piper jaffray on panera

8/12/2019 Piper Jaffray on Panera

1/5

C O M P A N Y N O T E

J u l y 2 9 , 2 0 1 4

Panera Bread Co. (PNRA) Underweight

First Take on 2Q14 Results Pre-Call; Updating Model; Reiterate UW Rating

PRICE: US$146.62

Note: price as of the close July 29, 2014

TARGET: US$137.00

19x FY15E EPS

Nicole Miller Regan

Sr Research Analyst, Piper Jaffray & Co.

612 303-6637, [email protected]

Joshua C. Long, CFA

Research Analyst, Piper Jaffray & Co.

612 303-6928, [email protected]

Changes Previous CurrentRating Underweight

Price Tgt US$137.00

FY14E Rev (mil) US$2,545.4 US$2,513.2

FY15E Rev (mil) US$2,768.7 US$2,722.4FY14E EPS US$6.85 US$6.66

FY15E EPS US$7.35 US$7.16

52-Week High / Low US$193.18 / US$142.41Shares Out (mil) 27.1Market Cap. (mil) US$3,973.4Avg Daily Vol (000) 552Book Value/Share US$25.40Net Cash Per Share US$3.90Debt to Total Capital 0%Yield 0.00%Fiscal Year End Dec

Price Performance - 1 Year

Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14

200

190

180

170

160

150

140

130

USD

Source: Bloomberg

CONCLUSION

Following Panera's 2Q14 report and ahead of the company's conference call we arelowering our estimates and maintaining our UW rating. Reported second quarter top-

line results came in below expectations while bottom-line results were in line with

expectations (and flat yoy) aided by the repurchase of 325k shares during the quarter.

Traffic trends were +0.4% during 2Q and we understood top-line trends to date in 3Q

are running in the +2.0% range. The company hosts its 2Q conference call Wednesday

morning. We maintain our Underweight rating; our $137 price target is based on 19x

(was 20x) our FY15E (vs. FY14E prior) EPS with the lower multiple due to lower results

and projections.

2Q14 Results Top-Line Below Consensus; EPS In-Line:Second-quarter operating EPScame in at $1.74 vs. consensus estimates of $1.75. Total revenues increased 7.1% y/y

to $631.1 mil. vs. consensus estimates of $640.8 mil. This reflected a +0.1% company-

owned same-store result vs. consensus of +1.7%. We understand company-ownedsame-store sales reflect approximately (0.3%) price/mix and 0.4% transaction. During

the quarter, the company spent approximately $50 million repurchasing shares. The

company's $600 million repurchase authorization has approximately $588 million

of capacity remaining. A more detailed presentation of the quarter's results vs. our

estimates is presented on page 2.

Updating FY14 and FY15 Estimates: We are updating our estimates based on 2Qresults and updated guidance. We expect FY14 operating earnings of $6.66 per share

(vs. $6.85 prior), in-line with the narrowed earnings guidance of $6.65-$6.80. We

expect total revenues to increase 5.4% y/y to $2.5 billion, partially reflecting our

+1.0% company-owned same-store sales projection (vs. +2.3% prior). Our FY15

earnings expectation is for 7.6% earnings growth, equating to $7.16 per share (vs.

$7.35 prior) based on total revenues of $2.72 billion (vs. $2.76 prior), partially

reflecting a +2.0% company-owned same-store sales estimate (unchanged vs. +2.0%

prior), and the expectation for ongoing investments for the Panera 2.0 roll-out.

RISKS TO ACHIEVEMENT OF PRI CE TARGET

Risks include new executive talent, comp momentum and share repurchase.

COMPANY DESCRIPTION

Established in 1981, Panera Bread Company pioneered the fast-casual segment and

today operates its namesake bakery-caf restaurants across the country.

