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Panera Misses 2Q Earnings Est, Cuts FY View

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Panera Bread Co.'s second-quarter 2013 adjusted earnings of $1.74 per share fell short of the Zacks Consensus Estimate of $1.77 by 1.7% but increased 16.0% from the year-ago earnings per share. The year-over-year increase was driven by an improved top line and operating margins. Earnings came in line with the lower end of the guided range of $1.74 -$1.78 per share.

Quarter in Detail

The restaurant chain’s total revenue escalated 11% year over year to $589.0 million in the second quarter. Increases in all categories including company-owned bakery-cafe revenues, franchise royalties and sales of fresh dough to franchisees helped drive revenues in the quarter. However, revenues lagged the Zacks Consensus Estimate of $596.0 million. We believe that the lower-than-expected comparable sales led to the miss.

System-wide comparable net bakery-cafe sales in the quarter increased 3.7% driven by a 3.8% increase at company-owned units and a 3.5% rise at franchised-operated units. Company-owned comps growth fell short of the guided range of 4%–5%. Muted growth in comps can be attributed to a 0.5% decline in transaction in the quarter.  

The company’s operating margin increased 60 basis points backed by better margins on fresh dough and other product sales to franchisees and lower operating expenses.

Store Update

During the quarter, Panera opened 18 new company-owned bakery-cafes and 19 franchised bakery-cafes. For 2013, the company maintains its target of unveiling approximately 115–125 system-wide units.

Third Quarter 2013 Guidance

Panera expects earnings to be in the range of $1.32–$1.36 per share for the third quarter of 2013, reflecting 6%–10% year-over-year growth. The company anticipates third-quarter company-owned comparable sales to increase in the range of 2%–4%. Panera has already announced that comps at company-owned units in the first 27 days of the third quarter fiscal 2013 were up approximately 2.1%. It expects operating margin to remain flat to down 50 bps in the third quarter.

Fourth Quarter 2013 Guidance

For the fourth quarter, Panera expects earnings to be in the range of $2.05–$2.11 per share, reflecting 17%–21% year-over-year growth. The company anticipates fourth-quarter company-owned comparable sales growth in the range of 3%–5%. Operating margin is expected to remain flat to down 50 bps in the fourth quarter.

2013 Guidance

For full-year 2013, Panera trimmed its guidance for comps, margins and earnings.  Comps are expected to increase in the range of 3% to 5%, down from the previously guided range of 4% to 5%. Lower-than-expected second quarter comps led the company to slash its comps guidance. Prior to this, management had slashed its aim to achieve company-owned comparable net bakery-cafe sales growth from the range of 4.5%–5.5% to the range of 4.0%–5.0% for fiscal 2013 to reflect lower-than-expected first quarter comps.

Operating margin is now expected to remain flat, down from the prior projection of flat- to 50 basis points increase. Finally, hurt by lower comps projection, earnings per share are expected to remain in the range of $6.75 to $6.85, down from the previously guided range of $6.91--$7.03. Earnings per share include 200 basis points of beneficial impact from the 53rd week.

Our Take

Failure to hit estimates on both counts for the last two quarters, a reduced guidance and decline in transactions over the last three quarters raise concerns over Panera.  However, we believe Panera still has strong value. Steady comps growth, expansions, franchise acquisition and several exclusive sales driven programs provide this Zacks Rank #2 (Buy) stock a shot in the arm.

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