On Sep 5, we issued an updated research report on Panera Bread Company (PNRA).
On Jul 29, Panera Bread posted dismal second quarter 2014 results with earnings of $1.74 cents per share missing the Zacks Consensus Estimate by 0.6% on higher expenses. Earnings also remained flat year over year. Though revenues of $631.1 million increased 7.1% year over year, it missed the consensus mark by 1.4%, owing to sluggish comps.
Owing to lower-than-expected growth in average check and higher-than-expected input costs, the company also lowered its comps as well as earnings guidance for the year. The company's operating margin declined 250 basis points due to investment in key initiatives to improve customer experience, operational capabilities and technology infrastructure, as well as higher food and marketing expenses.
Going forward, the company intends to continue its efforts towards operational capabilities. This would continue to result in higher general and administrative expenses. Also, the company’s aim to open additional units will lead to increased pre-opening expenses.
Moreover, the Panera 2.0 program that aims at speedy service would lead to higher expenses, thereby compounding near-term margins woes for the company. In fact, the company’s margins have been suffering since 2013 due to several initiatives undertaken by the company such as increasing café hours to 35 per week in Oct 2013.
Meanwhile, like other restaurant chains, food costs remain a matter of concern for Panera. The increase in butter, avocado and bacon costs is expected to remain a headwind for the company. This Zacks Rank #4 (Sell) company expects food inflation to be approximately 1.25% basis points in 2014, which will weigh on margins in the second half of the year.
However, in order to enhance its competitive position, the company has been implementing new strategies, which include – the rollout of Panera 2.0, achievement of operational excellence, and further menu innovation and promotional strategies. All these aim at increasing sales and earnings going forward.
Other Stocks to Consider
Better-ranked stocks in the same industry include BJ's Restaurants, Inc. (BJRI), Chipotle Mexican Grill, Inc. (CMG) and Jamba, Inc. (JMBA). All these stocks sport a Zacks Rank #1 (Strong Buy).
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