YEAR

2013A

2014E

2015E

REVENUE (US$ m)

Mar Jun Sep Dec FY FY RM

561.8 589.0 572.5 661.7 2,385.0 1.7x

605.3A 631.1A 614.8 662.0 2,513.2 1.6x

654.7 680.5 669.7 717.5 2,722.4 1.5x

EARNINGS PER SHARE (US$)

Mar Jun Sep Dec FY FY P/E

1.64 1.74 1.35 1.96 6.68 21.9x

1.55A 1.74A 1.43 1.96 6.66 22.0x

1.72 1.74 1.72 1.98 7.16 20.5x

Page 1 of 5Panera Bread Company

Piper Jaffray does and seeks to do business with companies covered in its research reports. As a result, investors should be awarethat the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as

only a single factor in making their investment decisions. This report should be read in conjunction with important disclosureinformation, including an attestation under Regulation Analyst certification, found on pages 4 - 5 of this report or at the followingsite: http://www.piperjaffray.com/researchdisclosures.
http://www.piperjaffray.com/researchdisclosureshttp://www.piperjaffray.com/researchdisclosureshttp://www.piperjaffray.com/researchdisclosureshttp://www.piperjaffray.com/researchdisclosureshttp://www.piperjaffray.com/researchdisclosureshttp://www.piperjaffray.com/researchdisclosureshttp://www.piperjaffray.com/researchdisclosuresmailto:[email protected]:[email protected]


2/5


J u l y 2 9 , 2 0 1 4

Reported Results vs. Estimates: The following chart provides greater detail around the most recent quarter's results versus our

estimates, consensus expectations, and prior year results.

Panera Bread Company

Quarter ComparisonFiscal Year Ended December Current PJC Est. EPS vs. Street Est. vs. Prior Yr.

Revised 07/29/14 2Q14 2Q14 Impact 2Q14 2Q13

SSS: Company-Owned +0.1% +1.0% (90) bps +1.7% +3.8% (370.0) bps

SSS: Franchise (U.S.) (0.2%) +1.0% (120) bps +1.7% +3.5% (370.0) bpsSSS: Systemwide +0.0% +1.0% (100) bps +1.7% +3.7% (370.0) bpsINCOME STATEMENT

Restaurant Sales 555.6$ 560.5$ (4.8)$ (0.111) - 521.0$ 34.6$Franchise Royalties & Fees 30.1 29.8 0.3 0.007 - 27.5 2.6Dough Sales to Franchisees 45.4 41.5 3.9 0.089 - 40.5 4.8

Total Revenues 631.1 631.7 (0.7) (0.015) 640.0 589.0 42.0Food & Paper 168.2 168.1 (0.0) (0.001) - 156.2 12.0Labor 168.2 161.4 (6.8) (0.156) - 149.9 18.3

Occupancy 39.2 39.2 (0.0) (0.000) - 35.7 3.5Other Operating 78.7 78.5 (0.2) (0.006) - 72.1 6.6

Restaurant Profit Margin 101.3 113.2 (11.9) (0.274) - 107.1 (5.9)Cost of Dough Sales 39.1 36.0 (3.1) (0.071) - 34.6 4.5

D&A 30.1 30.2 0 .1 0.003 - 25.3 4 .8G& 34.4 37.3 2.8 0.065 - 29.7 4.7Pre-Opening 1.4 2.5 1.2 0.026 - 2.1 (0.7)

Operating Profit 71.7 78.4 (6.7) (0.154) - 83.4 (11.7)Interest Expense/(Income) 0.3 - (0.3) (0.007) - 0.2 0.1Other Expense/(Income) (4.0) - 4.0 0.092 - (0.8) (3.2)

Pretax Earnings 75.4 78.4 3.0 0.069 - 84.1 (8.6)

Taxes 28.4 30.2 1.8 0.067 - 33.0 (4.6)Operating Net Income 47.0 48.2 (1.2) (0.044) - 51.0 (4.0)

Non-Operating Items 2.2 - 2.2 0.080 - - 2.2

Reported Net Income 49.2 48.2 1.0 0.036 51.0 (1.8)Avg Shares Outstanding 27.1 27.4 (0.3) 0.020 - 29.3 (2.2)

EBITDA 101.8 108.6 - 108.7 (6.9)EPS--Operating 1.74$ 1.76$ (0.02)$ (0.02)$ 1.74$ 1.74$ (0.01)$

