Panera Beats on Solid Top Line

Panera Bread Co. ( PNRA - Analyst Report ) recently posted first quarter 2012 adjusted earnings of $1.40 per share, surpassing the Zacks Consensus Estimate of $1.34 per share as well as year-ago-quarter’s earnings of $1.09 per share. The better-than-expected results were driven by solid top-line growth.

Inside the Headline Numbers

The restaurant chain reported total revenue of $498.6 million in the first quarter, up 8.8% year over year.

System-wide comparable net bakery-cafe sales in the quarter expanded 6.3%. The company-owned comparable net bakery-cafe sales increased 7.5%, driven by transaction growth of 2.1% and average check growth of 5.4%. A pricing action of approximately 3.5% and positive mix impact of approximately 1.9% drove the average check growth. This comparable net bakery-cafe sales benefited from about 200 basis points of a favorable year-over-year weather impact. Franchise-operated comparable net bakery-cafe sales also grew 5.2%.

The company’s operating margin improved 90 basis points backed by better bakery-cafe margins and lower general and administrative expenses related to long-term compensation expenses.

Store Update

During the quarter, Panera opened seven new company-owned bakery-cafes and 15 franchised bakery-cafes. The company currently operates 1562 bakery cafes, of which 746 are company owned and the rest are franchised.

For 2012, the company reiterated its unit development target to 115–120 units.

Outlook

For full-year 2012, Panera raised its earnings per share guidance from $5.50–$5.55 to $5.58–$5.63, reflecting a year-over-year earnings growth of 23–24%. Company-owned comparable net bakery-cafe sales growth is expected to be on the high end of the 4.5% to 5.5% range.

Panera expects second quarter 2012 earnings in the range of $1.40 to $1.43 per share and company-owned comparable net bakery-cafe sales growth of 4.5% to 5.5%.

Our Take

Following Panera’s earnings beat and increased guidance for the full year as well as the expectation for continued margin improvement, estimates for the coming quarters could rise in the coming days. We remain optimistic on the stock based on the company's dominant position in the bakery-cafe business and more stable traffic than most of its restaurant peers. However, stiff competition and food cost inflation are expected to remain headwinds for the company.

Panera, which competes with Chipotle Mexican Grill Inc. ( CMG - Analyst Report ) , currently retains a Zacks #2 Rank, which translates into a short-term ‘Buy’ rating. We are maintaining our long-term “Neutral” recommendation on the stock.