009 is based on the consistently strong financial performance of expanded stores over the past few years.
Since 2006, we've expanded 86 stores and the average pre-post sales increase during the first 12 months immediately following the investment compared to three-month period prior to the investment in each of the past four years has exceeded 20%. Our second initiative is a continued focus of increasing birthday party sales by improving the overall reserve party experience.
We have developed several strategies to increase birthday sales. We've implemented 100 bonus token promotions during the first quarter to shift parties from our peak period on Saturday to Friday and Sunday.
This strategy has been very effective with first quarter same week comparable birthday sales increasing approximately 7%. In addition, during June, we are enhancing the birthday party package with superstar upgrade package, with new components that we have researched with kids' focus groups.
We believe that the most significant component of the new birthday package is the introduction of Ticket Blasters to all locations in June. Birthday sales at Ticket Blaster test locations significantly exceed the birthday sales increases currently being realized in our core locations.
We have also improved the birthday party experience by expanding the length of birthday parties from 1.5 hours to 2.0 hours with the implementation of Ticket Blasters. Because of the improved guest value from these initiatives, we believe we have an opportunity to increase prices.
We increased pricing of birthday parties in several Ticket Blaster test locations by $1, including all stores in Los Angeles and San Diego. Based on test results and surveys conducted with birthday party guests experiencing the Ticket Blaster we decided to increase birthday party prices in the vast majority of our stores by $0.50 to $1 per child with the implementation of Ticket Blasters in June.
Our third initiative to increase sales and earnings is an enhanced marketing plan. Our TV media plan, which typically relies primarily on brand advertising to kids, will be expanded to include new creative, to promote exciting new product offerings in our locations.
We view the opportunity to promote an exciting new product, such as Ticket Blasters or new games and rides as a material enhancement of our TV media strategy. Ticket Blasters would be supported with a national television campaign beginning this June.
Our marketing campaign also includes a testing of incremental local television advertising in support of new games and rides which were installed in every store in Los Angeles and San Diego at the end of the first quarter. This represents a new strategy of advertising on local television as opposed to only advertising with our very efficient national advertising media buy.
Based on early test results, we're expanding this strategy in two or three additional markets this year. Our fourth sales initiative to increase sales and earnings is an expanded strategy to increase week day sales.
We are proud of the fact that we have donated approximately $4.5 million to local schools since 2005. During the fourth quarter of last year, we expanded our opportunity to increase week day sales with the addition of targeting other non-profit charitable organizations benefiting children.
During 2009, school fund raising sales increased approximately 18% to $8.6 million. Our week day sales initiative with school fund raising combined with non-profit organization fund raising continues to gain momentum in 2010.
Fund raising sales grew approximately 21% in the first quarter to $3.9 million. We view this expanded week day sales strategy is a great method of giving back to the local communities where we operate as well as increasing week day sales.
Our final strategy to increase sales and improve profitability is the implementation of a comprehensive value pricing strategy that we have been testing and have recently implemented companywide. This pricing strategy encompasses three primary components, value meals, coupons and birthday parties.
The primary change to value meals has been the addition of a fourth higher-priced value meal. Previously, we offered guests three value meals that included pizza, beverages and tokens for prices that typically range from $26.99 to $39.99.
We revised the offerings and now provide our guests with a choice of four value meals ranging from $27.99 to $52.99. The value meal discounts compared to the regular menu price has not materially changed.
However, we have increased the average ticket with the new higher-priced value meal. This strategy was implemented companywide mid-January.
The next major component of our comprehensive pricing strategy is reduction in the discount percent in coupons through the Sunday newspaper, cross promotions, online advertising and the Chuck E. Club.
We continue to provide our guests with an excellent value, including all games and rides still just one token. We tested these coupon offering changes, which resulted in a reduction of our coupon discounts in approximately 35% of our stores effective the beginning of 2010.
The test results suggested no meaningful negative impact in sales and resulted in an improvement in cost of sales. Therefore, we have implemented this pricing strategy nationwide effective the end of April.
As a result of the implementation of our comprehensive value pricing strategy, menu prices are projected to increase approximately 2.5% in the second quarter and 3% in the second half of this year. Our next opportunity for growth is to accelerate the development of new domestic company stores.
Since 2006, we've opened a total of 32 new and relocated company stores including three stores in 2009. These stores’ average annual sales exceed $2 million and on average have earned a pre-tax cash-on-cash return exceeding 25%.
We anticipate opening approximately 7 stores to 8 stores this year and 7 stores to 8 stores next year. We will continue to focus our development on stores that produce a high return on investment.
