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 U.S. and internationally throughout the 1980s and 1990s and became the dominant operator within the bakery-cafe category.
As of Sept. 27, there were 2,024 bakery-cafes in 46 states and in Ontario, Canada, operating under the Panera Bread, Saint Louis Bread Co. or Paradise Bakery & Cafe names, per the company’s website.
Despite an industry slowdown, the company performed well and beat on revenue. It also raised the guidance. The company raised its fiscal fourth quarter non-GAAP diluted earnings per share target to be between $1.96 and $2.01. It also raised its full-year fiscal 2016 non-GAAP diluted earnings per share target to between $6.67 and $6.72. The third quarter comps rose 3.4%.
Strong third quarter
GAAP net income during the quarter was $32 million, or $1.37 per diluted share, which marked an increase of 8% from $32 million, or $1.27 per diluted share, from the prior year quarter.
During the third quarter, company-owned comparable net bakery-cafe sales increased by 3.4%.Franchise operated comparable net bakery-cafe sales increased by 0.2%.System-wide comparable net bakery-cafe sales increased by 1.7% from the prior year quarter.
Two-year company-owned comparable net bakery-cafe sales increased by 7.2%; two-year franchise-operated comparable net bakery-cafe sales increased by 2.0%; and two-year system-wide comparable net bakery-cafe sales increased by 4.5%.
The bakery-cafe margin for the third quarter improved by approximately 30 basis points from the prior year quarter.
During the fiscal third quarter of 2016, Panera opened 11 new bakery-cafes and its franchisees opened nine new bakery-cafes. As a result, there were 2,024 bakery-cafes open system-wide as of Sept. 27.
Share repurchases
During the quarter, the company repurchased 433,029 shares at an average price of $211.69 per share for an aggregate purchase price of approximately $91.7 million.
Expectation
| Â | Q4 | Full Year |
| Comparable Net Bakery-Cafe Sales Growth | To be between 3.5%-4.0%. | To be between 4.0%-5.0%. |
| Non-GAAP Diluted EPS | To be between $1.96-$2.01 | To be between $6.67-$6.72 |
| New Bakery-Cafe Development | Â | Around 90 to 100 system-wide bakery-cafe openings in fiscal 2016 |
| AWS | Â | The average weekly net sales performance for new Company-owned bakery-cafes is now expected to be modestly above the high-end of the previously provided targeted range of $45,000-$47,000. |
Strong attributes of the company
- Revenue growth
- Good cash flow from operations
- Significant return on equity
- Increase in stock price during the last one year
Focus
- E-commerce and technological capabilities
- Expansion
- Intensive margin improvement effort
- Return cash to shareholders
- Approximately 200 company cafes will be converted to Panera 2.0 in 2016
- Accelerated growth of catering
Health is wealth
Panera has removed artificial colors, flavors, sweeteners and preservatives from more than 400 ingredients, covering more than 90% of its menu. Emphasizing on the growing importance of wellness, it doubled down on the commitments to transparency, clean food and having a positive impact on the food system.
Conclusion
Over the last 20 years, Panera shares delivered a total return of more than 4,700% to shareholders, compared to about 200% for the Standard & Poor's 500. The company is reaching new heights by outperforming most of its peers. According to the company, digital sales could reach $1 billion by the end of 2017.
Since 2009, the company has returned around $1.3 billion in the form of share repurchases. It is on a constant spree to set itself on an industry-leading performance. The results are an indication of the strategies of the company that are in force. The management is confident that its efforts will translate into industry-leading comps and sustainable double-digit earnings growth in 2017. With peak investments, it is ramping up on the pace and is focusing on completing the rollout of the initiatives and reaping the benefits.
In order to better cater to customers,Panera has come up with mobile ordering and rapid pick-up for to-go orders – all designed to make customers happy. The company is maintaining steady momentum. Right now, its strategies and initiatives are paying off. It is poised for a better future, and adding Panera will create shareholder returns.
Disclosure: I do not hold any position in the company.
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