Panera Shares Hit 52-Week High on Buyback, Outlet Sale Plans
Moves follow talks with activist shareholder Luxor Capital Group
Panera said it would increase its share-repurchase plan to $750 million and sell 73 of its 925 company-owned cafes to franchisees.PHOTO: BLOOMBERG NEWS
Shares of Panera Bread Co. soared to a new 52-week high on Thursday after the sandwich-and-salad chain said it would boost a stock-buyback plan and sell some company-owned outlets with the backing of an activist investor.
Panera shares rose nearly 12% following its announcement late Wednesday that it had “recently engaged in a constructive dialogue” with activist shareholder Luxor Capital Group LP and would increase its share-repurchase plan to $750 million from the previous plan of $600 million. Panera also said it would sell 73 of its 925 company-owned cafes to franchisees and use the proceeds to fund the stock repurchase.
The St. Louis chain said it would take on $500 million in new debt to help fund the share-buyback program. It expects to purchase $500 million of shares within the next 12 months.
Panera, which has about 1,880 locations, is the latest restaurant company to become a target of activist investors seeking to improve operating efficiency and profits. Last year, Starboard Value LP succeeded in overhauling the board of Olive Garden owner Darden Restaurants Inc. following four years of inconsistent sales growth at the Italian-food chain. The company has worked to trim costs and speed up service under new CEOEugene Lee.
Analysts said Luxor’s involvement could spur Panera to make improvements. Some diners have complained about long lines to pay for food and slow service at some of its restaurants. Partly in response, Panera has been rolling out a new operating model called Panera 2.0, designed to make restaurants run more efficiently and draw additional diners outside the lunch hour. But some investors have worried about the slow rollout of the plan and whether it can bolster growth at the company.
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Stephen Anderson, an analyst with Miller Tabak, said in a research note that Luxor’s support for Panera “augurs well for a more efficient rollout of Panera 2.0.”
“This is likely to be followed by more-aggressive cost reductions, which we contend will satisfy investors concerned about the rising costs associated with implementing the ongoing Panera 2.0 initiative,” Mr. Anderson said in the note.
Luxor, a hedge fund based in New York, was part of a group of activist shareholders in BJ’s Restaurants Inc. that won three seats on the company’s board last year. As part of a deal with Luxor and the other members of the shareholder group, BJ’s, which owns and operates 159 pizza, beer-themed and other casual-dining restaurants, agreed to repurchase $50 million in shares, partly using debt.
In February, Panera warned that earnings per share for 2015 would be at best flat with last year’s $6.64.
The company previously had announced plans to refranchise 50 to 150 cafes this year.
Panera shares rose $18.97 to $182.89 in Nasdaq trading on Thursday.
