If you've noticed shorter waits at your local P.F. Chang's (NASDAQ:PFCB), consider yourself luckier as a diner but unfortunate as an investor. This morning, the trendy Asian eatery chain posted a 0.5% decrease in comps for the quarter (ended Sunday) at its namesake restaurants. Its younger Pei Wei concept suffered a steeper 1.5% decline at the unit level, but was already starting to bounce back into the black for the month of September.
If the dips don't seem like much, consider the fact that both chains have inched their prices 2.5% to 2.7% higher over the past year. In other words, if the menu had remained the same we may have very well been looking at a 3% slide in quarterly comps (if we assume that it's not the higher prices keeping the registers less busy).
Either way, this is a humbling moment for P.F. Chang's. It seemed to have everything going for it early on. It was cut in the mold of Cheesecake Factory (NASDAQ:CAKE) with an ethnic bent, taking things up a notch in class from the humdrum casual dining competition. However, Cheesecake Factory has gone on to produce positive comps in all but two quarters since going public in 1992.
P.F. Chang's also took a page out of the Outback Steakhouse (NYSE:OSI) playbook when it rewarded store managers by giving them the opportunity to take minority interests in their units. It's a motivational tool that worked brilliantly for Outback but hasn't served P.F. Chang's so well since it instituted the move two years ago. The last company to try to take a Chinese-influenced casual dining concept national was Darden (NYSE:DRI), but it had to ultimately dismantle its China Coast restaurants.
Average weekly sales this year have clocked in the highest at the 21 units that were open before 1999. More to the point, units that opened in 1999, 2000, and 2001 are generating more sales than the P.F. Chang's eateries that have opened since 2002. It's great to see the older locations holding up so well, but it leads one to question whether the company's expansion strategy is flawed. Did it use up the best real estate sites at the beginning? Is this a concept that isn't translating well in newer markets? Is cannibalization or brand dilution rearing its ugly head here? These are the difficult questions that investors are left asking themselves. Hopefully they'll get some answers when the company posts its bottom-line results for the quarter later this month.
Even the young Pei Wei Asian Diner concept is showing healthier average weekly sales at its original locations that went up in 2004, though it's too early to make the same kind of generalizations there. Keep watching, though.
Because P.F. Chang's continues to expand, the unit level deterioration is partly masked by a 14% spurt in sales growth for the quarter. But investors know better. They realize that this is no Outback or Cheesecake Factory. The concept still feels so right, and so strong, though. With the shares already 35% off its 52-week high, the rewards would be sweet if the company could get itself back on track.
Good luck, P.F. Chang's. You're going to need it.
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Longtime Fool contributor Rick Munarriz has enjoyed his meals at his local P.F. Chang's. He owns shares in Cheesecake Factory. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. T he Fool has a disclosure policy.
