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Full-service restaurant chain Bob Evans Farms Inc. (BOBE - Snapshot Report) has recently announced first-quarter fiscal 2014 adjusted earnings of 58 cents per share, in line with the comparable year-ago quarter but higher than the Zacks Consensus Estimate by a penny. Earnings in the quarter received a boost from higher top line and lower share count due to share repurchases.

The company posted adjusted net sales of $329.4 million which fell short of the Zacks Consensus Estimate of $334 million by 1.4% but were up from the year-ago quarter’s sales of $323.4 million by 1.9%. The year-over-year rise in revenues was driven by the sales growth at the BEF Foods segment offsetting the lower sales at Bob Evans Restaurants.

Inside the Headlines Numbers

Columbus, Ohio-based Bob Evans divested the Mimi's Cafe restaurant segment on Feb 15, 2013. The company is now operating under two segments, Bob Evans Restaurant and BEF Food. The company operates 560 restaurants under the Bob Evans Restaurant brand.

In the first quarter, segment-wise net sales at Bob Evans Restaurant were down 1.4% year over year at $244.6 million due to the shutdown of eight restaurants and a 0.6% decline in comparable sales (comps). Owing to the company’s Farm Fresh Refresh program its restaurants were closed which led to the decline in comps.

BEF Food segment’s net sales increased 12.5% year over year to $84.9 million with a 13% rise in total pounds sold and 5% increase in volume following the Kettle Creation acquisition.

Adjusted operating income of Bob Evans fell 17.2% year over year to $22.7 million owing to higher costs at Bob Evans Restaurants, higher Farm Fresh Refresh expenses and increased sow costs at BEF Foods. Cost of sales increased 220 basis points (bps) from the year-ago quarter to 31.7% due to the rise in cost of bacon and other pork-related items, higher bread costs and incremental dairy products expenses.

Store Update

During the end of the reported quarter, the company revamped 60 Bob Evans restaurants bringing the total to 565.

In order to launch the new protype units, Bob Evans Express, in non-traditional locations the company has entered into an agreement with AVI Food Systems, Inc.

Dividend & Share Repurchase

During the quarter, Brinker bought back 0.1 million shares worth $6.9 million. The company also extended its current share repurchase authorization by an additional $150 million bringing it to a total of $175 million.

During the quarter, Bob Evans increased its quarterly dividend of 27.5 cents to 31 cents, representing a 12.7% hike. The annualized dividend per share thus, stands at $1.24 per share.

Outlook

For fiscal 2014, the company retained its earnings guidance. Bob Evans expects that earnings per share to lie within the range of $2.60 to $2.67. For fiscal 2014, Bob Evans Farms expects revenues to be $1.4 billion.

The company now expects that same-store sales at Bob Evans restaurants to grow 1%-2% gaining from the company’s Farm Fresh Refresh initiatives.

Commodity inflation will be within 3%-4%, up from the previous estimate of 2%-3%, due to rise in the pork-related items. The company reduced its operating margin guidance due to higher commodity costs guidance. Operating margin will be in the range of 7.8%-8.3%, down from 8.0%-8.5%

In fiscal 2014, net sales at the BEF Foods segment are projected in the range of $380 million to $400 million and operating margin within the range of 8.5% to 9.0%.

Our Take

Although, Bob Evans’ earnings beat the estimates in the reported quarter, we remain concerned about the sluggish comps growth. Low operating income also remains a major headwind. Moreover, higher commodity cost guidance added to the woes. We believe that this Zacks Rank #4 (Sell) company is still in a transitional stage and will take some time to stabilize the operation.

Moving ahead, other retail restaurateurs, that are continuously trying to expand in the market, include Burger King Worldwide, Inc. (BKW - Analyst Report), CEC Entertainment Inc. and Cracker Barrel Old Country Store, Inc. (CBRL - Snapshot Report). All these companies carry a Zacks Rank #2 (Buy).

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