Panera Bread reports Q3 net earnings of US$36.5M on total revenues of US$529.3M, compared with year-ago earnings of US$28.8M on revenue of US$453.1M

Nevin Barich

ST. LOUIS , October 23, 2012 (press release) – Panera Bread Company ( NASDAQ : PNRA )

HIGHLIGHTS

Q3 2012 Company-owned comparable net bakery-cafe sales up 6.2%

Q3 2012 Revenue increased 17% to $529 million

FY 2012 EPS target increased to $5.86 to $5.88 (up 29% versus FY 2011)

FY 2013 Initial EPS target set at $6.85 to $7.00

Panera Bread Company ( NASDAQ : PNRA ) today reported net income of $37 million, or $1.24 per diluted share, for the fiscal third quarter ended September 25, 2012. The third quarter fiscal 2012 results compare to net income of $29 million, or $0.97 per diluted share, for the fiscal third quarter ended September 27, 2011, and represent a 28% year-over-year increase in diluted earnings per share.

For the thirty-nine weeks ended September 25, 2012, net income was $122 million, or $4.14 per diluted share. These results compare to net income of $97 million, or $3.24 per diluted share, for the thirty-nine weeks ended September 27, 2011, and represent a 28% year-over-year increase in diluted earnings per share.

The Company's third quarter and year-to-date fiscal 2012 consolidated statements of comprehensive income and margin analyses are attached 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 Percentage
September 25, 2012 September 27, 2011 Change

Total Revenue $ 529,338 $ 453,087 17 %
Net Income $ 36,515 $ 28,848 27 %
Diluted earnings per share $ 1.24 $ 0.97 28 %
Shares used in diluted EPS 29,455 29,829

For the 39 Weeks Ended Percentage
September 25, 2012 September 27, 2011 Change

Total Revenue $ 1,558,508 $ 1,326,267 18 %
Net Income $ 121,836 $ 97,332 25 %
Diluted earnings per share $ 4.14 $ 3.24 28 %
Shares used in diluted EPS 29,462 30,067


Third Quarter Fiscal 2012 Results and Business Review

Comparable Net Bakery-Cafe Sales Growth

In the third quarter fiscal 2012, Company-owned comparable net bakery-cafe sales increased 6.2%, franchise-operated comparable net bakery-cafe sales increased 5.5%, and system-wide comparable net bakery-cafe sales increased 5.8% compared to the comparable period in fiscal 2011.

The Company-owned comparable net bakery-cafe sales increase of 6.2% in the third quarter fiscal 2012 was comprised of year-over-year transaction growth of 0.6% and average check growth of 5.6%. Average check growth was comprised of retail price increases of approximately 3.0% and positive mix impact of approximately 2.6%. A schedule of comparable net bakery-cafe sales information is attached as Schedule III.

Operating Margin

In the third quarter fiscal 2012, the Company generated operating margin improvement of approximately 80 basis points compared to the third quarter fiscal 2011. This increase was driven primarily by higher bakery-cafe margins, partially offset by lower margins from fresh dough and other product sales to franchisees. The increase in bakery-cafe margins was driven primarily by sales leverage, while the decline in margins from fresh dough and other product sales to franchisees resulted primarily from year-over-year wheat price inflation and higher year-over-year zero margin produce sales to franchisees.

New Unit Development and AWS

During the third quarter fiscal 2012, the Company opened 17 new bakery-cafes and its franchisees opened 19 new bakery-cafes. As a result, there were 1,625 bakery-cafes open system-wide as of September 25, 2012.

Company-owned Franchise-operated Total System
Bakery-cafes as of June 26, 2012 776 815 1,591
Bakery-cafes opened 17 19 36
Bakery-cafes closed (1 ) (1 ) (2 )
Bakery-cafes as of September 25, 2012 792 833 1,625

Average weekly sales ("AWS") for Company-owned new units year-to-date through the third quarter fiscal 2012 were $47,438 compared to $41,470 in the same period of fiscal 2011. AWS for franchise-operated new units year-to-date through the third quarter fiscal 2012 were $47,680 compared to $41,864 in the same period of fiscal 2011. A schedule of the third quarter and year-to-date fiscal 2012 AWS is attached as Schedule II.

