In the grand scheme of things, companies that consistently perform well over long periods of time make up only a few percent of all the companies in the market. But companies like Fastenal
For November, Panera Bread's same-store sales (or comps, as they're often called) were up 7.7% across the entire business, with a 7.5% gain at company-owned stores and a 7.7% gain at franchised stores. This performance is above the company's targeted range, but right on track with the 7.9% same-store sales gains seen across the entire business so far this year.
The strong same-store sales performance has also led to a penny increase in the company's guidance for all of 2005. The company now expects it will deliver $1.63 to $1.64 per share instead of the $1.62 to $1.63 previously expected, and well above the $1.52 to $1.57 that the company initially assumed in its 2004 10-K filing. While that's a 30% improvement over last year's earnings per share, Panera Bread isn't exactly cheap, trading as it does at a P/E multiple of 43.
However, the company is free of long-term debt and funds its expansion with cash flow from operations. Both are important points that take some of the risk out of a company that's growing very rapidly. It's worth noting that this is similar to the strategy that Starbucks
I'd have a tough time accepting the argument that Panera Bread and Starbucks are fierce competitors, but there is some overlap. Starbucks has expanded into both bakery items and sandwiches, while Panera serves coffee. So although there is definitely some level of competition between the two, both still excel in different portions of their operations.
Turning back to Panera's valuation, the company does not break out its capital expenditures between expansion and maintenance. Such a breakdown is useful in analyzing how much operating cash flow is generated from existing stores. Analysts have ways of approximating the split in capital expenditures, but given how expensive the stock is right now, I'm not terribly inclined to go to those time-consuming lengths yet. If, however, the company's stock falls out of favor and sports a more reasonable P/E multiple, estimating the capex split would be one of the first things I'd dig into when considering an investment in the company.
For related Foolish food for thought:
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Nathan Parmelee owns shares in Starbucks and Costco but has no financial stake in any of the other companies mentioned. The Motley Fool has an ironclad disclosure policy.
