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Why Panera Shares Took Off Today

Andrew Marder
October 24, 2012

Sandwich champion Panera Bread (Nasdaq: PNRA  ) released its third-quarter earnings yesterday and investors responded with a resounding, "More please!" Unlike its competitors, Panera continues to explore new avenues to success, and has been able to manage rising costs and inflation. The result is good news for investors, and a roadblock for competition.

Third-quarter earnings
Panera's third-quarter revenue jumped 17% to $529 million, and earnings topped analyst estimates, coming in at $1.24 per share. The company attributed the strong sales to a 6% increase in same-store sales, outpacing rival Chipotle (NYSE: CMG  ) , which increased same-store sales by 5% in its last quarter. Those results alone were strong enough to drive the stock northward, but the company also announced an increase in its fourth-quarter and full-year guidance, helping to push shares up 7% at midday.

The magnificent same-store sales increases have been driven by a change in product mix, which the company has now built into next quarter's guidance. The change in mix has also helped fuel the company's increase in operating margin, which rose 80 basis points to 12.8%. The combination of the increased margin and the increase in sales led management to increase full-year EPS guidance by 2%.

One of the more interesting points from this release regards the change in mix that Panera has seen. According to the company, 2.6 percentage points of the quarter's same-store sales growth came from an advantageous mix. In an interview with CNBC, co-CEO Ron Shaich said that the shift in mix is largely due to the growth that the company has seen in catering. The company has been actively pursuing the most profitable portions of its business, in a way that other, more specialized competitors can't do.

The competition
Earnings from Chipotle and Buffalo Wild Wings (<