Bernstein Says Panera Bread Is Defying Industry Trends

Quarterly Results

The fast-casual restaurant chain reported second-quarter adjusted EPS/revenue of $1.78/$698.9 million versus consensus estimate of $1.74/$696 million. Comps grew 180 basis points from last year to 4.2 percent. Further, Panera said third-quarter (first 27 days) company-owned comparable net bakery-cafe sales were up 3.1 percent, up 7.8 percent on a two-year basis.

The company now sees FY16 non-GAAP EPS up 6–7 percent to $6.60–$6.70 versus the Street's view of $6.68. Panera reiterated its targeted range for fiscal 2016 company-owned comparable net bakery-cafe sales growth of 4 to 5 percent.

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"While cost headwinds persist, PNRA appears to have more topline levers than others," analyst Sara Senatore wrote in a note.

The analyst was impressed around delivery, "which appears to be ramping faster even than Panera 2.0." Combined with loyalty and digital ordering, the analyst said this would go a long way in boosting sales and comps.

"Investments and comp will temper margins, but incremental sales layers give Panera more cover than peers; lower investment costs should raise incremental returns," Senatore noted.

Looking Ahead

Senatore raised her F2016 comp estimate to 4.6 percent from 4.4 percent and EPS forecast to $6.71 from $6.60.

"Combined with lower investment costs, increased 4-wall profit dollars should support rising ROIC over time," the analyst continued.

Panera is trading at 1.72x the market, just below its five-year average. Senatore finds the risk/reward attractive given positive comps, with potential for further modest EPS revisions and rising marginal returns.

Shares of Panera Bread closed Wednesday's regular trading at $214.54 and were up 0.84 percent at time of writing Thursday, trading at $216.34 shortly after the opening bell. Senatore has a price target of $250, implying a potential upside of 16.5 percent.

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