Panera Bread Company Reported Net Income of $29 Million

Panera Bread Company (NASDAQ: PNRA) reported net income of $29 million, or $0.97 per diluted share, for the fiscal third quarter ended September 27, 2011. The third quarter of fiscal 2011 results compare to net income of $23 million, or $0.75 per diluted share, for the fiscal third quarter ended September 28, 2010, and represent a 29% year-over-year increase in diluted earnings per share.

For the thirty-nine weeks ended September 27, 2011, net income was $97 million, or $3.24 per diluted share. These results compare to net income of $75 million, or $2.42 per diluted share, for the thirty-nine weeks ended September 28, 2010, and represent a 34% year-over-year increase in diluted earnings per share.

The Company's third 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
	September 27, 2011		September 28, 2010		Percentage Change
Total Revenue	$453,087		$371,994		22	%
Net Income	$28,848		$22,797		27	%
Diluted earnings per share	$0.97		$0.75		29	%
Shares used in diluted EPS	29,829		30,534

	For the 39 Weeks Ended
	September 27, 2011		September 28, 2010		Percentage Change
Total Revenue	$1,326,267		$1,114,328		19	%
Net Income	$97,332		$75,342		29	%
Diluted earnings per share	$3.24		$2.42		34	%
Shares used in diluted EPS	30,067		31,193

Third Quarter Fiscal 2011 Results and Business Review

Comparable Net Bakery-Cafe Sales Growth

In the third quarter of fiscal 2011, Company-owned comparable net bakery-cafe sales increased 6.0%, franchise-operated comparable net bakery-cafe sales increased 3.1%, and system-wide comparable net bakery-cafe sales increased 4.4% compared to the comparable period in fiscal 2010. Two year Company-owned comparable net bakery-cafe sales increased 11.5%, two year franchise-operated comparable net bakery-cafe sales increased 11.0%, and two year system-wide comparable net bakery-cafe sales increased 11.3%.

The Company-owned comparable net bakery-cafe sales increase of 6.0% in the third quarter of fiscal 2011 was comprised of year-over-year transaction growth of 2.6% and average check growth of 3.4%. Average check growth was comprised of retail price increases of approximately 2.5% and positive mix impact of approximately 0.9%. A schedule of comparable net bakery-cafe sales information is attached as Schedule III.

New Unit Development and AWS

During the third quarter of fiscal 2011, the Company opened eight new bakery-cafes and its franchisees opened 17 new bakery-cafes. As a result, there were 1,504 bakery-cafes open system-wide as of September 27, 2011. Additionally, during the third quarter of fiscal 2011, the Company completed the purchase of substantially all the assets and certain liabilities of five Paradise Bakery & Café ("Paradise") bakery-cafes from an Indiana franchisee and terminated, through mutual agreement, franchisee agreements for 13 franchise-operated Paradise bakery-cafes in the Denver and Portland markets. These acquisitions and de-identifications are part of a strategic effort to standardize the Paradise system.

		Company-owned		Franchise-operated			Total System
Bakery-cafes as of June 28, 2011		703		790			1,493
Bakery-cafes opened		8		17			25
Bakery-cafes closed		--		(14	)		(14	)
Bakery-cafes acquired		5		(5	)		--
Bakery-cafes as of September 27, 2011		716		788			1,504

Average weekly sales ("AWS") for Company-owned new units year-to-date through the third quarter of fiscal 2011 was $41,470 compared to $40,950 in the same period of fiscal 2010. AWS for franchise-operated new units year-to-date through the third quarter of fiscal 2011 was $41,864 compared to $37,719 in the same period of fiscal 2010. A schedule of the third quarter and year-to-date fiscal 2011 AWS is attached as Schedule II.

Operating Margin

In the third quarter of fiscal 2011, the Company generated operating margin improvement of approximately 80 basis points compared to the third quarter of fiscal 2010. This operating margin improvement was primarily driven by year-over-year structural improvements in labor expense.

Use of Capital

During the third quarter of fiscal 2011, the Company repurchased 850,400 shares at an average share price of $103.62. The share buyback had a favorable impact of $0.01 on the Company's third quarter of fiscal 2011 earnings per diluted share. Subsequent to the end of the third quarter of fiscal 2011, the Company repurchased an additional 26,700 shares at an average share price of $101.37. The Company has approximately $357.4 million available under the existing $600 million repurchase authorization as of the date of this release.

