Panera Bread Getting Stale?
Shares of Panera Bread Co. (NASDAQ:PNRA) traded to the downside following the company’s third-quarter report. The company reported adjusted earnings of $1.35 giving the company modest growth on a year over year basis. Panera was able to increase its growth by 8.9% from the year-ago quarter’s earnings of $1.24 per share. Strength on the company’s top line aided in its attempt to maintain some growth. In the third quarter, the restaurant chain’s total revenue increased 8% year over year to $572.5 million. Quarterly revenues were helped by an 8.4% rise in company owned bakery café revenues. Moreover, Panera saw a 7.4% increase in franchise royalties and fees and a 5.9% increment in the fresh dough and other product sales to franchisees.
Comparable net bakery-cafe sales in the quarter increased only 1.3%, lower than the year-ago quarter’s level of 5.8%. Stalled growth in comps can be attributed to a 0.5% decline in transactions. However, the company was able to offset some of these losses with a 2.7% improvement in average check.
Operating margin remained flat at 11.3% as lower bakery-cafe margins were completely offset by the drop in general and administrative expenses, as a percentage of total revenue. Panera opened 17 company owned bakery cafes and 15 franchised bakery-cafes. For 2013, the company maintains its target of unveiling approximately 115–125 system-wide units. The company anticipates fourth-quarter company-owned comparable sales growth to be flat to up 2%, lower than the prior estimates of 3%–5%.
Shares of the company have lag the returns of the broader averages. Year to date, Panera shares are higher by a very modest 2.5 percent. Going forward, investors may want to consider the company’s rich 23.5 times earning multiple. If growth should continue to slow, Panera’s loft valuations may come under pressure.
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