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8-K - FORM 8-K - P F CHANGS CHINA BISTRO INC | c91410e8vk.htm |
EX-99.1 - EXHIBIT 99.1 - P F CHANGS CHINA BISTRO INC | c91410exv99w1.htm |
Exhibit 99.2
Final
Transcript
Conference Call Transcript
PFCB Q3 2009 P.F. Changs China Bistro, Inc. Earnings Conference Call
Event Date/Time: Oct. 21. 2009 / 1:00PM ET
CORPORATE PARTICIPANTS
Bert Vivian
|
P.F. Changs China Bistro, Inc. Co-CEO | |
Mark Mumford
|
P.F. Changs China Bistro, Inc. CFO |
CONFERENCE CALL PARTICIPANTS
Jeffrey Bernstein
|
Barclays Capital Analyst | |
John Glass
|
Morgan Stanley Analyst | |
Destin Tompkins
|
Morgan Keegan Analyst | |
Steven Kron
|
Goldman Sachs Analyst | |
Sharon Zackfia
|
William Blair Analyst | |
Tom Forte
|
Telsey Advisory Group Analyst | |
Matt DiFrisco
|
Oppenheimer Analyst | |
Mitch Speiser
|
Buckingham Research Analyst | |
Joe Buckley
|
BAS-ML Analyst | |
John Ivankoe
|
JPMorgan Analyst | |
Keith Siegner
|
Credit Suisse Analyst | |
David Tarantino
|
Robert W. Baird Analyst | |
Brad Ludington
|
KeyBanc Analyst | |
Bryan Elliott
|
Raymond James Analyst | |
Howard Penney
|
Research Edge Analyst | |
Amol Dessai
|
Johnson Rice Analyst | |
Mitch Pfizer
|
Buckingham Research Analyst | |
John Glass
|
Morgan Stanley Analyst | |
Greg Ruedy
|
BAS-ML Analyst |
PRESENTATION
Operator
Good afternoon and welcome to the P.F. Changs China Bistro third quarter 2009 earnings release
conference call. (Operator Instructions) Todays call is being recorded. If you have any objections
you may disconnect at this time. I would now like to turn the call over to Mr. Bert Vivian,
co-Chief Executive Officer. Please go ahead, sir.
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
Thanks. Good morning everyone and thank you for joining us today. After a few brief comments, Mark
Mumford, our CFO and I will open up the call for your questions. The number of our comments today
will be forward-looking in nature and as such, will involve risks and uncertainties. We recommend
that all investors thoroughly review our quarterly and annual filings with the SEC before taking a
financial position in our Company.
In many ways, the third quarter was a rerun of the second. We came up shy of our expectations from
a revenue standpoint but ended up earning a few pennies more than we anticipated for the quarter.
Versus our internal forecast, Bistro total revenues were off about 4% while Pei Wei exceeded their
target by roughly 2%. Year-over-year, our total revenues declined about 2%. As measured by average
weekly sales, we remain hopeful that the third quarter was the low watermark for this cycle. Bistro
average weekly sales declined about 9% in the third quarter. Trends have improved in the fourth but
average weekly sales are still down about 6.5% quarter to date.
Pei Wei on the other hand finished the quarter with a strong September which has carried over into
October. Overall we expect average weekly sales to fall 6% for the Bistro but increase roughly 1%
at Pei Wei in the fourth quarter. Total quarterly revenue which includes an extra week this year
should be in the range of $318 million to $320 million. Although our earnings from continuing ops
declined in the third quarter year-over-year, we did exceed our internal expectations by about
$0.05 or so. Based on our current sales and cost trends, we have tacked on another $0.05 to our
fourth quarter forecast to arrive at our new expected earnings range for the year of $1.70 to $1.75
per share.
1
We will be filing our 10-Q later on today. We had two balance sheet goals the beginning of the
year, to cut our long term debt in half and reduce our shares outstanding. Based on our results for
the first three quarters and our projections for the fourth, it would appear that we will be
successful on both counts. We expect to have a net flat debt position by year-end, roughly $40
million in cash offsetting our $40 million credit facility and we expect to reduce our shares
outstanding by the year by about 4 to 5%. I bring all this up only because you can expect the same
general game plan for next year.
We intend to eliminate our long term debt as well as further reduce our shares outstanding. This
should leave us in a good financial position as we contemplate 2011 and beyond.
With that, lets go ahead and open up the call for questions.
QUESTION AND ANSWER
Operator
Thank you. We will now begin the question and answer session. (Operator Instructions) Our first
question comes from Jeffrey Bernstein with Barclays Capital. You may ask your question.
Jeffrey Bernstein Barclays Capital Analyst
Great. Thank you. Thanks for the quick comments. A couple of questions. Just one on the cost
savings side. Wondering whether you could talk about the future such opportunities and then you
mentioned raising guidance for this year if you can give a little bit more color on where that
comes from and then perhaps thoughts on incremental initiatives as you look out to 2010 or whether
you feel like the lions share of the large savings have been completed at this point? And then I
have a follow-up, thanks.
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
Jeff, Im sorry, I missed the first part of your multi-faceted question. What was that again?
Jeffrey Bernstein Barclays Capital Analyst
The first part just related its all about cost savings but just wondering about the future
opportunities. I know you mentioned raising guidance for the full year of 09 by $0.10. I was
wondering if you could give some components or a little more color on where those savings are
coming from and then perhaps thoughts on incremental initiatives looking at 2010 if any?
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
And your follow-up question is?
Jeffrey Bernstein Barclays Capital Analyst
Oh, youre getting them all at the same time? Just curious about the commodity basket for 2010, if
you look at it as a percentage of sales where you think thats headed from here, after meaningful
favorability throughout 09.
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
Okay, great. With respect to our thoughts about the fourth quarter and inching up our guidance a
bit, youre right. Its obviously mostly on the cost side. Weve been able, our Operators have done
just a fabulous job this year of managing their business. Certainly if you told me at the beginning
of the year we would have had the sales trends weve had this year and yet weve been able to
expand our margins I would have taken the under on that and would have lost the bet, so I continue
to tip my hat to them for good reasons. The sales trends that weve seen obviously have been less
than desirable particularly at the Bistro.
