HIGHLIGHTS - Diluted EPS growth up 33% over the prior year in second quarter 2008 - Comparable Company-owned bakery-cafe sales increased 6.5% in Q2 - Company-owned new unit average weekly sales of $35,776 in Q2 - Second half 2008 diluted EPS target increased to $1.24 to $1.30 (from $1.14 to $1.26) reflecting a 33% to 40% increase over second half 2007

ST. LOUIS, July 22 /PRNewswire-FirstCall/ -- Panera Bread Company (Nasdaq: PNRA) today reported net income of $16 million, or $0.52 per diluted share, for the second quarter ended June 24, 2008, which includes a $0.02 per diluted share impact of an unfavorable tax adjustment and a $0.01 per diluted share impact from the further write-down of the Company's investment in the Columbia Strategic Cash Portfolio. These results compare to net income of $13 million, or $0.39 per diluted share, for the second quarter ended June 26, 2007.

For the twenty-six weeks ended June 24, 2008, net income was $28 million, or $0.93 per diluted share, which includes the aggregate $0.03 per diluted share impact from the second quarter unfavorable tax adjustment and investment write-down, as well as the impact of a $0.06 per diluted share charge in the first quarter 2008 resulting from the Company's decision to raise its sales hurdles for new bakery-cafe development. These results compare to net income of $28 million, or $0.86 per diluted share, for the twenty-six weeks ended June 26, 2007.

The Company's second quarter and year-to-date fiscal 2008 consolidated statements of operations and margin analysis 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 24, 2008  June 26, 2007      Change
    Total revenue                  $320,868        $252,959           27%
    Net income                      $15,706         $12,635           24%
    Diluted earnings per share        $0.52           $0.39           33%
    Shares used in diluted EPS       30,338          32,250
                                    For the 26 Weeks Ended       Percentage
                                 June 24, 2008  June 26, 2007      Change
    Total revenue                  $625,847        $492,634           27%
    Net income                      $28,146         $27,679            2%
    Diluted earnings per share        $0.93           $0.86            8%
    Shares used in diluted EPS       30,240          32,225

Second Quarter 2008 Results & Business Review

The Company has continued to drive improvements in both its bakery-cafe and operating margins despite significant inflation in wheat, oil, and other commodity costs. The Company's second quarter operating margin is up 100 basis points year-over-year driven by improvement in its bakery-cafe margin of 170 basis points and additional sales leverage against depreciation and amortization, general and administrative expenses and pre-opening expenses. This 100 basis point improvement in operating margin occurred while the Company was absorbing approximately $6.25 million in wheat cost increases, net of pricing, versus the prior year (which negatively impacted bakery-cafe cost of sales and fresh dough cost of sales to franchisees). The Company was able to achieve these improvements through its category management and operating cost reduction initiatives.

Despite facing a difficult consumer environment, the Company has also been successful in the second quarter in maintaining positive transaction growth while driving margin improvement. Transaction growth, along with margin improvement, helped to drive strong sales and net income growth in the Company's core retail business in the second quarter of 2008. Comparable Company-owned bakery-cafe sales increased 6.5% in the second quarter and comparable bakery-cafe sales in franchise-operated bakery-cafes increased 4.8% in the second quarter. These second quarter 2008 comparable sales results were positively impacted by approximately 0.3% to 0.4% as a result of the shift of the Easter holiday to the first quarter of 2008 compared to the second quarter of 2007. The second quarter of 2008 also included approximately 5.5% of year-over-year price increases when compared to the second quarter of 2007. The result is that transaction/mix growth in Company-owned bakery-cafes was approximately 0.6% to 0.7% favorable in the second quarter of 2008 (net of the impact of Easter).

Finally, average weekly sales ('AWS') for Company-owned new units in the second quarter of 2008 was $35,776 compared to $32,131 in the same period of 2007. AWS for Company-owned new units year-to-date through the second quarter of 2008 was $36,640 compared to $31,940 in the same period of 2007. Along with improved margins, improvement in new unit AWS is a key driver of improved return on invested capital. A schedule of the Company's second quarter 2008 AWS, and a schedule of comparable bakery-cafe sales by period, are attached as Schedule II and III, respectively.

