Nov 8, 2010
Executives
Mike Magusiak - President and CEO Dick Frank - Chairman Tiffany Kice - EVP and CFO
Analysts
Robert Derrington - Morgan Keegan Michael Gallo - CL King Brad Ludington - KeyBanc Capital Greg Ruedy - Stephens Mike Wolleben - Sidoti & Company Greg Schroeder - Morgan Joseph
Operator
Welcome to the CEC Entertainment teleconference. (Operator Instructions) I would now like to turn the conference over to Mike Magusiak.
Mike Magusiak
Thank you. Welcome to our conference call.
I am Mike Magusiak, President and CEO of our company, and I am joined by Dick Frank, our Executive Chairman; and Tiffany Kice our Executive Vice President and Chief Financial Officer. Tiffany joined our team in August.
Tiffany has over 22 years of accounting and retail experience, including the past 14 years in public accounting, with KPMG, where she served as an audit partner since 2006. We're very pleased that Tiffany joined our executive team.
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 on this call may be found in the company's Q3 earnings release and on the company's web site under Investor Information. The primary objectives of today's call are first, Tiffany will discuss our financial performance during the third quarter.
Next, I will present our strategic plan to increase comparable store sales, earnings per share and shareholder value. Third, Tiffany will discuss our business outlook and finally Dick will provide some concluding remarks and then open the lines for Q&A session.
Now I'd like to turn the call over to Tiffany who will review our financial performance.
Tiffany Kice
Thank you Mike, good afternoon everyone. This afternoon we reported an increase of 3.8% in comparable store sales on the same calendar week basis for the third quarter of 2010 and diluted earnings per share of $0.60, from $0.55 from the third quarter of 2009.
Despite the positive comparable store sales increase, net income decreased slightly, due to two unfavorable items reported in the third quarter of 2010 totaling approximately $1.1 million net of tax or $0.05 per share, relating to non-cash asset impairment charges and soft drink supplier transition costs. Beyond these items, company's operating cost improved over the prior year third quarter as a percent of company store sales, due to reduction in certain cost per sales, as a result of our menu price increases, efficient labor utilization and cost savings initiative.
These improvements were partially offset by increases in the price achieved and higher self insurance cost. I will now discuss our financial results in more detail.
Starting with the top line total revenues in the third quarter increased 4.7% to $207.1 million from $197.8 million. This was primarily driven by a 3.9% increase in comparable store sales on a fiscal week basis, along with an increase in our weighted average unit count of approximately four stores as compared to the third quarter of 2009.
Our comparable store sales on the same calendar week basis, which we believed to be more indicative of the health of our business, increased 3.8%. Mike will provide additional insight of our positive sales performance later in this conference call.
Cost of food and beverage as a percentage of food and beverage sales, decreased 70 basis points to 22.3% in the third quarter of 2010 or 23% in the third quarter of 2009. Menu price increases and reductions in our beverage and paper cost resulting from the implementation of various cost savings initiative more than offset the approximate 45 basis point increase in our cheese costs.
Block cheese prices increased 38% or 31% per pound from the third quarter of 2009. Cost of entertainment and merchandise as a percentage of entertainment merchandise sale decreased 50 basis points to 8.3% in the third quarter of 2010, from 8.8% in the third quarter of 2009.
The decrease is primarily due to higher ticket redemptions in the prior year. Labor expense as a percentage of company store sales decreased 70 basis points to 27% in the third quarter of 2010, compared to 27.7% in the third quarter of 2009.
In current utilization of our hourly labor force, coupled with the leveraged realized with regard to the fixed component of our labor cost as a result of higher sales were the primary drivers of this decrease. This decrease was partially offset by a 2% increase in the average hourly wage rate, along with increased sales and performance bonuses at the store level.
