We downgrade our recommendation on Panera Bread to Underperform
from Neutral due to dismal second quarter 2014 results. While
earnings of $1.74 remained flat year over year, it missed the Zacks
Consensus Estimate by 0.6%. The downside reflects higher expenses
incurred to improve guest experience and higher food and marketing
costs. Though revenues of $631.1 million increased year over year,
it missed the consensus mark by 1.4% due to muted comps. Higher
expenses also resulted in margin decline. The company is spending
heavily to improve operational capabilities, enhance guest
experience and strengthen its position. These expenditures will
continue to hurt margins. Additionally, rising food costs that have
affected the industry at large would further dent margins. Given
the cost pressure, the company has lowered its fiscal 2014 earnings
guidance, thereby raising concerns.
Based in Richmond Heights, MO and founded in 1981, Panera Bread
Co. is engaged in the ownership and franchising of bakery-cafes in
the United States under the Panera Bread, Saint Louis Bread Co. and
Paradise Bakery & Caf brands. As of Jul 1, 2014, the company
had 1,818 bakery-cafes operating under the Panera Bread, Saint
Louis Bread Co. and Paradise Bakery & Caf brands.
Its bakery cafes primarily offer baked goods, dough items,
custom roasted coffees, and cafe beverages. The company's bakery
cafes are located in suburban, strip mall, and regional mall
The company operates through three business segments: company
bakery-cafe operations, franchise operations, and fresh dough and
other product operations. As of Jul 31, 2014, the company had 891
company-owned bakery cafes and 927 franchise operated bakery-cafes
located throughout the United States and in Ontario, Canada. Panera
Bread's 24 fresh dough facilities supply fresh dough and other
products daily to most company-owned and franchise operated
Panera Bread Company (PNRA): Read the Full Research
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