- Panera Bread Company reports strong Q2 results.
- Revenue growth has been consistently strong over the past 10 years with yearly average growth rate at approximately 20%.
- Investment in Panera 2.0 suggest potential for continued long-term growth.
I went to Panera Bread today for lunch. As a frequent visitor to the chain of bakery/café fast casual restaurants, I was expecting an experience quite like what I have grown accustomed to over the past couple of years. Upon entering the restaurant, I realized that this was not your typical Panera Bread - I had just entered the test market of the Panera 2.0 concept in Charlotte, NC.
Panera Bread Company (NASDAQ: PNRA) operates under the three brands: Panera Bread, Saint Louis Bread, and Paradise Bread and Café. Together, the brands serve nearly 7.5 million customers per week. The company announced its earnings last week on July 29th - with positive results. The company reported $1.82 earnings per share for the quarter, beating the analysts' consensus estimate of $1.75 by $0.07. There was a decline in operating margin compared to fiscal Q2 2013. However, this was the result of continued investments in enhancement of guest experience, such as Panera 2.0 mentioned previously.
ROE was up from 22.77% in Q2 2013 to 24.92% now. This exceeds that of both the industry average and the S&P 500 average. This increase indicates strength within the company as well as its position in the industry. Revenue growth has also been consistently strong over the past 10 years - yearly average growth rate is at approximately 20%.
So what exactly was it about my experience at the Panera 2.0 test restaurant that compelled me to invest in the company? First, to explain the concept, it is a multi-year strategic plan to improve in-store experience for each and every customer. The intent of the investment is to improve the operational aspects of the business, such as order time and customization of order type.
When you walk into the restaurant, you can go to the cashier as you normally would, or you can go to an in-store kiosk to place your order there. Or, you are even able to place your order in advance on your mobile device and have it waiting for you upon your arrival. The most important thing is that it is all up to the customer to decide how to order. If you opt to eat your meal in the restaurant, you take a GPS tracking device with a number to your table, and the meal is brought to you when it is complete. No more waiting by the counter or struggling to carry your tray to the table.
The speed and efficiency of the new Panera 2.0 will likely enhance sales capacity. Customers are able to get through the ordering process much quicker with the new system. Members of the Panera loyalty program simply have to swipe their card at the kiosk, and they then have the ability to see all past orders and even link their credit card to their account. With a swipe of a card and three simple taps of a button, repeat customers can submit their "usual" to the kitchen. For customers in a hurry, the mobile ordering allows them to remotely order and pay. When they arrive at the restaurant, their food is waiting for them. This new system will speed up service and make it more accurate. In the fast casual restaurant segment, these are key drivers of sales volume.
Beyond increased efficiency, Panera 2.0 should also improve customer satisfaction. The restaurant is providing the consumer with options in how they order to align with the varying preferences and desires of their diverse customer base. Whether you want a leisurely lunch where the server will bring your food directly to your table, or have fifteen minutes for your lunch break and need to get in and out as quickly as possible, Panera Bread will cater to your needs. I anticipate this increasing the already strong loyalty of the Panera customer base.
CEO Ron Shaich commented that the revamp of the Charlotte restaurants, "is producing some real lift in the numbers." Panera more than doubled the size of its IT team since 2005 to support the project, and the company will have spent $42 million by the end of the year on the e-commerce components of the project. Panera Bread is making strong investments to grow with their customers, and I predict the company will see great success from the continued rollout of Panera 2.0.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.