Panera Bread: Should You Stay or Should You Go?

Source: panerabread.com

Panera Bread (NASDAQ: PNRA  ) recently reported fourth-quarter results, and investors have had mixed feelings. However, if you ignore all the Wall Street shenanigans and look at the numbers, you will find a growing and healthy business. If you're concerned about the high stock price, then you're looking at the wrong number. 

Important numbers
The numbers in the chart below indicate that Panera is still a strong and growing business. However, Chipotle Mexican Grill (NYSE: CMG) is even more impressive: 

 

Trailing P/E

Current Profit Margin

Total Expected EPS Growth Through 2017

Panera Bread

28

8.43%

48%

Chipotle Mexican Grill

53

10.19%

68%

Source: S&P Capital IQ 

Chipotle might be more expensive, but it's slightly better at turning revenue into profit right now, and it's expected to see higher earnings-per-share growth through 2017. Therefore, if you eliminate valuation and only focus on the underlying business, Chipotle appears to be a bit more impressive. 

Starbucks (NASDAQ: SBUX  ) is more on the quick-service side than the fast-casual side, but it's still a favorite of millennials -- the most important consumer demographic due to the young age, size, and future spending power. Those who are considering an investment in Panera and/or Chipotle might also investigate Starbucks due its exposure to this key consumer demographic. That being the case, some important numbers and facts will provided for Starbucks below. 

Recent results 
Like any good Foolish investor, I'm simply looking at the underlying business of a stock to see if it's still growing and healthy. For Panera, the answer is yes ... and yes.

In the fourth quarter, revenue jumped 16% to $662 million year over year. That's impressive, but remember that revenue includes new store openings and can mislead investors. It's still an important number since a company won't open new locations unless it's optimistic about its future prospects, but it's not as important as comps sales, otherwise known as same-store sales. This number eliminates new store openings over the past year. Therefore, a positive percentage gain indicates customer loyalty, or repeat business, which is the key to a sustainable business.

With that in mind, Panera's fourth-quarter system-wide comps grew at a 1.1% clip year over year. This modest comps growth might not lead to investor jubilation, but considering the current consumer environment and recent abysmal weather across much of the United States, it should be embraced. It indicates that Panera is still on-trend.

Since the bad weather only took place in the winter months, consider the fiscal-year 2013 comps performance, which delivered a 2.6% gain. That's a positive sign, and Panera expects fiscal-year 2014 comps to come in between 2% and 4%.

Considering Panera suffered a 2.2% decline for the first 48 days of this year so far, primarily due to poor weather, this is an optimistic forecast. Panera seems confident that sales and transactions will increase in the near future, which is based on upcoming initiatives. Unfortunately, if you want the specifics of these initiatives, you will have to wait until March 25.

Outperforming its peers?
It's fair to estimate that poor weather didn't just affect Panera but also had the potential to impact Chipotle and Starbucks as well. Considering atmospheric pressures, it would be very impressive if another food and drink establishment was capable of delivering in an even bigger way. Enter Chipotle. 

In its fourth quarter, Chipotle delivered 20.7% revenue growth, and comps soared 9.3%. For its fiscal year, revenue increased 17.7%, and comps grew at a 5.6% clip. What was that about the weather again?

While both fast-casual brands are on-trend, Chipotle is clearly seeing higher demand. Additionally, Chipotle is likely to see increased growth, primarily thanks to its plan of opening 185 new restaurants this year. However, Chipotle expects its comps to be in the low- to mid-single digits for fiscal-year 2014, which should put it right in-line with Panera. 

As far as Starbucks is concerned, its first-quarter revenue improved 12%, with global comps increasing 5%. U.S./Americas and EMEA (Europe, Middle East, Africa) comps also grew 5%. And China/Asia-Pacific comps increased 8%.

Chief Executive Officer, Howard Schultz, made investors nervous after stating that a great deal of brick-and-mortar retail traffic is now shifting online. What investors might have missed is that Schultz also stated that the company is well positioned for this trend thanks to its physical and digital assets. Looking ahead for the entire fiscal year, Starbucks expects comps to be in the mid-single digits, which would be even more impressive than Chipotle. Who says Starbucks is no longer a growth company?

The Foolish bottom line
Any fast casual or quick service restaurant that caters to, and is widely accepted by, millennials is likely to perform well going forward. Panera, along with Chipotle and Starbucks, fits into this category. While Panera might not be quite as impressive as Chipotle (organic growth) and Starbucks (customer loyalty), it's still a high-quality company that continues to deliver for its customers and investors. Please do your own research prior to making any investment decisions.

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