Panera Bread 2005 Annual Report Download - page 27

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The increase in royalty revenue can be attributed to the impact of a full year’s operations of the 89 franchise-operated bakery-cafes
opened in 2004, the opening of 73 franchise-operated bakery-cafes in 2005, and the 8.0% increase in comparable franchise-operated
bakery-cafe sales for the fiscal year ended December 27, 2005. Franchise-operated bakery-cafes included in comparable sales
increases and not included in comparable sales increases contributed 30% and 70%, respectively, of the $210.2 million increase in
sales from 2004. The average weekly sales per franchise-operated bakery-cafe and the related number of operating weeks for the fiscal
year ended December 27, 2005 and December 25, 2004 were as follows:
For the Fiscal Year Ended
December 27,
2005
December 25,
2004
Percentage
Increase
Franchisee average weekly sales ............................................................................................. $ 38,777 $ 36,171 7.2%
Franchisee number of operating weeks.................................................................................... 28,090 24,303 15.6%
As of December 27, 2005, there were 566 franchise-operated bakery-cafes open and commitments to open 416 additional
franchise-operated bakery-cafes. We expect these bakery-cafes to open according to the timetables established in the various ADAs
with franchisees, with the majority opening in the next four to five years. In 2006, we expect our area developers to open 80 to 85 new
franchise-operated bakery-cafes. The ADA requires a franchisee to develop a specified number of bakery-cafes on or before specific
dates. If a franchisee fails to develop bakery-cafes on schedule, we have the right to terminate the ADA and develop Company-owned
locations or develop locations through new area developers in that market. We may exercise one or more alternative remedies to
address defaults by area developers, including not only development defaults, but also defaults in complying with our operating and
brand standards and other covenants under the ADAs and franchise agreements.
Fresh dough facility sales to franchisees increased 19.1% to $86.5 million for the fiscal year ended December 27, 2005 from $72.6
million for the fiscal year ended December 25, 2004. The increase was primarily driven by the increased number of franchise-operated
bakery-cafes opened described previously.
Costs and Expenses
The cost of food and paper products includes the costs associated with the fresh dough operations that sell fresh dough products to
Company-owned bakery-cafes, as well as the cost of food and paper products supplied by third party vendors and distributors. The
costs associated with the fresh dough operations that sell fresh dough products to the franchise-operated bakery-cafes are excluded and
are shown separately as fresh dough cost of sales to franchisees in the Consolidated Statements of Operations. The cost of food and
paper products increased to 28.6% of bakery-cafe sales for the fiscal year ended December 27, 2005 compared to 28.1% of bakery-
cafe sales for the fiscal year ended December 25, 2004. This increase in the cost of food and paper products as a percentage of bakery-
cafe sales was primarily due to higher cost and mix impact of antibiotic free chicken and higher fuel costs, which averaged $2.84 per
gallon in 2005 compared to $2.06 in 2004, partially offset by improved leveraging of fresh dough manufacturing costs we achieved as
more bakery-cafes were opened. For the fiscal year ended December 27, 2005, there was an average of 48.0 bakery-cafes per fresh
dough facility compared to an average of 39.2 for the fiscal year ended December 25, 2004.
Labor expense was $151.5 million, or 30.3% of bakery-cafe sales, for the fiscal year ended December 27, 2005 compared to
$110.8 million, or 30.6% of bakery-cafe sales, for the fiscal year ended December 25, 2004. The labor expense as a percentage of
bakery-cafe sales decreased between the fiscal year ended December 27, 2005 and the fiscal year ended December 25, 2004 primarily
as a result of leveraging these costs over higher sales volumes, partially offset by higher costs in the bakery-cafe bonus program.
For the fiscal year ended December 27, 2005, fresh dough facility cost of sales to franchisees was $75.0 million, or 86.7% of fresh
dough facility sales to franchisees, compared to $65.6 million, or 90.4% of fresh dough facility sales to franchisees, for the fiscal year
ended December 25, 2004. The decrease in the fresh dough facility cost of sales rate in fiscal year 2005 was primarily due to lower
ingredient costs. Butter costs in 2005 averaged $1.64 per pound compared to $1.94 per pound in 2004.
General and administrative expenses were $46.3 million, or 7.2% of total revenue, and $33.3 million, or 7.0% of total revenue, for
the fiscal years ended December 27, 2005 and December 25, 2004, respectively. The increase in the general and administrative
expense rate between 2005 and 2004 was primarily the result of increased incentive compensation and marketing costs partially offset
by the improved leveraging of these costs over higher revenue.