Analysts give Einstein Noah positive reviews in initial reports

Nation's Restaurant News,  July 30, 2007  by Sarah E. Lockyer

• E-mail
• Print
• Link

GOLDEN, COLO. -- After raising $83.7 million in a public offering in June, Einstein Noah Restaurant Group Inc. is drawing the attention of securities analysts who this month initiated coverage of the once-beleaguered parent to the Einstein Bros. Bagels and Noah's Bagels brands with positive outlooks.

Einstein, which operates, franchises or licenses more than 600 bagel specialty restaurants, has successfully distanced itself from a history that included steep losses and Chapter 11 bankruptcy protection from creditors, observers said. Now, the company has the ability to "outperform the market by 25 percent over the next 12 months," said securities analyst Paul Westra at Cowen & Co. in New York.

Westra, who initiated coverage on Einstein with a July 18 report, cited the company's 10 consecutive quarters of positive samestore sales and its brand positioning within the "highest-margin business" of breakfast and snacks.

"Lunch players are forced to compete at lunch on price--always have and always will," Westra said, "and, as such, are 'forced' to price their ancillary breakfast and snack items at high margins."

Up until its June IPO, Einstein was known as New World Restaurant Group and traded on the Pink Sheets. It is the second-largest fast-casual player, behind Panera, based on number of units. Einstein, which now trades on Nasdaq, has turned itself around in the past few years by closing underperforming locations, remodeling the brand and focusing on operations.

"We are confident that [Einstein] is primed for growth," Westra said. "Management has already successfully completed a multiyear turnaround that included ... the culling of [an estimated] 84 underperforming Einstein Bros. Bagels stores from 2004 through 2008, and the acceleration of company and franchise new-unit growth based on its newly designed prototype package."

Einstein's brands have moved beyond bagels to offer panini sandwiches, salads and frozen lattes. At the flagship Einstein Bros. Bagels, the company is testing open-faced pizza bagels that are finished in new high-speed ovens. The product is in test at more than two dozen locations in the Denver area.

Pizza bagels were introduced to increase sales in the lunch and afternoon dayparts, according to the company. Bakery items, along with frozen coffee and, in some locations, espresso drinks, are other afternoonsales boosters.

Morgan Stanley analyst Mark Wiltamuth also recently initiated coverage on Einstein, according to the Associated Press. He said in a research note, which the news service received prior to general distribution, that Einstein's turnaround could lead to "near-term earnings results [that] could impress," growing by an estimated 54 percent over the next three years.

Wiltamuth also said that Einstein could benefit from its lower average check during a time when consumers are faced with higher gas prices, a slumping housing market and other pressures on discretionary spending, the AP reported.

"While we believe all restaurant operators are feeling some pressure from the macroenvironment, we believe Einstein's low average check [of] under $7, new menu additions, remodeling, extended hours and other initiatives should help the company keep ... momentum," Wiltamuth said in his report.

COPYRIGHT 2007 Reproduced with permission of the copyright holder. Further reproduction or distribution is prohibited without permission.
COPYRIGHT 2008 Gale, Cengage Learning