Motley Fool Money - Motley Fool Money: 10.25.2013

Episode Date: October 25, 2013

Microsoft rises on earnings.  Amazon hits a new high.   And Netflix overtakes HBO.   Our analysts discuss those stories and share three stocks on their radar.  Plus, Panera Bread founder and CEO Ron Shaich serves up some insights on the restaurant business. Learn more about your ad choices. Visit megaphone.fm/adchoices

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Welcome to Motley Fool Money. Thanks for being here. I'm your host, Chris Hill, joining me in studio this week from Motley Fool Pro and Options. Jim Gillies from Motley Fool Supernova, Matt Argusinger, and for a million dollar portfolio, Ron Gross. Good to see you, gentlemen. Hey, hey. We've got restaurant stocks, tech stocks, and a couple of Bellwerews.

weather stocks to boot. Our CEO sits down with the CEO of Panera Bread for a conversation you don't want to miss. And as always, we'll share a few stock ideas to put on your watch list. But we begin this week with earnings paloosa. Shares of Microsoft up 6%. Let me say that again, Ron. Shares of Microsoft up 6% Friday morning after first quarter profits came in north of 5 billion. Steve Bomber, we don't know exactly when he's going out, but it seems like he might be going out with a bang. Yeah, me likes what me sees. I was just going to say, how'd they do it?

Well, the transition continues. They're obviously moving their business to more of a device and services business, getting away from the declining PC as much as they possibly can. That business continues to be weak. But everything else is going along very nicely, even better than expected. The surface business is doing pretty well. The cloud computing business is doing very well. The enterprise software business is doing well.

Those things are being able to offset the decline in the PC business, and therefore, the results look pretty good. For basically the last decade, this is a stock that really hasn't moved all that much. How dare you? I call them as I see them. But 2013, really been a good year for the shares of Microsoft. Should investors get too used to this? Or is this just a nice aberration?

I'm going to speak out of both sides of my mouth here. So we like the stock. We think it's undervalued. We own it in a million-dollar portfolio. We do have it on hold because there's execution risk in the transition and the restructuring, and there's no CEO at the helm to lead that. So we need to see a little bit more before we recommend people buy. Amazon posted a loss for the third quarter in a row, but revenue was up 24 percent, much higher than people were expecting. Maddie shares hitting a new all-time high on Friday. This seems like one of those situations where bears, Amazon bears, are just throwing up their

hand saying, again, they're losing money and the shares go up again? There are bears in the Amazon? I was going to say, didn't they throw the white flag up like $100 ago? No, this is, it's a really great chord. As you said, revenue, 17.1 billion, handily beating expectations. You know, they grew prime members by several million. They're still very coy about how many members they actually have in prime, but you can bet it's tens of millions.

It's great service. There was a lot going into Amazon's report. We had eBay a while ago, and we had some other companies kind of give a tepid outlook for the holiday season. There are some reports out there that this might be the worst holiday season since 2009, which would be pretty dire. But Amazon was totally upbeat, pretty much everything. They said, you know, we're really excited about the holiday season. We've built out our distribution platform to an extent now where we can, you know, we can essentially give one-day delivery to almost every spot in the country, which is really helpful for the holidays. And their guidance,

you know, looked for the holiday season, looked a little conservative. I almost think they're setting themselves up for a nice beat when they actually report numbers in January. So, Yeah, swimmingly good for Amazon. Historically, the fourth quarter is the best quarter for Amazon, this three quarters in a row of reporting a loss. Are they under pressure to the point where that has to end? They have to deliver a profit in Q4. No. Not at all. I just think as time goes on, eventually, yes, they're going to have to report profits. But right now, I just think they're in that zone where they don't need.

I think the worst thing they could do would be to succumb to that pressure. Jeff Bezos needs to just run his business the way he knows how to do. it, build for the future, let Wall Street do whatever Wall Street's going to do. The stock will eventually take care of itself, as well the profits. Spoken like a true value investment right there. Right on. Right. Applying value principles to Amazon. To runaway Amazon.

