Panera Bread Company (PNRA)
Q4 2008 Earnings Call Transcript
February 12, 2009 10:00 a.m. ET

Executives

Michele Harrison – Vice President of Investor Relations and Corporate Development
Ronald M. Shaich – Chairman & Chief Executive Officer
Jeffrey W. Kip – Senior Vice President & Chief Financial Officer

Analysts

Steven Rees – JPMorgan
Sharon Zackfia – William Blair & Company, LLC
John Glass – Morgan Stanley
Robert Derrington – Morgan, Keegan & Company, Inc.
David Tarantino – Robert W. Baird & Co., Inc.
Joseph Buckley – Banc of America/Merrill Lynch
Jeffrey Farmer – Jefferies & Co.
Jeffrey Bernstein – Barclays Capital
Bill Zwolenik

Presentation

Operator

Good day everyone. Welcome to today’s Panera Bread Company 2008 fourth quarter and fiscal 2008 earnings call. Today’s call is being recorded. At this time, I would like to turn the call over to the Vice President of Investor Relations and Corporate Development, Michele Harrison. Please go ahead.

Michele Harrison

Thank you Evelyn. Good morning to everyone and welcome to Panera Bread’s fourth quarter earnings call. I’m Michele Harrison, Panera Bread’s Vice President of Investor Relations and Corporate Development. Here with me this morning are Ron Shaich, our Chairman and CEO and Jeff Kip, our Senior Vice President and Chief Financial Officer.

First, let me cover a few regulatory matters. I’d like to note that during our prepared remarks and in our responses to your questions certain items may be discussed which are not based on historical facts.

Any such items including targeted 2009 results or conditions and details relating to 2009 performance should be considered as forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially.

I would now like to ask Jeff to review Q4 and full-year 2008 with you. Ron will then provide some colored commentary on our strategic plans to move forward. Jeff will then provide you with our targets for Q1 and full-year 2009 and lastly Ron will close with a few comments. Jeff.

Jeffrey W. Kip

Thanks Michele. Yesterday afternoon we released earnings for the fourth quarter and the full-year 2008. We’re pleased to deliver diluted earnings per share of $0.84 in a difficult environment, net of about $0.03 in charges. These charges were associated with first a write-off related to our Columbia Strategic Cash Fund investment with Bank of America, secondly, the write-off of assets associated with the roll out of our new coffee program, and finally, an increase in reserves associated with legal settlements.

The fourth quarter diluted EPS of $0.84 and the full-year EPS of $2.22 represent year-over-year growth of 50% for the quarter and 24% for the full year. Exclusive of the charges for the quarter, the quarter would have grown 55%. Fourth quarter operating profit grew by 35% to $41.7 million and operating margin expanded 130 basis points from 10.3% to 11.6%. For the full year operating profit grew 26% versus the prior year to $112.7 million and operating margin improved 30 basis points from 8.4% to 8.7%.

Let’s now walk through some of the details of our results starting with revenues. Our fourth quarter revenue increased 19% to $358 million versus $301 million in the comparable period for 2007. Let’s now look at the components of revenue growth. Net bakery café sales were up 18% or to $303 million in the fourth quarter and comprised about 85% of total revenues. Net bakery café sales for the full year 2008 grew 23.6% versus 2007 to $1.1 billion. The increase was driven by comp store sales growth and bakery cafes opened in the trailing 12 months and the impact of the 53rd week. The impact to the extra week was 6.8% of sales growth for the fourth quarter and about 2% of sales growth for the full year.

In terms of new units, we opened 32 new bakery cafes during the fourth quarter, eight of which were company owned stores and 24 of which were franchise operated including our first two stores in Canada. Fourth quarter AWS for new units opened in 2008 grew 6% versus the prior year to $36,943. For the full year, new unit average weekly sales finished at $36,694 and in line with our target of $36,000 to $38,000 for the year.

Let’s move on to comparable bakery café sales growth. First, company owned comp store sales growth for Q4 2008 which was 14 weeks versus the fourth quarter of 2007 which was 13 weeks was up 9.8% on this fiscal basis, 7.9% came from the extra week. On an apples-to-apples basis, comp sales for the 14 weeks of the fourth quarter 2008 versus the corresponding 14 weeks of 2007 and that’s the 13 weeks of the fourth quarter 2007 plus the first week of the first quarter of fiscal 2008, grew 1.9%. This is the most stable underlying comp sales growth number.

The components of the fourth quarter company comps of 1.9% included about 6.1% of price, approximately 100 basis points of negative mix impact and negative transaction growth of negative 3.2%. Let me note that we estimate the impact from severe weather in December on the fourth quarter transactions and comp growth to be approximately 80 basis points negative. This is based on looking specifically at the sales fall off versus run rate of specific days and geographies where there was actual severe weather.