Depreciation and amortization expense for the quarter increased 3.5% to $19.9 million, primarily due to the ongoing capital investment initiatives occurring at our existing stores and new store development. Store rent expense for the quarter increased 4.2% to $17.7 million, primarily due to an increase in number of lease properties, resulting from new store development expansion with existing stores.
Other store operating expenses as a percentage of company store sales increased 110 basis points to 17.5% in the third quarter of 2010, compared to 16.4% in the third quarter of 2009. This increase was attributable primarily to two items, high self insurance cost and cost associated with our transition to a soft drink supplier.
Higher self insurance cost approximated 40 basis points of the increase and were related to unfavorable adjustments to our general liability self insurance reserves, based on current plains and loss development factors. The cost associated with a transition to a new soft drink supplier, represented in approximate 40 basis point increase.
The remaining 30 basis point increase is attributable to an increase in other miscellaneous store operating costs that were partially offset by lower repairs and maintenance cost. Advertising expense as a percentage of total revenues increased 20 basis points to 4.8% in the third quarter of 2010, compared to 4.6% in the third quarter of 2009, primarily due to increased expenditures for local television advertising and online media associated with our expanded marketing activities in 2010.
General and administrative expenses as a percentage of total revenue increased 20 basis points to 5.9% in the third quarter of 2010, compared to 5.7% in the third quarter of 2009. The increase is primarily driven by the impact of a favorable adjustment to our tax penalty reserve during the third quarter of 2009.
Asset impairment charges of $900,000 reported as a non-cash charge in the third quarter 2010, relating to three stores. And due to this specific economic and performance issues were determined to be unable to recovery the net book value of the underlying assets, and were therefore considered impaired.
Interest expense increased $3 million in the third quarter of 2010, compared to $2.8 million in the third quarter of 2009, primarily due to interest charges incurred pursuant to additional tax reserve we had initially established in the second quarter of 2010, in connection with the current internal revenue service examination of prior years. Our weighted average interest rate, including the impact of our interest rate swap, remained relatively flat at 2.9% for the third quarter of 2010 compared to the third quarter of 2009, as did our weighted-average debt balance outstanding under our revolving credit facility.
Our effective tax rate increased to 39.4% in the third quarter of 2010 compared to 38.5% in the third quarter of 2009. This increase was primarily due to various federal and state tax adjustments reported during the third quarter of 2010, and was partially offset by the recognition of certain state enterprise zone tax credits.
Net income decreased slightly to $12.6 million in the third quarter 2010 from $12.7 million in the third quarter of 2009, and diluted earnings per share increased $0.60 in the current quarter compared to $0.55 in the prior quarter. Our diluted earnings per share benefited from a 9.3% decrease in our weighted average diluted shares outstanding stemming from our share repurchases.
We have cumulatively repurchased approximately 3 million shares of our common stock since the beginning of the third quarter of 2009. On a year-to-date basis, through the third quarter of 2010, we note the following.
Total revenues have increased 0.6%. Comparable stores sales on the same calendar week basis have increased 0.8%.
Net income decreased to $51.2 million from $55.8 million, and diluted earnings per share decreased from $2.38 from $2.42. The decrease in net income, despite the increases in total revenues and comparable stores sales, reflects unfavorable impact from the third quarter of 2010 that we noted earlier on this call, and the unfavorable impact in the second quarter of 2010 relating to the tax adjustment that impacted our diluted EPS by $0.13.
Our repurchase of approximately 3.7 million shares of our common stock since the beginning of the first quarter of 2009 benefited diluted earnings per share. Let's now review a few highlights from our cash flow statement and our balance sheet.
During the first nine months of 2010, we generated approximately $138 million of operating cash flow. We invested approximately $71 million in new and existing stores and used approximately $67 million to repurchase approximately 1.9 million shares of our common stock, bringing the outstanding balance at the end of the third quarter 2010 on a share repurchase authorization to approximately $151 million.
We ended the quarter with a balance of approximately $357 million on the company's revolving credit facility. Our leverage ratio is 1.9-to-1 as defined in our credit facility agreement.
