P.F. Chang’s China Bistro Inc. is testing new lunch programs at its casual-dining Bistro and rolling out new offerings at its fast-casual Pei Wei Asian Diner to stem traffic declines that led to a 39.7-percent drop in profit for the third quarter.
The company’s net income totaled $6.3 million, or 29 cents per share, for the quarter ended Oct. 2, down from $10.5 million, or 45 cents per share, in the same quarter last year.
Latest-quarter revenue fell 2.5 percent to $300.6 million. Same-store sales fell 3.7 percent at the Bistro brand and 3.6 percent at Pei Wei, the Scottsdale, Ariz.-based company reported. It added that prices were increased between 1 percent and 2 percent at the Bistro and between 2 percent and 3 percent at Pei Wei.
Rick Federico, chief executive of P.F. Chang’s, told analysts during an earnings call Thursday that “the path to increasing traffic in our brands includes improving entry-level pricing, enhancing our overall price-value equation, providing more differentiated options at lunch and increasing menu diversity.”
The company has been testing new lunch programs for the Bistro units and rolling out combo-style “Diner Selects” meals at the Pei Wei stores. The Bistro is also working on lower-priced dinner items and an expanded Happy Hour program.
The company has tested lunch-specific items such as lemon-grass salmon and Thai noodle salad priced from $7 to $12. A second test looked at new lunch items and 20 smaller-sized versions of classic menu items including spicy chicken and Mongolian beef. On the latter test menu, Federico said, “guests can choose from a total of 20 items that are priced under $10.”
Federico said the second test was “the most compelling.” The tests have produced a minimal impact on check averages, he noted.
“This is primarily due to an increase in the number of entrées per check, as some of our guests appear to be ordering individual meals, where they previously may have been sharing entrées,” Federico said.
The company plans to introduce the new Bistro lunch menu to an unspecified market in November. “Assuming all goes well, we continue to believe we will introduce the new menu into our entire system during the first quarter of 2012,” Federico said.
The company is currently remodeling its Bistro location in Irvine, Calif., which is closed now and will likely re-open in December. “When it reopens, we will review all aspects of the Bistro, including architectural design, menu, service, price, music, etc.,” Federico said.
P.F. Chang’s also said it expects to open its first two licensed Pei Wei airport locations late this year in Orange County, Calif., and Minneapolis, Minn. The company expects three more airport units in 2012.
At Pei Wei, the lower-priced “Diner Select” menu, which starts at a price of $6.25 and combines smaller portions of several main dishes with rice and the choice of soup, spring roll or Asian slaw, debuted Oct. 10. The chain also added three smaller plates, including lemon-grass chicken noodle salad and black bean chicken and rice, at $3.95.
“We saw very positive results during the test,” Federico said, “including the beginnings of increased guest frequency, which is certainly a good sign.”
Average tickets held steady during the test, he said, with customers increasing the number of entrées per check, apparently from less sharing, and adding on more beverages.
Mark Mumford, P.F. Chang’s chief financial officer, said these initiatives could lead to a turnaround in the middle of next year, but much depends on the economy. Federico added that “we want to be clear that there will be bumps in the road.”
In September, the company disclosed that Richard Tasman would be leaving as chief operating officer of the Bistro concept at the end of the year.
That could complicate the new initiatives, warned Stephen Anderson, an analyst with Miller Tabak, as the company “tries to juggle several different top-line driving initiatives while searching for a new COO.”
P.F. Chang’s operates 202 Bistro restaurants and 173 Pei Wei Asian Diners.
Among other topics P.F. Chang’s executives discussed with analysts:
Sale rumors: Federico began the call with a statement about recent reports on a possible sale of P.F. Chang’s: “Although we don’t normally comment on rumors, I felt compelled to address recent articles stating that the company is either for sale or negotiating a sale. It’s also a question that has been asked on the last couple of conference calls. … The rumors are not true, and we have no intent to sell this company.”
Call center: The company has introduced a centralized call center for to-go orders that covers about 10 percent of the system’s locations, Federico said. The move “gives our team more time to enhance our guests’ experience,” he noted.
True Food Kitchen: Executives, who have provided a $10 million loan to this Fox Restaurant Group concept developed on the dietary principles of Dr. Andrew Weil, said they have no immediate plans to bring the upscale casual-dining concept directly into the P.F. Chang’s portfolio. A fifth True Food Kitchen is under construction in San Diego, Calif., they said.
International development: Three new international Bistro restaurants opened during the third quarter, two Mexico and one in Dubai, bringing the total international Bistro locations to 15. A Bistro is scheduled to open in Puerto Rico this month. A restaurant in The Philippines is set to open in early 2012.
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