Panera Bread Reports Financial Results for the Fourth Quarter and Fiscal Year Ended...

Panera Bread Reports Financial Results for the Fourth Quarter and Fiscal Year
Ended December 25, 2007
HIGHLIGHTS

ST. LOUIS, Feb. 12 /PRNewswire-FirstCall/ -- Panera Bread Company
(Nasdaq: PNRA) today reported net income of $18 million, or $0.56 per diluted
share, for the fourth quarter ended December 25, 2007, compared to net income
of $19 million, or $0.59 per diluted share, for the fourth quarter ended
December 26, 2006. Included in the fourth quarter 2007 results were an
aggregate of $0.03 per diluted share of one-time charges, which include a
write-down of our investment in the Columbia Strategic Cash Portfolio and a
charge related to the discontinuation of the Company's Crispani product line.
Excluding these one-time items, fourth quarter 2007 non-GAAP earnings would
have been $0.59 per diluted share. In addition, the fourth quarter 2007
results include an unanticipated charge of $0.03 per diluted share related to
unfavorable FIN48 tax adjustments primarily for certain state tax law changes.
A reconciliation of non-GAAP measurements to GAAP results is attached as
Schedule II.
For the year ended December 25, 2007, net income was $57 million, or $1.79
per diluted share, compared to $59 million, or $1.84 per diluted share, for
the year ended December 26, 2006. Included in the fiscal 2007 results were
$0.03 per diluted share of one-time charges, which include a write-down of our
investment in the Columbia Strategic Cash Portfolio and a charge related to
the discontinuation of the Company's Crispani product line. Excluding these
one-time items, fiscal 2007 non-GAAP earnings would have been $1.82 per
diluted share. In addition, the fiscal 2007 results include an unanticipated
charge of $0.03 per diluted share related to unfavorable FIN48 tax adjustments
primarily for certain state tax law changes. A reconciliation of non-GAAP
measurements to GAAP results is attached as Schedule II.
The Company's fourth quarter and fiscal 2007 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
December 25, 2007 December 26, 2006 Change

Total revenue $300,843 $232,912 29%
Net income $17,834 $18,906 -6%
Diluted earnings per share $0.56 $0.59 -5%
Shares used in diluted EPS 32,098 32,114

Fiscal Year Ended Percentage
December 25, 2007 December 26, 2006 Change

Total revenue $1,066,691 $828,971 29%
Net income $57,456 $58,849 -2%
Diluted earnings per share $1.79 $1.84 -3%
Shares used in diluted EPS 32,178 32,044

Fourth Quarter 2007 Key Metrics & Business Review
During the fourth quarter of 2007, comparable bakery-cafe sales increased
2.6% for Company-owned bakery-cafes and 1.2% for franchise-operated
bakery-cafes while average weekly sales decreased by 0.2% to $38,947 for
Company-owned bakery-cafes and declined by 1.1% to $40,632 for
franchise-operated bakery-cafes. This decline in average weekly sales
resulted from lower average weekly sales for bakery-cafes opened in 2007,
which averaged $35,092 system-wide in the quarter, and the growth of
bakery-cafes opened three years or fewer as a percentage of total bakery-cafes
opened.
During the fourth quarter of 2007, 39 Company-owned and 25
franchise-operated new bakery-cafes were opened, and two franchise-operated
bakery-cafes were closed. As of December 25, 2007, there were 1,230
bakery-cafes open system-wide. The breakdown of bakery-cafes between
Company-owned and franchise-operated is as follows:

Company- Franchise- Total
owned operated System
Bakery-cafes as of
September 25, 2007 493 675 1,168
Bakery-cafes opened 39 25 64
Bakery-cafes closed - (2) (2)
Bakery-cafes as of
December 25, 2007 532 698 1,230

