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P.F. Chang's Reports Third Quarter 2011 Results

2011-10-27

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P.F. Chang Total revenues were $300.6 million in the third quarter of fiscal 2011 as compared to $308.4 million in the prior year.

P.F. Chang's China Bistro, Inc. (NASDAQ: PFCB) reported financial results for the third quarter of fiscal 2011, which ended on October 2, 2011. Total revenues were $300.6 million in the third quarter of fiscal 2011 as compared to $308.4 million in the prior year. For the three months ended October 2, 2011 and October 3, 2010, net income was $6.3 million and $10.5 million, respectively, and diluted net income per share was $0.29 and $0.45, respectively.

Results for the third quarter of fiscal 2011 included the benefit of lower share-based compensation expense ($0.21 per share), the impact of non-cash asset impairment charges related to three restaurants that continue to operate ($0.16 per share) and charges related to the departure of the Bistro's Chief Operating Officer and the streamlining of certain support functions during the third quarter of fiscal 2011 ($0.03 per share).

Comparable Store Sales

Comparable store sales decreased 3.7% at the Bistro and 3.6% at Pei Wei in the third quarter of 2011 due, in both cases, to declines in guest traffic. Current quarter comparable store sales at the Bistro were impacted by approximately 40 basis points due to Hurricane Irene. Quarterly sales results include a one to two percent menu price increase at the Bistro and a two to three percent menu price increase at Pei Wei.

On a monthly basis, comparable store sales for July, August and September decreased 4.6%, 4.1%, and 2.2%, respectively, at the Bistro and decreased 3.9%, 3.7%, and 3.0%, respectively, at Pei Wei. August comparable store sales at the Bistro were impacted by approximately 130 basis points due to Hurricane Irene.

2011 Expectations

The Company anticipates that full year fiscal 2011 consolidated revenues will be flat to slightly down from fiscal 2010, which assumes estimated same store sales declines of two to three percent at both concepts. The Company also expects fiscal 2011 restaurant operating income to decline approximately 150 basis points compared to fiscal 2010. Overall, the Company continues to expect consolidated diluted earnings per share to range from $1.60 to $1.70 for fiscal 2011.

The Company expects to open two new Bistro restaurants during the fourth quarter of fiscal 2011. In addition, the Company expects its international partners to collectively open two Bistro restaurants and the first Pei Wei restaurant in international markets during the fourth quarter of fiscal 2011.

The Company also expects the first two Pei Wei Asian Diner airport locations to open late this year through a licensing agreement.

2012 Development

The Company currently expects to open three to five new Bistro restaurants and 16 to 20 new Pei Wei restaurants during fiscal 2012.

In addition, the Company expects its international partners to open approximately 12 Bistro restaurants and two Pei Wei restaurants through licensing agreements during fiscal 2012. Also, through licensing agreements, the Company expects three Pei Wei airport locations to open during fiscal 2012.

Share Repurchase Program

During the third quarter of fiscal 2011, the Company repurchased 1.2 million shares of common stock for $35.6 million, fully utilizing the remaining amount available under the current share repurchase authorization.

On October 17, 2011, the Company's Board of Directors authorized a new share repurchase program under which the Company may repurchase up to $100.0 million of its outstanding shares of common stock from time to time in the open market or in private transactions at prevailing market prices during the period ending December 31, 2013.

Credit Facility

On October 26, 2011, the Company amended and restated its Credit Facility to provide additional flexibility in its capital structure. The amendment increased the borrowings allowed to $150.0 million from $75.0 million and extended the expiration to October 25, 2016 from August 30, 2013.

Quarterly Dividend

The Company's Board of Directors authorized a cash dividend payment of $0.25 per share on the Company's outstanding common stock. The next quarterly dividend is payable on November 21, 2011 to shareholders of record at the close of business on November 7, 2011.


P.F. Chang's China Bistro, Inc.
Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)

