Panera Bread Co (NASDAQ:PNRA), founded in 1981 with its headquarters in St. Louis, Missouri, owns and franchises numerous retail bakery-cafes in the U.S. and Canada. Due to its ability to continually grow revenues and EPS, investors consider it a high-growth specialty eatery stock, but it seems that perception is beginning to change. This has more to do with the company’s recent earnings report.
Panera Bread Co (NASDAQ:PNRA) reported a second quarter fiscal 2013 revenue of $589.0 million, which is below the estimated $596.02 million. The reported $1.74 EPS is also below the estimated $1.77 EPS for the quarter. This puts the company’s net income at $51 million, which is an increase in comparison to $44 million, or $1.50 per share, reported in the same quarter of the previous fiscal year. Although there was an increase of 11% in revenue when compared to $531 million reported in the same quarter of the previous year, comparable store sales only experienced a 3.7% increase.
The chart above shows that in the last three fiscal second quarter periods, Panera Bread Co (NASDAQ:PNRA) has not balked as far as revenue growth is concerned. In comparing the three fiscal years, the growth was higher in second quarter of 2012 since it maintained a difference of $80 million when compared to second quarter of 2011. When the growth of second quarter of 2013 is compared to the second quarter of 2012, it is just a difference of $58 million.
No doubt, this is a strong result in consideration of the company’s business, but then it sent the company’s full year 2013 earnings and comparable store sales guidance on a downward plunge. Talking about comp sales, the chart below shows the trend of the company’s same store sales in the last three fiscal second quarter periods.
The chart shows comp sales for second quarter of 2011 to be 4.4% and by second quarter of 2012, it stood at 7.1%, but declined in the second quarter of 2013 to stand at 3.7%. According to the company’s CFO, Roger Matthews, this was below the company’s comp sales growth expectations. This muted growth in comp sales is mostly due to a 0.5% decline in transaction.
The company has also been able to maintain visible growth in terms of net income as the chart below shows.
Just like its revenue growth, the second quarter of 2012 also carried the lot in this, as it experienced more growth than was reported in the same quarter of 2013.
The second quarter of 2013’s worse-than-expected earnings report has led to the company revising and lowering its 2013 earnings forecast. The EPS was forecasted between $6.91 and $7.03, but due to recent happenings, has been lowered to a range between $6.75 and $6.85 while comp sales has been lowered to a range of 3% to 5% against the former 4% to 5% forecast.
Looking forward
Although the company does not currently pay a dividend to investors, the fact that it is trading at a premium when compared to its peers point to the fact that it has reasonable growth opportunities ahead of it. In order to help make this happen, the company is putting better plans in motion. This includes boosting the demand for the company’s breakfast items. Based on this, the management has announced that within the third quarter, it will introduce a new power breakfast sandwich.
Also, in order to draw in customers from all income backgrounds, lighter fare initiative will be introduced in 2014. This means you can walk into any of the eatery’s location and get half-sandwiches at less cost.
Still talking about the lag in its breakfast comp sales, the company wants to give that segment a boost with the use of special loyalty programs that are geared towards increasing purchases in the morning hours.
Finally, with the addition of 18 new company-owned locations and 19 new franchised locations to the company’s existing 1,663 locations in the second quarter, there are greater potentials for more growth in revenue and income.
Competition
There is no industry that does not have competition as that is one of the things that keep companies and businesses on their toes, giving the best they can in terms of products and services. The same thing applies to the specialty eateries industry Panera Bread Co (NASDAQ:PNRA) operates in.
One of its competitors is Yum! Brands, Inc. (NYSE:YUM). Owner and operator of popular brands KFC, Taco Bell, and Pizza Hut, Yum! released earnings result for the second quarter that showed it is not seeing the best of times. From the result, it showed that the company’s global system sales increased just 2% in the U.S. and declined 12% in China while comparable store sales increased 1% in the U.S. and declined 20% in China
The current scandal rocking its KFC brand in China had an impact on the brand’s comp sales growth in the region for the reported quarter. KFC maintains approximately 6,000 locations in about 850 Chinese cities and is currently battling with the outbreak of avian flu, which is being linked to its use of locally sourced chicken that is reported to contain extremely high levels of antibiotics.
Another keen competitor is Burger King Worldwide Inc (NYSE:BKW), which recently released its second quarter earnings report that showed a higher-than-expected rise in quarterly profits. The company missed revenue estimates by $42.94 million at a revenue of $278.3 million. However, it beats EPS estimate by $0.03 with the reported EPS of $0.21.
While the company was able to minimize cost in production (packaging, wages and rent), which helped it to boost its profitability thereby beating EPS estimates, the lackluster performance in the area of revenue was mostly impacted by the company’s shift from its business model. Although this transformation is for the better since it will help the company to create a brand for itself against the store operations it has been known for.
Conclusion
Apart from the fact that Panera Bread Co (NASDAQ:PNRA) was able to growth its sales and net income at a faster pace than its average peers in the industry for second quarter, it also maintains positive free cash flow and strong liquidity. This means that the company will be able to handle any financial needs that might arise in the near future. With the recent drop in the company’s share price, this is a good time to buy.
As for Yum! Brands, Inc. (NYSE:YUM), with the drop in sales and net income, the company underperformed in second quarter compared to its peers. Apart from this, the company’s liquidity is extremely weak, which usually points to deteriorating cash flow. Even in the face of all this, with the slump it is facing right now, I think it is the right time to step in and buy shares of this company as it has growth potentials. With the continued roll out of creative breakfast items including the Waffle Taco, it is continually grabbing a fair share in the specialty eateries marketplace.
Burger King Worldwide Inc (NYSE:BKW) has been able to increase its profitability with the recent franchise model it is using. This means better tidings for investors. The company makes a good buy while it is working towards creating a brand name for itself, but then again, it is trading at a premium. If you already own this stock, I would suggest you hold onto it to see where the trend is going.
Naomi Warmate-Igwe has no position in any stocks mentioned. The Motley Fool recommends Burger King Worldwide (NYSE:BKW) and Panera Bread. The Motley Fool owns shares of Panera Bread.
The article A Stock That Is Worthy of Your Time and Portfolio originally appeared on Fool.com.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
