Panera Bread Case Study

Panera Bread Case Study

Executive Summary:

Panera Bread (PNRA) is a company that aspires to create a dining experience, drawing customers in with its freshly baked bread and a welcoming environment, where they can sit and really enjoy a wide variety of food and the company of others. Panera Bread is committed to only using the best ingredients and equipment, including high-quality bread to serve their customers, providing them with a more upscale restaurant feel that of which is different from what they are used to with the fast food industry today. Panera Bread has specially trained employees to in over 1,000 store locations who dedicated themselves in providing excellent customer service.

In 2007, Panera Bread faced a decline in margin that limited its ability to rely on internal funds like it had in the past. The price of commodities had risen, which caused the company to become uncertain of the future costs of wheat. As a result of transaction growth decreasing, uncertain costs and tighten margins, Panera Bread’s stock price decreased rapidly. In past years, Panera Bread had such strong margins that there was no need in accumulating any permanent debt in financing but it seems that the company will need to do so to cover for its decreasing stock prices.

Our recommendation is to repurchase stock of 75 million dollars for the following year. With making this decision, Panera Bread’s stock price will increase and the company’s profitability and capital structure, and cash flows will rise as well. Panera Bread has relied so heavily on its internal funding, from which it grew through retained earnings and other sources of equity. Panera Bread cannot avoid relying on capital from external markets, as expenses will continue to increase and affects the company.

Introduction:

        Panera Bread is facing decreasing stock prices, increases in commodity costs, and decreasing transaction growth. The company is also running out of internal funds that it has accumulated over the years through retained earnings and other sources of equity. Panera Bread is taking repurchasing stock of 75 million dollars for the following year under consideration. We have forecasted future statements to analyze future trends of Panera Bread and if it will suffer from the same issues in the future if it decides not to repurchase the stock.

Case Analysis:

Panera Bread’s profit margin seemed it would decrease starting with 2003, increased by .10% in 2005, then dropping by 50% in 2012. This shows that the percentage of turning its sales into profit would decrease rapidly over the years. The cause of this could be an increase in expenses, such as commodities. Total asset turnover increase until 2008 then remain constant until 2012. This shows Panera Bread’s ability to generate its sales from its assets, which the company is doing very well in, with the constant of 1.55. Panera Bread’s equity multiplier fluctuated throughout the years but all were generally low, showing that the company would not rely on creditors to fund its assets.