Panera Bread: Making Dough?

Making dough?

In a previous post, A Bread to Eat? A Stock to Buy?, we looked at a company that is bucking the anti-bread storyline, Panera Bread.

That post, dated February 13th 2012 quoted the Motley Fool:

Panera will have to deliver some awfully high growth to justify its current high multiples, and that may make it one of those doomed stocks you should avoid. Even in good times, any whiff of disappointment can send such pricey stocks crashing, and given the current ugly times, I’d say Panera will probably be a big disappointment in 2009. I simply don’t think it can pull it off.

On February 13th 2012 Panera’s stock was at $150.14; on June 28 it sank as low as $136.45 and as high as $175.26 and looks set to close out 2012 at around $157.00.

Now, the Motley Fool is saying this:

The quick-serve business is crowded, as any consumer can see during their daily commute.  The industry’s barriers to entry are fairly low — as is the success rate. Yet Panera Bread (NASDAQ: PNRA) has built a national chain of bakery-cafes by offering a comfortable environment and high-quality fresh food, including breads, baked goods, made-to-order sandwiches, and trademark soups.  Founded in 1981, the company has grown to 1,625 restaurants in 44 states and Canada that serve 6.5 million people each week.  Its locations have become meeting places, where people can enjoy good food and engage in business through one of the country’s largest wi-fi networks.

In its latest fiscal year, Panera reported revenues and operating income of $1.8 billion and $220.3 million, increases of 18.1% and 19.0%, respectively, over the prior year.  It benefited from a 4.9% gain in same stores sales as well as a 29% increase in its catering business.  Despite higher food commodity costs, the company’s operating margins have benefited from declining occupancy expenses and relatively low advertising spending due to its repeat customer base.

Panera had 9.5 million registered users in its rewards program as of December 2011 and it sends 6.5 million emails each month that provide personalized rewards based on previous purchase patterns.  The result has been a lesser need for ad campaigns, with annual media spending running at 1-2% of sales compared to 3-5% at other national chains.

Looking ahead

In FY2012, Panera has continued to produce strong results, with increases in revenues and operating income of 17.5% and 26.5%, respectively, versus the prior year period.  Its operating margins continued to benefit from a larger store base and comparable sales were up 6.0% for the period.

The company has had a strong ability to increase prices at a low single digit rate for a number of years, due to its loyal customers and quality food offerings that includes the new Thai Chopped Chicken Salad and Wild-Berry Smoothie.  Panera has already exceeded its goal of opening 115-120 restaurants in FY2012 and it expects to open a similar number in FY2013.

Despite its premium 28 P/E multiple at recent prices, Panera is a “healthy” choice for investors’ portfolios.