Panera Bread Q2 Revenues Increase 19%

Panera Bread Company (NASDAQ: PNRA)

HIGHLIGHTS

• Q2 2011 revenue growth up 19% over Q2 2010 to $451 million
• Q2 2011 Company-owned comparable net bakery-cafe sales up 4.4%
• Two year Company-owned comparable net bakery-cafe sales up 14.0%
• Q2 YTD 2011 Company-owned new unit AWS at $43,449 over $42,755 in Q2 YTD FY 2010
• FY 2011 new unit development target increased to 100 to 105 units
• FY 2011 EPS target increased to $4.54 to $4.58 (up 25% to 26% versus FY 2010)

For the twenty-six weeks ended June 28, 2011, net income was $68 million, or $2.27 per diluted share. These results compare to net income of $53 million, or $1.67 per diluted share, for the twenty-six weeks ended June 29, 2010, and represent a 36% year-over-year increase in diluted earnings per share.

The Company's second quarter and year-to-date fiscal 2011 consolidated statements of operations and margin analyses are attached as Schedule I. The following tables set forth, for the periods indicated, certain items included in the Company's consolidated statements of operations (in thousands, except per share data and percentages):

	For the 13 Weeks Ended						Percentage
	June 28, 2011			June 29, 2010			Change
Total revenue	$	451,080		$	378,124		19	%
Net income	$	35,710		$	26,704		34	%
Diluted earnings per share	$	1.18		$	0.85		39	%
Shares used in diluted EPS		30,198			31,152

	For the 26 Weeks Ended						Percentage
	June 28, 2011			June 29, 2010			Change
Total revenue	$	873,180		$	742,334		18	%
Net income	$	68,484		$	52,549		30	%
Diluted earnings per share	$	2.27		$	1.67		36	%
Shares used in diluted EPS		30,173			31,519

Second Quarter Fiscal 2011 Results and Business Review

Comparable Net Bakery-Cafe Sales Growth

In the second quarter of fiscal 2011, Company-owned comparable net bakery-cafe sales increased 4.4%, franchise-operated comparable net bakery-cafe sales increased 3.6%, and system-wide comparable net bakery-cafe sales increased 3.9% compared to the comparable period in fiscal 2010. Two year Company-owned comparable net bakery-cafe sales increased 14.0%, two year franchise-operated comparable net bakery-cafe sales increased 13.7%, and two year system-wide comparable net bakery-cafe sales increased 13.8%.

The Company-owned comparable net bakery-cafe sales increase of 4.4% in the second quarter of fiscal 2011 was comprised of year-over-year transaction growth of 2.9% and average check growth of 1.5%. Average check growth was comprised of retail price increases of approximately 2.5% and negative mix impact of approximately (1.0)%. A schedule of comparable net bakery-cafe sales information is attached as Schedule III.

New Unit Development and AWS

During the second quarter of fiscal 2011, the Company opened 13 new bakery-cafes and its franchisees opened 15 new bakery-cafes. As a result, there were 1,493 bakery-cafes open system-wide as of June 28, 2011. Additionally, during the second quarter of fiscal 2011, the Company completed the purchase of substantially all the assets and certain liabilities of 25 bakery-cafes from its Milwaukee franchisee.

	Company-owned	Franchise-operated		Total System
Bakery-cafes as of March 29, 2011	665	802		1,467
Bakery-cafes opened	13	15		28
Bakery-cafes closed	-	(2	)	(2	)
Bakery-cafes acquired	25	(25	)	-
Bakery-cafes as of June 28, 2011	703	790		1,493

Average weekly sales ("AWS") for Company-owned new units year-to-date through the second quarter of fiscal 2011 was $43,449 compared to $42,755 in the same period of fiscal 2010. AWS for franchise-operated new units year-to-date through the second quarter of fiscal 2011 was $44,550 compared to $39,398 in the same period of fiscal 2010. A schedule of the second quarter and year-to-date fiscal 2011 AWS is attached as Schedule II.

Operating Margin

In the second quarter of fiscal 2011, the Company generated operating margin improvement of approximately 50 basis points compared to the second quarter of fiscal 2010. This operating margin improvement was primarily driven by structural improvements in labor expense and timing benefits in general & administrative expenses, a portion of which is expected to reverse later in this fiscal year.

