Interesting article in Barron's. The real value of the business is created by operating cashflow and let's use EBITDAR (earning before interest taxes depreciation interest and rent) as a proxy. While selling the real estate may make sense...it doesn't change EBITDAR.
All it does is bring in a bunch of cash and mortgage the future with a bunch of leases. Not saying it's a bad idea but you have to ask yourself "what are they going to do with the cash that increases shareholder value?". They don't have a bunch of expensive debt they could repay and their cash needs aren't great. I guess they could pay a one-time dividend or buy back a bunch of stock but those are questionable drivers of long term shareholder value.
I think the other things mentioned do make a bit more sense. First, they should sell Mimi's. It destroys shareholder value and it's not strategic to own. Sell it and focus 100% of managements attention on growing Bob Evans. Second, refranchise some of the Bob Evans. Almost every QSR or fast casual chain has a migher % of franchised stores than they do company operated stores. I'm sure they have some pockets that are not strategic that could be enticing to franchisee. Happens in every concept.
Don't get confused by financial engineering. Watch fo (1) same store growth trends, (2) operating margins, and (3) performance of new/remodeled units. If all 3 are good, it's likekly to do well.
Thank you. Your message is one of the most thoughtful posted on this board in several years. Selling Mimi's is a good idea, but it may make sense to spend a little more effort to improve Mimi's operations first so that it's more marketable. Thanks again.
Good reply but I don't think selling the Real Estate at this time makes good sense Bob Evans has always owned about 90% of their restaurant sites and 100% of their food prossesing facilities. Why be obligated to a real estate invester at this time when you don't need to be. If they sell the property they would pay a hefty tax burden to boot. Most of the properties they own would sell for 5 to 6 times the original investment which would be a reduced amount at this time, most resl estate prices including commercial prop. are down since 2007. The company also would be in a better position for purchase with real estate assets, which in my opinion is where I think they are heading! They have never franchized the concept and don't think they intend to. I agree with you about same store sales improving as a good indicater of strength but also customer count increases will improve that situation. Making stores pretty isn't the only answer to helping the bottom line...customers don't eat the buildings, they judge you on your food, service and cleanlyness. Ever watched Diners, Drive-ins and Dives??? JMHO!!!
I agree that the company should continue to hold the real estate. It is the attraction that led me to buy the stock. I am grateful to the Barron's article for quantifying the real estate better than I have read anywhere previously. Companies that own their own land rarely get the market valuation they deserve because investors are so income statement-oriented. However buying realty-owning companies has been a successful strategy for me to the limited extent I have been able to find suitable companies.