Bob Evan Farms: Primed to Grow Further

Despite reporting a decrease in total revenue, the company is poised to grow with new initiatives

Article's Main Image

Restaurant stocks are always a hot item as there are lots of opportunities. A great player playing well in this industry is Bob Evans Farms Inc. (BOBE, Financial).

This restaurateur has posted mixed quarterly results, including a 3% decrease in total revenue. The company has raised its fiscal year 2016 non-GAAP diluted EPS guidance. To provide great food and service, Bob Evans is focusing on hospitality and quality.

Founded in 1946, Bob Evans Farms owns and operates full-service restaurants under the Bob Evans Restaurants brand name and operates 548 family restaurants in 18 states, primarily 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.

Mixed third-quarter results

On March 1 this New Albany, Ohio-based company reported financial results for the fiscal 2016 third quarter ended Jan. 22. The company’s total revenues decreased 3% to $346.5 million, compared to $357.18 for the comparable prior-year period.

On a GAAP basis, the company’s net income increased 118.41% to $12.93 million, or 62 cents per diluted share, compared to $5.92 million, or 25 cents per diluted share in the prior-year quarter. Further, on an adjusted basis, non-GAAP net income was $12.93 million, or 62 cents per diluted share (which was $14.32 million, or 60 cents per diluted share, in the prior-year quarter).

GAAP consolidated operating income increased 135.37% to $18.06 million, compared to $7.67 million in the prior year period. Further, compared to the second quarter of fiscal 2016, operating income shot up from 27%. Bob Evans’ non-GAAP consolidated operating income increased 1.83% compared to $17.73 million in the year-ago quarter.

The company’s selling, general and administrative expenses decreased 25.56% to $29 million, compared to $38.96 million in the prior-year quarter. GAAP net interest expense for the reported quarter was $2.4 million, which remained flat compared to the prior-year period.

The chart below shows the company’s segments' performances for the reported quarter.

02May2017173757.jpg

Bob Evans Restaurants' non-GAAP operating income declined primarily due to the impact of lower sales, combined with the net impact of increase in food cost rate and labor and benefit cost rate. Additionally, it has opened one new restaurant during the third quarter and has closed 20 restaurants fiscal year to date.

On the other hand, BEF Foods' non-GAAP operating income increased primarily due to favorable sales mix, decreased selling, general and administrative expenses, plant efficiencies and sales leverage.

Share repurchase and balance sheet highlights

During third quarter 2016 and fourth quarter 2016, the company repurchased 1.3 million and 0.4 million shares for $51.7 million and $14.6 million, bringing year-to-date fiscal 2016 share repurchases to $171.3 million (3.9 million shares).

Bob Evans’ cash balance and revolving borrowings at the end of the quarter were $7.7 million and $492.9 million, compared to $3.8 million and $444.4 million in the prior year.

Projections for fiscal 2016

The company expects the following:

  • Consolidated net sales of approximately $1.3 billion.
  • Bob Evans Restaurants same-store sales will be in the range of -2.5% to -2.0%.
  • BEF Foods net sales will be in the range of $380 million to $390 million.
  • Capital expenditures are expected between $70 million and $74 million.
  • Non-GAAP diluted EPS is expected in between $1.90 to $2 (previously expected in between $1.85 to $2).

Initiatives

To improve the brand experience for restaurant guests and grocery customers, Bob Evans has launched its "best in class breakfast" initiative. In this initiative, the company has upgraded its breakfast entrée ingredients including fresh sausage, fresh cracked eggs, fresh potatoes, fresh baked biscuits, not-from-concentrate orange juice and an improved butter blend. Recently, Bob Evans was named “Favorite Breakfast Chain” by Market Force Information.

For the next 12 months, the company is planning to improve same-store sales performance through a renewed dedication to guest hospitality and quality. It is focusing on food and labor efficiencies and is evaluating its restaurant portfolio for optimization.

(Source: Company’s website)

On a concluding note

Bob Evans Farms is a rock-solid company with profitable sales growth, increasing efficiencies, prudent capital allocation and good cash flow from operations. The company also has a good dividend history. Finally, with the recent quarterly release, the company is aiming for a better future and is all set to deliver a healthy menu to its investors. It is expected to create greater shareholder returns.

Disclosure: I do not hold any position in the company.