Ron Shaich, chairman and CEO, commented, "We are very pleased to be able
to report Q4 results which materially exceeded our targets. We are also
pleased to report that the 2.5% price increase we took on November 14, 2007
was accomplished with no noticeable degradation in transaction growth in the
face of significant recessionary fears among consumers. We are seeing the
first signs of traction on the initiatives that will deliver against our
action plan of improved margins, transaction growth and strengthened return on
incremental invested capital."
2008 Business Outlook
2008 Full Year Financial Target
The Company is today narrowing its earnings per diluted share growth
target for fiscal year 2008 to 12% to 18% ($2.00 to $2.11 per diluted share).
The full year 2008 target assumes the following key assumptions:
Relative to margins, the 2008 target assumes the Company is able to raise
prices approximately 5% in 2008. The 2008 target also assumes the removal of
Crispani and a resulting benefit of 80-100 basis points in the labor margin.
Rapidly escalating wheat costs will have a significant impact on the
Company in 2008. The Company is essentially fully booked on its wheat
commitment for 2008 at all-in costs (wheat futures plus basis) of $14.00 per
bushel, on average. This compares to the average cost of $5.80 per bushel of
wheat in fiscal 2007, which results in an additional wheat related cost of
$26.5 million in 2008. The Company assumes it will increase its dough prices
from its fresh dough facilities (the primary user of wheat) to its company and
franchise stores as rapidly as it can throughout the year consistent with its
contractual agreements and the attendant structural limitations. The Company
expects that dough prices will increase by 11% on average in 2008, which
compares unfavorably to a 16% increase needed to cover the impact of the
inflation in wheat. However, in the second half of the year, the Company
expects to have taken enough price to cover all wheat cost inflation in that
half of the year.
In terms of transactions, the Company has a number of significant
initiatives in place to hold or drive transactions positive. However, given
the difficult consumer environment and the potential impact of Panera's
pricing initiatives, the Company is conservatively assuming 2.5% to 3.5% in
Company-owned bakery-cafe sales growth.
In terms of return on invested capital, the Company now believes it makes
sense to raise its sales hurdles to improve its return on investment for new
cafes. This comes as a result of the margin contraction the Company has
experienced in the last 24 months. Given its higher hurdles and site selection
standards, the Company will open approximately 40 Company-owned and
approximately 60 franchise-operated bakery-cafes in fiscal 2008 and 40-50
Company-operated and 60-70 franchise-operated bakery-cafes in fiscal 2009,
while retaining the ability to accelerate growth as margins, returns and the
performance of new units improve. As a result of its enhanced selection
standards, the Company now expects system-wide new unit average weekly sales
in fiscal 2008 to be between $36,000 and $38,000.
Quarterly Financial Targets
The quarterly distribution of the Company's earnings in fiscal 2008 will
be materially impacted by that quarter's all-in wheat price versus the cost of
wheat in the comparable quarter of 2007 and the timing of the Company's
ability to effect dough price increases for retail and fresh dough facilities.
Below are the Company's financial targets with respect to the first and
second quarters of fiscal 2008, as well as the second half of fiscal 2008.
For the first quarter of 2008, the Company anticipates earnings per
diluted share of $0.36 to $0.42 per diluted share versus $0.47 per diluted
share in the comparable period of fiscal 2007. The first quarter 2008 target
assumes that the removal of Crispani generates a 50 basis point improvement in
labor. It also assumes all-in wheat costs of $13.00 per bushel versus $5.80
per bushel in the prior year. In the first quarter, dough price increases in
place will be 5%, which is short of the 14% increase needed to cover the cost
of wheat. The target also assumes retail price increases of 3% and comparable
Company-owned bakery-cafe sales growth of 2.5% to 3.0%. Please note that
through the first six weeks of the first quarter of fiscal 2008, comparable
bakery-cafe sales for Company-owned bakery-cafes have grown 2.8% and
comparable bakery-cafe sales for franchise-operated bakery-cafes have grown
1.2%.
For the second quarter of 2008, the Company anticipates earnings per
diluted share to range from $0.37 to $0.43 versus $0.39 per diluted share in
the comparable period of fiscal 2007. The second quarter 2008 target assumes
that the removal of Crispani generates a 100 basis point lift to labor margin.
The target also assumes that wheat costs are $17.25 per bushel versus $5.80
per bushel in the prior year. This will require a 22% increase in dough prices
to break even, but only a 13% dough price increase will be in place. The
target also assumes retail price increases of 5.5% and comparable
Company-owned bakery-cafe sales growth of 2.5% to 4.5%.
For the third and fourth quarters of fiscal 2008, the Company anticipates
earnings per diluted share of $1.22 to $1.32 per diluted share versus $0.93
per diluted share in the comparable period of fiscal 2007. The second half of
fiscal 2008 target has the following assumptions: a benefit of 100 basis
points to labor margin from the removal of Crispani; wheat costs of $13.00 per
bushel versus $5.80 per bushel in the prior year and dough pricing in place to
match the inflation in the cost of wheat; retail price increase of 5.5%; and
comparable bakery-cafe sales growth of 2.5% to 4.5%.
Ron Shaich, chairman and chief executive officer concluded, "We face
several significant challenges as we take on the new year: unprecedented
inflation in the wheat markets, executing appropriate pricing adjustments and
an uncertain consumer environment. But despite these, we are very optimistic
about 2008. We are very pleased to have locked in wheat for the year below the
