Financial Analysis of Panera Bread Company Stock ticker symbol: PNRA Exchange where traded: NASDAQ Stock Market, Inc. Headquarters Address: 3630 S. Geyer Road, St. Louis, MO 63127 Tel: (314) 984-1000 I Company Overview General information Panera Bread Company is one of the largest food service companies in the United States which owns, operates, and franchises retail bakery-cafes with 1,453 locations in 40 states, the District of Columbia, and Ontario, Canada. Having approximately 60 customers a day at the first bakery-cafe, the company has grown to currently serve nearly six million customers a week.

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As of December 28, 2010, it operated 662 Company-owned bakery-cafes located throughout the United States and in Ontario, Canada and 791 franchise-operated bakery-cafes located in the United States under the Panera Bread®, Saint Louis Bread Co. ® and Paradise Bakery & Cafe® names. The company also operates 26 fresh dough facilities to supply fresh dough and other products daily to most company-owned and franchise-operated bakery-cafes. In the fiscal year ended December 28, 2010, the company revenues were $1,542. 5 million, consisting of $1,321. million of Company-owned net bakery-cafe sales, $86. 2 million of franchise royalties and fees, and $135. 1 million of fresh dough and other product sales to franchisees. Corporate history The Panera Bread® is a Delaware corporation founded by Louis Kane and Ron Shaich. It was originally organized as a Massachusetts corporation under the name Au Bon Pain Co. , Inc. in March 1981 and reincorporated in Delaware in June 1988. In December 1993, the company purchased Saint Louis Bread Company by which the average unit volumes increased 75% between 1993 and 1997.

In May 1999, all of Au Bon Pain Co. , Inc. ‘s business units were sold, with the exception of Panera Bread, and the company was renamed Panera Bread. Since those transactions were completed, the company’s stock has grown thirteen-fold and over $1 billion in shareholder value has been created. In 2005, Panera ranked 37th on BusinessWeek’s list of “Hot Growth Companies”. According to the report by The Wall St. Journal’s Shareholder Scorecard in 2006, Panera Bread was recognized as the top performer in the restaurant category for one-, five- and ten-year returns to shareholders.

In 2007, Panera Bread purchased a majority stake in Paradise Bakery & Cafe®, a Phoenix-based concept with over 70 locations in 10 states (predominantly in the west and southwest). The Company purchased the balance of Paradise in June 2009. Beginning in 2008, Panera Bread expanded into Canada with Richmond Hill and Mississauga, both in the Toronto area. In May 2010, Ron Shaich transitioned to the role of Executive Chairman of the Board and Bill Moreton, who had previously served as the company’s Executive Vice President and Co-Chief Operating Officer, was named Chief Executive Officer and President and to the Board of Directors.

Organization As of December 28, 2010, the company had approximately 15,900 full-time associates (defined as associates who average 25 hours or more per week), of whom approximately 800 were employed in general or administrative functions, approximately 1,200 were employed in fresh dough facility operations, and approximately 13,900 were employed in bakery-cafe operations as bakers, managers, and associates. There were also approximately 9,700 part-time hourly associates at the bakery-cafes. The board of directors consists of 8 people.

Ronald M. Shaich is Executive Chairman of the Board from May 2010 and he is also the co-founder. William W. Moreton was named Chief Executive Officer and President of Panera Bread and to the Board of Directors in May 2010. Domenic Colasacco is Lead Independent Director since March 2008, Director since March 2000. Charles J. Chapman, III, Fred Foulkes, Larry Franklin and Thomas E. Lynch are all directors. George E. Kane became Emeritus Director in May 2004. There are 14 people in the upper management.

Ronald M. Shaich is Executive Chairman of the Board from May 2010. William W. Moreton is Chief Executive Officer and President of Panera Bread and to the Board of Directors. Other executives include: three Executive Vice Presidents; Chief Concept Officer; two Co-Chief Operating Officers; nine Senior vice presidents who are also: Chief Legal Officer and General Counsel; Chief Supply Chain Officer; Chief People Officer, Chief Financial Officer, Chief Information Officer, Chief Franchise Officer; Chief

Development Officer; Chief Marketing Officer, Chief Company and Joint Venture Operations Officer. Main products and services Built on the strength of bakery expertise, the company’s main products are fresh baked goods, including a variety of freshly baked bagels, breads, muffins, scones, rolls, and sweet goods, made-to-order sandwiches on freshly baked breads, hearty, unique soups and side items, freshly prepared and hand-tossed salads, and custom roasted coffees and cafe beverages, such as hot or cold espresso and cappuccino drinks and smoothies.

