What to Watch For in Panera Bread's Earnings

Panera Bread (Nasdaq: PNRA  ) reports earnings after the close of trading today, and it will garner a lot of interest on the heels of the crash of Chipotle's (NYSE: CMG  ) stock after a weaker third quarter. High-quality food choices like Panera and Whole Foods have performed well over the past year, but as Chipotle's drop shows us, an earnings miss can crush a stock that's priced for perfection.

PNRA data by YCharts.

So what should we expect and what should investors watch for?

It's all about expectations
Analysts are expecting revenue of $522.5 million and earnings per share of $1.19 in the third quarter. That's up from $453 million in revenue and earnings of $0.97 a year ago. Eyes will be on comparable bakery-cafe sales as well, which were up 7.1% in the second quarter with management expecting growth of 5% to 6% this quarter. But this assumes a strong increase in the size of the average check, and competitor Chipotle missed its earnings partly because the average check didn't increase significantly.

Margins will also be key due to pressure on food pricing. The company expects operating margins to be flat with the 13.6% margin in the second quarter, but is expecting an increase of 25 to 75 basis points in the fourth quarter. Both may be hard to do unless Panera can increase prices.

Guidance is also important. The company previously stated that it expected earnings per share of $1.66 to $1.70 in the fourth quarter, but this is based on assumptions similar to the ones I pointed out above. When companies have been crushed by the market after earnings, it has often been because revenue or earnings guidance is well below expectations.

Is the long-term trend intact?
While the numbers I pointed out above are important, investors should also keep some perspective. If comparable bakery-cafe sales are up 5% to 6% in the current environment and Panera is able to open more stores, it's a win for long-term investors. Margins will ebb and flow with food costs, but the company is still taking share in the restaurant market.

Quality food suppliers like Panera, Chipotle, and Whole Foods are trending in the right direction operationally right now. Unless Panera reports a fundamental change in this trend, I wouldn't overreact. 

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