This summary is based on the first quarter fiscal 2008 earnings call conducted by Panera Bread Co. (PNRA) on April 30, 2008.
Management:
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Chairman of the Board & Chief Executive Officer: Ronald M. Shaich
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Chief Financial Officer & Senior Vice President: Jeffrey W. Kip
Key Investors Issues
- Revenues were up 27% to $305 million from $240 million in 2007.
- Earnings fell 17% to $12.4 million or 41 cents a share.
- The firm reaffirmed its full year EPS guidance at $2.00 to $2.11.
First Quarter Highlights
Revenues increased 27% to $304.9 million from $239.7 million in the prior year as comparable Bakery Café sales increased 3.3% and retail price was up 3%.
- Net bakery café sales increased 32% to $260.4 million from $197.1 million in 2007 driven primarily by sales from units opened in the last four quarters, by acquisitions in the same period and increases in comparable bakery café sales.
- Franchise royalties and fees increased 7% to $17.4 million from $16.3 million in the same quarter in the prior year driven by new franchise operated bakery cafés opened partially tempered by the impact of the acquisition of franchise operated bakery cafés.
- Fresh dough sales to franchisees grew 3% to $27.1 million from $26.3 million in 2007 after two quarters of year-over-year decline.
As a result of these differential growth rates the firm continues to experience a shift in total revenue mix as bakery café sales as a percent of total revenues increased to 85.4% compared to 82.2% in 2007.
- Average weekly sales for company owned units opened in fiscal 2008 were $39,083 above the full year target of $36,000 to $38,000.
- The firm opened 27 Bakery Cafés, 14 of which were company owned, 13 of which were franchise operated.
Net income was $12.4 million or 41 cents a share, down 17% from $15 million or 47 cents a share in the prior year, including a $2.7 million charge for previously capitalized development and lease expenses.
- Restaurant margins overall were lower by 190 basis points as the cost of food and paper products increased by $110 basis points year-over-year to 30.5% of restaurant sales.
- The firm was able to offset another 100 basis points or so from unfavorability from other cost increases by taking price and successfully impacting mix through category management initiatives.
Labor as a percentage of restaurant sales rose 80 basis points year-over-year to 32.5%.
- Occupancy costs increased 33 basis points versus the prior year to 8.2% of restaurant sales.
- Fresh dough costs to sales to franchisees as a percent of fresh dough sales to franchisees leaped 890 basis points over the prior year, representing the margin impact of wheat and increases in diesel gasoline costs.
Depreciation costs in the current and prior year remain fairly consistent at 5.3% and 5.6% of total revenue respectively.
- The positive leverage on this line is driven by sales increases catching up with investments such as the two new fresh dough facilities built in late 2006 and early 2007 and the series of FDF expansions undertook in 2006.
- Pre-opening expenses in both 2008 and 2007 remain fairly consistent at .4% and .5% of total revenues respectively as the firm opened the same number of company owned new units in the same quarter as in the same period of the prior year.
- Interest expense increased to $1 million of expense or three tenths of a percent of total revenue as a result of the increased interest on the credit facility.
- The company generated $27.6 million of cash from operations and employee stock option exercises and had capital expenditures of $19.4 million and repaid $15 million of the credit facility.
The firm had $19.7 million in cash, $14.9 million of investments in the Columbia Strategic cash portfolio and a net asset value of $0.93 on the dollar and $60 million of debt.
- To date, the Panera has received redemption of more than 40% of the funds in the Bank of America Fund at nearly 99 cents on the dollar.
- The firm completed the previously announced $75 million share repurchase program, after taking in $48 million worth of shares for a cumulative total of 2.2 million shares or $75 million at an average price of $34.62 per share.
Strategic Initiatives:
- The team has been intensely focused on changing customer behavior and driving gross profit per transaction for the effective execution of a high low pricing strategy and a redefined menu structure.
- In November, 2007, the firm took an approximately 2.5% increase and reorganized the products on the menu panels.
- The focus of the price increase was on higher priced specialty products and the focus of the remenuing was to bring greater prominence to the higher gross profit items.
The firm implemented another retail price increase of 2.7% in late March, 2008 in company stores, and this adjustment focused on raising prices on a number of entry level items.
- Post roll out there has been no noticeable transaction fall off as a result of the late March price increase, ascompany comps were up 7.3% for the first 34 days of the second quarter.
- Panera expects to implement a price increase on the bagels in mid June, representing an additional lift of .4%.
- The firm is also testing the removal of chips to allow it to further improve margins without value degradation for the 50% of the people who are not eating the free chips side choice on offer.
Transaction degradationin markets like Southern California, Arizona, Las Vegas, Florida and Detroit, are being more than offset by transaction growth in other markets.
