Panera Bread Co. (PNRA) recently posted second quarter 2011 earnings of $1.18 per share, surpassing the Zacks Consensus Estimate by a penny. Reported earnings also outpaced the prior-year quarter earnings of 85 cents per share. Better-than-expected results were driven by double-digit growth in the top line.
Inside the Headline Numbers
The restaurant chain reported total revenue of $451 million in the second quarter, up 19% year over year and higher than the Zacks Consensus Estimate of $449.0 million.
System-wide comparable net bakery-cafe sales in the quarter expanded 3.9%. The company-owned comparable net bakery-cafe sales increased 4.4%, driven by higher transaction growth (2.9%) and average check growth (1.5%). Franchise-operated comparable net bakery-cafe sales also jumped 3.6%.
The operating margin improved 50 basis points buoyed by higher comparable net bakery-café sales and lower labor-related expenses.
Store Update
During the quarter, Panera opened 13 new bakery-cafes and 15 franchised bakery-cafes. The company currently operates 1493 bakery cafes, of which 703 are company owned and the rest are franchised.
For 2011, the company has increased its new unit development target to 100–105 units from the previous projection of 95 to 105 units. For 2012, Panera expects to open 100 to 110 new units.
Outlook
For full-year 2011, Panera raised its earnings per share target from $4.47-$4.51 to $4.54-$4.58, reflecting year-over-year earnings growth of 25% to 26%. The full-year guidance represents company-owned comparable net bakery-cafe sales growth of 4.5%, which has been narrowed down from the previous forecast of 5.0% to 6.0%.
For 2012, the company expects earnings per share to be at the lower end of its long-term growth target of 15% to 20%, due to cost inflation and company-owned comparable net bakery-cafe sales growth of 4.0% to 5.0%.
The company has projected third quarter 2011 earnings guidance in the range of 92 cents to 94 cents per share. The guidance reflects company-owned comparable net bakery-cafe sales growth of 4.5% to 5.5%.
Panera expects fourth quarter 2011 earnings in the range of $1.35 to $1.37 per share and company-owned comparable net bakery-cafe sales growth of 4.5% to 5.5%.
Our Take
Following Panera’s better-than-expected quarterly earnings and increased guidance, estimates for the next quarter are most likely to rise in the coming days. We remain optimistic on the stock based on the company's dominant competitive position in the bakery-cafe business and more stable traffic than many other restaurant peers. However, stiff competition and food cost inflation are expected to remain headwinds for the company.
One of Panera’s closest peers, Chipotle Mexican Grill, Inc. (CMG) reported second quarter 2011 earnings of $1.59 per share, which missed the Zacks Consensus Estimate of $1.68 due to higher food costs.
Panera currently retains a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating. We are also maintaining our long-term “Neutral” recommendation on the stock.
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