SCOTTSDALE, AZ-PF Chang's China Bistro will reduce the number of Pei Wei Asian Diners that it will open next year, a response to the tough economic environment that is vexing retailers throughout the country. The Chang's chain still plans 10 more Bistros and seven more of its new Pei Wei restaurants by the end of this year, but the company will open fewer restaurants next year than originally planned because it sees a tougher road ahead than it did when it began to expand the two concepts. Like many if not most retailers in their conference calls these days, P.F. Chang's officials on Wednesday cited difficult economic conditions that are affecting their results.
“From a macroeconomic perspective, things have not improved, and if anything it appears that these challenges will be with us longer than we originally thought,” PF Chang's CEO Rick Federico said. The PF Chang's chief said that the chain will reduce the number of new Pei Wei Asian Diners that it opens next year to 25, rather than the 37 mentioned in the company's second-quarter conference call.
“Given the challenge of improving margins, we believe that trimming back new unit growth will help us to achieve our objectives and improve the concept's profitability in 2008 and beyond,” Federico said of the cutback in the Pei Wei expansion. He called the move “the best for the short term” and said that the company has already signed leases for the 25 new Pei Wei locations that will open in 2008.
The Pei Wei concept has opened 30 new locations already this year and will open the remaining seven in the third quarter. The company's expansion plans also call for 18 new Bistro restaurants to open during 2008.
PF Chang's has also reduced its expectations for sales growth and comparable store sales growth for the upcoming months. Federico cited a third quarter trend that showed sales remaining strong in July and August but slumping in September. The company expects the sales trend to continue into the fourth quarter because of “the continued pressures on consumers, along with rising costs of labor and products,” Federico said.
PF Chang's continues to believe that there is an opportunity for the company to develop or acquire a Japanese restaurant that would contribute to future growth, either by developing a concept of its own or acquiring one. But for now, Federico said, “This is not the right time for us to dilute our attention away from our core business.”
The company reported net income of nearly $5.3 million and 20 cents per diluted share for the third quarter ended Sept. 30 against $6.6 million of income and 25 cents a share for the comparable quarter last year. Revenues climbed to nearly $271 million from $231 million.
The company's Bistro concept accounted for almost $209 million for the quarter and the Pei Wei concept to about $62 million. Comparable store sales for the Bistro declined 1.6% and the Pei Wei comparable store sales decreased 1%.
Thanks to the changing economic conditions, PF Chang's has revised its full year 2007 forecasted earnings per share from $1.34 to $1.19, reflecting expectations of lower revenue growth due to anticipated comparable store sales declines at both concepts, lower than expected sales at 2007 new Pei Wei store openings and continuing current year trends of rising restaurant operating costs at both concepts.
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