Use of Capital

In April 2011, the Company completed the purchase of substantially all the assets and certain liabilities of 25 bakery-cafes owned by its Milwaukee franchisee. The Company's results for the second quarter of fiscal 2011 were not materially impacted by the acquisition. The Company expects the acquisition to be $0.01 to $0.02 accretive in fiscal 2011 after integration costs and $0.04 to $0.06 accretive in fiscal 2012 ($0.03 to $0.04 incremental accretion versus fiscal 2011).

Third and Fourth Quarter of Fiscal 2011 Outlook

Third and Fourth Quarter of Fiscal 2011 Targets

Diluted EPS Target

For the third quarter of fiscal 2011, the Company is targeting earnings per diluted share of $0.92 to $0.94 versus $0.75 per diluted share in the third quarter of fiscal 2010. If the Company meets this target, diluted earnings per share will grow 23% to 25% in the third quarter of fiscal 2011 versus the comparable period in fiscal 2010.

The Company's earnings per diluted share target is $1.35 to $1.37 for the fourth quarter of fiscal 2011, versus $1.21 per diluted share in the fourth quarter of fiscal 2010, which implies diluted earnings per share growth of 12% to 13%.

The third and fourth quarter of fiscal 2011 diluted earnings per share targets include the following key assumptions:

Comparable Net Bakery-Cafe Sales Growth

The range for the Company's third quarter of fiscal 2011 Company-owned comparable bakery-cafe sales growth is targeted at 4.5% to 5.5% over the comparable period in fiscal 2010. The third quarter of fiscal 2011 Company-owned target assumes transaction growth of approximately 2.0% and average check growth of approximately 3.0%, consisting of a year-over-year price increase of approximately 2.5% and mix impact on check growth of 0.0% to 1.0%. Company-owned comparable bakery-cafe sales growth for the first twenty-seven days of the third quarter of fiscal 2011 was 4.8%, 5.7% excluding the calendar week that included the July 4^th holiday in 2011, during which Company-owned comparable bakery-cafe sales growth was 1.8%.

The Company is also targeting comparable bakery-cafe sales growth of 4.5% to 5.5% for the fourth quarter of fiscal 2011. This target assumes flat transaction growth and average check growth of approximately 4.5% to 5.5%. The Company is targeting a year-over-year price increase of approximately 3.5% and mix impact on check growth of approximately 1.0% to 2.0%.

Operating Margin Improvement

In the third quarter of fiscal 2011, the Company is targeting 50 to 100 basis points of improvement in operating margin, and for the fourth quarter, a negative year-over-year decline in operating margin as inflation reaches its highest point of the year and the Company anniversaries the beginning of its structural labor and benefits improvement.

Updated Full Year Fiscal 2011 Outlook

Raising Full Year Fiscal 2011 Targets

Diluted EPS Target

The Company is raising its fiscal 2011 targeted earnings per diluted share to $4.54 to $4.58. If the Company meets its target, it would generate diluted earnings per share growth of 25% to 26% in fiscal 2011. This increased earnings per diluted share target is based on operating margin improvement at the high-end of the Company's previously targeted margin range with a revised comparable bakery-cafe sales growth target at the low end of its previously targeted range. The operating margin improvement is driven by continuing better-than-expected results from the Company's structural improvement initiatives related to labor and benefits. The moderated comparable bakery-cafe sales target is primarily the result of what the Company believes to be stronger macroeconomic headwinds than previously anticipated.

This full year fiscal 2011 diluted earnings per share target is based on the following key assumptions:

Comparable Net Bakery-Cafe Sales Growth

The Company is revising its target for Company-owned comparable bakery-cafe sales growth to the low end of its previously targeted range, approximately 4.5% for fiscal 2011. This target assumes transaction growth of 1.5% to 2.0% and average check growth of approximately 2.5% to 3.0% on average year-over-year pricing of approximately 2.5%.

New Unit Development and AWS

The Company is raising its new unit development range to the upper half of its previously targeted range and now expects approximately 100 to 105 system-wide new unit openings in fiscal 2011. The average weekly net sales performance for new Company-owned units is now expected to be at or above the high end of the Company's previously targeted range of $37,000 to $39,000 for fiscal 2011.

