Panera Bread Company Reports Q2 2014 Diluted EPS of $1.82

2014-07-30
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  • Panera Bread Q2 2014 Revenue increased 7% to $631 million - Q2 2014 Company-owned comparable net bakery-cafe transactions up 0.4%

    Panera Bread Company (NASDAQ: PNRA)

    HIGHLIGHTS

    • Q2 2014 Revenue increased 7% to $631 million
    • Q2 2014 Company-owned comparable net bakery-cafe transactions up 0.4%
    • Q2 2014 Company-owned comparable net bakery-cafe sales up 0.1%
    • Q3 2014 (first 27 days) Company-owned comparable net bakery-cafe sales up 2.0%
    • YTD 2014 System-wide new bakery-cafe AWS of $50,738
    • Q3 2014 EPS target of $1.40 to $1.46
    • FY 2014 EPS target revised to $6.65 to $6.80

    Panera Bread Company (NASDAQ: PNRA) reported net income of $49 million, or $1.82 per diluted share, for fiscal Q2 2014, which included a $3.2 million, or $0.08 per diluted share, benefit from a favorable resolution of an insurance coverage matter. The fiscal Q2 2014 results compare to net income of $51 million, or $1.74 per diluted share, for fiscal Q2 2013.

    For the twenty-six weeks ended July 1, 2014, net income was $92 million, or $3.36 per diluted share. These results compare to net income of $99 million, or $3.38 per diluted share, for the twenty-six weeks ended June 25, 2013.

    The Company's fiscal Q2 2014 consolidated statements of comprehensive income and margin analyses are attached to this release as Schedule I. The following table sets forth, for the periods indicated, certain items included in the Company's consolidated statements of comprehensive income (in thousands, except per share data and percentages):

               
        For the 13 Weeks Ended      
        July 1, 2014   June 25, 2013   Percentage Change  
                   
    Total revenue   $631,055   $589,011   7 %
    Net income   $49,192   $51,042   -4 %
    Diluted earnings per share   $1.82   $1.74   5 %
    Shares used in diluted EPS   27,086   29,287      
                   
                   
                   
        For the 26 Weeks Ended      
        July 1, 2014   June 25, 2013   Percentage Change  
                   
    Total revenue   $1,236,808   $1,150,790   7 %
    Net income   $91,587   $99,159   -8 %
    Diluted earnings per share   $3.36   $3.38   -1 %
    Shares used in diluted EPS   27,247   29,308      
                   
                   

    Fiscal Q2 2014 Results and Business Review

    Comparable Net Bakery-Cafe Sales Growth

    In fiscal Q2 2014, on a calendar basis, Company-owned comparable net bakery-cafe sales increased 0.1%, franchise-operated comparable net bakery-cafe sales decreased 0.2%, and system-wide comparable net bakery-cafe sales were flat compared to the comparable period in fiscal 2013. The Company estimates that fiscal Q2 2014 Company-owned comparable net bakery-cafe sales results were negatively impacted by approximately 40 basis points from the shift of the Easter holiday from calendar Q1 2013 to calendar Q2 2014. Adjusting for this shift in Easter, Company-owned comparable net bakery-cafe sales for fiscal Q2 2014 are estimated to have been up 0.5%.

    The Company-owned comparable net bakery-cafe sales increase of 0.1% on a calendar basis in fiscal Q2 2014 was comprised of year-over-year positive transaction growth of 0.4% and average check decline of 0.3%. This represents the first quarter of positive transaction growth for Company-owned bakery-cafes since fiscal Q3 2012. After adjusting for the Easter holiday shift, fiscal Q2 2014 transactions were up approximately 0.8%. Average check decline was comprised of negative mix impact of approximately 0.9%, partially offset by price growth of approximately 0.6%. 

    For the first 27 days of fiscal Q3 2014, Company-owned comparable net bakery-cafe sales growth on a calendar basis was approximately 2.0%.

    The Company believes that the calendar basis comparison better reflects the performance of the business as it eliminates the impact of the extra week in fiscal 2013 and compares consistent calendar weeks. Note that on a fiscal basis, Company-owned comparable net bakery-cafe sales for fiscal Q2 2014 also increased 0.1%. A schedule of comparable net bakery-cafe sales information is attached to this release as Schedule III.