EPS--Extraordinary 0.08$ -$ 0.08$ 0.10$ -$ -$ 0.08$EPS--Reported 1.82$ 1.76$ 0.06$ 0.06$ 1.74$ 1.74$ 0.07$

MARGIN ANALYSISRestaurant Sales 88.1% 88.7% (67) bps - 88.5% (41) bps

Franchise Royalties & Fees 4.8% 4.7% 5 bps - 4.7% 10 bpsDough Sales to Franchisees 7.2% 6.6% 62 bps - 6.9% 31 bps

Total Revenues 100.0% 100.0% - 100.0%

Food & Paper 30.3% 30.0% 27 bps - 30.0% 30 bpsLabor 30.3% 28.8% 147 bps - 28.8% 151 bpsOccupancy 7.1% 7.0% 6 bps - 6.9% 21 bps

Other Operating 14.2% 14.0% 17 bps - 13.8% 32 bps

Restaurant Profit Margin 18.2% 20.2% (197) bps 19.5% 20.6% (233) bpsCost of Dough Sales 86.2% 86.8% (59) bps - 85.4% 84 bpsD&A 4.8% 4.8% (2) bps - 4.3% 47 bps

G& 5.5% 5.9% (44) bps - 5.0% 41 bpsPre-Opening 0.2% 0.4% (18) bps - 0.4% (14) bps

Operating Income 11.4% 12.4% (105) bps 11.9% 14.2% (280) bps

Interest Expense/(Income) 0.0% 0.0% 5 bps - 0.0% 2 bpsOther Expense/(Income) (0.6%) 0.0% (63) bps - (0.1%) (50) bps

Pretax Earnings 12.0% 12.4% (46) bps - 14.3% (231) bps

Taxes (Tax Rate) 37.6% 38.5% (86) bps - 39.3% (163) bpsNet Income from Operations 7.5% 7.6% (18) bps - 8.7% (121) bpsUNIT DATA

Company-Owned 891 896 (5) - 835 56

Franchise (U.S.) 927 934 (7) - 873 54Systemwide 1,818 1,830 (12) - 1,708 110

Source: Company reports and Piper Jaffray & Co. estimates. Nicole Miller Regan (612) 303-6637

Current disclosure information for this company is located at: http://www.piperjaffray.com/researchdisclosures



3/5

Panera Bread Company 14-weeks

Earnings Model 2013 Actual 2014 Estimate 2015 Estimate Fiscal Year Ended December

Fiscal Year Ended December 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E 4Q14E 1Q15E 2Q15E 3Q15E 4Q15E 2012 2013 2014E 2015E

Revised 07/29/14 ($ millions) 03/26/13 06/26/13 09/24/13 12/31/13 03/27/14 07/01/14 09/26/14 12/26/14 03/27/15 06/26/15 09/26/15 12/26/15 52-wks 53-wks 52-wks 52-wks

SSS: Company-Owned +3.3% +3.8% +1.7% +1.7% +0.1% +0.1% +2.0% +2.0% +2.0% +2.0% +2.0% +2.0% +6.5% +2.6% +1.1% +2.0%

SSS: Franchise (U.S.) +3.3% +3.5% +0.9% +0.5% +0.1% (0.2%) +2.0% +2.0% +2.0% +2.0% +2.0% +2.0% +5.1% +2.0% +1.0% +2.0%SSS: Systemwide +3.3% +3.7% +1.3% +1.1% +0.1% +0.0% +2.0% +2.0% +2.0% +2.0% +2.0% +2.0% +5.7% +2.3% +1.0% +2.0%

INCOME STATEMENT

Restaurant Sales 497.5$ 521.0$ 505.4$ 584.9$ 535.5$ 555.6$ 545.5$ 588.3$ 580.8$ 603.5$ 593.9$ 639.5$ 1,879.3$ 2,108.9$ 2,225.0$ 2,417.8$

Franchise Royalties & Fees 26.6 27.5 27.2 31.4 28.9 30.1 29.4 31.4 30.9 32.3 31.8 33.9 102.1 112.6 119.7 128.8Dough Sales to Franchisees 37.7 40.5 39.9 45.4 40.9 45.4 39.8 42.4 43.0 44.7 44.0 44.1 148.7 163.5 168.4 175.7