In addition to the dine-in and take out business, the company offers Panera Catering, a nation-wide catering service that provides breakfast assortments, sandwiches, salads, or soups using the same high-quality, fresh ingredients enjoyed in our bakery-cafes. The company also offers the Panera Gift Card to reward customer for each purchase of bakery-cafe items that intends to build deeper relationships with customers and entice them to return to bakery-cafes.

As committed to providing high quality food and superior customer service, the company strives to achieve Concept Essence to attract and retain customers which differentiates it from its competitors. Concept Essence begins with artisan bread, quality products, and a warm, friendly, comfortable environment. This has resulted in the dedication to create distinctive design and environment of bakery-cafes where associates are trained to greet customers by name and have the skills, expertise, and personalities to make each visit a delight.

In an effort to keep up with the changing customer preferences, the company continuously improves its products, or develops new ones which contribute to customer loyalty. Geographic area of operations As of December 28, 2010, the company bakery-cafe operations segment consisted of 662 Company-owned bakery-cafes located throughout the United States and in Ontario, Canada and 791 franchise-operated bakery-cafes located in the United States under the Panera Bread®, Saint Louis Bread Co. ® and Paradise Bakery & Cafe® names. Recent developments * February 10, 2011: Fourth Quarter 2010 Earnings Report January 16, 2011: Panera Bread Foundation Opens Third Panera Cares™ Community Cafe in Portland, OR * January 13, 2011: Panera Bread® Enhances Menu with Addition of Calorie-Conscious Menu Offerings II Financial Overview Sales and income record | 2006| 2007| 2008| 2009| 2010| Total revenue| 828,971| 1,066,691| 1,298,853| 1,353,494| 1,542,489| Net Income| 58,849| 57,456| 67,436| 86,050| 111,866| Both Panera’s total revenue and net income show an upward trend which means that the company operated at a profit during this period. Expense distribution | 2010|

Cost of food and paper products| 374,816| Labor| 419,140| Occupancy| 100,970| Other operating expenses| 177,059| Fresh dough and other product cost of sales to franchisees| 110,986| Depreciation and amortization| 68,673| General and administrative expenses & Pre-opening expenses| 105,776| Income taxes & interest expense| 69,238| Total costs and expenses| 1,426,658| The major expenses of Panera in 2010 are labor and cost of food and paper products of 29. 38% and 26. 27% respectively that contain over half of the pie. Other operating expenses contain the largest part of the rest pie.

Other expenses are not significant. Assets distribution | 2010| Cash and cash equivalents| 229,299| Trade accounts receivable, net & Other accounts receivable| 38,340| Inventories| 14,345| Prepaid expenses & Deferred income taxes| 48,701| Total current assets| 330,685| Property and equipment, net| 444,094| Total other assets| 149,802| Total assets| 924,581| This pie chart shows that net property and equipment is the largest asset of Panera that contains almost half of the pie, following by cash and cash equivalents of about 25% and total other assets of about 16%. Capital structure 2010| Accounts payable| 7,346| Accrued expenses| 204,170| Total current liabilities| 211,516| Deferred rent| 47,974| Deferred income taxes| 30,264| Other long-term liabilities| 39,219| Total liabilities| 328,973| Owner’s equity| 595,608| Total | 924,581| Reviewing the figure, owner’s equity contains approximately 65 % of the pie and the second largest capital is accrued expenses which is about 22%. Deferred rent, deferred income taxes and other long-term liabilities are not significant. Panera has very little accounts payable which contains only less than 1% of the pie.

III Financial Ratio Analysis | Panera| Starbucks| Liquidity| FY2009| FY2010| FY2009| FY2010| Current ratio| 2. 26| 1. 56| 1. 29| 1. 55| Quick ratio| 2. 18| 1. 50| 0. 867| 1. 24| Asset management|  |  |  |  | Total asset turnover| 1. 62| 1. 67| 1. 75| 1. 68| ACP| 7. 68| 9. 07| 10. 11| 10. 31| Debt management|  |  |  |  | Debt ratio| 28. 68%| 35. 58%| 45. 40%| 42. 50%| TIE| 201. 28| 274. 18| 15| 45| Profitability|  |  |  |  | Net profit margin| 6. 36%| 7. 25%| 4%| 8. 83%| ROA| 10. 28%| 12. 10%| 7. 01%| 14. 81%| ROE| 14. 41%| 18. 78%| 12. 83%| 25. 73%| Extended Du Pont equation| 14. 1%| 18. 78%|  |  | Market value|  |  |  |  | PE| 24. 46| 27. 94| 33. 3| 26. 10| Market to book ratio| 3. 53| 5. 25| 5. 06| 7. 18| Liquidity Panera has decreased its current and quick ratio from above 2 in 2009 to around 1. 5 in 2010, which means there is a limiting of cash and cash equivalents or a more aggressive management of accounts receivable. Starbucks has been increased its current and quick ratio during these two years, which shows that it was in a relatively better position than Panera in meeting its short-term obligations as they became due. Asset management

For total asset turnover ratio, Panera showed an improvement and utilized its assets more effectively, while Starbuck showed a decline and use its assets less effectively. Panera generated almost the same amount in sales for every $1 of assets as did Starbucks in 2010. In the past two years, Panera has increased its ACP ratio significantly which means it took more days for it to collect from its customers (from 7. 68 to 9. 07 days). Over the same period, Starbucks also increased slightly the time its customers took to pay from 10. 11 days in 2009 to about 10. 31 days in 2010.