market and to be ready and able to execute price adjustments to mitigate the
extraordinary run-up in wheat costs. We believe the removal of Crispani
coupled with our category management and retail pricing initiatives will
directly impact margins over the next 24 months and drive an improved return
on capital. We're also optimistic that, despite the economic uncertainties in
our country, we can hold or improve transactions through a continued
commitment to long-term concept differentiation and a focus on breakfast
sandwiches, increased media trials and strong operations. Despite the
extraordinary commodity pressures we experience, we expect 2008 and 2009 will
be very good years for Panera Bread."
The Company will discuss fourth quarter and fiscal year 2007 results in a
conference call that will be broadcast on the Internet at 8:30 A.M. Eastern
Time on Wednesday, February 13, 2008. To access the call or view a copy of
this release, go to www.panerabread.com/investor. Access to the call
and the release will be archived for one year.
Company-owned comparable bakery-cafe sales percentages are based on sales
from bakery-cafes that have been in operation and Company-owned for at least
18 months. Franchise-operated comparable bakery-cafe sales percentages are
based on sales from franchised bakery-cafes, as reported by franchisees, that
have been in operation and franchise-operated for at least 18 months. Both
Company-owned and franchise-operated comparable bakery-cafe sales exclude
closed locations. System-wide comparable bakery-cafe sales percentages are
based on sales at both Company-owned and franchise-operated bakery-cafes.
Franchise-operated and system-wide comparable bakery-cafe sales
percentages are non-GAAP measures and as such, should not be considered in
isolation or as a substitute for other measures of performance prepared in
accordance with GAAP and may not be comparable to system-wide comparable
bakery-cafe sales as defined or used by other companies. We do not record
franchise-operated bakery-cafe sales as revenues. However, our royalty
revenues are calculated based on a percentage of franchise-operated
bakery-cafe sales. We use franchise-operated and system-wide sales
information internally in connection with store development decisions,
planning, and budgeting analyses. We believe franchise-operated and
system-wide sales information is useful in assessing consumer acceptance of
the Company's brand; facilitates an understanding of financial performance and
the overall direction and trends of sales and operating income; helps us
appreciate the effectiveness of our advertising and marketing initiatives
which the Company's franchisees contribute based on a percentage of their
sales; and provides information that is relevant for comparison within the
industry.
Panera Bread Company owns and franchises 1,167 bakery-cafes under the
Panera Bread(R) and Saint Louis Bread Co.(R) names as of December 25, 2007.
With its identity rooted in handcrafted, fresh-baked, artisan bread, Panera
Bread is committed to providing great tasting, quality food that people can
trust. Highlighted by antibiotic free chicken, whole grain bread, select
organic and all-natural ingredients and a menu free of man-made trans fat,
Panera's bakery-cafe selection offers flavorful, wholesome offerings. The 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 country, guests are enjoying Panera's
warm and welcoming environment featuring comfortable gathering areas, relaxing
decor, and free internet access provided through a managed WiFi network. At
the close of each day, Panera Bread bakery-cafes donate bread and baked goods
to community organizations in need. Additional information is available on
the Company's website, www.panerabread.com. Panera also holds a 51%
interest in Paradise Bakery & Cafe, Inc., owner and franchisor of 63
bakery-cafes as of December 25, 2007.
Matters discussed in this news release, including any discussion or
impact, express or implied, on the Company's anticipated growth, operating
results, and future earnings per share, contain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934. These statements are often
identified by the words "believe", "positioned", "estimate", "project",
"target", "continue", "intend", "expect", "future", "anticipates", and similar
expressions. All forward-looking statements included in this release are made
only as of the date of this release, and we do not undertake any obligation to
publicly update or correct any forward-looking statements to reflect events or
circumstances that occur or which we hereafter become aware, after that date.
Forward-looking information expresses management's present belief,
expectations, or intentions regarding the Company's future performance. The
Company's actual results could differ materially from those set forth in the
forward-looking statements due to known and unknown risks and uncertainties
and could be negatively impacted by a number of factors. These factors
include, but are not limited to, the following: inability to execute our
growth strategy, including, among other things, variations in the number,
timing, and successful nature of Company-owned and franchise-operated bakery-
cafe openings and continued successful operation of bakery-cafes; failure to
comply with government regulations; loss of a member of senior management;
inability to recruit qualified personnel; failure or inability to protect our
brand, trademarks, or other proprietary rights; competition; rising insurance
costs; disruption in our supply chain or increases in ingredient, product, or
other supply costs; disruptions or supply issues in our fresh dough
facilities; health concerns about the consumption of certain products;
complaints and litigation; risks associated with the acquisition of franchise-
operated bakery-cafes; other factors, some of which may be beyond our control,
effecting our operating results; and other factors that may effect restaurant
owners or retailers in general. These and other risks are discussed from time
to time in the Company's SEC reports, including its Form 10-K for the year
ended December 26, 2006 and its quarterly reports on Form 10-Q.