Those trends are improving slightly as I mentioned in the fourth quarter and our expectation and
hope is that they will continue to improve modestly as we move through the fourth. Pei Wei in
business has picked up and I mentioned the September business was pretty strong, it has carried
over into October and we expect them to actually show positive sales trends in the fourth quarter.
Ive said for a couple of quarters now if were ever fortunate enough to have the sales wind behind
us that we would be fairly efficient with those dollars and I think that will be the case
particularly at Pei Wei. I think theyve done a great job of sequentially improving their business.
So at the margin, as we continue to reduce our share base, those incremental dollars do make a
difference to us and so as we think about the fourth quarter, as we look at the sales trends and as
we look at the continuing cost efficiencies that weve been able to drive and just great operations
by both of our teams, we felt comfortable in raising the guidance up effectively $0.10, $0.05 for
the fourth quarter we actually overachieved our internal expectations in the third by about $0.05
or so, so we think were in a good place for the fourth and I think thats all Ill say about that.
With respect to next year, your guess is as good as mine in terms of where the sales needle will
be. My own personal feeling is that I have a hard time believing that 2010 will be worse than 09
with respect to the consumer. Im hopeful that it gets better. I think as we all are, as we think
about next year and well give more detailed guidance when we get on the phone again in February
and talk about 2009 in total well talk about specifically what our 2010 goals are but as of today,
we had a Board meeting last week and as Ive talked to the Board about kind of our thoughts for
2010, we laid out the expectation as a starting point just laid out a flat revenue expectation and
said, if revenues are flat this is how we think our business will look and then we put a plus or
minus on that that is fairly wide and I wont even mention it here because you can drive a truck
through it but the fact of the matter is that were looking at both sides of a flat scenario with
the thought of even in a dire case from a flat scenario, we will still be able to achieve the goals
we want to achieve next year from a balance sheet perspective and really from a positioning
perspective as we get ready for what we hope will be a next up cycle in our business. So I hope
that answers your question. If not Ill certainly try and do it a little bit better job if you have
anything else.
2
Operator
Our next question comes from John Glass with Morgan Stanley.
John Glass Morgan Stanley Analyst
Thanks, just following on that, Bert, if revenues are flat next year, wouldnt that mean that
margins would still contract if costs were going to be generally slightly inflationary?
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
Well, lets talk about that for a second. I think that in a flat revenue environment I would expect
our labor costs all things being equal would be up a little bit versus 09 just from different wage
pressure and other factors, as you mentioned inflationary type things, one being healthcare, as we
look at our commodity bucket and Im sorry, Jeff, I didnt answer that piece of your question but I
will now, as we look at our commodity bucket for next year, I will tell you that surprisingly
enough, it appears that absent produce, and that is a key driver for us, but absent produce it
appears that we may be slightly favorable in 2010 versus 09. Thats I think again in a flat
revenue environment and assuming produce doesnt go crazy on us, that any pick up we have in cost
of sales will effectively offset the labor piece.
So our two major expenses, cost of sales and labor, in a flat revenue environment potentially could
be flat and if thats the case, weve overcome the biggest hurdles from a restaurant operating
perspective and there maybe pluses or minuses on the other item but theyre smaller and they dont
have quite the magnitude to throw us plus or minus in terms of our earnings. If you go below the
restaurant operating line, I think youll see that based upon our development schedule and based
upon our reduction in our outstanding credit facility, some of those non-operating things we
actually will leverage next year even in a flat environment so all things being equal a flat
environment is not such a bad thing for us and obviously looking at it from where we are today the
flat environment at the Bistro, a flat revenue environment would be a good thin. So we have to work
hard and the environment has to improve in order for us to be there but again just as a starting
point thats kind of our thought process. Well fine tune that a little bit for you as we move into
next year, but just as a general broad stroke game plan I think thats probably a reasonable place
for us to be.
John Glass Morgan Stanley Analyst
Thats very helpful and on the improvement youve seen at Pei Wei, how much is lapping the
hurricane from last year or have you seen those gains actually sustain beyond the hurricane lap
into October?
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
Well, weather happens, natural disaster happens every year, so I dont get too caught up in
year-over-year comparison over particular weather issues. I did mention that Pei Weis strength has
carried over into October so I think that answers your question.
John Glass Morgan Stanley Analyst
Okay, great. Thank you.
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
You bet.
Operator
Destin Tompkins with Morgan Keegan, your line is open.
Destin Tompkins Morgan Keegan Analyst
Thanks. Bert, my first question is on the way we look at sales and often we look at easier
comparisons we think that may mean good things. Can you give us some help? The right way to think
about it maybe not so much focused on the easier comparison, do you see it more as a momentum game
and as we move into 2010 that would suggest that its going to continue to be maybe a struggle at
least at the beginning of the year anyway.
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
From your standpoint and from everyone who tries to analyze whats going on with our Company, I
completely understand the natural inclination to talk about easy or hard comparisons, its natural
and easy and Im just not so sure that its ever accurate. Its I guess its in vogue right now
to talk about two year trends The fact of the matter is Im not so sure looking back two years will
give you great guidance as to whats going to happen in 2010 because 2010 is probably not going to
be anything like 08 and I certainly hope its not like 09 but again from your standpoint, you
have to rely on something so you obviously look at history and try and project the future.
Internally as we look at our business, and I tend to think more about traffic trends, clearly as
everyone knows theres been a fair amount of discounting going on in the casual dining space and
like the entire restaurant space, theres also a fair amount of price thats being taken in various
places and I try to the best of my abilities to cut through all of that and look at traffic because
at the end of the day we want more people coming through our doors. Thats why I am very pleased
with what were seeing at Pei Wei. Their traffic is up and its up at a nice little clip right now.
Theyve taken no price and theyve actually had a slight decline in their ticket so the trends
there to me again not trying to be too smart about this when you have more people coming through
the door thats a good thing and that means that we have the opportunity pushing forward to
continue to provide a great product to our guests and to really kind of push if you will our agenda
and try and convince them that when things get better from a discretionary income standpoint, they
need to increase their business with us and were trying to do that at both concepts.
3
I think our team has done a great job of putting their best foot forward in a very very difficult
environment. So Im talking way around your question but the fact is that theres really no easy
comparison when you go through a year like this year. Were hopeful again that 2010 will be better.
