Panera Bread 2011 Annual Report Download - page 3

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Dear Stockholder, April 16, 2012
We are very pleased to report that 2011 was another very good year for Panera. Our Earnings Per Share (EPS) grew
28% in 2011, excluding the impact of a one-time charge of $5 million related to the proposed settlement of a
California litigation case. This marks the fourth consecutive year that our EPS has grown 24% or greater, which is
above the upper end of our long-term earnings growth target of 15%-20%.
Our performance in 2011 was driven both by our strong operating performance as well as our ability to generate
EPS growth through deployment of our excess capital.
•Earnings growth of approximately 20% was driven by core operations, which was above our long-term
operating earnings growth target of 12-17%.
•Additionally, an incremental 8% earnings growth was driven by the more than $400 million of capital we
have deployed to make acquisitions and repurchase shares since the second quarter of 2010, which was also
above our long-term annual growth target of 3%.
The key to achieving core operating earnings growth is our ability to grow our comparable bakery-cafe sales. In
2011, our Company-owned comparable bakery-cafe sales increased 4.9% vs 2010, 12.4% on a two-year basis. We
believe these results put us among the very best in our industry and are a direct result of continued investment in the
quality of our customers’ experience to drive differentiation and competitive advantage. The investments that we
have made over the last few years drove our results in 2011 and we believe the investments that we made in 2011
position us well for the future.
Specifically in 2011, we benefitted from our investments in five key areas: the quality of our food, our increased
marketing expenditures, the rollout of our MyPanera loyalty program, the growth of our catering business, and the
quality of our operations and our people.
Quality of Food
For the last several years, we have executed a strategy of category ownership (meaning that we rise to the top of our
customers’ list of options when they want a high quality soup, salad or sandwich) by utilizing the talents of our food
development group and the size and scale of our supply chain to drive innovation and differentiation of our food
offerings. We continue to bring new, innovative products to our menu while improving the quality of ingredients in
our existing menu items. Over time, this strategy has resulted in the success of our signature salad, sandwich, soup
and smoothie categories.
A key focus area in 2011 was the rollout of our upgraded hot sandwich program highlighted by our new, proprietary
Panini grill and the introduction of several new proteins. Our customers responded very positively to these upgrades,
increasing our Panini sales by 15% over 2010 levels. Quality hot sandwiches will again be a focus in 2012. Another
area of focus in 2012 will be the continued improvement of our produce. We are now focusing on tomatoes and,
just as we did with lettuce, we expect to be able to bring a higher quality, fresher product to our customers that will
enhance both our salad and sandwich offerings.
Marketing
In 2011, we continued our multi-year initiative to refine our media and advertising strategy. Although we increased
our media spending in 2011, we still spend at a relatively low level (1.3% of system-wide sales in direct media
expenses in 2011) compared to many national restaurant companies that spend in the 3% - 5% range. As we
carefully increase our spending, we continue to monitor its effectiveness and continue to believe that we are getting
more than a dollar of profit for each media dollar spent, in part because we are gaining a better understanding of the
optimal spending mix by media type and market. We plan to again increase our media spending in 2012, as we
continue on our path of increasing the quality awareness with our targeted customers and deepening relationships
with our most engaged customers. We also just launched our first national cable advertising campaign, leveraging
our “Make Today Better” campaign, which we believe better captures our points of difference and the soul of the
Panera concept.