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Panera Bread Co (PNRA), Cosi Inc (COSI): A Bad Second Quarter Yields Great Opportunity

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Panera Bread Co (NASDAQ:PNRA) earnings came in under expectations for the second quarter of 2013, and the sell-off to under $180 gives you a great opportunity to, as Warren Buffett put it, be “greedy when others are fearful.” There is nothing wrong with Panera’s business plan, and the market’s irrationality is your opportunity.

Solid revenue and earnings

Panera Bread Co (NASDAQ:PNRA)Panera Bread Co (NASDAQ:PNRA) reported second-quarter 2013 EPS of $1.74, representing growth of 16% from EPS of $1.50 reported in the second quarter of 2012. Expectations from Wall Street were $0.05 higher – but to my mind, 16% growth in EPS is still a great growth story. It certainly compares favorably to Panera’s closest competitors in terms of product offerings, Cosi Inc (NASDAQ:COSIand Einstein Noah Restaurant Group, Inc. (NASDAQ:BAGL). Cosi reported a loss of $0.15 per share last quarter, a further decline from the $0.08 loss of second quarter 2012. Einstein Noah reported EPS growth of 12% (from $0.17 to $0.19) year-over-year. Panera’s revenue jumped 11%, as compared to Einstein Noah’s 2% growth and Cosi’s 12% revenue decline.

A note on comps

Same-store sales grew by 3.7% (including a 0.5% loss in number of transactions), which puts Panera Bread Co (NASDAQ:PNRA) solidly in the middle of the fast-casual pack. Cosi Inc (NASDAQ:COSI) and Einstein Noah Restaurant Group, Inc. (NASDAQ:BAGL) both posted worse comps for the quarter (-6.6% and 0.7%, respectively). Panera also delivered higher comps thanevery quick-service concept except for Popeyes.

Also, the 0.5% loss in Panera Bread Co (NASDAQ:PNRA)’s number of transactions was offset by the growth in entrees per check – if more entrees are being sold per check, it may indicate that more people are eating together on one check. This suggests that “the number of people…visiting Panera is up,” per co-CEO Ronald Shaich.

With increasing competition in the food categories (resulting in offerings like Einstein Noah Restaurant Group, Inc. (NASDAQ:BAGL)’s Everyday Value $5.99 combos), food margins will decline, and specialty beverage sales will be a big part of future comp growth for all three companies.


Panera Bread Co (NASDAQ:PNRA) opened 37 new stores in the second quarter, and management anticipates 115 to 125 new stores this year. In fact, Roger Matthews, the executive vice president, hinted on the second-quarter earnings call that Panera may even exceed that guidance. Einstein Noah Restaurant Group, Inc. (NASDAQ:BAGL), by contrast, opened seven new stores in the last quarter, and management anticipates between 60 and 80 new stores for the year. The majority of these stores will be franchised or licensed.

Given Einstein Noah Restaurant Group, Inc. (NASDAQ:BAGL)’s heavy debt load (the company’s debt/equity ratio is 3.8), the lower risk and capital needs of franchising represent a solid way for management to promote long-term growth, even if the number of restaurants opened is significantly smaller than Panera Bread Co (NASDAQ:PNRA)’s.

The MyPanera program has 14.5 million members, up from 11 million at the end of second quarter last year. In an increasingly competitive restaurant sector, investments to drive customer loyalty are key. Cosi Inc (NASDAQ:COSI) and Einstein Noah Restaurant Group, Inc. (NASDAQ:BAGL) do not have loyalty programs.

Compare to another great company

Panera Bread Co (NASDAQ:PNRA) easily laps its most obvious competition, so let’s take a look under the hood of the fast-casual firm whose price jumped almost 10% on its second- quarter earnings news – Chipotle Mexican Grill, Inc. (NYSE:CMG).

Chipotle reported comp growth of 5.5% (better than Panera Bread Co (NASDAQ:PNRA)), 18% revenue growth (better than Panera), and 10% EPS growth (less than Panera). The quarter was better for Chipotle Mexican Grill, Inc. (NYSE:CMG), but not that much better – not enough to justify the gain in Chipotle’s stock and the loss in Panera’s based on both companies’ earnings. Chipotle trades at a much loftier valuation, with a P/E of 42.7 based on earnings from the trailing 12 months, as compared to Panera’s 27.5.

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