Panera's Still Toast

Investors are cheering Panera Bread's (Nasdaq: PNRA  ) quarterly results today, but in this Fool's opinion, they're grasping at breadcrumbs and hoping for the best.

Panera's net income dropped 5.8% to $17.8 million, or $0.56 per share. This included $0.03 per share in one-time charges, as the company wrote down its investment in the Columbia Strategic Cash Portfolio (what the ...?) and took a charge related to discontinuation of its Crispani pizzas. There was also a charge of $0.03 per share related to unfavorable tax adjustments. Revenue, on the other hand, increased 29% to $300.8 million.

Panera pared its earnings outlook for 2008 to 12% to 18% growth, or $2.00 per share to $2.11 per share. This target assumes Panera's ability to successfully increase prices by 5%. As with many companies, commodity costs are rising at Panera. The company cited "rapidly escalating wheat costs" as a significant element, and it hopes to pass the costs along. Maybe investors feel heartened, because Panera said it has already been able to successfully boost prices by 2.5%, but wheat costs are skyrocketing. Although Panera said it has locked in below market price, that price is more than double the average cost per bushel last year; further, in Panera's press release, the wheat market is described as experiencing "unprecedented inflation." That doesn't sound comforting to me. 

Panera may be losing its once-celebrated Crispani pizzas (CEO Ron Shaich defended Crispani last February), but I couldn't help but pause when the company said one strategy for 2008 is "a focus on breakfast sandwiches" -- I guess it's hoping Starbucks' (Nasdaq: SBUX  ) loss of breakfast sandwiches will be Panera's gain.

I really like the concept of Panera -- fresh-baked bread is so awesome and I have always enjoyed its food -- but I still don't view it as a particularly appetizing investment. Trading at about 19 times forward earnings doesn't sound like a bargain when it may grow 2008 earnings by only 12%, and consumers' acceptance of higher prices is by no means a foregone conclusion. Meanwhile, it faces all kinds of competitors luring hungry, price-conscious consumers at all times of day, including a rejuvenated McDonald's (NYSE: MCD  ) and Chipotle (NYSE: CMG  ) (NYSE: CMG-B  ) , another hot contender.

I have no idea why investors are reacting so favorably to Panera's tidings today -- the forward view sounds a bit scary to me. In my opinion, there are plenty of better places for investors to put their bread.

For related Foolishness, see:


Read/Post Comments (0) | Recommend This Article (10)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 576917, ~/Articles/ArticleHandler.aspx, 8/31/2014 12:18:00 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement