Bob Evans Cooks Up Profits

Bob Evans Farms (BOBE - Snapshot Report) recently reported first quarter 2010 financial results with a low single-digit decline in the top-line, but with a surprise double-digit growth in the bottom-line. The results were driven by cost efficiencies and fewer restaurant openings.
 
For the reported quarter, cost of sales declined 3.8% year over year to $125.5 million, operating wages fell 1.7% to $150.1 million, other operating expenses dropped 5.6% to $69.5 million, and SG&A decreased 4.5% to $38.4 million. Moreover, the effective tax rate was 28.1%, down 500 basis points from the prior-year quarter.
 
As a result, net profit improved by 16.7% to $16.1 million. Consequently, EPS came in at 52 cents, surpassing the Zacks Consensus Estimate by a penny, and increased 15.6% compared to 45 cents reported in the prior-year quarter.
 
Operating income increased 6.9% to $25.1 million. On account of the effective cost management, the company reiterated its fiscal year 2010 guidance for operating income of about $110 million to $115 million.

However, the top-line continues to face challenges. Total revenue for the quarter under review dropped 2.5% to $429.5 million, driven by same-store sales declines at Bob Evans Restaurants (down 3.0%) and Mimi's Café (down 6.4%). For fiscal year 2010, management expects same-store sales to decline in the range of 2.0% to 2.5% at Bob Evans Restaurants and 4.0% to 6.0% at Mimi's Café.

The company’s Restaurant segment revenue fell 2.3% to $359.8 million, whereas the Food Product segment revenue dipped 3.4% to $69.7 million.

Bob Evans operates in the casual dining segment, where operators are either postponing their restaurant openings or slowing restaurant unit growth in an attempt to bolster traffic and reduce costs. The company expects to open two Mimi's Café outlets (compared to 12 opened in 2009), and no new Bob Evans Restaurants (compared to one opened in 2009) in fiscal year 2010. In fiscal years 2008 and 2007, Bob Evans opened 19 locations (17 Mimi's Café and 2 Bob Evans Restaurants) and 23 locations (13 Mimi's Café and 10 Bob Evans Restaurants), respectively.

With the decline in restaurant openings in fiscal year 2010, Bob Evans lowered its capital expenditure and now expects it to be in the range of $60 million to $65 million, down from $96.0 million and $121.0 million in fiscal years 2009 and 2008, respectively. The company also suspended its share buyback program until the third quarter of fiscal year 2010.

The casual dining segment is facing the brunt of the recession with falling same-store sales and declining traffic. Consumers with lower disposable income are either shifting to quick service restaurants because of their lower priced menu or are dining at home. In the casual dining segment, Bob Evans Farms competes with Cosi Inc. (COSI - Snapshot Report), California Pizza Kitchen (CPKI), Red Robin Gourmet Burgers (RRGB - Analyst Report) and Famous Dave’s of America (DAVE - Snapshot Report).

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