Panera Bread: Puffed Up on Couponing

Panera (PNRA), for traders, is one of those woulda, coulda, shoulda stories. When I first blogged the company on October 10, followed by a story on MarketWatch, the situation seemed obvious: Something wasn’t adding up between the stock and events. Guess what? It still isn’t.

Recap: The stock slipped into the low $50s in late July and again in early September when the company cut third-quarter earnings guidance and third-quarter same-store sales guidance, respectively. Then, on October 4, the shares zoomed into the mid-60s after the company announced a bigger-than-expected increase in September same-store sales.

Then came third-quarter earnings Tuesday night, which were in-line with guidance but a penny shy of expectations, (which makes absolutely no sense; expectations should never top guidance, but I digress...) What’s more, the company said earnings for the year would come in at the low-end of guidance. The stock slipped 6% on the news, but is now only back down to where it was after its October 5 lift-off.

Trouble is: The stock’s lift off occurred on strong September comp-store sales. However, speaking on the company’s conference call, CEO Ron Shaich said part of the strong same-store sales growth was tied to the company’s rollout of a new pizza product – Crispani – intended to help dinner traffic. And a good part of that same-store sales growth, he said, was driven by “marketing support” -- a fancy description for coupons. “We are actually doing direct mail with a really high class piece that is inviting people to try us,” says Shaich, who says he doesn’t like to use the word coupon “and we don’t think we are couponing.”

Fine, but the point is this: The quarter was in line with the company’s reduced guidance from July – news that caused Panera's shares to trade at $52. Now they’re in the mid-$60s on strong September same-store sales, which were as high as they were in part because of couponing, “high class” direct mail or whatever you want to call it.

Bottom line: Without the pizza promotion, September same-store sales might have been stale and the stock might not be where it is today, which suggests it really shouldn’t be.