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Panera Case Study Analysis

1697 words - 7 pages

Executive Summary
The Panera Bread Company was the first fast food company that provided freshly baked goods every day and offered a comfortable environment where people could enjoy real food. Their business model as a result, was to provide high quality meals in an environment that customers would willingly pay for at a price that can benefit the company financially. The company saw great success since their opening in 1993.
As recently as 2007, however, the company began facing multiple challenges. The transaction growth was starting to decline and profit margins, although still high, were showing a slight decrease from what they were over the previous two years. As 2007 was coming to ...view middle of the document...

By 1999, the St Louis Bread Company was operating under the Panera Bread name. An important aspect of Panera Bread’s business model is artisan fast food which differentiates it from other fast food companies. They offer a variety of soups, salads, sandwiches and breads with a place where customers can dine in a comfortable environment. Panera was committed to using the highest quality ingredients and their success was apparent as they expanded from only 20 stores in 1993 to over 1,000 stores spread throughout 38 different states in 2006. In 2006, the company had increased in size by 17% with a 4% growth in individual store sales. From the years 2003-2006, Panera’s total revenues grew at an average of 32% each year with its operating profit to sales at an average of 12%. By the end of 2007, however, Panera was beginning to face several challenges. The strong profit margins that previously allowed Panera to rely on internal funds to finance their growth through their retained earnings was beginning to decline. The company is expected to keep growing, but the slowing profit margins the company is facing in 2007 is limits the ability of the company to rely on internal growth. The decreasing profit margins and transaction growth has caused their common stock to decrease by 40%. As a solution to this problem, Panera is considering a $75 million dollar stock repurchase in order to increase their stocks. In 2007, the net income decreases by $2500. The decrease in net income results in a decrease to additional retained earnings and therefore decreases the ability to generate internal finances. The company needs to turn to external financing in order to fund the expected growth rate of the company.
Analysis and Recommendations
Reviewing the financial statements for Panera Bread showed a relatively high profit margin for the years 2003-2005. The profit margin measures the operating efficiency of a company. Panera’s profit margin began decreasing from 8.37% in 2005 to 7.10% in 2006 and continued to do so until 2010 where it was at its lowest of 3.86%. In 2011, the profit margin slowly began to increase again with a 0.09% jump to 3.95%. The profit margin is used to gauge the financial health of the company and tells us how much profit was generated on each sale. A high profit margin is desirable so the fact that the profit margin is beginning to increase again in 2011 is beneficial to the company.
Return on assets is a measure of profit per dollar of assets. It is important that this number is relatively high because it signifies the overall ability of the company to generate profits with the assets that it has available. This is directly affected by the operating efficiency and asset use efficiency. If Panera is not managing one or both effectively, it reduces their return on assets. The return on assets started out at 11.85% in 2003 and increased to 11.92% in 2005, the highest rate for return on assets recorded for the company. Beginning in 2006,...

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