Fast-casual giant Panera Bread (NASDAQ: PNRA) has helped revolutionize the restaurant industry, and it continues to work toward cementing its leadership in the space. Although it originally focused almost solely on making sure it could deliver a premium food experience to its cafe customers, Panera has more recently turned its attention to keeping up with its competitors in offering customers more options for ordering and getting their items. Coming into Tuesday's third-quarter financial report, Panera investors wanted to see that the moves that the fast-casual company had made were starting to have an impact, and the restaurant chain's results provided much-needed evidence of progress. Let's take a closer look at the latest from Panera Bread and what we're likely to see in the quarters to come.
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Image source: Panera Bread.
Panera Bread delivers
Panera's third-quarter results didn't look all that strong on their face, but they nevertheless were substantially better than what many had looked to see. Sales rose by 3% to $684.2 million, which was almost a full percentage point higher than most investors were expecting from the company. On the bottom line, Panera saw adjusted net income fall 5% to $32 million, but a reduction in share count produced gains in earnings on a per-share basis, coming in at $1.37 versus the consensus forecast among investors of $1.34 per share.
Looking more closely at Panera's financials, you can see some evidence of broader improvement, although some of the numbers were fairly tepid. Systemwide comparable restaurant sales rose 1.7%, slowing from its better pace earlier in the year. Most of the gains came from company-owned cafe locations, which posted a 3.4% rise in comps. By contrast, franchise-owned locations saw only a tiny 0.2% increase.
Interestingly, Panera said that some of its initiatives toward encouraging delivery and batch-ordering showed up in its comparable results. Among company-owned stores, average check size jumped 4.9%, but the number of transactions declined 1.5%. In explaining the rise in average check size, Panera said that price increases accounted for roughly half of the increase, with the other half coming from a shift among customers toward higher-priced items. The number of entrees that Panera served rose 0.9%, and the difference between that figure and the drop in number of transactions suggests that more people are combining orders to take advantage of Panera's initiatives.
To support those findings, Panera released some data on how much its customers are taking advantage of new offerings. The fast-casual chain said that digital utilization rose to more than one-fifth, showing the power of the Panera 2.0 movement. Delivery is now available in roughly one out of eight Panera locations, including a fifth of those owned by the company directly.
Panera CEO Ron Shaich celebrated the company's foresight. "Many years ago, we foresaw the forces reshaping the restaurant industry," Shaich said, "and conceived a strategic plan to capitalize on them. ... While others in the industry are just now recognizing and beginning to tap into these themes, I am pleased to say that Panera is years ahead in our efforts."
What's ahead for Panera?
In addition, Panera expects its efforts to produce even better results ahead. In Shaich's words, "We are confident our efforts will translate into industry-leading comps and sustainable double-digit earnings growth in 2017."
More specifically, Panera boosted its guidance for the full year because of its success. The company now believes that adjusted earnings will come in between $6.67 and $6.72 per share, with comparable-restaurant sales climbing between 4% and 5% and stronger weekly net sales performance than previously expected. For the fourth quarter, Panera is looking for comps growth of 3.5% to 4% and earnings of $1.96 to $2.01 per share. Both earnings figures are consistent with what investors had expected to see coming into the report.
Panera shareholders celebrated the news, sending the stock up 5% in after-hours trading following the announcement. As long as the restaurant chain keeps its customers happy with its new systems for making ordering and getting their food easier, Panera has great potential to build positive momentum in its core business.
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Dan Caplinger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Panera Bread. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.