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Panera Bread (PNRA) Q1 Earnings, Sales Top; EPS View Up

Panera Bread CompanyPNRA posted strong first-quarter 2016 results with both earnings and sales beating the Zacks Consensus Estimate.

Panera raised its adjusted earnings per share (EPS) guidance as well as comps growth target. Shares rose more than 2% in the after-hour trading session

Earnings and Revenue Discussion

Panera Bread’s first quarter earnings of $1.56 beat the Zacks Consensus Estimate of $1.50 by 4%. Further, EPS increased 11% year over year mainly on the back of higher comps and margin expansion. Lower share count also boosted earnings.



Revenues of $685.2 million went up 5.5% year over year mainly on the back of higher bakery-café sales, fresh dough and other product sales to franchisees and increased franchise royalties and fees. Further, revenues beat the consensus mark of $675 million by 1.4%.

Comps Discussion

System-wide comparable net bakery-café sales increased 4.7%, higher than 2.3% growth last quarter. Comps at company-owned units grew 6.2%, much higher than the 3.6% rise in the fourth quarter. Comps at company-owned units reflect 3.8% average check growth and 2.4% year-over-year increase in transaction.

Panera Bread witnessed 3.3% comps growth at franchisee-operated units that compared favorably with 2.8% rise in the previous quarter.

Additionally, the company declared that comps in the first 27 days of the second quarter of 2016 increased 4.4%, indicating that it is off to a strong start in the ongoing quarter.

Margins Down

Panera’s adjusted operating margin (excluding charges related to its refranchising initiative and a reserve for a legal matter) declined 40 basis points (bps) compared with the year-ago quarter. This was primarily due to higher wages as well as start-up and transition expenses associated with the company’s strategic initiatives.

2016 Outlook Raised

The company raised its previously issued fiscal 2016 EPS and comps guidance following strong first quarter results.

Excluding one-time items, adjusted earnings are expected in a band of $6.50 to $6.70 compared with $6.33 to $6.52 expected previously. The new guidance represents growth rate of 5% to 8%, up from2% to 5%.

Panera also raised company-owned comparable net bakery-café sales growth expectation from a 3.5% to 4.5% range to a 4% to 5% range.

In case of operating margins, the company expects it to decline 50 bps to 100 bps year over year, excluding the impact of charges related to the refranchising initiative. Start-up and transition expenses related to management’s strategic initiatives are likely to hurt operating margins.

Our Take

Panera’s margins would remain under pressure due to incremental investments in digital initiatives and menu innovations associated with Panera 2.0. Further, higher labor costs will add to its woes.

Nevertheless, the company's initiatives like introduction of menu items, increased media exposure and focus on an off-premise catering program should aid results, going ahead.

Panera Bread has a Zacks Rank #2 (Buy). Other well-ranked stocks in the restaurant industry include Darden Restaurants, Inc. DRI, Carrols Restaurant Group, Inc. TAST and The Wendy's Company WEN. All these stocks sport a Zacks Rank #1 (Strong Buy).

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PANERA BREAD CO (PNRA): Free Stock Analysis Report
DARDEN RESTRNT (DRI): Free Stock Analysis Report
WENDYS CO/THE (WEN): Free Stock Analysis Report
CARROLS RESTRNT (TAST): Free Stock Analysis Report
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