With that, I'll now turn it back over to Mike.
Mike Magusiak
Thanks, Tiffany. My presentation will focus on a detailed analysis of our sales performance during the third quarter and more importantly on our strategies to increase future comparable store sales, earnings per share and shareholder value.
Same calendar week comparable store sales during the third quarter increased 3.8%. The breakdown by month on a same calendar week basis during the quarter was positive 2.2% in July, positive 4.5% in August and positive 4.8% in September.
Same week comparable store sales results by region during the third quarter are as follows: The Western region was positive 1.6%. The Southeast region was positive 3.3%.
Our Central region was positive 4.4%. And our Northern region was positive 6.2%.
This positive sales momentum continues into the first four weeks of the fourth quarter with same calendar week comparable store sales increasing 3.5%. I'll now shift our discussion to a number of strategic initiatives that I believe will position the company for long-term sales and earnings per share growth.
These strategies are summarized as follows: first, a strong existing store capital plan that will impact approximately 240 stores this year, representing approximately 48% of our store base; second, the continued focus of increasing birthday party sales; third, an enhanced marketing plan that incorporates brand messaging along with a new strategy of promoting specific online coupon values on national television. This strategy was implemented on July 17.
We believe that this national television initiative is positively impacting sales. And finally, our continued focus on increasing weekday sales with school fundraising and other non-profit charitable organizations.
Our first sales initiative is strong existing store capital plan that totals approximately $64 million in 2010. This capital plan is projected to impact 240 stores, including 29 expansions, 15 major remodels, 196 game enhancements and includes the capital cost of the Ticket Blaster in all company stores.
We expect that our preliminary existing store capital plan for 2011 will total approximately $64 million, which will impact approximately 200 stores, including 25 to 30 store expansions. We believe that this capital plan will strengthen our leadership position in the family restaurant and entertainment industry and result in long-term sales increases.
Our second initiative is the continued focus of increasing birthday party sales by improving the overall reserve party experience. We've improved the value and overall birthday party experience by implementing the following strategies.
First, we introduced Ticket Blasters to all locations in June. Second, we expanded the length of birthday parties from one-and-a-half hours to two hours with the implementation of Ticket Blasters.
Third, we implemented 100 bonus token promotion to shift parties from our peak period on Saturdays to Fridays and Sundays. Fourth, we enhanced the birthday party package and superstar upgrade package with new components.
And finally, we're supporting Ticket Blasters with a national advertising campaign. As a result of these strategies, along with a price increase in birthday party prices in a vast majority of our stores by $0.50 to $1 per child in conjunction with the implementation of Ticket Blasters, birthday party sales increased approximately 16.5% during the third quarter of 2010 compared to the third quarter of 2009.
Our third initiative to increase sales and earnings is an enhanced marketing plan. Our TV media plan, which historically has been primarily brand advertising to kids, has been modified to include network television advertising promoting specific value messages.
We initiated this national television advertising campaign on July 17, promoting a $9.99 summer special large cheese pizza, encouraging customers to go online for the coupon. This campaign was revised at the beginning of the fourth quarter, promoting a $20 large one topping pizza and 50 tokens with the coupon available online.
The current national television value campaign is called Yum & Fun to reflect good game and food value. We believe these national value campaigns have incentivized our guests to redeem online coupons, resulting in incremental guest visits which is confirmed by the increased number of online coupon redemptions.
These online coupon offers provide our guests with a good value; however, the discounts offered are actually lower than our average coupon offers, contributing to strong store margins that Tiffany discussed earlier in the call. In spite of the apparent success of these value campaigns, total coupon redemptions during the third quarter decreased as a percentage of sales by 0.4% in the third quarter compared to 2009.
The number of coupon redemptions also decreased compared to the third quarter of 2009 by approximately 3%. Because the same week comparable store sales during the third quarter increased 3.8% with decreased coupon redemptions during the quarter, we believe that a greater percentage of coupons redeemed from the national television value campaign reflect increased incremental guest visits as compared to the decreases in coupons redeemed from the Sunday newspaper FSI program.
