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

Page 1 of 2

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.

Expansion

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.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The 10 Countries with the Highest Suicide Rates

The 10 Most Technologically Advanced Countries in the World

The 10 Safest Countries in the World to Live in Peace

The 10 Top Selling Smartphones in the World 2014

The 12 Biggest Shopping Centers in the World

The 10 Friendliest Countries in the World

Qihoo 360 Technology Co Ltd (QIHU), Actavis plc (ACT), Yahoo! Inc. (YHOO) Among 20 Long Ideas from Sohn Canada

The 10 Laziest Countries in the World

The 10 Most Polluted Countries in the World

The 10 Most Dangerous Cities in America 2014

The Top 10 Gold Producing Countries in the World

The 10 Tallest Buildings in the World

The 10 Richest Stand Up Comedians in the World

The 10 Fattest Countries in the World

The 5 Best Summer Jobs for Teens

The 10 Most Religious Countries in the World Keeping the Faith

The 10 Most Educated Countries in the World

The 10 Most Popular Cell Phones in the World

The 10 Drunkest Countries in the World

The 10 Most Expensive Private Schools in the World

The 10 Smallest Countries in the World

Walking Dead Season 5 Spoilers You’ll Wish You Didn’t Know

The 10 Poorest Countries in the World

The 10 Greenest Countries in the World

The Top 10 Countries with the Highest Population in the World

The 10 Most Visited Countries in the World

The Top 10 Star Wars Characters in the Iconic Series

The 10 Most Expensive Android Phones in the World

5 Reasons Why The Illuminati Is Real and a Threat to Society

The 6 Scariest Halloween Costumes Ever Screamed At

The 4 Biggest Hedge Fund Managers in the World Today

The 15 Most Densely Populated Countries in the World

The 10 Biggest Tea Drinking Countries in the World

Top 6 Ways to Improve Your Checkout Process and Close Sales

The 5 Most Profitable Online Businesses You Can Start Today

The 20 Most Profitable Hospitals in the US

The 5 Most Profitable Home Businesses to Start

The 7 Teams that Will Win the Stanley Cup in 2015

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!