This summary is based on the fourth quarter fiscal 2006 earnings call conducted by P.F. Chang’s China Bistro, Inc. (PFCB: chart) on February 14, 2007.
Management:
Chief Financial Officer: Mark D. Mumford
Chairman and Chief Executive Officer: Richard L. Federico
Executive Vice President – P.F. Chang’s China Bistro and President – Pei Wei Asian Diner: Russell G. Owens
President – P.F. Chang’s China Bistro: Robert T. Vivian
Key Investors Issues
- Earnings were 34 cents with the majority of the variance coming from restaurant operating income and partner investment expense.
- Revenues of $50.2 million were ahead of forecasted $50 million.
- Operating income margin of 4.2% was better than previous year’s result of 3.9%.
Fourth Quarter Highlights
Revenues of $50.2 million were ahead of forecasted $50 million.
- Off sales the company is negative 0.7% compared to the negative 1% in forecast.
- Sales were worse in November than expected, due to some bad weather in Texas but better in December than expected.
- The company opened ten new restaurants, with average weekly sales and sales weeks generally in line with expectations.
- Restaurant operating income margin of 4.2% was better than forecast of 2.8% and better than previous year’s result of 3.9%.
- Cost of sales was favorable due to poultry prices. Labor costs were basically on target.
- Operating and occupancy costs were better than expected due to lower general liability insurance and facilities costs.
- The company was also favorable in G&A due to lower than anticipated increase in health insurance costs.
Revenues at the Bistro were about $1.5 million better than anticipated.
- Sales weeks and comparable store sales were close to expectations.
- Positive variance was generally provided by higher new unit volumes.
- With the exception of labor, unit level restaurant expenses behaved as expected.
- Labor came in about 80 basis points better than expected, driven primarily by a reduction in health and worker compensation costs.
- In addition, on sales per labor hour basis, the company continues to improve year-over-year efficiency.
- The remaining line items – pre-opening, partner investment expense, D&A equity based comparable store sales, and interest expense – totaled $14.7 million, within about $200,000.
- The company expected pre-tax earnings at the Bistro to be right around $18 million, or 9% of sales. The revenues exceeding forecast and with help from labor line, pre-tax margin was 10%, 100 basis points better than forecast, and pre-tax earnings came in at $20.2 million, 12% better than anticipated.
Consolidated revenue was better than forecast, $252 million versus $250.6 million, primarily as a result of the new Bistro locations opened during the quarter reporting better than forecast.
- Earnings were 34 cents versus forecast of 26 cents with the majority of the variance coming from restaurant operating income and partner investment expense.
- The favorable restaurant operating income was primarily a result of favorable revenue at the Bistro, the impact of improved group medical and workers compensation claims trends, and reduced equity compensation expense that resulted from the annual true up of estimated forfeiture rate to actual cancellations. These favorable items were partially offset by unfavorable G&A expense in shared services, primarily the result of increased litigation costs and higher professional fees than anticipated.
- Because taxable income was higher than anticipated and because the company saw decrease in tip credits, effective tax rate came in at 32.3% for the quarter versus forecasted of 27.5%.
- Tip credits are not variable to earnings so an increase in earnings in the absence of a corresponding increase in tip credits would typically mean an increase in tax rate.
- The effective tax rate for the year came in at 28.3%.
Favorable equity compensation helped by about 3.5 cents.
- Favorable partner investment expense helped by 3 cents.
- The Bistro overachievement of revenue helped by about 2 cents.
- The favorable trends seen in insurance helped by about 6 cents.
- Adoption of FIN 47 hurt EPS by 2 cents.
- Litigation and professional fees that were primarily hitting G&A insured services hurt by about 2 cents, and the higher tax rate because of the higher income hurt by about 3 cents, and that comes down to the 8 cents overachievement.
- The company ended the year with $31.6 million in cash and generated a total of $123.4 million in cash flow from operations compared to $109 million in fiscal 2005. The company spent $114 million in CapEx with $109 million of that amount going towards new restaurant construction. Adding those two numbers, it is a positive free cash flow of $9 million.
