CEO: Panera ahead of the pace

by Eric Schroeder
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Panera Bread turned in a strong first quarter, with income rising 10 percent.

ST. LOUIS — Heartbreak Hill, the steepest hill of the Boston Marathon located between the 20- and 21-mile marks, tests the mettle of elite runners. Ron Shaich, founder, chairman and CEO of

Panera Bread Co., lives on the marathon route and believes his company is metaphorically on Heartbreak Hill.

Ron Shaich, founder chairman and CEO of Panera 

“We’re mindful of where we are and that we can still falter, but we are ahead of the pace we set out to achieve at the beginning of the race,” Shaich told analysts during an April 27 conference call. “We can see it, we are making it happen and we are ever more confident our vision and our strategy are right. Indeed, our Q1 results and the fact we are raising our targets today for both comps and earnings speaks to that.”

Net income at Panera in the first quarter ended March 29 was $35,088,000, equal to $1.46 per share on the common stock, up 10 percent from $31,860,000, or $1.20 per share, in the same period a year ago. Revenues also increased, climbing nearly 6 percent to $685,153,000 from $648,504,000.

The stronger results led Panera to raise its full-year fiscal 2016 earnings-per-share target to $6.50 to $6.70, up from $6.33 to $6.52, and its targeted range for fiscal 2016 company-owned comparable net bakery-cafe sales growth to 4 percent to 5 percent, up from 3.5 percent to 4.5 percent.

“We have run marathons before, and we have a track record of successfully finishing, and finishing well,” Shaich said. “Once again for this race we have trained hard and built up the muscle. In the case of Panera, (we have) the capabilities to go the distance. As our initiatives roll out and mature, we can see the potential that they represent for sustained earnings at Panera and we are confident of a strong finish in this marathon, too.”

From the opening of the conference call Shaich was hard pressed to hide his excitement with the direction of Panera, saying he’d been “looking forward to this earnings call for some time.”

“By every criteria, our first quarter has been among the most exciting we have seen at Panera in a very long time,” he said.

Shaich said earnings per share grew 21 percent in the first quarter (up 11 percent excluding one-time items), while comparable store sales increased 6.2 percent, and transactions grew 2.4 percent.

He said the company’s focus on becoming “a better competitive alternative” is clicking on all cylinders.

 
By the end of 2015, Panera had converted 410 company cafes to Panera 2.0.
Panera 2.0, the bakery-cafe’s move to incorporate mobile apps, delivery to tables and catering centers, among other initiatives, has been a hit. By the end of 2015, Panera had converted 410 company cafes to Panera 2.0, and in the first quarter the company completed 51 conversions. During 2016 the company plans to convert 200 company cafes to Panera 2.0., including all new cafes opened during the year, Shaich said.

 

Panera also is ramping up its delivery service. During the first quarter of fiscal 2016, Panera launched delivery in 43 more company-owned bakery-cafes in three markets, giving it a total of 70 bakery-cafes offering delivery in six markets.

“We are pleased, very pleased, with the sales results we see in these cafes so far,” Shaich said. “They continue to track in line with our expectations, reinforcing our belief that delivery represents a significant sales lever and one that builds at a rate faster than our retail business when we also build awareness.”

He said Panera expects to roll out delivery to more than 10 percent of its system in 2016.

Another aspect of becoming a better competitive alternative involves food, Shaich said. To that end, Panera is again pacing well.

 
 As of January, all of Panera’s soups are free of artificial colors, flavors, sweeteners and preservatives.
As of January, all of Panera’s soups have been “cleaned,” with the bakery-cafe removing all artificial colors, flavors, sweeteners and preservatives. In May, all of its salads also will be clean, Shaich said.

 

Panera’s food innovation goes beyond clean label, though, as three new salads will be introduced next month “to contemporize and elevate the craveability” of the bakery-cafe’s salad offerings.

“First, we’ve taken our No. 2 selling salad, our basic Chicken Cobb, and we are relaunching this as a significantly improved Green Goddess Cobb salad,” he said. “We started by reworking the base of the salad to use a seasonal greens blend of Romaine, baby kale and radicchio. Then we add fresh, hand-sliced avocado, tomatoes, pickled onions, a hard-cooked, cage-free egg and our new clean chopped bacon. All of this is mixed with a wonderful new Green Goddess dressing that our cafe associates make fresh from scratch every day in our cafes. The dressing is made with high-protein Greek yogurt, fresh basil and a specially seasoned champagne dijon vinegar that delivers a fresher, cleaner and lighter flavor that our guests love. As you’d expect, this salad was a big, big winner in our cafe testing.

 
Panera plans to relaunch its Chicken Cobb salad as an improved Green Goddess Cobb salad.
“We are also replacing our existing Asian sesame salad with a reimagined Chinese citrus cashew salad. We start this salad with a blend of Romaine lettuce and Napa cabbage. Then we add fresh pineapple sliced daily in our cafes, cucumbers, mandarin oranges, and roasted cashews for some extra crunch, and we dress this salad with a new soy miso lime dressing and a hoisin sauce for depth of flavor. We’re confident that our guests are going to love this updated approach to an Asian salad.

 

“Finally for a limited time later this summer, we are excited to introduce our new watermelon feta salad. We start this salad with a base of arugula and fresh mint mixed with our new crafted champagne dijon vinegar and extra virgin olive oil. Then we add cubes of fresh watermelon in peak season that we prepare each morning from daily deliveries to our cafes. This salad is topped with a blend of ancient grains, feta cheese and sliced roasted almonds.”

In addition to the salads, Shaich said Panera plans to introduce several new sandwiches that will be clean, contemporary, more craveable and craft-inspired in their design, in the third quarter of fiscal 2016.

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