Panera’s Moves Look Impressive, but the Stock Isn’t a Buy Just Yet

Panera is looking to turn the business around with some impressive strategies, but Chipotle and Starbucks are threats that can’t be ignored.

Apr 21, 2014 at 10:24AM

Panera Bread (NASDAQ:PNRA) shares have been under pressure this year after the company issued a weak forecast in February. Panera cited bad weather as the main reason behind the disappointment. In addition, the company is experiencing operational difficulties due to customers' changing preferences and rising competition from Chipotle Mexican Grill (NYSE:CMG) and Starbucks (NASDAQ:SBUX).

Now, Panera is looking to make a comeback with its Panera 2.0 plan, but will it succeed? Let's find out.

Not that bad
Many of Panera's cafes in the Midwest and the Mid-Atlantic Northeast corridor underperformed in the fourth quarter as a result of harsh weather. This led to a decline of $0.03 to $0.04 in the company's earnings per share. In addition, Panera expects to earn just $1.52 in EPS in the first quarter, well behind the Wall Street estimate of $1.70 per share. 

Nevertheless, the company managed to grow fourth-quarter revenue by 16% from last year. Moreover, according to the Black Box index, a measure of the U.S. restaurant composite, Panera's growth was 1.6% better than the industry's performance.

Ringing in the changes
Going forward, management is determined to improve the bottom line. In a bid to enhance the customer experience, Panera is revamping its ordering process. It plans to execute an end-to-end system that will provide an enhanced order, payment, execution, and consumption experience for all its customers. This forms the basis of Panera 2.0. 

The company is also looking to strengthen its menu by introducing more items and giving customers additional choices. Panera will be adding new flatbread sandwiches to its menu in the spring. These sandwiches will feature quality proteins and bold flavor profiles that will enable the company to better experiment with its new seasonings and spices. Panera will start with varieties such as high-protein chicken, Mediterranean chicken, and Southwestern chicken in a bid to tap younger customers. 

Panera's squash soup and antibiotic-free turkey chili are also selling well. These two soups underscore the ongoing push that the company is making to differentiate its offerings via high-quality products. To complement the rollout of new products, Panera is also focusing on its marketing efforts. Its spending on media efforts grew from 1.4% of sales in 2012 to 1.7% of sales last year.

In 2014, the company plans to spend around 1.9% of sales on advertising. These advertisements are expected to have a strong impact in more expensive markets such as New York, Boston, Atlanta, Dallas, and Los Angeles, where Panera has had a very limited advertising presence. 

The company expanded its current store count by adding 18 new bakery cafes in the fourth quarter, while its franchisees opened 24 new cafes. By year-end 2013, Panera had a total of 1,777 cafes in operation. It also opened three new catering hubs in the third quarter, taking the total number to seven by the end of fiscal 2013. The company plans to open 20 new hubs in 2014, which will provide support to more than 100 cafes and improve its distribution strength. 

Competitive threats
Moves such as these should help Panera improve its performance going forward, but competition from the likes of Chipotle and Starbucks is a concern. Chipotle has been posing a strong threat to Panera since it is known to "quickly and efficiently move diners into and out of its restaurant locations" in the words of Fool contributor Philip Saglimbeni.

As a result, it was not surprising that Chipotle's fiscal 2013 same-store sales were up 5.6%, while Panera struggled at just 2.3%. Saglimbeni points out that Panera recorded impressive same-store sales growth of 5.7% in 2012. 

Hence, the company lost the initiative and Chipotle gained due to its customer-centric approach. In addition, Chipotle is expected to continue its rapid pace of growth. It plans to open 180 to 195 new restaurants this year, similar to last year's addition of 185 locations. Clearly Panera will need to move swiftly and efficiently to accelerate growth in the wake of Chipotle's moves.

Another threat comes from Starbucks, which acquired bakery chain La Boulange in 2012 for $100 million. Since most Starbucks locations are in prime areas, with many of them in close proximity to Panera stores, the coffee giant is a threat that Panera investors shouldn't ignore. Also, Starbucks has been experimenting with its pastry menu, with plans to launch hot and cold sandwiches along with new lunch options.

Bottom line
Panera has struggled of late, and the stock's performance has been bad over the last year. But looking forward, the situation might improve as management rings in the changes to attract customers and improve profitability. However, investors should adopt a wait-and-watch approach and see if Panera's strategies are working despite the stiff competition it faces before making a call on the stock.

6 stock picks poised for incredible growth
They said it couldn't be done. But David Gardner has proved them wrong time, and time, and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.

Prabhat Sandheliya has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill, Panera Bread, and Starbucks. The Motley Fool owns shares of Chipotle Mexican Grill, Panera Bread, and Starbucks. 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers