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P.F. Chang's profit falls on Pei Wei closures

SCOTTSDALE Ariz. P.F. Chang’s China Bistro Inc. reported on Wednesday a 43.8-percent year-to-year drop in third quarter profit because of charges for the planned closure of 10 Pei Wei Asian Diners and continued slow traffic at its restaurants.

Net income for the quarter ended Sept. 28 dropped to nearly $3 million, or 12 cents per share, from year-ago earnings of $5.3 million, or 20 cents a share. Revenue rose 10 percent in the latest quarter to $298.4 million. Same-store sales fell 3.1 percent at the company’s namesake casual-dining restaurant chain and 2.9 percent at the fast-casual Pei Wei brand.

P.F. Chang's, which operates 182 namesake restaurants and 165 Pei Wei locations, said it has decided to close 10 units within its Pei Wei chain, which has struggled with negative same-store sales and cannibalization issues from fast development. The locations slated for closure did not meet operating standards and were expected to fail to meet the company’s targeted returns, P.F. Chang's said. The pre-tax, non-cash asset impairment charge totaled $7.5 million in the third quarter and reduced the company’s per-share earnings by 19 cents, P.F. Chang’s said. Without the charge, per-share earnings in the latest quarter would have totaled 31 cents.

“We believe that the underperformance at these locations was primarily a result of poor site selection, and the closure of these stores will improve the overall health of Pei Wei and the company,” Rick Federico, chief executive of P.F. Chang’s, said in a statement. “We continue to believe that Pei Wei is a strong concept, and we remain very optimistic about Pei Wei’s future.”

The company said it also expected additional fourth quarter charges, which it did not detail, related to lease termination and severance payments.

For the year, P.F. Chang’s lowered its earnings guidance by 2 cents per share, and now expects full-year earnings to total between $1.34 per share and $1.40 per share, down from a previous range of between $1.36 per share and $1.42 per share. The new expectations exclude the charges from the Pei Wei closures.

The company also said it now expects sales for the year to increase between 11 percent and 12 percent, also down from the earlier range between 12 percent and 13 percent.

Development for 2009 was cut because of the “current macroeconomic environment,” the company said, and plans call for between eight and 10 new Bistro restaurants and six and 10 new Pei Wei units.

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