Every once in a while on this show, we take a little victory lap. I want to take one now, not on our behalf, but on behalf of our co-founder, David Gardner, because we had an event this week. It was back in 1997 when David Gardner publicly recommended shares of Amazon, which at the time, it was billing itself as Earth's biggest bookstore. Yeah. Shares up 100 times since David first recommended. He bought it back in 1997. 120 times after this morning's jump.

Oh, my goodness. Just an amazing run. So kudos to our man, David Gardner. Shares of Netflix briefly, I say briefly, hit a new all-time high this week in the wake of third quarter earnings. One of the big headlines here, Jim, Netflix now has more than 31 million subscribers in the U.S. That makes it bigger than HBO. What did you make of the quarter?

It's bigger than HBO. Domestically, internationally, it's still lagging a little bit. It was a pretty strong quarter for them. I think their viewing hours are up 25% versus just two quarters ago. Everyone probably binge watching Breaking Bad ahead of the finale. Here. Including people in this room. You know, international is going well.

They're doubling down on the original content thing. So, for example, their first season of House of Cards, they kind of had first run, but they don't control post that first run. So you can go buy it in Redbox now. They're going to be kind of controlling their original content going forward a little more closely. You know, it was a fantastic quarter. And for me, the capper for the quarter was that the CEO came out and talked down his own stock, which you never is, you never hear. I'm like, that is so great. I was going to say, it's pretty amazing.

conference calls with analysts are generally pretty boring. Reed Hastings over Netflix, he was out in front waving the caution flag on the stock, and when I say it briefly hit an all-time high, you look at a chart for the week. It has dropped over the last few days as a result of that, and I'm wondering if... Didn't Icon sell half his steak? Yeah, I was a sell wreck that came out later the day post-earnings. Carl Icon dropped half a stake. Now, his son says, Daddy, you're wrong.

So, you know, they're hoping to come back. But I look at that, and I'm not a shareholder, but I look at that, and I think, well, given the run of the stock, which has just been incredible over the last year and a half or so. Five times in last year. It's just amazing. So nothing wrong with a little profit-taking run. Nothing wrong at all. I actually don't like when CEOs comment on the stock either way.

The only time I want to hear them talk about the stock is if they think it's a good time to do a buyback. But just run the business. Let the stock market handle the stock. Caterpillar and Boeing are two of the better known and bigger bellwether stocks, and they sent conflicting signals this week. Caterpillar's third quarter profits down 44%. Boeing's third quarter profit up 12 percent, and they raised guidance. Maddie, which one should I be listening to here?

I actually don't know. I mean, I remember the day it happened. I mean, he both came out the same day, and I was reading Caterpillar in the morning. I said, gosh, this is dower. They're mining business down 40 percent. Their power businesses down 7 percent. It was It just looked dire, but then you have Boeing, which, you know, again, yeah, revenue up 11%. They delivered 170 planes in the quarter. They have $415 billion in backlog. And they also delivered 23 Dreamliners, by the way, which, you know, was a record for that as well. So I tend to buy the Boeing story a little more, only because, well, I'm an optimistic guy, first, but second, you know, airlines,

really across the board, developing markets, industrial nations are buying airplanes. I mean, pretty frenetic at a record pace. And I just feel like that is a better denominator on the economy as a whole. Caterpillar is very linked to the commodity cycle in a lot of places, and especially in places like China and Australia where they have a lot of exposure, and it's just been tough there. I mean, when you talk about CEOs making comments, we had the CEO of Caterpillar on CNBC this week, using words like tough and painful and just kind of the opposite of your optimism.

Yeah, well, what I think with Caterpillar, I think Maddie nailed it, it's so minding-focused, and this report was so mining focused. And that's because coming out of the recession, things were gangbusters in that business. There was a lot of activity going on. And now it's kind of leveling out. And is maybe even more normal now. And so the comps look pretty bad. So it perhaps isn't necessarily as dire as it looks. It's just in comparison to what it looked like last year. Coming up, Twitter has priced its IPO. Should you be looking to get in? Stay right here. This is Motley Full Money.

