Panera Bread's CEO Discusses Q3 2011 Results - Earnings Call Transcript

Panera Bread Company ( PNRA)

Q3 2011 Earnings Call

October 26, 20118:30 AM ET

Executives

Michele Harrison – VP, IR

William Moreton – President and CEO

Jeffrey Kip – SVP and CFO

Analysts

David Tarantino – Robert W Baird

Joseph Buckley – Bank of America/Merill Lynch

Matthew DiFrisco – Lazard Capital Markets

John Glass – Morgan Stanley

Michael Kelter – Goldman Sachs

Jeff Bernstein – Barclays Capital

Christopher O’Cull – SunTrust Bank

Brian Bittner – Oppenheimer

Jason West – Deutsche Bank

Nicole Miller – Piper Jaffray

Sharon Zackfia – William Blair

Phillip Juhan – BMO Capital Markets

Mitchell Speiser – Buckingham Research

Nick Setyan – Wedbush Securities

Stephen Anderson – Miller Tabak

Robert Derrington – Morgan Keegan

Bart Glenn – DA Davidson

Presentation

Operator

Good day, and welcome to today’s Panera Bread Company 2011 Third Quarter Earnings Call. Today’s call is being recorded. At this time, I would like to turn the call over to Michele Harrison. Please go ahead.

Michele Harrison

Thanks, Celia. Good morning to everyone, and welcome to Panera Bread’s third quarter earnings call. I’m Panera’s Vice President of Investor Relations and Corporate Development. Here with me on the call this morning is Bill Moreton, our CEO and President; and Jeff Kip, our Executive Vice President and Chief Financial Officer.

Let me cover a few regulatory matters, before we begin our call today. 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 fact.

Any such items, included 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 Security 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’d like to now turn the call over to Bill. Bill?

William Moreton

Thanks, Michele. Good morning, everyone. The third quarter was another very strong quarter for us. We delivered $0.97 earnings per share, which represents 29% growth over the prior year. In fact, this marks the 13th out of the last 14 quarters we have had 20% or greater EPS growth.

Our revenue grew 22% to 453 million during the quarter and was driven by our strong same-store sales and new unit development. Our company-owned comparable bakery-cafe sales were up 6% this quarter, which was above our previous expectation based on stronger transaction and mix growth.

So far, in the fourth quarter to-date, our company comp store sales are up 6.7%. As a result, we’re raising our fourth quarter comp store sales target to 5.5 to 6.5%. I should also mention, we are maintaining our fiscal year 2012 comparable store sales target of 4 to 5%.

In addition to our sales results, we continue to be pleased with the performance of our new bakery-cafes. Our new unit average weekly sales volume is a proxy for our customers’ affinity for our concept as well as for the level of the financial return we’re getting on our capital investments.

Our AWS also reflects the real estate disciplines we put into place a couple of years ago. Our company new unit AWS is $41,470 on a year-to-date basis, which is up versus last year’s record pace of $40,950. We are raising our 2011 new unit target to 110 to 115 units, which is a 10 to 15 units more than our original range.

And we’re also today raising our 2012 new unit expectation to the same 110 to 115 units. The key driver of increased production has been our franchise community, and it’s a great sign of confidence in the concept, when our franchisees increase their own pace of capital investment.

We are also pleased that we were able to deploy nearly 90 million of capital in this quarter by buying back approximately 850,000 shares at an average price of $103.62 per share. The buyback resulted in $0.01 of accretion in our Q3 earnings and will result in approximately $0.04 of accretion in Q4. This will in turn result in an incremental $0.09 per share of accretion in 2012.

I would now like to spend a little time discussing our sales results and key initiatives with you. By components our Q3 comps of 6% consisted of 2.6% transaction growth and 3.4% average check growth. Looking first to transactions, our 2.6% transaction growth in the third quarter follows up on a strong 2.9% transaction growth in the second quarter, and we think is demonstrative of the resiliency of our concept in more challenging economic times.

We are expecting transaction growth to flatten out in the fourth quarter and into 2012 as we anniversaried a significant contribution to incremental transaction growth we saw with the rollout of the MyPanera loyalty program in 2010. Our targets for transaction growth in Q4 and in 2012 accordingly are flat in Q4 and zero to 50 basis points positive in 2012.

I would now like to give you a little color and a little update on our key initiatives underlying this transaction growth. The first area of investment to drive transaction growth is in the quality of our food. This investment shows up in the strength of our celebrations and in the ownership of certain categories in our customers’ minds. Most of the third quarter was spent on our Celebration Three, which focused on our summer salads and finished with the kickoff of our celebration four, which is focusing more on our hot sandwich platform and our bakery goods.

Looking first at Celebration Three, our Signature Salads continue to do exceptionally well, led by our Strawberry Poppyseed Salad, and a category as a whole was up 10% versus 2010. Another key driver of Celebration Three was our breakfast sandwiches, which were up 18% compared to the prior year. This is another indicator of the improved quality that our new Panini grills are producing. Celebration Four, which started in mid-September marked the introduction of our Turkey artichoke Panini, which has helped grow the signature Panini category 35% since the start of the celebration. This sandwich features our new higher-quality turkey, utilizing the sous-vide cooking method that we’ve rolled out throughout the system.

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