Market Warming to Growing Momentum – Panera Bread Co

July 29, 2015
Written by Felix Narhi

Company Overview

As a pioneer of the “fast casual” restaurant category, Panera Bread is the authority on fresh-baked bread and is well known for its delicious healthy food and its commitment to food transparency.

Why We Like Panera

Led by its visionary founder Ron Shaich, Panera is one of the most profitable restaurant concepts in the industry and has been amongst the best performing US stocks over the last 15 years. The stock’s outsized returns have been driven by the stellar performance of the underlying business. Over that period, revenue is up 19x and earnings per share are up 26x.

Panera’s success has not come in a straight line. Every six years or so, the management team has historically made forward looking, high return investments in order to dig a deeper competitive “moat” around their business and to propel stronger growth in the years ahead. These upfront investments put pressure on near term results but have paid off handsomely for patient shareholders.

Each time investors could have picked up this proven wealth compounder at attractive prices during these investment phases and subsequently seen market beating returns. These successful evolutions are part of Panera’s long term success story and demonstrate its commitment to sustainable value creation.

The Current Investment Thesis

Once again, with the stock recently depressed and range-bound, the company is in the midst of a heavy investment phase to improve its operational efficiency and customer experience. Dubbed Panera 2.0, these investments are ultimately designed to make Panera a more desirable and convenient experience for consumers. Initial signs of success have been encouraging and Panera is just starting to flex its marketing muscle to get the word out.

We believe these changes can herald another strong phase of double digit growth for the company which could potentially carry the stock higher as its initiatives start to pay off, including:

  1. Increased new food innovation targeting “crave-able wellness”.
  2. Improved Eat-In experience with improved store layout and new ordering options.
  3. Improved To-Go experience with a convenient “Rapid Pick-Up” counter which streamlines online takeout orders and the launch of a home delivery service.
  4. Refocused on the huge potential available in the fragmented larger order catering market.
  5. Ongoing store expansion and new store redesigns which refresh and modernize the concept.
  6. Becoming an IT leader in the restaurant industry as consumers, particularly Millennials who tend to eat out more frequently, increasingly favour those brands that effectively integrate the digital world into their operations.
  7. Further penetration of Panera branded products, such as refrigerated soups, into grocery stores.

We believe Panera, which has some of the most loyal consumers in the restaurant business, should continue to thrive as awareness of health and wellness continue to rise in society.


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