Theres certainly no guarantee of that obviously. I doubt very seriously were going to snap back
and all of a sudden its nothing but punch and cookies for everybody. My
guess is we will make progress over this year from a traffic standpoint. If thats the case we
stand a reasonable chance of achieving our goals for 2010 and getting ourselves ready for when the
sun does shine a little bit better on the restaurant group.
Destin Tompkins Morgan Keegan Analyst
Thats helpful and on Pei Wei, just some additional color. What do you attribute the improvement
to? Is there anything new that you guys have done the last couple of months whether its marketing,
new products, online ordering, anything that you think is especially moving the needle or is it
just a combination of all those things?
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
KC and his team have been working diligently for the past two years. Many of the positive signs
that youre seeing now are the result of a lot of hard work on a lot of peoples parts again over
the last couple of years and certainly over the past 18 months or so that weve been talking about
all of the initiatives that are going on at Pei Wei. Theres no question that theyve introduced
some great new product this year thats been supported. I think by an effective PR and marketing
campaign, but frankly, thats top spin and I think at the end of the day, great marketing and great
PR gets people into the restaurants but its up to the Operators in order to provide a great
experience for our guests and I think theyve been doing that and again it is the result of a lot
of hard work and I believe that its very gratifying to see positive momentum with that team
because again, that does feed on itself and I think that if we can continue that momentum and if
they can continue to create an environment where theres a great guest experience when I think you
will continue to see positive results from Pei Wei. At least thats certainly what were striving
for.
Destin Tompkins Morgan Keegan Analyst
Great thanks.
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
Sure.
Operator
Steven Kron with Goldman Sachs, you may ask your question.
Steven Kron Goldman Sachs Analyst
Great thanks. Hi, guys. Bert, first to start out with just a bigger picture question about the
bistro. Just curious to hear your thoughts on the brand right now and are you surprised on the
susceptibility that maybe this brand is having towards the discounting that youre seeing at other
areas of maybe on the lower end of casual dining where maybe in the past you didnt feel that
susceptibility, so maybe you can comment on that and if you can maybe review some of the traffic
driving initiatives that you guys have done like lunch bowls 2 for $40, your Warrior cart, things
like that, have any of those things gained the traction that you had hoped? And then I have one
quick follow-up.
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
Go ahead with the follow-up, Steven.
Steven Kron Goldman Sachs Analyst
Okay, the follow-up is you guys indicated that I think you beat your internal expectations this
quarter by $0.05 despite it seems as though Bistro came in a little bit light so specifically,
which line item on the cost side do you think were you able to kind of pull from?
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
Sure. Well, first of all Im not so sure I agree with your initial assumption that were being
overly impacted by discounting going on from the lower end. I think there is discounting going on
everywhere. Lower end, upper end, you name it. So I dont theres no way to know how much were
being impacted greater or worse than in the past. I think its just a fact that everyone in our
group regardless of where your price point is is fighting for a shrinking consumer pie when it
comes to dining out and again, that may change as we go forward. Everyone certainly hopes that it
grows a little bit, but were all scrambling and again Im not so sure that anyone could
definitively say what the impact of our marketing initiatives or our tactical programs has an
impact on Breaker or Cheesecake or anybody else for that matter.
In terms of the things that were doing weve gone over them ad nauseum before and theres really
nothing new per se. We continue to try and push the value proponent of both concepts and again,
value is not just price. Its also the experience youd have in the restaurant. I think that
nothing has changed in terms of trends, for example, in terms of our Bistro offering of the two for
$40, again it still remains a fairly significant part of our sale which is is great. Were glad
that people are taking advantage of that and again as we think about 2010 there may be some tweaks
to that and if we decide to tweak that youll see it in the restaurant. I probably wont talk too
much about it before we do that but I think that we continue to at both concepts, we will continue
to try and get in front of all of our guests, well probably do a little bit more local marketing,
well probably do a little bit more CRM work we push for and as we get smarter about that, at the
same time I think both concepts and in particular Pei Wei have seen some success from more
traditional types of media and PR, so again were going to continue swinging at the plate.
Right now, you could argue that at the Bistro having our toughest sales quarter ever that nothing
is working particularly well but again, I think that we continue to learn and well continue to
push our message in front of our guests again in the hopes that we could increase frequency in the
future.
4
With respect to our performance in the third quarter versus our expectations, we expect the
third quarter is always a tough quarter and in particular September is always a miserable month in
the restaurant business at least in my experience. You tend to make all of the money youre going
to make in the first two months of the third quarter and then you just hang on for dear life in
September. This year unfortunately was the case and so we expected
probably a little bit more deleverage on the labor line than what we saw. We also continued to
benefit from lower utility costs more so than we had forecasted and I think those were really the
biggest drivers in the difference between our internal forecast and how we behaved ultimately.
Were disappointed again and we fell short in our revenue expectations. Weve been fairly
consistent in that this year, again which is disappointing but our team has done a great job and
continues to do a great job of when people stumble in our doors we do a very good job of taking
care of them and also being very efficient with those revenue dollars.
Steven Kron Goldman Sachs Analyst
Thank you very much.
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
You bet.
Operator
Sharon Zackfia with William Blair, your line is open.
Sharon Zackfia William Blair Analyst
Hi, just a few questions. I just wanted to clarify a comment you made earlier. I think you were
kind of alluding to the potential to keep restaurant margins flattish more or less with the Bistro
next year and to get leverage below the line and I guess that just raises the question, are you
expecting G&A to actually be down then on a flat revenue environment?
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
Sharon, now youre getting into details. The fact is that as we look forward to next year, and
again were not, our crystal ball, we have a hard time projecting next week much less next year at
this time but as we think about it and just again in my agenda and your agenda are very different
and I appreciate that but as we think about our business and planning our business and whats going
to happen next year, we want to make sure that within reasonable bounds were able to achieve what
we want to achieve so as we think about it right now and again not being specific, if you give me
flat revenues next year we stand a very good chance of holding restaurant operating margin
relatively flat and again assuming no acts of God will kill all produce, and then as we look below
the line I think we stand a good chance of getting some leverage there. We certainly again a very
modest development schedule. Our pre-opening will be less next year than it is this year and as I
think obviously well incur less interest expense next year than this year which is a good thing.
