same store sales, average unit volumes and the future
Yesterday's announcements of same store sales and reduced guidance did not properly highlight a more important metric, the average weekly sales per store in the system. While these numbers were announced, nothing much was discussed about them. And there is a lot to discuss.
First and foremost, the average sales for stores that opened in 2006 have been collapsing. The year end SEC filings show that stores opened in 2006 did the following average weekly sales since the start of that year:
first quarter 2006 $44,848 second quarter $36,572 Third quarter $34,704 fourth quarter 34,910 first quarter 2007 $33,265 (announced yesterday)
These stores represent about 15% of the entire Panera system and their sales are declining at a rate of about 10% annually. A few years ago, the company told us that sales were extremely high in the newly opened stores as people rushed to sample the new local Panera. Then the explanation changed to sales at new locations taking about 18 months to mature and rise to full height. Now we are seeing stores open for nearly 18 months collapsing in their sales performance.
This collapse is much more important than the same store sales disclosed by Panera. After all, SSS does not include store open less than 18 months. While we may see some rise in SSS since we are moving into an easy comps period, we will also see a declining profit per average unit since sales are down. More stores, but less profit per store does not make for a compelling story IMO.
As a result of this, I have sold half of my position and replaced them with short puts. this gives me a substantial cushion on the downside and lets me keep the upside to take advatage of any market jumps. I have also written calls on the remainder of my holdings.
IN short, I remain convinced that the Panera concept will remain a long term success, but for the near term, there will be a lot of rocky spots on the road taken by the stock IMO.
Comparing Freshbread to those guys is like comparing a high class hooker to a $5 streetwalker. I don't always agree with Freshbread, but his views are well thought out and I take them seriously. The others will say anything, half-true, untrue, rumor, innuendo, whatever, just to help a short term short position.
Freshbread has been a long term Panera bull and has profited greatly. I actually spoke to him at a shareholders' meeting right before Au Bon Pain was sold (I think 1998 but I could be off a year) and we have posted here for many years. Freshbread and I recommended Jsda to this board 6 or 7 years ago at .75, the day after Panera signed an exclusive deal with Jsda. Hope some of you made the big bucks we did.
While his concern with the class of '06 is legitimate, I'd be more concerned if there were a deterioration in the older stores, supporting a view that the concept tires after a few years. That is not the case as the '05 and earlier stores continue strong. Most of the '06 stores have not been open for 18 months yet, supporting what Ron said that it takes about that long to hit their stride, apart from the initial opening crowds which soon wanes. Nevertheless, I the '06 stores are doing a tad worse than I would have expected and I will be looking after Q2 to see where we are on that. Panera should be commended for providing such detailed AWS info. Few companies do.
We are not now where we were when Panera was 3 or 4 (post-split). It was then an extraordinary growth story just starting. It's still a growth story with reasonable valuation and IMHO a very bright future. But it's more like doubling your money in 4 or 5 years, better with writing appropriate covered calls. This is a particularly good time to get in as the bad news is likely over and comps will start rising nicely.