Schedule I

PANERA BREAD COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(In thousands, except per share amounts)

For the 13 Weeks Ended
December 25, 2007 December 26, 2006
Revenues:
Bakery-cafe sales $255,914 $188,811
Franchise royalties and fees 17,632 16,584
Fresh dough sales to franchisees 27,297 27,517
Total revenue 300,843 232,912
Costs and expenses:
Bakery-cafe expenses:
Cost of food and paper products 77,558 55,238
Labor 80,832 57,378
Occupancy 19,925 13,805
Other operating expenses 33,518 25,038
Total bakery-cafe expenses 211,833 151,459
Fresh dough cost of sales to franchisees 23,005 22,769
Depreciation and amortization 15,516 12,117
General and administrative expenses 16,039 13,865
Pre-opening expenses 3,601 2,232
Total costs and expenses 269,994 202,442
Operating profit 30,849 30,470
Interest expense 283 82
Other (income) expense, net 1,065 615
Income before minority interest and income
taxes 29,501 29,773
Minority interest (income) expense (308) -
Income before income taxes 29,809 29,773
Income taxes 11,975 10,867
Net income $17,834 $18,906

Basic net income per share $0.56 $0.60
Diluted net income per share (1) $0.56 $0.59
Shares used in calculation of basic EPS 31,792 31,426
Shares used in calculation of diluted EPS 32,098 32,114

(1) The $0.56 per diluted share results for the 13 weeks ended
December 25, 2007 include a one-time charge of $0.03 per diluted share
related to the Columbia Strategic Cash Portfolio write-down and
discontinuation of Crispani. The $0.59 per diluted share results for
the 13 weeks ended December 26, 2006 include a one-time charge of
$0.03 per diluted share related to the previously reported Paradise
acquisition. See Schedule II for further information.

