hondo928 (99.68)

I'm Stupid

May 06, 2008 – Comments (1) | RELATED TICKERS: PNRA , YUM , COSI

Recently during earnings seasons I made three plays in a row Yahoo, Panera and Yum Brands.  1 for 3...not bad, except I stopped playing baseball 2 years ago.  My reasoning for Yahoo! was that I had some faith in Mr. Yang, which I have since lost and the man may very well have become my most despised CEO, now that Stan O'Neil is out of Merrill (See Previous Blog Post for Rant on Jerry Yang. 

Well then next was Yum! Brands the sponsor of the Kentucky Derby (RIP Eight Belles had you in my exacta girl), but more importantly a company just exploding overseas, putting shame in the faces of McDonalds and more so Domino’s a company who seems to make only excuses for it’s failed overseas expansion.  But the Colonel has taken on the rice eating, lean boys out of the fields, and fattened them up with some good ol’ country cookin.  And it allowed Yum! to go ahead and beat those earnings by a couple of pennies, not too bad in a “global slowdown”

But I’m not here to talk about either of those companies, I’m here to talk about my biggest blunder in Panera.  I still think I have a good reasoning behind thinking they would get hurt, the food isn’t that healthy, they are in heavy competition, lower margins, and a recession, all which spell bad news for this little bakery franchiser.  Besides who on earth would spend 3 Million dollars to open these.  Perhaps I was wrong though, as I write this sitting in the one in Newark, DE taking a little break from the wonderful world of managerial accounting homework.

I thought Panera would fall the same way Quiznos and Starbucks did, and to some extent Chipotle is now, but so far they have proved me wrong topping earnings by a couple of cents, now that’s not a huge amount, but it was more than enough to send the 30% of shorts screaming and running for the hills.  Man do I love when shorts get burnt, always makes me feel a little good inside.  Sure that won’t be the case when it happens to me in real life but for now I’ll bask in the delight. 

I haven’t read the conference call transcripts and most likely never will but Panera did manage to increase revenues which is a good sign, and profits despite, the fact margins have probably taken a hit. And they are sitting one 20 Million more in cash than they have in debt which is always a good sign.  And that 2 cents earnings top allowed for the stock to close up 15% on the day they reported not to shabby, in my opinion, making the 52-week movement of the stock appear much better than it really is.

Ah but the best news of all, for Panera they were able to successfully pass the more than 50% gain in wheat prices for the year off to their consumers, proving demand for their products are most likely sitting on an inelastic demand curve…ok yea it’s food so obviously that will happen, but like I said they are facing a lot of competition yet they seem to still be the preferred substitute. Cosi on the other hand is struggling with stock prices below 2.50 a share and analysts expecting another loss this year, but better than it was last year.  I’m a little skeptical whether or not they can pull that off, but good luck.  And they are expected to turn a profit in 2009 a rather big accomplishment for this company, market cap under 100 million, now that I look at this I smell buyout potential, and enterprise value is only 88 million seems like it would make some sense to me.  Anyway point of this was I was wrong Panera proved me wrong, and as I just witnessed this place get packed in a two hour period, I could not eat here for a month and buy a share of stock, it might be a better deal for me.  Kudos to Panera management.  And to even further mark my stupidity, I just realized they own Au Bon Pan…one of the competitors I mentioned in my pitch against them.  I guess a dose of humility isn’t that bad every once in a while.