Long gone are the days when we could watch the economy in other continents suffer while we sat immune.
Panera Bread Company reported net income of $49 million, or $1.82 per diluted share, for fiscal Q2 2014, which included a $3.2 million, or $0.08 per diluted share, benefit from a favorable resolution of an insurance coverage matter.
In a July 29 release, the Company noted that the fiscal Q2 2014 results compare to net income of $51 million, or $1.74 per diluted share, for fiscal Q2 2013.
For the twenty-six weeks ended July 1, net income was $92 million, or $3.36 per diluted share. These results compare to net income of $99 million, or $3.38 per diluted share, for the twenty- six weeks ended June 25, 2013.
Fiscal Q2 2014 Results and Business Review
Comparable Net Bakery-Cafe Sales Growth
In fiscal Q2 2014, on a calendar basis, Company-owned comparable net bakery-cafe sales increased 0.1 percent, franchise-operated comparable net bakery-cafe sales decreased 0.2 percent, and system- wide comparable net bakery-cafe sales were flat compared to the comparable period in fiscal 2013.
The Company estimates that fiscal Q2 2014 Company-owned comparable net bakery-cafe sales results were negatively impacted by approximately 40 basis points from the shift of the Easter holiday from calendar Q1 2013 to calendar Q2 2014. Adjusting for this shift in Easter, Company-owned comparable net bakery-cafe sales for fiscal Q2 2014 are estimated to have been up 0.5 percent.
The Company-owned comparable net bakery-cafe sales increase of 0.1 percent on a calendar basis in fiscal Q2 2014 was comprised of year-over-year positive transaction growth of 0.4 percent and average check decline of 0.3 percent. This represents the first quarter of positive transaction growth for Company-owned bakery- cafes since fiscal Q3 2012.
After adjusting for the Easter holiday shift, fiscal Q2 2014 transactions were up approximately 0.8 percent. Average check decline was comprised of negative mix impact of approximately 0.9 percent, partially offset by price growth of approximately 0.6 percent.
For the first 27 days of fiscal Q3 2014, Company-owned comparable net bakery-cafe sales growth on a calendar basis was approximately 2.0 percent.
The Company believes that the calendar basis comparison better reflects the performance of the business as it eliminates the impact of the extra week in fiscal 2013 and compares consistent calendar weeks. Note that on a fiscal basis, Company-owned comparable net bakery-cafe sales for fiscal Q2 2014 also increased 0.1 percent.
In fiscal Q2 2014, the Company experienced a decline in operating margin of approximately 250 basis points compared to fiscal Q2 2013. This decline was primarily the result of continued investments related to key initiatives designed to improve the Company's guest experience, operational capabilities and technology infrastructure, as well as higher food and marketing expenses.
New Bakery-Cafe Development and AWS
Average weekly sales ("AWS") for Company-owned "Class of 2014" bakery-cafes through fiscal Q2 2014 was $48,300 compared to $50,983 in the same period of fiscal 2013. AWS for franchise-operated "Class of 2014" bakery-cafes through fiscal Q2 2014 was $53,882 compared to $49,855 in the same period of fiscal 2013.
AWS for Company-owned "Class of 2014" traditional bakery-cafes through fiscal Q2 2014 was $50,038 compared to $51,630 in the same period of fiscal 2013. AWS for Company-owned "Class of 2014" non- traditional bakery-cafes through fiscal Q2 2014 was $36,747 compared to $48,286 in the same period of fiscal 2013.
Non-traditional bakery-cafes refers to a range of alternate formats that the Company believes will allow it to more deeply penetrate existing and new territories with a range of different formats.
Use of Capital
On June 5, the Company's Board of Directors approved a new three year share repurchase authorization of up to $600 million and terminated the prior repurchase authorization. During fiscal Q2 2014, under the share repurchase authorizations, the Company repurchased 325,030 shares at an average price of $153.80 per share for an aggregate purchase amount of approximately $50 million.
The total fiscal Q2 2014 share repurchases had a nominal impact on the Company's fiscal Q2 2014 earnings per diluted share. The Company has approximately $588 million remaining under the current $600 million repurchase authorization as of fiscal Q2 2014.
Fiscal Q3 and Q4 2014 Outlook
The Company is targeting fiscal Q3 2014 diluted earnings per share of $1.40 to $1.46, representing an increase of 4 percent to 8 percent in fiscal Q3 2014 versus fiscal Q3 2013 excluding the impact of favorable tax-related adjustments of $0.13 per diluted share in fiscal Q3 2013.
The Company is targeting fiscal Q4 2014 diluted earnings per share of $1.89 to $1.98, representing an increase of 3 percent to 8 percent in fiscal Q4 2014 versus fiscal Q4 2013 excluding the estimated $0.13 per diluted share benefit from an additional operating week, as fiscal Q4 2013 was comprised of 14 weeks.
The fiscal Q3 and Q4 2014 targets assume the Company will continue to make investments in key initiatives consistent with its strategic plan throughout fiscal 2014. These targets also include the Company's expectation that it will continue to repurchase shares consistently throughout the year.
Full Year Fiscal 2014 Outlook
Diluted EPS Target
The Company is revising its target range for fiscal 2014 earnings per diluted share to $6.65 to $6.80 as a result of lower than expected growth in average check as well as higher than expected input costs.
This full year fiscal 2014 diluted earnings per share target range is based on the following key assumptions:
The targeted range for the Company's fiscal 2014 Company-owned comparable net bakery-cafe sales growth is revised to 0.0 percent to 1.5 percent. The Company continues to expect both comparable net bakery-cafe sales growth and transaction growth to strengthen in the second half of fiscal 2014 as a result of the timing and momentum of initiatives underway. As a result, the Company continues to expect that full year fiscal 2014 will include positive growth in transactions.
For fiscal 2014, the Company now expects operating margin will be down 135 to 185 basis points when compared to fiscal 2013. This target reflects more modest comparable net bakery-cafe sales growth, the full year impact of the key initiatives and related investments that are underway and higher input costs.
The Company is maintaining its previous target of 115 to 125 system-wide new bakery-cafe openings in fiscal 2014 and its average weekly net sales performance target for new Company-owned bakery- cafes of $41,000 to $43,000 for fiscal 2014.
Ron Shaich, Chairman and CEO, said, "In Q2 and into Q3, we have seen success against the near term goal we set for ourselves: growing transactions. This gives us confidence in the potency of our plan. While our average check declined modestly in Q2, primarily as a result of mix, we expect this will remain only a shorter-term drag. Looking long term, we remain confident in the initiatives underway. We believe they will further improve our guest experience and ensure we have the operational capabilities, technology infrastructure, and the food and marketing innovation necessary to compete and grow in a rapidly evolving marketplace. While we know our strategic plan and initiatives will require significant investment in 2014 and 2015, we continue to believe they will create the foundation for expanded earnings growth well into the future."
Panera Bread Company is a chain of bakery-cafes.
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