
Why Did Panera Bread’s Earnings Margin Fall in 2Q16?
By Rajiv NanjaplaUpdated
2Q16 performance
In 2Q16, Panera Bread (PNRA) posted EBIT (earnings before interest and tax) of $66.6 million, which led to an EBIT margin of 9.7%, compared to 10.2% in 2Q15. Analysts were expecting the margin to be 9.7%.
Despite sales leverage from positive same-store sales growth and favorable commodity prices, the Panera’s EBIT margin declined due to labor inflation and an increase in G&A (general and administrative) expenses.
Increases in expenses
In 2Q16, Panera Bread’s labor as a percentage of total sales rose from 31.7% to 32.1%. The rise in labor wages, expenses associated with new initiatives, and managers’ incentives increased labor expenses. The increase in incentive-based compensation expenses; investment in growth initiatives such as technology, delivery, and catering; and the establishment of legal reserves increased G&A expenses as a percentage of total sales from 4.2% to 5.6%.
However, favorable commodity prices and sales leverage brought food and paper costs down from 30.6% in 2Q15 to 29.5%. Also, the cost of occupancy declined from 7.3% to 6.9% due to sales leverage.
Peer comparison
Outlook
With continued investment in growth initiatives such as technology, delivery, and catering, analysts are expecting Panera Bread to post an EBIT margin of 9.1% in 2016 compared to 9.8% in 2015. In 1Q17 and 2Q17, analysts are expecting the company to post EBIT margins of 9.2% and 9.9%, respectively.
Next, we’ll look at Panera Bread’s 2Q16 earnings.