In the past, customers were frustrated by long waits and inaccurate food orders. Management responded by simplifying menus, installing new kiosks to make ordering faster, launching a mobile app and changing the kitchen layout to improve efficiency in the back of the house. In addition, the company is aggressively refranchising 50 to 150 underperforming bakery-cafes. So far, 73 cafes have been refranchised to better cafe operators.
Although first-quarter results came in slightly lower than expected, investors saw enough positive changes to take the stock higher. Sales at company-owned cafes increased 1.5%, while franchise-operated cafes posted a slight decrease of 0.1%. While same-store sales were not great, they weren't the disaster some investors had been expecting.
Despite sluggish same-store sales, revenue jumped 7.1% to $648.5 million. Cafes operating under the Panera 2.0 model saw mobile, online and kiosk ordering rise to 20% of sales. Overall, 9% of customers order electronically, which is helping to alleviate the cashier bottleneck that has impacted sales in the past. Management believes electronic orders will continue to grow.
In the first quarter, operating margins declined 180 basis points. The decline was attributed to higher wage expenses. Under the Panera 2.0 transformation, the company added additional workers to the cafes during peak times. Increased expenses should weigh on the company until sales pick up.