Casual dining is getting such a bad rap these days that few could have predicted the one-two punch of upbeat earnings reports out of Brinker International (NYSE: EAT) and P.F. Chang's (Nasdaq: PFCB) this week.
Good. Let the bears eat crow for a change.
Wednesday morning, P.F. Chang's came through with better-than-expected first-quarter results. Revenue rose 17% to $308.6 million. Margins weren't as kind on the way down, with fully diluted earnings from continuing operations clocking in flat with last year's $0.40-a-share showing.
It's a relative victory, given that humbled analysts were looking for earnings of just $0.31 a share on $305 million in revenue.
No one is suggesting that the casual dining Chinese food restaurateur is back to form. The revenue gains are strictly the handiwork of expansion. Same-store sales at its namesake chain clocked in essentially flat, while at its Pei Wei noodle shop concept -- now the key growth driver, accounting for 60% of the company's projected openings this year -- comps fell by 2.4%.
P.F. Chang's also recently shuttered its fledgling Taneko concept. The company tried to make it a go in Japanese casual dining, but it realizes that that's a game better left to Benihana (Nasdaq: BNHNA), local mom-and-pop eateries, and the sushi-heavy menu of Kona Grill (Nasdaq: KONA).
In other words, no one is arguing that P.F. Chang's is perfect, but the company is doing a lot better than expected. It is even bumping up its profit outlook, now looking to earn $1.34 to $1.40 a share this year (up from its original guidance of $1.32 to $1.38 a share).
P.F. Chang's news comes on the heels of Brinker's stock rising 7% on Tuesday after the company's market-thumping quarterly report.
Like P.F. Chang's, Brinker's performance isn't going to blow you away. Revenue from continuing operations fell by 4% to $907.7 million despite positive comps at its flagship Chili's chain. Earnings from continuing operations fell from $0.37 a share to $0.33 a share on a fully diluted basis. However, Brinker's profit was just ahead of the $0.32 a share that the market was anticipating.
Both Brinker and P.F. Chang's have been aggressively buying back shares over the past year. In other words, earnings look a lot better on a per-share basis than an absolute basis, given the fewer shares outstanding to divide the profits among. However, analysts know this. They are factoring the buybacks into their guesstimates.
Is casual dining back? Of course not. The concerns about higher gas prices and tighter discretionary income will sting for a while. However, the pessimism appears overdone for certain chains. You've seen this in recent weeks with Darden (NYSE: DRI) and Ruby Tuesday (NYSE: RT) coming through with better-than-expected profits. The chains have a long way to go, but they're still tickling the taste buds.
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