As always, people on the program may have interest in the stocks they talk about, and the Motley Fool may have formal recommendations for or against. So don't buy ourselves stocks based solely on what you're here. Welcome back to Motley Fool Money, Chris Hill here in studio with Jim Gillies, Matt Argusinger and Ron Gross. Guys, two restaurant companies reporting third quarter results this week. McDonald's, quarterly profit up four and a half percent. Panera bread, profit up 17 percent. Just on the surface, Ron, you'd think Panera had the better question. but you look at the stock, it actually got hit a little bit. They cut guidance for the fourth quarter. What do you make of these two?

Panera is struggling, but in a good way. And what I mean by that is they're having trouble keeping up with the demand. So they need to hire more. They need to get their kitchen in order. They need to improve their technology. And if they do that and the demand stays with them, the numbers will probably look great. Anecdotally, I see what people are saying the last two times we went in, our orders were wrong, and that's been a lot of the complaints, and people are turning around when they see the long lines. That is very bad for a restaurant, obviously. But I think just with a few tweaks, they'll be able to get it in order, and that will show up in the results. McDonald's is kind of a different story. They

continue to have weak same store sales. They're seeing a lot of competition. They're blaming the global economy. They say they're actually seeing a bifurcation of people who can afford McDonald's versus people who are. who are opting to not go into a McDonald's, which is interesting. So they continue to struggle among a lot of different alternatives out there. Good results in the U.S., though. So when you look at McDonald's, I don't know if there's a way to necessarily play that, but certainly here in the U.S., and you look at their North American results, they seem

to be leading the way. They are better, and that's why they do keep blaming the global economy, and that kind of fatigues investors after a while. they're going to revamp some menu items to play with the dollar value menu and some things like that. You know, McDonald's continues to be. It's McDonald's. I mean, you know, they'll be fine. They pay a nice dividend. They continue to generate tons of cash flow. But, you know, things are a bit weak. And let's not forget what's coming down the pike in December for McDonald's. McRib? The McRib. Oh. So I'm just getting it. Buy on the McRib. Buy on the rumors selling the news.

On Tuesday, the biggest loser in the S&P 500 was Coach. Shares got hit after first quarter results. Jim, same store sales in North America. It was the biggest drop they had in almost five years. How worried should shareholders be about this? I'm of two minds. You might say I'm bifurcated. I'm going with Ron's word here.

There's a lot going on at Coach. And you're right, you know, same store sales were down close to 7% domestically, internationally, especially China. Things were great. It's a much smaller part of the business. Margins were down across the board, but the company is not terribly expensive. They make a lot of cash. They've continued buying back shares.

They have a nice dividend, which they rise every year. It's a story that I think is going to take a few more quarters to transition. And the big story, in my opinion, is the leadership of the company is in a great state of flux right now. Their chief creative officer, Reid Krakow has left to follow his own eponymous brand. The longtime CEO is retiring next year. They got a new CEO-era parent. They got a new creative officer.

And those things are going to take time to kind of get their vision and their stamp on the company. Is this still a luxury brand? Because it feels like over the last decade or so, Coach has gone a little bit more mainstream. It's still a quality brand. But I don't know that I think of it in the same way as other luxury brands like maybe a Burberry or certainly a Tiffany at the highest. You can certainly make the argument they have gone for some lower hanging fruit in terms of mass populace, shall we say. And they have, you know, they have outlet stores. And, you know, luxury brands with outlet stores, there's as, I'm not sure that's a great dichotomy to have.

But again, I mean, I do have a position personally. We do have a position on it in Motley Fool options. We like it long term. But I think there's some growing pains for probably the next couple, if not four quarters. You can follow the show on Twitter. At Motley Fool Money is our handle. We've got a question on Twitter from one of our listeners. Mike Sarah, who writes, is Twitter a buy?

I need guidance. Worth pointing out Twitter just updated its IPO filing. They are pricing the stock in the range of $17 to $20 a share. Maddie, some people over the last month or so, some analysts on Wall Street saying, this is a $20 billion company. But you look at how Twitter is pricing their IPO. they're pricing it to be more of a $10, $11 billion company. Do they risk leaving money on the table?

