Analysts Mixed Over Panera Bread's Short-Term Prospects And Long-Term Initiatives
Panera Bread (NASDAQ: PNRA) on Tuesday reported a top and bottom line beat in its first quarter report, but investors showed concerns over the fast-casual restaurant's future prospects.
Panera Bread earned $1.55 per share, beating the consensus estimate by three cents. Revenue of $605 million topped analysts' expectations by $6.93 million. However, hard winter weather conditions resulted in a steep decline in company-owned comparable bakery-café sales.
Panera Bread's same-store comparable came in at 0.1 percent for the quarter while operating profit fell 250 bps to 11.1 percent. This comes at a time when the average check price rose 2.9 percent.
Panera Bread also issued light guidance for its full year fiscal 2014 earnings per share and lowered the high end of its guidance by $0.05 to $7.00, but kept the low end of guidance at $6.80. Same-store-sale guidance has also seen its top-line narrowed by management to a range of 2.0 percent to 3.5 percent from a previous 2.0 percent to 4.0 percent.
Miller Tabak: Shares Haven't Been This Attractive in Five Years
Stephen Anderson of Miller Tabak expects Panera Bread to experience margin contractions for at least one to two more quarters as the company continues to invest heavily in its Panera 2.0 initiatives. This will, however, be offset in the next 12 to 18 months as the company's investments begin to pay off in the form of cost savings.
“We still think a combination of accelerated comp growth (from both peak-period throughput traffic gains and incremental off-premise sales), lower year over year food costs, and additional efforts to improve execution will result in a return to margin expansion in 2015,” Anderson explained in a note to clients on Wednesday.
Anderson is estimating that Panera Bread's investments and Panera 2.0 initiatives will add 100bps to 150bps on an annualized basis beginning in 2015. This translates roughly to an earnings per share boost of around $0.17 to $0.26, according to the analyst.
Panera Bread is not only a top pick in Anderson's restaurant coverage, but shares are now valued at the most attractive level it has been in five years as it is in the way-early stages of a multi-year transformation.
One of the reasons that Panera Bread is a top pick in the restaurant universe is the fact that it outperformed its peer on a comp basis. Panera Bread's 0.1 percent same-restaurant sales, which many investors could have found to be an alarming, is actually 40 bps better than the “Black Box benchmark index” for same-restaurant sales.
Shares are Buy rated with a price target lowered to $205 from a previous $210.
Wunderlich: Cautious Outlook
Robert Derrington of Wunderlich Securities does not share a similar optimistic outlook as Anderson does.
In a quick note to clients on Wednesday, the analyst wrote “while we project same-store-sales to improve through 2014 and 2015 aided by rollout of Panera 2.0, costs associated with that program are likely to prove an ongoing drag to margins, earnings per share, and potentially Panera Bread's share price.”
Derrington believes the first phase of Panera 2.0, dubbed “Rapid Takeout,” is functioning at 200 of 881 co-café locations and will be fully implemented by the middle of the summer. As such, the rollout of this initiative may place a dent in the company's second quarter earnings.
Shares are Hold rated with a price target lowered to $180 from a previous $190.
Deutsche Bank: On The Sidelines, For Now
Jason West of Deutsche Bank believes that Panera Bread has entered an unfavorable stage where the heavy investments the company is making does not offset the weak traffic points.
“While Panera Bread has a track record of making the right investments to continue taking share over the long-term, and valuation is getting more attractive (8.6x 2015E EBITDA), it feels too early to step in at this time,” West wrote in a note to clients on Wednesday.
West is not convinced that Panera Bread addressed why its second half 2014 margins and earnings per share will accelerate. Furthermore, West is not convinced that the company's Panera 2.0 initiatives will improve margins going in to 2015.
West is questioning 2015 margin assumptions given the fact that the company still has many restaurants to undergo the “2.0” transformation next year. As such, West is lowering is 2015 earnings per share estimates to $7.67 from $7.79.
Shares are Hold rated with a price target lowered to $165 from a previous $175.
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