Panera 2.0’s impact

With the Panera 2.0 initiative positioned to improve customer experience, on July 28, Panera’s (PNRA) management gave some color on how the plan should affect same-store sales growth over the long term. To that effect, management delivered two key data sets to show the impact of Panera 2.0.

Panera 2.0’s Long-Term Impact on Same-Store Sales Growth

The first data set was the recent same-store sales growth, which increased sequentially each month since April 2015. According to management, this positive trend is a result of the Panera 2.0 initiatives along with food innovation and the company’s marketing campaign. Bear in mind that marketing spending in June and July was the highest, according to the company, which may have boosted the July 2015 comps.

Panera 2.0’s Long-Term Impact on Same-Store Sales Growth

The second data set shows the relationship between Panera 2.0’s converted café and its impact on the company’s sales lift. This sales lift means an increase in gross sales at Panera’s restaurants compared to the same period a year ago, excluding catering sales. Panera 2.0 will take time to show visible results in terms of sales over the years, and the results may not be immediate. Management stated, “Sales in Panera 2.0 cafes gain momentum three to four quarters after conversion.” For example, in 1Q13, there were three Panera 2.0 cafes, which have seen an increase of 10% in sales year-over-year compared to before the Panera 2.0 conversion. To date, the company has converted 181 restaurants to Panera 2.0.

Labor improvement

Similar to sales, which should improve over time at Panera 2.0 cafes, labor margins should also improve over time, according to management. This would help the company mitigate labor cost pressures from a minimum wage increase. A minimum wage increase affects all restaurants across the board, including McDonald’s (MCD), Yum! Brands (YUM), and Wendy’s (WEN). It negatively affects the Consumer Discretionary Select Sector SPDR fund (XLY), which invests 10% of its portfolio in restaurants.

Panera management shared a bright outlook for its future performance, fueled by Panera 2.0. So, how does this affect Panera’s valuation? Read on to the next part of this series.

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