Operating Margin Improvement

For fiscal 2011, the Company is expecting operating margin expansion at the high-end of its previously targeted range of 0 to 50 basis points versus the prior year.

Full Year 2012 Targets

The Company is initially targeting its fiscal 2012 diluted earnings per share growth rate at the lower end of its long-term earnings growth target of 15% to 20%, based on inflationary pressures and the Company's deployment of capital to date, which as of today is less than 1% accretive to fiscal 2012 earnings growth. The Company continues to seek to use its cash at an appropriate return as it has for the last several years.

The Company's fiscal 2012 EPS target assumes Company-owned comparable bakery-cafe sales growth of 4.0% to 5.0%, very little if any year-over-year operating margin improvement, and approximately 100 to 110 system-wide new unit openings.

Concluding Comment

Bill Moreton, CEO, commented, "We are pleased to deliver 39% earnings growth in the second quarter, marking the twelfth out of the last thirteen quarters of 20% plus growth, a record we feel very proud of. We are also raising our full year 2011 EPS growth target to 25% to 26%, based on strong operating trends. Our sales in the second quarter were driven by strong transaction growth, fueled by our past and current investments in the quality of our food, operations, and customer experience. Looking forward into 2012, we believe that these investments have set us up for another strong year."

Panera Bread Company owns and franchises 1,493 bakery-cafes as of June 28, 2011 under the Panera Bread®, Saint Louis Bread Co.®, and Paradise Bakery & Café® names. Our bakery-cafes are principally located in suburban, strip mall and regional mall locations. We feature high quality, reasonably priced food in a warm, inviting, and comfortable environment. With our identity rooted in handcrafted, fresh-baked, artisan bread, we are committed to providing great tasting, quality food that people can trust. Nearly all of our bakery-cafes have a menu highlighted by antibiotic-free chicken, whole grain bread, and select organic and all-natural ingredients, with zero grams of artificial trans fat per serving, which provide flavorful, wholesome offerings. Our menu includes a wide variety of year-round favorites complemented by new items introduced seasonally with the goal of creating new standards in everyday food choices. In neighborhoods across the United States and in Ontario, Canada, our customers enjoy our warm and welcoming environment featuring comfortable gathering areas, relaxing decor, and free internet access. Our bakery-cafes routinely donate bread and baked goods to community organizations in need. 

				Schedule I
PANERA BREAD COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (In thousands, except per share amounts)
				For the 13 Weeks Ended
				June 28, 2011			June 29, 2010
Revenues:
	Bakery-cafe sales, net			$	394,525		$	322,424
	Franchise royalties and fees				23,022			21,641
	Fresh dough and other product sales to franchisees				33,533			34,059
		Total revenue			451,080			378,124
Costs and expenses:
	Bakery-cafe expenses:
		Cost of food and paper products		$	117,249		$	90,714
		Labor			118,926			103,031
		Occupancy			28,144			24,651
		Other operating expenses			54,741			43,923
			Total bakery-cafe expenses		319,060			262,319
	Fresh dough and other product cost of sales to franchisees				28,625			27,802
	Depreciation and amortization				19,707			16,915
	General and administrative expenses				25,001			24,105
	Pre-opening expenses				1,555			880
		Total costs and expenses			393,948			332,021
Operating profit					57,132			46,103
Interest expense					197			165
Other (income) expense, net					(176	)		3,010
Income before income taxes					57,111			42,928
Income taxes					21,401			16,273
		Net income			35,710			26,655
Less: net loss attributable to noncontrolling interest					-			(49	)
		Net income attributable to Panera Bread Company		$	35,710		$	26,704
Earnings per common share attributable to Panera Bread Company:
	Basic			$	1.20		$	0.86
	Diluted			$	1.18		$	0.85
Weighted average shares of common and common equivalent shares
outstanding:
	Basic				29,867			31,195
	Diluted				30,198			31,512

