Why Panera Bread’s net profit margins declined

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Nov. 26 2019, Updated 10:41 p.m. ET

Net income and margins overview

Panera Bread Company (PNRA) reported a net income of $39.2 million, which declined 8.3% compared to $42.8 million during the same quarter a year ago. Net profit margins also declined to 6.3% from 7.5% over the same period. The decline was primarily due to an increase in operating expense by 2% to $562 million year-over-year (or YoY). The increase in operating expense resulted from increases in labor and food costs, as we discussed in the earlier parts of this series.

General and administrative costs increase

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Panera’s general and administrative costs for the quarter were $35 million, which increased 19% from $29 million compared to the corresponding quarter last year. This impacted the margins negatively by 0.5%. Depreciation and amortization costs also increased by 18% to $31 million from $26 million, which further squeezed the profit margins by 0.4%.

To compare this performance with Panera Bread’s peers, read Why Chipotle’s (CMG) net income and profit margins increased and Why McDonald’s (MCD) net profit and margins declined in 3Q14.

Chipotle Mexican Grill, McDonald’s and Starbucks (SBUX) are included in the exchange-traded fund (or ETF) the Consumer Discretionary Select Sector SPDR Fund (XLY).

Interest and tax expense

Panera’s interest expenses increased significantly to $462 million from $75 million in 3Q13. The effective tax rate for the quarter was 32.6%, which was slightly lower compared to 33.4% during the corresponding quarter last year.

Cash flow

As of the end of the third quarter, Panera Bread cash stood at $146 million, with the third quarter generating $48 million in cash flows. The company had capital expenditures of $65 million and repurchased shares worth $29 million during the quarter.

In the next part of this series, we’ll look at the management’s guidance for the rest of the year.

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