Panera Bread Company (PNRA)
Q3 2010 Earnings Call Transcript
October 27, 2010 8:30 p.m. ET

Executives

Michele Harrison – Vice President, Investor Relations
William W. Moreton – President and Chief Executive Officer
Jeffrey W. Kip – Senior Vice President and Chief Financial Officer

Analysts

David Tarantino – Robert W. Baird & Co.
John Glass – Morgan Stanley
Sharon Zackfia – William Blair & Company
Jeffrey Bernstein – Barclays Capital
Matthew DiFrisco – Oppenheimer & Co.
Stephen Anderson – Miller Tabak
Jason West – Deutsche Bank
Mitchell Speiser – Buckingham Research
Steven West – Stifel Nicolaus
Robert Derrington – Morgan Keegan & Company
Bryan Elliott – Raymond James
Joseph Buckley – Bank of America/Merrill Lynch
Jake Bartlett – Susquehanna International Group

Presentation

Operator

Good day, everyone and welcome to the Panera Bread Company 2010 Third Quarter Earnings Call. Today''s call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Michele Harrison. Please go ahead.

Michele Harrison

Thank you very much. Good morning to everyone and welcome to Panera Bread''s third quarter earnings call. I''m Michele Harrison, Panera''s Vice President of Investor Relations and Corporate Development. Here with me this morning are Bill Moreton, our CEO and President and Jeff Kip, our Senior Vice President and Chief Financial Officer.

Before we start, let me call off on a few regulatory matters. I''d like to note that during our opening remarks and in responses to your questions, certain items may be discussed which are not based on historical facts. Any such item including targeted 2010 and 2011 results or conditions and details regarding 2010 and 2011 performance should be considered forward-looking statements within the meaning of the Private Security Litigation Reform Act of 1995. All such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially.

With that, I''d like to turn it over to Bill who will lead us in the call.

William W. Moreton

Good morning. Yesterday afternoon, we released earnings for the third quarter of 2010. We''re pleased to deliver another strong quarter with earnings of $0.75 per diluted share for an increase of 23% versus the prior year.

Our strong results this quarter are the by product of our core initiatives and investments we''ve made over the past 12 to 18 months. By continuing to invest in our concept and the quality of our customer''s experience, we''ve been able to drive real sustainable points of competitive differentiation which in turn drives bakery-cafe profit growth.

In the third quarter, system wide one-year comp store sales growth was 6.9% and two-year comp store sales growth was 9.6%, which we believe is at the very highest end of our industry and which has accelerated to 11.9% on a two-year basis through the first 27 days of October.

Through our operating and category management disciplines, we''ve been able to achieve operating leverage and we delivered 23% EPS growth in the quarter and revenue growth of 11% even while making significant investments in our loyalty program rollout and other initiatives that will pay dividends in 2011 and beyond.

We have also been able to deploy our capital both to drive operating growth to a high ROI new bakery-cafe development as well as through an opportunistic high return acquisition and a disciplined share buyback program, all of which will result in continuing earnings accretion going forward.

This year, our company opened new bakery-cafe performance has continued it''s strength through the last three years with year-to-date average weekly sales of $40,950 versus $37,068 in 2009. Our system wide new bakery-cafe AWS is the highest it has been in our history as of the end of the third quarter.

Further, we just completed an acquisition of 37 franchise operated bakery-cafes on the first day of the fourth quarter. The market we acquired was the New Jersey market, which not only has a trailing 12-month average weekly sales volume of $50,211, which is among the highest in our system, but it also has significant development opportunities remaining. The acquisition is within our traditional multiple range of five to six times EBITDA excluding royalties and will be $0.06 to $0.08 per share accretive in 2011.