The fast-casual industry has grown gangbusters over the past couple of years and for good reason. Many consumers are trading down, decreasing their time spent at casual-dining restaurants and increasing time at fast-food and fast-casual dining restaurants.
I have to admit, that since the likes of Panera Bread Co (NASDAQ:PNRA) and Chipotle Mexican Grill, Inc. (NYSE:CMG), I rarely spend time at the fast-food joints. Even though both of these stocks are up over 200% over the last five years...
...I still see room for each to move higher. Panera Bread Co (NASDAQ:PNRA) owns or franchises about 1,650 restaurants under the Panera Bread, Saint Louis Bread and Paradise Bakery & Cafe brands. Chipotle Mexican Grill, Inc. (NYSE:CMG) operates 1,230 restaurants, which also include just one of it its newest concepts, ShopHouse Southeast Asian Kitchen.
As the demand for fresh food continues to grow, so too should the revenue of the major fast-casual restaurants that are focused on fresh and healthy foods. Market research firm NPD notes that the restaurants in the fast food and casual dining segments have reported either a decline or growth of 2% in customer traffic over the past four years, while the fast-casual segment has seen 4% to 11% growth.
Panera Bread Co (NASDAQ:PNRA)'s sales are expected to rise some 15% in 2013 and comp sales are projected to grow 5%. Expansion opportunities also appear robust. In 2012, Panera opened 123 locations after opening 112 in 2011. The company plans to open as many as 125 restaurants in 2013.
Chipotle Mexican Grill, Inc. (NYSE:CMG) has grown into one of the most recognized names in Mexican food. One of its big selling points is its motto -- Food With Integrity -- which includes naturally raised pork, chicken and beef, and organic produce.
Chipotle Mexican Grill, Inc. (NYSE:CMG) is expected to see revenue up 19% in 2013 after being up some 20% in 2012. Same-store sales growth is expected to come in at 4%. Chipotle expects to open some 180 restaurants in 2013, inline with the 183 it opened in 2012.
Chipotle Mexican Grill, Inc. (NYSE:CMG)'s 2Q EPS came in at $2.82, compared to $2.56 for the same period last year, blowing through consensus of $2.67. Meanwhile, same-store sales were up 5.5% in 2Q, up from the 1.0% in 1Q.
Panera Bread Co (NASDAQ:PNRA) is also moving to a more company-owned model. It bought up 16 stores in the Raleigh, N.C. and Durham, N.C. area from a franchisee in 2012. This deal alone is expected to be accretive to EPS by $0.03 to $0.04 in 2013.
One of the biggest things for Chipotle is the possibility of international expansion, namely in Europe. The company already owns seven restaurants on the continent. Also, Chipotle is entering the markets in the U.S. with its ShopHouse restaurants.
Taco Bell, really?
One of Chipotle's top competitors is Yum! Brands, Inc. (NYSE:YUM). Billionaire David Einhorn thinks it's time to short Chipotle, mainly because he thinks that Yum!'s Taco Bell will start to cut into the fast-casual Mexican restaurant's market share.
I don't see this as plausible, and feel that the two chains are fundamentally different. I can only imagine the last time that Einhorn actually visited a Taco Bell. Yum! Brands, Inc. (NYSE:YUM) has its hands full with China and Chipotle is likely one of its least concerns as of now.
In July, Yum! posted EPS of $0.56, compared to $0.67 for the same period last year, as revenue fell 8% and same-store sales declined 20% in China. Weaker same-store sales in China should also have an impact on margins. The problem? Remaining overhang and health concerns related to the bird flu and contaminated poultry supplies in China.