We remain Neutral on
Panera Bread Co.
). While we view the company's solid earnings and revenue growth
in the first quarter favorably; its inability to meet the Zacks
Consensus Estimate on both counts, a reduced guidance for
same-store sales and decline in transactions over the last two
quarters keep us on the sidelines at the current level.
Why the Reiteration?
Panera Bread's first-quarter 2013 adjusted earnings of $1.59 per
share increased 13.6% year over year. Adjusted earnings benefited
from top-line growth and expansion in operating margin.
The restaurant chain's total revenue escalated 13% year over year
to $561.8 million in the first quarter. Increases in all
categories including company-owned bakery-cafe revenues,
franchise royalties and sales of fresh dough to franchisees
helped drive revenues in the quarter.
The company's operating margin increased 10 basis points backed
by better margins on fresh dough and other product sales to
franchisees and lower operating expenses. Apart from these,
we prefer the company's strong pipeline with varied menu
offerings, sound marketing proposition and franchisee acquisition
Despite these enthusiastic facts, some concerns prevent us from
being too optimistic on the stock. Panera delivered
lower-than-expected performance on both lines this earnings
Further, management slashed its company-owned comparable net
bakery-cafe sales growth target from a range of 4.5%-5.5% to a
range of 4.0%-5.0% for fiscal 2013 to reflect lower-than-expected
first quarter comps.
Panera will also invest heavily in its operational capabilities
including initiatives related to information technology to serve
its customers better. This expenditure is expected to be
back-half loaded in 2013 and the benefits of these investments
will not be realized before late-2014 and 2015, thus pressurizing
its bottom line in the next half.
Other Stocks to Consider
Others players in the same industry, which look attractive at
current levels include
The Wendy's Co.
Brinker International Inc.
Burger King Worldwide Inc.
) all carrying a Zacks Rank #2 (Buy).
BURGER KING WWD (BKW): Free Stock Analysis
BRINKER INTL (EAT): Free Stock Analysis
PANERA BREAD CO (PNRA): Free Stock Analysis
WENDYS CO/THE (WEN): Free Stock Analysis
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