) reported second-quarter earnings per share of $1.74, up 16%. That
was around $.04 below analysts' estimates. Sales were the only real
issue in the company's earnings results.
Same-store sales were up 3.7% when 4.4% was the expectation. There
was a 4.3% increase in price/mix combined with a .5% drop in
traffic. Comparable store sales are running up 2.1% in the third
quarter so far. Management said that breakfast sales were under
some pressure, and that sales would be higher at lunch, if
customers could get served faster. To that end, they would add
staff at lunch. Also, increased complexity and a higher number of
entrees per order have apparently slowed service.
So management said that it would add some lower priced options that
will initially include half-sandwiches coming this year. Smaller
and lower costing fare will be on tap next year. Management
believes that third-quarter same-store sales growth will be in the
2-4% range. Full-year earnings guidance has been reduced 2%.
Breakfast is a very price-sensitive meal, I believe, and it is one
of the first places that excessively high prices would show up. If
there are too many different menu offerings now, which is evident
during lunch at Panera, how can management add new lower priced
menu offerings without a disproportionately negative effect on
that main menu items are about $.75 overpriced is being proven
Basically, I see management as being in denial about its prices
being too high and figuring that it is smart enough to work its way
around it, rather than directly cut menu prices to where they
should be. It is similar to the situation as
) has been in, and with Olive Garden, especially. Wrestling with
that problem will create other problems that will slow down the
long-term growth rate of sales and EPS.
For the remainder of 2013, the sales and earning guidance is
probably too high, creating just the right environment for more
disappointments to bring the stock down to the $145-155 area. I
have not done any research to see what a complete rebasing of
prices to competitive levels would do, but I am sure that it would
not be pretty.