PFCB – 2010 NOT AS DIRE AS 2009

I would not be surprised to see this name move higher

Like last year, Bert Vivian, PFCB’s Co-CEO gave one of the more interesting presentations at the Cowen and Company Consumer Conference (at least so far).   Based on the more optimistic tone of his presentation this year relative to last year, PFCB likely had a strong 4Q09 (or at least a marginally better quarter than 3Q09).  PFCB has outperformed the casual dining group on average over the last 3 months (up 5% relative to the group’s roughly flat performance).  Considering that PFCB is trading at 6.1x on a NTM EV/EBITDA basis relative to the group’s average of 6.4x and has a current short interest of 33.4%, which is the highest percentage among its peers, I would not be surprised to see this stock continue to move higher.

Mr. Vivian provided the following commentary about his outlook for PFCB based on his own opinion about how the industry will fare in 2010.  He stated that most of PFCB’s customers are made up of social diners and business folks.  He does not anticipate the social side of the business will get much better in 2010 (maybe marginally), but it is his opinion that the business side of traffic will improve.  He did sort of hedge that comment by saying that he does not think it could be any more dire than 2009.  At the Bistro, business people make up about 30% of tickets.  Based on his outlook for slightly improved demand, Mr. Vivian provided the following rough estimates for 2010 and 2011:

  • Development: 5 units each for Bistro and Pei Wei, modest growth.  There are currently 196 Bistros and the company thinks the concept has the potential for 250 units over time.  We could expect increased development in 2011 with closer to 8-10 new Bistro restaurants and 15-20 Pei Wei units.  And, we could see a few more in 2012. 
  • Same-Store Sales Growth: Even with the expected modest pick-up in sales trends out of its business customers, the company is not expecting positive comps for the full year in 2010 (maybe turning positive near the end of the year).  Specifically, modestly negative comps at the Bistro and positive comps at Pei Wei seem reasonable.  The company has no plans to raise prices in 2010, but Mr. Vivian stated that “If the world gets better, we might take advantage and take a little pricing.” 
  • Revenues:  Translates into roughly flat revenues in 2010. 
  • Restaurant level margins:  roughly flat with 2009.  This assumption is based on the company’s current outlook for slightly favorable food costs offset by slightly unfavorable labor costs. Based on contracts in place, protein costs should be favorable over 2009. Produce is not contracted and has the same weight as chicken or beef, but assuming no plague, produce should be slightly favorable as well. 
  • Non-operating expenses: Preopening expense, interest expense and G&A are all expected to come down in 2010. 
  • Free cash flow: Free cash flow should be of similar magnitude as 2009.  Debt will be paid down by mid-year, which leaves about $40-$50 million available for share buybacks.  In general, he plans to clean up the balance sheet and take the share count down, which should put the company in good shape by year-end. 

Additional geographic-specific commentary:

PFCB is seeing a pick-up in trends in Arizona while California appears to be stable.  And, Mr. Vivian confirmed the recent noise about weakness in Texas.  This is not a small matter for PFCB as Texas represents about 20% of the company’s restaurant base.