Panera Bread Co. (PNRA) posted second quarter 2012 adjusted earnings of $1.50 per share, comfortably surpassing the Zacks Consensus Estimate of $1.39 and year-ago-quarter’s earnings of $1.18. The better-than-expected results were driven by solid top-line growth.
Inside the Headline Numbers
The restaurant chain’s total revenue escalated 18% year over year to $530.6 million in the second quarter and beat the Zacks Consensus Estimate $518.0 million.
System-wide comparable net bakery-cafe sales in the quarter expanded 5.9%. The company-owned comparable net bakery-cafe sales increased 7.1% driven by transaction growth of 0.9% and average check growth of 6.2%. A pricing action of approximately 3.0% and positive mix impact of approximately 3.2% drove the average check growth. Franchise-operated comparable net bakery-cafe sales also grew 4.8%.
The company’s operating margin improved 90 basis points, backed by better bakery-cafe margins. However, higher general and administrative expenses and increased costs induced by year-over-year wheat price rise offset the margin gain to some extent.
Store Update
During the quarter, Panera opened 17 new company-owned bakery-cafes and 16 franchised bakery-cafes. As of June 26, 2012, the company operated 1,591 bakery cafes, of which 776 were company owned and the rest were franchised.
For 2012, the company reiterated its unit development target of 115–120 units.
Share Repurchase
During the reported quarter, the company bought back 34,600 shares at an average price of $144.24 per share.
Outlook
For full-year 2012, Panera raised its earnings per share guidance from $5.58–$5.63 to $5.72–$5.78, reflecting year-over-year earnings growth of 26–27%. Earlier, management, had boosted its guidance from $5.50–$5.55 to $5.58–$5.63 per share (23–24% year over year).
Company-owned comparable net bakery-cafe sales growth is expected in the 5.5% to 6.5% range (previously 4.5% to 5.5%).
Panera has projected earnings in the range of $1.16 to $1.18 per share for third quarter 2012 and $1.66 to $1.70 for the fourth quarter. The company expects third quarter company-owned comparable net bakery-cafe sales growth in the range of 5.0% to 6.0% and fourth quarter comparable sales in the range of 4.5% to 5.5%.
Our Take
We find Panera’s earnings and revenue beat, increase in full-year guidance in two quarters in a row, share repurchase activity and the expectation for continued margin improvement quite encouraging. The company's dominant position in the bakery-cafe business and more stable traffic than most of its restaurant peers also raise optimism. However, stiff competition and wheat price inflation are expected to remain headwinds.
Panera, which competes with Chipotle Mexican Grill Inc. (CMG), currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are maintaining our long-term Neutral recommendation on the stock.
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