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Why Analysts Are Expecting Panera’s EBIT Margins to Rise in 1Q17

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1Q17 estimate

In 1Q17, Panera Bread (PNRA) is expected to post EBIT (earnings before interest and tax) of $67.5 million, which represents an EBIT margin of 9.4%. In comparison, the company posted an EBIT margin of 8.9% in 1Q16.

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Factors contributing to a rise in EBIT margins

Analysts are expecting Panera’s food and paper expenses to fall from 31.9% in 1Q16 to 24.3% of total revenue due to a rise in revenue from franchised restaurants and a fall in commodity prices. The company management expects commodity prices to fall 1% in 2017. During the quarter, analysts are expecting SG&A (selling, general, and administrative) expenses to fall from 7.0% to 6.7%.

However, labor inflation and a rise in D&A (depreciation and amortization) expenses are expected to offset some of the rises in EBIT margins. The company’s management expects the retail hourly wage inflation to be 5% in 2017. Also, expansion of delivery services to more restaurants will require more labor, which will increase labor expenses. To enhance customer experience, the company is expanding the implementation of Panera 2.0 to more restaurants. This could increase Panera’s D&A expenditure from 5.3% to 5.6% of total revenues.

Peer comparisons

In 1Q17, analysts are expecting Chipotle Mexican Grill (CMG) and Shake Shack (SHAK) to post EBIT margin of 5.8% and 9.4%, respectively. In comparison, in 1Q16, the companies posted EBIT margins of -5.6% and 8.9%, respectively.

Outlook

In 2017, analysts are expecting Panera’s EBIT to rise from 9.2% in 2016 to 9.4%. The expansion is expected to be driven by sales leverage from positive SSSG, increased revenue from franchised restaurants, and lower commodity prices.

Next, we’ll look at analysts’ earnings estimate for 1Q17.

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