Panera Bread Continues to Rise
Tyler is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
With so many people hot on Chipotle Mexican Grill (NYSE: CMG), it's sometimes easy to forget some of the other high risers in their industry. While everyone is gobbling up those burrito bowls, I myself will want to be checking out the new Panini press at Panera Bread Company (NASDAQ: PNRA).
Ok, so Panera isn't quite keeping pace with Chipotle's growth numbers. But who can? That doesn't mean that Panera isn't putting up good numbers themselves. Panera is flashing a growth rate of 26% in net income and 28% in diluted EPS for the last quarter. This puts them on track to exceed their target of annual diluted EPS growth of 23%-24%. It should not come as a big surprise, as Panera has hit the high end or exceeded all targets and estimates for the past 5 consecutive quarters.
What is also nice to see is that Panera has seen healthy growth both internally and externally. Internally, they have seen their comparable net sales increase by 6.3%, both from increased transactions per location and higher check averages across the board. Externally, Panera has opened 112 bakery cafes that are either company-owned or franchise-operated in FY 2011. They are anticipating another 115 to 120 openings in 2012. With over 1,500 stores in the US already, this looks like a healthy growth rate that won’t overextend the company’s resources.
Panera is also starting to take a foothold in its new endeavor…catering. Starting in 2010, Panera has seen an average growth of over 25% in this sector and there are no signs of it slowing down. This is a good play for a company that has positioned itself as a leader in quality over some of its competitors.
All growth for the company is happening in the US and Canada, which doesn’t seem to be a problem because they have yet to saturate the market (heck, McDonald's has over 30,000 locations in the US alone). Also, according to the National Restaurant Association, the restaurant industry as a whole has been seeing healthy growth over the past six months and will continue to do so for the rest of 2012. Heading overseas could be a challenge for the company, but this looks to be a step far down the road for them.
Is this sustainable? As of today there is little competition in their market. Cosi (NASDAQ: COSI) has been trying to make a run for some time now, but they are still struggling with profitability and are a ways away from putting a dent in Panera’s market share. What may be more worrisome is if a bigger player starts to deliver more upscale menu items ala what we will be seeing from Yum! Brand’s Taco Bell this summer, which could take a hit into Chipotle.
All in all, this adds up to a per annum growth rate of 28.6% over the past 5 years, with estimates for the next 5 hovering in the 19%-20% range. Conversely, that Dow Jones darling Chipotle estimates for the next 5 years are coming in at a per annum in the 22%-23% range.
While you digest all of that information, let me ask you this question. Is 3% higher per annum growth of Chipotle worth the current premuim at which you have to buy the stock (current P/E for Chipotle is 53, Panera is around 30). While you are thnking about it, perhaps you will want to wash it down with one of Panera's new low-fat peach nectar smoothies...mmmmm.
TylerCrowe has no positions in the stocks mentioned above. The Motley Fool owns shares of Chipotle Mexican Grill, McDonald's, and Panera Bread. Motley Fool newsletter services recommend Chipotle Mexican Grill, McDonald's, Panera Bread, and Yum! Brands. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.