The Panera Bread (PNRA, Financial) legacy began in 1981 as Au Bon Pain Co., Inc. Founded by Louis Kane and Ron Shaich, the company prospered along the east coast of the United States and internationally throughout the 1980s and 1990s and became the dominant operator within the bakery-cafe category. As of July 1, 2014, there are 1,818 bakery-cafes in 45 states and in Ontario Canada operating under the Panera Bread, Saint Louis Bread Co. and Paradise Bakery & Café names, delivering fresh, authentic artisan bread served in a warm environment by engaging associates. It is famous for its gourmet sandwiches, which is a hit among its consumers.
Performance recently
PNRA reported a mixed bag of results for the second quarter of 2014. It has a debt equity ratio of 0.14 (which is healthy). Company-owned comparable net bakery-cafe sales are up 0.1%. PNRA reported net income of $49 million, or $1.82 per diluted share, for fiscal Q2 2014, which included a $3.2 million, or $0.08 per diluted share, benefit from a favorable resolution of an insurance coverage matter. The fiscal Q2 2014 results compare to net income of $51 million, or $1.74 per diluted share for fiscal Q2 2013. (Source: Company Website)
In fiscal Q2 2014, on a calendar basis, company-owned comparable net bakery-cafe sales increased 0.1%, franchise-operated comparable net bakery-cafe sales decreased 0.2%, and systemwide comparable net bakery-cafe sales were flat compared to the comparable period in fiscal 2013. The Company estimates that fiscal Q2 2014 company-owned comparable net bakery-cafe sales results were negatively impacted by approximately 40 basis points from the shift of the Easter holiday from calendar Q1 2013 to calendar Q2 2014.
An area of concern
In fiscal Q2 2014, the company experienced a decline in operating margin of approximately 250 basis points compared to fiscal Q2 2013. This decline was primarily the result of continued investments related to key initiatives designed to improve the company's guest experience, operational capabilities and technology infrastructure, as well as higher food and marketing expenses.
There is an ever increasing decline in bread consumption. More people are opting for wheat-based foods. But PNRA has already modified its menu by incorporating antibiotic-free chicken and whole grain bread. It is also offering zero trans fats per serving.
Ron Shaich, chairman and CEO, commented, "In Q2 and into Q3, we have seen success against the near term goal we set for ourselves: growing transactions. This gives us confidence in the potency of our plan. While our average check declined modestly in Q2, primarily as a result of mix, we expect this will remain only a shorter-term drag. Looking long term, we remain confident in the initiatives under way. We believe they will further improve our guest experience and ensure we have the operational capabilities, technology infrastructure and the food and marketing innovation necessary to compete and grow in a rapidly evolving marketplace. While we know our strategic plan and initiatives will require significant investment in 2014 and 2015, we continue to believe they will create the foundation for expanded earnings growth well into the future."
To end
PNRA has its presence felt in many states. Franchise-operated bakery-cafe locations are there in 44 states, Ontario, Canada. It is undoubtedly one of the leading bakery franchises in North America.
There are reports of more and more people across the globe becoming obese. A large section of the American population is inflicted with obesity. More people are trying to avoid junk foods.
I have an affinity for this stock. But this stock has shown sharp downward drifts from its first quarter. Decline in bread consumption has worked against this company. PNRA has been restaging its business to fuel its growth. The company is making programs to draw customers by participating in multi-year marketing strategy. Innovation play a key role in any company’s success and PNRA is working continuously on innovating and modifying its menu. I am sure that with the changing preferences, PNRA will also cater to the changed demands of its customers.
