Zacks_Analysts' Blog : Panera Bread in Neutral Lane - Analyst Blog

We remain Neutral on Panera Bread Co. (PNRA) over the long term, based on third quarter 2011 earnings, a solid pipeline of menu offering, increased traction from the My Panera loyalty card program as well as catering program, the raised guidance for unit expansion. These were partially offset by faltering consumer confidence and inflated commodity costs.

The company has been able to grow its earnings per share over 20% since the last couple of quarters. Panera has consistently been delivering strong same-restaurant sales. Management also raised its same-store guidance for fourth-quarter 2011 in the range of 5.5% to 6.5% from the prior projection of 4.5% to 5.5%, which denotes management’s confidence in the operating model. Management also raised its guidance for new unit openings in 2011 and 2012.

We remain optimistic on the solid pipeline of menu offerings as well as more aggressive advertising expenditure planned for the remainder of the year. For the fourth quarter, Panera has its new Steak Balsamico Panini and Sonoma chicken stew on the cards. Steak Balsamico Panini had been well accepted in the test markets.

In addition to new products, management intends to capitalize on the increasing demand for its catering business. During the third quarter, catering sales grew 31% year over year, which came on top of the 24% growth last year. Catering is poised to play the role of a growth engine in the years to come.

Another key long-term growth driver of the company is the My Panera loyalty program, which was rolled out in November 2010. Since its inception, the program has developed a database of over 8.3 million registered users (up from 7.5 million last quarter).

On the flip side, like all restaurant companies, Panera is susceptible to higher input costs. In the fourth quarter, food inflation will likely reach the highest point of the year, approximately 5% in bakery-cafes and 20% in dough facilities.

Further, the company anniversaries the significant contribution to incremental transaction growth from the rollout of the MyPanera loyalty program in the fourth quarter of 2010, thereby leading to tough comparisons in the fourth quarter of 2011 and 2012.

Panera, which competes with the likes of Domino's Pizza Inc. (DPZ) and The Cheesecake Factory Inc. (CAKE), currently, retains a Zacks #2 Rank that translates into a short-term Buy rating.