Restaurant stocks are always a hot favorite among people as there are lots of opportunities. A great player playing well in this industry is Bob Evans Farms Inc. (BOBE, Financial).
This restaurateur posted excellent fiscal 2016 second-quarter results. The company also has initiated a turnaround plan with four priorities. It continues focusing efforts on improvements in both businesses and execution of strategic initiatives. BEF Foods had another successful quarter with double-digit pounds sold percentage gains in both refrigerated dinner side dishes and sausage and is poised for a strong holiday selling season.
Founded in 1946, Bob Evans Farms owns and operates full-service restaurants under the Bob Evans Restaurants brand name and operates 567 Bob Evans Restaurants and licenses four Bob Evans Express locations in 19 states. The company’s restaurants are primarily located in the Midwest, Mid-Atlantic and Southeast regions of the U.S. It operates in two segments: Bob Evans Restaurants and BEF Foods. Through its restaurant segment, the company offers its customers a range of breakfast, lunch and dinner items either on a dine-in or carryout basis in family friendly settings.
The company's BEF Foods segment offers a range of wholesome food products to retail and foodservice customers. Bob Evans Farms, through its BEF Foods segment, is also a leading producer and distributor of refrigerated side dishes, pork sausage and a variety of refrigerated and frozen convenience food items under the Bob Evans and Owens brand names.
The company recently relaunched a more profitable three-course dinner platform systemwide to address a weakness; began rolling out further product enhancements to breakfast menu, including a new coffee blend and improved hot cakes and omelets, and introduced Broasted Chicken.
Strong second quarter
On a GAAP basis, the company reported net income of $6.4 million, or 29 cents per diluted share, (which was $6.0 million, or 25 cents per diluted share, in the prior year quarter). On an adjusted basis, non-GAAP net income was $9.2 million, or 41 cents per diluted share (which was $8.6 million, or 36 cents per diluted share, in the prior year quarter).
The company had an additional $5 million of cost-saving opportunities during the second quarter, bringing expected fiscal 2016 savings to nearly $20 million, equating to an annual savings rate of $28 million.
GAAP consolidated operating income increased nearly 27% (when compared to the prior year quarter) and non-GAAP consolidated operating income increased by 19% in comparison to the prior year quarter.
BEF Foods' Q2 2016 non-GAAP operating income increased by 176% and was $17.6 million. Retail pounds sold increased 12.6%. Refrigerated side dish products comprised more than 50% of total pounds sold, an historic high.
The company repurchased $44.4 million (1.0 million shares) during Q2 2016 and $27.0 million (0.6 million shares) during Q3 through Nov. 30, 2015, bringing fiscal 2016 share repurchases to $131.9 million (2.9 million shares).
The board approved $100 million increase in share repurchase authorization to $250 million from $150 million previously.
Board approves a 9.7% quarterly dividend increase to 34 cents per share payable on Dec. 14, 2015, to stockholders of record at the close of business on Nov. 30, 2015.
(Source: Company’s website)
Fiscal year 2016 outlook
The company expects the following:
- Non-GAAP EPS to be in the range of $1.85 to $2.00.
- BEF Foods' expected performance has increased, and the company has identified additional fiscal 2016 cost-saving opportunities.
Turnaround plan
To strengthen its position, Bob Evans has initiated a turnaround plan with four priorities which are:
- Improve the brand experience for restaurant guests and grocery customers.
- Profitably increase sales in its restaurants and increase points of distribution of its consumer food products.
- Reduce costs, particularly at the corporate level.
- Allocate capital efficiently.
Initiatives
To improve the brand experience for restaurant guests and grocery customers, Bob Evans has launched its "best in class breakfast" initiative. The company’s recent/upcoming breakfast actions are launches of Brioche French Toast and sandwiches, seasonal toppings on Brioche, hotcakes, waffles, crepes and $4 appetizers. Bob Evans is expecting to achieve profitable same-store sales growth through improved guest experience and reduced discounting.
Further, the company is in a testing period to launch more and improved breakfast menus and new beverage products. Additionally, the company is planning to install a new restaurant technology package, including a new POS system and kitchen technology to drive improved food costs, labor efficiency and customer engagement.
Bob Evans has set maximum wages for each category, including general managers, and has created rate reporting for regional management. Further, to identify operating efficiency savings by a restaurant, the company is analyzing rates and sales per labor hour. To improve annual operating income, the company has planned to close its 20 underperforming restaurant locations during the 2016 fiscal year.
To meet strong consumer demand in the BEF Foods segment, Bob Evans has begun a more than $20 million expansion of its Lima, Ohio, refrigerated side-dish plant. Further, the company has successfully implemented a new ERP system across the plant network to drive continued efficiency gains and profitable sales growth.
Management
The company announced that, effective Jan. 1, 2016, Saed Mohsen will join Bob Evans Farms to assume the role of president and chief executive officer. Saed brings a strong track record as a restaurant operator with an intense focus on raising the quality of the overall guest experience. Saed's passion and more than 30 years of experience in these areas will be critical enablers of Bob Evans Restaurants' turnaround and continued profitable growth at BEF Foods.
On a concluding note
Overall, Bob Evans Farms is a rock solid company with increase in net income, good cash flow from operations and growth in earnings per share. The company also has a good dividend history. Further, Bob Evans’ solid turnaround plan will help the company to provide strong earnings in the coming years. This restaurateur won’t let its customers as well as valued investors down in the near future.
Disclosure: I do not hold any position in the company