I think they're leaving a little money on the table. I don't know how much, but a little, maybe significant amount. There's something to, I think Twitter's, the modest expectations here with Twitter or what Twitter is creating, there's something to this idea of having a really good debut in the market. And I think that's what Twitter is going for. They're really trying to be the anti-Facebook, what happened to Facebook last year. Whether it's a buy, I look at Twitter at this $11 billion valuation on the high end, what they're coming out as. Who knows it will end up in the first day?

But it just had, it reported that it had $169 million in revenue in the latest quarter. That was up more than 100 percent year over year, 23 million active users. And if you look at the sales, if you look at the $700 million annual run rate in revenue, which is growing really fast, it trades about 16 times sales relative to that $11 billion valuation. Facebook's a 21-time sales right now, and growing fast, but not growing as fast as on Twitter. You could make the argument that if you can buy within this $17 to $20 range, you might be getting a deal. And who knows, but who knows it will close into that range of the first day? I'm sure it's going to get a big pop, and I think that's what they're going for. But it's not an outrageous valuation.

Ron? Yeah, it's interesting. They're trying to be, so the anti-Facebook in terms of the IPO. But what did Facebook do? They raised an optimal amount of money. They struggled through six to 12 months of... kind of stock market growing pains, and everything's fine right now. So, I mean, me personally, I would want to raise as much money as I possibly can. This is typically a 15 percent underwriter discount, just so the market, the stock is okay

in the first day. But don't leave billions of dollars on the table. Billions is a lot of money. A lot of zeros in there. I should point out that part of their updated filing included information about their roadshow. Dick Costello, the CEO, and his executives are going to be. be traveling around the country meeting with some of the big Wall Street banks, etc. They're going to be in DC next week. And as I wrote on Twitter, come on buy Full H. Q.

Come on buy, Dick. Let's have them in there. We'll see if they respond. But it would be nice to have them stop by. We got a few minutes left. Time for the stocks that are on our radar this week. Ron Gross, I will start with you. What do you got? I feel compelled, Chris. Compelled? To go back to Crocs. C-R-O-X. A company that has, it's been struggling. Q-2 was weak. They came in and lowered Q-3 guidance, which we're going to get the results of next week. I think it's unloved, it's somewhat misunderstood for value investors. That becomes very interesting.

We think it's going to do really well. Next year, you're after, and the price is not proper. The results that they will put up are not properly reflected in the stock. But is your interest in this stock based solely on the valuation of the stock? Because when I look at this company, I'm still wondering, what's the next act? Do they have a second act beyond the shoes? Well, I think the answer is yes. I think it's a misprice stock. So is it the kind of stock I will own for the next 20 years?

Probably not, but we'll see what they do. They've certainly diversified away from that ubiquitous clog, which is now less than 50% of their business. And most people don't understand that and don't realize that. But they had to do some discounting last quarter. We want to see that firm up a bit. And they want to see their inventory get a little bit cleaner. And then if that mispricing gap can close, I think we'll take our profits. Maddie, what do you got? All right. From unloved and misunderstood to beloved Boston beer company, ticker S-A-M,

they report this coming week. Hey, Red Sox are in the World Series. Yes. Boston beer is just my favorite beer. My favorite beer. I've owned the stock for more than 10 years. I'm truly happy. It's at an all-time high. But, you know, it's one of those companies that I feel is just going to continue to gain a little bit of market share. Craft beer has been incredibly strong. They're the leader in that market. Really love the company. Love Jim Cook. Love the culture that they have there. So just a great company and see what they do with earnings next this coming week. All right, Jim Gillies, we've got less than a minute. What do you got this week? Mine is a company that buys charged off debt. It's called Portfolio Recovery. Wow, this sounds sexy.

Yeah, it's the most boring company you can ever find. PRAA, it has been a stealth 10-bagger over the past decade run by excellent management, and they do a lot of data modeling to determine which people will be paying them when they buy off these charged-off portfolios. We've been going through a period where the world's been getting a lot of charged-off debt, and the prices might be going up. They've knocked the cover off the ball the past five or six earnings reports. I'm curious to see if they can do it again. All right. Jim Gillies, Ron Gross, Matt Argusinger, guys. Thanks for Thanks for being here.