G&A, well see. A lot of our G&A is incentive based comp. If we happen to have a great year and we
blow it out of the water our G&A will be up and everybody will be happy. If we dont have such a
great year our G&A will probably be down. No one will be happy. So I dont think youre going to
see any significant spikes in G&A absent incentive comp if thats helpful.
Sharon Zackfia William Blair Analyst
Okay and one last question, on Pei Wei, it sounds like there are many things moving in the right
direction there, so I know you gave your guidance for 2010 openings but I think youve said it in
the past that if you started to give Pei Wei the green light we probably wouldnt see that until
2011 so are we getting close to Pei Wei getting the green light for accelerated expansion?
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
The green light is on.
Sharon Zackfia William Blair Analyst
All right, thank you.
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
Okay.
Operator
Tom Forte with Telsey Advisory Group.
Tom Forte Telsey Advisory Group Analyst
Great, thanks. Two questions on sales. One, you talked about some of the initiatives and I was
wondering in particular in the kids menu addition was helping tickets or how that was affecting
sales and second were there any markets that had positive comps in the quarter or are there any
other comments you would make differentiating one geography versus another?
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
In terms of the kids menu, Tom, we officially ruled out a kids menu a few months ago, unofficially
you could walk into almost all of our restaurants and talk to our servers and our management team
and they would figure out how to provide children with meals so we officially put a menu out there.
It has been out there for a while now and again I dont think, since we didnt have a kids menu per
se its kind of difficult to measure it against the past but again, were seeing a little bit of
activity there, certainly nothing that surprised us at this point. And from a Bistro standpoint is
there anywhere thats positive?
5
Tom Forte Telsey Advisory Group Analyst
Yes.
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
In the third quarter, lets see, were in 38 states, one state was positive and I will bet you $20
youll never guess what State that is.
Tom Forte Telsey Advisory Group Analyst
Illinois.
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
Wrong. Im sorry, did we take the bet? I shouldnt have been so quick. Its actually Louisiana was
our one positive state.
Tom Forte Telsey Advisory Group Analyst
Thank you.
Operator
Matt DiFrisco with Oppenheimer, your line is open.
Matt DiFrisco Oppenheimer Analyst
Thanks, can you tell us on the same-store sales side if you saw any differences throughout the week
especially on the weekend or during the week, I guess Im looking for a correlation between retail
sales which on a momentum basis the perception is that there was an improvement the last couple of
months and around the back-to-school it was a little bit better than prior expectations. So Im
wondering if you saw at the Bistro any correlated strength with those days that might be bigger
shopping days like the weekends?
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
Well again, everything is relative, Matt, but your assumption or thesis is correct. If there is a
stronger part of the week for us it is the weekend more so than weekday, thats correct.
Matt DiFrisco Oppenheimer Analyst
So the comp is stronger on the weekend than it is during the week?
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
Its less negative, yes.
Matt DiFrisco Oppenheimer Analyst
And just to clarify your comments with Pei Wei, you said the green light is on for growth, so Im
just curious what is the governor to growth in 2010 if youre going to come in a little smaller on
the openings than 2009. Is it just a matter of time of rebuilding the pipeline or is there
something going on as far as flux maybe with what the prototype could be or what you want to build
going forward?
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
No, its a timing issue, Matt. The fact of the matter is it takes time to sort real estate, to
negotiate the actual lease documents and to build our restaurants and that time frame generally
speaking again, rough rule of thumb is about a year from the time that we stumble upon some great
real estate and to the time we open our doors. Sometimes depending on the site it can be faster it
can be slower but as weve said before we stopped looking for real estate. We turned the capital
spigot off on Pei Wei until we felt like it warranted additional capital.
The team has done a great job of getting the business to a point now where as we look on a go
forward basis we think it makes sense to invest more capital into the concept and so weve turned
some of the real estate folks loose on a handful of markets and generally speaking theyre existing
markets. We do have one new market we are looking at and that would be Chicago but again its going
to take a little while to begin to find the real estate and to get our pipeline restored with
respect to Pei Wei. Next year is going to be modest. I would expect that 2011 will have a few more
Pei Wei restaurants.
Matt DiFrisco Oppenheimer Analyst
And still 100% Company owned model to grow?
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
That is correct.
Matt DiFrisco Oppenheimer Analyst
Great. Thank you.
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
You bet.
Operator
Mitch Speiser with Buckingham Research you may ask your question.
6
Mitch Speiser Buckingham Research Analyst
Thanks very much. Bert, if I look back several years ago I believe at the Bistro, average weekly
sales were I think peak around 110,000 or 111,000 per week, were currently running at about a
87,000 or so run rate, maybe third quarter is seasonally a little bit low but call it in the 90,000
or so run rate. Now margins I believe are about the same as they were when you were doing about
110,000. I guess my question is if theoretically you were to get back to that peak average weekly
sales where do you think your margins would be at the store level? Thanks.
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
Wow is that a leading question, Mitch? First of all I think that over time, as any concept
generally speaking as any concept continues to grow in size, I think historically average weekly
sales tend to come down a little bit, as we say around here, familiarity breeds contempt in the
restaurant business, so as we continue to buildout the Bistro, my expectation all along is that
average weekly sales in total would come down simply because youre going to be going to markets
that arent going to produce $110,000 a week at a Bistro.
They can be great markets and produce $75,000 a week, return on capital can be fabulous in certain
places its $75,000 a week can actually even be better than perhaps 100,000 plus in downtown
Chicago for example, so as we move forward, I do think that if the consumer environment improves
and if we continue to do a great job with our guests, lots of ifs there but I think we will see our
average weekly sales tick up. I think I mentioned in the comments that as we look back on the third
quarter and who knows but Im hopeful that will certainly be the low point this cycle in terms of
our average weekly sales of the Bistro and where youre going with your question I think is that if
sales improve, should we see margins improve and I think so. I think were better Operators today
than we were a few years ago. The tough times that weve been through for the past few years has
created a mentality in our operations group to be as efficient as possible and think about new ways
of preparing our product, bringing our product in the back door and getting it ready for the guests
and a lot of the improvement weve seen as I said before has really come from the great work that
people have done from the back of the house versus the front of the house. As we move forward I
think those initiatives and those tactics will be the gift that keeps on giving assuming revenues
move North instead of South. And thats what were striving for and thats what were hoping for as
we push forward.
