Some of the best restaurant stocks these days are also arguably the priciest. Panera
Panera's second-quarter net income increased an admirable 28%, to $20 million, or $0.65 per share. Even with $0.04 per share in charges included, that's an impressive result.
However, Panera's total revenue increased a mere 3%, to $330.8 million. Systemwide comps were fairly anemic, decreasing 0.4%. Panera blamed the shift of Easter; without that negative effect, the company said comps would have been essentially flat. Thus, to increase its profit, Panera had to rein in costs.
Panera reported that its customers' average check increased by 3% -- which sounds nice, until you learn that the gain was attributed to menu price increases. Price increases have been a common tactic to boost revenue across the consumer space, from restaurants like Panera to giants such as Philip Morris International
For Panera, hiking prices implies that the company needs to work harder at getting customers in the door. Same goes for Starbucks
On the other, more successful hand, Buffalo Wild Wings
I nominated Panera as the worst stock for 2009 in January, and my skepticism hasn't waned since. For starters, Panera's price-to-earnings ratio still looks high, at more than 21 times trailing earnings; McDonald's, which has been operating very successfully, trades at only 15 times earnings. Sure, Panera looks cheaper than Buffalo Wild Wings (26 times earnings) and Chipotle (32 times earnings), but their sales growth and comps are far brisker than Panera can manage.
Panera's now guiding for EPS growth of 17%-21% this year, an increase on its prior prediction. However, it still needs to drum up more business. Given consumers' new frugality, making the high end of those targets could be a big challenge during the remainder of the year, especially if sales slack off.
In light of that increasingly stale outlook, a low-carb portfolio might be best. I still think investors should pass on the Panera Bread.
A hearty slice of further Foolishness:
- Chipotle may be too hot to handle.
- Buffalo Wild Wings really spiced up the joint.
- Last quarter, Panera's toast looked burnt.
Buffalo Wild Wings and Chipotle are Motley Fool Hidden Gems selections. Chipotle is also a Rule Breakers selection. Starbucks is a selection of Stock Advisor and Inside Value. Philip Morris International is a Global Gains recommendation. The Fool owns shares of Chipotle, Buffalo Wild Wings, and Starbucks. Try any of our Foolish newsletter services free for 30 days.