Thanks, Chris. Coming up, a conversation with the CEO of Panera Bread. Stay right here. This is Motley Fool Money. Welcome back to Motley Fool Money. I'm Chris Hill. With over 1,700 locations across North America, Panera Bread is one of the fastest growing restaurants of the past decade.

Over the past five years, Panera's stock is up more than 200 percent. Motley Fool co-founder and CEO, Tom Gardner, recently had an opportunity to talk with Panera founder and CEO Ron Shake at the Conscious Capitalism. conference in Austin, Texas. Here is some of their conversation. We're here in Austin, Texas, with the founder and CEO, Panera Bread, Motley, Full Investment, in Stock Advisor and Supernova. And we're here with Ron Shake, and Ron, thanks so much for spending some time with us. Always one of our good friends. What's the difference in the vision at Panera today than in the 1990s? When you look at, I mean, it was, I know you're quoted in one place going, no one would

buy my stock in the 90s. I couldn't get anyone. Five years. No, I mean, I mean, I mean, I know there were spin-offs, right, but I mean, the performance of Panera stock from the mid-90s to 99, that was not a good period for you. Well, we went public in 91, and I guess if you take it 91 to 99 when I spun off all the other businesses, the stock essentially during that period of time had gone up, gone down, but was ultimately flat for those nine years. And I think it's up, I don't know what it is, 40-fold from 99 to 2000. Unbelievable. One of the greatest stock performances over a 15-year period in American history.

Yeah, so it's hit quite the run. Yeah. But I would say to you... Were you laying the foundation and people just didn't know in the 90s or there was a really big shift that you earned a wake-up call for investors? Well, I would say to you this way. I would say to you, ultimately in 99, we made a bet. And we made a bet on a vision for how this corporate entity was going to compete. And in 1998, we had four divisions.

We had the Old Bon Pen stores, Old Bon Pan International, a manufacturing division. And we also owned Panera Bread. At that time, Panera Bread, was 180 stores. It was clear to me as somebody had been around a while that Panera had the potential to be a nationally dominant. For every 100 guys that tell you that something could be nationally dominant, one ever makes it. And I know it.

I could see it. I could feel it. It had stable numbers. They were consistent. and I was struggling with how do you unlock that? And, you know, in a multi-branded company with professional managers running these four divisions. And around 1998, somebody said to me,

you know, Ron, what would you do if Panera owned the other three divisions as opposed to Oban-Pen owning the namesake of the company owning the divisions? How would you think about it? And that paradigm change allowed me to say, well, if I really, you know, if I really look at it, This is the gem.

This is really where there's an extraordinary value. We have to protect it. And if we're going to protect it, what we've got to do is we've got to make sure it has all the financial resources it needs, all the human capital. And what that ultimately led me to conclude is, if we were going to fuel this thing the way it needed to be fueled, it needed us person to go down there and run it.

It needed all the financial capital. Let us to decide to sell every other division but the Panera division. Total focus. Total focus. We sold everything else. ended up with 180. And at that time was a really tough decision. This was the third largest division.

It was, you know, the board members had signed up to be in the old ball pen business. It meant selling people that I'd grown up with, you know, because they were non-competes. They went with it. They all came back eventually. But it was very emotionally difficult. In the end, we ended up with 180 stores and a couple and a bunch of cash. How quickly did you know that was the right decision? I mean, you may have said you knew it in the moment that it was.

was happening, but how long after was it like, wow, okay, this was, I feel the energy? I think my most of business, most of life, actually, is you know the right thing to do. You have a sense of it, but until it's actually played out, you don't have the wherewithal credibility to claim that. And so anytime I've made a leap of faith where I've tried to create into a future that's just playing out, I've known it's right. I intellectually know it. But that, but you've got to go through it and you've got to, and there's a certain tension that exists until it manifests itself.

