.F. Chang's China Bistro Inc.
) recently inked a definitive agreement to obtain a majority equity
ownership position in True Food Kitchen - a Fox Restaurant Concept
("FRC") specializing in healthy, locally sourced and globally
In 2009, the company entered into an agreement with FRC to
provide debt capital for the early-stage development of True Food
Kitchen restaurants. Per the agreement, P.F. Chang's obtained a
right to convert its loan into a majority equity ownership
In February 2012, the partners of P.F. Chang's and True Food
Kitchen mutually agreed to exercise the company's conversion
option. The action is expected to be completed in the second
quarter of 2012.
Upon completion, P.F. Chang's will hold 51% of True Food
Kitchen. Further, P.F. Chang will have rights to increase its
ownership to 90% or more in the future. Future unit development of
True Food Kitchen will be funded through a combination of cash flow
from the existing True Food Kitchen restaurant and P.F. Chang's
cash. P.F. Chang's does not expect any significant accretion or
dilution to earnings this year from this conversion.
Founded in August 2010, there are currently four True Food
Kitchen units with two restaurants in Arizona and two in
California. Two more units are slated to open in 2012. The True
Food Kitchen concept supports the rising demand for healthier menu
options that Americans essentially look for these days while dining
The brand has already created a solid customer base within such
a short span with strong unit economics. Current average unit
volumes are about $6 million with industry-leading cash margins.
These attributes made True Food Kitchen a lucrative acquisition
The deal is in sync with P.F. Chang's strategy to emerge as a
global brand. Citing an enormous potential in True Food Kitchen,
P.F. Chang's sought to deploy its capital in this growth vehicle
and earn solid return-on-investment. P.F. Chang's, which owns and
operates two restaurant concepts namely P.F. Chang's China Bistro
and Pei Wei Asian Diner, is successfully operating restaurants in
the domestic market while many of its international locations are
being operated by franchise partners.
P.F. Chang's currently retains a Zacks #3 Rank, which translates
into a short-term Hold rating. We also maintain our long-term
Neutral recommendation on the stock.
PF CHANGS CHINA (
): Free Stock Analysis Report
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