Dude, Where's My Carb?

Pizza and bread companies discover that there's life after Atkins

The Atkins diet hit few companies harder than Panera Bread Co. (PNRA ) With Americans swearing off bread while going whole hog for Atkins and other low-carb regimens, same-store sales at the sandwich chain were flat or down in six of the 12 months through mid-June. And Panera's stock price tumbled by nearly a third, bottoming at $32.50 on July 14.

But folks may be ready to load up on carbs once again. Recent surveys suggest that the low-carb craze could be cooling as dieters grow tired of skipping doughnuts, pasta, pizza, and other high-carb favorites. Panera, in Richmond Heights, Mo., expects 2% to 3% year-on-year monthly sales gains through the second half of the year. "Atkins is material and real," says Chairman and Chief Executive Ronald M. Shaich, "but it is not the end-all and be-all."

Investors seem to be noticing. The shares of Panera Bread, Krispy Kreme Doughnuts (KKD ), pizza chain Papa John's International (PZZA ), and pasta restaurant operator Buca (BUCA ) have all turned up smartly since mid-July, bucking the overall market's decline.

Although Dr. Robert C. Atkins started pitching his weight-loss program 30 years ago, it didn't become a phenomenon until last year. All at once, restaurants that make dough by selling it found themselves shunned. Minneapolis' Buca, which runs 105 Buca di Beppo eateries, saw same-store sales drop 7% last year, leading to a $12.3 million loss. Buca's share price, which traded at more than $7 early last fall, reached a 52-week low of $4.42 on July 15 before starting to rebound.

Restaurants have helped themselves by adjusting their menus. Buca began dishing out smaller portions instead of just its trademark heaped plates of pasta. Panera is offering six low-carb breads.

Now, ever eager for new ideas to sell stocks to investors, Wall Street has glommed on to hints that enthusiasm for low-carb diets may be waning a bit. Food-industry analysts at Morgan Stanley (MWD ) polled 2,500 adults in June and found that 10% were on low-carb diets, vs. 12% in January. The poll has a plus or minus 1.2 percentage-point margin of error. Morgan Stanley analysts say they expect the decline to continue for the rest of the year.

The Street may be onto something. NPD Group, an independent market researcher, has also tracked the falloff. It believes low-carb diets peaked in January. "Americans will always try new things," says NPD Vice-President Harry Balzer. "But these new things become part of our lives only if they make things easier or cheaper. Atkins doesn't do either." So, please, pass the bread.

By Michael Arndt in Chicago

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