Panera Bread Co. (PNRA), recently posted its fourth quarter 2010 adjusted earnings of $1.21 per share, outpacing the Zacks Consensus Estimate of $1.17 as well as the prior-year quarter’s earnings of 95 cents. Better-than-expected results were driven by a growth in comparable same store sales.

The restaurant chain stated that total revenue in the fourth quarter jumped 17% year over year to $428.2 million, comfortably beating the Zacks Consensus Estimate of $418.0 million.

For full fiscal 2010, earnings were recorded at $3.62 per share versus $2.78 per share at prior-year end. Full year earnings benefited from the share repurchase activity during the year. Revenue also climbed 14% year over year to $1.5 billion.

Inside the Headline Numbers

System-wide comparable net bakery-cafe sales in the quarter expanded 5.8% and came in between the guided range of 4.0% to 6.0%. The company-owned comparable net bakery-cafe sales increased 5.2% driven by transaction growth of 2.9% and average check growth of 2.3% and franchise-operated comparable net bakery-cafe sales increased 6.1%.

The operating margin improved 130 basis points buoyed by the sales leverage from comparable net bakery-cafe and operating efficiencies on labor-related expenses.

Share Repurchase

During the full year, Panera repurchased $150 million of shares at an average share price of $78.72. No shares were repurchased during the fourth quarter. The company currently has approximately $448 million available under the existing $600 million repurchase authorization.

Store Update

For full fiscal 2010, Panera opened 42 new bakery-cafes and its franchisees opened 34, of which 21 company operated and 12 franchised bakery-cafes were opened in the fourth quarter.

During the fourth quarter, Panera also completed the purchase of substantially all the assets and certain liabilities of 37 bakery-cafes from a New Jersey franchisee and acquired the remaining non-controlling interest in three bakery-cafes in the Ontario, Canada, market from a former franchisee.

Outlook

For full year 2011, Panera raised its earnings per share target from $3.52–$3.58 to $4.40 to $4.45 range. This represents a 22% to 23% year-over-year earnings growth. The full year guidance underlines company-owned comparable net bakery-cafe sales growth of 4.0% to 6.0%.

The company initiated the first quarter 2011 earnings guidance in the range of $1.06 and $1.08 per share. The guidance reflects company-owned comparable net bakery-cafe sales growth of 4.0% to 6.0%. Management stated that system-wide comparable net bakery-cafe sales in the first 43 days of the first quarter of fiscal 2011 were up approximately 2.8%, despite severe winter storms.

The company expects to develop15 to18 new units for the first quarter. For 2011, the number was reiterated at approximately 95 to 105. New openings would increase both company-owned and franchised units with company-owned 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, expected positive impact from My Panera loyalty card program, and faster recovery of higher-end consumers. While most of its peer companies are concentrating on the transition to a franchisee-based model, Panera is relying on the reverse.

However, stiff competition and food cost inflation are expected to remain causes for concern. One of Panera’s closest peers, Cheesecake Factory Inc. (CAKE) also surpassed its quarterly earnings by 2 cents. But its sales were just in line with the estimate.

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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