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Panera's Earnings & Revs Lag Estimates

Zacks Equity Research

Panera Bread Co.'s (PNRA) first-quarter 2013 adjusted earnings of $1.59 per share fell shy of the Zacks Consensus Estimate of $1.65 by 3.6% but increased 13.6% from the year-ago- earnings per share. On a reported basis, including the benefit from resolution of legal and tax matters, earnings were $1.64 per share, up 17% year over year. Earnings were driven by improved top-line and operating margins.

Quarter in Detail

The restaurant chain’s total revenue escalated 13% year over year to $561.8 million in the first quarter but lagged the Zacks Consensus Estimate of $568.0 million. 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.

System-wide comparable net bakery-cafe sales in the quarter increased 3.3% driven by a 3.3% increase both at company-owned units and franchised-operated units. The comps fell short of the company’s guided range of 4%–5%. Muted growth in comps can be attributed to 2.4% decline in transaction in the quarter.  

Comps were worst hit in the month of February with only 0.8% rise. Adverse weather throughout the United States in February and March particularly in the Midwest, which marred Panera’s St. Louis market, led to a 100 to 150 basis points of unfavorable impact on the quarter results.

The company’s operating margin increased 10 basis points backed by better margins on fresh dough and other product sales to franchisees as well as lower operating expenses.

Store Update

During the quarter, Panera opened 10 new company-owned bakery-cafes and 12 franchised bakery-cafes. For 2013, the company maintains its target of unveiling approximately 115–125 system-wide units.

Share Repurchase

In the first quarter, Panera bought back 0.12 million shares for $20 million, leaving $560 million under its existing $600 million repurchase authorization. However, the activity had minimal impact on earnings per share in the quarter.

New Sole CEO

Following the transition of co-CEO (chief operating officer) Bill Moreton to Executive Vice Chairman effective Aug 1, 2013, present chairman and co-CEO Ron Shaich will again serve as Panera's sole CEO.

Shaich is Panera's founder and has worked before as a sole-CEO from May 1994 to May 2010.


Panera expects earnings to be in the range of $1.74–$1.78 per share for the second quarter of 2013, reflecting 16%–19% growth. The company anticipates second quarter company-owned comparable sales in the range of 4%–5%. Panera already announced that comps at company-owned units in the first 27 days of the second quarter fiscal 2013 were up approximately 5.0%. It is targeting operating margin improvement of 25 to 75 basis points.

For full-year 2013, Panera continues to expect earnings per share to grow in the range 17–19% year over year. However, management slashed its aim to achieve company-owned comparable net bakery-cafe sales growth from the range of 4.5%–5.5% to the range of 4.0%–5.0% for fiscal 2013 to reflect lower-than-expected first quarter comps. The company reiterated flat- to 50 basis points increase in operating margin for fiscal 2013.

Our Take

Failure to hit estimates on both counts, a reduced guidance for same-store sales and decline in transactions over the last two quarters put Panera a step behind this earnings season. Stiff competition and overall tepid macroeconomic outlook, which might affect footfall at the restaurants, are expected to remain headwinds in the coming quarters.

However, the reiteration of full-year earnings guidance even after a soft first-quarter brings a ray of hope for this Zacks Rank #3 (Hold) stock.

Some other restaurateurs like McDonald’s Corp. (MCD) missed our estimates on both lines this season while Yum! Brands Inc. (YUM) beat on earnings but missed out on revenues. Another company, The Cheesecake Factory Inc. (CAKE) was ahead of estimates on both counts.

Read the Full Research Report on PNRA

Read the Full Research Report on YUM

Read the Full Research Report on CAKE

Read the Full Research Report on MCD

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