One of my investment themes is the Rise and Fall of the Middle Class, which zeros in on both rising disposable income outside of the U.S. as well as the pressured disposable income we’re seeing in the U.S. Recent data from the June Employment Report as well as other data from the Bureau of Economic Analysis show that wage growth is modest and disposable income has seen little growth thus far in 2013 while the personal savings ratehas averaged only 2.7% year-to-date. To me that says consumer discretionary companies — like leisure and travel as well as restaurants and retailers — need to compete hard to win their share or more of what dollars consumers are willing to spend.
One group of stocks that have been strong performers over the last five years has been casual dining and or quick service restaurants (QSR). While some were left for dead during the second half of 2008, it paid big profits for the savvy investor that stepped up and scooped up the shares. Over the last five years, Chipotle Mexican Grill CMG -0.84% experienced a 378% increase in its stock price, Buffalo Wild Wings BWLD -0.64% climbed 320%, and Panera Bread Company PNRA -1.19% soared more than 305%. That’s far better than the 65%-75% returns in the shares of McDonald’s and Darden Restaurants DRI -1.37%, and still head and shoulders ahead of the 140% move in DineEquity DIN -0.17% shares.
One of the drivers of those stock price moves has been revenue growth, and it comes as no surprise that the better performing stocks – Chipotle Mexican Grill, Buffalo Wild Wings and Panera Bread Company – all posted far stronger top line growth over the 2009-2012 period than McDonald’s, Darden Restaurants and DineEquity DIN -0.17%. The high-fliers averaged 77% top-line growth over that period compared to 28% for “weaker” performers. I have to be careful when I say weaker performers because even though McDonald’s, Darden Restaurants and DineEquity lagged the others, they still performed far better than the 30.8% that the S&P 500 returned over the last five years.
Taking a closer look at Chipotle Mexican Grill CMG -0.84%, Buffalo Wild Wings and Panera Bread Company, all three are expected to deliver earnings growth between 18%-21% in 2013 vs. 2012. Where those three stocks diverge however is their respective P/E ratios. As of last night’s close, Chipotle Mexican Grill shares are trading at 36.3x 2013 consensus earnings expectations compared to 28.7x for Buffalo Wild Wings shares and 26.7x for Panera Bread Company shares.
One on one with Ron Shaich of Panera. I recently spoke with Ron Shaich, the co-founder, chairman and CEO of the Panera Bread Companyon PowerTalk As tends to be the case with these one-on-one conversations, we covered a lot of ground during our conversation including the strategies that have led to strong growth in Panera’s revenues and stock price during the last several years. Focusing on the customer experience, transparency and, as Ron says, simply “doing it right” are some of the strategies that led to that significant growth at a time when competitors like Cosi and others were struggling.
During the first quarter fiscal 2013, Panera opened 10 new bakery-cafes and its franchisees opened 12 new bakery-cafes. At the end of that quarter, the company had 1,673 bakery-cafes open system-wide up from 1,380 at the end of 2009. Panera’s success was not only due to location growth, but also share gains. Average weekly sales (AWS) for company-owned new bakery-cafes through the first quarter fiscal 2013 were $61,912, up more than 20% year over year, while AWS for franchise operated new bakery-cafes through the first quarter fiscal 2013 rose 7.4% year over year. One of the keys to Panera’s success has been its menu offering, which also allowed it to successfully navigate the rise of many alternative eating styles — Atkins, Paleo, raw and others.
Besides being a leader in the business community, Ron is an advocate for getting our political leaders to work together better. He’s a part of “No Labels,” a growing citizens’ movement of Democrats, Republicans and everything in between dedicated to promoting a new politics of problem solving. Their slogan is a great one — Stop Fighting, Start Fixing.
If you’re tired of nothing getting done in Washington, frustrated by the lack of progress and the blame game in D.C., or you want to learn more about how Ron and his team delivered during the last few years, get a bear claw and click here to listen to my PowerTalk with Ron Shaich, the c-founder, chairman and CEO of the Panera Bread Company.
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