Many years ago, I invested in a company called Au Bon Pain which ran bakery cafes in urban locations. It was my first really large investment in a single stock. What attracted me to the company at the time was a new concept that it had just purchased, a small (20 unit) chain of restaurant/bakeries called St. Louis Bread. In short order, the company sold off its Au Bon Pain unit to concentrate on the new concept. One of the first things that it did was to change the name of both the restaurants and the company to Panera Bread. Since then, the company has grown rapidly and the stock has soared from $3 per share to about $160 today. I sold out the last of my stock in the $70's (with some buys and sells in the interim), but I have followed Panera closely ever since. Lately, there are some truly troubling signs coming from corporate headquarters.
Panera has been changing its management. First the CFO left. While the departure of the CFO is often a red flag that there is a problem, this one just seemed to be nothing more than the ordinary change that any organization would have. Next, however, the retired CEO, chairman Ron Shaich, came back to become, in essence, co-CEO with the guy who replaced him a few years ago. That one was really strange. Imagine, Shaich retired from being CEO and a few years later the board brings him back. Is this just being done for the two guys to "partner" as the press releases say? Or is there some other problem which has arisen but which has yet to show itself to the market? This was troubling when added to the departure of the CFO. Next the company hired an "interim" CFO. Why interim only? Is there something so special about being CFO of Panera that the company could not find a satisfactory candidate in months of looking and had to settle for someone on an interim basis? Or, is there some problem lurking in the accounts at Panera which led the preferred candidates to turn down the position? Now, the Chief Operating Officer of Panera has resigned to go to Friendly's to be CEO. It may be that being CEO of a small bankrupt chain seems better to the departing COO than running the day to day operations of a huge and rapidly growing chain. Nevertheless, this switch, coming on top of all the other officer changes, truly worries me that there may be something brewing at Panera.
Right now Panera is selling at 28 times the expected earnings for 2012. This is not the highest multiple of any restaurant chain. Chipotle is selling for about 50 times expected 2012 earnings. Panera, nevertheless, has a very high multiple based upon years of constant growth and near flawless execution by management. Were a problem to pop up now, that multiple could easily contract and the price of the stock could plummet.
I am not ready to recommend that you short Panera. Over the years, I have seen too many people lose big by doing just that. Nevertheless, I do recommend that you stay away from the company for the time being. If you already own the stock, it may be time to take some profits. I cannot tell you what is wrong at Panera, but the signs sure tell me that something is up.
Disclosure: I have no interest in Panera and no intention of starting one at this time.
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