P.F. Chang's China Bistro (PFCB)

P.F. Chang’s China Bistro, Inc. is America’s largest Asian theme restaurant. The company operates three concepts, which include 142 locations of P.F. Chang’s China Bistro, 97 units of Pei Wei Asian Diner and 1 test unit of Taneko Japanese Tavern. The restaurants offer intensely flavored, culinary creations, prepared from ingredients, including herbs and spices imported directly from China. The company’s Bistro concept contributes nearly 83%, while Pei Wei contributes around 17% of the revenue.

The company recently reported 14% growth in the net revenues for the third quarter of fiscal year 2006, however its same-store sales showed a declining trend. This decline was mainly due to higher costs, which outpaced revenue growth. The company has been suffering from increase in costs since the past several quarters. This can be seen from the fact that the company’s total costs and expenses shot up 16.8% pulling down net income by 21%. The same-store sales for the company have generally been in the range of negative 1.0% to positive 1.0% since the past 6 quarters. However, customer traffic has declined more tremendously in the last two quarters with decreases of around 4% in both the quarters. These declining trends are expected to continue in the future due the macroeconomic factors and the intentionally imposed cannibalization like the addition of a Pei Wei to markets containing a Bistro and opening up of several stores in very close proximity to each other in the markets of Dallas and Phoenix.

The other factors that the flagship Bistro brand suffers from are the lack of innovation and new offerings. The environment and the atmosphere at this concept have been same since the past several years. Adding to this is the reducing frequency and willingness of the consumers to visit an Asian theme restaurant as compared to other segments in the casual dining restaurants. Looking at all the factors that are pulling down the performance of the company, it is expected that the stock will not do very well in the future.