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Strong growth for Panera Bread offset by high costs?

By Lorraine Heller , 16-Aug-2005

Panera Bread has revealed strong growth in its first half sales, but the company expects higher costs to hit margins for the rest of the year.

The US based bakery franchise reported a 52 per cent increase in net income for the half-year period to $24.4m, compared to $16m last year.

While overall income was boosted by 24 new bakery openings, continuing operations also demonstrated good performance, with system-wide comparable bakery-cafe sales up 9.3 per cent.

However, with high costs beginning to kick in during the second half, the company predicts a fall in system-wide comparable bakery-cafe sales increases of 6.5 to 8 per cent in the third quarter and 2.5 to 4 per cent in the fourth quarter.

High fuel costs and good sales of the company's high-cost natural chicken products resulted in increased expenses during the first half, though the full impact of higher costs has yet to hit, with the company reporting a 9 per cent increase in profit margins to 12 per cent, compared to last year.

Panera Bread expects to open only 28 new cafes in the third quarter, falling short of its initial target of 41. However, the company said this will be made up for in the fourth quarter, resulting in increased costs during that period.

It also expects to have market research expenses of $2m during the fourth quarter, placing even more pressure on operating margins.

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