Mitch Speiser Buckingham Research Analyst
Thanks.
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
You bet.
Operator
Joe Buckley of B of A Merrill Lynch.
Joe Buckley BAS-ML Analyst
Thank you. First question on sales at the Bistro, could you do maybe a little deeper dive? 09 will
be the fourth year of negative same-store sales and just talking about recently the third quarter
was particularly soft. Do you have a sense of why customers arent coming? Obviously youve got the
macroeconomic backdrop but youve been pretty creative I think in terms of coming up with marketing
ideas and kind of things to get customers in the door and they dont seem to be gaining any
traction and I guess Im curious what you think the issues might be besides the economy at large?
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
Well, Joe, I mean obviously thats the $64,000 question. Are people shunning us in particular or is
it the economy or is it a combination of all of the above? I will say that internally we look at
ourselves first and weve always believed and we continue to believe that great food and great
service goes a long way in this business and thats what were focused on. I will tell you, I said
earlier that I think were a better Operator today than we were a few years ago and I dont just
mean that from an efficiency standpoint. I think were doing a better job from a hospitality
standpoint.
I think one thing that has I guess become clearer this year at least to me is how much business
versus retail and I apologize for that very loose definition but how much business we do versus
retail activity that we do in our restaurants. As people travel in their business lives and they go
to various cities, I think that I have always perhaps discounted how many of those people come to
our restaurants whether theyre by themselves traveling or whether theyre with business associates
or with clients. Theres no question that weve seen a drop off in that traffic and as you got to
dig into our lunch and dinner dayparts, whatever were missing it this year, you heard me
unfortunately talk in the past about as we look at our ticket averages and we put things in buckets
and I was moaning last year that, the leaky bucket was at our lower ticket prices? Well, we fixed
that leak. The problem is that now the upper end or the people who were spending the most money
were seeing a decline in those tickets and again, Im not trying to be smart about it but that
tends to be people who have the wherewithal to spend more and we believe that tends to be more on
the business side than again what I would call the retail side.
So as we think about next year, we think that if the business environment improves and we all watch
it day-to-day and we all are hopeful that it is going to show some signs of improvement, I think
that piece of the business will help us next year. It will also help other people at the same price
points that we are, so competitors are out there that have a similar price point. I think they will
also see a slight lift in their business. If thats the case, and if people become less fearful
about losing their jobs, if the unemployment rate continues, if the unemployment rate would stop
going up and actually begin to come down a little bit, again all of those things I think will begin
to play a little bit better to us and everyone in this group. Thats what were hoping for for next
year and well see what happens.
I dont think that we have disappointed people at the Bistro or at Pei Wei for that matter. I dont
think weve turned people away from us. Again, thats a broad statement and Im sure theres some
people that will be disappointed but by and large I think we do a pretty good job and anecdotally
what we
hear from our guests, well both anecdotally and through the research that we do that they
love our concept, they think we provide a very good meal
occasion for them. They simply because of other factors in their life they simply cut off
frequency. Were hopeful that those other factors get better and they will come back to us.
7
Joe Buckley BAS-ML Analyst
Thank you.
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
You bet.
Operator
John Ivankoe with JPMorgan you may ask your question.
John Ivankoe JPMorgan Analyst
Great, hi, thanks. Well, first just a quick housekeeping question. What will CapEx but for fiscal
10, Bert?
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
For 2010?
John Ivankoe JPMorgan Analyst
Yes.
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
I think with five Bistros, five Pei Weis, your new unit developments, its not going to be much,
maybe $30 million give or take so youre going to have some CapEx spend, youll have a little
support spend here but its a fairly modest number for next year.
John Ivankoe JPMorgan Analyst
Okay, and moving on from there, I think youve kind of addressed this in some other questions but I
think a lot of us are beginning to be afraid that theres a thought that cost savings in 2009 may
in fact may need to be reinvested in 2010 or beyond or that could very quickly become an industry
phenomenon as the sales begins to stabilize that Company begins to flex up their cost structures
after flexing down their cost structures. I mean do you see anything in your operation including
maybe what youve asked your staff to do? Obviously everyone in this economy has been asked to do
more with less that that may be an option or requirement for you as you move forward?
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
I dont see that, John.
John Ivankoe JPMorgan Analyst
And finally, could you just shed a little bit more light on your frozen food business into 2010? I
mean what the timing of that would be, just if theres any kind of preliminary discussion that you
can give us around timing and the amount of advertising dollars that will be spent, if theres any
investment on your part, the number of points of distribution that your brand would get into?
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
John, I appreciate the question. Im going to be relatively silent on that. Our friends at Unilever
have asked us not to talk too much. Were excited about it but they would like to get everything in
place. They have their own competitive concerns that theyre worried with so were going to stay
fairly quiet with respect to whats going to happen on that front. I will tell you that if you look
at our, what we call our brand development or section of our business which really is the
international piece as well as the Unilever transaction, this year the, thats an investment for
us. Its going to cost us about $0.07 this year. We think next year that investment will decline to
about $0.03 maybe $0.04 next year and hopefully go positive in 2011 so I know thats not specific
enough to your question but thats probably as much as Im going to give you.
John Ivankoe JPMorgan Analyst
No, but its good color. Thank you very much.
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
Okay.
Operator
Keith Siegner with Credit Suisse.
Keith Siegner Credit Suisse Analyst
Thank you just a quick follow-up on the cost of goods sold. Last quarter you talked about expecting
a range of 26.4 to 27 and came in a little bit lighter than that this quarter. Im just wondering
if you could walk through where maybe that upside came from. Was it continued mix shift towards
chicken is what you mentioned, was it actually lower commodity prices with a better waste
management? Any color along those lines would be helpful.
8
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
Keith, first of all I dont think we gave guidance whatsoever with respect to particularly
quarterly guidance on cost of sales. Nonetheless, as we look at cost of sales, I think that like
everyone else, weve benefited this year from a fairly benign to lower environment. In total were
basically a push, pretty flat with the second quarter. I dont expect to see a significant change
in that number as you move into the fourth quarter. Produce was always the wildcard but we havent
had anything yet and theres a few couple things that have hit us but nothing major thats going to
cause us to change our thoughts with respect to how well finish out the year.