And so there was a huge leap of faith. And, you know, in 99, we ended up with that Panera division and we took it from there. Capital allocation question. Yes. Why franchise it all? I look at, I love following the restaurant business. I see what's happening to two income households and what's happening around the world. And it's a great long-term growth business and end what I'll say is a lot of people think restaurants,

They all fail. I'm not going to buy them. And that opens an opportunity for those of us who are willing to really dig deep into the great restaurant businesses that are out there. But I'm always interested in what the dynamic on that decision is. It's about 50-50 at Panera. Yes, it is. And I know you've bought some franchises back. Tom, let me ask you a question. Yeah.

Good. I like this. All right, Tom, let me ask you. I'm going to keep your expectations low, Ron. All right, Tom. Let me ask you a question. Do you advocate for your investors' asset allocation? Yes.

You do. Why? Why do you argue for balancing equity with debt? Okay. Well, I believe that diversification will get you through different times in different ways. So that helps you. Now, what I'll say is there are investors who would sit there and say, no, I pretty much put all my eggs in one basket. I watch that basket really closely.

I believe what you're saying is... Well, I haven't said it yet, but I'm asking you, I think most modern investors it argues for some form of asset allocation. And we believe that company stores are phenomenal when you're in a very hot market. They're phenomenal when comp stores are great. On the other hand, we think having franchise stores are also superb when the market is slower growth and there's more challenges. So we believe in asset allocation. Think of our company stores as investing in equity. And think of our company stores as – think of our franchise stores as investing in debt.

We like a healthy mix of it. And I think that we're trying to deliver for investors results over the medium and long term with some stability. And I think we're far better to do that when we operate with a mixed system than if we were to operate solely with company-owned stores or solely with franchise. I think most companies actually end up getting there. And to be in a complete company store system, if there's a burp, the investor is going to have a real stomach. Gotcha. Okay. So 1,800 stores or so, locations, restaurants. Just shy of that. Have you published a number of how many you think are, how many locations you think you have in the U.S.? You know, Tom, for as long, for as far back as I go talking to investors, I've never published a number.

Yep. I think that's great. Right. And I don't because I don't really know what the answer is. At one time, if you'd ask me, I would have fought 500 stores. I would have thought it was 1,000 or 1,000 or 1,000. The reality is it doesn't matter what that number is. knows. I don't have to know until I get there. What I need to know is I have enough growth to feed the monster in a reasonable way over the next three years. So we sit down every three months. We look forward three years and we make sure we have enough development territory ahead of us. And we continue to learn. That's what business is about continuing to learn. We continue to learn and we continue to adjust, quite frankly, what our potential is. And do you continue to think, I know you think market by market we're not going international

and global. I know my strategy. You know exactly. You've heard my line. I'll give it to you. There is no such thing as an international strategy. All there are are markets. Yeah.

So Canada is in a way, you're expressing that's your next market. We're there. Yeah. We're moving out. Yeah. And how is that? When was the first Canada Arab Bread opened? sometime in the last couple of years we opened the first one in Canada.

And we're quite pleased with the reaction we get. I mean, I think that it's going through a curve very similar to what we saw when we moved to California, which is the, you have to build up a critical awareness. More importantly than that, you have to touch people. And you have to build a relationship in which you're both building frequency and you're being able to bring in new customers. And we're going through that curve in Canada. I want to hear a little bit for our members that don't,

know about Panera cares and about the journey that you just took with food stamps. A little bit about those two. Yeah, well, you know, Panera's, let me start. I'll root them all together. Part of Panera's success has been because we have built community centers. Panera's are community centers across America. I mean, something in the order of a third of our business is rooted in and people come in for a place just to sit and talk, catch their breath, be with others.

If you look at our business, you'll see, you know, Bible study classes, you'll see, you'll see, mothers knitting classes, you'll see book clubs. You know, this is a place to talk and connect. And we've, because we bake fresh every day in every cafe, and because we're invested in that community, we got very invested in issues of supporting the food banks and the like. Every night we would deliver any excess bread we had from that day because we bake fresh every day to these food shelters. Got us involved in hunger issues. And as you get more and more involved in it, you begin to learn about it. You'll find out that one in four, American, one of four children in this country, one in six Americans at some point in the last

year didn't know where a meal was coming from. We're not talking about a few people. We're talking about 48 million Americans in this country. And as we began to learn it, we began to figure, try to think about it. Well, how do we help make a difference in it? And over the last four or five years, we've gotten up to a level where we're giving somewhere in the range of $100 to $150 million a year in product or cash to these organizations. Major supporter. But I felt in some ways that it wasn't fully what we wanted to do. I wanted to find opportunities in which we could do more than just pack our bread that had not been sold that day in black plastic bags and let it go out the back door.

