Bob Evans Misses on Both Lines

Zacks

Bob Evans Farms Inc. (BOBE) has recently announced third quarter fiscal 2013 adjusted earnings of 56 cents per share, missing the Zacks Consensus Estimate by a penny and the year-ago earnings of 69 cents per share. On a reported basis, earnings were 20 cents in the quarter versus 69 cents recorded a year earlier.  

Columbus, Ohio-based Bob Evans declared that it has completed the sale of its Mimi's Cafe restaurant segment on Feb 15, 2013.

The company posted adjusted net sales of $434.4 million which fell short of the Zacks Consensus Estimate of $436.0 million but up from the year-ago quarter’s sales of $428.3 million. The sales in the quarter were driven by the sales growth at the BEF Foods segment and comparable sales (comps) as well as unit growth at Bob Evans Restaurants. However, revenues were partially hurt by lower comps at Mimi's Cafe’s.

Inside the Headlines Numbers

In third quarter of fiscal 2013, segment wise, net sales at Bob Evans Restaurant were up 1.3% at $245.5 million while sales at Mimi's Café recorded an even steeper decline of 4.0% to $91.1 million. BEF Food segment’s net sales surged the most by 7.5% to $97.8 million.

Cost of sales fell 110 basis points (bps) from the year-ago quarter to 31.0% due to cost saving initiatives. Other operating expenses expanded 20 bps to 16.5%. Selling general and administrative expense increased 140 bps to 10% and operating wages increased 40 bps to 31.6%.

Consolidated operating margin dropped 150 bps to 7.1% owing to lower comps generated at Mimi's Café, sales de-leverage and higher costs at Bob Evans Restaurants coupled with the change in the timing of the marketing expenses at BEF Foods. Adjusted operating income of Bob Evans fell 19.6% year over year to $24.5 million.

Store Update

During the reported quarter, the company revamped 40 Bob Evans restaurants. Thus, at the end of the quarter, the company operated 565 Bob Evans restaurants and 145 Mimi's Cafe restaurants.

Financial Position

At the end of the quarter, cash and cash equivalents were $4.4 million and stockholders' equity was $635.8 million.

During the third quarter, the chain bought back 224,821 shares worth $8.9 million.

Outlook

For the fourth quarter of fiscal 2013, the company expects that earnings per share will lie within the range of 60 cents and 65 cents (excluding the operating results of Mimi's Café).

The company is now operating under two segments, Bob Evans Restaurant and BEF Food. The company now expects that same-store sales at Bob Evans restaurants will grow flat to 1% whereas operating margin will be within 9% to 9.5% in the fourth quarter. Net sales at the BEF Foods segment are projected in the range of $80 million to $90 million with operating margin within the range of 9.5% to 10.5%.

For fiscal 2013, Bob Evans Farms reduced its revenue guidance to $1.6 billion from $1.7 billion. The company plans $130-$150 million of capital expenditure in 2013. In long-term, the company is on the right track to augment its earnings by 8% -12% annually.

Our Take

The company’s performance at its Bob Evans Restaurant segment and its cost saving efforts are commendable.  Moreover, recent selling of Mimi’s Cafes should give a boost to the company’s business. This divesture will help Bob Evan to concentrate on its better-performing namesake brands -- Bob Evans Restaurant and Bob Evans Foods segments. Recently, the company also revealed its plan to close two Foods production plants in the second quarter of fiscal 2014 which will augur well for its earnings.

However, the company is wary of its competitors due to an intensive promotional environment.

Bob Evans retains a Zacks Rank #3 (Hold). Another restaurateur AFC Enterprises Inc. (AFCE) recently declared its preliminary fourth quarter and full year 2012 results. The company projects its adjusted earnings per share for the full year of 2012 to be within $1.23-$1.24, up from 99 cents in 2011. AFC also provided an optimistic outlook for 2013. AFC currently holds a Zacks Rank #2 (Buy).

Other restaurateurs, which are expected to perform well moving ahead, include Krispy Kreme Doughnuts, Inc. (KKD) and Burger King Worldwide, Inc. (BKW). Both carry a Zacks Rank #2 (Buy).

Read the Full Research Report on KKD

Read the Full Research Report on BOBE

Read the Full Research Report on AFCE

Read the Full Research Report on BKW

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