Panera Bread Company (PNRA)

Oh that is sooo frustrating---I just spent about 40 minutes writing a detailed pitch as to why I think Panera is WAY overextended at current levels and something happened with CAPS and it didn't register.

The skinny of the pitch is this:

Panera is a great company with a fantastic business model (much like Starbucks). The problem is that they are not as globally diversified as Starbucks and even Starbucks hasn't done very well lately. The Fed can try to fight the Sub-prime all they want, but Alt-A is an even bigger story and it hasn't even been mentioned in the newspaper really. That said we have yet to see the end of economic woes in the United States. In fact, I think we are just now seeing the beginning. Oil isn't done rising and the dollar isn't done falling.

So whats this have to do with Panera? Well, Panera gets its business from two groups of customers: 1st the corporate world who have enough money to buy their lunch every day (and not enough time, desire, or gumption, to make their own lunch and bring it to work); and 2nd every day individuals just looking for a mini escape to a comfortable atmosphere with good food where they can talk with a friend (i.e. a special occasion) or simply to have a little down time and read a book, do homework, etc...

The first may be a more recession proof customer base, but I think you will see more people bringing their lunches to work. The second group will all but disappear from the check out line; for them, panera is a luxury that most can no longer afford.

So there you have two (speculative, but realistically so) reductions in revenue stream. Meanwhile, they are still paying the same very high costs of rent stipulated by--in many situations--five year contracts, and furthermore the cost of food and coffee has skyrocketed. They can't pass these costs onto the customer right now.

So all that said I have panera as an underperform until probably years end at which point might offer a great opportunity to start nibbling on some bread.