I wanted to find something more than just writing a check. And what I wanted to try to do was figure out how we put our own arms and legs, our own backs against the problem. Because it wasn't simply about the gift. there was only our own relationship with it. And it led me to something called the community care movement, community cafe movement. And I don't know, four years ago, the height of the recession, I was at home one night watching NBC nightly news. They talked about a cafe in Denver that had been formed. It had no set prices. If you had a few extra bucks in your pocket, you left more. If you had a little less, you left less. And if you had nothing, you left nothing. And the idea was the community would support this and

support each other. And it was about paying it forward and taking advantage of it when you had the need. And I thought it was a fascinating idea. I heard the story of this cafe, heard they'd spent 10 years getting it going. And I looked at my wife that evening. I said, heck, you know, we open a, we open two cafes a week somewhere in this country. We've got 80,000 associates. We've got equipment that you couldn't imagine, you know. We need to do this. This is the kind of thing we should do. And she looked at me and said, well, if it's the kind of thing you should do, then you better do it. And I thought to me, so, wow, she's serious. I better do it. And I began to think about doing it. It became an interesting thing for me.

Could you do it? Could we actually create a cafe where there are no prices? And what was the nature of humanity? My original vision was we'd start out with just bake goods and coffee. But I started to go and visit these food shelters, and I began to work in them. And one of the things that really struck me, because I'm always looking for what the pattern is, is just the amount of pain people that are in these, these, basically soup kitchens are. Everyone around you is in pain. Everybody's walking around with their head down, facing their shoes.

And I began to think to myself, well, heck, if we really want to do something here, what we're about is not just feeding people, that just fill in their belly, but giving them an experience that had dignity to it that uplifted them. And I said, if you're going to do that, you want to have an experience that people are willing to pay for. You don't want to go to the lowest common denominator. You want to go to the highest one. That let me say, well, if we're going to do that, we've got to do more than bake goods and coffee. We've got to do real food.

If we're going to do real food, we know a place that does that. It's called Panera. It's got the antibody-free chicken. It's got the salads, the organic elements. We said, let's do the full Panera menu. And if we said, if we're really going to do that, let's put the Panera name on it. And let's see if we can find a community cafe where we had no set prices that people were actually willing to pay for and donate, pay it forward.

At the same time, we were allowing those that had the need to pay less. People thought I was nuts. But anyways, I decided I would go for it. I'd open one of them. What's the risk? We'll try it. Where was the first one?

Clayton, Missouri. Fascine Cafe, one of our original 15 stores, two blocks from where I used to live when I was in St. Louis. And it was an eclectic neighborhood. You had the county jail across the street. You had people that were panhandling in front of the store, and you had million-dollar townhouses down the street.

And it was an opera. You need both. need to support it. Any rate, decided to take a shot at it, opened the first one. I ran it for three weeks myself because I wanted to experience it. And here's the amazing thing. It actually worked. You know, 60% of people left the suggested donation, 20% less, 20% left a lot less. We've since gone on to now open five of them. We opened our first, as I said, in Clayton, Missouri. Our second in Detroit, our third in Portland, Oregon. Our fourth in Chicago, Tom. Is there a way for your customers or for people to contribute to Panera cares?

Yes, yes. You just go to www.ponariccares.com and you're able to contribute right on the website. Most recently, we've gotten, you know, and by the way, here's the interesting thing. We're going to serve a million people this year in these cafes of shared responsibility. And the really interesting test, and it's a statement to the rest of the world, for all those folks that say that most Americans really aren't good people, that they're going to game it, figure out how to take advantage of it, The proof in Panera cares.