Our fourth sales initiative to increase sales and earnings is an expanded strategy to increase weekday sales. Fundraising sales increased from $0.9 million in the third quarter of 2009 to $1.2 million in the third quarter of this year.
Year-to-date, this weekday sales initiative has resulted in $7.5 million in weekday sales, representing a 32% increase above the first three quarters of last year. Since inception in 2004, this program has given back $5.6 million to school, parent-teacher association, parent-teacher organizations and other non-profit organizations.
Our next opportunity for growth is to accelerate the development of new domestic company stores. From 2006 through 2009, we've opened a total of 32 new and relocated company stores.
These store average sales exceed $2 million and on average have earned a free tax cash-on-cash return exceeding 25%. We anticipate opening and acquiring from franchisees a total of approximately 10 to 12 stores in 2010 and approximately six to eight stores in 2011.
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 yearend 2009 conference call, we stated that we believe that international development of our concept provides shareholders with a significant long-term opportunity.
We've developed a comprehensive international strategic plan and are actively searching and interviewing potential partners in Mexico, Colombia, Brazil, Argentina, Peru, Panama and Costa Rica. This international development plan is starting to result in new store openings.
We project the opening of two international stores by yearend and additional two stores during the first half of 2011. More importantly, we're very encouraged by the significant interest of quality potential franchise partners.
During the past year, we've received hundreds of international inquiries and have personally met with approximately 30 potential franchise groups, representing eight Latin American countries. We're currently in discussions with a number of companies to develop in Latin America.
Our last strategy to enhance shareholder value is the continuation of our stock repurchase plan. During the first three quarters of this year, we generated $138 million of operating cash flow.
We utilized $71 million for capital expenditures to add four additional stores and enhance 157 existing stores in the form of store expansions, major remodels and game enhancements. Additionally, during the same period, we repurchased 1.9 million shares of our common stock, representing approximately 9% of diluted shares outstanding for $67 million.
The strength and resiliency of our brand is also very evident over a longer time horizon. Despite economic headwinds, as indicated by high unemployment over the past two years and three quarters, our significant cash flow has enabled us to materially enhance our restaurant entertainment products and return a significant amount of capital to shareholders in the form of share repurchases.
During 2008, 2009 and the first three quarters of 2010, we've added 14 new company stores and enhanced over 450 stores in the form of store expansions, major remodels and game enhancements. Additionally, over the same time period, we repurchased approximately 8.6 million shares of our stock, representing approximately 37% of the average diluted shares outstanding over the repurchase period.
We believe that our aggressive capital plan with our other sales strategies and significant share repurchases will enhance long-term shareholder value. Our primary valuation of Chuck E.
Cheese is based on consistent cash flow. Our comparable store sales are sometimes volatile between quarters, yet much less volatile on an annual basis, varying from 2.8%-negative to 2.7%-positive between 2005 and 2010.
Our cash flow measured by EBITDA over the same period between 2005 and 2010 has been very strong and consistent. EBITDA as a percentage of revenue by year, starting with 2005 through 2010, was 24.6%, 24.1%, 22.5%, 22.5%, 23.1% and 24.5% respectively.
EBITDA over the past five years and three quarters totaled approximately $1.1 billion. We believe that long-term shareholder value will be created as we continue to return capital to our shareholders and strengthen our leadership position and expand our concept domestically and internationally.
I am now turning the call over to Tiffany to provide you with an overview of our business outlook.
Tiffany Kice
Thanks, Mike. Considering the continued uncertainty with the economic environment and the low seasonal sales base that we experienced with the fourth quarter, it remains difficult to estimate sales for the remainder of the year.
