Here’s a link to their earnings release so you may double-check my math and numbers if you so choose. (Please do!)
While the 1.96 was a beat and a nice bump from the 1.75 reported one year ago, it’s not all it’s baked up to be. The company sites that this quarter was helped by an extra week that led to a .13 boost to EPS, if you can trust their math, more on that in a minute.
Additionally, the company used $332 million to repurchase shares. On the call, management said this was .04 accretive to EPS in Q4, i find that interesting because if you take the net income from Q4 and divide by the share count at the end of 2012, you get 1.84, not 1.92 which is what .04 would represent. Let’s sum up:
Take the buyback out (1.84), now subtract the extra week using their own number (.13) you get...anyone? 1.71 EPS, which is actually LESS THAN last year for a company trading at more than 25x earnings. Illegal formation, 5-yard penalty.
Now’s a good time to point out that I have a put spread on for this week (170-160) which will clearly not pan out as PNRA is currently trading close to 180, up on the day after trading below 170 post release yesterday. So am I bias? I guess, but through some careful managing of the sold puts and shorting the common during the 7% market pullback, I’ll still end up ahead, whoopty do.Though, you could have thrown a dart and made money shorting something during the pullback. So why so negative?
Good question, I still occasionally visit PNRA, though have become disillusioned by the current value proposition and quality not to mention they never seem to get the order right on the first try. Again, perhaps this is tainting my view, but math is math right?
UPDATE: I screwed the math up on the original post confusing yearly metrics for quarterly, i think at one point. Below is the corrected information. Dumb mistake, sorry.
PNRA also reported revenue growth of 16% for the quarter and 12% for the year, not bad at all, but they didn’t account for the extra week in the release so your headline is better than the actual 7.5% for the quarter and 9.8% for the year. To their credit management did mention the benefit of the extra week on revenues for the year on the call, citing 10%, which is basically what i calculated. There was no mention of how the 4th quarter revenues were affected.
So now we’re looking at a company who trades at 25x with shrinking real EPS and revenue growth of let’s just say 8%. Is this attractive? But what about margins or traffic, those must be improving you say for such a lofty multiple.
Traffic is down, margins decreased by 170 basis points, but total ticket was up thanks to increased prices.( A sure fire way to increase traffic to be sure!) So now we have decreasing traffic, very little revenue growth and did I mention the nice free cash flow that the company spits out basically funds the buyback and can’t possibly continue at the same pace going forward? (They said as much on the call as well)
I’m sure I’ve lost many people as they’ve gone off to “take the top off” of PNRA but I’ll continue for those sticking with me.
November was PNRA’s best month, with SSS coming in at a very respectable 3.6%. However, October was 1.9% and December came in at a -.04%, when the weather was not nearly as bad as it was to start 2014. The company also noted that comps are “dramatically lower” to start 2014 thanks to the weather, especially in the midwest where they are still concentrated.
I totally think that’s legitimate. Would they have positive comps without weather, I don’t know, but I’m willing to give the benefit of the doubt, the weather has been awful and surly hit everyone in this space. But that has nothing to do with the quarter they actually reported right?
Anyway, there is hope on the horizon and believe me, that’s the only reason the stock is still around 180, hope. Management announced that they will be improving MyPanera, which to date is pretty abysmal, and also adding an “app” that will assist in pre-ordering. That is interesting and as a MyPanera member, I hope they improve it as I never know when i have a reward or where I stand. It should also be pointed out that this “technology” will increase cap-ex spending (less cash for buyback), but i do think that it may increase traffic unlike new “racks” for the cafes which they sighted as an expense to increase traffic this past quarter. I swear I’m not making it up.
The analysts still seem to be eating the cheddar broccoli soup as none questioned their math on the call or asked simply how the increased price of coffee (one example) could affect their margins since they already raised the price at the cafe level. One analyst did ask if their “modest inflation” estimate was safe to which they said they “felt good about it”. Well, I would hope so guys, you just released it yesterday. So if inflation increases more than what many expect, trouble. But wait, there’s more.
I haven’t given you the guidance, which was lowered again. The company is guiding to 6.80-7.05 for FY 2014. Let’s give them the top range and multiply by 25....I think you see that upside is probably at least limited, even if not a screaming short. Hey, but enjoy EPS guidance because comp guidance is going away for good, oh you missed that, yeah they threw that in there about halfway through the call.
So call me skeptical on PNRA. Management is strong and certainly deserves some leeway, but some of these issue are not new and have yet to be solved. Do you want to risk YOUR money betting they solve them in the near term? I don’t, I may bet the other way even after this week when my put spread expires. My best advice if you want to get long, as the great Peter Lynch once said, “tune in later.” Maybe i will too, but for now I’m changing the channel.