Panera income eases 2% in '07

by Eric Schroeder
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ST. LOUIS — Net income at Panera Bread Co. in the year ended Dec. 25 was $57,456,000, equal to $1.81 per share on the common stock, down 2% from $58,849,000, or $1.88 per share, in fiscal 2006. The most recent year’s results included a charge related to the company’s investment in Columbia Strategic Cash Portfolio as well as charges related to the discontinuation of the company’s Crispani bread line.

Net sales for the year were $1,066,691,000, up 29% from $828,971,000 in fiscal 2006.

During the fourth quarter ended Dec. 25, net income eased 6% to $17,834,000, or 56c per share, from $18,906,000, or 60c per share. Net sales in the quarter totaled $300,843,000, up 29%.

Ron Shaich, chairman and chief executive officer, said the 2.5% price increase Panera implemented on November 14 has been accomplished "with no noticeable degradation in transaction growth" despite recession fears.

"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," he said.

Looking ahead to 2008, Panera narrowed its earnings per share guidance to 12% to 18%. Panera said the guidance assumes the company is able to raise prices approximately 5% in 2008 and complete the removal of Crispani.

Panera also said rapidly escalating wheat costs will have a "significant impact" on the company in 2008. In connection with the higher costs, Panera said it expects dough prices to 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," Panera said.

Panera plans to open approximately 40 company-owned and approximately 60 franchise-operated bakery cafes in fiscal 2008, and 40 to 50 company-operated and 60 to 70 franchise-operated bakery cafes in fiscal 2009.

"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," Mr. Shaich said. "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."

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