Panera (PNRA) – Q2 Results and the Broader Group

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Last week, we suggested that we were having a tough time finding value in the restaurant group given what we saw as an unappealing combination of “full” multiples across the sector and aggressive revenue and EPS expectations.

We also suggested that consensus revenue estimates for the group contemplated an immediate recovery from the weather-impacted sales of calendar Q1, a result that is proving to be optimistic against what we considered to be an uneven macroeconomic backdrop.

PNRA, by our analysis, had one of the more reasonable revenue and EPS growth progressions in the sector, but disappointed with 11.0% revenue growth versus consensus expectations of 12.4% with comparable store sales growth of 3.8% disappointing investor and management expectations alike.

  • Q2 EPS of $1.74 was within the guidance range of $1.74 to $1.78, however…
  • …Q3 EPS guidance is $0.12 below the consensus at the midpoint of the range offered by management.
  • Similarly, full-year ’13 EPS guidance was lowered to a range with $6.80 per share as the midpoint, versus consensus of $7.05.
  • Heading into results, PNRA was trading at 25.8x ’13 EPS, but has lost 1.5 multiple points with the stock down nearly 8.5% (assuming consensus moves closer to $6.80).

Consumer

It may seem like we are picking on PNRA, but that isn’t the case – it is a superb company – what we are highlighting is valuation and expectations across the group, which we continue to believe combine for an unattractive risk/reward profile.

Looking out over earnings, the revenue expectations at BWLD, DNKN, EAT and BLMN would make us nervous longs (though BWLD is 10% off its highs and BLMN has seen two downgrades in recent days).

Broadly speaking, we would pick our spots carefully across the group (CAKE, SBUX).  We continue to like CMG but would prefer it a bit lower (a $27 move on earnings will prompt a reassessment).  Alternatively, reassess the entire group coming out of earnings as we see where valuation and revenue and EPS expectations shake out – our bet is that expectations will be more modest across all three metrics.

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