Well, there are people who try to beat you, but the truth of the matter is, most people are fundamentally good. Coming up more with Panera CEO, Ron Shake. This is Motley Fool Money. Welcome back to Motley Fool Money. I'm Chris Hill. Motley Fool CEO, Tom Gardner, recently sat down with Ron Shake, the founder and CEO of Panera Bread. Here's more of their conversation. You're 60.

I am. Which is surprising. You're a very healthy 60. We share similar hairlines. Yes, we do. You know, we were basically 40 when we were. we were 23. I don't know if that was the case for you, but people were like when I was 25, they're like, how old are you? I'm like, 25, wow, 25. But now that I'm 45, you know,

that works a little to your advantage. I understand. So, but I mean, do you, we love, we love our long-term CEOs at our great businesses. You know, when I sat with John Macky and asked him, I was like, how long do we have you as CEO? How did he answer that? He said, you know, that it's his life's work, and he's got his co-CEO relationship with Walter. Yes. And that allows him to more clearly express his capabilities and strengths and literally completely abandoned the things that he doesn't have enough talent to really add value to with tens of thousands of people in the scale of the business. Sure.

So what do you think? 60, 65, 70. You know, we don't know, I guess. We don't know. We don't know. I think this, I've just recommitted to being CEO. I think that Panera's got a number of younger executives that are quite powerful in their own right. And I think that my interest is less in the title and more in continuing to be able to feel

like, A, I can make a difference for the constituencies of Panera and that I can feel meaning in my own life and will continue to work that through and figure out the best way to approach it as we have in the past. How do you invest? And what would you look for if you were investing in a restaurant chain? What are some of the factors that you think align around greatness? You said you love to find patterns. That's how I invest. Yeah. Well, I will tell you, I look for how the management thinks and who they are. And I think we have become increasingly short-term in so many of the ways we think about management. I think we have become increasingly short-term in the way we invest.

And I think that when you do that, you take the bulk, the majority of the really powerful things off the table. When I'm really thinking about this quarter, I'm really not building competitive advantage. And so my whole focus is in medium and long term. My own perspective is to invest in people as opposed to the individual circumstances that exist. I'm not investing in information. I'm investing in capabilities and where that business is going. And I will say to you this. for me, because I'm still so heavily invested in Panera,

it's a large part of my own personal net worth. And by the way, it's been the best performing part of my entire portfolio. I've taken the rest of my money. I've let it be professionally managed. And it's managed basically to ensure that my family and future generations are able to have what they want and live. and allows you to focus all the time professionally on Panera. Well, you can see, Ron, why our mandate with the portfolio that I run is a minimum five-year hold. And I've said to our members, actually, I would love to make that a minimum 10-year hold.

I don't want to scare anyone away to think that, you know, hey, if I'm not willing to hold for, you know, 120 months every investment I make. But what ends up happening is if you start to look at businesses differently and find what are the factors that align around that company that comes public in 91 all the way through, One of them, core one, is the founder is a CEO. If you look at founder-run public companies, most founders have already made enough money by the time their company goes public to not be working for money anymore. So why are they there? It's not to say that there aren't some incompetent and occasionally fraudulent founder- CEOs. And ego-driven.

And ego-driven. But what you end up with are managing that asset as if it's their only asset for the next 100 years. That's a Buffett principle. Their passion, their greatest passion. They are mastering that field with passion. And by the nature, a founder leader often has a longer time frame because they're thinking... They've earned the right to think that way, too, in the marketplace like Jeff Bezos. Oh, sure. And they're not thinking just simply what's going to maximize the next quarter.

Right on. Ron Shake, pair of bread. Thank you very much. Thank you, Tom. That's going to do it for this week's show. Before we wrap up, I want to mention an exciting opportunity we have for women in college or grad school. Our brand new Women Investing Foolishly program. It's January 6th through the 8th classes taught by our analysts. We've got a lunch hosted by bestselling author, Luann Lofton, and we're going to pay for your travel expenses. So for all the details, you can go to the Motley Fool's company blog,

which is culture.fool.com. That's culture.com. That's going to do it for this week's show. We'll see you next week.