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Panera Bread (PNRA) Eyes Long-Term Growth Despite Risks


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On Oct 7, we issued an updated research report on Panera Bread Company (PNRA - Analyst Report) .

Of late, Panera has been increasingly focusing on the rollout of Panera 2.0 program, menu innovation, promotional strategies and new store design, in order to boost its competitive position.

Particularly, the Panera 2.0 program includes the achievement of operational excellence, along with digital access to Panera, through mobile, web and kiosk. The program aims at growing sales as well as earnings, while lowering costs.

Moreover, under the program, the company expects to remove all artificial ingredients, including colors, flavors, preservatives and sweeteners, from food items across its 2000 bakeries/cafes by 2016-end.

Notably, companies like McDonald's Corp. (MCD - Analyst Report) and The Wendy's Company (WEN - Analyst Report) , have also pledged to shift completely to cage-free eggs and use chicken raised without antibiotics. Additionally, Chipotle Mexican Grill, Inc. (CMG - Analyst Report) uses genetically modified organism (GMO)–free ingredients in its food items.

However, Panera has stolen much of the spotlight from its competitors and is leading the race of offering fresh and additive-free foods.

Evidently, the initiatives undertaken by the company have started yielding results as the second quarter of 2016 marked the ninth straight quarter of positive transaction growth.

Moreover, the company’s sound marketing initiatives along with its loyalty program should continue to drive growth. Also, increased focus on catering service should drive revenues in the near term.

However, though the initiatives undertaken by the company under the Panera 2.0 program are expected to yield benefits over the long term, they are likely to affect margins and earnings in the near term.

Moreover, higher investment, labor and pre-opening expenses, along with startup and transition costs related to immature Panera 2.0 cafes, are expected to hurt margins.

Further, a soft consumer spending environment in the U.S. restaurant space adds to the concerns.

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