Total Revenues 561.8 589.0 572.5 661.7 605.3 631.1 614.8 662.0 654.7 680.5 669.7 717.5 2,130.1 2,385.0 2,513.2 2,722.4

Food & Paper 146.4 156.2 152.2 170.8 158.9 168.2 164.7 173.0 172.3 181.7 179.1 193.1 552.6 625.6 664.8 726.2Labor 148.6 149.9 151.8 175.2 162.5 168.2 164.2 173.7 176.0 182.4 175.2 188.7 559.4 625.5 668.6 722.2

Occupancy 36.2 35.7 36.9 40.1 39.3 39.2 39.8 40.3 42.4 42.2 41.0 44.1 130.8 148.8 158.6 169.8

Other Operating 67.9 72.1 73.8 81.6 75.8 78.7 79.6 82.4 82.2 85.5 85.5 89.5 256.0 295.5 316.5 342.8Restaurant Profit Margin 98.4 107.1 90.7 117.2 99.1 101.3 97.1 119.0 107.9 111.7 113.1 124.1 380.4 413.5 416.5 456.8

Cost of Dough Sales 32.6 34.6 35.9 39.1 35.6 39.1 37.0 36.6 36.7 38.8 40.9 38.1 131.0 142.2 148.4 154.4

D&A 24.4 25.3 26.2 30.6 29.4 30.1 30.1 32.0 32.1 33.3 32.8 34.4 90.9 106.4 121.6 132.7G&A 28.3 29.7 28.8 36.4 35.0 34.4 35.0 38.4 40.3 41.9 41.4 44.5 117.9 123.3 142.9 168.0

Pre-Opening 1.1 2.1 2.2 2.5 1.8 1.4 2.5 2.6 1.3 2.7 2.7 2.9 8.5 7.8 8.3 9.6

Operating Profit 76.3 83.4 64.7 85.4 67.0 71.7 61.7 83.1 71.4 72.0 71.1 82.2 282.9 309.8 283.5 296.7Interest Expense/(Income) 0.3 0.2 0.1 0.5 0.6 0.3 - - (0.3) (0.3) (0.3) (0.4) 1.1 1.1 0.9 (1.4)

Other Expense/(Income) (2.4) (0.8) 0.3 (1.1) (1.2) (4.0) - - - - - - (1.2) (4.0) (5.2) -Pretax Earnings 78.4 84.1 64.3 86.1 67.6 75.4 61.7 83.1 71.7 72.4 71.4 82.5 283.0 312.8 287.8 298.1

Taxes 30.3 33.0 25.2 31.8 25.2 28.4 23.7 32.0 27.6 27.9 27.5 31.8 109.5 120.4 109.3 114.8Operating Net Income 48.1 51.0 39.0 54.2 42.4 47.0 37.9 51.1 44.1 44.5 43.9 50.7 173.4 192.4 178.5 183.3

Non-Operating Items - - 3.8 - - 2.2 - - - - - - - 3.8 2.2 -

Reported Net Income 48.1$ 51.0$ 42.9$ 54.2$ 42.4$ 49.2$ 37.9$ 51.1$ 44.1$ 44.5$ 43.9$ 50.7$ 173.4$ $196.3 $180.6 $183.3Avg Shares Outstanding 29.3 29.3 28.9 27.7 27.4 27.1 26.6 26.1 25.6 25.6 25.6 25.6 29.5 28.8 26.8 25.6

EBITDA 100.7 108.7 90.9 116.0 96.4 101.8 91.8 115.1 103.5 105.4 103.9 116.6 373.8 416.3 405.1 429.4

EPS--Operating 1.64$ 1.74$ 1.35$ 1.96$ 1.55$ 1.74$ 1.43$ 1.96$ 1.72$ 1.74$ 1.72$ 1.98$ 5.89$ 6.68$ 6.66$ 7.16$EPS--Extraordinary -$ -$ 0.13$ -$ -$ 0.08$ -$ -$ -$ -$ -$ -$ -$ 0.13$

