Panera Bread Conference Call Highlights

Panera Bread

reported its third quarter earnings. Shares of the company are down a whopping five percent. Below are some key highlights and takeaways: Operations and Quarter Performance: • Revenues for the third quarter increased 8% to $620 million. • This was primarily the result of opening new company-owned bakery cafes as well as 2.1% comp store sales growth in company-owned cafes. • This comp growth consisted of 1.4% transaction growth and 70 basis points of check. • Our comp momentum continued into the start of the fourth quarter. • The comps for the first 27 days of Q4 are 3.3%. • I want to note that we are very pleased with our progress. • During the quarter, we opened 28 new bakery cafes system-wide, 13 company-owned and 15 franchise-operated. • Bringing our system-wide cafe count to 1,845. • We've opened 35 class of 2014 company-owned traditional bakery cafes. • These cafes had year-to-date average weekly sales of $47,082 versus $45,856 last year. • Our 34 newly-opened franchise operated traditional bakery cafes had year-to-date average weekly sales of 50,315 versus 48,553 last year. • During the quarter, we repurchased approximately $29 million of shares at an average repurchase price of $148.95. • We ended the quarter with $146 million in cash. • We generate approximately $48 million of cash flow from operations during the third quarter and deployed $65 million towards capital expenditures. • Finally, we remain focused on our tax rate and have put considerable work against modestly lowering our effective tax rate. • Our tax rate was 32.6% • Comps for Q3 increased by 2.1% versus the prior year. • Our comp growth in Q3 was made up of 1.4% transaction growth and 0.7% check growth. • Indeed, both transaction growth and check growth improved sequentially versus Q2, 2014. • We take this as a real sign of momentum. • By month, comps were up 2.3% in July, 1.4% in August, and 2.6% in September. Through the first 27 days of Q4, or said differently, essentially the month of October, comps are up 3.3%. • Comp sales grew 3.3% on a one-year basis, and 4.9% on a two-year basis. • In C1, that is to say the beginning of 2015, we will introduce a line of broth bowls, including a soba noodle bowl with chicken and a lentil quinoa bowl. • Long-term, we know we need balanced comp growth with a mix of transaction growth and check growth. Panera 2.0: • Panera 2.0 is all about enhancing the experience for both our dine-in and to-go guests. • Panera 2.0 remains in its infancy. • We have now converted 43 cafes. These 43 include the initial four test cafes in Boston, the 16 cafes we converted in Charlotte by June of 2014, and the 23 cafes we recently converted in the Dallas market. • Our goal remains to have approximately 100 2.0 cafes operating by the end of 2014. • We continue to learn and iterate with each market we roll into and we are getting smarter with each cafe we convert. • For example, we are hearing feedback from customers, operators, and associates, and then incorporating that feedback before moving to the next market. • In addition, we are playing with different levels of investment to support 2.0 and we are moving down the learning curve in terms of the costs, particularly in labor, needed to transition, startup, and operate 2.0 cafes. • Panera 2.0 clearly drives sales. • Cafes converted to Panera 2.0 are consistently among the top-performing bakery cafes in Panera in terms of comp store sales growth. • The impact of 2.0 is also proven by our cafe health metrics, which tell us that Panera 2.0 provides a better overall guest experience. • We are getting smarter about and tightening the cost of rollout. Guidance: • We expect food inflation to continue to run higher than we had anticipated. • Earnings per share to be in the range of $1.77 to $1.87 for the quarter. This range would represent a down 3% to up 2%. • We expect our operating margins to contract by 200 to 225 basis points, and that's really driven by a couple of items. • For the year, we expect depreciation and amortization to be up approximately 15%. • Range of 115 to 125 new bakery cafs, still slightly more heavily weighted towards company-owned openings. • We also expect the average weekly sales for these units to finish the year within our target range of $41,000 to $43,000 per week. • As a result, our reported full-year 2014 EPS target is now $6.60 to $6.70 per share. • This range should be down 1% to up modestly versus 2013's EPS of $6.68.