However, at this time, our best estimate of comparable store sales on the same calendar week basis for the fourth quarter of 2010 is an increase of 2% to 3%. Based on same calendar week comparable store sales are up 2% to 3% in the fourth quarter of 2010, we're estimating our fourth quarter 2010 diluted earnings per share to be in the range of 17% to 19%.
Incorporated into this guidance are the following assumptions. We're assuming block cheese prices will be $1.65 to $1.70 per pound for the fourth quarter of the year as compared to $1.53 in the fourth quarter of 2009.
Recall that every $0.10 change in cheese prices is estimated to impact annual pre-tax income by approximately $700,000 to $800,000. We're estimating fourth quarter 2010 depreciation and rent expense will each increase approximately 4% as compared to prior year.
We're expecting approximately 30 basis point reduction in the fourth quarter 2010 advertising expense as a percentage to total revenue. We're assuming an effective tax rate of 38.2% for the fourth quarter of 2010.
We are currently estimating 2010 fourth quarter capital expenditures to be in the range of $32 million to $34 million. We also expect to open six to eight new company owned locations during fourth quarter, including one or two franchise acquisitions and one relocation.
Lastly, we intend to repurchase shares on a opportunistic basis. While it's difficult to project, given the current economic uncertainty in the marketplace looking out into fiscal 2011, we currently anticipate diluted earnings per share to be in the range of $2.93 to $3.03.
This guidance considers total capital expenditures ranging from $93 million to $97 million, impacting approximately 200 stores. And the addition of approximately six to eight company owned stores in fiscal 2011.
We will continue to refine this estimate and we'll provide more detailed information regarding our projection on our year-end call in February of 2011. With that, I would like now to turn over the call to Dick.
Dick Frank
Thanks, Tiffany. Given the continued difficult environment in which we operate, highlighted by the continued relative high levels of employment throughout our country, we are pleased with our comparable store sales performance of 3.8% on a same calendar week basis during the third quarter of 2010.
It is also encouraging and we believe reflective of the effectiveness of our strategies that all four of our operating regions of the company experienced same store sales increases during the quarter. Third quarter diluted earnings per share were $0.60, compared to $0.55 for the same quarter of the previous year.
Despite the positive comparable store sales increase, net income decreased slightly due to two unfavorable items recorded in the third quarter of 2010, totaling $1.1 million net of tax or $0.05 per share. As we move to the fourth quarter of 2010, our optimism is guarded by the continued uncertain economic environment.
However, we are pleased with the same calendar week comparable store sales continuing to be positive in the first four weeks of the fourth quarter being up 3.5%. We continue to believe in the strength of the Chuck E.
Cheese brand. We think this strength is evident in a number of different ways.
First, during the first nine months of 2010, we generated approximately $138 million of operating cash flow, allowing us to reinvest $71 million in new and existing stores. Additionally, during the same time period, we were able to repurchase approximately $1.9 million shares of our common stock, representing approximately 9% of diluted shares outstanding for $67 million.
Second, the strong cash flow of the company is also evident over the longer term. As Mike shared with you earlier, our EBITDA margins as measured by EBITDA as a percentage of revenue over the six year period of 2005 through 2010 have consistently exceeded 22%.
We believe this is significant, and again, reflective of the strength in the brand, especially when considering the deep recession over the last couple of years. And lastly, we believe the strength of the Chuck E.
Cheese brand is translating to the international markets. We are excited and cautiously optimistic, regarding this long-term opportunity for the company.
In a relatively short period of time, we are encouraged by the interest of a number of quality Latin American companies that are expressing a strong desire to build Chuck E. Cheeses in their respective countries.
At this time, Mike, Tiffany and I will be glad to answer any questions that you may have.
Operator
(Operator Instructions) Our first question will come from the line of Robert Derrington with Morgan Keegan.
Robert Derrington - Morgan Keegan
A couple of different questions. Mike, could you tell us a little bit about, you had tested in Southern California a new games package, and then I think you were going to move that test out to several markets in the Eastern part of the country.
