Not All Fast-Casual Chains Are Outperforming

 For a while, it seemed as if companies in the fast-casual dining industry could do no wrong. Indeed, as a whole, fast-casual dining chains outperformed their more traditional counterparts on almost every metric. Lately however, the industry has gotten into some choppy waters, with some companies seriously affected and some still charging on. Notably, Panera Bread and Noodles & Company  have reported uninspiring results recently, while Chipotle Mexican Grill seems to be sizzling on.

The underperformers: Panera Bread and Noodles & Company
On the face of it, Panera's report wasn't all that bad. The company beat on earnings, with adjusted first-quarter earnings per share of $1.55. However, this figure was down 2.5% year over year. Revenue was up some 8% compared to last year though and beat the consensus by around $4.7 million.

A more worrying number was the comparable bakery-cafe sales, up by only 0.1%. Compare this to the 3.3% posted last year and the 1.1% last quarter. What really had investors spooked in the report, and what sent shares down more than 6% on the news, was a weak outlook. The company now expects second-quarter earnings of $1.70 to $1.76 per share versus a $1.86 consensus estimate. Also, Panera Bread trimmed the top end of its full-year EPS forecast to $7 versus a previous $7.05.

The company cited (surprise!) the poor winter weather as a drag on sales. But even with the weather effects stripped out, comp-bakery sales would have been up in the very low single digits. To combat this drop in sales, the company has announced it will be undertaking a number of measures, including streamlining the order and pick-up system, which has been compared to a "mosh pit" by some commentators. Still, the company looks to be far behind chains like Chipotle as well as some more established casual-dining restaurant operators.

Noodles & Company is a relatively small player in the space, with only 318 company-owned locations and a market cap just shy of $1 billion. It did better for its first-quarter report in terms of earnings but got slammed by more than 13% nevertheless on a revenue miss.

Revenue came in at $89.5 million for the quarter, up 10% year over year but missing the $103 million consensus by a mile. More worryingly comp-restaurant sales declined by 1.4% in company-owned locations and by as much as 3.3% at franchisee locations for a 1.6% systemwide drop. While some of this performance can of course be attributed to the weather, many other restaurant chains do not seem to have suffered as much.

Furthermore, Noodles will have to come up with some serious growth figures, and soon, in order to come close to justifying its ballooning valuation. Trading at more than 140 times trailing earnings, or around three times Chipotle's valuation, it's getting harder and harder to see how the company's shares are staying afloat. With new restaurant growth outpacing revenue growth at the moment, this looks like a tall order indeed.

So what's Chipotle doing right?
Seemingly unaffected by the winter chill, Chipotle's most recent results show that the company is still firing on all cylinders. In the first quarter of 2014, sales went through the roof. Overall revenue was up 24.4% on an astounding 13.4% rise in comp restaurant sales. Meanwhile, EPS was up by 7.8% year-over-year. Still, investors were worried about the drop in operating margin and an earnings miss, the stock down 6% for the day .

One of the main concerns for Chipotle shareholders going forward is a rise in food prices. According to Chipotle, steak, avocado and dairy products were all getting more expensive. As a result, the company has announced it will be raising its prices, but consumers don't appear too fazed by the increase .

Many of the company's loyal customers seem to be happy paying more for premium ingredients, although an estimated average price hike of $0.45 per meal is higher than the estimated food inflation cost per meal of around $0.27, indicating that the company may also just be looking to boost the top line. Probably, Chipotle can get away with it. The company's food culture and focus on consumer satisfaction are proving to be an irresistible combination, and the speed with which the company serves its customers is the envy of the restaurant industry. 

The bottom line
The most recent reports from companies such as Panera Bread and Noodles & Company make one thing clear: Not all fast-casual chains are created equal. While their respective CEOs blame the uninspiring results on the weather, some other chains like Chipotle managed to deliver double-digit comp-restaurant sales growth during the same period. As such, fast-casual dining chains should not be regarded as a homogeneous group.

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Daniel James 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. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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