Debt management Although the debt ratios of Panera are less than those of Starbucks in the two years , Panera’s ratios have indicated that the company used more total liabilities to finance its assets (from 28. 68% in 2009 to 35. 58% in 2010). Starbucks, however, has used little less total liabilities to finance its assets which decreased by 2. 9%. Since Panera had very few interest expense, its TIE ratios remained extremely high compared to that of Starbucks and increased in the two years. In 2010, for every $1 that Panera owed for interest expense, Panera earned $274. 8 in operating income that could be used to pay the interest. Starbucks’ TIE ratios increased 3 times over the same period, which means it had more operating income to be used to pay its interest. Profitability Comparing the ratios of Panera and Starbucks, we see that Starbucks has more than double increased its net profit margin, ROA and ROE, while Panera made some increases on these ratios too. In 2009, the profitability ratios show that Panera was more effective at generating profits than Starbucks (For example, for every $1 of sales, Panera generated $0. 636 of net income, while Starbucks only had $0. 04). But in 2010, Starbucks has surpassed Panera as being much more profitable. The Du Pont equation for 2009 and 2010 are: 0. 0636*1. 617*1. 402 = 14. 41%; 0. 0725*1. 668*1. 553 = 18. 78%. During the two years, the net margin, total asset turnover and financial leverage has increased slightly. In 2010, every $1 of equity generated $0. 1878 worth of income, while it was $ 0. 1441 in 2009. But the financial leverage ratios reveal Panera’s limited leverage ($1. 402 in 2009 and $1. 53 in 2010) Panera has been very traditional and conservative in terms of leveraging finance. Market value In the past two years, Panera’s PE ratio has increased from $24. 46 to $27. 94 which means for every $1 of Panera’s earnings the stock market was willing to pay $27. 94. Compared to Starbucks, its PE ratio decreased significantly which means Starbucks’ growth rate was decreased. In 2009, Starbucks had much higher PE ratio than Panera ($33. 3 for Starbucks and $24. 46 for Panera), but the PE ratio for Starbucks was slightly below Panera’s in 2010.

Both market to book ratios of Panera and Starbucks increased over the same period, and Starbucks had higher ratios than Panera which means the market was more willing to pay for the stockholder’s equity of Starbucks. IV Summary and conclusions Both the financial overview and ratio analysis of Panera suggest continuing profitability for a reasonably mature company. Despite the difficult economy since the Great Depression in late 2008 in the United States, Panera has performed very well. As total revenue grew steadily from 2006 to 2010,

Panera’s net income doubled since 2007 and increased significantly from 2009 to 2010 by over 30% which shows that the company has successfully managed to grow. Examining the listings of Panera’s assets, liabilities, owner’s equity and expense in 2010, we can conclude that the company was in a quite favorably financial position. For example, it had sufficient net property and equipment as well as cash and cash equivalents, while the accounts receivable and payable were very few. Panera, as a result, was able to operate at a profit in 2010.

Review the financial ratios of Panera for the fiscal years of 2009 and 2010, we learn from the liquidity ratios that the company had strong ability to make payments on its short-term obligations as they became due. As there was an improvement Panera made on using its assets to generate sales, it also indicates that the sales grew faster than total assets. Panera was also very efficient in collecting cash from its credit sales, despite the days to collect increased from about 8 to 9 days. When it comes to financial leverage, Panera performed quite conservative.

The extremely high TIE ratios indicate the company had little debt. Although the increase of debt ratios during the two years shows that the Panera used more total liabilities to finance its assets, the leverage was still limited. Panera may consider raise more funds through debt, but it has to balance hoped-for higher returns against the increased risk of being unable to meet interest payments or maturing obligations. As mentioned earlier, Panera has been very effective at generating profit as expressed in terms of ROA and ROE.

The high levels of profitability indicate its success in operation and management. Over the same period, the market showed an optimistic attitude toward Panera as both the value of PE and market to book increased. For a stock investor, Panera would be highly recommended. For a creditor, it would be safe to lend money to Panera and would be a good investment. For a company that would like to acquire Panera, it may be a good idea. However, since Panera is in a quite ideal financial status, it might require high price to acquire. Overall, the outlook for the future of Panera is certainly bright.