Trendy bakery-cafe operator, Panera Bread (Nasdaq:PNRA), was apparently not affected by a lack of consumer confidence in the third quarter. Since its end on Sept. 27, 2011 Panera reported revenue of $453 million, up 22% quarter over quarter. Diluted earnings per share was 97 cents, a Q/Q growth of 29%, respectively. Analysts were expecting average earnings of 94 cents a share, this past quarter. Given these numbers, Panera looks to be a company worth taking a bite out of.

Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

What Customers Want

Panera's business is benefiting from growing popularity in the fast-casual segment of the restaurant industry. Customers that aren't necessarily price sensitive want menu choices that are fresh and different from typical fast food, but at a reasonable price. During the quarter, Panera's company-owned same-store net sales increased by a very impressive 6%. Panera also increased its fiscal year 2011 EPS estimate to $4.63, a 28% increase over 2010 EPS. More so, the company provided initial guidance of 2012 EPS of $5.38 to $5.48, which represents an 18% increase in profit over 2011. Even Panera couldn't escape food inflation, as input costs represented 30.1% of sales, up from 28.5% of sales in the year ago quarter. Thanks to strong customer traffic, sales helped boost Panera's profit.

A Food Fad or the Next Big Thing?
Fast-casual restaurants that make it a mission to serve higher quality foods at reasonable prices, have been experiencing strong growth for years, even during the recession. Panera and Chipotle (NYSE:CMG) are the two darling names in the industry. Significant share price advances have rewarded investors over the years, but their strong growth now comes with an expensive price tag. Panera shares now fetch $134, 31 times trailing earnings, or over 25 times forwards earnings estimates. Chipotle continues to sizzle with shares trading at $333, valuing the company at over 50 times trailing earnings. Given the durability of places like Panera and Chipotle, it's likely they are not food fads and will continue to attract more and more customers.

Even McDonald's (NYSE:MCD) is experiencing its own growth phase and its shares trade at a more acceptable 18 times earnings, along with a delicious yield of 3%. As well, Yum! Brands (NYSE:YUM), whose restaurants such as Taco Bell and KFC are experiencing significant growth in China, yields 2% and trades for 20 times earnings. (For a more in-depth analysis on this industry, check out How To Analyze Restaurant Stocks.)

The Bottom Line
Panera, like any other restaurant concept, will always be susceptible to consumer trends. Back during the days of the Atkins diet craze, Panera's high carb offerings turned away investors and its shares tanked. Yet at the moment, the company is experiencing a strong growth phase. Whether that growth will translate into further stock price appreciation is not so assured, however.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Sham Gad did not own shares in any of the companies mentioned in this article.

Tickers in this Article: PNRA, CMG, MCD, YUM

comments powered by Disqus

Trading Center