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Mixed 4Q for Panera; View Retained

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Panera Bread Co.’s fourth-quarter 2012 earnings of $1.75 per share surpassed the Zacks Consensus Estimate by 0.6% and the year-ago-quarter earnings by 23.0%. The better-than-expected results were driven by solid top-line growth and superior operating margins.

Quarter in Detail

The restaurant chain’s total revenue escalated 15% year over year to $571.5 million in the fourth quarter, which fell shy of the Zacks Consensus Estimate of $575.0 million.

System-wide comparable net bakery-cafe sales in the quarter increased 4.9% driven by a 5.1% increase at company-owned units and a 4.7% rise at franchised-operated units.

The increase at the company-owned comparable net bakery-cafe was driven by an average check growth of 5.4%. A pricing action of approximately 2.5% and a positive mix impact of approximately 2.9% drove average check growth in the quarter. However, transaction growth fell a slight 0.3% in the quarter due to Hurricane Sandy.  

The company’s operating margin enhanced 100 basis points backed by better bakery-cafe margins.

Full-Year Highlights

In full-year 2012, earnings per share grew 27% year over year to $5.89, which beat the Zacks Consensus Estimate by a penny. Higher revenues facilitated earnings growth in 2012.

Total revenues witnessed an increase of 17% to $2.1 billion, which was in line with the Zacks Consensus Estimate. A 6.5% improvement in system-wide comparable store sales contributed to the year-over-year increase.

Store Update

During the quarter, Panera opened 18 new company-owned bakery-cafes and 14 franchised bakery-cafes. As of Dec 25, 2012, the company operated 1,652 bakery cafes, of which 809 were company owned and the rest were franchised. In 2012, the company opened 123 new units, 59 of which were company-operated.

For 2013, the company expects to unveil approximately 115–125 system-wide units (previously targeted range was 115–120).

Share Repurchase

In the fourth quarter, Panera bought back 124,100 shares at an average share price of $161.00, leaving $580 million available under its existing $600 million repurchase authorization. However, the activity had minimal impact on earnings per share in the quarter.


Panera expects earnings to be in the range of $1.62–$1.66 per share for the first quarter of 2013, reflecting 16%–19% growth. The company anticipates first quarter company-owned comparable sales in the range of 4%–5%. Panera is targeting operating margin improvement of 25 to 75 basis points.

For full-year 2013, Panera continues to expect earnings per share to grow in the range 17–19% year over year. Management reiterated its 2013 EPS growth expectation despite higher-than-anticipated earnings recorded in 2012.

Management also reaffirmed its aim to achieve company-owned comparable net bakery-cafe sales growth in the range of 4.5%–5.5% for fiscal 2013. The company expects flat- to 50 basis points increase in operating margin for fiscal 2013.

Panera already announced that comps at company-owned units in the first 41 days of the first quarter fiscal 2013 were up approximately 3.9%, considerably down from 8.9% growth witnessed in the comparable period of last year.

Panera’s long-term earnings growth remains in the range of 15 to 20%.

Our Take

We remain optimistic on the stock based on Panera's ability to deliver more than 20% growth in earnings per share for five years in a row, upbeat 2013 outlook and continued margin improvement amid a sluggish business environment. The company's dominant position in the bakery-cafe business and more stable traffic than most of its restaurant peers also inspire optimism around the stock.

However, stiff competition and overall tepid macroeconomic outlook, which might affect footfall at the restaurants, are expected to remain headwinds. The decelerating momentum of comps growth for the first 41 days of first quarter fiscal 2013 is indicative of lower discretionary spending by consumers. Hence, Panera currently holds a Zacks Rank #3 (Hold).

Other restaurant companies that are currently performing well and warrant a look include Krispy Kreme Doughnuts Inc. , AFC Enterprises Inc. and The Cheesecake Factory Inc. (CAKE - Free Report) , all carrying a Zacks Rank #2 (Buy).

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