Why Panera Shares Took Off Today

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Sandwich champion Panera Bread (Nasdaq: PNRA  ) released its third-quarter earnings yesterday and investors responded with a resounding, "More please!" Unlike its competitors, Panera continues to explore new avenues to success, and has been able to manage rising costs and inflation. The result is good news for investors, and a roadblock for competition.

Third-quarter earnings
Panera's third-quarter revenue jumped 17% to $529 million, and earnings topped analyst estimates, coming in at $1.24 per share. The company attributed the strong sales to a 6% increase in same-store sales, outpacing rival Chipotle (NYSE: CMG  ) , which increased same-store sales by 5% in its last quarter. Those results alone were strong enough to drive the stock northward, but the company also announced an increase in its fourth-quarter and full-year guidance, helping to push shares up 7% at midday.

The magnificent same-store sales increases have been driven by a change in product mix, which the company has now built into next quarter's guidance. The change in mix has also helped fuel the company's increase in operating margin, which rose 80 basis points to 12.8%. The combination of the increased margin and the increase in sales led management to increase full-year EPS guidance by 2%.

One of the more interesting points from this release regards the change in mix that Panera has seen. According to the company, 2.6 percentage points of the quarter's same-store sales growth came from an advantageous mix. In an interview with CNBC, co-CEO Ron Shaich said that the shift in mix is largely due to the growth that the company has seen in catering. The company has been actively pursuing the most profitable portions of its business, in a way that other, more specialized competitors can't do.

The competition
Earnings from Chipotle and Buffalo Wild Wings (Nasdaq: BWLD  ) recently disappointed the market. Comparable-store sales have slowed their growth, and Buffalo Wild Wings has been especially damaged by the increase in chicken prices. Since the company is so reliant on one commodity, any sustained fluctuation can have a lasting effect on margin. Last quarter, the company's operating margin fell to 6% from 8% in 2011. Chipotle has been under similar pressure, and after its last earnings release, the company said that it may have to raise prices due to commodity increases and inflationary pressure.

Panera has already said that it will continue to increase prices as inflation demands. In the earnings release, the company highlighted the fact that 3 percentage points of comparable-sales growth last quarter could be attributed to price increases. The chain has developed a strong enough brand to be able to pass some costs on to customers, even as the economy continues to stagnate.

Despite its products' higher cost to consumers, Panera was one of the only companies to show any strength in this most recent quarter. Even the American classic that is McDonald's (NYSE: MCD  ) hit a wall in 2012. Its most recent quarterly results showed a slowdown in American sales, and a 3.5% decline in overall profit. The bad news has prompted a sell-off, and shares are down more than 5% since the release.

The bottom line
Panera is emerging as one of the few chains currently in control of its own destiny. The company's diversity of products and services means that it's free to chase its most profitable operations. As commodity prices fluctuate, the company can offer new products or increase the cost to its consumers. Its ability to move after the more profitable catering business means that it has an edge up on competitors who are tied to in-store operations.

Overall, Panera has shown itself to be a strong contender in the current economic climate. More important, it continues to grow its brand, and to offer customers the food that they want. That's a recipe for long-term success.

To keep an eye on Panera, Motley Fool readers can now sign-up for the Fool's premium report on the company. Readers will get detailed analysis of strengths and challenges facing Panera, and get a long view of what needs to happen for the company to stay on top. Sign up for your copy today by clicking here.

Fool contributor Andrew Marder has no positions in the stocks mentioned above, but he does have two excellent relatives working for Panera. The Motley Fool owns shares of Buffalo Wild Wings, McDonald's, and Panera Bread. Motley Fool newsletter services recommend Buffalo Wild Wings, McDonald's, and Panera Bread. 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.

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10/21/2016 11:06 AM
PNRA $195.46 Up +0.14 +0.07%
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