HIGHLIGHTS
- Comparable Company-owned bakery-cafe sales increased 3.3% in Q1
- Comparable Company-owned bakery-cafe sales increased 7.3% in Q2 to-date (34 days)
- Company-owned new unit average weekly sales of $39,083 in the first quarter
- Second quarter 2008 diluted EPS target increased to $0.40 to $0.44
- Full year fiscal 2008 earnings guidance reiterated
ST. LOUIS, April 29 /PRNewswire-FirstCall/ -- Panera Bread Company(Nasdaq: PNRA) today reported net income for the first quarter ended March 25,2008 of $12 million, or $0.41 per diluted share, which included the impact ofa charge of $0.06 per diluted share resulting from the Company's decision toraise its sales hurdles for new bakery-cafe development. The charge wasapproximately $2.7 million recorded in general and administrative expenses andrelated to previously capitalized development costs and lease expenses forcertain of the sites the Company had elected not to open as part of itsadjustment to its 2008 development plans. Net income was $15 million, or$0.47 per diluted share, for the first quarter ended March 27, 2007.
The Company's first quarter consolidated statements of operations andmargin analysis are attached as Schedule I. The following tables set forth,for the periods indicated, certain items included in the Company'sconsolidated statements of operations (in thousands, except per share data andpercentages):
For the Weeks Ended Percentage March 25, 2008 March 27, 2007 Change Total revenue $304,978 $239, 676 27% Net income $12,440 $15,043 -17% Diluted earnings per share $0.41 $0.47 -13% Shares used in diluted EPS 30,177 32,187
First Quarter 2008 Results & Business Review
As previously discussed, the rapid escalation of wheat costs had asignificant negative impact on first quarter results. With all-in wheat costsof approximately $13.00 per bushel during the first quarter of 2008 comparedto $5.80 per bushel in the first quarter of 2007, the Company absorbedapproximately $2.5 million in costs year-over-year in its bakery-cafe cost ofsales and an additional estimated $2.2 million of costs in its fresh doughcost of sales to franchisees. This is net of dough transfer price increasesof 5% (compared to a 14% price increase, which would have been needed for theCompany to offset the inflation in the cost of wheat). In the first quarter,the impact of wheat costs negatively impacted bakery-cafe margin approximately100 basis points and operating margin approximately 150 to 160 basis pointsoverall.
Despite facing these significant wheat cost increases, the Company hasdriven improvements in its bakery-cafe margin from the removal of Crispani,disciplined pricing and category management programs, and other operating costreduction initiatives. Net of the impact of increasing wheat costs, theCompany's sequential year-over-year comparison in bakery-cafe margin hasimproved significantly.
Additionally, first quarter 2008 general and administrative expensesincluded the charges referred to above, which related to the reduction inexpected Company-owned new unit openings. These changes negatively impactedoperating margin approximately 90 basis points.
The Company continued to drive overall positive transaction growth duringthe first quarter of 2008. Comparable Company-owned bakery-cafe salesincreased 3.3% in the first quarter and comparable bakery-cafe sales infranchise-operated bakery-cafes increased 1.7% in the first quarter. Thesefirst quarter comparable sales results were negatively impacted byapproximately 0.3% to 0.4% from the shift of the Easter holiday from thesecond quarter of 2007 to the first quarter of 2008. In addition, the Companyimplemented a retail price increase in Company-owned bakery-cafes for thefirst quarter of 2008 of approximately 3% year-over-year. The result is thattransaction/mix growth in Company-owned bakery-cafes was about one-half pointin the first quarter.
Finally, one of the Company's key metrics that impacts its return oninvested capital is average weekly sales (AWS) for Company-owned new units.AWS for Company-owned new units in the first quarter of 2008 was $39,083compared to $31,394 in the same period of 2007. The Company has drivenimprovement in its new unit AWS through more disciplined site analysis andselection processes. A schedule of the Company's first quarter 2008 AWS, anda schedule of comparable bakery-cafe sales by period, are attached as ScheduleII and III, respectively.
During the first quarter of 2008, the Company opened 27 new bakery-cafessystem-wide (14 Company-owned and 13 franchise-operated) and closed fivebakery-cafes system-wide (three Company-owned and two franchise-operated).
As of March 25, 2008, there were 1,252 bakery-cafes open system-wide. Thebreakdown of bakery-cafes between Company-owned and franchise-operated is asfollows:
Company-owned Franchise-operated Total System Bakery-cafes as of December 25, 2007 532 698 1,230 Bakery-cafes opened 14 13 27 Bakery-cafes closed (3) (2) (5) Bakery-cafes as of March 25, 2008 543 709 1,252
Second Quarter 2008 Business Outlook
The Company is today increasing and narrowing its earnings per dilutedshare target for the second quarter of 2008 from a range of $0.37 to $0.43 toa range of $0.40 to $0.44, which would be an increase of 3% to 13% from secondquarter 2007 results. Actual earnings per share results for the secondquarter ended June 26, 2007 were $0.39 per diluted share. The target for thesecond quarter of 2008 now assumes the negative impact of up to $0.04 perdiluted share in potentially unfavorable, discrete income tax expense, impactfrom rising gasoline prices, and incremental litigation expenses. None ofthese expenses were expected when the original second quarter target wasestablished.
Relative to margins, the second quarter 2008 target assumes that theremoval of Crispani generates a 100 basis point improvement to labor margin.The target also assumes that wheat costs are $17.25 per bushel compared to$5.80 per bushel in the prior year period. This year-over year increase inthe cost of wheat is expected to lead to a total expense increase of nearly$9.5 million, approximately $4.0 million of which is expected to be absorbedin bakery-cafe cost of sales. The remaining $5.5 million of unfavorableexpense is expected to impact the cost of fresh dough sales to franchisees.Since a 22% increase in dough transfer prices would be required to offset theincreased cost of wheat, but only a 13% dough price increase will be in place,the Company expects to be impacted negatively by approximately $2.5 million(of the approximately $5.5 million) of cost year-over-year.
Relative to transactions, the second quarter target assumes year-over-yearretail price increases of 5.5% with Company-owned comparable bakery-cafe salesgrowth of 5% to 6%. This implies negative .5% to positive .5% transaction/mixgrowth compared with the second quarter of 2007. The Company believes itsoperations initiatives, breakfast sandwich rollout, and expanded media trialswill be effective to counter-balance the significant consumer headwinds otherretailers are experiencing.
Please note that through the first 34 days of the second quarter of fiscal2008, comparable bakery-cafe sales for Company-owned bakery-cafes have grown7.3% and comparable bakery-cafe sales for franchise-operated bakery-cafes havegrown approximately 4.6%.