    Operating Margin

    In fiscal Q2 2014, the Company experienced a decline in operating margin of approximately 250 basis points compared to fiscal Q2 2013. This decline was primarily the result of continued investments related to key initiatives designed to improve the Company's guest experience, operational capabilities and technology infrastructure, as well as higher food and marketing expenses.

    New Bakery-Cafe Development and AWS

    During fiscal Q2 2014, the Company opened 10 new bakery-cafes and its franchisees opened nine new bakery-cafes. As a result, there were 1,818 bakery-cafes open system-wide as of July 1, 2014. 

                     
        Company-owned   Franchise-operated     Total System  
    Bakery-cafes as of April 1, 2014   881   919     1,800  
    Bakery-cafes opened   10   9     19  
    Bakery-cafes closed   --   (1 )   (1 )
    Bakery-cafes as of July 1, 2014   891   927     1,818  
                     
                     

    Average weekly sales ("AWS") for Company-owned "Class of 2014" bakery-cafes through fiscal Q2 2014 was $48,300 compared to $50,983 in the same period of fiscal 2013. AWS for franchise-operated "Class of 2014" bakery-cafes through fiscal Q2 2014 was $53,882 compared to $49,855 in the same period of fiscal 2013. AWS for Company-owned "Class of 2014" traditional bakery-cafes through fiscal Q2 2014 was $50,038 compared to $51,630 in the same period of fiscal 2013. AWS for Company-owned "Class of 2014" non-traditional bakery-cafes through fiscal Q2 2014 was $36,747 compared to $48,286 in the same period of fiscal 2013. Non-traditional bakery-cafes refers to a range of alternate formats that the Company believes will allow it to more deeply penetrate existing and new territories with a range of different formats.

    A schedule of fiscal Q2 2014 AWS is attached to this release as Schedule II.

    Use of Capital

    On June 5, 2014, the Company's Board of Directors approved a new three year share repurchase authorization of up to $600 million and terminated the prior repurchase authorization. During fiscal Q2 2014, under the share repurchase authorizations, the Company repurchased 325,030 shares at an average price of $153.80 per share for an aggregate purchase amount of approximately $50 million. The total fiscal Q2 2014 share repurchases had a nominal impact on the Company's fiscal Q2 2014 earnings per diluted share. The Company has approximately $588 million remaining under the current $600 million repurchase authorization as of fiscal Q2 2014.

    Fiscal Q3 and Q4 2014 Outlook

    The Company is targeting fiscal Q3 2014 diluted earnings per share of $1.40 to $1.46, representing an increase of 4% to 8% in fiscal Q3 2014 versus fiscal Q3 2013 excluding the impact of favorable tax-related adjustments of $0.13 per diluted share in fiscal Q3 2013.

    The Company is targeting fiscal Q4 2014 diluted earnings per share of $1.89 to $1.98, representing an increase of 3% to 8% in fiscal Q4 2014 versus fiscal Q4 2013 excluding the estimated $0.13 per diluted share benefit from an additional operating week, as fiscal Q4 2013 was comprised of 14 weeks.

    The fiscal Q3 and Q4 2014 targets assume the Company will continue to make investments in key initiatives consistent with its strategic plan throughout fiscal 2014. These targets also include the Company's expectation that it will continue to repurchase shares consistently throughout the year.

    Full Year Fiscal 2014 Outlook

    Diluted EPS Target

    The Company is revising its target range for fiscal 2014 earnings per diluted share to $6.65 to $6.80 as a result of lower than expected growth in average check as well as higher than expected input costs.

    This full year fiscal 2014 diluted earnings per share target range is based on the following key assumptions:

    Comparable Net Bakery-Cafe Sales Growth

    The targeted range for the Company's fiscal 2014 Company-owned comparable net bakery-cafe sales growth is revised to 0.0% to 1.5%. The Company continues to expect both comparable net bakery-cafe sales growth and transaction growth to strengthen in the second half of fiscal 2014 as a result of the timing and momentum of initiatives underway. As a result, the Company continues to expect that full year fiscal 2014 will include positive growth in transactions.