Fourth Quarter Fiscal 2012 Outlook

Fourth Quarter Fiscal 2012 Targets

Diluted EPS Target

The Company is raising its target for fourth quarter fiscal 2012 earnings per diluted share to $1.72 to $1.74 from its prior targeted range of $1.66 to $1.70. If the Company meets this target, diluted earnings per share would grow 31% to 33% in the fourth quarter fiscal 2012 versus $1.31 per diluted share in the fourth quarter fiscal 2011.

The fourth quarter fiscal 2011 earnings per diluted share included a $5.0 million one-time legal settlement charge. Excluding this one-time charge, targeted fourth quarter fiscal 2012 diluted earnings per share growth would be 21% to 23%.

The fourth quarter fiscal 2012 diluted earnings per share target includes the following key assumptions:

Comparable Net Bakery-Cafe Sales Growth

The range for the Company's fourth quarter fiscal 2012 Company-owned comparable net bakery-cafe sales growth over the comparable period in fiscal 2011 is now targeted at 5.0% to 6.0%. The fourth quarter fiscal 2012 target assumes 1.0% to 1.5% transaction growth and average check growth of approximately 4.0% to 4.5%, consisting of a year-over-year price increase of approximately 2.5% and positive mix impact on check growth of 1.5% to 2.0%. Company-owned comparable bakery-cafe sales growth for the first twenty-seven days of the fourth quarter fiscal 2012 was 6.1%.

Operating Margin Target

In the fourth quarter fiscal 2012, the Company now anticipates its operating margin will improve by approximately 75 to 100 basis points on a year-over-year basis, reflecting higher than previously targeted comparable net bakery-cafe sales growth in the fourth quarter fiscal 2012.

Updated Full Year Fiscal 2012 Outlook

Diluted EPS Target

The Company is raising its target for fiscal 2012 earnings per diluted share to $5.86 to $5.88 from its prior targeted range of $5.72 to $5.78. If the Company meets this target, diluted earnings per share would grow 29% in fiscal 2012 versus $4.55 per diluted share in fiscal 2011. The increase in the Company's diluted earnings per share target reflects higher comparable net bakery-cafe sales growth and improved operating margins.

Fiscal 2011 earnings per diluted share included a $5.0 million one-time legal settlement charge in the fourth quarter fiscal 2011. Excluding this one-time charge, targeted fiscal 2012 diluted earnings per share growth would be 26%.

This full year fiscal 2012 diluted earnings per share target is based on the following key assumptions:

Comparable Net Bakery-Cafe Sales Growth

The range for the Company's fiscal 2012 Company-owned comparable net bakery-cafe sales growth over the comparable period in fiscal 2011 is now targeted at 6.0% to 6.5%. The fiscal 2012 target assumes transaction growth of 1.0% to 1.5% and average check growth of approximately 5.0% on average year-over-year price increases of approximately 3.0% and positive mix impact of approximately 2.0%.

Operating Margin Improvement

For fiscal 2012, the Company is increasing its previous target for operating margin to 75 to 100 basis points favorable to fiscal 2011, reflecting higher than previously targeted comparable net bakery-cafe sales growth in fiscal 2012.

New Unit Development and AWS

The Company now expects to be at the high-end or slightly over the previously provided targeted range of 115-120 system-wide new unit openings in fiscal 2012. The average weekly net sales performance for new Company-owned units is now expected to be above the previously provided targeted range of $40,000 to $42,000 for fiscal 2012 primarily due to the favorable impact of a higher number of new units opened in urban areas during fiscal 2012.

Initial Full Year Fiscal 2013 Targets

The Company is initially targeting fiscal 2013 earnings per diluted share of $6.85 to $7.00, up 17% to 19%, versus the midpoint of fiscal 2012 targeted earnings per diluted share. This range includes the favorable impact of the 53rd week in fiscal 2013.

