Panera Bread expecting just modest inflation in second half of 2011

Panera Bread (PNRA) will be raising prices and expects the increases to stick. In narrowing guidance for sales growth from 4.0% to 6.0% to 5.0% to 6.0%, PNRA stated the following:

“This target assumes transaction growth of 2.5% to 3.5% and average check growth of approximately 2.5%. The increased average check growth target is primarily a result of an incremental 1.0% price increase the Company intends to take to offset increased inflation in the latter part of 2011. The incremental price increase and increased inflation are expected to offset each other at the operating margin line and have no impact on the Company’s earnings per diluted share target.”

PNRA is one of the best run operations in the casual dining segment, so it is no surprise they have been able to manage costs and pass along price increases without skipping a beat. The stock has been making fresh all-time highs for almost a year now.

Panera Bread bounced back from the recession quickly and strongly

Panera Bread bounced back from the recession quickly and strongly

Restaurant industry facing a squeeze from higher food prices

On Thursday, CNBC aired a segment on restaurant stocks, discussing the prospects for profits given rising food costs.

The December statistics from the Labor Department demonstrate the growing pressures on costs for eating establishments. The December PPI was up 1.1%. Food prices were up 0.8% primarily due to a 22.8% price hike in fresh and dry vegetables and an increase of 15.4% in the price of fresh fruits and melons.

Nation’s Restaurant News conducted a survey of restaurant operators that found that food prices will be a big issue in 2011:

  • 60% expect to raise menu prices in 2011
  • 5% expect to cut prices in 2011
  • 39% say higher commodity costs would pose biggest challenge

The guests on the CNBC segment were a bit split on their assessments of the restaurant industry’s prospects for 2011.

Dan Popowics, Fifth Third Asset Management

  • Operators will be reluctant to raise prices will look to rent or labor and hedging
  • Menu prices are a last resort

Peter Sorrentino, Huntington Asset Advisors

  • If operators don’t get squeezed then consumers will get squeezed
  • There is not much additional room to maneuver
  • Cost-cutting story is not going to work

Either way, the increasing “agflation” around the world looks ready to pinch U.S. consumers, businesses, and/or investors.