    Operating Margin

    For fiscal 2014, the Company now expects operating margin will be down 135 to 185 basis points when compared to fiscal 2013. This target reflects more modest comparable net bakery-cafe sales growth, the full year impact of the key initiatives and related investments that are underway and higher input costs.

    New Bakery-Cafe Development and AWS

    The Company is maintaining its previous target of 115 to 125 system-wide new bakery-cafe openings in fiscal 2014 and its average weekly net sales performance target for new Company-owned bakery-cafes of $41,000 to $43,000 for fiscal 2014.

    Concluding Comment

    Ron Shaich, Chairman and CEO, commented, "In Q2 and into Q3, we have seen success against the near term goal we set for ourselves: growing transactions. This gives us confidence in the potency of our plan. While our average check declined modestly in Q2, primarily as a result of mix, we expect this will remain only a shorter-term drag. Looking long term, we remain confident in the initiatives underway. We believe they will further improve our guest experience and ensure we have the operational capabilities, technology infrastructure, and the food and marketing innovation necessary to compete and grow in a rapidly evolving marketplace. While we know our strategic plan and initiatives will require significant investment in 2014 and 2015, we continue to believe they will create the foundation for expanded earnings growth well into the future."

    About Panera Bread Company

    As of July 1, 2014, there were 1,818 bakery-cafes in 45 states and in Ontario, Canada operating under the Panera Bread®, Saint Louis Bread Co.® or Paradise Bakery & Café® names. 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 chicken raised without antibiotics, 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 COMPREHENSIVE INCOME  
    (unaudited)  
    (In thousands, except per share amounts)  
       
        For the 13 Weeks Ended  
        July 1, 2014     June 25, 2013  
    Revenues:                
      Bakery-cafe sales, net   $ 555,645     $ 521,038  
      Franchise royalties and fees     30,057       27,453  
      Fresh dough and other product sales to franchisees     45,353       40,520  
        Total revenues     631,055       589,011  
    Costs and expenses:                
      Bakery-cafe expenses:                
        Cost of food and paper products   $ 168,187     $ 156,171  
        Labor     168,210       149,869  
        Occupancy     39,237       35,701  
        Other operating expenses     78,714       72,145  
          Total bakery-cafe expenses     454,348       413,886  
      Fresh dough and other product cost of sales to franchisees     39,108       34,599  
      Depreciation and amortization     30,052       25,267  
      General and administrative expenses     32,229       29,743  
      Pre-opening expenses     1,376       2,081  
        Total costs and expenses     557,113       505,576  
    Operating profit     73,942       83,435  
    Interest expense     301       178  
    Other (income) expense, net     (4,003 )     (796 )
    Income before income taxes     77,644       84,053  
    Income taxes     28,452       33,011  
        Net income   $ 49,192     $ 51,042  
                     
    Earnings per common share:                
      Basic   $ 1.83     $ 1.75  
      Diluted   $ 1.82     $ 1.74  
    Weighted average shares of common and common equivalent shares outstanding:                
      Basic     26,951       29,092  
      Diluted     27,086       29,287  
                     
    Other comprehensive income (loss), net of tax:                
      Foreign currency translation adjustment   $ 450     $ (362 )
        Other comprehensive income (loss)     450       (362 )
    Comprehensive income   $ 49,642     $ 50,680  
                     
                     
       
    Schedule I (continued)  
       
    PANERA BREAD COMPANY  
    CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME  
    (unaudited)  
    (In thousands, except per share amounts)  
       
