The company positions its restaurants as upscale casual, so good pricing actions should drive more profits. Plus, it has big plans for expanding in the Middle East, which is already in course, and in Latin America. Mexico City will host the first opening in fiscal 2014.
However, The Cheesecake Factory Incorporated (NASDAQ:CAKE) has been rather slow in expanding overseas compared to its peers. So, I would encourage a more aggressive expansion. In addition, 90% of stores are located in or near malls, which are exposed to seasonal traffic fluctuations and changes in consumer shopping habits.
A strong company and business
operates as a bakery-cafe concept with 1,541 company-owned and franchise-operated bakery-cafe locations in the U.S. and Canada.
The company posted modest first-quarter figures. EPS reached $1.59, up 13.6% year over year, driven by top-line growth and operating margin expansion. Revenue increased 13.6% to $568 million. However, a reduced guidance for same-store sales and a reduction in transactions in the past two quarters is showing an alert for Panera Bread Co (NASDAQ:PNRA).
This restaurant chain can proudly exhibit a track record of 20%-plus growth in EPS for five years straight, and a steady margin improvement despite sluggish market conditions. In fact, Panera Bread Co (NASDAQ:PNRA) has been one of the few casual dining chains that showed a continuous expansion in a slow economy. Comparable store sales have grown 5.3% on average annually from 2009 to 2012, a great performance for this industry. Plus, the chain will open 115-125 new restaurants this year, securing more income in the future.
Like The Cheesecake Factory Incorporated (NASDAQ:CAKE), Panera Bread Co (NASDAQ:PNRA) aims for higher-income guests, allowing it to offer higher-priced menu alternatives. These consumers have been able to withstand the crisis in better shape and help the company remain healthy. Panera Bread Co (NASDAQ:PNRA)’s most recent efforts are into driving customers towards higher-margin products, such as breakfast sandwiches, seasonal salads, and pastas. These offerings are gaining traction, especially the new pasta menu and protein menu categories, allowing higher income. Plus, Panera Bread Co (NASDAQ:PNRA) is pushing forward its 13.8 million-member My Panera loyalty program, which is a long-term growth driver.
Finally, I would point out that the company is shifting away from a franchisee-based model towards company-owned operations, acquiring businesses from its franchisees. This transition reaffirms Panera’s business model, contrasting it to its peers’, that focus on growing franchisees.
Bottom line
Krispy Kreme Doughnuts (NYSE:KKD) is a solid company and its current price reflects the company’s strengths. However, since the industry outlook is not very promising, I believe this restaurant’s price might not grow a lot more unless it manages to drive these growth levels consistently.
The Cheesecake Factory Incorporated (NASDAQ:CAKE)’s outlook is stable, but not very promising. I would not invest in the stock until I hear good results coming from the company’s overseas expansion.Panera is positioned to keep growing this year despite the not-so-great industry outlook. I believe its business strategy will remain strong.
Louie Grint has no position in any stocks mentioned. The Motley Fool recommends Panera Bread. The Motley Fool owns shares of Panera Bread. Louie is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Which of These Stocks Will Help You Profit the Most? originally appeared on Fool.com is written by Louie Grint.
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