Panera Bread Company (

PNRA

)

Q2 20011 Earnings Call

July 27, 2011, 6:00 AM ET

Executives

Michelle Harrison – Vice President, Investor Relations & Corporate Development

Jeffrey Kip – Senior Vice President, Chief Financial Officer

William Moreton –President, Chief Executive Officer

Analysts

Jason West – Deutsche Bank

Joe Buckley – BofA/Merrill Lynch

John Glass – Morgan Stanley

Jeffrey Bernstein – Barclays Capital

David Tarantino – Robert W. Baird

Sharon Zackfia – William Blair & Co.

Mitch Speiser – Buckingham Research

Bart Glenn – D.A. Davidson

Phillip Juhan – BMO Capital Markets

Steve Anderson – Miller Tabak

Presentation

Operator

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Good day everyone and welcome to today’s Panera Bread Company 2011 Second Quarter Earnings Call. Today’s call is being recorded. At this time it is my pleasure to turn the conference over to Michelle Harrison. Please go ahead.

Michelle Harrison

Thank you very much Nicole. Good morning to everyone and welcome to Panera Bread’s second quarter earnings call. I’m Panera Bread’s Vice President of Investor Relations and Corporate Development and here on the call with me this morning are Bill Moreton, our CEO and President; Jeff Kip, our Senior Vice President and Chief Financial Officer.

Before we begin, let me cover off on a few regulatory matters. I’d like to note that during our opening remarks and in our responses to your questions, certain items may be discussed which are not based on historical facts. Any such items including targeted 2011 and 2012 results or conditions and details relating to 2011 and 2012 performance should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially.

I would like to now turn the call over to Bill.

William Moreton

Thank, Michelle. Good morning everyone. I’m pleased to report another strong quarter with our second quarter EPS growth growing 39% over the prior year. This marks the 12 out of the last 13 quarters that our EPS has grown 20% or greater. It’s important to note that we’ve delivered these results while continuing to invest in the quality of our food, operations and overall customer experience, which we believe will drive our performance in 2012 and beyond.

Our second quarter comparable company store sales were 4.4%, primarily driven by strong transaction growth of 2.9%. We should note that we’re rolling over comp store sales increases of 9.6% in the second quarter of last year, making our two-year comparable company store sales growth equal to 14% on a two-year basis, representing a slight acceleration from our first quarter two-year comp run rate.

For the first 27 days of our third quarter, our comparable company bakery café sales have grown 4.8%. For us, there seem to be an anomaly in the July fourth week with the timing of the holiday. Our comps that week grew only 1.8%. Excluding the July fourth week, our company comparable store sales have grown 5.7% so far this quarter.

While we believe that our one and two year comparable store sales results remain amongst the very best in our industry they did fall approximately 1% below our expectations.

The biggest headwind we've seen over the last few months, and expect to continue to see, is what we believe stems from macro economic pressures on the consumer. The impact of the economy on a consumer is always hard to gage and harder to quantify. However, we believe that between high gas prices, food cost inflation in grocery stores, the difficult housing market and an unemployment rate that continues to hover around 9% the consumer has been a bit more cautious in their spending. Although we are well positioned with the quality and value of our offerings and overall customer experience to perform well in difficult economic environments as we’ve shown throughout the recession we believe that this is a primary driver of our slightly lower comparable store sales than our second quarter target of 5% to 6%.

Despite these headwinds we expect our comps to run a little stronger for Q3 and Q4 than recent trends, more like 5% at the midpoint of our range than 4.5% or so that we’ve seen over the last four months. I'd now like to update you on our key initiatives that drove our 39% EPS growth in the second quarter. First I’d like to note that our growth was driven by success in all of the business that we serve. Breakfast, lunch, chill, dinner and catering, all grew in profitability compared to the prior year. This has been true for the last eight consecutive quarters where each of those businesses has grown compared to the year prior. Let's look first at the work we're doing on our menu.

The biggest initiative that we have this year is the establishment of the hot sandwiches as a key platform for us. As I mentioned on the last call, we rolled out our second generation Panini Grills beginning late last year and finishing up early this year. As a reminder this growth heats more evenly throughout and produces a much better paninian breakfast sandwich. The growth also allows us to make each Panini to order instead of having to pre-make them and hold them in a heating cabinet as we had to do before.

We rolled out steak as a new protein for Panera in the second quarter and highlighted the Steak Panini and the Steak breakfast sandwich. Both products performed very well and helped grow our breakfast, lunch and dinner day parts.

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