Edit Metric
|
||||||||||||||||||||
Details
|
||||||||||||||
P.F.Chang's China Bistro (PFCB)Stock (Casual & Upscale Restaurants Industry, Food & Beverage Industry)
 Like other companies in the casual & upscale restaurants industry, P.F. Chang's is vulnerable to a weak economy and rising food and gas prices , which reduces the amount of disposable income consumers can spend dining out. In 2007, as a result of these factors, comparable store sales at China Bistro restaurants declined 1.6% in 2007 and Pei Wei comparable store sales remained flat.[2] Furthermore, P.F. Chang's is vulnerable to increases in commodities prices that raise the cost of preparing its food, and the company's operating margin has decreased 3% since 2005, dropping to just 4.67% in 2007 because of higher operating expenses.[3] Competition is getting more intense for P.F. Chang's as well - the number of Asian restaurants nationwide increased 11.6% during 2007, outpacing most other cuisine categories,[4] and P.F. Chang's earned a record $1.1 billion in revenue in 2007.[5]
[edit] Business Overview   P.F. Chang's China Bistro operates one of the largest Asian restaurant chains in the United States by revenue and restaurant locations. The company operates two restaurant chains, its namesake P.F. Chang's China Bistro, and Pei Wei, a quick casual Asian restaurant chain. The company operates 172 locations of its China Bistro which account for approximately 78% of the company's revenue.[1] The company also owns 144 locations[8] of the Pei Wei chain which earn about 22% of the company's revenue.[1] In 2008, the company plans to open 17 new locations of its China Bistro and 25 new Pei Wei restaurants, focusing on higher traffic metropolitan areas nationwide.[9] [edit] Business Segments[edit] P.F. Chang's China Bistro (78% of Revenue, 100% of Operating Income)P.F. Chang's China Bistro offers a wide array of family-style Chinese cuisine, placing a contemporary twist on traditional Chinese dishes like its Peking Dumplings and Orange Peel Beef. China Bistro's revenue increased about 12.3% during 2007, reaching $849.7 million[3], which the company attributes mainly to 20 new restaurant openings in 2007.
[edit] Pei Wei (22% of Revenue, -0.25% of Operating Income)Pei Wei serves made-to-order Asian dishes like its Minced Chicken Lettuce Wraps and Pei Wei Pad Thai in an energetic, high-paced atmosphere marked by its open kitchen and wok-style cooking. Pei Wei's revenue increased almost 35% in 2007, reaching approximately $243 million[3] which was primarily due to the opening of 37 new Pei Wei restaurants during 2007.[3] Pei Wei's operating income, however, has decreased an average 51% since 2005, when it totaled approximately $2.6 million.[12] In 2007, Pei Wei operated at a loss of $216,000[3] mainly because of higher costs associated with opening 37 new restaurants as well as increased commodities prices, labor costs and operating expenses like utilities.
[edit] Financial AnalysisP.F. Chang's earned $1.1 billion in revenue in 2007, a 17% increase from 2006[3], which was mainly because of its 22% increase in total restaurants during 2007[1]. Furthermore, the company's extensive expansion since 2003 has spurred the company's 102% growth in revenue since 2003.[7] However, the company's operating margin decreased from 7.6% in 2005 to 4.67% in 2007 because of higher commodities prices and increased labor costs, particularly increased costs of restaurant management and increased hourly wages during 2007.[7] These increases in operating costs especially effected Pei Wei restaurants as its 36.1% increase in operating expenses outpaced its 34.8% growth in revenue during 2007.[3] As a result, P.F. Chang's net income reached approximately $32 million in 2007, a 3.6% decline from 2006 and a 15.1% decrease from 2005.[7] The company attributes reductions in traffic in both its restaurants to decreased amounts of consumer dispensable income caused by the subprime lending crisis in 2007. For example, a 2007 RBC Capital Markets survey indicated that 39% of respondents had reduced their frequency of dining at restaurants.[14] However, although the China Bistro's comparable store sales declined by 1.6% in 2007, its 3% increase in average guest check helped the company increase its revenue.[2] Overall, the company plans to slow expansion of its two restaurant chains in 2008 to lessen its vulnerability to lackluster sales in the weakened U.S. economy, opening 15 fewer restaurants in 2008 than in 2007.