The final component of our growth strategy is the development of Chuck E. Cheese’s around the world.
During our year-end 2009 conference call, we stated that we believe that international development of our concept provides shareholders with a significant long-term growth opportunity and announced a collection of $2.4 million, which granted three separate franchisees the rights to develop 25 stores in the Middle East, 8 stores in Chile, and one store in Guam. We've developed a comprehensive international strategic plan and are actively searching for additional quality partners in Mexico, Columbia, Brazil, Argentina, Peru, Panama and Costa Rica.
As stated in prior calls, international development will not materially impact earnings for the next several years; however, we believe that our focus of attracting quality international partners provides our shareholders with a solid long-term growth opportunity. Our focus is the development of one great concept, Chuck E.
Cheese’s. Our last strategy to enhance shareholder value is the continuation of our stock repurchase plan.
During 2009, we repurchased $52.6 million of treasury stock for 1,775,089 shares, which represents 7.7% fully diluted shares outstanding at year-end 2009. During the first quarter of this year, we repurchased 453,859 additional shares or 2.1% of diluted shares outstanding at the end of the first quarter.
Our first quarter is a strong seasonal period providing significant cash flow from operations. This strong cash flow is evidenced by our repurchase of $16.9 million of treasury stock and during the same quarter reducing debt by $49.8 million.
We currently have $201.8 million remaining on our stock buyback authorizations by our Board of Directors. Chris will now provide you with an overview of our business outlook.
Chris Morris
Thanks, Mike. Mike stated in his presentation that we have set an internal goal to increase comparable store sales 2% in 2010.
As we discussed in our last conference call, we believe this goal is achievable based on the combination of our strategic initiatives and soft comparisons in the last three quarters of the year. However, in light of the external environment we continue to remain cautious in our near-term outlook for the business.
At this point in time, we are estimating comparable stores sales growth calculated on a same week basis will be in a range of up 1% to 2% in fiscal-year 2010. We are slightly raising our estimates of fiscal-year 2010 diluted EPS to a range of $2.70 to $2.80, representing a growth rate of 8% to 12% excluding the extra week from 2009.
Incorporated into this guidance are the following assumptions; we are assuming cheese prices will average $1.55 to $1.65 per pound in fiscal-year 2010 as compared to $1.28 in fiscal-year ’09. Recall that every $0.10 change in cheese prices is estimated to impact pre-tax income by approximately $700,000 to $800,000.
We expect slight pressure on the labor line associated with the ongoing pressure for minimum wage increases and anticipated increases in unemployment taxes. We're estimating fiscal-year 2010 depreciation and rent expense will grow 1% [ph] and 3% respectively.
We’re estimating a 10 to 20 basis point reduction in fiscal-year 2010 advertising expense as a percentage of total revenue. We’re targeting approximately seven new company units in fiscal-year 2010, including one re-location.
We are currently estimating total capital expenditures to be in a range of $96 million to $100 million. We are assuming an effective tax rate of approximately 38% for the year and we are assuming free cash flow will be used to repurchase shares on an opportunistic basis.
While we are not providing quarterly EPS guidance, please note the following items related to the second quarter. Increases in minimum wage rates are expected to negatively impact cost of labor in Q2 2010 as the last scheduled increase in the federal minimum wage rolled out in July 2009.
General and administrative expenses in Q2 ‘09 benefitted approximately $870,000 from a favorable adjustment to our bonus accrual. Therefore this adjustment will have a negative impact on the Q2 2010 G&A comparison to the prior year, and our effective tax rate in Q2 2009 was 35.1% as certain discrete favorable adjustments were made in the second quarter of last year.
We are currently expecting our effective tax rate in Q2 2010 to be 38%. With that, I will now like to turn the call over to Dick.
Dick Frank
Thanks, Chris. We continue to operate in somewhat difficult, although we believe slightly improved economic environment in the early part of 2010.
Unemployment is still relatively high throughout much of the country and the consumer continues to be cautious. Despite the continuing economic headwinds carrying over from 2009, we are at least moderately pleased with the performance in the first four months of the year.
Comparable store sales on a same week basis of positive 0.5% through the first 17 weeks of the year was led by our western region performance of positive 1.8%. This positive performance in California is important given the number of locations we have in the state and the high absolute dollar volume of the locations.
Additionally, this strong performance has caused us to expand the number of markets with new games supported by Spot TV past the initial test markets of LA and San Diego. As we move ahead in 2010, our outlook on sales and performance is best characterized as one of cautious optimism.