	13 Weeks Ended						39 Weeks Ended
	October 2,			October 3,			October 2,			October 3,
	2011			2010			2011			2010
Revenues:
Restaurant sales	$	298,976		$	307,499		$	924,921		$	929,243
Restaurant licensing	764			394			2,097			1,631
Retail licensing	877			517			1,982			745
Total revenues	300,617			308,410			929,000			931,619
Costs and expenses:
Cost of sales	77,821			78,380			243,318			244,110
Labor	102,146			101,620			313,931			308,390
Operating	54,456			52,058			160,734			156,408
Occupancy	18,390			18,504			55,496			54,951
General and administrative ⁽¹⁾	12,664			23,226			52,108			62,044
Depreciation and amortization ⁽²⁾	24,845			19,318			65,323			57,654
Preopening expense	629			572			1,240			1,537
Partner investment expense	(60		)	(147		)	(236		)	(271		)
Total costs and expenses	290,891			293,531			891,914			884,823
Income from operations	9,726			14,879			37,086			46,796
Interest and other income (expense), net	(947		)	175			(615		)	(905		)
Income from continuing operations before taxes	8,779			15,054			36,471			45,891
Provision for income taxes	(2,439		)	(4,417		)	(10,137		)	(13,349		)
Income from continuing operations, net of tax	6,340			10,637			26,334			32,542
Income (loss) from discontinued operations, net of tax	10			—			(19		)	6
Net income	6,350			10,637			26,315			32,548
Less net income attributable to noncontrolling interests	39			172			316			619
Net income attributable to PFCB	$	6,311		$	10,465		$	25,999		$	31,929

Basic income per share:
Income from continuing operations attributable to PFCB common stockholders	$	0.29		$	0.46		$	1.18		$	1.41
Income (loss) from discontinued operations, net of tax, attributable to PFCB common stockholders	0.00			0.00			0.00			0.00
Net income attributable to PFCB common stockholders	$	0.29		$	0.46		$	1.18		$	1.41

Diluted income per share:
Income from continuing operations attributable to PFCB common stockholders	$	0.29		$	0.45		$	1.16		$	1.38
Income (loss) from discontinued operations, net of tax, attributable to PFCB common stockholders	0.00			0.00			0.00			0.00
Net income attributable to PFCB common stockholders	$	0.29		$	0.45		$	1.16		$	1.38

Weighted average shares used in computation:
Basic	21,479			22,697			22,084			22,719
Diluted	21,758			23,070			22,413			23,150

Cash dividends declared per share	$	0.25		$	0.21		$	0.71		$	0.63

Amounts attributable to PFCB:
Income from continuing operations, net of tax	$	6,301		$	10,465		$	26,018		$	31,923
Income (loss) from discontinued operations, net of tax	10			—			(19		)	6
Net income attributable to PFCB	$	6,311		$	10,465		$	25,999		$	31,929

(1)		General and administrative includes the benefit of lower share-based compensation expense of $6.2 million and charges related to separation agreements of $1.0 million during the three months ended October 2, 2011.
(2)		Depreciation and amortization includes the impact of non-cash asset impairment charges of $4.8 million related to three restaurants that continue to operate during the three months ended October 2, 2011.


P.F. Chang's China Bistro, Inc.

Supplemental Financial Information

	2009 ⁽³⁾			1Q10			2Q10			3Q10			4Q10			2010			1Q11			2Q11			3Q11			YTD Q3 2011

Units	363			364			366			368			369			369			372			374			375			375
Sales weeks	18,756			4,731			4,736			4,770			4,791			19,028			4,819			4,852			4,859			14,530
AWS	65,482			65,604			66,055			64,656			64,951			65,314			65,858			64,100			61,868			63,937

Revenues (1)
Restaurant sales	1,228,045			310,242			311,502			307,499			310,260			1,239,503			316,304			309,641			298,976			924,921
Restaurant licensing	134			129			1,108			394			474			2,105			684			649			764			2,097
Retail licensing	—			—			228			517			446			1,191			381			724			877			1,982
Total revenues	1,228,179			310,371			312,838			308,410			311,180			1,242,799			317,369			311,014			300,617			929,000

Operating costs
Cost of sales	326,421			84,013			81,717			78,380			80,621			324,731			83,322			82,175			77,821			243,318
Labor	401,583			104,475			102,295			101,620			101,610			410,000			106,464			105,321			102,146			313,931
Operating	203,859			52,753			51,597			52,058			51,886			208,294			53,807			52,471			54,456			160,734
Occupancy	70,635			17,838			18,609			18,504			18,756			73,707			18,425			18,681			18,390			55,496
Net income attributable to noncontrolling interests	1,408			206			241			172			165			784			157			120			39			316
Depreciation & amortization	74,429			19,001			19,335			19,318			19,832			77,486			19,698			20,780			24,845			65,323
Restaurant operating income	149,844			32,085			39,044			38,358			38,310			147,797			35,496			31,466			22,920			89,882

Development costs
Preopening expense	3,919			133			832			572			439			1,976			398			213			629			1,240
Partner investment expense	(629		)	11			(135		)	(147		)	(47		)	(318		)	(126		)	(50		)	(60		)	(236		)