[15] [edit] Trends and Forces[edit] Increased Commodities Prices and Higher Wages Reduce Operating MarginSince 2005, increases in prices of food and labor have spurred P.F. Chang's steady decline in operating margin. In 2007, wholesale foods reached their highest prices in 27 years.[16] From 2005 to 2007, P.F. Chang's cost of sales increased an average 13.4% annually, particularly due to increases in fruit and vegetable prices and beef prices.[3] In order to reduce its vulnerability to increases in commodities prices, P.F. Chang's uses Distribution Market Advantage, a cooperative of numerous nationwide food distributors, as its primary ingredient distributor.[17] Due to its broad range of suppliers, including Kraft Foods (KFT) and Hormel Foods (HRL), Distribution Market Advantage is able to stabilize the costs of ingredients for P.F. Chang's restaurants. Additionally, labor costs, primarily hourly wages and costs of chefs, have increased an average of 17.6% annually since 2005. These costs have been historically variable from each state but as of 2006, 23 states had a minimum wage higher than the $5.15 per hour national minimum.[18] Furthermore, as part of the Fair Minimum Wage Act of 2007 the national minimum wage will increase over 40% during 2008 and 2009 to $7.25 per hour which will significantly raise P.F. Chang's labor expenses.[19] Together, the company's cost of sales and labor expenses were the primary contributors to its approximate 18% increase in operating expenses since 2005, which have outpaced the company's 16.2% increase in revenue during that period.[3] Furthermore, the company's operating margin has decreased about 3% since 2005, reaching 4.67% in 2007 because of its higher operating expenses.[3] [edit] Weakened U.S. Economy Slows Restaurant Traffic and SalesThe subprime lending crisis in 2007 severely weakened the U.S. economy, which in turn led to less dispensable income for American consumers. As a result, revenues and traffic have declined across the restaurant dining sector as consumers save money and eat at home. As previously mentioned, many consumers reduced their frequency of dining at restaurants during 2007. Additionally, the Technomic 2007 Restaurant Industry Study attributed poor economic conditions as the cause for restaurants to reduce funding for expansion by an average of 1.4% during 2007[20]. Although the company's total revenue continues to increase, the company attributes China Bistro's 1.6% decrease in comparable store sales in 2007 to weakened consumer spending.[2] Additionally, reduced customer traffic caused Pei Wei's comparable store sales in 2007 to remain flat as consumers began to subsitute for slightly cheaper options like Panda Express.[2] Furthermore, comparable store sales in Q2 2008 decreased 2.3% and 3.2% at China Bistro and Pei Wei restaurants, respectively, despite slight menu price increases at both restaurant chains.[21] As a result of slumping sales, the company plans to reduce new restaurant openings by 26% in 2008.[22] [edit] Rising Popularity of Asian Cuisine Spurs SalesAlthough the weakened U.S. economy has slowed the growth of the restaurant industry overall, the emerging popularity of Asian cuisine helps P.F. Chang's restaurants maintain positive sales growth. In 2007, Asian restaurants grew at 11.6%, outpacing growth in most other cuisine categories.[23] The company's 2008 expansions, although signficantly less than 2007, plan to capitalize on the increasing demand for Asian cuisine primarily through Pei Wei's expansion into new, untapped markets during 2008. Furthermore, the company has added new menu items at its China Bistro chain like the new Citrus Soy Salmon of its Chinese Grill and has started to offer more affordable lunch-sized entree options in order to maintain relevance with customers and increase China Bistro's lunch sales. [edit] CompetitionThe Asian niche of the casual & upscale restaurants industry is primarily comprised of small, locally-owned restaurants with only one or two locations.[24] P.F. Chang's restaurants also compete with several large national Asian restaurant chains, including Panda Express, Pick Up Stix restaurants of Carlson Restaurants Worldwide, Inc., Benihana (BNHNA) and Kona Grill (KONA).
 P.F.Chang's China Bistro2004 Data 2005 Data 2006 Data 2007 Data 2008 Data Most Recent Data Available [edit] References
|
The Shelf
|
Edit
History
Bookmark