        For the 26 Weeks Ended  
        July 1, 2014     June 25, 2013  
    Revenues:                
      Bakery-cafe sales, net   $ 1,091,194     $ 1,018,557  
      Franchise royalties and fees     59,365       54,030  
      Fresh dough and other product sales to franchisees     86,249       78,203  
        Total revenues     1,236,808       1,150,790  
    Costs and expenses:                
      Bakery-cafe expenses:                
        Cost of food and paper products   $ 327,081     $ 302,588  
        Labor     330,673       298,467  
        Occupancy     78,488       71,854  
        Other operating expenses     154,531       140,090  
          Total bakery-cafe expenses     890,773       812,999  
      Fresh dough and other product cost of sales to franchisees     74,742       67,197  
      Depreciation and amortization     59,494       49,632  
      General and administrative expenses     67,652       58,050  
      Pre-opening expenses     3,200       3,172  
        Total costs and expenses     1,095,861       991,050  
    Operating profit     140,947       159,740  
    Interest expense     924       480  
    Other (income) expense, net     (5,215 )     (3,216 )
    Income before income taxes     145,238       162,476  
    Income taxes     53,651       63,317  
        Net income   $ 91,587     $ 99,159  
                     
    Earnings per common share:                
      Basic   $ 3.38     $ 3.41  
      Diluted   $ 3.36     $ 3.38  
    Weighted average shares of common and common equivalent shares outstanding:                
      Basic     27,111       29,121  
      Diluted     27,247       29,308  
                     
    Other comprehensive income (loss), net of tax:                
      Foreign currency translation adjustment   $ 56     $ (728 )
        Other comprehensive income (loss)     56       (728 )
    Comprehensive income   $ 91,643     $ 98,431  
                     
                     

    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 comprehensive income for the period indicated. Percentages may not add due to rounding:

           
        For the 13 Weeks Ended  
        July 1, 2014     June 25, 2013  
    Revenues:            
      Bakery-cafe sales, net   88.1 %   88.5 %
      Franchise royalties and fees   4.8     4.7  
      Fresh dough and other product sales to franchisees   7.2     6.9  
          Total revenues   100.0 %   100.0 %
    Costs and expenses:            
      Bakery-cafe expenses (1):            
        Cost of food and paper products   30.3 %   30.0 %
        Labor   30.3     28.8  
        Occupancy   7.1     6.9  
        Other operating expenses   14.2     13.8  
          Total bakery-cafe expenses   81.8     79.4  
      Fresh dough and other product cost of sales to franchisees (2)   86.2     85.4  
      Depreciation and amortization   4.8     4.3  
      General and administrative expenses   5.1     5.0  
      Pre-opening expenses   0.2     0.4  
        Total costs and expenses   88.3     85.8  
    Operating profit   11.7     14.2  
    Interest expense   --     --  
    Other (income) expense, net   (0.6 )   (0.1 )
    Income before income taxes   12.3     14.3  
    Income taxes   4.5     5.6  
        Net income   7.8 %   8.7 %
                 
    Other comprehensive income (loss)   0.1     (0.1 )
      Comprehensive income   7.9 %   8.6 %
                   

    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 comprehensive income for the period indicated. Percentages may not add due to rounding:

           
        For the 26 Weeks Ended  
        July 1, 2014     June 25, 2013  
     Revenues:            
      Bakery-cafe sales, net   88.2 %   88.5 %
      Franchise royalties and fees   4.8     4.7  
      Fresh dough and other product sales to franchisees   7.0     6.8  
          Total revenues   100.0 %   100.0 %
    Costs and expenses:            
      Bakery-cafe expenses (1):            
        Cost of food and paper products   30.0 %   29.7 %
        Labor   30.3     29.3  
        Occupancy   7.2     7.1  
        Other operating expenses   14.2     13.8  
          Total bakery-cafe expenses   81.6     79.8  
      Fresh dough and other product cost of sales to franchisees (2)   86.7     85.9  
      Depreciation and amortization   4.8     4.3  
      General and administrative expenses   5.5     5.0  
      Pre-opening expenses   0.3     0.3  
        Total costs and expenses   88.6     86.1  
    Operating profit   11.4     13.9  
    Interest expense   0.1     --  
    Other (income) expense, net   (0.4 )   (0.3 )
    Income before income taxes   11.7     14.1  
    Income taxes   4.3     5.5  
        Net income   7.4 %   8.6 %
                 
    Other comprehensive income (loss)   --     (0.1 )
        Comprehensive income   7.4 %   8.5 %
                 
