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Panera Bread Tops Q3 Earnings; Panera 2.0 Aid Comps

Panera Bread CompanyPNRA posted better than expected third quarter 2015 results with earnings and revenue beating the Zacks Consensus Estimate. Meanwhile, company posted positive comps that compared favorably sequentially.

Earnings and Revenue Discussion

Panera Bread's third-quarter 2015 earnings of $1.32 beat the Zacks Consensus Estimate of $1.31 by 0.8%. However, earnings per share slipped 4% year over year mainly due to lower margins.

Panera Bread Company (PNRA) - Earnings Surprise | FindTheCompany

Adjusted earnings exclude a refranchising loss of a nickel.

Revenues of $664.7 million went up 7% year over year mainly backed by higher bakery-café sales, fresh dough and other product sales to franchisees and increased franchise royalties and fees. Further, revenues beat the consensus mark of $681 million by 0.3%.

Panera Bread started the fourth quarter on a good note, with company-owned comparable net bakery-café sales in the first 27 days increasing 3.4%, compared with 3.3% growth in the comparable year-ago period.

Solid Comps Growth

It seems that the Panera 2.0 initiative, focused at boosting comps, lowering waiting times and generally improving guest experience, has started yielding results. System-wide comparable net bakery-café sales in the quarter increased 2.8%, better than 1.8% growth in the prior quarter. Comps at company-owned units grew 3.8%, higher than 2.4% rise in the second quarter. Comps at company-owned units reflect average check growth of 2.8% and 1% year-over-year increase in transaction.

Panera Bread witnessed 1.8% comps growth at franchisee-operated units that compared favorably with 1.1% rise in the previous quarter.

Margins Down

Panera's operating margin (excluding charges related to its refranchising initiative) declined 120 basis points (bps). This was primarily the result of structural wage increases as well as startup and transition expenses associated with the company's strategic initiatives.

Outlook for Fourth Quarter

Panera expects adjusted earnings per share to be down by mid-single digits when compared to fiscal Q4 2014. According to Panera, company-owned comparable net bakery-café sales growth in the fourth quarter is likely to be around the midpoint of the full-year 2015 range of 2% to 3.5%.

Outlook for 2015

Panera Bread reiterated the 2015 outlook. The company expects earnings per share to be flat to down in mid-to-high single digits compared with 2014. Operating margins are expected to decline 100 bps to 175 bps year over year, excluding the impact of charges related to its refranchising initiative. According to Panera, company-owned comparable net bakery-café sales growth is expected to be within 2% to 3.5%.

Our Take

Panera's margin would remain under pressure due to incremental investments in digital initiatives and menu innovations associated with Panera 2.0. Further, higher commodity costs will add to the woes.

Nevertheless, the company's initiatives like introduction of menu items, increased media exposure and focus on an off-premise catering program should aid results, going ahead.

Panera Bread has a Zacks Rank #3 (Hold). Some better-ranked stocks in the restaurant industry are Darden Restaurants, Inc. DRI , Red Robin Gourmet Burgers Inc. RRGB and Dave & Buster's Entertainment, Inc. PLAY . All these stocks sport a Zacks Rank #1 (Strong Buy).

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PANERA BREAD CO (PNRA): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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