Again as we go into next year, if you just look at the proteins, I think our team has done a very
good job of being patient this year and balancing the ability to contract for supply, making sure
that we have plenty of protein come to our restaurant, and at the same time battling for the best
price and with us and everyone else its always a comparison year-over-year to what you were
contracted for last year and as we look at 2010, by and large the protein complex for us is going
to be favorable. Some of the non-protein items, rice and oil and things of that nature again are
going to be flat to slightly favorable. We have everything essentially contracted for now with the
exception of chicken and were still working on a chicken contract but all indications are is that
it will be in the flattish kind of area, and so were becoming more confident that the commodity
basket for us next year will not provide too much pressure, again all of this is absent any
conversation on produce which is a significant item for us, so if locusts and everything descend
upon California and other growing regions hopefully not, barring those types of events I think
well be okay.
Keith Siegner Credit Suisse Analyst
And the mix shift towards chicken you mentioned last quarter is there any other interesting take
away from a product mix shift that youre seeing this quarter that would be worth mentioning?
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
Not really. To the extent that people are moving around the menu I would say theyre moving to
lower price items and to the extent that there is movement theyre moving to lower price items and
that tends to be chicken so I think thats what weve seen throughout the year. There hasnt been
any significant change to that.
I will say at Pei Wei in the third quarter, we introduced our Ramen bowl and the mix on the Ramen
bowl tends to skew towards beef, so they actually saw a pick up, a little pick up in their cost of
sales with respect to the introduction of the Chili Ramen bowl. Its a great product by the way if
you havent had it. And its selling well so I think the Pei Wei team is pleased with that but it
has had a little bit of a negative effect on cost of sales.
Keith Siegner Credit Suisse Analyst
Okay, thanks.
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
Yes.
Operator
David Tarantino with Robert W. Baird. Your line is open.
David Tarantino Robert W. Baird Analyst
Hi, Bert, just a clarification or a question about the October comp trend that you mentioned,
pretty meaningful improvement versus what you saw in Q3 at the Bistro. What do you think is going
on there, do you think the consumer is feeling a little less negative or is the business traveler
coming back? Why do you think the trends are getting a little bit better?
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
Well, it was an average weekly sales comment, not a comp comment first of all, but the answer is
the same. Weve seen a slight pick up in transactions and I could not be specific as to who was
coming in the door right now but the fact of the matter is that there has been a slight pick up in
transactions and well watch and see how things turn out and depending on who you talk to the
people who are very smart about our business, there are some folks you think were going to see a
good holiday season and others think its not going to be so good. So I think everyone has got
their best on the table and again were hopeful that its better than last year. I have a hard time
understanding how it will be worse than last year but then someone pointed out to me that theres
50% more people unemployed this year than last so maybe thats how it will happen but nonetheless
what were seeing so far is a pick up at the Bistro in terms of transactions. Pei Wei with momentum
has continued into October and well see how obviously the next two months play out.
David Tarantino Robert W. Baird Analyst
Great, thank you.
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
Sure.
Operator
Brad Ludington with KeyBanc, your line is open.
Brad Ludington KeyBanc Analyst
Thank you. I wanted to ask on the cost cuts that youve started putting in it seems like really
significantly in the fourth quarter last year when exactly do we lap the benefit in all those cost
cuts and then beyond that are there additional cuts that you think can be put in place in the
coming quarters without going too far?
9
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
Sure, Brad. Weve been talking all year about the fact that many of the initiatives that have taken
place in both concepts but in particular the Bistro, the benefit that we have received from those
initiatives and theres not one or two, its numerous number of initiatives, the benefit that we
receive from those would narrow as we went through the year, clearly meaning that we get more
benefit earlier in the year than we would later in the year and I think that to a degree youre
seeing that now and to a degree youll see that in the fourth quarter. Are there things that were
working on for next year, the answer to that is yes and but theres nothing specifically that Im
going to talk about today and again, were hopeful that from a traffic standpoint things stabilize
in our business and if thats the case, again, we feel pretty good about our opportunity and our
chances for 2010.
If things did not stabilize, lets just envision that next year is the same as this year, obviously
were going to have to take steps to mitigate some of that sales deleverage and you start looking
at your fixed cost both from an operation standpoint and from a home office support standpoint and
we have to look at that. As painful as that maybe for us we have to take a look to see are there
areas from a fixed cost perspective that we could address and were doing that now, whether or not
we have to implement some of those things again, well wait and see.
Brad Ludington KeyBanc Analyst
Okay, and then beyond that, with the revised cost structure, it seems like traditionally you used
to say that positive costs in the low single digit range is what you needed for operating leverage.
Is that still relevant or would it be a little bit lower or maybe closer to flat to slightly
positive?
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
Yes, I think I used to say Id sell my soul for a 2 or 3% positive comp every year and I dont
think it has changed by the way. Once upon a time that again, looking back five, six, seven years,
we felt like we needed to have a positive sales environment in order to offset what we believe were
just ongoing pressures in our business and really youre speaking to labor when you talk about
ongoing pressure in our business, theres always wage increases, healthcare always seems to cost
more, it always seems to cost more to attract and retain the best people, so theres always an
inflationary bend if you will and we said historically that if we could get positive sales and get
more people coming through the door that we could offset those inflationary pressures.
Today I will tell you again that both teams but in particular the Bistro, theyre running a tighter
ship than we used to run ex number of years ago and obviously as you look at this year, we had
declining sales environment and we improved margins. Im still scratching my head as to how that
happened but the fact of the matter is that if we look forward into next year do we need positive
sales? It would be nice. I dont think that its necessarily required for us to kind of hold things
flat again, weve got a fairly benign commodity environment. If commodities spiked on us in a given
year, then obviously we would have a different issue but as we look into 2010 and given where we
are contractually with our proteins and other items, I think were set up and its really as good a
possible place as we could be for the revenue environment that may unfold for next year. So I hope
that answered your question.
Brad Ludington KeyBanc Analyst
Okay. And then finally just on your share repurchases, I just want to make sure we heard right. You
said in 09 you think youll reduce share count by about 4 to 5%?
