Panera Bread Company (PNRA)

Q1 2012 Earnings Call

April 25, 2012 8:30 am ET


Michele Harrison - VP, IR

Ron Shaich - Chairman & Co-CEO

Bill Moreton - President & Co-CEO


Michael Kelter - Goldman Sachs

Matthew Difrisco - Lazard

David Tarantino - Robert W. Baird

Jason West - Deutsche Bank

Joe Buckley - Bank of America

Keith Siegner - Credit Suisse

John Glass - Morgan Stanley

Peter Saleh - Telsey Advisory Group

Phillip Juhan - BMO Capital Markets

Mitch Speiser - Buckingham Research

Bart Glenn - D. A. Davidson



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Good day, everyone and welcome to this Panera Bread First Quarter 2012 Earnings Conference Call. Today's call is being recorded. At this time, I would like to turn the conference to Ms. Michele Harrison. Please go ahead.

Michele Harrison

Thanks, Jake. Good morning to everyone, and welcome to Panera Bread's first quarter 2012 earnings call. Here with me on the call this morning are Ron Shaich, our Chairman and CEO -- Co-Chief Executive Officer; and Bill Moreton, our President and Co-Chief Executive Officer.

Before we begin this morning, let me cover a few regulatory matters. I'd like to note that during our opening remarks and our responses to your questions, certain items will be discussed, which are not based on historical fact.

Any such items, including targeted 2012 results and conditions and details relating to 2012 performance, should be considered forward-looking statements within the meaning of the Private Litigation Security Reform Act of 1995. As such, such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially.

With that, I'll turn it over to Bill. Bill?

Bill Moreton

Great, thanks, Michele. As Michele mentioned, both Ron and I are on the call this morning. I will take you through our first quarter results and our targets for the second quarter, and the remainder of the year, and then Ron and I will discuss our recent organizational changes and then we will both answer your questions.

We are pleased to announce another strong quarter. We reported earnings per share of $1.40 for the first quarter. This represents a 28% growth over the prior year and marks the eighth out of the last nine quarters that we have been able to grow our earnings at a rate of 20% or greater.

Earnings growth of approximately 23% was driven by core operations, which was above our long-term operating earnings growth target of 12% to 17%, with the remaining 5% of our earnings growth generated from the returns from the deployment of excess cash.

Let me first review our sales results for the first quarter and our expectations for the second quarter and full year with you. In Q1, company-owned comparable bakery-cafe sales increased 7.50%, which results from a two-year comp of 10.8%, which we continue to believe is among the very best in the restaurant industry. We estimate that our first quarter comparable company bakery-cafe sales benefitted by approximately 200 basis points compared to the prior year to mauling over the winter storms of the first quarter of 2011 and the unseasonably mild temperatures in the Mid West and Northeast in Q1 2012. We believe that this benefit was seen in both transactions and in mix.

Our first quarter increase of 7.5% breaks down into 2.1% transaction growth and 5.4% average check growth. Average check growth consists of year-over-year effective price of approximately 3.5%, and a positive mix impact of 1.9%. The impact, mix impact was primarily due to the catering contribution of approximately 100 basis points, and better than expected retail mix, driven by higher salad sales, due to the success of our Salmon Salad and the unseasonably warm weather.

So far in the second quarter to-date, our company-owned bakery-cafe sales have increased by 5.2%. It's always a little hard to read the second quarter sales in April, due to the differences and the timing of the Easter Holiday and different spring breaks across the country. As a result, we are setting our full second quarter comp, company store comp target at 4.5% to 5.5%.

Breaking down the second comp targets, we're targeting transaction growth of approximately flat to 50 basis points positive, and 450 to 500 basis points of check growth.

Transaction growth is expected to be up slightly as we continue to rollover the launch of the loyalty program last year, which generated strong transaction growth.

Check growth is driven by approximately 3% price and 1.5% to 2% of mix. We expect that our second quarter mix will be positively impacted by the plan to earlier start of our summer celebration in 2012, which features the strawberry poppy seed salad, a great lineup of smoothies, and a new roast Turkey and Avocado BLT sandwich that is tested very well.

For the full year, we now expect to be at the high-end of our fiscal year 2012 comp target range of 4.5% to 5.5%, which consists of 50 to 100 basis points transaction growth and 4% to 4.5% check growth, consisting of approximately 3% price and 1% to 1.5% mix.

The five key areas where we are investing to drive these top line sales results. Those are investments and the quality of our food, our increased marketing expenditures, and rollout and refinement of our MyPanera loyalty program, the growth of our catering business, and the quality of our operations and our people.

I'd now like to give you a quick update on each of these investment areas. First, the investment in food. We continue to invest in the quality of our ingredients and strive to produce innovative menu items through the creativity of our culinary group and the craftsmanship of our bakers and associates. The first quarter produced strong results in our signature salads, which were up 16% driven by our Salmon Salad. This high quality cut of Norwegian salmon is a truly differentiated offering from our competitors and our customers have noted.

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