Can you give us any color on that?
Mike Magusiak
I sure can Bob. You're right, we first tested that in Los Angeles and San Diego, and then we tested that in Chicago and Philadelphia, and we were very pleased with those test results.
And in fact, Chicago and Philadelphia even exceeded our Los Angeles sales results. San Diego was a little hard to look at, because there was the major competitor moving into that market.
But we did see it as to produce an increase in sales, above the trend. And we are considering that as part of our marketing program for 2011.
Robert Derrington - Morgan Keegan
Tiffany, can you give us some color on the third quarter repurchase activity. How many shares and what was that average price per share just in the quarter?
Tiffany Kice
Price per share was $32.03.
Robert Derrington - Morgan Keegan
$32.03, and the total purchase amount or number of shares?
Tiffany Kice
Purchased shares was 1 million, approximately.
Robert Derrington - Morgan Keegan
And then just out of curiosity, the timing of your 8-K and your press release. Your 8-K hit at about 10 minutes after the hour, and the press release actually didn't hit until a minute before the conference call started.
I'm just wondering if there is a change in plan or there was some kind of delay or something, or how should we think about that going forward?
Mike Magusia
That shouldn't have occurred like that. That has nothing to do with it.
Bob, we apologize for that.
Operator
And our next question comes from the line of Michael Gallo of CL King.
Michael Gallo - CL King
My question is on just the promotional change, Q2 to Q3. Obviously, you had cut back some of the promotions too far in Q2.
It was interesting that as you cut that back, it seemed like you were getting more coming in from response to the national advertising campaign. So I was wondering whether you feel like you've optimized the mix or whether there might be an opportunity to further shift more dollars to national, which could be beneficial not only to sales, but I suppose to margins as well.
Thank you. Mike Magusiak That's a really good point.
We started our national value campaign on July 17. And we saw immediately an increase in online coupon redemptions.
So that $9.99 coupled with the $14.99 coupon, was very successful. And we then modified that national value campaign to what we call is young and fun, for $20 a guest receives a large one-topping pizza and 50 tokens.
And our actual redemptions over the past four weeks have actually gone up, even greater during the past four weeks. So we're very excited about that.
And what we believe is happening is we're reaching additional guest that were not receiving our coupons through the Sunday newspaper or cross-promotions. So we're excited about that.
We think that it has strengthen our marketing program by combining a value message on TV with strong brand advertising. And as you pointed out also, the actual coupon discount that we're offering with our television advertising is slightly lower discount that contributes to our improved margins.
Operator
We have now a question from Brad Ludington with KeyBanc Capital.
Brad Ludington - KeyBanc Capital
One thing that I missed when you were going through all the numbers was, I think you said fiscal same store sales in the third quarter, what they were as opposed to the 3.8% calendar comp?
Dick Frank
They were almost identical. Fiscal was positive 3.9% and same week comparable store sales were positive 3.8%.
Brad Ludington - KeyBanc Capital
And then looking at the impairment charge and the transaction costs, if you kind of back out on the math using the tax rate, it looks like there was about $880,000 in transition costs in the operating expense line that shouldn't occur in the fourth quarter, correct?
Tiffany Kice
That is correct.
Mike Magusiak
That is correct.
Brad Ludington - KeyBanc Capital
So leaving that in, but if you take out the impairment charges, you would've been about $0.63?
Mike Magusiak
No actually, the combination of those two transactions was an after tax impact of $1.1 million or $0.05 a share.
Brad Ludington - KeyBanc Capital
Oh, yes, that's what I was asking. If we leave the transition costs in, but take out impairment, it adds about $0.025 to $0.03?
Mike Magusiak
Yes. Although we're not going to have that transition cost in the fourth quarter, that was a one-time expense that will not hit in the fourth quarter.
Brad Ludington - KeyBanc Capital
Okay. And then looking at the movie calendar coming up here in the fourth quarter, it looks like the Guardians thing wasn't that big of a deal, but does Megamind and Harry Potter, is that built into your guidance, or is that something that could be a risk to guidance?
