Bob Evans delivers mixed results

by Monica Watrous
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Bob Evans restaurant omelet dish
A series of promotional missteps led to disappointing results for Bob Evans in the recent quarter.

NEW ALBANY, Ohio – Bob Evans Farms is scrambling to repair its restaurant business after a series of promotional missteps led to disappointing results in the recent quarter. Strong gains in the company’s packaged foods segment, however, helped drive earnings growth.

For the second quarter ended Oct. 23, the company had net income of $6,431,000, equal to 29 cents per share on the common stock, which was up 6.5 percent from $6,039,000, or 26 cents per share, for the prior-year period. Net sales for the three months fell to $325,021,000, down 2.5 percent from year-ago sales of $333,279,000. 

Doug Benham, Bob Evans
Doug Benham, executive chairman of Bob Evans Farms

“As I have often said, restaurant turnarounds are not for the timid, and some of the challenges we faced during the quarter prove it,” said Doug Benham, executive chairman of Bob Evans Farms, during a Dec. 2 earnings call with financial analysts. “Not every change made will work as planned, and the second quarter is unfortunately a case where a well-conceived plan did not produce the expected outcome.”

Operating income for the Bob Evans Restaurants segment fell 35 percent to $13,323,000, and sales for the segment declined 4.3 percent to $230,741,000. Same-restaurant sales fell 3.2 percent, reflecting a decline in transactions that more than offset an increase in average check, as well as the impact of net restaurant closings. 

Mark Hood, Bob Evans
Mark Hood, CFO of Bob Evans

“Although the second-quarter sales did not meet our expectations, we are adjusting tactics rather than abandoning our core strategy of improving the quality of our food offerings, lowering overall discounting that was historically used to drive transactions, and optimizing our menu offerings and investment in labor to deliver a better guest experience,” said Mark Hood, CFO. “We believe continued evolution of our discounting practices and value positioning through an improved menu and new product news, along with shift in marketing spend from broadcast media to more targeted local and digital media will ultimately improve sales.”

Such initiatives as improved breakfast recipes, new menu items and a fine-tuned discounting strategy are expected to improve results.

Bob Evans retail refrigerated side dishes - mashed potatoes and macaroni and cheese
Strong gains in Bob Evans' packaged foods segment helped drive earnings growth.

Meanwhile, double-digit volume gains in the company’s retail side dish and sausage product categories drove strong results in the company’s BEF Foods segment. Operating income surged 120 percent to $13,997,000. Net sales for the segment advanced 2.3 percent to $94,280,000. 

Mike Townsley, Bob Evans
Mike Townsley, president of BEF Foods

“Continued distribution gains and consumer acceptance resulted in BEF Foods maintaining more than 50 percent national market share of our growing refrigerated dinner side dish category, as sales of the product line grew 14 percent,” said Mike Townsley, president of BEF Foods. “Furthermore, refrigerated side dish products comprised more than 50 percent of our total lbs. sold in the second quarter, a historic high in the category that has greater price and earnings stability relative to our sausage.”

To support continued growth in the category, the company has begun construction of the fourth production line in its refrigerated side dish facility in Lima, Ohio, with plans to commence production during the summer.

“We continue to be encouraged by our early progress of our all-natural refrigerated side dish product lines, where we are achieving higher-than-expected repurchase rates by consumers,” Townsley said. “Our early research shows approximately 20 percent of those purchasing one of our all-natural products is new to the refrigerated side dish category. This is in line with our belief that the category has room to expand into new households as the breadth and quality of the offerings improve.”

During the quarter, the company narrowed its operating loss in the Corporate and Other segment to $15,886,000, which compared with a loss of $17,971,000 in the corresponding period of the previous year.

On Jan. 1, Saed Mohseni, currently CEO of Bravo Brio Restaurant Group, will join Bob Evans Farms as president and CEO.

“Saed’s passionate servant leadership philosophy and 30-plus years of experience in these areas will be critical enablers of Bob Evans Restaurants’ turnaround, as well as continued profitable growth at BEF Foods,” Benham said.

Looking ahead, management expects strong performance from the BEF Foods segment and additional cost-savings opportunities to offset lower-than-expected same-store sales performance at Bob Evans Restaurants.

Net income for the six months jumped to $10,711,000, or 48 cents per share, from $5,023,000, or 21 cents per share. Net sales for the period sank 2 percent to $646,734,000 from sales of $659,619,000.

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