Panera Bread investors have to be frustrated by the stock's return over the last year. In the last 12 months, Panera's stock has returned essentially nothing. For a company that used to be mentioned in the same breath as Buffalo Wild Wings, Starbucks or Chipotle Mexican Grill, Panera has fallen far from this pack. There are three main issues that Panera must solve if it wishes to regain its prior glory. If the company can reverse these challenges, long-term investors may be richly rewarded.
The last 3 years tell a story
Panera has slowed down its new location openings sequentially over the last three years. In 2013, the company opened 133 new restaurants; in 2014, this dropped to 114; and for 2015, Panera expects to open between 105 and 115 new locations.
The challenge of course is, with almost 1,900 locations, Panera isn't just opening fewer restaurants, but this means a slower percentage of openings as well. If Panera meets its 2015 targets, the company's new store growth will come in at about 6%. By comparison, both Buffalo Wild Wings and Starbucks expect to generate new locations growth of around 8% next year.
Panera investors are already impatient for a return to faster growth. However, the company's decision to open a lesser percentage of new locations certainly won't reassure these fickle investors.
Slower growth in the bottom line as well
The second issue facing Panera Bread is, the company's cash flow is taking a hit as its sales growth has slowed. In the last 12 months, Panera only managed to increase its core operating cash flow by 0.2%. Investors might be willing to accept slower revenue growth if Panera was churning out cash flow growth, but it's very difficult to accept both issues at once.
Investors looking for cash flow growth need only to look yet again to both Buffalo Wild Wings and Starbucks. The latter grew operating cash flow by more than 12% annually in the last three months. Buffalo Wild Wings performed even better by generating better than 20% annual operating cash flow growth in the last 12 months.
If Panera can improve its revenue growth, the company will also need to make sure this improvement flows to its bottom line as well.
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