IS Chuck E-Cheese worth the investment?

I recently visited my local Chuck-e-Cheese (NYSE:CEC) to help answer this question as I am considering an addition to my portfolio on the food entertainment industry. Major competitors are Dave and Busters, as well as general arcades and even McDonalds (NYSE:MCD) which offer play places. I recently interviewed the manager, who wished not to be named.

Me: "So in general would you say things are improving business wise?"

Manager: "Absolutely. We have seen steady increases in customer traffic, higher revenues for food as well as gaming. Our restructuring has begun to payoff"

Me: "What restructuring?"

Manager: "We have recently overhauled all of the gaming systems to include games that are friendly to all ages, and still only charge 25 cents a token. What is  great is that the new machines require far less maintenance, and our store's maintenance budget is flush. Further, I have taken note of many repeat customers"

Me: "How about food costs?"

Manager: "While food costs are up, particularly for produce, our prices have increased as well. This has offset the increase in costs on our end".

Me: "What about quality"

Manager: "We use very high quality ingredients for nearly all of our products. The only thing that varies is our cheese suppliers. This can change the flavor of our pizza slightly but rarely is there a complaint"

Me: "In terms of your food prices, aren't there still very generous coupons that must offset income"

Manager: "Corporate does reimburse us, but for an investor like yourself, generous coupons are a catch-22. They bring folks in which is the main goal, but if they don't spend extra cash, the store can break even or take a loss in some cases. The good news is that our coupons are now less generous than before, but still enticing enough to bring customers in"

Me: "What would you say is the greatest revenue source?"

Manager: "Besides our games which require just electricity and routine maintenance, our birthday parties bring in about $10,000 in revenue per week to our store alone, sometimes even $20,000 which is much higher than it had been just two or three years ago".

Me: "Are there any large negatives to the business right now"

Manager: "Well im old fashioned. I did not like the revamp of the Chuck-e-Cheese character. I think the new character makes kids feel less comfortable with Chuck, but that's my opinion. In no way has it hurt sales. I would also add that our utility prices keep rising which takes a large part of our revenues, but for the most part, our store is more profitable than it has ever been"

Me: "Last question. Would you buy stock in the company?"

Manager: "I own some in a retirement account, but Im the wrong person to ask. I invite you to try our food, play some games and check out the selection. I think you will be pleased. Good luck with your article, your writing career and your business."

This visit occurred on September 8th. I must say I was impressed. The finances of the company are stronger than ever and the company even pays a dividend. Further, the company is running all new promotions. It's time for toddlers to take over Chuck E. Cheese's! Beginning September 1, parents and caregivers are invited to bring in their little ones, ages 1 to 3, for Chuck E.'s Playtime, Monday through Thursday, 11 a.m. to 4 p.m. Chuck E.'s Playtime features plenty of age-appropriate rides and games in a safe, wholesome environment. As always, kids can pick their own toddler-friendly prizes with the tickets they win.

"Chuck E. Cheese's believes that unstructured play has a significant role in child development," said Tom Leverton, chief executive officer at CEC Entertainment, Chuck E. Cheese's parent company.

"Chuck E.'s Playtime is a time where toddlers can interact with other kids their own age while giving parents a break from their weekday routine."

Chuck E.'s Playtime gives toddlers and parents nonstop fun at a great value. In addition to a free snack cup (which parents can ask for), Chuck E.'s Playtime offers an $11.99* meal coupon, which includes:

• One unlimited salad bar
• Kids' chicken nuggets or hot dog
• One milk or juice and one soft drink
• 10 tokens

To get your friends in on the fun, visit http://www.chuckecheese.com/events/invitati

ons and send a personalized email invitation for a playdate during Chuck E.'s Playtime hours.

Chuck E.'s Playtime provides the safety only Chuck E. Cheese's can ensure, with Kid Check and high-visibility play areas, so parents can enjoy a comfortable, worry-free environment.

For more information on Chuck E.'s Playtime, and to access special offers, sign up for Chuck E.'s E-Club or follow Chuck E. on Facebook.

*Meal pricing in Canada is $13.99.

In light of my review of the financials, my interview with a 20 year plus manager of a Chuck-e-Cheese establishment, changes to pricing, new promotions and the resturucutring of stores, I foresee higher revenues in the coming quarters. As such I recommend a buy on CEC.