Schedule I (continued)
PANERA BREAD COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (In thousands, except per share amounts)
				For the 26 Weeks Ended
				June 28, 2011			June 29, 2010
Revenues:
	Bakery-cafe sales, net			$	760,104		$	634,924
	Franchise royalties and fees				45,604			42,504
	Fresh dough and other product sales to franchisees				67,472			64,906
		Total revenue			873,180			742,334
Costs and expenses:
	Bakery-cafe expenses:
		Cost of food and paper products		$	223,458		$	181,025
		Labor			232,976			203,713
		Occupancy			54,917			49,041
		Other operating expenses			102,068			83,458
			Total bakery-cafe expenses		613,419			517,237
	Fresh dough and other product cost of sales to franchisees				56,649			52,637
	Depreciation and amortization				38,801			33,924
	General and administrative expenses				51,672			49,117
	Pre-opening expenses				2,533			1,156
		Total costs and expenses			763,074			654,071
Operating profit					110,106			88,263
Interest expense					422			333
Other (income) expense, net					(980	)		3,316
Income before income taxes					110,664			84,614
Income taxes					42,180			32,114
		Net income			68,484			52,500
Less: net loss attributable to noncontrolling interest					-			(49	)
		Net income attributable to Panera Bread Company		$	68,484		$	52,549
Earnings per common share attributable to Panera Bread Company:
	Basic			$	2.29		$	1.69
	Diluted			$	2.27		$	1.67
Weighted average shares of common and common equivalent shares outstanding:
	Basic				29,848			31,183
	Diluted				30,173			31,519

 

Schedule I (continued)
PANERA BREAD COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS MARGIN ANALYSIS (unaudited)
The following table sets forth the percentage relationship to total revenues, except where otherwise indicated, of certain items included in the Company's consolidated statements of operations for the period indicated. Percentages may not add due to rounding:
				For the 13 Weeks Ended
				June 28, 2011		June 29, 2010
Revenues:
	Bakery-cafe sales, net			87.5	%	85.3	%
	Franchise royalties and fees			5.1		5.7
	Fresh dough and other product sales to franchisees			7.4		9.0
		Total revenue		100.0	%	100.0	%
Costs and expenses:
	Bakery-cafe expenses (1):
		Cost of food and paper products		29.7	%	28.1	%
		Labor		30.1		32.0
		Occupancy		7.1		7.6
		Other operating expenses		13.9		13.6
			Total bakery-cafe expenses	80.9		81.4
	Fresh dough and other product cost of sales to franchisees (2)			85.4		81.6
	Depreciation and amortization			4.4		4.5
	General and administrative expenses			5.5		6.4
	Pre-opening expenses			0.3		0.2
		Total costs and expenses		87.3		87.8
Operating profit				12.7		12.2
Interest expense				-		-
Other (income) expense, net				-		0.8
Income before income taxes				12.7		11.4
Income taxes				4.8		4.3
	Net income			7.9		7.0
Less: net loss attributable to noncontrolling interest				-		-
	Net income attributable to Panera Bread Company			7.9	%	7.1	%

(1) As a percentage of Company net bakery-cafe sales.

(2) As a percentage of fresh dough and other product sales to franchisees.

Schedule I (continued)
PANERA BREAD COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS MARGIN ANALYSIS (unaudited)
The following table sets forth the percentage relationship to total revenues, except where otherwise indicated, of certain items included in the Company's consolidated statements of operations for the period indicated. Percentages may not add due to rounding:
				For the 26 Weeks Ended
				June 28, 2011		June 29, 2010
Revenues:
	Bakery-cafe sales, net			87.1	%	85.5	%
	Franchise royalties and fees			5.2		5.7
	Fresh dough and other product sales to franchisees			7.7		8.7
		Total revenue		100.0	%	100.0	%
Costs and expenses:
	Bakery-cafe expenses (1):
		Cost of food and paper products		29.4	%	28.5	%
		Labor		30.7		32.1
		Occupancy		7.2		7.7
		Other operating expenses		13.4		13.1
			Total bakery-cafe expenses	80.7		81.5
	Fresh dough and other product cost of sales to franchisees (2)			84.0		81.1
	Depreciation and amortization			4.4		4.6
	General and administrative expenses			5.9		6.6
	Pre-opening expenses			0.3		0.2
		Total costs and expenses		87.4		88.1
Operating profit				12.6		11.9
Interest expense				-		-
Other (income) expense, net				(0.1)		0.4
Income before income taxes				12.7		11.4
Income taxes				4.8		4.3
	Net income			7.8		7.1
Less: net loss attributable to noncontrolling interest				-		-
	Net income attributable to Panera Bread Company			7.8	%	7.1	%

(1) As a percentage of Company net bakery-cafe sales.

