December 15, 2008 - Panera Bread Company (PNRA-NASDAQ) together with its subsidiaries, operates and franchises retail bakery-cafes in the United States. Its retail products include fresh baked goods, soups, salads, custom roasted coffees, and other complementary products. As of December 25, 2007, Panera operated 532 company-owned and 666 franchise-operated bakery-cafes under the PaneraBread, Saint Louis Bread Co., and Paradise Bakery & Cafe names. The company was founded in 1981 as Au Bon Pain Co., Inc. and changed its name to Panera Bread Company in 1998. Panera is based in Richmond Heights, Missouri.

Revenues have kept in step with earnings, going from $640 million in 2005, to $829 million, then $1.067 billion. This year estimates are for $1.29 billion and $1.330 billion next.

One analyst, Steven Rees from JP Morgan, had this to say about Panera:
He was "incrementally comfortably with the near-term earnings picture" after company executives spoke at an analyst meeting Thursday (December 4). He said that management indicated it would continue to build on its margin-enhancing and sales driving initiatives.

Restaurants are currently hurting as more consumers are pulling back on their spending during the recession, but Panera has high earnings visibility for the fourth quarter of fiscal 2008 and fiscal 2009, Rees wrote. He said the company has a solid value positioning and focuses on breakfast and lunch, which are worth 70 percent of sales. He said it will fare better than its peers who focus on dinner and "are increasingly turning towards margin-eroding discounting."

Management said the company plans to have more breakfast products, such as new sandwiches, and improved coffee and packaging in January. It also plans to have new sizing and pricing for soups, improved salads and more efficient panini presses to lessen preparation time for the popular sandwiches.

Investors liked what they read and drove the stock to $49 recently, up from $46, where the stock traded before the release of the report. The 52-week high was $61.18 while the low was $30.60 where it started the year. The all-time high was hit in 2006 when the stock traded at $75.90.

Several factors are helping profits and profit margins. One is that price hikes are sticking. Increased pricing on many items is not slowing customers from eating at Panera. Another is careful category management, focusing on promoting higher-margined items. Another is the slow down in expansion. The company opened about 170 new stores in 2007, a record year. Analysts think the number will be closer to 100 this year. Next year, management stated it will be closer to 80 or 90 new cafes. Without the added expense of new units, the company will generate much higher free cash flow, allowing for dividends or acquisitions.

More numbers: Market Cap is $1.54 billion with 30.74 million shares outstanding and a float of 27.6 million. Insiders own 7% of the stock. Institutions own most of the remaining shares. Forward P/E is 19. Price to Book is 3.18. Operating margin is 8.43% and Profit margin is 4.81%. There is no debt. Book Value is $15.12. Current ratio is .8.

Panera Bread is bucking the general trend for corporate profits. While most others are cutting prices and lowering earnings estimates, Panera is raising prices and predicting increases in the bottom line. While it's a little expensive from a valuation perspective, it's a stock that deserves a better than average P/E because it's a better than average earnings machine. If the economy really collapses, PNRA won't escape injury. But if things hold or even get a little better, it will continue to serve up earnings that most investors should find very appetizing.

Company Web site: www.panerabread.com

- Ted Allrich