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
This year, yes.
Brad Ludington KeyBanc Analyst
Thank you very much.
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
You bet.
Operator
Bryan Elliott with Raymond James, you may ask your question.
Bryan Elliott Raymond James Analyst
Thanks. Bert, you mentioned earlier about people stumbling in your front door and giving them great
service and experience. I stumbled in your restaurant just the other week and asked for another
Martini, and they called the cops.
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
Well, Bryan, Im glad that we exhibited that type of behavior.
Bryan Elliott Raymond James Analyst
So the training is working.
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
Thats right.
10
Bryan Elliott Raymond James Analyst
Just a couple of cash flow questions. The true food investment has that happened yet or is that a
2010 or Q4?
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
Our friends at True Food have not asked us for $0.05 yet so nothing has happened on that front. My
expectation would be that over the course of the next few months well probably get a phone call
asking for a little bit of money. I think that Sams plans are to open maybe one or two True Foods
next year and if thats the case then Im expecting a phone call but nothing has happened yet.
Bryan Elliott Raymond James Analyst
And so it will be sort of incremental, it wont be a single investment one shot?
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
No, call it a little credit facility perhaps but its really just a line theyre going to draw on
as their needs present themselves.
Bryan Elliott Raymond James Analyst
Got it. How much share repo did we have in Q3?
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
$10 million.
Bryan Elliott Raymond James Analyst
Okay, and did I hear right in answer to a previous question, 2010 rough guesstimate on CapEx could
be as low as $30 million?
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
Yes, I dont think thats far. Maybe a little bit more than that but when you talk about new
development, five Bistros and five Pei Weis, rough math very rough math, lets say $3 million for
a Bistro, cash and that gets you to 15 and something less than $1 million for Pei Wei but again
just back of the envelope math, lets just say $1 million, thats $20 million new unit development
and throw in about $10 million of maintenance CapEx, throw in a couple million for just
miscellaneous other stuff and youre in the 30 million to $35 million range.
Bryan Elliott Raymond James Analyst
Okay, just wanted to make sure I heard it right and what was third quarter CapEx, Mark do you have
that?
Mark Mumford P.F. Changs China Bistro, Inc. CFO
Yes, $18 million.
Bryan Elliott Raymond James Analyst
For the quarter, okay?
Mark Mumford P.F. Changs China Bistro, Inc. CFO
Yes.
Bryan Elliott Raymond James Analyst
All right thats all Ive got, thank you.
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
Thanks, Bryan.
Operator
Howard Penny with Research Edge, your line is open.
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
HP?
Operator
Please check your mute button.
Howard Penney Research Edge Analyst
Im sorry about that. I dont know how to use technology. When you look at the changes to your cost
structure over the last year or so that the costs that are within your control not the incentive
comp and whatnot if growth was to return, what percentage of the costs youve taken out of the
business would you have to put back?
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
Howard, I think Ive answered the question earlier. I dont think youre going to see any
significant increases in our cost if you decide to come to our restaurant.
11
Howard Penney Research Edge Analyst
What about if growth was to return?
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
Well, if growth was to return, and again lets talk about that for a second, Bistro growth going
forward I dont think is going to be the same as it was five years ago. We talked roughly about the
universe of Bistro being about 250 restaurants and obviously we wont be right about that number,
it will be plus or minus from that but going forward I dont think youre going to see us build 20
Bistros in any given year. I think that youre probably going to be in the 8to 12 range roughly,
Pei Wei is really more susceptible to growth if you will. They have more air in front of them.
Whether or not we dont know yet what that number is going to be so there could be a slight pick
up in terms of development type costs but were not talking about a lot of money there so I dont
think youre going to see this massive increase in G&A type costs should we begin to invest in a
little bit more capital in our existing businesses.
Howard Penney Research Edge Analyst
Thanks.
Operator
[Amol Dessai] with Johnson Rice, you may ask your question.
Amol Dessai Johnson Rice Analyst
Hi guys, two quick questions in terms of Pei Wei development you talked about Chicago as a new
market, where are the other units planned for next ear going and two, can you just qualitatively
talk about availability of sites and investment costs for both concepts, please?
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
Im sorry, what was the second one?
Amol Dessai Johnson Rice Analyst
Just in big picture terms whats the availability of sites for both Bistro and Pei Wei and what are
the costs looking like?
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
Oh, sure. I didnt mention the other markets we were looking at in Pei Wei for a reason so Im not
going to mention them now but suffice it to say if its in existing areas where we have a Pei Wei
presence but the areas where we feel like theres certainly an additional opportunity there. With
respect to, as we think about both concepts and the availability of real estate and the cost of
that real estate, the Pei Wei, theres lots of 3000 square foot spaces around the country and I
think that its I think well be able to take advantage of that. I dont really think theres a
great rush to soak up that demand thats up there. I think theres a lot of space available. Well
try and be as judicious as possible in terms of getting great real estate.
The prices on real estate by the way, great real estate doesnt come down in price much. There
maybe a little bit of wiggle but good real estate always costs more money and with respect to the
Bistro, we will continue to be opportunistic to fill in existing markets, were going to open a
restaurant here next week in Cambridge and that was a deal that came to us really late last year
but early this year and the city and others have been incredibly cooperative in terms of getting us
our permitting and were actually going to open in somewhat record time there, so I mentioned it
only as an example of us trying to be opportunistic where developers come to us or landlords come
to us and say that weve got a great space, are you guys interested? The answer is yes. We continue
to believe that we can drive great returns with the Bistro and so we will continue to put capital
to work there although it will certainly not be at the pace it was in the past.
Amol Dessai Johnson Rice Analyst
Thank you.
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
You bet.
Operator
Mitch Pfizer with Buckingham Research, you may ask your question.
Mitch Pfizer Buckingham Research Analyst
Thanks, a quick follow-up or your comments on transactions picking up in October. I just did notice
that your monthly comp, your October comp last year was a lot easier than it was in September so I
guess my question is September is a seasonally slow month so as the transaction pick up versus the
trends you saw in September, is it versus a year ago and again, viewing a year ago is easier in
October than September, is that buffer some of your optimism or are you just feeling good that
transactions are moving in the right direction?
