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Panera Bread Company (PNRA - Analyst Report) has obtained an unsecured $100.0 million term loan for a five-year period. The company intends to use it for its growth initiatives like the Panera 2.0 program and other general corporate purposes. The term loan carries a floating rate of interest based on LIBOR that currently stands at a borrowing rate of 1.15%.

The company targets to utilize the loan for growth opportunities and to return shareholder wealth via share buybacks. Recently, the company announced a new three-year share repurchase program of up to $600.0 million, which will replace the existing program expiring on Aug 23, 2015.

Meanwhile, the company has increased its focus on the Panera 2.0 program and operational excellence to drive growth. Launched in Mar 2014, Panera 2.0 calls for improvement in operational efficiency. The program aims at lowering waiting time — one of the major problems faced by Panera — and speed up service. It mainly includes focus on kiosk and mobile ordering, operational modifications and plans for smaller restaurants. The company has invested $42 million for this program and implemented it in 14 cafes so far. The program is likely to be rolled out at 100 cafes by the end of 2014.

The company indicated that Panera 2.0 requires enhanced operational excellence for success. Therefore, the company is working on a number of projects to improve operational efficiency, which include renovation of kitchen display systems and installation of a new centralized phone system.

We believe that though these initiatives will strengthen the company’s position and benefit it in the long term, these would pressurize margins and earnings in the near-term. Moreover, a high debt will increase interest expenses for this Zacks Rank #4 (Sell) company.

Other Stocks to Consider

Some better-ranked stocks worth considering in the restaurant industry include Buffalo Wild Wings Inc. (BWLD - Analyst Report), Burger King Worldwide, Inc. (BKW - Analyst Report) and Carrols Restaurant Group, Inc. (TAST - Snapshot Report). While Buffalo Wild Wings sports a Zacks Rank #1 (Strong Buy), Burger King Worldwide and Carrols Restaurant Group carry a Zacks Rank #2 (Buy).

 

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