Mike Magusiak
Movies, first we are aware, the Megamind and Harry Potter and other movies that are going to air in the fourth quarter, it is always difficult to determine what kids movies may or may not impact a quarter. So we're aware of those movies.
One of the things that we've done is, we've gone back to look at G and PG movies by month from 2008, 2009 and naturally 2010, and our source is boxofficemojo.com. And when we look at that, there's no doubt that we believe that we were negatively impacted in the second quarter.
But then even when you look at the first quarter with movies increasing $292 million from our calculation, we don't believe that it materially impacted first quarter comparable store sales. But regarding the fourth quarter, we went back and we had fairly strong movies during the fourth quarter of 2008 and 2009.
And so, it potentially could, but it's not only what the movies are this year, but what they are going against. And so, could there be a risk or potential upside in any one quarter?
There could be, but I believe that over the course of the year, that it evens out and quite frankly we take a long term approach to our sales. And I think that over the long term, it pretty much evens out.
Operator
And now a question from the Greg Ruedy from Stephens.
Greg Ruedy - Stephens
I wanted to dive into the 2011 guidance. That range, what kind of level of same-store sales does it contemplate?
Do you have any share repurchases assumed in there? And then how should we think about cost of sales for next year in dairy specifically?
Mike Magusiak
There are a number of factors that can impact our guidance for 2011, and those include margins. We see cheese costs at least the current time to not materially be different than this year, naturally our comparable store sales, the number of shares outstanding.
And we intend to provide you with more specifics when we release our fourth quarter earnings. But I guess what I would tell you is, we do not believe that it would require a significant increase in comparable store sales to achieve that preliminary guidance.
Greg Ruedy - Stephens
Okay, that's helpful. I appreciate the color you gave on the sales initiatives and the birthday information.
I wanted a little more granularity I guess, on the birthday parties. I know you're getting a higher check and spend per child, but how about traffic?
Mike Magusiak
As we said in the third quarter our total birthday sales on comparable birthday sales increased 16.5% and about, and it could be off a little bit from this dependent on the number of kids in the party. But about 6% of that is price increase with the remaining 10% or so being traffic.
And I think that what we're seeing in our birthday parties is a function of an outstanding product in Ticket Blasters. We continue to hear a lot of excitement from our guests regarding the ticket blasters, that it's a significant improvement to our birthday parties, as well as very strong advertising produced by our marketing department.
Operator
And we've now questions from the line of Mike Wolleben with Sidoti & Company.
Mike Wolleben - Sidoti & Company
Just a follow-up on that birthday question there. I wasn't sure if I missed it here in the last answer, the 16.5% increase, do you attribute most of that here to that $0.50 to $1 increase per kid, or was there more kids coming in, more birthdays being pushed to Fridays and Sundays?
Can you kind of break that out?
Mike Magusiak
Yes, out of that 16.5%, about 6% of that was a price increase and the other 10% or so was increased traffic. The number of birthday parties have increased.
Mike Wolleben - Sidoti & Company
And then looking at the 2011 capital plan, still $64 million impact from 200 stores. How many game enhancements have to be left after the 196 that you guys are doing this year?
Mike Magusiak
That capital plan includes about 145 game enhancements, and those game enhancements are typically around 125 to 150,000, where we'll change out about 35% of the games in those roughly 145 stores next year. And the plan also incorporates about 25 to 30 expansions, and approximately at this point in time about 25 major remodels.
Mike Wolleben - Sidoti & Company
And then on those expansions, are you guys still finding a lot of opportunities for that given where the economy is and where the consumer is? Is there still a lot of walls to be able to knock down?
Mike Magusiak
That absolutely correct, and it shows that this is our third year of really robust expansions. And we continue to pursue that because of the sales, the return on investment, and then as you're saying, a soft real estate market.