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 targeting Company-owned comparable net bakery-cafe sales growth to be in the range of 4.5% to 5.5% for fiscal 2013 versus the midpoint of fiscal 2012 targeted comparable net bakery-cafe sales growth.

Operating Margin Improvement

The Company's fiscal 2013 EPS target assumes its fiscal 2013 operating margin range will be flat to 50 basis points of improvement as compared to the midpoint of fiscal 2012 targeted operating margin. This target includes a significant step up in investments to provide greater access for customers, increased operational capabilities, and improvement to the Company's core enterprise systems.

New Unit Development and AWS

The Company's fiscal 2013 EPS target assumes approximately 115-120 system-wide new unit openings. The average weekly net sales performance for new Company-owned units is targeted at $40,000 to $42,000.

Concluding Comments

Bill Moreton, President and Co-CEO, commented, "We are pleased to report 28% earnings growth in the third quarter driven by our 6.2% comparable store sales increase. These strong results are reflective of the continued investments we are making in the quality of our food, marketing, and operations, which we believe are resulting in a better and differentiated customer experience."

Ron Shaich, Chairman and Co-CEO added, "Building on our long-term strategy to drive competitive advantage, we are going to step up our level of investment to provide greater access for our customers, increase our operational capabilities, and improve our core enterprise systems in 2013. We believe these initiatives, along with many other initiatives that are underway, will position Panera for even greater success well into the future."

Notes:

The Company will host a conference call that will be broadcast on the Internet at 7:30 A.M. Central Time on Wednesday, October 24, 2012 to discuss the third quarter fiscal 2012 results, preliminary comparable net bakery-cafe sales results for the first 27 days of the fourth quarter fiscal 2012, earnings targets and business outlook for the fourth quarter and full year fiscal 2012, and establishing full year targets for fiscal 2013. To access the call or view a copy of this release, go to http://www.panerabread.com/investor. Access to the call will be made available for 14 days, and the release will be archived for one year.

We include in this release information on Company-owned, franchise-operated, and system-wide comparable net bakery-cafe sales percentages. Company-owned comparable net bakery-cafe sales percentages are based on net sales from Company-owned bakery-cafes included in our base store bakery-cafes. Franchise-operated comparable net bakery-cafe sales percentages are based on net sales from franchised bakery-cafes, as reported by franchisees, that are included in our base store bakery-cafes. Bakery-cafes and other restaurant or bakery-cafe concepts are included in the comparable net bakery-cafe sales percentages only if the Company or franchisee previously held or acquired a 100 percent ownership interest prior to the first day of the prior fiscal year. Comparable net bakery-cafe sales exclude closed locations.

Comparable net bakery-cafe sales percentages are non-GAAP financial measures, which should not be considered in isolation or as a substitute for other measures of performance prepared in accordance with Generally Accepted Accounting Principles, or GAAP, and may not be equivalent to comparable net bakery-cafe sales as defined or used by other companies. The Company does not record franchise-operated net bakery-cafe sales as revenues. However, royalty revenues are calculated based on a percentage of franchise-operated net bakery-cafe sales, as reported by franchisees. The Company uses franchise-operated and net system-wide sales information internally in connection with store development decisions, planning, and budgeting analyses. Franchise-operated and system-wide net sales information is useful in assessing consumer acceptance of the Company's brand, facilitates an understanding of its financial performance and the overall direction and trends of net sales and operating income, helps it appreciate the effectiveness of its advertising and marketing initiatives, to which its franchisees also contribute based on a percentage of their net sales, and provides information that is relevant for comparison within the industry.

About Panera Bread Company

Panera Bread Company owns and franchises 1,625 bakery-cafes as of September 25, 2012 under the Panera Bread®, Saint Louis Bread Co.®, and Paradise Bakery & Café® names. Our bakery-cafes are principally located in suburban, strip mall and regional mall locations. 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 antibiotic-free chicken, 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. Additional information is available on our website, http://www.panerabread.com.

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