Panera Bread to add two dozen new sites

Thursday, July 22, 2004

ST. LOUIS -- Convinced low-carb dieters still will desire bread, retail bakery and cafe Panera Bread Co. said Wednesday it has reached development deals involving more than two dozen planned eateries in three states.

Wall Street appeared to welcome the news, sending the shares to as high as $37.08 before they leveled off, closing up 41 cents at $36.18 on the Nasdaq Stock Market.

Panera, which owns and franchises bakery-cafes under the Saint Louis Bread Co. and Panera Bread names, said it has signed with two franchisees to develop 27 Panera bakery-cafes in Colorado, Georgia and South Carolina.

Such news came at a time when the nation's carb-cutting craze has squeezed Panera, known for its traditionally carb-heavy sourdough, edible soup-filled bread bowls and an array of bagels.

"Why would Panera be expanding in an Atkins environment? We've got a very strong business model, and what Atkins has done is taken a little of the frothiness off our sales growth rate," said Mark Hood, Panera senior vice president and chief financial officer. "Certainly, the positive news about adding to our development backlog is good."

Last month, Panera said systemwide sales at its bakery-cafes open at least 18 months slid 0.9 percent for the four weeks ending June 12. Comparable sales at franchised locations fell 1.3 percent, while company-owned stores reported a 0.1 percent drop.

Panera in that June 24 report offered no reason for the decline, and investors that day pushed the company's stock down more than 3 percent. In the weeks that followed, shares that were $38.11 the day before that sales update steadily eroded to about $33 by mid-July.

Panera saw relatively stagnant same-store sales of 1.8 percent in the first quarter ending April 17 and expects that growth to be 1 percent to 3 percent through this year. By contrast, same-store sales rose 5.8 percent in 2001 and 5.5 percent in 2002.

Still, Panera's annual revenue -- $350.8 million in 2000 -- is projected to reach $1.3 billion this year.

"We remain positive about our business outlook and stated growth objectives," Hood said.

Bidding to keep the Atkins crowd coming to its stores, Panera earlier last month announced it was adding six lower-carb bread items -- three breads, two bagels and a breadstick -- to the menu at its more than 630 bakery-cafes in about three dozen states.

Those menu items complemented other low-carb fare Panera added in previous months, including several salads, broccoli-cheddar soup and even a pepperblue steak sandwich.

"What we've done is made the menu board a little easier for those on low-carb diets easier to understand," Hood said.

Panera's location growth reflects a company positioning well for when, and if, the low-carb craze eases -- and when carb-crunching dieters invariably indulge in a sandwich as a guilty pleasure, a St. Louis-based analyst said.

"We're a country of bread lovers," RT Jones' Juli Niemann said. "We may go through this period of low-carb, but people are going to start sneaking it back in. Even with carbs, it's about switching off. Maybe you'll do your cheating with Panera instead of a regular beer."

When it comes to dieters drawn to Panera and their "really good bread, it's like a camel whose nose is under the tent -- you move in," Niemann said.

Panera said Wednesday that Southern Bread LLC gets the rights to develop 12 bakery-cafes in eastern Georgia, including the Augusta and Savannah markets, as well as central and southern South Carolina, featuring Columbia, Charleston and Hilton Head. The first two will open by 2006.

Breads of the World will develop 15 restaurants in counties contiguous to the company's present Denver market, including Boulder. That franchisee's principal, Ken Rosenthal, founded the original St. Louis Bread Co. in 1987 and sold the company to Panera in 1993. Rosenthal -- operator of 45 Panera bakery-cafes in the Denver, Columbus, Ohio, and Cincinnati markets -- said he expects to build up to 55 Paneras in Colorado.

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On the Net:

Panera Bread, http://www.panerabread.com

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