When I think of fast-casual chains that are distinctive, Panera Bread (NASDAQ:PNRA) and Chipotle Mexican Grill (NYSE:CMG) come to mind. Both these have their cult-like followings, and winter revealed a lot about each. But which one is the better buy?
As you are probably well aware, they are vastly different restaurants. Panera Bread is fast-casual bakery cafe that is famous for its gourmet healthy sandwiches. Chipotle Mexican Grill is a fast casual made-in-front-of-you chain that uses organic, hormone-free, GMO-free health-conscious burritos and tacos. Both chains have tastes to die for according their fans.
No winter chip on Chipotle's shoulder
Many restaurant chains saw their results get walloped by the winter but not Chipotle Mexican Grill. For the first quarter, revenue soared 24.4%, same-store sales leaped by a staggering 13.4%, the best it has seen in years, and earnings per share popped 8.5%. It almost looks like the snow storms actually helped Chipotle Mexican Grill. And if you guessed that, you'd actually be partially right.
How could Chipotle Mexican Grill have more business when the winter forced restaurant closings? Jack Hartung, CEO of Chipotle Mexican Grill, explained how during its most recent conference call. What happened was in the days of reopenings following certain restaurant closures, the crowds to most Chipotle Mexican Grills were so intense that the company saw sales jump to levels even bigger than before the storms. In fact, they were so big that they made up for the closed days and then some.
Chipotle Mexican Grill regulars apparently can only be held away for so long.
Less bread for Panera
Panera Bread, meanwhile, got pounded by the snowstorms. Revenue did increase by 8% but same-store sales were barely positive at up 0.1%. Panera Bread estimates that "unfavorable weather" caused a hit between 1.5% and 2% to same-store sales growth. Net income dropped 8.3% to $48 million or $1.55 per share.
Ron Shaich, Chairman and CEO of Panera Bread, stated that every five to ten years Panera has "restaged its business to drive future growth." Each time in its past it has been successful at doing so. I have one word in response: huh? It sounds like Shaich is admitting temporary defeat for Panera Bread and wants investors to rally behind it based on its history of reinventing itself. It sounds kind of risky. I doubt Chipotle Mexican Grill or most other restaurants have to continually reinvent themselves. It's hard to imagine Panera Bread could do that forever successfully.
Chipotle Mexican Grill vs. Panera Bread
Despite both chains seeing vastly different effects from weather with Panera Bread seeing declines and Chipotle maybe even seeing a bit of gain, long-term it shouldn't matter much. However, the effects of the weather may be a symbol of the strength of the brands. With that in mind, which is the better investment? It all comes down to value and risk tolerance.
Chipotle Mexican Grill currently trades at a P/E ratio of 42 based on the current share price and analyst estimates of $12.49 for year ending December 2014. Analysts expect earnings per share to grow another 28% for 2015.
Panera Bread meanwhile trades at a P/E ratio of around 23 or almost half of that of Chipotle Mexican Grill based on the same criteria. Analysts expect 12% growth in earnings for 2015. s
Chipotle Mexican Grill has a little less than double the P/E ratio yet well more than double the expected growth rate. Based on this, Panera Bread seems priced a bit more expensive with market expectations of perhaps a higher growth rate down the road. The problem is just as much a risk as an opportunity, and risks depress what should be a fair price. Chipotle Mexican Grill seems like the better potential opportunity from here as it is going through hyper growth now without having to do much in terms of risky change.
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Nickey Friedman has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill. The Motley Fool owns shares of Chipotle Mexican Grill. 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.