The casual dining sector has been hit hard these past few several quarters, not as hard as mortgage lenders and home builders, but hard nonetheless. Consumers are squeezed between rising energy and fuel costs and a drumbeat of negative financial news. Dining out may not be high on many consumers' to-do list.

California Pizza Kitchen Incorporated (NASDAQ: CPKI) is not immune to the impact of these factors. Despite the fact that recently (Aug 9) released 2Q 2007 earnings were overall good, the stock continues to drop from $25 and change in May to $19.28 on 27 August. Analysts had predicted EPS of $0.22 and the stock posted earnings of $0.21, hardly a reason for the stock to fall into disfavor. The numbers tell a much more positive story. Total revenue increased 16% to $158.6 million. Comparable restaurant sales increased 5.4% by total volume, while average weekly sales at the 200+ current restaurants increased almost 5% to $68,535. Some of this increase was due to menu price increases to keep pace with raw material price increases, but some was due to an increase in the number of customers.

There is no denying that margins are tight in the casual dining sector. But California Pizza Kitchen does expect to post modest EPS of $0.03-0.04 in 3Q 2007. Given that small amount, it is difficult to believe FY guidance of $0.58-$0.62 diluted EPS. Management must be planning on a dynamite 4Q 2007.

The company remains optimistic. It opened four new locations with affiliates in 2Q, including a location in Hong Kong, and plans to add six more locations in 3Q. In June, the company granted a third-for-two stock split and is in the midst of a $50 million stock buyback program. The company plans to expand its line of California Pizza Kitchen frozen pizzas to capture a larger slice of the at-home pizza consumer.