Panera Bread 2008 Annual Report Download - page 37

prior fiscal year, higher overall franchise-operated bakery-cafe sales demonstrated by the 5.3 percent increase in
comparable franchise-operated bakery-cafe sales percentages in fiscal 2008, which includes the additional week of
sales, increases in our sales prices of dough products to franchisees compared to the same periods in the prior year,
and the impact of the extra week of sales in fiscal 2008.
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
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 was $332.7 million, or 30.1 percent of bakery-cafe sales in fiscal 2008
compared to $271.4 million, or 30.3 percent of bakery-cafe sales in fiscal 2007. Despite significant increases in
input costs, we slightly decreased the cost of food and paper products percent of bakery-cafe sales rate through
several means, including category management initiatives, leverage from higher sales prices, and improved
leverage of our fresh dough manufacturing costs due to additional bakery-cafe openings. In fiscal 2008, there
was an average of 62.0 bakery-cafes per fresh dough facility compared to an average of 55.8 for the same fiscal
period in 2007. Partially offsetting these decreases were significant commodity cost increases on primarily wheat
and diesel, coupled with general inflationary cost increases. In fiscal 2008, our previously locked in average all-in
cost of wheat was approximately $14.45 per bushel versus $5.80 per bushel in fiscal 2007. In fiscal 2008, our
average cost of fuel was $4.05 per gallon compared to $3.00 per gallon in fiscal 2007.
Labor expense was $352.5 million, or 31.9 percent of bakery-cafe sales in fiscal 2008 compared to
$286.2 million, or 32.0 percent of bakery-cafe sales, in fiscal 2007. The labor expense as a percentage of
bakery-cafe sales remained fairly consistent between the 2008 and 2007 fiscal years primarily as a result of the
reduction in fixed labor costs from the removal of Crispani»from the bakery-cafes in the first quarter of 2008 and
leverage from higher sales prices, offset partially by labor inefficiencies resulting from lower transaction levels and
a modest effect from higher self-insured benefits expense and normalized incentive compensation levels in fiscal
2008 as compared to fiscal 2007.
Occupancy cost was $90.4 million, or 8.2 percent of bakery-cafe sales, in fiscal 2008 compared to
$70.4 million, or 7.9 percent of bakery-cafe sales, in fiscal 2007. The increase in occupancy cost as a percentage
of bakery-cafe sales between the 2008 and 2007 fiscal years was primarily due to rising average per square foot
costs driven by our expansion into newer, higher cost markets, such as those on the West Coast, and, less
significantly, due to the increasing numbers of urban, free-standing and drive-thru bakery-cafe locations.
Other operating expenses were $147.0 million, or 13.3 percent of bakery-cafe sales, in fiscal 2008 compared to
$121.3 million, or 13.6 percent of bakery-cafe sales, in fiscal 2007. The decrease in other operating expenses rate
between the 2008 and 2007 fiscal years was primarily due to improved leverage of our expenses due to higher sales
coupled with disciplined management of controllable expenses, partially offset by a charge of $0.4 million related
to asset write-offs involving our new coffee program.
Fresh dough facility cost of sales to franchisees was $108.6 million, or 92.2 percent of fresh dough facility
sales to franchisees, in fiscal 2008, compared to $92.9 million, or 88.8 percent of fresh dough facility sales to
franchisees, in fiscal 2007. The increase in the fresh dough facility cost of sales rate in fiscal 2008 compared to the
prior fiscal year is primarily the result of the year-over-year significant increase in wheat costs and diesel costs per
gallon previously described, which were only partially offset by our ability to increase prices and our improved
leverage of our fresh dough manufacturing costs due to additional bakery-cafe openings.
General and administrative expenses were $84.4 million, or 6.5 percent of total revenue, in fiscal 2008
compared to $69.0 million, or 6.5 percent of total revenue, in fiscal 2007. This consistency in general and
administrative expenses as a percentage of total revenue was primarily due to disciplined expense management and
improved leverage of our expenses due to higher sales, which was partially offset by normalized incentive
compensation expense and higher self-insured benefits expense compared to the prior year, a charge of $2.8 million
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