EPS--Reported 1.64$ 1.74$ 1.48$ 1.96$ 1.55$ 1.82$ 1.43$ 1.96$ 1.72$ 1.74$ 1.72$ 1.98$ 5.89$ 6.81$ 6.74$ 7.16$

MARGIN ANALYSIS

Restaurant Sales 88.6% 88.5% 88.3% 88.4% 88.5% 88.1% 88.7% 88.9% 88.7% 88.7% 88.7% 89.1% 88.2% 88.4% 88.5% 88.8%Franchise Royalties & Fees 4.7% 4.7% 4.7% 4.7% 4.8% 4.8% 4.8% 4.7% 4.7% 4.8% 4.7% 4.7% 4.8% 4.7% 4.8% 4.7%

Dough Sales to Franchisees 6.7% 6.9% 7.0% 6.9% 6.8% 7.2% 7.3% 7.2% 7.4% 7.4% 7.4% 6.9% 7.0% 6.9% 6.7% 6.5%

Total Revenues 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Food & Paper 29.4% 30.0% 30.1% 29.2% 29.7% 30.3% 30.2% 29.4% 29.7% 30.1% 30.2% 30.2% 29.4% 29.7% 29.9% 30.0%Labor 29.9% 28.8% 30.0% 30.0% 30.3% 30.3% 30.1% 29.5% 30.3% 30.2% 29.5% 29.5% 29.8% 29.7% 30.0% 29.9%

Occupancy 7.3% 6.9% 7.3% 6.9% 7.3% 7.1% 7.3% 6.9% 7.3% 7.0% 6.9% 6.9% 7.0% 7.1% 7.1% 7.0%

Other Operating 13.7% 13.8% 14.6% 14.0% 14.2% 14.2% 14.6% 14.0% 14.2% 14.2% 14.4% 14.0% 13.6% 14.0% 14.2% 14.2%Restaurant Profit Margin 19.8% 20.6% 18.0% 20.0% 18.5% 18.2% 17.8% 20.2% 18.6% 18.5% 19.1% 19.4% 20.2% 19.6% 18.7% 18.9%

Cost of Dough Sales 86.5% 85.4% 90.0% 86.1% 87.1% 86.2% 93.0% 86.3% 85.3% 86.8% 93.0% 86.3% 88.1% 87.0% 88.1% 87.9%

D&A 4.3% 4.3% 4.6% 4.6% 4.9% 4.8% 4.9% 4.8% 4.9% 4.9% 4.9% 4.8% 4.3% 4.5% 4.8% 4.9%G&A 5.0% 5.0% 5.0% 5.5% 5.8% 5.5% 5.7% 5.8% 6.2% 6.2% 6.2% 6.2% 5.5% 5.2% 5.7% 6.2%

Pre-Opening 0.2% 0.4% 0.4% 0.4% 0.3% 0.2% 0.4% 0.4% 0.2% 0.4% 0.4% 0.4% 0.4% 0.3% 0.3% 0.4%

Operating Income 13.6% 14.2% 11.3% 12.9% 11.1% 11.4% 10.0% 12.6% 10.9% 10.6% 10.6% 11.5% 13.3% 13.0% 11.3% 10.9%Interest Expense/(Income) 0.1% 0.0% 0.0% 0.1% 0.1% 0.0% 0.0% 0.0% (0.1%) (0.1%) (0.1%) (0.1%) 0.1% 0.0% 0.0% (0.1%)

Other Expense/(Income) (0.4%) (0.1%) 0.1% (0.2%) (0.2%) (0.6%) 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% (0.1%) (0.2%) (0.2%) 0.0%

Pretax Earnings 14.0% 14.3% 11.2% 13.0% 11.2% 12.0% 10.0% 12.6% 11.0% 10.6% 10.7% 11.5% 13.3% 13.1% 11.5% 10.9%Taxes (Tax Rate) 38.6% 39.3% 39.3% 37.0% 37.3% 37.6% 38.5% 38.5% 38.5% 38.5% 38.5% 38.5% 38.7% 38.5% 38.0% 38.5%

