BJRI BJs Restaurants Inc

Panera Bread Co. (PNRA) recently posted first quarter 2011 earnings of $1.09 per share, surpassing the Zacks Consensus Estimate of $1.07 as well as the prior-year quarter earnings of 82 cents. Better-than-expected results were driven by double-digit growth in the top line.

Inside the Headline Numbers

The restaurant chain reported total revenue of $422.1 million in the first quarter, up 16% year over year. However, total revenue failed to beat the Zacks Consensus Estimate of $423.0 million.

System-wide comparable net bakery-cafe sales in the quarter expanded 3.3%, a tad below the guided range of 4.0% to 6.0%. The company-owned comparable net bakery-cafe sales increased 3.3% driven by higher transaction growth (1.7%) and average check growth (1.6%) while franchise-operated comparable net bakery-cafe sales jumped 3.4%.

The operating margin improved 100 basis points buoyed by sales leverage from comparable net bakery-cafe and lower labor-related expenses.

Share Repurchase

The company did not repurchase any shares during the first quarter. Currently, the company has approximately $448 million available under  its existing $600 million repurchase authorization.

Store Update

During the quarter, Panera opened 8 new bakery-cafes and 11 franchised bakery-cafes. The company currently operates 1467 bakery cafes, of which 665 are company owned and the rest are franchised.

In April 2011, Panera also acquired all the assets and certain liabilities of 25 bakery-cafes from one of its Milwaukee franchisee.

Outlook

For full-year 2011, Panera raised its earnings per share target from $4.40-$4.45 to $4.47-$4.51, reflecting a 23% to 25% year-over-year earnings growth. The full-year guidance represents company-owned comparable net bakery-cafe sales growth of 5.0% to 6.0%, which has been narrowed down from the previous forecast of 4.0% to 6.0%.

The company has projected second quarter 2011 earnings guidance in the range of $1.15 to $1.17 per share. The guidance reflects company-owned comparable net bakery-cafe sales growth of 5.0% to 6.0%. Management also predicts a price increase of 2.5%.

The company expects to develop 27 to 29 new units for the second quarter. For 2011, the number stands at approximately 95 to 105. New openings would increase both company-owned and franchised units, with company-owned units comprising slightly more than 50% of the mix.

Our Take

Following Panera’s strong quarterly earnings and increased guidance, estimates for the next quarter are most likely to rise in the coming days.  We remain optimistic on the stock based on its share repurchase activities and faster recovery of higher-end consumers. Unlike Panera, most of its peer companies are concentrating on the transition to a franchisee-based model.

However, stiff competition and food cost inflation are expected to remain headwinds for the company. One of Panera’s closest peers, BJ’s Restaurants, Inc. (BJRI) reported first quarter 2011 adjusted earnings of 25 cents per share, exceeding the Zacks Consensus Estimate of 19 cents driven by strong comparable restaurant sales growth.

Panera currently retains a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating. We are also maintaining our long-term “Neutral” recommendation on the stock.

 
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