Panera Bread: reports Q3/2013 EPS up 19 percent

St. Louis / MO. (pbc) Panera Bread Company reported net income of 43 million USD or 1,48 USD per diluted share, for the fiscal third quarter ended September 24, 2013. The third quarter fiscal 2013 results compare to net income of 37 million USD or 1,24 USD per diluted share, for the fiscal third quarter ended September 25, 2012 and represent a 19 percent year-over-year increase in diluted earnings per share. The third quarter fiscal 2013 results include the impact of favourable tax-related adjustments of 3,8 million USD or 0,13 USD per diluted share. Excluding these adjustments, diluted earnings per share was 1,35 USD for the thirteen weeks ended September 24, 2013, up nine percent versus the comparable period in fiscal 2012.

For the thirty-nine weeks ended September 24, 2013, net income was 142 million USD or 4,86 USD per diluted share. These results compare to net income of 122 million USD or 4,14 USD per diluted share, for the thirty-nine weeks ended September 25, 2012 and represent a 17 percent year-over-year increase in diluted earnings per share.

Third Quarter Fiscal 2013 Results and Business Review

Comparable Net Bakery-Cafe Sales Growth: In the third quarter fiscal 2013, Company-owned comparable net bakery-cafe sales increased 1,7 percent, franchise-operated comparable net bakery-cafe sales increased 0,9 percent and system-wide comparable net bakery-cafe sales increased 1,3 percent compared to the comparable period in fiscal 2012. Two year Company-owned comparable net bakery-cafe sales increased 7,9 percent, two year franchise-operated comparable net bakery-cafe sales increased 6,4 percent and two year system-wide comparable net bakery-cafe sales increased 7,1 percent. The Company-owned comparable net bakery-cafe sales increase of 1,7 percent in the third quarter fiscal 2013 was comprised of year-over-year average check growth of 2,7 percent and transaction decline of 1,0 percent. Average check growth was comprised of retail price increases of approximately 1,7 percent and positive mix impact of approximately 1,0 percent.

Operating Margin: In the third quarter fiscal 2013, the operating margin was consistent with the operating margin for the same period of fiscal 2012. Lower general and administrative expenses as a percentage of total revenues offset the decline in bakery-cafe margins.

New Bakery-Cafe Development and AWS: During the third quarter fiscal 2013, the Company opened 17 new bakery-cafes and its franchisees opened 15 new bakery-cafes. As a result, there were 1’736 bakery-cafes open system-wide as of September 24, 2013. Excluding urban bakery-cafes, average weekly sales (AWS) for Company-owned new bakery-cafes through the third quarter fiscal 2013 were 44’779 USD compared to 42’642 USD in the same period of fiscal 2012. Including urban bakery-cafes, AWS through the third quarter fiscal 2013 was 45’205 USD compared to 47’438 USD in the same period of fiscal 2012. AWS for franchise-operated new bakery-cafes through the third quarter fiscal 2013 was 48’432 USD compared to 47’680 USD in the same period of fiscal 2012.

Use of Capital: During the third quarter fiscal 2013, the Company repurchased 1’022’186 shares at an average price of 169,76 USD per share for an aggregate purchase price of approximately 174 million USD. The share repurchases had an approximate 0,02 USD per diluted share favourable impact on the Company´s third quarter fiscal 2013 earnings per diluted share. The Company also repurchased 432’300 additional shares at an average price of 160,55 USD per share for an aggregate purchase price of approximately 69 million USD during the first 27 days of the fourth quarter fiscal 2013. The Company had approximately 317 million USD remaining under its existing 600 million USD repurchase authorization after these subsequent repurchases.

Fourth Quarter Fiscal 2013 Outlook

Diluted EPS Target: The Company is revising its target range for fourth quarter fiscal 2013 diluted earnings per share to 1,91 USD to 1,97 USD from its previous target of 2,05 USD to 2,11 USD, which would represent an increase of nine percent to 13 percent in the fourth quarter fiscal 2013 versus the comparable period in fiscal 2012. This diluted earnings per share target includes approximately 700 basis points of favourable impact for the 53rd week in fiscal 2013, but does not assume any additional share repurchases beyond those disclosed in this release under the Company´s repurchase authorization. The fourth quarter fiscal 2013 diluted earnings per share target includes the following key assumptions:

Comparable Net Bakery-Cafe Sales Growth: The Company is revising its target for Company-owned comparable net bakery-cafe sales for the fourth quarter fiscal 2013 to be flat to growth of 2,0 percent from its previous growth target of 3,0 percent to 5,0 percent. The Company announced Company-owned comparable net bakery-cafe sales in the first 27 days of the fourth quarter fiscal 2013 were up approximately 1,6 percent.

Operating Margin Target: In the fourth quarter fiscal 2013, the Company anticipates its operating margin will be down 100 to 150 basis points on a year-over-year basis. This target reflects both previously disclosed incremental investments to provide greater access for customers and to improve the Company´s core enterprise systems, as well as incremental investments to enhance our operational capabilities in our bakery-cafes.

Full Year Fiscal 2013 Outlook

Diluted EPS Target: The Company is narrowing its target range for fiscal 2013 earnings per diluted share to 6,77 USD to 6,83 USD, which would represent an increase of 15 percent to 16 percent versus fiscal 2012. This diluted earnings per share target includes approximately 200 basis points of favourable impact for the 53rd week in fiscal 2013, but does not assume any additional share repurchases under the Company´s repurchase authorization beyond those disclosed in this release. This full year fiscal 2013 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 net bakery-cafe sales growth for fiscal 2013 to 2,0 percent to 2,75 percent from its previous target of 3,0 percent to 5,0 percent.

Operating Margin Target: For fiscal 2013, the Company expects operating margin will be flat to down 50 basis points when compared to fiscal 2012. This target reflects the anticipated initiatives discussed in the fourth quarter fiscal 2013 operating margin outlook.

New Bakery-Cafe Development and AWS: The Company now expects to be slightly above the high-end of its previous range of 115 to 125 system-wide new bakery-cafe openings in fiscal 2013. The average weekly net sales performance for new Company-owned bakery-cafes is now expected to be at or above the high-end of the previously provided targeted range of 40’000 USD to 42’000 USD for fiscal 2013.

Initial Full Year Fiscal 2014 Outlook

The Company intends to provide more detailed guidance for fiscal 2014 in February 2014 when it reports fiscal 2013 results. The Company is initially targeting fiscal 2014 earnings per diluted share below the low-end of the long-term growth target of 15 percent to 20 percent.

Concluding Comment

Ron Shaich, CEO, commented, «Panera generated the highest system wide year-to-date average weekly sales in its history. Indeed, average weekly sales at Panera through this quarter are up over 20 percent over the last five years. As well, new cafes in the class of 2013 generated sales volumes that are among the highest in our history. This speaks to the extraordinary affection customers have for Panera. However, it is also true that in the third quarter comparable store sales rose just 1,7 percent. While these comparable store sales continue to be above average for the industry, they are below our expectations. As one might expect, our recent comp performance has led to a great deal of self-examination and a thorough review of how we compete and how we operate our business».

Shaich continued, «Based on this review, we have now concluded that operational friction, including capacity and throughput constraints, along with a less differentiated experience not only limits our ability to grow transactions today but could also inhibit our ability to benefit from a number of potentially significant transaction-driving initiatives, including national advertising and enhanced access for customers, that are being readied to begin roll out in 2014. Thus, we are taking a number of deliberate steps to improve our operational capabilities and our competitive position and that we believe will allow us to best meet the demand that exists for the Panera experience today and in the future».

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