During the second quarter of 2008, the Company opened 19 new bakery-cafes system-wide (6 Company-owned and 13 franchise-operated) and closed one Company-owned bakery-cafe. As of June 24, 2008, there were 1,270 bakery-cafes open system-wide. The breakdown of bakery-cafes between Company-owned and franchise-operated is as follows:

                           Company-owned   Franchise-operated   Total System
    Bakery-cafes as of
     March 25, 2008                  543                  709          1,252
    Bakery-cafes opened                6                   13             19
    Bakery-cafes closed               (1)                  -              (1)
    Bakery-cafes as of
     June 24, 2008                   548                  722          1,270

Third and Fourth Quarter 2008 and 2009 Business Outlook

The Company today raised its second half 2008 earnings target from $1.14 to $1.26 per diluted share to $1.24 to $1.30 per diluted share. This second half target is based on a third quarter 2008 target of $0.42 to $0.44 per diluted share and a fourth quarter 2008 target of $0.82 to $0.86 per diluted share. If the Company meets this target, EPS will be up 33% to 40% for the second half of 2008 versus 2007.

Third Quarter Targets

As part of its second half targets, the Company is today setting its earnings per diluted share target for the third quarter of 2008 at $0.42 to $0.44 per diluted share. If the Company meets this target, it will represent an increase of 14% to 19% from $0.37 per diluted share in the third quarter of 2007.

Relative to margins, the third quarter 2008 target assumes that wheat costs will be $15.00 per bushel (inclusive of wheat futures and basis) compared to $5.80 per bushel in the prior year period, resulting in over $3 million of expense to be absorbed in bakery-cafe cost of sales. The fresh dough cost of sales to franchisees margin will be further negatively impacted by inflation in other costs, including the rise in the cost of gasoline. On the other hand, the Company expects that this will be offset by a continued 100 basis point improvement to labor margins as a result of the decision to remove Crispani from the menu.

Relative to transactions, the third quarter 2008 target assumes year-over-year retail price increases of 6.5% with Company-owned comparable bakery-cafe sales growth of 4.0% to 5.0%. This implies 1.5% to 2.5% negative transaction/mix impact compared with the third quarter of 2007. The Company believes its transaction-building initiatives, including its new grilled breakfast sandwiches, media trials and operational focus, will be effective to partially counter-balance, but not overcome, the significant consumer headwinds all retailers are experiencing.

Please note that through the first 27 days of the third quarter of fiscal 2008, comparable bakery-cafe sales for Company-owned bakery-cafes have grown approximately 3.6% and comparable bakery-cafe sales for franchise-operated bakery-cafes have grown approximately 4.0%.

Finally, the Company is assuming new unit average weekly sales of $36,000 to $38,000 for the third quarter of 2008.

Fourth Quarter Targets

The Company today is setting its earnings per diluted share target for the fourth quarter of 2008 at $0.82 to $0.86 per diluted share as compared to $0.56 per diluted share in the fourth quarter of 2007. The target for the fourth quarter of 2008 reflects an increase of 46% to 54% from the fourth quarter of 2007. In the fourth quarter, wheat is projected to average $12.00 per bushel (inclusive of wheat futures and basis) compared to $5.80 per bushel in the prior year period, resulting in approximately $2.5 million in expense to bakery-cafe cost of sales year-over-year. However, in the fourth quarter, the Company expects to have increased dough transfer prices sufficient to match the inflation in the cost of wheat. In addition, the Company expects to continue to benefit from the margin improvement initiatives discussed above, including the 100 basis points improvement in labor for the removal of Crispani.

The Company also expects year-over-year retail price increases of 6.0% in the fourth quarter of 2008, transaction/mix growth of (1.5)% to (2.5)% and comparable Company-owned bakery-cafe sales growth of 3.5% to 4.5%.

Finally, the Company is assuming new unit average weekly sales will be in the range of $36,000 to $38,000 for the fourth quarter of 2008.

Full Year 2008 Targets

Based upon the third and fourth quarter 2008 targets, the Company is now targeting its diluted earnings per share for fiscal 2008 to be $2.17 to $2.23 per diluted share. These targeted results include the more than $17 million (approximately $0.34 per diluted share) year-over-year negative impact from wheat cost inflation on the Company in fiscal 2008.