The economy still seems somewhat fragile, but our strategies are solid. We are pleased with the results realized from our capital initiatives, our continued focus on birthday party sales, school and non-profit fund raising and our recent changes to our pricing and coupon strategies.
We intend to build upon these proven and successful initiatives to further improve our future comparable store sales performance. The strength of our brand Chuck E.
Cheese's is once again evident in the seasonally high first quarter of the year. With operating cash flow of approximately $92 million, we were able to fund approximately $22 million in capital against new and existing locations, repurchase $17 million of our company stock while still reducing the outstanding balance in our line of credit by $50 million.
At the end of the first quarter, the company has a balance of approximately $200 million in its share repurchase authorization. We look forward to sharing the performance of the company as we move through 2010.
And at this time, Mike, Chris and I would be glad to answer any questions you might have.
Operator
(Operator instructions) And here we have a question from the line of Brad Ludington from KeyBanc Capital. Please go ahead.
Brad Ludington – KeyBanc Capital
Thank you. I wanted to start off with the strain on labor in the first quarter from the unemployment tax increases.
Does that really – I mean, we're hearing from other companies that that primarily hits the first quarter and kind of rolls off. Is it similar here or should we expect that to continue in future quarters?
Chris Morris
We do expect it to continue in future quarters. The first quarter impact is probably going to be the greatest of the quarters in 2010, but it still going to be in the numbers.
Brad Ludington – KeyBanc Capital
Okay. And then on your – the 100 token bonus for moving your party off of Saturday, was that did you say for Sunday and Thursday or Sunday and Friday?
Chris Morris
That’s Friday and Sunday.
Brad Ludington – KeyBanc Capital
Friday and Sunday.
Chris Morris
Right.
Brad Ludington – KeyBanc Capital
Okay. Thank you very much.
Chris Morris
You are welcome.
Operator
Robert Derrington – Morgan Keegan
Yes, hi, a couple of questions if I may. Chris, your leverage ratio I think you mentioned was at 1.7 times.
And I think the company has historically talked about a target at two times. I'm just wondering what your view is longer-term through the course of the year.
Would you consider using your balance sheet to bring that leverage ratio back to where you target – essentially on a share repurchase, for example?
Chris Morris
Based on the timing of our earnings release for the prior year, the earnings release doesn’t hit until the end of February. So we're just simply not able to be in the market repurchasing shares in January or February.
So we find ourselves in a position where the business generates substantial cash flow that we are not able to use that cash flow to repurchase shares just because of the timing of the trading window.
Robert Derrington – Morgan Keegan
Well, it looks like you can take advantage of the market to your benefit, right? A question is – note the second question, if I may, on cheddar prices, your guidance for the block cheddar is I think unchanged from last time, $1.55 to $1.65, yet recently the USDA lowered their expectations for the year to a range of $1.49 to $1.54.
Is that just your being conservative in your guidance?
Chris Morris
Maybe. Look we cannot – we are not in a position to speculate on the cheese market.
We stopped trying to forecast that market a long time ago. I did notice that the USDA dropped their forecast, but based on all the information that we were receiving from our suppliers and our other sources, we just didn't feel like that now is the time to lower our estimate.
So we just wanted to give you a range that we are assuming in our earnings guidance and then give you that metric every $0.10 change represents about 10 basis points. And then you can adjust your models accordingly.
Robert Derrington – Morgan Keegan
Sure, sure, I appreciate that. And Mike, one last question if I could.
The fact that you talk cautiously optimistic about the year and sales trends and expectations and you talk a little bit more about a target of 2%. But given that you feel relatively cautious about the economy, what is your gut feel – your gut feel about taking the menu pricing that you are the fact that you're taking menu pricing midyear that's in that roughly 2% to 3% range anyway?
Mike Magusiak
That’s a good question, Bob. I think first of all when we are taking it up to about 2.5% to 3% for the rest of the year, there is two primary components.
The first is on birthday parties and we've tied that to the Ticket Blaster. And as we stated, Ticket Blaster sales have significant exceeded birthday sales and non-Ticket Blaster stores.
We've monitored that very closely. We have not yet even started advertising that.
We are going to have a national advertising campaign and every indication so far shows that we have substantially improved the birthday party. So we feel good about that.
And then the other largest component of the price increase is reducing the discount in the coupons that we offer our guests. In our revised coupon offering, the discount approximates about 33% to 35% discount above our menu price.
We tested that in 35% of our stores. We saw no meaningful impact to sales, yet our cost to sales improved.
And we really see a slight reduction to that discount as an initiative to actually increase sales going forward.
Robert Derrington – Morgan Keegan
Did that test stores, Mike, for the Ticket Blaster, did they have the higher prices?
