Pnra Soup
Source: Panera Bread.

The restaurant business is highly competitive, and the fast-casual space has seen more and more players enter the market. Panera Bread (NASDAQ:PNRA) has been on the forefront of the fast-casual trend, with its healthy-eating options catering to customers with many different tastes. With the restaurant company set to report its second-quarter earnings on Tuesday, Panera investors want to see continued sales growth, yet they have some concerns that earnings are likely to fall from year-ago levels. Let's look more closely at what Panera Bread has seen over the past quarter and whether it bodes well or ill for its results.

Stats on Panera Bread

Analyst EPS Estimate

$1.63

Change From Year-Ago EPS

(6.3%)

Revenue Estimate

$679.43 million

Change From Year-Ago Revenue

7.7%

Earnings Beats in Past 4 Quarters

1

Source: Yahoo! Finance.

Can Panera earnings keep up the company's positive momentum?
Investors haven't been all that optimistic about the prospects for Panera earnings in recent months, pushing down their second-quarter estimates by $0.03 per share and making more dramatic reductions in their projections for the full 2015 and 2016 years. The stock, though, has held onto gains from earlier in the year, rising another 2% since late April and remaining near record highs for the share price.

Part of the reason for caution might be that Panera's first-quarter earnings report back in April fell short of the expectations that investors had for the fast-casual chain. Revenue growth of 7% was slower than shareholders had anticipated, and adjusted earnings fell 9% from the previous year's second quarter, reflecting slowing comparable-restaurant sales and higher operating expenses. Store-count growth continued to move Panera forward, but poor guidance for the remainder of 2015 forced investors to reassess the company's potential in the near term.

To respond to challenging conditions, the restaurant chain continues to follow its Panera 2.0 strategic initiatives. So far, that has included adding new workers, and although that will continue to put pressure on overhead costs, Panera believes that it should help make the company's restaurants more efficient in the long run. In addition, making it easier for Panera customers to get digital access to ordering via mobile, Internet, and kiosk-based order-entry systems should help stem the trend toward higher labor costs as well as providing a more attractive dining experience for customers.

Furthermore, Panera sees substantial potential in some largely untapped areas of its market. CEO Ron Shaich pointed last quarter to the growth opportunities in its catering business, with its hubs having the capacity to handle large catering customers that could overwhelm individual restaurant locations. Panera also thinks that offering delivery could lead to future growth, and as long as it can put together an efficient driver network, the company thinks that its digital ordering initiatives should support a successful delivery business as well.

During the quarter, Panera did face what could have become a serious public-relations problem. Late last month, a Panera customer said that she had found a razor blade in a bowl of soup she had ordered from a restaurant in Florida. The customers said that Panera had initially failed to respond adequately when she alerted the company of the problem, but then a local news station ran a report on the incident. In response, Panera made a change to its internal procedures, replacing sharp-edged bag-opening tools with conventional scissors. Investors didn't react negatively to the news, and Panera's quick action appears to have avoided any further reputational damage from the incident.

In the Panera earnings report, keep an eye on how optimistic company executives are about both the state of the restaurant industry generally and in Panera's efforts to stay ahead of its competition. As more rivals stake their claims for restaurant-goers, it'll be increasingly important for Panera to stay on top of prevailing trends and ensure that its customers keep seeing positive results from the fast-casual chain's strategic efforts.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Panera Bread. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.