Panera has confidentially filed to go public, according to sources for the Financial Times. Seasoned investors may be excited, remembering the company's previous track record as a public company. From mid-1999 through its acquisition by investment group JAB in mid-2017, Panera stock was a rare 100-bagger, turning every $10,000 investment into $1 million.
As Panera prepares to possibly go public in 2024, here's what investors can and can't know right now.
What we know about Panera right now
In 2017, Panera Bread was acquired by JAB Holding Company -- an investment group that apparently really likes bread, coffee, and tea. Before acquiring Panera, it had already built a portfolio of restaurant brands, including Krispy Kreme Doughnuts (DNUT +3.31%), Peet's Coffee and Tea, Einstein Bros. Bagels, and more.
JAB spun out Krispy Kreme in 2021. Later that year, JAB tried to take Panera public via a different route -- a special purpose acquisition company (SPAC) called USHG Acquisition Corp. The unusual SPAC arrangement ultimately failed, keeping Panera in the hands of private company JAB.
While trying to take it public with USHG, JAB revealed that it had bundled the Caribou Coffee and Einstein Bros brands with Panera Bread, creating a new company called Panera Brands. This combined company had about 4,000 locations -- over 2,100 for Panera Bread, over 1,000 bagel restaurants, and over 700 locations for Caribou Coffee.
Panera Bread has barely grown under JAB's ownership. When it was acquired, it had around 2,050 locations. It therefore appears to have opened less than 100 net new locations in the subsequent four years.
Finally, it's clear that Panera has been making many organizational changes in preparation for an initial public offering (IPO). Earlier this year, the company moved its CEO Niren Chaudhary to chairman of the board and promoted José Alberto Dueñas -- CEO of Einstein Bagels -- to CEO of Panera Brands.
In November, Panera also laid off 17% of its corporate employees, according to The Wall Street Journal. This move was undoubtedly designed to boost profitability before going public.
Krispy Kreme's IPO could offer some insight into Panera's
Until the paperwork is publicly available, it will be impossible to adequately analyze Panera's upcoming IPO. However, using Krispy Kreme's IPO as a guide, I doubt Panera's IPO will be an attractive opportunity right away.
JAB acquired Krispy Kreme for $1.35 billion in 2016 before taking it public again for $2.7 billion in 2021. That's a five-year double in price. But it's questionable whether the business was worth twice as much.
In 2016, Krispy Kreme generated revenue of $519 million and had an operating margin of 10%. In 2021, the company had revenue over $1.1 billion but its operating margin had dropped to just 0.4%. In other words, when JAB acquired it, Krispy Kreme had 12 times as much operating profit on less than half of the revenue.
JAB expanded the Krispy Kreme brand and it drove revenue growth at the expense of profits. In 2016, consumers could buy Krispy Kreme products in about 5,700 places worldwide (this number includes grocery stores). In 2021, its products had over 8,300 points of access but with diminishing returns.
Turning to Panera Brands, I believe JAB likely has increased revenue for these brands. But profits, like Krispy Kreme's, could be minimal.
Will the Panera IPO be a good buy?
Panera just filed confidentially, meaning investors can't know certain things for sure. But taking an educated guess, I believe Panera will have annual revenue of at least $5 billion. Here's why.
Standalone Panera generated revenue of about $2.8 billion in 2016 -- its last full year public. If it merely grew revenue at a 5% compound annual rate since 2016, it would be on pace for about $4 billion in revenue in 2023. That level of growth is possible through menu-price inflation alone.
Additionally, in its fiscal 2013 (the year before it was acquired), Einstein Bros had revenue of $434 million. And in its fiscal 2012, Caribou Coffee had revenue of $327 million. These two brands have also grown and are more than capable of having combined annual revenue of over $1 billion, taking Panera Brands over $5 billion.
In the last standalone year for each, Panera Bread, Einstein Bros, and Caribou Coffee had operating margins of 8.6%, 6.4%, and 4.6%, respectively. Considering margins declined for Krispy Kreme under JAB's ownership, profit margins may have declined here as well in the name of growth. So perhaps investors can assume an operating margin of 5% for Panera Brands.
JAB spent over $8.2 billion acquiring Panera Bread, Caribou Coffee, and Einstein Bros. Therefore, I'd be surprised if JAB took it public at less than a $10 billion valuation -- after all, it justifiably aims to make money. But with my assumptions, Panera Brands might only have an annualized profit of around $250 million, making a $10 billion IPO quite pricey.
However, all of these numbers are simply guesses. Panera's IPO valuation could be way less, increasing its attractiveness. Moreover, Panera's business could be much larger and more profitable than my piecemeal math, which would also make it more attractive. Investors must be careful not to get carried away with IPO buzz.
If Panera Brands follows Krispy Kreme's trajectory, in the future, it likely won't be a 100-bagger like it was in the past. But returns can still be good for investors who don't overpay for a stake in this business.
