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Why California Pizza Kitchen's Sale Plan is Half-Baked

California Pizza Kitchen (CPKI) joined the restaurant-chain sale frenzy this week, saying it is exploring financial options including a sale or major investment. But while chains such as Carl's Jr parent CKE Restaurants (CKR) are selling because they urgently need money to pay off debt, California Pizza Kitchen has no such problems. The 250-unit chain would likely be better off waiting until a growing economy boosts its sales and improves its value.

With restaurant sales down the past two years, private-equity firms have been circling -- for instance, Roark Capital Group snapped up Wingstop's chain of 440 chicken eateries already this week. Sure, there's lots of activity, but that doesn't mean it's a great time to sell, especially for a chain that's in relatively good financial shape.

There's no mountain of debt at California Pizza Kitchen -- the company has about $21 million cash, which could about pay off its current debt. The company recently said its available cash is adequate for its long-term working capital needs. Though sales at established CPK eateries were down nearly 7 percent last year, total revenue decreased less than 2 percent, thanks to expansion and the company's lucrative frozen-pizza licensing deals.

The chain expects flat to slightly negative sales this year, recently raising its first-quarter forecast. It's hard to see a crisis here that drives CPK to seek a buyer right now.

Though many of the recent restaurant-chain sales didn't disclose their price tag, the conventional wisdom is that many private-equity firms are getting fire-sale prices while restaurant stocks are depressed and sales are down. CPK doesn't fit that mold. It continues to expand globally, opening in Dubai last month. It's also rich in real-estate assets that will be worth more in a year or two, as the company only has about 50 franchised units.

Either there's more to their reasons for seeking capital than we've been told to date, or CPK owners Larry Flax and Rick Rosenfield may just be testing the waters to see if they could get a satisfactory price for their nearly 8 percent company stake. CPK could also crave a cash pot for a big growth spurt -- unlike many chains that already seem to be everywhere, CPK has a lot of unconquered territory. More than 70 units are clustered in California, and so far CPK is only in 32 states.

This is a high-value brand with plenty of opportunity ahead. With the moderate price points for its pizzas, it should see sales tick up again fairly early on in the recovery. Currently, the company has a market value of only about $500 million, well less than last year's $660 million in revenue. A sale now could leave owners kicking themselves in a year or two.

Photo via Flickr user Puck777