It's been quite a couple of weeks for restaurants, a sector that has been fascinating in the past few years, even to this value investor. The biggest news was yesterday's announcement that P.F. Chang's China Bistro (PFCB) is being taken private for $1.09 billion, or $51.50 per share, which represents a 30% premium to Monday's closing price.
The stock had stumbled during the fall, hitting the mid-$20s, after revenue flattened and the company had a couple of quarterly earnings misses. At one point, this was viewed as a tremendous growth story, but one that simply ran out of steam. If nothing else, the takeout price is very close to the company's all-time high, which it hit back in late 2010.
Chang's is the second public chain to be taken private in the past year. The last was California Pizza Kitchen, which was acquired by Golden Gate Capital last July. I suspect that we may see more activity here with other names being taken private or acquired by other chains, and that should be no surprise.
Last week, Buffalo Wild Wings (BWLD) announced in its earnings release that the company is "investigating potential concepts for acquisition that would provide additional growth." Panera Bread (PNRA) CEO Ron Shaich was a bit less direct on the issue in an interview with our own Jim Cramer in March on "Mad Money," but he indicated that Panera may be on the hunt as well. (Buffalo, Panera, feel free to contact me. I've got a few ideas for you...)
On the earnings front, Domino's Pizza (DPZ), which had been on quite a run since it ran one of the most ingenious restaurant ad campaigns in history, stumbled yesterday on the earnings front, and the markets rewarded shares with a 9% haircut. Frankly, after the great run-up, I thought shares looked a bit rich back in February, but they did climb further from there, eclipsing the $41 mark in March.
Revenue for the first quarter came in at $385 million, down 1.2% from last year, and missed the $402 million consensus. The company also missed on earnings, reporting $0.47 a share, below the $0.50 consensus. It was not all bad news for Domino's: Same-store sales for domestic stores were up 2.0%, well ahead of last year's first quarter (down 1.4%). But international store-same sales growth fell from 8.3% to 4.7%. Interestingly, Domino's now has more international locations than domestic.
Finally, in the land of the small but mighty, Denny's (DENN) reported decent first-quarter numbers on Monday. Revenue of $126.7 million was close to consensus estimates of $127.9 million, but earnings came in a penny ahead of expectations at $0.06 per share. Same-store sales were up 2.4%, while operating margins at company-owned stores increased by 300 basis points to 15%, and 228 basis points to 65.3% at franchised locations.
The balance sheet continued to improve, as the company reduced total debt by an additional $8 million, and it now stands at $210 million. That's a far cry from year-end 2005, when the company was drowning in $554 million of total debt. The turnaround continues. It won't be long before Denny's actually has a positive book value. I can hear my value colleagues laughing about that one already.
Onward and upward!