Panera Bread 2003 Annual Report Download - page 3

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approach to weight loss will revert to what we all
know to be true:There is good fat and bad fat, good
carbs and bad carbs, and let’s all get off our duffs and
exercise. In addition, we believe that if there proves
to be a real market for lower-carbohydrate products,
the ultimate beneficiaries will be those organizations
—like Panera—with distribution and product
credibility. It is in that kind of environment that we
think Panera is well suited to prosper and ultimately
gain additional market share.
As we look to the future, you can expect Panera Bread
to continue to be both respectful of evolving
dietary niches while staying true to our roots and
artisan commitment. To address the lower-carb
phenomenon, we are drawing attention to the wide
assortment of lower-carb soups and salads available
in our bakery-cafes. Also, in the spring of 2004, we
will introduce several new breads and bagels that
are particularly appropriate for sandwiches,
significantly lower in net carbs and, unlike much
of what is sold as “Atkins bread,” worthy of the
Panera Bread name. Ultimately, you can expect to
see us offering more products utilizing unrefined
carbs as primary ingredients.
OUR FOCUS FOR 2004
Utilizing Our Development Capabilities to Meet the
Demand for Panera Bread
The Panera concept generates excellent unit-level
economics, and there is substantial growth potential
still available to us in the U.S. A key driver of expanded
earnings in the future will be our ability to address
the unmet demand for our concept.
operating at the close of 2004. Even then, we will
have only modest unit penetration levels in the
majority of our markets, and will have yet to enter
markets accounting for approximately one-quarter
of the nation.
Unit Growth Drives Corporate Performance
Substantial unit growth coupled with operating
leverage drove strong corporate performance in
2003. Company revenue totaled $355.9 million, up
from $277.8 million the previous year, for an increase
of 28%, while revenues of our franchisee area
developers increased 31% to $711.0 million.
Diluted EPS before the cumulative effect of an
accounting change grew 38% in 2003, marking the
fourth consecutive year Panera has been among
the top performers in the restaurant industry in EPS
growth.We further strengthened our balance sheet
in 2003, as we ended the year with $51 million in
cash and investments and no debt.
ANOUTSTANDING YEAR IN
ADIFFICULT ENVIRONMENT
Panera Bread beat its targets and achieved these
record results in an environment that was as
challenging as we have seen in some time. As the
year progressed, consumer interest in lower-
carbohydrate diets increased, as did media attention
to this trend. Indeed, we believe that the spike in
consumer interest in lower-carbohydrate diets served
to temper our comparable store sales’ increases,
which totaled a modest 0.2% system-wide in 2003.
So why, one must ask, has a company built around
artisan bread been impacted only modestly by the
lower-carb trend? Our diverse menu has always
offered our customers choices. Less than 5% of our
sales come from take-home bread. Fully one-third of
our sales come from our gathering place or “chill out”
business. Indeed, less than half of our sales are at
lunch and less than half of those sales are sandwiches.
The remainder of lunch sales is soup, salads and
beverages, which have seen significant growth with
the popularity of lower-carb diets.
So does the lower-carb phenomenon materially
impact the future at Panera Bread? We think not.
Let us share with you why. Over the medium term,
we believe that common knowledge and the best