Tuesday evening, Panera Bread Co. (PNRA), an operator of retail bakery-cafes, reported a 24% increase in its profit for the second quarter, helped by a rise in comparable bakery-café sales and higher operating margins. On a per share basis, earnings for the quarter surged 33% from a year ago. In addition, the company raised its earnings outlook for the second half of fiscal year 2008 and the full year.
Comparable company-owned bakery café sales increased 6.5% and comparable bakery-café sales in franchise-operated bakery cafes increased 4.8% in the quarter.
Last month, the Richmond Heights, Missouri-based company raised its earnings outlook for the second quarter, citing comparable bakery-café sales growth of 6.1%-6.4%. This compares to its prior outlook for comparable bakery-café sales growth in a range of 5%-6%. In addition, the company said it expected margin improvement on higher growth in gross profit per transaction.
For the second quarter, the company's net income increased to $15.71 million, or $0.52 per share, from $12.64 million, or $0.39 per share, in the same period last year. On average, sixteen analysts surveyed by First Call/Thomson Financial expected the company to report earnings of $0.49 per share for the second quarter.
Results for the latest quarter include a $0.02 per share impact of an unfavorable tax adjustment and $0.01 per share impact from the further write-down of the company's investment in the Columbia Strategic Cash Portfolio.
Quarterly revenue increased 27% to $320.87 million from $252.96 million in the corresponding period last year. Fourteen Wall Street analysts had a consensus revenue estimate of $318.57 million for the quarter.
Operating profit for the quarter rose to $27.17 million from $18.85 million in the year-ago quarter.
The company's operating margin for the second quarter was up 100 basis points from a year ago, driven by improvement in its bakery-café margin of 170 basis points and additional sales leverage against depreciation and amortization, general and administrative expenses, and pre-opening expenses. This improvement in operating margin occurred while the company was absorbing approximately $6.25 million in wheat cost increases, net of pricing, versus the prior year. In addition, the company noted that it was able to maintain positive transaction growth while driving margin improvement.
Comparable sales results were positively impacted by about 0.3%-0.4% as a result of the shift of the Easter holiday to the first quarter of 2008 compared to the second quarter of 2007. In addition, the latest quarter's results include about 5.5% of price increases as compared to a year ago. Accordingly, the transaction/mix growth in company-owned bakery cafés was about 0.6%-0.7% favorable in the latest quarter.
Meanwhile, the average weekly sales, or AWS, for company-owned units in the quarter was $35,776 compared to $32,131 in the same period last year. Along with improved margins, improvement in new unit AWS is a key driver of improved return on invested capital.
Commenting on the results, Ron Shaich, chairman and chief executive officer of Panera Bread said, "To deliver 33% earnings growth in the second quarter, despite the weak consumer environment and the hyperinflation we are experiencing in wheat and gasoline, is quite gratifying."
For the year-to-date period, the company's net income increased to $28.15 million, or $0.93 per share, from $27.68 million, or $0.86 per share in the year-ago period. Total revenue for the period climbed 27% to $625.85 million from $492.63 million in the year-ago period.
Looking ahead to the third quarter, the company provided earnings outlook in a range of $0.42-$0.44 per share, representing an increase of 14%-19% from $0.37 per share in the year-ago quarter. Analysts expect earnings of $0.41 per share for the quarter.
Relative to margins, the earnings outlook for the third quarter assumes that wheat costs will be $15.00 per bushel, compared to $5.80 per bushel in the prior-year period. The company noted that this would result in over $3 million of expense to be absorbed in bakery-cafe cost of sales. Further, the company said that the fresh dough cost of sales to franchisees margin would be further negatively impacted by inflation in other costs, including the rise in the cost of gasoline. However, the company expects this to be offset by a continued 100 basis point improvement to labor margins as a result of the decision to remove Crispani from the menu.
Relative to transactions, the outlook for the third quarter assumes retail price increases of 6.5% from the prior year, with company-owned comparable bakery-cafe sales growth of 4.0%-5.0%. This implies 1.5%-2.5% negative transaction/mix impact compared with the third quarter of 2007.
For the fourth quarter, the company provided earnings outlook in a range of $0.82-$0.86 per share, compared to $0.56 per share a year ago.
The company noted that wheat is projected to average $12.00 per bushel in the fourth quarter, inclusive of wheat futures and basis, compared to $5.80 per bushel in the prior year period. This would result in about $2.5 million in expense to bakery-cafe cost of sales from the same period last year. However, in the fourth quarter, the company expects to have increased dough transfer prices sufficient to match the inflation in the cost of wheat.
For the second half of the full year, the company raised its earnings outlook to a range of $1.24-$1.30 per share from the prior range of $1.14-1.26 per share.
Shaich added, "To be able to raise our second half 2008 targets to reflect a 33% to 40% increase over the prior year is a reflection of the strength of our concept, the power of our plan and the confidence we have in our Support Center team, our operators and our franchisees."
For fiscal year 2008, the company raised its earnings outlook to a range of $2.17-$2.23 per share from the prior range of $2.00-$2.11 per share. Eleven analysts expect earnings of $2.15 per share for the full year.
These targeted results include the more than $17 million, or approximately $0.34 per share, year-over-year negative impact from wheat cost inflation on the Company in fiscal 2008.
The company continues to target 100 new unit openings in 2008, approximately 40 Company-owned and 60 franchise-operated.
The company did not issue earnings outlook for fiscal year 2009. However, it noted that current analyst consensus estimates project growth rates ranging from about 17% to 21% for fiscal 2009 earnings per share based on its previously reviewed fiscal 2008 earnings outlook.
PNRA closed Tuesday's regular trading session at $51.00, up $2.49 or 5.13% on a volume of 1.33 million shares.
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June 05, 2026 16:18 ET A busy week for economic news flow saw a slew of reports being released that reflected the trends in the U.S. labor market. In Europe, economic growth and inflation data gained attention as the European Central Bank and Bank of England head for policy session later in the month. In Asia, the monetary policy session of the Indian central bank was in focus as the country, a major oil importer, reels under the pressures of a weaker rupee and rising inflation.