Investors love metrics. Whether it be returns on capital, or growth rates, we always want to break performance down to easily digestable numbers. One fun way to channel this desire is to use social media statistics to shed light on a business. It's not scientific, but it can be illuminating. The fast casual restaurant sector has been in flux lately, with restaurants like Chipotle (CMG 6.33%) doing well, as competitors like Panera (PNRA) and Potbelly (PBPB 1.13%) make excuses.
Here's what social media can tell us about these stocks.
A quick glimpse at where we've been
The fast casual sector grew at about 12% last year and it, along with fine dining, is leading the restaurant industry right now. Consumers are gravitating away from lower quality fast food, and higher priced "casual" dining, so there is plenty of opportunity. Unfortunately, for Panera and Potbelly, the past few quarters haven't lived up to that narrative.
For the first quarter of 2014, Panera's net income declined 12%. The stock slid on poor guidance for the fiscal year 2014, as it plans to continue plowing money into technology to improve throughput. The company also delivered flat same-store sales, which it blamed on the weather. If you've paid any attention to restaurant stocks lately, you know that the weather has affected earnings for many. Potbelly's first-quarter revenue increased 7.5%, but same-store sales declined 2.2% on (you guessed it) poor weather.
The weather didn't stop Chipotle from turning in breakneck growth. Over the past two quarters Chipotle's comparable sales have grown 9.3% and 13.4%, year over year, and first quarter revenue was up 24.4%. Yet, due to fears of rising food costs, Chipotle's stock still pulled back.
In the past three months these stocks have all kind of stood still, but where are they going next?
Social media tells the truth
Here's a quick run-down of the social media presence for these three companies.
1). Panera has 273,000 Twitter followers, and 2.5 million "likes" on Facebook.
2). Chipotle has 374,000 Twitter followers, and 2.2 million "likes" on Facebook.
3). Potbelly has 10,400 Twitter followers, and 50,000 "likes on Facebook.
One of these things is not like the others
To be clear, I don't live for social media, but I do think these numbers are telling. While CEO's may like to wax about operational effectiveness, when it comes to restaurant success, rabid fans matter more than anything. Rabid fans are the reason Chipotle's same-store sales grew 13.4% in a quarter plagued by blizzards.
Further, these numbers can help validate or kill narratives. Panera's CEO Ron Shaich has been telling you investments in technology will "stage future growth," because throughput at the restaurants is what's holding Panera back. When you look at the massive number of fans who are keeping in touch with Panera, you can logically assume the restaurants have a lot of customer interest that they just aren't converting to dollars. Therefore, the throughput narrative makes sense.
However, Potbelly bulls (yours truly included) will often tout the company's tremendous "white space" opportunity. With only 300 stores, bulls would argue, Potbelly can expand for years to come. Yet, with such little interest from the social media sphere, you wonder if there's enough demand to fuel that growth. In fact, these figures even make me reevaluate management's claim that it can expand store count, and net income, rapidly while projecting "low-single digit" same-store sales growth. In some ways, they're anticipating low demand but also telling us it won't be an issue; something doesn't taste right.
A nice conversation starter
At the end of the day, these are just social media statistics and they shouldn't be used to draw any conclusions. We must take into account that Potbelly is much smaller than both Chipotle and Panera, but even when you adjust for that math the interest is still lacking.
I'm a Potbelly shareholder but I always look to challenge my own biases. I gravitated to this stock because I love Potbelly's sandwiches, and the lines at my local Potbelly are always out the door. Since my premise was based on demand, I'd be a hypocrite if I wasn't a little concerned that the company has such scant social media interest.
Either no one's interested, or the company just doesn't make a huge effort to connect with fans through social media. It's probably the latter, but even that is worrisome because it's an opportunity lost. I won't draw any grand conclusions on these numbers but, as a Potbelly shareholder, it is a nice conversation starter.
