This summary is based on the fourth quarter fiscal 2007 earnings call conducted by Panera Bread Co. (PNRA) on February 13, 2008.
Management:
-
Chairman of the Board & Chief Executive Officer: Ronald M. Shaich
-
Chief Financial Officer & Senior Vice President: Jeffrey W. Kip
Key Investors Issues
- Net income was down 6% to $17.8 million or 56 cents a share.
- Revenue was up 29% to $328 million from $233 million in 2006.
- The company repurchased $27.1 million of shares at a weighted average price of $36.02 by December 25, 2007.
Full Year Highlights:
- Net income decreased marginally to $57 million or $1.79 a share.
- Revenues increased 28.7% to $1.1 billion on strong Bakery café sales.
- The firm opened 169 Bakery Cafés, 89 were company-owned and 80 of which were franchise operated.
Fourth Quarter Highlights
Net income was $17.8 million or 56 cents a share from $18.9 million or 59 cents a share in 2006, with $18.9 million net of two non-recurring charges.
- The two non-recurring were about a 1.5 cents per diluted share impact from the write off of Crispani inventory related to purchasing commitments in place when the definite decision was made to shut that product down.
- An additional 2 cents a share was incurred for a write down of cash held in the Columbia Strategic Cash Portfolio.
- Total revenue increased 29% to $328 million versus $232.9 million dollars in the comparable period of 2006 as net bakery-cafe sales increased 36% to $255.9 million primarily from sales from new units, acquisitions, and increases in comparable bakery-cafe sales.
Franchise royalties and fees increased 6% to $17.6 million driven by new franchise operated bakery-cafes opened, partially tempered by the impact of the acquisition of franchise operated bakery-cafes by the company.
- Fresh dough sales to franchisees remained fairly flat at $27.3 million compared to $27.5 million in 2006.
- Those sales to franchisees have not grown on pace with franchisee operated sales because of a shift in bakery-cafe menu mix away from bread and bagels self manufactured in the fresh dough facilities.
- As a result of the differential growth rates, the firm continues to experience a shift in total revenue mix as bakery-cafe sales as a percent of total revenues increased to 85.1% compared to 81.1% in 2006.
- The shift in the mix of revenues has also resulted in the increased number of new company-owned bakery-cafes as a percentage of all new bakery-cafes opened, and the franchise operated bakery-cafes to companies acquired in the last four quarters.
Restaurant margins in total were lower by 260 basis points as cost of food and paper products price increased by 100 basis points year-over-year.
- The margin average was a result of high ingredient cost pressures versus the prior year including wheat and coupled with lower sales of items self manufactured in the fresh dough facilities.
- Labor as a percent of restaurant sales rose 120 basis points with half of this increase as a result of the year-over-year addition of the expeditor position at lunch to drive ease of use for customers.
- The other half is driven by normal wage increases outpacing existing price increases as well as inefficiencies experienced with the 50% increase in new openings and company owned bakery-cafes.
- Occupancy costs increased 50 basis points versus the prior year to 7.8% of restaurant sales based upon a higher average per square foot cost in immature stores, outpacing the growth in sales.
Fresh dough cost of sales to franchisees as a percent of fresh dough sales to franchisees increased 160 basis points over the prior year as a result of higher input and distribution costs.
- General and administrative expense as a percent of total revenues improved 70 basis points given leverage from sales growth and a minimal bonus payout as compared to the prior year given company performance versus its plan.
- In addition, there were 25% basis points of Crispani write off included in G&A while pre-opening expenses remained consistent at 1.2% and 1% of total revenue respectively.
- At year end, prior to the completion of the share repurchase program, the firm had $72.2 million in cash, $23.2 million of investments in the Columbia Strategic Cash Portfolio, and a net asset value of $0.96 on the dollar, and $75 million of debt.
In late November 2007, the firm became concerned about the Columbia Portfolio when it had $26.5 million in the fund, but was denied the opportunity to remove the funds.
- Shortly thereafter, Bank of American and Columbia announced that the fund was frozen and since then, has received $8.2 million or 9.87 cents a dollar in distributions from that fund.
- As at mid February, the firm had $18.2 million in the Columbia Strategic Cash Portfolio and $25 million in the traditional money market fund.
- The firm valued its investment in the Columbia Strategic Cash Portfolio at December 25, 2007 at 96 cents on the dollar, based on direct market quotes, valuations from Interactive Data Corporation andcurrent rating agency.
- The firm announced that the board had approved a $75 million share repurchase program and the firm entered into a price cap accelerated share repurchase program to repurchase up to that amount.
- The company repurchased $27.1 million of shares at a weighted average price of $36.02 by December 25, 2007 and completed the entire repurchase by January 15, 2008 at an average price of $34.62 per share.
Comparable bakery-cafe sales increased 2.6% at company-owned locations with 1.8% due to price.
- Comparables increased 1.2% at franchised operated locations and 1.7% overall system wide as the firm shows solid transaction growth while getting material price increase into stores.
- A total of 64 bakery-cafes were opened, 39 of which were company-owned and 25 of which were franchised operated, and 2 bakery-cafes which were both franchised operated were closed.
- Average weekly sales for the units opened were $35,092 system wide as the total system wide average weekly sales were $39,914.
Strategic Initiatives:
- The firm fully expects to materially improve margins over the next two years through a number of tactics.
- First, Crispani is being removed from the Panera system due to its continued loss making.
- Secondly, the firm expects the category management function to continue to help move the needle on margins.
- It has also focused on using the menu to change customer behavior and to drive sales of the highest profited items.
- The firm has seen transaction fall off in just a few regions of the country, including Arizona, Southern California, Florida and Michigan, but this transaction degradation in has been offset by greater strength in other existing and new markets.