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
Mitch, Im not so sure again, anything is easier this year than last year and in response Ill tell
you transactions have moved up just slightly at the Bistro and perhaps its a drop of water in the
desert to us but the fact of the matter is well take it for what its worth. Maybe its seasonal
perhaps but I think that we rarely put on our pom poms and trumpet our business. We dont think
theres something there and again, weve seen a slight pick up. Were hopeful that that pick up
will maintain itself through the fourth quarter and anybody knows, who knows but again, I wouldnt
make too much of it but I also wouldnt dismiss it.
12
Mitch Pfizer Buckingham Research Analyst
Great and if I could slip one other question in. Just on produce, could you tell us if produce was
up or down in the third quarter and your thoughts on produce on a year-over-year basis here in the
fourth quarter?
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
Oh, lets see. Produce Im looking at Pei Wei produce was down in the third quarter year-over-year
and at the Bistro, produce was down year-over-year.
Mitch Pfizer Buckingham Research Analyst
Got it, and did fourth quarter start off the same type of trend?
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
I would hesitate to make a comment on fourth quarter after just a couple of weeks.
Mitch Pfizer Buckingham Research Analyst
Understood. Thanks.
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
Thanks.
Operator
John Glass with Morgan Stanley you may ask your question.
John Glass Morgan Stanley Analyst
Thanks. Could you talk about your contemplation of pricing next year and I guess not just if youre
factoring into your model but quick service has really effectively used more sophisticated tools
and pricing both on a regional basis and even items on the menu in figuring out what the particular
demand is for each item and pricing accordingly. Do you think theres an application for that in
your business or maybe do you already apply that?
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
Well, with respect to pricing overall, and Ive been asked the question whether were smart enough
to figure it out regionally or by market, I think pricing overall as you know, John, weve been
hesitant to take price in this environment. I will say that until you see things improving in a
meaningful way from a consumer standpoint, I dont think were going to change our opinion with
respect to that, so being smart about regional pricing, et cetera, et cetera, et cetera, is kind of
a moot point and if again, big if there but if things improve from the consumer standpoint and if
the business environment gets better and we start to see positive momentum in our business, would
we rethink our position and maybe take a little price to offset what has been some wage pressure
and healthcare pressure? The answer to that is yes, we would certainly consider that. Dont know if
we would do it or not but we would certainly revisit the issue but right now the environment is not
such that we necessarily want to push price.
John Glass Morgan Stanley Analyst
Okay, and then can you just review the marketing spend in the third and fourth quarter particularly
for Pei Wei? It seemed like last year you may have cut back on the marketing in fourth quarter if I
read my notes correctly maybe as you reevaluate the plans. Are you going to go back and put more
expenses at that marketing versus last year the fourth quarter?
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
In total we spent 1 million, 1.1 million, sequentially more in the third quarter than the second
quarter and my expectations are well spend a little bit less in the fourth quarter than the third
quarter.
John Glass Morgan Stanley Analyst
And those comments are specific to Pei Wei or the overall business?
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
Talking in totale.
John Glass Morgan Stanley Analyst
Okay.
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
Now, again, the environment is not one that is necessarily conducive to anyones message right now
but well continue to try and push our message and as we think about next year, I would be
surprised if we spent less money from a marketing PR standpoint than we spend in 09. I would
anticipate that we would actually if anything spend a little bit more.
John Glass Morgan Stanley Analyst
In total, not just percent?
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
Right.
13
John Glass Morgan Stanley Analyst
Okay, thank you.
Operator
Joe Buckley with B of A, Merrill Lynch.
Joe Buckley BAS-ML Analyst
Hi, Im fine, thank you.
Operator
Thank you, Greg Ruedy with Stephens your line is open.
Greg Ruedy BAS-ML Analyst
Bert at the Bistro the introduction of the grill Im glad you added some interesting new items.
Longer term what are your thoughts on the menu size there, opportunities to maybe broaden or narrow
the categories and specific number of items within those categories?
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
Well, Greg, I think that we will continue to try and formulate great products for our guests. Our
business has never been driven necessarily by new product. As much as we would like for people to
come in and try new things, the Bistro in my experience now whatever in 13 years people are
amazingly sticky when it comes to the items that they like at our restaurant. Try as we might to
move them off Changs spicy chicken, they love Changs spicy chicken, so our thoughts really
havent changed there, the grill certainly allows us the opportunity, gives us a little bit broader
breadth if you will in terms of items that we can produce, and I will tell you all of our R&D
efforts, we continue to work on new product. I would not say if theres any specific area that
were focused on more so than others. Chinese cuisine has been around a long long time and that
cookbook if you will is pretty big so we have a lot of, we have a very broad pallette from which to
choose from and I think our guys are doing a great job of putting things in front of us that we
think will be received well by our guests and will help continue to fill out our menu in a way that
will be positive for our business.
In terms of the size of the menu, my reference is less rather than more so I would hope that as we
move forward we can maintain a certain amount of discipline in terms of size of menu. I think weve
done a pretty good job over the years of doing that. If we have 75 or 80 items on our menu the fact
of the matter is we produce probably almost 200 items a day because we are able to modify to our
guest requirements and needs. I think thats one of the strengths of our concepts. If you have any
types of health concerns we can modify our dishes. Everything is prepared to order so we can do
that for you. If you want Changs spicy beef instead of Changs spicy chicken we can do that for
you so we try and be as accommodating as possible. Obviously that requires a little bit of
dexterity on our part in order to do that and I think our team does a great job day in and day out
of providing that type of experience to our guests. It may not from a P&L standpoint, it may not be
as efficient but I think it provides a better experience. So weve got to be mindful of the number
of items because every item we add to the menu its going to be prepared five or six different ways
by our guests. So we need to be mindful of that and I think our Bistro team has done that in the
past and I would expect them to continue to do that in the future.
Greg Ruedy BAS-ML Analyst
Thanks.
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
You bet.
Operator
At this time there are no further questions.
Bert Vivian P.F. Changs China Bistro, Inc. Co-CEO
Thanks so much. Thank you everyone for joining us today. I believe the next time youll be hearing
from us will be our fourth quarter release which is Wednesday, February 17, in 2010. Thanks so
much. Appreciate it, bye-bye.
Operator
This concludes todays conference. Thank you for your participation. You may disconnect at this
time.
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