The Real Story: P.F. Chang's Is Overdone

It's not often that I like to bet against good management teams, and there's no doubt about it, P.F. Chang's management is a skillful one. But the stock has now become a victim of the company's success.

The share price got walloped in late July when the company issued an earnings warning due to construction delays. The company said those construction problems are a thing of the past. But that doesn't mean it can't happen again, and investors have been selling the stock again lately. Even after a strong day Tuesday, P.F. Chang's is down 2.9% as of Wednesday's close since the company released lukewarm fourth-quarter sales figures on Jan. 5. (the S&P 500 is down 0.5% during the same timeframe).

Menu Offerings

P.F. Chang's operates 131 of its flagship China Bistros and 77 of its casual Pei Wei Asian Diners. Some on the Street believe there's room in the marketplace for 250 Bistros and 500 Pei Weis. The Pei Wei Asian Diner is a solid concept. The food is plentiful and reasonably priced. I conducted some "research" at one of the South Florida locations. An entree of Mongolian beef cost $7.95, while honey-seared chicken cost $7.25. It was interesting to note this location was half-full on a Wednesday at lunchtime. That was impressive because it had been open for just a month and was one of only two businesses that were operating in a shopping center that is still under construction.

I'm not arguing that the restaurants aren't popular and that the registers won't ring. What I'm concerned with is the slowdown in same-store sales, and flat traffic.

Since 2003, same-store sales at the Bistro have declined each year from 5.3% to 2005's paltry 1.2%; that 2005 figure included a 1% price increase, meaning organic traffic growth slowed to a trickle.