Revised EBIT estimates
To improve customers’ experience and reduce the friction between its processes, Panera Bread (PNRA) has been focused on implementing Panera 2.0. Implementing Panera 2.0 is expected to increase Panera’s expenses. The rise in labor wages is expected to put pressure on Panera’s EBIT (earnings before interest and tax) margins.
Softening growth in restaurants is expected to lower Panera’s same-store sales growth. This could lead to sales deleverage and lower Panera’s EBIT margin. Analysts lowered their EBIT estimates for 3Q16, 4Q16, and 1Q17 to 7.6%, 10.4%, and 8.5% from earlier estimates of 7.7%, 10.5%, and 8.6%, respectively. However, for 2Q17, analysts have raised their estimates from 10.4% to 10.7%.
Revised EPS estimates
The lower revenue estimates and EBIT margins could have prompted analysts to lower their EPS (earnings per share) estimates for next four quarters by 0.2% to $7.1. The new estimate represents year-over-year growth of 7.5%. The EPS growth is expected to be driven by revenue growth and share repurchases.
After its 2Q16 earnings, Panera’s management raised the EPS guidance for fiscal 2016 to $6.6–$6.7 from the earlier guidance of $6.5–$6.7. Analysts expect the company to post EPS of $6.7—growth of 5.7%. Panera’s peers such as Chipotle Mexican Grill (CMG) and Shake Shack (SHAK) are expected to post EPS growth of -75.8% and 1,387.7%, respectively, in fiscal 2016. Together, Panera and Domino’s Pizza (DPZ) form 0.8% of the holdings of the SPDR S&P MIDCAP 400 ETF (MDY).
Next, we’ll look at Panera’s valuation multiple compared to its peers.