CPKI California Pizza Kitchen, Inc. (MM)

Scottsdale, Arizona-based P.F. Chang's China Bistro, Inc (PFCB), which owns and operates two restaurant concepts P.F. Chang’s China Bistro (Bistro) and Pei Wei Asian Diner (Pei Wei), recently inked a deal with Alsea, S.A.B. de C.V. to expand in South America.

Alsea is a Mexico-based company primarily engaged in the food service sector with about 1,000 locations. The company franchises several renowned chains including Burger King, California Pizza Kitchen Inc. (CPKI), Domino's Pizza, Inc (DPZ), and Starbucks Corporation (SBUX).

As per the agreement, 17 P.F Chang’s restaurants are expected to open in Argentina, Chile and Colombia over the next 10 years. The first outlet will come up in Santiago, Chile in early 2012.

We believe that P.F Chang’s partnership with Alsea will enhance its market share in South America going forward, as Alsea operates more than 150 restaurants in countries such as Argentina, Brazil, Chile, and Columbia. Moreover, we are certain that people in South America would love P.F. Chang’s high quality food and high energy atmosphere.

Earlier, in 2009, P.F. Chang's had signed an agreement with Alsea to open 30 restaurants in Mexico by 2019. Six P.F. Chang's restaurants are currently operational in Mexico.

P.F. Chang's is expanding its brand in the international market through licensing agreements as it reduces the company’s capital intensity. Moreover, under the license agreements, the company is entitled to receive an initial territory fee, store opening fees and ongoing royalty revenues based on a percentage of international restaurant sales.

In April, P.F. Chang's entered into a licensing agreement with Interaction Asian Restaurants to develop 12 restaurants throughout Eastern Canada over the next 10 years. In 2011, the company expects to open two new Bistro restaurants and five new Pei Wei restaurants.

P.F Chang’s holds a Zacks #3 Rank, implying a short-term Hold rating on the stock. We also reiterate our long-term Neutral recommendation on the stock.

 
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