Schedule I (continued)

PANERA BREAD COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(In thousands, except per share amounts)

For the fiscal year ended
December 25, 2007 December 26, 2006
Revenues:
Bakery-cafe sales $894,902 $666,141
Franchise royalties and fees 67,188 61,531
Fresh dough sales to franchisees 104,601 101,299
Total revenue 1,066,691 828,971
Costs and expenses:
Bakery-cafe expenses:
Cost of food and paper products 277,715 197,182
Labor 286,238 204,956
Occupancy 70,398 48,602
Other operating expenses 121,325 92,176
Total bakery-cafe expenses 755,676 542,916
Fresh dough cost of sales to
franchisees 86,579 85,618
Depreciation and amortization 57,903 44,166
General and administrative expenses 68,966 59,306
Pre-opening expenses 8,289 6,173
Total costs and expenses 977,413 738,179
Operating profit 89,278 90,792
Interest expense 483 92
Other (income) expense, net 333 (1,976)
Income before minority interest and income
taxes 88,462 92,676
Minority interest (income) expense (428) -
Income before income taxes 88,890 92,676
Income taxes 31,434 33,827
Net income $57,456 $58,849

Basic net income per share $1.81 $1.88
Diluted net income per share (1) $1.79 $1.84
Shares used in calculation of basic EPS 31,708 31,313
Shares used in calculation of diluted EPS 32,178 32,044

(1) The $1.79 per diluted share results for the 13 weeks ended
December 25, 2007 include a one-time charge of $0.03 per diluted share
related to the Columbia Strategic Cash Portfolio write-down and
discontinuation of Crispani. The $1.84 per diluted share results for
the fiscal year ended December 26, 2006 include a one-time charge of
$0.03 per diluted share related to the previously reported Paradise
acquisition. See Schedule II for further information.

Schedule I (continued)

PANERA BREAD COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
MARGIN ANALYSIS
(unaudited)

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 operations for the period indicated.
Percentages may not add due to rounding:
For the 13 Weeks Ended
December 25, 2007 December 26, 2006
Revenues:
Bakery-cafe sales 85.1% 81.1%
Franchise royalties and fees 5.9 7.1
Fresh dough sales to franchisees 9.1 11.8
Total revenue 100.0% 100.0%

Costs and expenses:
Bakery-cafe expenses (1):
Cost of food and paper products 30.3% 29.3%
Labor 31.6 30.4
Occupancy 7.8 7.3
Other operating expenses 13.1 13.3
Total bakery-cafe expenses 82.8 80.2
Fresh dough cost of sales to
franchisees (2) 84.3 82.7
Depreciation and amortization 5.2 5.2
General and administrative expenses 5.3 6.0
Pre-opening expenses 1.2 1.0
Total costs and expenses 89.7 86.9
Operating profit 10.3 13.1
Interest expense 0.1 -
Other (income) expense, net 0.4 0.3
Income before minority interest and income
taxes 9.8 12.8
Minority interest (income) expense (0.1) -
Income before income taxes 9.9 12.8
Income taxes 4.0 4.7
Net income 5.9% 8.1%

(1) As a percentage of Company bakery-cafe sales.
(2) As a percentage of fresh dough sales to franchisees.

Schedule I (continued)

PANERA BREAD COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
MARGIN ANALYSIS
(unaudited)

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

For the fiscal year ended
December 25, 2007 December 26, 2006
Revenues:
Bakery-cafe sales 83.9% 80.4%
Franchise royalties and fees 6.3 7.4
Fresh dough sales to franchisees 9.8 12.2
Total revenue 100.0% 100.0%
Costs and expenses:
Bakery-cafe expenses (1):
Cost of food and paper products 31.0% 29.6%
Labor 32.0 30.8
Occupancy 7.9 7.3
Other operating expenses 13.6 13.8
Total bakery-cafe expenses 84.4 81.5
Fresh dough cost of sales to
franchisees (2) 82.8 84.5
Depreciation and amortization 5.4 5.3
General and administrative expenses 6.5 7.2
Pre-opening expenses 0.8 0.7
Total costs and expenses 91.6 89.0
Operating profit 8.4 11.0
Interest expense 0.1 -
Other (income) expense, net - (0.2)
Income before minority interest and
income taxes 8.3 11.2
Minority interest (income) expense - -
Income before income taxes 8.3 11.2
Income taxes 2.9 4.1
Net income 5.4% 7.1%

(1) As a percentage of Company bakery-cafe sales.
(2) As a percentage of fresh dough sales to franchisees.

