We knew from the press release earlier in October that P.F. Chang's revenues climbed 16.7% year over year. The bulk of its sales come from its P.F. Chang's China Bistro units, which accounted for $168.6 million; its Pei Wei Asian Diners brought in the other $34.4 million. However, its Bistros saw same-store sales decline 0.8%, while its Diners increased comps by 2.8%.
To make up for the lack of sales growth from units open for more than a year, the company was able to pull double-digit revenue growth primarily from new unit openings. In the third quarter alone, it opened five new Bistros and seven additional Diners.
Beyond weaker comps, the company also took a hit to its margins. Increased costs decreased its restaurant operating profit margin by 10.2 percentage points, to 17.7%. It was able to partially offset this drop by reducing its SGA (sales, general, and administrative) expenses as a percentage of revenue to 4.6%, down from last year's 5.1%.
When its double-digit revenue growth finally worked its way to the bottom line, P.F. Chang's had $0.31 per diluted share, equal to the year-ago period. This fell short of analyst expectations of $0.32. To make matters worse, lower traffic and the continued closing of a Bistro unit in Louisiana as a result of Hurricane Katrina have led the company to lower its original fourth-quarter forecast of $0.38 per share down to $0.33.
Trading at roughly 33 times this year's earnings, P.F. Chang's stock isn't too differently valued than another dining favorite. Consider that Cheesecake Factory's
Does this mean that P.F. Chang's is a buy? Not for my money. The company is currently experiencing weakening comps and shrinking margins. Investors will want to monitor the situation carefully to see if it is able to stabilize the situation and get customers flocking to its restaurants once again.
That said, this is a popular franchise with plenty of unit growth ahead of it. If the market really turns short-term sour on its stock, a Foolish investor might find a sweet buying opportunity.
Further fortunate Foolishness:
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Fool contributor Jeremy MacNealy does not own shares of any companies mentioned.