Panera Surpasses Zacks Estimate

Panera Bread Co. (PNRA - Analyst Report) recently posted fourth quarter 2011 adjusted earnings of $1.42 per share, surpassing the Zacks Consensus Estimate by a penny. Reported earnings of $1.31 also outpaced the year-ago level of $1.21 per share. In full-fiscal 2011, reported earnings were $4.55 per share versus $3.62 in 2010. The better-than-expected results were driven by solid top-line growth.

Inside the Headline Numbers

The restaurant chain reported total revenue of $495.8 million in the fourth quarter, up 16% year over year. In full-fiscal 2011, revenue increased 18% to $1,822.0 million.

System-wide comparable net bakery-cafe sales in the quarter expanded 4.4%. The company-owned comparable net bakery-cafe sales increased 5.9%, driven by higher transaction growth of 0.2% and average check growth of 5.7%. Franchise-operated comparable net bakery-cafe sales also grew 3.2%.

The company’s operating margin declined 160 basis points due to higher cost of food and paper products.

Store Update

During the quarter, Panera opened 24 new company-owned bakery-cafes and 16 franchised bakery-cafes. The company currently operates 1541 bakery cafes, of which 740 are company owned and the rest franchised.

For 2012, the company has increased its unit development target to 115–120 units from the previous projection of 110 to 115 units. Prior to that, Panera increased its store guidance from 100 to 110 units.

Outlook

For full-year 2012, Panera raised its earnings per share guidance from $5.38–$5.48 to $5.50–$5.55, reflecting a year-over-year earnings growth of 18–19%. The full-year guidance represents company-owned comparable net bakery-cafe sales growth in the range of 4.5% to 5.5%, up from the previous forecast of 4.0% to 5.0%.

Panera expects first quarter 2012 earnings in the range of $1.33 to $1.35 per share and company-owned comparable net bakery-cafe sales growth of 7.0% to 7.5%.

Our Take

Following Panera’s earnings beat and increased guidance for full-year, estimates for the coming quarters are expected to 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.

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