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Jim Cramer's Action Alerts PLUS

Panera Posts Big Earnings Beat

By Jim Cramer and Jack Mohr | 02/09/16 - 06:30 PM EST
Stocks in Focus: PNRA

Panera Bread (PNRA:NYSE) delivered convincing fourth- quarter results after the close, highlighted by a big bottom-line earnings (EPS) beat and impressive comparable-store growth (a.k.a. "comps," or same-store sales -- SSS). The company also issued somewhat mixed initial guidance for 2016, with a better-than-expected forecast around comp growth tempered by a lower-than- expected forecast around earnings.

Net-net, we view the results and guidance as encouraging, and believe the company's ability to drive strong comp growth comes as a direct result of its investments over the past 18 months, most notably those associated with the rollout of its "Panera 2.0" technological initiative. While continued investments in the platform may hamper margins in the near term, we believe management is prudent to build upon its existing success by prioritizing long-term brand transformation.

For the fourth quarter, Panera posted a monster bottom- line beat, with EPS of $1.88 coming in 10 cents ahead of consensus. More importantly, the retailer's most important metric -- comparable sales -- grew 3.6% year over year, well above consensus at 3% and prior guidance toward the "midpoint of 2.0% to 3.5%." Management also indicated that comps increased 6.4% year over year in the first 41 days of 2016, although they qualified the outsized growth by noting comps benefited from the company's decision to raise prices earlier than anticipated to better align with structural wage increases. Regardless, it is clear to us the company is increasingly differentiating itself from competitors and likely taking share amid industrywide weakness.

Management also issued initial 2016 guidance, forecasting EPS growth of between 2% and 5% (slightly below consensus) and comparable-store growth of between 3.5% and 4.5% (which, at the midpoint, tops consensus of +3.5%). The lower-than-expected earnings growth is driven by a 50- to 100-basis-point decline in operating margins, which reflects startup and transition costs associated with the company's ongoing initiatives (i.e., the aforementioned rollout of Panera 2.0). This shouldn't be entirely unexpected as the company has consistently pointed to 2017 as the year in which it expects earnings to inflect. Today's results validate contributions from Panera's 2.0 initiative and give investors even more reason to view the stock as a core portfolio holding.

On tomorrow's 8:30 a.m. ET conference call webcast (click here for the company's investor relations page), we will be focusing on 1) further color around initial 2016 guidance and expectations around long-term earnings growth; 2) updates on efforts to sustain positive traffic, including catering, loyalty programs and its first national TV ad campaign; 3) more detailed performance data comparing pre- vs. post-2.0 store launches; 4) management commentary around other value-enhancing initiatives, including incremental cost savings, balance-sheet strength, share buybacks and refranchising. We will provide subscribers with our updated thoughts following the call.


Jim Cramer, Portfolio Manager & Jack Mohr, Director of Research - Action Alerts PLUS

DISCLOSURE: At the time of publication, Action Alerts PLUS was long PNRA.

Ordering More Shares of JACK
Stocks in Focus: JACK

It's an opportunity to put some cash into one of our favorite names.

02/09/16 - 01:04 PM EST
Selling and Buying in the Portfolio
Stocks in Focus: HOT, DOW, BIIB

We will exit HOT, sell some DOW and buy more BIIB.

02/09/16 - 11:16 AM EST
Weekly Roundup

This week, higher crude and strong earnings had a negligible effect. No new names in the portfolio, though we downgraded 2 positions.

02/05/16 - 05:52 PM EST

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Symbol % Portfolio
Industry Trade Now
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AGN 5.98% Drugs
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JACK 3.96% Leisure
PNRA 4.65% Leisure
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TGT 3.84% Retail
WBA 4.29% Retail
WFC 4.04% Banking
WWAV 4.47% Food & Beverage
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ETP 1.58% Energy
KHC 2.78% Food & Beverage
LLY 2.87% Drugs
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OXY 2.24% Energy
SBUX 1.49% Leisure
TMO 2.71% Health Services
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