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Market Pans Panera Bread

Wednesday, 23 Jul 2008 | 6:46 PM ET

Not every company can raise prices without losing customers. Especially when it comes to a business as finicky as food. But Panera Bread has done just that, and it paid off. Second-quarter profit jumped 24%.

Cramer's Sweet Bread
An outlook on the Panera Bread franchise, with Ron Shaich, Panera Bread co-founder, chairman & CEO, and Mad Money host Jim Cramer.

“We have good value,” CEO Ronald Shaich told Cramer Wednesday. “And people have given us permission to raise prices consistent with the inflation they see.”

In fact, customers are so aware of rising food costs that “it’s been easier this year to raise prices than it has been in the past,” Shaich said.

In 2008, Panera absorbed about $34 million in excess costs, or about 50 cents to 60 cents a share, because of higher wheat costs. Luckily for Shaich, though, the company’s been able to lock in wheat prices for 2009 that are 28% lower than this year.

And Panera’s focused on growth just as much as cost-cutting. Shaich is trying to make his restaurant into a pre-event evening destination by “providing alternatives to people so they can eat light foods in the evening.” He said he’s hoping his menu changes stand out for guests looking for a bite before a movie.

Panera locations are also growing. Shaich said his company has been building a new restaurant twice a week for the past five years, and, “You can expect us to continue to do that.” He projects a possible 5,000 Paneras, a sizable increase over the just under 1,250 in existence now.

That's probably at least part of the reason Panera increased its third-quarter and full-year guidance.

“You can count me as a satisfied customer,” Cramer said, “and someone who thinks the stock should be bought.”

The Mad Money host said Panera could be downgraded Thursday, so watch for the chance to buy on any weakness.



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