CASE 13 Panera Bread Company in 2016 IT1 Selected Consolidated Financial Data fo

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CASE 13 Panera Bread Company in 2016 IT1 Selected Consolidated Financial Data for Panera Bread, 2011-2015 HIB(in thousands, except for per-share amounts) C-145 Data 2014 2013 $2.358,794 $2.230,370 $2.108.908 $1,879,280 $1,592.,951 Franchise royalties and fees Fresh dough and other product sales 138,563 123,686 112,641 102,076,ss 92,793 184.223175,139163,453148,701136.288 2681,580 2.529,195 2,385,002 2.130,057 1,822.032 Food and paper products 715,502 669,860 625,622 552.580 470 754,646 685,576 625,457 559,446 484,014 169,998 159,794 148,816 130,793 15,290 other operating expenses Total bakery-café expenses Fresh dough and other product cost of sales 635 314879 295,539 256,029 216,237 1.974,781 1,830,109 1,695,434 1498.848 1.285,939 to franchisees Depreciation and amortization General and administrative expenses Pre-opening expenses 160,706 152,267 142.160 131,006 116,267 79,899 142,904 138.060 123,335 117.932 113.083 135,398 124,109 106,523 90,939 9.089 707 7,794 8,462 Total costs and expenses 2.439,986 2,253.252 2.075.246 1,847,187 1,601,773 Operating profit Interest expense Other (income) expense, net income taxes Less net income (loss) attributable to 241,594 275,943 309,756 282,870 220,259 822 (466) 87.247 98,001 116,551 109,548 83,951 3,830 1,192 (3,175) (4,017) (1208) 1,824 1,053 Net income to shareholders Earnings per share $ 149,325 $179,293 $ 196,169 $ 173,448 $135,952 Basic $5.81 $%6.67 $6.85 $5.94 $4.59 5.79 6.64 6.81 5.89 4.55 Weighted average shares outstanding Basic Diluted 25,685 26,881 28,629 29,217 29,601 25,788 26,999 28,794 29,455 29,903 Balance Sheet Data Cash and cash equivalents Current assets Total assets Current liabilities Total liabilities Stockholders' equity $ 241,886 $ 196,493 $ 125,245 297,141 $ 222.640 502,789 406,166 302,716 478,842 353,119 1,475,318 1,390,686 1,180,862 1,268,163 1,027.322 399,443352,712 303,325 277.540 238,334 654,718 654,718 177,645 168,704 372.246 497.300 736,184 699,892 821.919 655,076 Cash Flow Data s 318,045 $ 335.079 $ 348,417 $ 289,456 236,889 (165,415) (211,317) (188,307) (195,741) (152.194 Net cash provided by operating activities Net cash used in investing activities Net cash (used in) provided by financing activities (107.237) (52.514) (332,006) (19,214) (91,354 Ner idecrease) increase in cash and cash equivalents 45,393 71,248 (171,896) 74.501 6.65 2015 10-K report, pp. 43-46, 2014 10-K report, pp. 41-43: 2013 10-K report, pp. 41-43, 20110-K report, pp. 41-43

Explanation / Answer

The points below cover the financial performance and comments related to the company's performance in the last 5-years.

Revenue - Panera Bread has witnessed steady revenue growth during the period 2011-15. In these five years, the company's revenue growth has been at a CAGR of 8.04% and this underscores the point that Panera Bread has been able to create a unique market positioning in a competitive industry.

Operating Profit Margin - For Panera Bread, the company's operating profit as a percentage of revenue was 12.1% in 2011. This has declined to 9.0% in 2015. Therefore, revenue has increased, but the operating profit margin has declined by 310 basis points. The primary contributors to decline in operating margin is an increase in cost related to food & paper products and labor (as a percentage of sales). Therefore, food and labor cost inflation have contributed to compression in operating margin.

Net Profit Margin - While the company's revenue has grown at a CAGR of 8.04%, the company's net profit has grown at a CAGR of just 1.89%. The net profit margin for 2015 was 5.6% as compared to a net profit margin of 7.5% in 2011. The decline in net profit margin has been primarily due to increase in food products and labor cost.

Diluted EPS - The company's diluted EPS has grown at a CAGR of 4.94% for the 5-years financials presented. As compared to revenue growth, the growth in diluted EPS has been lower as net profit margin has shrunk. However, this has been partially offset by the fact that the company has been creating shareholder value through share buybacks. The total number of shares outstanding has steadily declined in the last 5-years.

Return on Assets = Net Income/Total Assets

Return on Equity = Net Income/ Shareholder Equity

For 2011 and 2015, the ROA for Panera Bread was 13.2% and 10.1% respectively. For 2011 and 2015, the return on equity for Panera Bread was 20.8% and 30.0% respectively.

While the return on asset declined due to compression in operating margins, the company's return on equity has trended higher as share buyback has reduced shareholder equity. Therefore, Panera Bread has been creating shareholder value even after margin compression during this period.

Cash Flow Data - The company's operating cash flows have been positive on a sustained basis and this is a key positive. Even as the OCF has declined in the recent past on cost escalations, the cash flows remain robust. Importantly, the company's free cash flow (operating cash flow minus investing cash flows) has been positive for all the five years. This implies that the company has cash buffer after investing in core business expansion. The company has used this cash buffer for repaying debt and for buying back shares, which has created incremental shareholder value.

Overall - Panera Bread has witnessed steady revenue growth from 2011 to 2016. While the company's margin has been negatively impacted due to cost escalations, the operating cash flows remain robust. Importantly, the company has continued to create shareholder value through share repurchases and return on equity remains healthy. Panera Bread has also made sustained investments for growth (indicated by investing cash flows) and this is likely to ensure that revenue growth sustains for the company in a highly competitive industry.

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