Schedule II

PANERA BREAD COMPANY
RECONCILIATION OF NON-GAAP MEASUREMENTS TO GAAP RESULTS
(unaudited)

In addition to the results provided in accordance with Generally Accepted
Accounting Principles ("GAAP") throughout this release, the Company has
provided non-GAAP measurements to exclude the impact of certain one-time
charges on the fiscal 2007 and 2006 results. The fiscal 2007 one-time charges
totaled $0.03 per diluted share and include a write-down of our investment in
the Columbia Strategic Cash Portfolio of $0.02 per diluted share and a charge
of $0.01 per diluted share related to the discontinuance of our Crispani
product line. The fiscal 2006 results include a one-time charge of $0.03 per
diluted share related to the Paradise acquisition.
The Company is providing the table below because management believes it
provides useful information to investors regarding the Company's results of
operations by providing current and prior reported amounts on a comparable
basis. The non-GAAP net income and earnings per share amounts of $18,924 and
$0.59, respectively, for the 13 weeks ended December 25, 2007; $58,546 and
$1.82, respectively, for the fiscal year ended December 25, 2007; $19,978 and
$0.62, respectively, for the 13 weeks ended December 26, 2006; $59,921 and
$1.87, respectively, for the fiscal year ended December 26, 2006 are
considered "non-GAAP financial measures" under applicable SEC rules because
they are adjusted to exclude one-time charges in the fourth quarters of fiscal
2007 and 2006, which are not included in the directly comparable measures
calculated in accordance with GAAP. These non-GAAP financial measures are not
a substitute for the reported GAAP measures.

Schedule II (continued)

PANERA BREAD COMPANY
RECONCILIATION OF NON-GAAP MEASUREMENTS TO GAAP RESULTS
(unaudited)

The adjustments for the one-time charges had the following effect on
reported amounts (in thousands, except earnings per share):
For the quarter ended
December 25, December 26,
2007 2006
GAAP Net income $17,834 $18,906
Plus: Cash fund and Crispani one-time
charges, net of tax 1,090 -
Plus: Paradise one-time charge, net of tax - 1,072
Non-GAAP Net income $18,924 $19,978

GAAP diluted earnings per share $0.56 $0.59
Plus: Cash fund and Crispani one-time
charges, net of tax 0.03 -
Plus: Paradise one-time charge, net of tax - 0.03
Non-GAAP diluted earnings per share $0.59 $0.62

Shares used in diluted EPS calculation 32,098 32,114

Schedule II (continued)

PANERA BREAD COMPANY
RECONCILIATION OF NON-GAAP MEASUREMENTS TO GAAP RESULTS
(unaudited)

For the fiscal year ended
December 25, December 26,
2007 2006
GAAP Net income $57,456 $58,849
Plus: Cash fund and Crispani one-time
charges, net of tax 1,090 -
Plus: Paradise one-time charge, net of tax - 1,072
Non-GAAP Net income $58,546 $59,921

GAAP diluted earnings per share $1.79 $1.84
Plus: Cash fund and Crispani one-time
charges, net of tax 0.03 -
Plus: Paradise one-time charge, net of tax - 0.03
Non-GAAP diluted earnings per share $1.82 $1.87

Shares used in diluted EPS calculation 32,178 32,044

SOURCE Panera Bread Company

Jeff Kip, Senior Vice President, Chief Financial Officer of Panera Bread
Company, +1-314-633-7289