     
    Schedule II
     
    PANERA BREAD COMPANY
    Supplemental Sales and Bakery-Cafe Information
     
        System-Wide Average Weekly Sales ("AWS")
        2014[a]   2013   2012   2011   2010
    AWS   $47,360   $47,403   $46,676   $44,313   $42,852
             
        2014 Company-Owned AWS By Year Opened   Year-Over-Year Change in Company-Owned AWS
        2014 Opens   2013 Opens [b]   2012 Opens & Prior   2013 Acquisitions [c]   Total   2013 Opens [d]   2012 Opens & Prior   AWS Total
    Bakery-Cafes   26   63   801   1   891            
    Q1 14   $55,230   $40,919   $47,539   $55,601   $47,142   -33.9%   1.0%   0.0%
    Q2 14   $45,499   $41,953   $48,885   $46,482   $48,313   -13.0%   0.3%   -0.8%
    2014 YTD   $48,300   $41,436   $48,212   $51,041   $47,731   -18.7%   0.7%   -0.4%
    [b] 2013 Company-owned AWS excludes acquisition data.
       
    [c] Represents one Panera bakery-cafe in 2013.
       
    [d] Change in Company-owned AWS in 2014 from 2013 compares 63 bakery-cafes in 2014 against 28 bakery-cafes at the end of fiscal Q2 2013.
       
       
             
        2014 Franchise-Operated AWS By Year Opened   Year-Over-Year Change in Franchise-Operated AWS
        2014 Opens   2013 Opens   2012 Opens & Prior   Total   2013 Opens [e]   2012 Opens & Prior   AWS Total
    Bakery-Cafes   20   70   837   927            
    Q1 14   $58,891   $43,874   $46,881   $46,717   -14.9%   0.2%   -0.2%
    Q2 14   $52,347   $43,581   $47,500   $47,290   -11.8%   -0.4%   -1.0%
    2014 YTD   $53,882   $43,727   $47,191   $47,005   -12.3%   -0.1%   -0.6%
         
        Traditional and Non-Traditional AWS [f]
        Company-Owned   Franchise-Operated   System-Wide
        2014 Opens   2013 Opens   2014 Opens   2013 Opens   2014 Opens   2013 Opens
    Traditional Bakery-Cafes   22   24   19   27   41   51
    Non-Traditional Bakery-Cafes   4   4   1   4   5   8
    Traditional AWS   $50,038   $51,630   $53,568   $52,149   $51,653   $51,928
    Non-Traditional AWS   $36,747   $48,286   $57,102   $44,320   $42,199   $46,944
    Total   $48,300   $50,983   $53,882   $49,855   $50,738   $50,338
     
    Schedule II (continued)

     
        Bakery-Cafe Openings (excluding acquisitions) [g]
        Company   Franchise   Total       Company   Franchise   Total
    Q1 14   16   11   27   Q1 13   10   12   22
    Q2 14   10   9   19   Q2 13   18   19   37
    Q3 14               Q3 13   17   15   32
    Q4 14               Q4 13   18   24   42
    2014 YTD   26   20   46   2013 YTD   63   70   133

    Set forth below is comparable net bakery-cafe sales growth information on a calendar basis comparing fiscal Q2 2014 to comparable periods in the prior year:

                         
        For the 4 Weeks Ended   For the 5 Weeks Ended   For the 4 Weeks Ended   For the 13 Weeks Ended   For the 26 Weeks Ended
        April 29, 2014   June 3, 2014   July 1, 2014   July 1, 2014   July 1, 2014
    Company-owned   0.4%   0.4%   -0.6%   0.1%   0.1%
    Franchise-operated   -0.7%   0.0%   0.2%   -0.2%   0.0%
    System-wide   -0.2%   0.2%   -0.2%   0.0%   0.0%
                         
                         

    Set forth below is Company-owned comparable net bakery-cafe sales growth information for fiscal Q2 2014 adjusted for the estimated impact of the Easter shift between calendar quarters:

      For the 13 Weeks Ended
      July 1, 2014
    Company-owned As Reported 0.1%
    Easter Shift 0.4%
    Adjusted Company-owned 0.5%



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

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