Net Income from Operations 8.6% 8.7% 6.8% 8.2% 7.0% 7.5% 6.2% 7.7% 6.7% 6.5% 6.6% 7.1% 8.1% 8.1% 7.1% 6.7%

EBITDA 17.9% 18.5% 15.9% 17.5% 15.9% 16.1% 14.9% 17.4% 15.8% 15.5% 15.5% 16.3% 17.5% 17.5% 16.1% 15.8%

YEAR-OVER-YEAR % CHANGERestaurant Sales 13.3% 11.2% 8.4% 15.8% 7.6% 6.6% 7.9% 0.6% 8.5% 8.6% 8.9% 8.7% 18.0% 12.2% 5.5% 8.7%

Franchise Royalties & Fees 7.1% 10.9% 7.4% 15.6% 8.7% 9.5% 8.2% (0.2%) 6.9% 7.6% 8.0% 8.0% 10.0% 10.4% 6.3% 7.6%

Dough Sales to Franchisees 9.1% 9.0% 5.9% 15.4% 8.5% 11.9% (0.1%) (6.7%) 5.1% (1.5%) 10.4% 4.2% 9.1% 9.9% 3.0% 4.3%

Total Revenues 12.7% 11.0% 8.2% 15.8% 7.8% 7.1% 7.4% 0.0% 8.2% 7.8% 8.9% 8.4% 16.9% 12.0% 5.4% 8.3%D&A 14.3% 14.1% 10.1% 29.2% 20.8% 18.9% 14.8% 4.6% 9.0% 11.0% 8.9% 7.7% 13.8% 17.0% 14.2% 9.1%

G&A 6.1% (3.6%) (6.6%) 23.4% 23.7% 15.8% 21.5% 5.4% 15.0% 21.6% 18.1% 15.9% 4.3% 4.6% 15.8% 17.6%

Operating EPS--Diluted 17.4% 16.3% 8.9% 11.5% (5.7%) (0.3%) 5.7% 0.1% 11.5% 0.2% 20.4% 1.3% 26.6% 13.4% (0.3%) 7.6%EBITDA 13.5% 15.2% 8.4% 8.5% (4.2%) (6.4%) 1.0% (0.8%) 7.3% 3.5% 13.2% 1.3% 24.5% 11.4% (2.7%) 6.0%

Unit Growth: Company-Owned 9.7% 7.6% 7.3% 7.2% 7.7% 6.7% 7.2% 7.4% 7.4% 7.9% 7.7% 7.5% 9.3% 7.2% 7.4% 7.5%

Unit Growth: Franchised 4.8% 7.1% 6.4% 7.9% 7.5% 6.2% 5.8% 4.6% 5.2% 5.9% 5.9% 5.8% 5.2% 7.9% 4.6% 5.8%Unit Growth: Total 7.1% 7.4% 6.8% 7.6% 7.6% 6.4% 6.5% 6.0% 6.3% 6.9% 6.8% 6.6% 7.2% 7.6% 6.0% 6.6%

UNIT DATA

Company-Owned 818 835 850 867 881 891 911 931 946 961 981 1,001 809 867 931 1,001Franchise (U.S.) 855 873 886 910 919 927 937 952 967 982 992 1,007 843 910 952 1,007

Systemwide 1,673 1,708 1,736 1,777 1,800 1,818 1,848 1,883 1,913 1,943 1,973 2,008 1,652 1,777 1,883 2,008

Source: Company reports and Piper Jaffray & Co. estimates.

Current disclosure information for this company is located at: http://www.piperjaffray.com/researchdisclosures Nicole Miller Regan (612) 303-6637

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4/5


5/5


J u l y 2 9 , 2 0 1 4

Research Disclosures

Piper Jaffray was making a market in the securities of Panera Bread Company at the time this research report was published. Piper Jaffray will buy

and sell Panera Bread Company securities on a principal basis.

Piper Jaffray research analysts receive compensation that is based, in part, on overall firm revenues, which include investment banking revenues.

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