Panera Bread 2006 Annual Report Download - page 31

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Franchise royalties and fees rose 22.3% to $54.3 million for the fiscal year ended December 27, 2005 from
$44.4 million for the fiscal year ended December 25, 2004. The components of franchise royalties and fees were as
follows (in thousands):
December 27,
2005
December 25,
2004
For the Fiscal Year Ended
Franchise royalties ........................................ $51,539 $41,199
Franchise fees ........................................... 2,770 3,250
Total ................................................ $54,309 $44,449
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 26, 2006 and December 27, 2005 were as follows:
December 27,
2005
December 25,
2004
Percentage
Increase
For the Fiscal Year Ended
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 expected 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
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