Why Did Panera Bread’s Revenue Rise in 1Q16?

Panera Bread (PNRA) earns its revenue from three sources: company-operated restaurants, royalty and franchise fees collected from franchisees, and fresh dough operations.

The revenue generated from company-operated restaurants forms more than 85% of PNRA’s overall revenue.

Panera’s revenue rose by 5.7% due to its revenue from company-owned restaurant sales’ rising by 4.4%. Its revenue from franchised restaurants also rose by 16.9%, driven by positive same-store sales growth and unit growth. We’ll be discussing these revenue drivers in the next few articles.

The expansion of Panera into adjacent businesses such as catering, delivery, and Panera at Home has also contributed to its revenue growth. PNRA’s catering sales rose by 11.4% in 1Q16 compared to 1Q15. Its delivery service was extended to 70 company-owned restaurants in 1Q16.

PNRA’s investments in e-commerce and technology have also caused its revenue to rise. Sales from its digital channels formed 17% of its total revenue in 1Q16.

During 1Q16, Chipotle Mexican Grill (CMG) and Brinker International (EAT) registered revenue growth of -23.4% and 5.2%, respectively. Shake Shack (SHAK) is estimated to post revenue growth of 38%.

Better-than-expected 1Q16 results have compelled Panera’s management to increase its revenue growth guidance for 2016 to 4%–5% compared to earlier guidance of 3.5%–4.5%.

Analysts are expecting Panera Bread, which forms 0.08% of the holdings of the iShares Russell Mid-Cap ETF (IWR), to post revenue growth of 5.1% in 2016.