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    MARKET EDGES

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If PFCB did not go down today, it’s not likely to go much lower unless sales begin to look like they did in December. As we sit here today, PFCB is hopeful that same-store sales trends will be worse in 1H09 than in 2H09. When questioned about its forecast for a 2H improvement, management stated that it is based primarily on “internal optimism” (again hopeful!) that the environment will improve from a macro perspective. Although we always say at Research Edge that “hope is not a good investment process,” PFCB has taken the appropriate steps to proactively manage for this challenging environment by significantly cutting unit growth and capital spending (down nearly 43% YOY in 2008 and expected to be down over another 50% in 2009). Additionally, the company is extremely focused on managing costs more efficiently, particularly at its Pei Wei concept. That being said, I would agree with management’s comment that if and when there is some relief to the consumer, PCFB would share in the benefit.

Management also stated that should sales trends remain at such depressed levels (though sales trends to date are ahead of the company’s internal forecasts), that investors should not expect 2009 margin performance to fare as well as it did in 2008. I think this is an important point for all full-service restaurants. In 2008, companies worked to eliminate costs wherever possible in an attempt to protect margins. Most companies have already slowed unit growth significantly and have cut the fat out of their systems in order to mitigate the margin declines associated with sales deleverage in 2008. There is not much more these companies can do to benefit margins on a YOY basis outside of driving sales higher.