Panera Bread Co.'s (PNRA) fourth-quarter 2013 earnings of $1.96 per share increased 12.0% year over year. Earnings were within management’s guided range of $1.91–$1.97 per share. The results were driven by a year-over-year increase in revenues.
Earnings include a benefit of 13 cents attributable to an additional operating week in the fourth quarter of 2013 as compared with the year-ago period. Excluding this benefit, adjusted earnings were $1.83 per share, which missed the Zacks Consensus Estimate of $1.95 per share by 6.2%. Adjusted earnings increased 4.6% on a year-over-year basis.
Quarter in Detail
In the fourth quarter, the restaurant chain’s total revenue increased 16.0% year over year to $662.0 million. Quarterly revenues benefited from a 15.8% rise in company-owned bakery-café revenues, a 15.6% increase in franchise royalties and fees and a 15.4% increase in fresh dough and other product sales to franchisees.
However, revenues lagged the Zacks Consensus Estimate of $667.0 million by 0.75%. We believe that sluggish comps as a result of inclement weather led to the miss.
System-wide comparable net bakery-cafe sales in the quarter increased only 1.1%, lower than 4.9% in the year-ago quarter and 1.3% in the third quarter. Both the company-owned and franchised-operated units posted muted comps.
Comps at company-owned units were up 1.7%, lower that an increase of 5.1% in the year-ago quarter while remaining flat sequentially. However, the comp increase was within management’s guidance range of flat to 2.0% increase. Comps at company-owned units reflect average check growth of 2.5% and a year-over-year transaction decline of 0.8%.
Panera witnessed comps increase of only 0.5% at franchised-operated units during the quarter, far less than a 4.7% increase in the year-ago quarter and a 0.9% increase in the previous quarter.
The company’s operating margin declined 170 basis points (bps) to 12.9% due to an increase in total bakery-cafe expenses and general and administrative expenses.
Full-Year 2013 Update
Full-year 2013 earnings per share grew 16.0% year over year to $6.81. Including the gain of 13 cents and non recurring benefits of 18 cents, adjusted earnings were $6.50, which missed the Zacks Consensus Estimate of $6.68 by 2.7%. Total revenue increased 12.0% year over year to $2.4 billion. However, it missed the Zacks Consensus Estimate by 0.08%.
Store Update
As of Dec 31, 2013, the company had 1,777 system-wide bakery-cafes. During 2013, the company opened 63 company-owned units and 70 franchise operated units. In 2014, the company expects to open 115 to 125 system-wide bakery-cafes.
First-Quarter 2014 Guidance
The company expects first quarter 2014 results to be negatively impacted by inclement weather which hurts customer visits. In fact, comparable net bakery-cafe sales in the first 48 days of the first quarter fiscal 2014 were down approximately 2.2%.
The company expects earnings per share in the range of $1.49 to $1.55 for first quarter 2014. The guidance falls short of the Zacks Consensus Estimate of $1.69 and also represents a decline from the year ago quarter’s level.
Full-Year 2014 Guidance
For 2014, the company expects earnings per share in the range of $6.80 to $7.05. The guidance falls short of the Zacks Consensus Estimate of $7.29. The guidance reflects continued investments throughout 2014 which will aid transaction growth and lower share count (though less compared to 2013 levels).
Though extreme weather conditions have affected first-quarter performance so far, the company expects comps at company-owned units to increase in the range of 2.0% to 4.0% compared with 2.6% increase reported in 2013 driven by positive transaction growth.
In 2014, the company expects operating margin to decline in the range of 75 to 125 bps year over year due to higher labor expenses announced in Oct 2013 and higher expenses associated with significant investments planned for the company's bakery-cafes.
Our Take
Quarterly earnings as well as revenues missed the Zacks Consesus Estimate. In fact, revenues falied to beat the Consensus mark throughout 2013. This combined with a continuous decline in transactions put Panera on the back foot this earnings season.
However, the company’s newly-launched menu items, increased media exposure and off-premise catering program are expected to boost sales.
Panera currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the restaurant industry include Famous Dave's of America Inc. (DAVE), Fiesta Restaurant Group, Inc. (FRGI), and Brinker International, Inc. (EAT). While Famous Dave's of America and Fiesta Restaurant Group carry a Zacks Rank #1 (Strong Buy), Brinker International has a Zacks Rank #2 (Buy).
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