Panera Bread Co. (PNRA) recently posted third quarter 2011 earnings of 97 cents per share, surpassing the Zacks Consensus Estimate of 94 cents. Reported earnings also outpaced the prior-year quarter earnings of 75 cents per share. The better-than-expected results were driven by double-digit top-line growth.
Inside the Headline Numbers
The restaurant chain reported total revenue of $453.1 million in the third quarter, up 22% year over year and higher than the Zacks Consensus Estimate of $447.0 million.
System-wide comparable net bakery-cafe sales in the quarter expanded 4.4%. The company-owned comparable net bakery-cafe sales increased 6.0%, driven by higher transaction growth (up 2.6%) and average check growth (up 3.4%). Franchise-operated comparable net bakery-cafe sales also jumped 3.1%.
The company’s operating margin improved 80 basis points buoyed by higher comparable net bakery-café sales and lower labor-related expenses.
Store Update
During the quarter, Panera opened 8 new bakery-cafes and 17 franchised bakery-cafes. The company currently operates 1504 bakery cafes, of which 716 are company owned and the rest franchised.
For 2011, the company has increased its unit development target to 110–115 units from the previous projection of 100 to 105 units. Similarly, for 2012, Panera expects to open 110 to 115 new units as compared with its previous target of 100 to 110 units.
Outlook
For full-year 2011, Panera raised its earnings per share guidance from $4.63-$4.65 to $4.47-$4.51, reflecting a year-over-year earnings growth of 28%. The full-year guidance represents company-owned comparable net bakery-cafe sales growth in the range of 4.5% to 5.0%, up from the previous forecast of 4.5%.
For fiscal 2012, the company expects earnings per share in the range of $5.38 to $5.48 and company-owned comparable net bakery-cafe sales growth in the 4.0% to 5.0% range.
Panera expects fourth quarter 2011 earnings in the range of $1.39 to $1.41 per share as compared with its previous expectation of $1.35 to $1.37 per share and company-owned comparable net bakery-cafe sales growth of 5.5% to 6.5% versus its previous target 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 expected to rise in the coming days. We remain optimistic on the stock based on the company's dominant position in the bakery-cafe business and more stable traffic than most of its 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 third quarter 2011 earnings of $1.90 per share, which outpaced the Zacks Consensus Estimate of $1.85 due to higher comp and menu price increase.
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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