Mike Magusiak
Yes, it did. Substantially all of the stores in Los Angeles and San Diego, every one of those stores had – we increased the birthday parties by $1 per child.
Robert Derrington – Morgan Keegan
Got you, okay. Exciting program, Mike.
Thank you.
Mike Magusiak
Thank you, Bob.
Operator
Mike Gallo – CL King
Hi, good afternoon. My question is on the advertising.
I think you noted in your release that you're planning advertising as a percentage of sales to be down slightly. Given that you plan to roll out the Ticket Blaster, I was wondering why you wouldn't expect that line item to be more flattish to even maybe up a little on a year-over-year basis, particularly given – I guess it was down a little here in the first quarter and I would expect media rates in general should be moving up here as the economy improves in order to get the same weight.
Thank you.
Mike Magusiak
The second point is, you are right, we spent or we will spend over about an 18-week period about $300,000 advertising new games and rides in LA and San Diego. We are going to test an additional two to three markets and that additional cost depending on the markets we test might increase our advertising dollars from about $100,000 to $300,000.
But at least what we are seeing so far and what we believe that our sales will go up and even though we are increasing our advertising dollars that our sales will offset that. So we anticipate for the year about two-tenths improvement in advertising to sales.
Mike Gallo – CL King
Okay, thank you.
Mike Magusiak
You’re welcome.
Operator
Greg Schroeder – Wisco Research
Hi, thank you. Mike, could you elaborate a little bit on how the introduction of the Ticket Blaster will help you to extend the birthday party time from an hour and a half to two hours?
And then if you could maybe help us with what percent of your total sales are birthday parties, if you can measure that?
Mike Magusiak
Yes, yes. I’d be happy to do that.
First, the Ticket Blaster is somewhat of a separate issue than the two-hour birthday parties. We have been testing in our Ticket Blaster locations a two-hour party and one of the things that we’ve tracked for a number of years is the issues that we have with birthday parties and one of the biggest opportunities we feel we have is to increase the length of that birthday party, the kids can play more games, the adults have more time to relax, order more food.
And so what we did is we looked at our busiest period, the first quarter on birthday parties and birthday parties, as you might expect, are more from the 11 o’clock to 5 o’clock, and when we re-laid that out we were able to expand the one and an half hour parties to two hours and even though we had some less wave of birthday parties, we were able to move the birthday parties to other hours. So we tested them with Ticket Blasters and what I would tell you is just response we are having from guests and they don't feel rushed, that it's just a much, much better birthday experience.
And the birthday sales as a percentage of total sales, they’re about 14, almost 15% of sales.
Greg Schroeder – Wisco Research
Okay, thanks. And then if I could just on the birthday party pricing, which you're expecting to raise $0.50 to $1.00 in June per child, could you just remind me what the average price is right now for a birthday party per child?
Mike Magusiak
Yes. It varies by market.
But it’s typically between the $9.99 and $13.99 price range.
Greg Schroeder – Wisco Research
Okay. And then just to I guess expand on that a little bit.
In your expectation for the average check being up approximately 2.5% in Q2, 3% in the second half, I guess I was a little unclear whether that was just the addition of the fourth value menu item. And the – I guess is that an all-in average check including the birthday pricing?
Mike Magusiak
Greg Schroeder – Wisco Research
Okay. So that's both pricing and check?
I mean that's the total you would expect for the rest of the year?
Mike Magusiak
That’s correct.
Greg Schroeder – Wisco Research
Okay, thank you.
Operator
Michael Wolleben – Sidoti & Company
Thanks, guys. Just two quick things here.
With the calendar shift from the 53rd week last year, are there any other weeks that kind of fall on the borders here of the second through the fourth quarter that we should be looking out for?
Chris Morris
Michael Wolleben – Sidoti & Company
Okay, great. And then the last thing here.
How are you guys looking at the market here to possibly increase the number of expansions that you guys are doing moving forward? Is there more store space available or are you looking into possibly upping the number of expansions into 2010 – or 2011, sorry?
Mike Magusiak
At this point in time it will be about the same. We announced that we are going to do about 33 this year.
We had an update yesterday, we look at that constantly and there can always be a little bit of movement from when a lease is actually executed. But I would suspect that it's somewhere around the level that we have this year.
Michael Wolleben – Sidoti & Company
Okay, great. Thanks
Operator
Mr. Magusiak, there are no further questions.
Mike Magusiak
Thank you. We appreciate your participation, and if you have any additional questions please call Chris, Dick or myself.
Thank you.
Operator
Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference.
You may now disconnect.