Panera (PNRA) has been a very hot stock, having been positioned very well to profit from the trend of "fast-casual" eating and the trend away from junk food and toward healthier foods. Panera's stock was slammed recently after it missed first quarter earnings, dropping nearly ten points before rebounding back to where it was trading before its earnings. It is now trading at $177, and I think that this presents and excellent short opportunity. I believe that Panera faces many headwinds and shifts in tastes and preferences that will hurt Panera in the near future.
I believe that Panera has benefited from the "kick the can recovery." The economy hasn't been great, but it is also much better than it was in 2008 and 2009. Panera is positioned uniquely in that if the economy gets worse, it will suffer, and if the economy gets better it will also be hurt. If the economy gets worse then people will no doubt cut things like Panera from their budget. Conversely, if the economy gains more traction then Panera's patrons could upgrade to more upscale dining locations.
Panera is fighting a two-front war when it comes to competition in the restaurant sector. Places like McDonald's (MCD) and even Starbucks (SBUX) have been making moves to appeal to people who want to eat healthier foods. Of course nearly every restaurant has been making these moves, and Panera can't really do anything other than continue what it has been doing. While Panera does not necessarily have a national competitor in the fast casual niche, it does have much regional competition. Atlanta Bread Company competes with Panera in South and the East coast, with some locations in the Midwest. McAlister's Deli also competes with them in the same region as Atlanta Bread. Baja Fresh is also a competitor on the West coast. On a more national scale, Chipotle (CMG) is its main competitor, and McDonald's is also a competitor, although they compete for somewhat different patrons. And that brings me to my next point: Panera isn't really all that healthy.
As I pointed out earlier this year, and as fellow contributor Quoth the Raven also pointed out, the food at Panera is really not at all that healthy. If the secular trend of people eating healthier continues, you would assume that people would start caring even more about what they are eating. Let's say that a few years ago you decided to start eating better and work out more. You might have used to go to McDonald's for lunch and then go home after work. But now you go to Panera and get a salad at lunch, then Crossfit after work. This works for a while, but then you start wondering if that salad at lunch is really healthy. That Fuji Chicken Salad that you thought was healthy actually has 560 calories and 670 mg of sodium in it. Not looking like the healthy choice anymore. You probably shouldn't get nearly 30% of your daily recommended sodium intake from a salad at lunch. If the healthy eating trend continues and strengthens, I believe that more people will start to think more about what they are eating and if that food isn't as healthy as they thought it was, they would likely seek places that offer food that is actually healthy.
So is Panera a good short? Well, I think it is. It has bounced between $150 and $170 since last September and is now trading outside the upper part of the range. Panera is in a weird place where if the economy improves it will likely lose patrons and if the economy weakens it will also lose patrons. The biggest fear that I would have if I was a Panera shareholder would be people waking up and looking at the nutritional information in the food. Right now, Panera is seen and markets itself as the "healthy option" when in fact it is not. I have no idea when this will happen, but I am certain that it will, and when it does, Panera will be hurt.