Panera Bread Q3 Profit Down 8%; Lowers Q4, 2014 Earnings Outlook

(RTTNews) - Retail bakery-cafes operator Panera Bread Co. (PNRA) on Tuesday reported an 8 percent decline in profit for the third quarter from last year, reflecting lower revenues as well as higher costs and expenses. Revenue for the quarter missed analysts' expectations.

Looking ahead, the company lowered its earnings outlook for the fourth quarter and fiscal 2014. The company's shares declined more than 2.5 percent in extended trades.

St. Louis, Missouri-based Panera Bread's net income for the third quarter was $39.21 million or $1.46 per share, down from $42.76 million or $1.48 per share in the prior-year quarter.

The latest quarter's results include favorable tax adjustments of $2.3 million or $0.08 per share, while the year-ago quarter results included the impact of favorable tax adjustments of $3.8 million or $0.13 per share.

On average, 24 analysts polled by Thomson Reuters expected the company to report earnings of $1.42 per share for the quarter. Analysts' estimates typically exclude special items.

Total revenue for the quarter increased 8 percent to $619.89 million from $572.48 million in the same quarter last year, but missed analysts' consensus estimate of $620.39 million.

Total costs and expenses for the quarter were $561.93 million, up 11 percent from last year.

Bakery-cafe sales, which accounted for 88 percent of total revenues in the quarter, increased 8 percent to $545.39 million. Franchise royalties and fees rose 13 percent to $30.59 million. Fresh dough and other product sales to franchisees grew 10 percent to $43.91 million.

However, operating margin for the quarter declined about 200 basis points from last year to 9.3 percent. The decline was the result of of the cost of initiatives to improve the company's core operations and throughput, and investments in food and marketing innovation, as well as food cost inflation.

During the quarter, company-owned comparable net bakery-cafe sales increased 2.1 percent, franchise-operated comparable net bakery-cafe sales increased 0.7 percent, and system-wide comparable net bakery-cafe sales increased 1.4 percent compared to the year-ago period.

The company-owned comparable net bakery-cafe sales increase of 2.1 percent was comprised of average check growth of 0.7 percent and year-over-year transaction growth of 1.4 percent.

During the quarter, the company opened 13 new bakery-cafes and its franchisees opened 15 new bakery-cafes. As a result, there were 1,845 bakery-cafes open system-wide as of September 30, 2014.

Looking ahead to the fourth quarter, Panera Bread lowered its earnings guidance to a range of $1.77 to $1.87 per share, from the prior range of $1.89 to $1.89 per share. Street expects the company to earn $1.93 per share for the quarter.

The revised outlook reflects higher than expected ingredient costs, mainly butter and dairy, and the costs of initiating the rollout of structural enhancements, including Panera 2.0, operational integrity, delivery hubs and technological capabilities.

Panera Bread noted that for the first 27 days of the fourth quarter, company-owned comparable net bakery-cafe sales growth on a calendar basis was about 3.3 percent.

For fiscal 2014, Panera Bread lowered its earnings outlook to a range of $6.60 to $6.70 per share from the prior range of $6.65 to $6.80 per share. Analysts expect the company to report earnings of $6.70 per share for the year.

PNRA closed Tuesday's regular trading session at $171.00, up $1.41 or 0.83 percent on a volume of 1.04 million shares. However, in after-hours, the stock declined $4.50 or 2.63 percent to $166.50.