This summary is based on the first quarter fiscal 2008 earnings call conducted by PF Chang’s China Bistro Inc. (PFCB: chart) on April 23, 2008.

Chairman and CEO: Rick Federico
President of P.F. Chang''s: Bert Vivian
President of Pei Wei: Russell Owens
CAO: Mike Welborn
CFO: Mark Mumford

Key Investors Issues

- EPS for the quarter came in at 40 cents, which is equal to Q1 of 2007.
- Quarterly revenue grew 17% over last year to $309 million.
- The firm did not repurchase any shares during Q1 and continues to have $50 million under its current authorization.

First Quarter Fiscal 2008 Financial Highlights

The company has slightly changed the reporting format and it has combined all of its G&A expenses at the consolidated level.

Over the last year or so, the firm has been moving some of the concept expenses into a shared service support group. An example of that is the marketing department. The headcount-related expenses for the marketing folks used to be in the concepts. Today, they have rolled up in the shared services support group. There are still dedicated headcounts reporting both brands, but they are managed at a corporate level. These changes have made periodic comparisons difficult and less relevant. Therefore, the company has decided to report on these expenses at a corporate level.

Total revenue grew over 17% to $309 million, primarily driven by the increase in new stores over the last year.

- Bistro revenue grew 14% and had slightly positive comps. Sales for the Bistro increased 15% for the quarter. Since Q1 of 2007, the firm has added 24 new Bistros, 5 of which were opened in Q1 of this year.
- Pei Wei sales increased 28%, primarily as a result of new store openings. Since Q1 of 2007, the firm has opened 39 new locations, a 34% increase. Same store sales for the quarter were down 2.4%.

Average weekly sales for the 11 Pei Weis and 5 Bistros opened during the quarter were strong. The 11 new Pei Weis averaged $40,800 a week, well above the system average of $36,700, while the five Bistros opened during the quarter averaged $102,400, slightly below system average. These strong sales numbers helped reduce the new store inefficiency drag that the firm typically experiences.

For the quarter, the same store sales were negative 2.4%, about where the firm had expected them to be.

The firm continues to see weakness out West, specifically Phoenix, Las Vegas, southern California, and to a lesser extent, Dallas. Those four markets make up 41% of the firm’s comp unit base, and were more than 6% negative for the quarter. The balance of the firm’s system had positive same store sales for the quarter. The firm implemented menu changes in late January, a few weeks earlier than originally planned. These changes included a deletion of scallops as a protein choice, elimination of one bowl and two entree styles, the addition of one entree style and one bowl, the addition of fresh baked chocolate chip cookie, and menu price changes of approximately 2.5%. The effective price increase realized for the first quarter was 1.8%, less than the full menu increase due to it not being in place for the entire quarter, as well as the affects of mix shifts.

The firm opened 11 new restaurants this quarter, nine in January alone.

The firm is pleased with the early results. Average weekly sales were under $41,000 for the quarter. These new locations were in several existing markets, including two in Miami, two in Detroit, and one in Oklahoma City, Salt Lake City, Memphis, Philadelphia, southern California, D.C., and Wichita, Kansas. The firm will open four locations this current quarter, two in Florida, one in Dallas, and our third location in Columbus, Ohio. Three of these restaurants have already opened this quarter. The balance of 25 openings for 2008 will be fairly evenly spread between the third and fourth quarters.

Cost of sales at both concepts came in favorable compared to the previous year, as operational focus, menu changes, and price increases all helped offset increases in commodities.

The Bistro picked up 10 basis points, while Pei Wei saw a 60 basis point improvement, primarily driven by a price increase of approximately 2% to 2.5%, as well as removing some lower margin items from the menu. The company had originally anticipated the price increase of Pei Wei to be effective sometime in February. The operations team did a nice job getting new menus out closer to the beginning of the quarter, giving some additional benefit during Q1. The firm’s proteins, which represent over half of cost of sales, are contracted through the remainder of this year. However, the management has some uncertainty and concern on the effect of rising grain costs and global protein demand on 2009 contract pricing. The firm is proactively exploring ways to leverage its size and current pricing position in order to optimize its pricing over a longer period of time.

The firm continues to see pressure on the labor lines in both concepts, as hourly wage rates were up between 2.5% and 3% at both concepts. In addition, Q1 of 2007 labor was positively affected by lower workers'' compensation expense due to adjustments related to prior claim years. We did not have a similar adjustment in Q1 of this year.

Q1 2008 consolidated G&A expenses were 30 basis points stabled prior year, as a company is focused on controlling administrative expenses. The corporate bonus is booked in the G&A line. The increase in bonus expense quarter-over-quarter is more than 25 basis points, which makes the favorable comparison even more impressive.

The management still believes that it will see some pressure on the cost-of-sales line for the remaining three quarters. The firm did a nice job managing G&A expenses during the quarter and will continue to keep a keen eye on this line for the remainder of the year. Over the last couple of years, the company has made infrastructure investments in such areas as IT, supply chain, legal, etcetera, that has cost it to see some de-leverage on this line in the past. While the firm expects to see G&A start to leverage in 2009, it expect to see comparison for the remaining quarters this year get a little tougher due to bonus expense.