Bob Evans Farms Inc. (BOBE) announced second quarter 2012 adjusted earnings of 47 cents per share, which missed the Zacks Consensus Estimate of 53 cents per share as well as the year-ago quarter earnings of 56 cents per share.
The lower-than-expected results were credited to sluggish revenue at both the restaurant segment and food products segment.
Net sales for the company dipped 2.4% year over year to $407.2 million, as combined same store-sales in the restaurant segment fell 2.4%, due to a 1.5% slip in same store-sales at Bob Evans restaurants and a 4.8% plunge at Mimi's Cafe.
Segment wise, restaurant net sales declined 2.7% to $328.9 million due to sluggish comparable sales. Moreover, food products net sales inched down 0.8% to $78.3 million, due to promotional discounts provided to retailers in anticipation of higher sales in the upcoming holiday period.
Cost of sales escalated 110 basis points (bps) from the year-ago quarter to 30.9% due to a spike in sow costs, while other operating expenses rose 60 bps to 17%. However, selling and general administrative expense contracted 250 bps to 9.4% and operating wages fell 110 bps to 32.5%. Interest expense also plunged $0.2 million year over year to $2.0 million due to lower average borrowings.
Consequently, consolidated operating income of Bob Evans Farms surged 53.3% year over year to $21.3 million.
Store Update
During the reported quarter, the company opened two new Bob Evans restaurants and closed one. Thus, at the end of the quarter, the company operated 709 restaurants, out of which 564 were Bob Evans restaurants and 145 Mimi's Cafe restaurants.
For 2012, the company plans to open at least six new Bob Evans restaurants and rebuild or remodel 90 restaurants. Bob Evans, however, has no plans of opening any Mimi's Cafe restaurants for the same period.
Financial Position
At the end of the second quarter of 2012, cash and cash equivalents were $38.2 million, long-term debt was $97.1 million and stockholders' equity was $661.7 million. During the quarter, the company repurchased 877,400 shares for $26.6 million.
Outlook
For fiscal 2012, Bob Evans reaffirmed its earnings per share guidance range of $2.36 to $2.44 and revenues of $1.7 billion. However, the company foresees lower consumer spending and rising commodity costs as headwinds in 2012.
The company expects same-store sales at Bob Evans restaurants to be flat for fiscal 2012. Same-store sales at Mimi's Cafe restaurants are estimated in the range negative 3% to 2%. Net sales of the Food Product segment are projected in the range of $330 million to $350 million.
Our Take
We expect estimates to go down in the coming days as the company reported lower-than-expected results, faces cost inflation and drop in restaurants comps on a year-over-year basis. However, comps in the restaurant segment improved sequentially driven by new-value messaging, menu offerings and sales layer initiatives. Additionally, the company continues to focus on business remodeling, growth and enhancement of shareholder value.
Bob Evans currently retains a Zacks #4 Rank (short-term Sell rating). We are also maintaining our long-term Neutral recommendation on the stock.
One of Bob Evans’s primary competitors, Domino's Pizza Inc. (DPZ) reported third quarter 2011 adjusted earnings of 35 cents per share, which outpaced the Zacks Consensus Estimate by 2 cents and the year-ago quarter adjusted earnings by 8 cents. The upbeat result was attributable to strong international and domestic performance.
Based in Columbus, Ohio, Bob Evans Farms is a full-service restaurant company that owns and operates under the brands – Bob Evans and Mimi’s Cafes.
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