Fourth Quarter of Fiscal 2011 Outlook

Fourth Quarter of Fiscal 2011 Targets

Diluted EPS Target

For the fourth quarter of fiscal 2011, the Company is targeting earnings per diluted share of $1.39 to $1.41 versus $1.21 per diluted share in the fourth quarter of fiscal 2010. If the Company meets this target, diluted earnings per share will grow 15% to 17% in the fourth quarter of fiscal 2011 versus the comparable period in fiscal 2010.

The fourth quarter of fiscal 2011 diluted earnings per share target includes the following key assumptions:

Comparable Net Bakery-Cafe Sales Growth

The range for the Company's fourth quarter of fiscal 2011 Company-owned comparable bakery-cafe sales growth over the comparable period in fiscal 2010 is now targeted at 5.5% to 6.5% versus the previously announced range of 4.5% to 5.5%. This revised fourth quarter target assumes flat transaction growth and average check growth of approximately 5.5% to 6.5%, consisting of a year-over-year price increase of approximately 3.5% and mix impact on check growth of 2.0% to 3.0%. Company-owned comparable bakery-cafe sales growth for the first twenty-seven days of the fourth quarter of fiscal 2011 was 6.7%.

Operating Margin Target

In the fourth quarter of fiscal 2011, the Company anticipates 50 to 100 basis points of degradation 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. The 50 to 100 basis points of operating margin deleverage would be greater than previously expected because the Company has accelerated certain investments in its infrastructure.

Updated Full Year Fiscal 2011 Outlook

Diluted EPS Target

The Company is now targeting its fiscal 2011 targeted earnings per diluted share to $4.63 to $4.65. If the Company meets its target, it would generate diluted earnings per share growth of 28% in fiscal 2011. This increased earnings per diluted share target is primarily based on the anticipated financial leverage resulting from shares repurchased during the third and fourth fiscal quarters.

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 approximately 4.5% to 5.0% for fiscal 2011. This target assumes transaction growth of 1.5% to 2.0% and average check growth from mix of approximately 0.5% to 1.0% on average year-over-year pricing of approximately 2.5%.

New Unit Development and AWS

The Company is raising its new unit development range above of its previously targeted range and now expects approximately 110 to 115 system-wide new unit openings in fiscal 2011. The average weekly net sales performance for new Company-owned units is now expected to be above the high end of the Company's originally targeted range of $37,000 to $39,000 for fiscal 2011.

Operating Margin Improvement

For fiscal 2011, the Company is expecting operating margin expansion within 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 earnings per diluted share at $5.38 to $5.48. If the Company meets its target, it would generate diluted earnings per share growth of the 16% to 18% versus the midpoint of the fiscal 2011 target range.

Comparable Net Bakery-Cafe Sales Growth

The Company is targeting Company-owned comparable bakery-cafe sales growth of approximately 4.0% to 5.0% for fiscal 2012. This target assumes transaction growth of 0 to 50 basis points and average check growth of approximately 4.0% to 4.5% on average year-over-year pricing of approximately 3.0%, and mix impact on check of approximately 1.0% to 1.5%.

New Unit Development and AWS

The Company's fiscal 2012 EPS target now assumes approximately 110 to 115 system-wide new unit openings. The average weekly net sales performance for new Company-owned units is targeted at $39,000 to $41,000.

Operating Margin Improvement

The Company's fiscal 2012 EPS target assumes that its fiscal 2012 operating margin will be flat to modestly improved year-over-year versus fiscal 2011.

Concluding Comment

Bill Moreton, CEO, commented, "We are very pleased with both our strong 6.0% comparable store sales growth and our 29% earnings growth in the third quarter. We have now been able to grow our earnings per share at a rate of 20% plus for 13 out of the last 14 quarters. We continue to believe that our consistent performance has been driven by the investments that we have made in the quality of our food, people and customer experience to drive competitive differentiation. We have also been able to deploy a meaningful amount of our excess cash to drive earnings growth and shareholder returns through high ROI acquisitions and share repurchases. We look forward to another strong year in 2012 with our earnings target falling within our long-term target range of 15-20% annual earnings growth."

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