Panera: Breakfast drags down 2Q same-store sales

Although Panera Bread Company reported gains in same-store sales, net income and revenue during the second quarter of 2013, executives said they were “modestly disappointed” in the results, citing inconsistent sales across dayparts.

During the quarter ended June 25, the company reported net income of $51 million, or $1.74 per share, compared to $44.1 million, or $1.50 per share, for the year-earlier quarter. Revenue increased 11 percent during the quarter to $589 million from $530.6 million the prior year. Same-store sales increased 3.7 percent during the quarter.

Relative to the industry, Panera performed strongly, executives said, but the company failed to meet its projections and adjusted its 2013 outlook accordingly. During its first-quarter earnings call, the company cited a 2013 earnings-per-share target of between $6.91 and $7.03. Panera is now projecting earnings per share to be between $6.75 and $6.85.

The company also lowered its company-owned same-store sales projection from 4-5 percent to 3-5 percent for 2013. “Our same-store sales growth was below our expectations,” said Roger Matthews, chief financial officer at the St. Louis-based company. “It is our intention to return to a greater premium on the industry and sustain that premium.”

Co-chief executive and founder Ronald M Shaich said that across dayparts, same-stores sales were not consistent at Panera. While breakfast same-store sales have weakened during 2013, sales after 2 p.m. rose nearly 5 percent year over year.

Shaich attributed the late-day gain to the company’s February systemwide rollout of pasta, which has been a hit with customers despite its higher price point, he said.

“Breakfast has become a drag on our 2013 comp trend,” he said, adding that competitors had been more heavily promoting their breakfast products in recent quarters. “We think this can be directly tied to the fact that we shifted advertising to lunch and evening products. And our internal focus gravitated to afternoon and late day.”

He noted that the company’s advertising campaign —“Live Consciously. Eat Deliciously” — has also resonated with consumers. “Rather than promotional advertising, done by many in the restaurant industry, we wanted to take the long view of re-enforcing with our customers the core values that we think define Panera,” he said.

Focusing on lighter fare, loyalty

The company will likely add more product-specific advertisements in coming quarters, including an ad focused on Panera’s power breakfast sandwich planned for the third quarter.

Panera has also put half-sandwiches on the menu in an effort to target consumers who want smaller meals. “Expect to see a number of smaller, lighter, less expensive products added to our menu in 2014,” Shaich said.

Stephen Anderson, senior restaurants analyst at Miller Tabak + Co., wrote in a report that these menu changes are promising. “We do not see Panera’s addition of smaller entrees as a concession to economic weakness, but rather a need to address a fast-growing market niche,” he wrote.

Additionally, Shaich said, the company plans to continue its focus on its MyPanera loyalty program, which allows the company to tailor targeted ads and promotions to guests.

The loyalty program now has 14.5 million users, rising from 11 million users a year ago. About half of all purchases at Panera are made by MyPanera members, he said.

The next step is to target promotions to those MyPanera users who are likely to purchase at breakfast. The whole goal of the loyalty program is to boost sales and consumer satisfaction, noted Shaich.

Anderson said that although the company had to revise its guidance, there’s no need for panic; the brand still has a lot going for it. “We contend that there are several key positives for Panera: a strongly positive menu mix that continues to drive average ticket higher…the potential for accelerated market-share gains against weakened competitors,” Anderson said.

During the third quarter, the company opened 18 new locations and franchisees opened 19 new restaurants. Panera has more than 1,700 restaurants systemwide.

Contact Erin Dostal at [email protected].
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