From Potbelly and Panera, a Middling Quarter for Fast Casual Food

Operations At A Potbelly Corp. Restaurant Following IPO
Bloomberg via Getty Images/Andrew Harrer
There's still some dough to be made in the sandwich industry, even if a couple of its leading players aren't making as much bread as the market was counting on.

Potbelly (PBPB) and Panera Bread (PNRA) reported quarterly results after Tuesday's market close, giving investors a decent snapshot of the fast casual industry from the perspective of the sandwich makers.

Potbelly posted results for its full quarter since going public in September. Revenue increased just 1.7 percent, but there was also one additional week in the prior year's fiscal fourth quarter. On a comparable basis, revenue would have climbed nearly 10 percent.

The growth was almost entirely the handiwork of expansion. Potbelly added 13 stores during the quarter and 42 throughout the year. Comparable sales only increased 0.7 percent if you exclude 2012's extra operating week. Adjusted earnings declined during the quarter.

Cracking Open Panera's Box

Panera's financials didn't need to be tweaked for an extra operating week. It's growing faster than Potbelly despite being a larger chain. Revenue increased 16 percent in its latest quarter. Its growth was also fueled largely by expansion. Comparable net bakery-cafe sales inched just 1.7 percent higher.

This doesn't mean that Panera is doing well. The chain believes that business could have been better if the weather had been more cooperative. Its earnings guidance for the current quarter is also well short of what analysts were forecasting.

In the end, both Potbelly and Panera failed to impress on Tuesday afternoon. They both posted sales that were just shy of Wall Street expectations, and it's hard to win over investors when your comparable-restaurant sales are barely keeping up with the 1.5 percent U.S. inflation rate.

However, investors shouldn't take uninspiring results out of Potbelly and Panera as signs that investors have tired with the fast casual craze.

Fast Casual is Still Eating Fast Food's Lunch

Panera and Chipotle Mexican Grill (CMG) have been darlings of the fast casual trend for a couple of years. Fast casual -- a quick-service category that takes the speed and counter-ordering convenience of fast food chains and offers the higher-quality food typically found at casual dining chains -- has been growing at the expense of eateries at other ends of the spectrum.

Potbelly went public at $14 four months ago, more than doubling in its first day of trading.
It traded as high as $33.90 the following trading day, and it's been all downhill after that. That also was around the same time that Panera reported problematic financial results for the third quarter, faulting operating efficiencies for the shortfall.

This may paint a gloomy portrait of fast casual, but that's just two companies stumbling at the moment.

Chipotle has certainly not shown any signs of weakness, clocking in with a 9.3 percent spike in comparable-restaurant sales during the same quarter that Potbelly and Panera struggled to keep pace with inflation.

More to Come

We'll likely get a different read on fast casual when Noodles & Co. (NDLS) -- a fast-growing pasta-centric concept that went public a few months before Potbelly -- reports later this month.

Noodles & Co. went public with all of the buzz that accompanied Potbelly's debut, and both companies were hailed as "the next Chiptole." But both have failed to live up to the hype.

Chipotle's still rocking, but Potbelly and Panera Bread -- and perhaps later this month Noodles & Co. -- have failed to successfully defend the fast casual crown.

Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill and Panera Bread. The Motley Fool owns shares of Chipotle Mexican Grill and Panera Bread.

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These will improve when touch screen menus and facial recognition come into play- two technologies I invented.
Making money in sandwiches is tough. They require a lot of "prep" work - slicing tomatoes, meats, cheeses, breaking lettuce. Orders tend to come all at once at lunch time so you need a lot of staff that basically generates zero income during the "prep" phase.
For some reason authorities love to tax the daylights out of sandwich shops.
I've seen them show up with tape measures and calculate squarefootage down to the inch.
Water, sewer, electric power, and maint costs are astronomical for a sandwich shop.
About half of the olives, tomatoes, lettuce, dressings, and garnishes on the salad line get thrown out. The lettuce wilts in one day.
It's really, really hard to show a profit selling sandwiches.

February 21 2014 at 7:14 AM Report abuse rate up rate down Reply

No Potbelly's locally but a few Panera's and Chipotle. Both are too expensive for the just average food they offer. If I want burritos I go to Moe's, which I think is part of Hardee's/Carl's. Better food, more choices, decent price.

February 20 2014 at 12:56 PM Report abuse -1 rate up rate down Reply
1 reply to bootsnchaps60's comment

I plan on going to Chipotles from now on, I would spend a little more. I can make burritos at home with a $3 lump of hamburger and the rest of the ingredients from the dollar store, but what fun is that?

February 20 2014 at 7:41 PM Report abuse rate up rate down Reply

Still waiting to see what the Nutrition facts are in the food served in all restaurants. Will americans read them? Most people do not read the ones in the grocery store.

February 20 2014 at 12:09 PM Report abuse -2 rate up rate down Reply

Panera not cheap, in fact sandwich and cup of soup for two can be pretty expensive, with that being said, service is good, the food is consistantly good, the bread well the bread is to die for.....conclusion, open up the piggy bank go to Panera for a good meal

February 20 2014 at 12:03 PM Report abuse rate up rate down Reply
1 reply to Rich's comment

There are cheaper options, yes, but consider: if you wanted to make the same kind of meal yourself at home, you'd have to buy all the ingredients, bake or buy good bread or pastries, put the sandwiches or salad together, buy or make the soup. You would spend a lot of money and (IMO) it wouldn't be half as tasty as at Panera.

February 20 2014 at 7:38 PM Report abuse rate up rate down Reply

We need Potbelly in San Diego! not a fan of Panera or noodles & co though both are just down the street from my office. Would much rather have Potbelly Deli.

February 20 2014 at 10:56 AM Report abuse -1 rate up rate down Reply