Panera Pinned at Neutral
We remain Neutral on Panera Bread Co. (PNRA). While we view the company’s solid earnings and revenue growth in the first quarter favorably; its inability to meet the Zacks Consensus Estimate on both counts, a reduced guidance for same-store sales and decline in transactions over the last two quarters keep us on the sidelines at the current level.
Why the Reiteration?
Panera Bread’s first-quarter 2013 adjusted earnings of $1.59 per share increased 13.6% year over year. Adjusted earnings benefited from top-line growth and expansion in operating margin.
The restaurant chain’s total revenue escalated 13% year over year to $561.8 million in the first quarter. Increases in all categories including company-owned bakery-cafe revenues, franchise royalties and sales of fresh dough to franchisees helped drive revenues in the quarter.
The company’s operating margin increased 10 basis points backed by better margins on fresh dough and other product sales to franchisees and lower operating expenses. Apart from these, we prefer the company’s strong pipeline with varied menu offerings, sound marketing proposition and franchisee acquisition initiative.
Despite these enthusiastic facts, some concerns prevent us from being too optimistic on the stock. Panera delivered lower-than-expected performance on both lines this earnings season.
Further, management slashed its company-owned comparable net bakery-cafe sales growth target from a range of 4.5%–5.5% to a range of 4.0%–5.0% for fiscal 2013 to reflect lower-than-expected first quarter comps.
Panera will also invest heavily in its operational capabilities including initiatives related to information technology to serve its customers better. This expenditure is expected to be back-half loaded in 2013 and the benefits of these investments will not be realized before late-2014 and 2015, thus pressurizing its bottom line in the next half.
Other Stocks to Consider
Others players in the same industry, which look attractive at current levels include The Wendy’s Co. (WEN), Brinker International Inc. (EAT) and Burger King Worldwide Inc. (BKW) all carrying a Zacks Rank #2 (Buy).
Read the Full Research Report on PNRA
Read the Full Research Report on BKW
Read the Full Research Report on EAT
Read the Full Research Report on WEN
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