Health Aspect
According to a latest report by Health.com, Panera Bread Co (NASDAQ:PNRA) has been ranked as the healthiest food chain in the U.S. Because Panera Bread Co (NASDAQ:PNRA) offers mainly sandwiches and salads, it was easy for the retailer to make it to the top. But the fact still remains that, with rising health concerns and obesity rates reaching record highs, consumers are gradually shifting toward healthier and organic foods.
The carbohydrate-rich food offerings of McDonald’s Corporation (NYSE:MCD) and Yum! Brands, Inc. (NYSE:YUM) have given them a lot of negative publicity, which has been the reason (partly) behind their weakening same-store sales in the U.S. For the month of April, McDonald’s Corporation (NYSE:MCD) posted a 0.6% decline in sequential same-store sales, while Yum! Brands, Inc. (NYSE:YUM) reported a massive 29% plunge in its same-store sales sequentially .
Although McDonald’s Corporation (NYSE:MCD) does offer relatively healthier grilled sandwiches, it would be very hard for McDonald’s Corporation (NYSE:MCD) to attract health-conscious customers with just one healthy food item. In a bid to revive sales growth, nutrition experts from McDonald’s Corporation (NYSE:MCD) recently claimed that the chain’s offerings come packed with a lot of nutritional value. But to their disappointment, consumers weren’t moved much, as being nutritional and being healthy are two very different things.
Yum! Brands has been struggling to cease its sales decline. As of now, Yum! Brands, Inc. (NYSE:YUM) generates nearly 50% of its profits from KFC China, and the outbreak of avian influenza in the country has been dragging its sales down. Besides the health impact, its antibiotic injections (to chicken) and method of slaughtering the birds has led consumers (like me) to boycott KFC. In my opinion, the only way out of this mess would be geographical and product diversification.
Meanwhile, Panera Bread Co (NASDAQ:PNRA) reported an impressive 5.1% increase in its quarterly same-store sales, mainly due to its projected image of a healthy retail chain.
Growth Prospects
According to its filing in March, Panera Bread Co (NASDAQ:PNRA) was operating with 1,673 company-owned and franchised cafes. However, during the recent quarter, the company opened 22 new bakery cafes, out of which 12 were franchised. The growth rate for new stores may seem meager, but its management reaffirmed that Panera is well on track to open 115-125 new cafes in 2013. That’s a 7.6% increase in its store count, which should allow the company to retain its growth momentum in 2014.
A massive growth trigger for Panera Bread is its recent introduction of pasta dishes. The idea of their integration with Panera’s existing menu may seem uneventful, but the fact is it would attract consumers with continental preference. Additionally, Panera Bread’s revenue collections are the weakest during dinner hours, primarily due to its limited food offerings. But with the rollout of pasta dishes, the café chain would have something else to offer than its typical sandwiches. Analysts estimate that this launch has the potential to increase Panera’s earnings by 5-7%.
Investor’s Delight
Panera also has a $600 million share-buyback program underway, which was announced in August last year. During the recent quarter, the company repurchased $20 million worth of its shares, which leaves $560 million under its authorized capital. Since Panera has repurchased only a fraction of its planned share buybacks over the last year, it is quite possible that the company accelerates its share buybacks in the coming quarters to make room for its buyback programs in the future. Its management has projected an annual EPS boost of $0.05 due to its pending share buybacks.
Conclusion
Although shares of Panera Bread Co (NASDAQ:PNRA) have risen by nearly 20% over the last year, its growth prospects suggest that there is still plenty of upside. According to analyst consensus, the annual EPS of Panera Bread should grow by nearly 16% and 20% over a one-year and five-year time frame, respectively. Keeping all the mentioned reasons in mind, I believe that Panera Bread could prove to be a great investment.
The article Why Panera Bread Seems Better Than McDonalds and Yum! Brands originally appeared on Fool.com and is written by Piyush Arora.
Piyush Arora has no position in any stocks mentioned. The Motley Fool recommends McDonald’s and Panera Bread. The Motley Fool owns shares of McDonald’s and Panera Bread. Piyush is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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