(2) As a percentage of fresh dough and other product sales to franchisees.

PANERA BREAD COMPANY
Schedule II - Supplemental Sales and Bakery-Cafe Information
System-Wide AWS
	2011 [a]	2010	2009	2008	2007	2006
AWS	$43,687	$42,852	$39,926	$39,239	$38,668	$39,150

[a] Represents year-to-date System-Wide AWS at the end of the fiscal second quarter of 2011

		2011 Franchise-Operated AWS By Year Opened												Year-Over-Year Change in Company-Owned AWS
		2011 Opens [b]		2010 Opens [b]		2009 Opens & Prior		2011 Acquisitions		2010 Acquisitions		Total		2010 Opens [c]		2009 Opens & Prior		AWS Total
Bakery-Cafes		21		42		575		25		40		703
Q1 11		$49,551		$39,075		$42,497		-		$46,244		$42,532		-30.4%		3.7%		3.6%
Q2 11		$42,184		$39,255		$44,021		$45,493		$50,516		$44,118		-0.7%		4.8%		5.2%
2011 YTD		$43,449		$39,165		$43,258		$45,493		$48,380		$43,340		-8.4%		4.2%		4.5%

[b] 2011 and 2010 Company-owned AWS excludes 2011 and 2010 acquisition data.

[c] Change in Company-owned AWS in 2011 from 2010 compares 42 bakery-cafes in 2011 against 11 bakery-cafes at the end of the fiscal second quarter of 2010.

		2011 Franchise-Operated AWS By Year Opened												Year-Over-Year Change in Franchise-Operated AWS
		2011 Opens [d]		2010 Opens [d]		2009 Opens & Prior		2011 Acquisitions [f]		2010 Acquisitions		Total		2010 Opens [e]		2009 Opens & Prior		AWS Total
Bakery-Cafes		26		33		726		2		3		790
Q1 11		$45,532		$38,246		$43,862		$20,157		$35,525		$43,568		-13.5%		2.9%		2.2%
Q2 11		$44,313		$38,305		$44,783		$18,768		$35,813		$44,398		-0.1%		2.5%		1.8%
2011 YTD		$44,550		$38,275		$44,317		$19,254		$35,669		$43,982		-2.9%		2.7%		2.0%

[d] 2011 and 2010 Franchise-operated AWS excludes 2011 and 2010 acquisition data.

[e] Change in Franchise-operated AWS in 2011 from 2010 compares 33 bakery-cafes in 2011 against 10 bakery-cafes at the end of the fiscal second quarter of 2010.

[f] Represents two Paradise bakery-cafes.

	Bakery-Cafe Openings (excluding acquisitions)
	Company	Franchise	Total		Company	Franchise	Total
Q1 11	8	11	19	Q1 10	3	5	8
Q2 11	13	15	28	Q2 10	8	5	13
Q3 11				Q3 10	10	12	22
Q4 11				Q4 10	21	12	33
2011 YTD	21	26	47	2010 YTD	42	34	76

AWS - average weekly net sales for the time periods indicated.

PANERA BREAD COMPANY
Schedule III – Comparable Net Bakery-Cafe Sales Information
	For the 4 weeks ended April 26, 2011		For the 5 weeks ended May 31, 2011		For the 4 weeks ended June 28, 2011		For the 13 weeks ended June 28, 2011		For the 26 weeks ended June 28, 2011
Company-owned	4.7%		4.8%		3.5%		4.4%		3.8%
Franchise-operated	4.7%		3.7%		2.3%		3.6%		3.5%
System-wide	4.7%		4.2%		2.8%		3.9%		3.7%

Company-owned comparable net bakery-cafe sales percentages are based on net sales from Company-owned bakery-cafes included in our base store bakery-cafes. Franchise-operated comparable net bakery-cafe sales percentages are based on net sales from franchised bakery-cafes, as reported by franchisees, that are included in our base store bakery-cafes. Acquired Company-owned and franchise-operated bakery-cafes and other restaurant or bakery-cafe concepts are included in our comparable net bakery-cafe sales percentages after we have acquired a 100 percent ownership interest and such acquisition date occurred prior to the first day of our prior fiscal year. Comparable net bakery-cafe sales exclude closed locations.

Logos, product and company names mentioned are the property of their respective owners.

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