Mike Wolleben - Sidoti & Company
And can you just remind us what that return was on those expansions?
Mike Magusiak
What we've provided is, we have, over the past 4 to 5 years our sales increase post-expansion, the 12 months after the expansion compared to 3 months before, that sales increase is about 20%. And those expansions, the cost varies dependent on, naturally, on how many square feet.
But this year, our expansion is going to be right around the $1 million per store.
Operator
And now a question from the line of Greg Schroeder with Morgan Joseph.
Greg Schroeder - Morgan Joseph
Just looking at your cost of food and beverage, it looked like you had a pretty favorable margin there, despite the increase in cheese prices. And I apologize if I missed this, but could you maybe elaborate a little bit on where you were getting favorability in that line item?
Tiffany Kice
Sure. We had menu price increases and some reductions in our beverage and paper cost that resulted from our implementation of various cost savings initiatives that we put in place.
Mike Magusiak
And then to add even a little bit more detail to what Tiffany is talking about on the cost initiatives. Earlier in the year, a number of companies reduced the number of wings from 12 to 10.
We did that, and that savings was almost $900,000 year-to-date. We also made some adjustments to our free tokens with food purchases; we changed our cup, our beverage cup from 22 to 18 ounces, and just the combination of those items plus really working on costs such as redemption tickets, and napkins, and token cups has just all combined together to assist our cost to sales.
And then finally, what has helped us is, we tweaked our coupons. Our discounts are lower in the third quarter than they were at year end 2009, and that's also helped our margins.
Greg Schroeder - Morgan Joseph
And then as far as the change in the soft drink vendor was there a reason for that change? Is there some benefit of making that change?
Mike Magusiak
Yes, there sure is. We recently made the decision to switch from Coke to Pepsi, and we're very excited to be partnering with the Pepsi brand.
As you might suspect, over the course of the last few years, noncarbonated drinks have continued to increase in our product mix, our servings to our guests. And we are real excited to be offering some products including Gatorade, Tropicana, Lipton Iced tea, and we feel that those products will really be appreciated with Moms and Kids.
And then secondly, as you're probably aware, Pepsi also owns Quaker, Dole and Tropicana brands, and we are excited about some cross-promotions with those healthy brands.
Greg Schroeder - Morgan Joseph
The final question here, if I could ask a question on the balance sheet, the interest rate swap that you have in place, I believe it expires next May. Could you just remind me, I'm just trying to figure out how to model that interest expense next year.
Could you remind me of what fixed rate you're paying now, and then as that $150 million expires, what floating rate do you pay on that?
Tiffany Kice
The swap locks us in at a 3.6% rate on a $150 million of the value plus our 1% spread. We are currently discussing the options that are available to us, and considering the current environment we'll determine what we want to do based on interest rates at that time.
But without swap, our rate is a 1% spread plus LIBOR which runs right at about 0.26% to 0.31% right now.
Greg Schroeder - Morgan Joseph
So there is maybe a 1% pickup, assuming LIBOR stays where it's at today; 1% benefit to what you were paying under the swap agreement?
Tiffany Kice
Correct.
Operator
And now another question from the line of Brad Ludington with KeyBanc Capital.
Brad Ludington - KeyBanc Capital
I just, Mike, wanted to follow up on you talking about reducing the wings from 12 to 10 in the smaller beverage cup. Did that roll out here in the third quarter?
Mike Magusiak
No, the wings rolled out, I believe it was just during the first quarter. The syrup, this was the first full quarter that we had smaller drink cups in our store.
And we see that as the savings, but also from a guest standpoint it's free refills and 18 ounces is just plenty a cup.
Operator
(Operator Instructions) And there are no more questions from the phone line.
Mike Magusiak
We appreciate your participation, and if you have any other questions please call Tiffany, Dick or myself. Thanks a lot.
Bye.
Operator
And ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T Executive Teleconference.
You may now disconnect.