Bagel maker Einstein Noah surges on profit beat

Fri May 4, 2012 10:56am EDT

(Reuters) - Shares of Einstein Noah Restaurant Group (BAGL.O) shot up as much as 25 percent on Friday, after the bagel maker posted a better-than-expected profit, and said it will look at a possible merger or sale.

The company's shares touched their highest level in 4 years, and were among the top percentage gainers on the Nasdaq.

On Thursday, the company, whose brands include Einstein Brothers, Noah's and Manhattan Bagel, posted better-than-expected profit as gross margins improved due to cost cuts and introduction of more options on its menu.

Einstein Noah runs about 447 restaurants directly while franchisees and licensees run about 330 restaurants.

For the full year, it plans to add 8 to 12 company-owned restaurants, 12 to 14 franchise restaurants, and 40 to 54 license restaurants.

"Going forward, margins should continue to move higher as the (franchise and licensee) mix of stores grows, and the enterprise benefits from recent progress with cost saving efforts," Jefferies & Co analyst Alexander Slagle wrote in a note.

Slagel said Einstein Noah is an "attractive way" to gain exposure to the fast casual dining segment in a lower-risk business model, and raised the target price on the stock to $23 from $17.

"In addition to potential upside in 2012 related to (sales) drivers ... 2013 is shaping up well, with a growing development pipeline and business that is on-track to deliver 10 percent (growth) starting as soon as 2012," Slagle wrote.

Shares of the company were up 14 percent at $16.01 on Friday morning on the Nasdaq.

(Reporting by Arpita Mukherjee in Bangalore; Editing by Sreejiraj Eluvangal)

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