Other expenses
General and administrative (2)	82,749			19,053			19,765			23,226			19,839			81,883			20,280			19,164			12,664			52,108
Interest and other (income) expense, net	1,637			415			665			(175		)	(333		)	572			(204		)	(128		)	947			615
Provision for income taxes	18,492			3,788			5,144			4,417			3,773			17,122			4,555			3,143			2,439			10,137
Income from continuing operations	43,676			8,685			12,773			10,465			14,639			46,562			10,593			9,124			6,301			26,018
Income (loss) from discontinued operations, net of tax	(479		)	6			—			—			40			46			3			(32		)	10			(19		)
Net income attributable to PFCB	43,197			8,691			12,773			10,465			14,679			46,608			10,596			9,092			6,311			25,999

Income from continuing operations per FDS	$	1.87		$	0.38		$	0.55		$	0.45		$	0.64		$	2.01		$	0.46		$	0.40		$	0.29		$	1.16

Fully diluted shares (FDS)	23,413			23,104			23,277			23,070			23,011			23,115			22,901			22,581			21,758			22,413

Revenues	100.0		%	100.0		%	100.0		%	100.0		%	100.0		%	100.0		%	100.0		%	100.0		%	100.0		%	100.0		%
Cost of sales	26.6		%	27.1		%	26.1		%	25.4		%	25.9		%	26.1		%	26.3		%	26.4		%	25.9		%	26.2		%
Labor	32.7		%	33.7		%	32.7		%	32.9		%	32.7		%	33.0		%	33.5		%	33.9		%	34.0		%	33.8		%
Operating	16.6		%	17.0		%	16.5		%	16.9		%	16.7		%	16.8		%	17.0		%	16.9		%	18.1		%	17.3		%
Occupancy	5.8		%	5.7		%	5.9		%	6.0		%	6.0		%	5.9		%	5.8		%	6.0		%	6.1		%	6.0		%
Net income attributable to noncontrolling interests	0.1		%	0.1		%	0.1		%	0.1		%	0.1		%	0.1		%	0.0		%	0.0		%	0.0		%	0.0		%
Depreciation & amortization	6.1		%	6.1		%	6.2		%	6.3		%	6.4		%	6.2		%	6.2		%	6.7		%	8.3		%	7.0		%
Restaurant operating income	12.2		%	10.3		%	12.5		%	12.4		%	12.3		%	11.9		%	11.2		%	10.1		%	7.6		%	9.7		%
Preopening expenses	0.3		%	0.0		%	0.3		%	0.2		%	0.1		%	0.2		%	0.1		%	0.1		%	0.2		%	0.1		%
Partner investment expense	(0.1		%)	0.0		%	(0.0		%)	(0.0		%)	(0.0		%)	(0.0		%)	0.0		%	0.0		%	0.0		%	0.0		%
General and administrative (2)	6.7		%	6.1		%	6.3		%	7.5		%	6.4		%	6.6		%	6.4		%	6.2		%	4.2		%	5.6		%
Interest and other (income) expense, net	0.1		%	0.1		%	0.2		%	(0.1		%)	(0.1		%)	0.0		%	(0.1		%)	0.0		%	0.3		%	0.1		%
Provision for income taxes	1.5		%	1.2		%	1.6		%	1.4		%	1.2		%	1.4		%	1.4		%	1.0		%	0.8		%	1.1		%
Income from continuing operations	3.6		%	2.8		%	4.1		%	3.4		%	4.7		%	3.7		%	3.3		%	2.9		%	2.1		%	2.8		%
Income (loss) from discontinued operations, net of tax	(0.0		%)	0.0		%	0.0		%	0.0		%	0.0		%	0.0		%	0.0		%	0.0		%	0.0		%	0.0		%
Net income attributable to PFCB	3.5		%	2.8		%	4.1		%	3.4		%	4.7		%	3.8		%	3.3		%	2.9		%	2.1		%	2.8		%

Reconciliation of Non-GAAP Financial Information to GAAP measures:
Restaurant operating income	149,844			32,085			39,044			38,358			38,310			147,797			35,496			31,466			22,920			89,882
Add: Net income attributable to noncontrolling interests	1,408			206			241			172			165			784			157			120			39			316
Less: General and administrative (2)	(82,749		)	(19,053		)	(19,765		)	(23,226		)	(19,839		)	(81,883		)	(20,280		)	(19,164		)	(12,664		)	(52,108		)
Less: Preopening expense	(3,919		)	(133		)	(832		)	(572		)	(439		)	(1,976		)	(398		)	(213		)	(629		)