Sunday, May 25, 2008

Panera Bread (PNRA) Annual Report Review

Panera Bread (PNRA) is one of my favorite places to hang out. I believe it has replaced Starbucks as a middle ground between home and work. (As PNRA says, it "competes on the basis of providing an entire experience rather than price only.") The "cobblestone"--a sweet apple pastry with cinnamon and frosting--is my favorite product, and most weekends, they sell out if you don't get to the bakery early enough. (It may have a lot of calories, but it also provides some fiber.)

The company's HQ are in Missouri, and I wasn't able to go to the annual meeting this year. Here are some interesting tidbits from the annual report.

PNRA used to be Au Bon Pain Co. (I wondered what happened to those stores--I'd seen them sprouting all over S.F. and had expected them to keep growing all over California.)

PNRA indicated its summer salads would be a big hit, and that it was able to hold off temporarily on some price increases. It did have to remove the Crispani (pizza) from its menu to save on labor costs.

To give you an idea of just how small Peet's is, with its 166 stores, PNRA opened 169 new stores in 2007. Of those stores, 89 were company-owned, and 80 were franchisees. (PNRA has 1,167 stores total.)

PNRA played its hand well in the futures market for wheat, so wheat costs won't impact its bottom line, at least not in 2008. (Wheat costs won't "materially impact earnings growth" in 2008.)

PNRA's Board of Directors has a Berkshire (Dairy Queen's COO) member, Charles Chapman III--it's always a good sign when Berkshire Hathaway is involved.

PNRA's franchisee situation is interesting. Its arrangement seems fair and requires less start-up costs than a McDonald's or many other franchises. A franchisee must put a small percentage
of its sales into a national advertising fund and spend a certain percentage on local marketing efforts. PNRA receives 4 to 5% of the franchise's sales, in addition to 35,000 dollars as a one time franchise fee.

It costs 1 million dollars to open a PNRA store.

PNRA also owns 51% of Paradise Bakery and Cafe, as well SLB and Pride. It appears to be acquiring companies as part of its efforts to continue growing.

Most of PNRA's stores are in FL, IL, CA, PA, MI, and VA, in that order.

I don't have an opinion on how well this stock will do in the future. Chipotle (CMG) might be the newer growth story, because PNRA stock has already appreciated 1000% for its long time shareholders. I am guessing that PNRA shareholders who bought and held for years aren't complaining. I won't either, as long as I get my cobblestone pastry in the morning.

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