Panera Bread 2008 Annual Report Download - page 31

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
Our revenues are derived from Company-owned bakery-cafe sales, fresh dough sales to franchisees, and
franchise royalties and fees. Fresh dough sales to franchisees are primarily the sales of dough products and sales of
tuna and cream cheese to certain of our franchisees. Franchise royalties and fees include royalty income and
franchise fees. The cost of food and paper products, labor, occupancy, and other operating expenses relate primarily
to Company-owned bakery-cafe sales. The cost of fresh dough sales to franchisees relates primarily to the sale of
fresh dough products and tuna and cream cheese to franchisees. General and administrative, depreciation and
amortization, and pre-opening expenses relate to all areas of revenue generation.
Beginning in the first quarter of fiscal 2008, we changed the classification of certain amounts in costs and
expenses between fresh dough cost of sales to franchisees and cost of food and paper products in the Consolidated
Statements of Operations. We have reclassified prior period financial statements in order to conform to the current
presentation. These classification changes have no effect on previously reported operating profit.
Our fiscal year ends on the last Tuesday in December. As a result, our 2008 fiscal year had 53 weeks with the
fourth quarter comprising 14 weeks. Our 2007 and 2006 fiscal years each had 52 weeks.
Use of Non-GAAP Measurements
We include in this report information on Company-owned, franchise-operated and system-wide comparable
bakery-cafe sales percentages. Company-owned comparable bakery-cafe sales percentages are based on sales from
bakery-cafes that have been in operation and Company-owned for at least 18 months. Franchise-operated
comparable bakery-cafe sales percentages are based on sales from franchised bakery-cafes, as reported by
franchisees, that have been in operation and franchise-operated for at least 18 months. System-wide comparable
bakery-cafe sales percentages are based on sales at both Company-owned and franchise-operated bakery-cafes.
Comparable bakery-cafe sales exclude closed locations and Paradise bakery-cafes.
Comparable bakery-cafe sales percentages are non-GAAP financial measures, which should not be considered
in isolation or as a substitute for other measures of performance prepared in accordance with Generally Accepted
Accounting Principles, or GAAP, and may not be equivalent to comparable bakery-cafe sales as defined or used by
other companies. We do not record franchise-operated bakery-cafe sales as revenues. However, royalty revenues are
calculated based on a percentage of franchise-operated bakery-cafe sales, as reported by franchisees. We use
franchise-operated and system-wide sales information internally in connection with store development decisions,
planning, and budgeting analyses. We believe franchise-operated and system-wide sales information is useful in
assessing consumer acceptance of our brand, facilitates an understanding of financial performance and the overall
direction and trends of sales and operating income, helps us appreciate the effectiveness of our advertising and
marketing initiatives to which our franchisees also contribute based on a percentage of their sales, and provides
information that is relevant for comparison within the industry.
We also include in this report information on Company-owned, franchise-operated and system-wide average
weekly sales. Average weekly sales is calculated by dividing total net sales by operating weeks. Accordingly, year-
over-year results reflect sales for all locations, whereas comparable bakery-cafe sales exclude closed locations and
are based on sales for bakery-cafes that have been in operation and owned for at least 18 months. New stores
typically experience an opening “honeymoon” period during which they generate higher average weekly sales in
the first 12 to 16 weeks they are open as customers “settle-in” to normal usage patterns from initial trial of the
location. On average, the “settle-in” experienced is 5 percent to 10 percent from the average weekly sales during the
“honeymoon” period. As a result, year-over-year results of average weekly sales are generally lower than the results
in comparable bakery-cafe sales. This results from the relationship of the number of bakery-cafes in the
“honeymoon” phase, the number of bakery-cafes in the “settle-in” phase, and the number of bakery-cafes in
the comparable bakery-cafe base.
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