* Q1 EPS $0.38 vs Street view of $0.48
* Discounts, labor costs weigh on margins
* Reducing discounts, raising prices going forward
* Shares fall about 3 percent
(Rewrites; adds company comments, background, byline; updates
stock prices; previous dateline NEW YORK)
By Lisa Baertlein
LOS ANGELES, April 28 P.F. Chang's China Bistro
PFCB.O said it is weaning off discounts and raising prices
"modestly" to help it reach its 2010 profit target after happy
hour specials dented profits in the first quarter.
Happy hour specials at its namesake restaurants brought in
more customers, as hoped. But the discounts reduced the average
amount spent by each customer and required managers to bring in
more workers to serve those additional guests -- resulting in a
bigger-than-expected hit to margins.
P.F. Chang shares fell 3.23 percent to $44.93 on Nasdaq at
mid-afternoon, but remain up nearly 20 percent from a year
The Scottsdale, Arizona-based chain on Wednesday affirmed
its 2010 profit forecast of $2 per share, and reported a
first-quarter profit of 38 cents per share which missed Wall
Street's view by 10 cents.
"Our thoughts for the year have not changed. ... Clearly
with only 38 cents in our pocket so far, we have some work to
do," P.F. Chang Co-Chief Executive Robert Vivian said in a
conference call with analysts.
Vivian said the company plans to reduce discounts,
including making changes to happy hour and eliminating some
It also plans to raise menu prices in its P.F. Chang's
China Bistro restaurants by 1 percent to 2 percent starting in
May. Beyond that, Unilever PLC (ULVR.L) is starting to deliver
the company's "Home Menu" frozen entrees to grocery stores.
Nevertheless, the company's 2010 profit forecast remains
below analysts' average call for a profit of $2.03 a share,
according to Thomson Reuters I/B/E/S.
Revenue edged up 0.2 percent to $310.4 million as overall
sales at restaurants open at least 18 months fell 2.7 percent
at the Bistro and rose 2.2 percent at the smaller Pei Wei
Analysts had expected Bistro sales to fall 4.2 percent and
for Pei Wei sales to rise 1.8 percent, according to RBC Capital
analyst Larry Miller.
"Sales were better, while margins were significantly below
our expectations," Miller said in a client note.
Miller said restaurant margins were 10.4 percent versus his
estimate of 12.1 percent and that operating margins also fell
more than he had expected.
U.S. restaurant stocks have bounced off their lows of the
recession as consumer spending improves. As of the close of
business on Tuesday, the Dow Jones U.S. Restaurant and Bars
index .DJUSRU had a 17 percent year-to-date gain, compared
with the 6 percent rise in the Standard & Poor's 500 .SPX.
High-profile companies like Starbucks Corp (SBUX.O) and
Chipotle Mexican Grill Inc (CMG.N) recently put up strong
quarterly results that backed the view that a recovery has
taken hold. [ID:nN22174767]
But not all restaurant names are created equal -- as
results from P.F. Chang's and others show.
For example, shares in rival Buffalo Wild Wings Inc
(BWLD.O) were down more than 18 percent a day after it
announced a surprise decline in April same-restaurant sales,
which put its 2010 profit forecasts in doubt. [ID:nN27137156]
The weak results helped drag down rival restaurant shares.
Stock in Cheesecake Factory (CAKE.O) fell 5.7 on Nasdaq,
while Olive Garden parent Darden Restaurants Inc (DRI.N) slid 2
percent on the New York Stock Exchange.
(Additional reporting by Dhanya Skariachan; Editing by Gerald
E. McCormick, Dave Zimmerman and Richard Chang)