Columbus, Ohio-based Bob Evans Farms Inc. ( BOBE - Snapshot Report ) announced fourth quarter 2011 adjusted earnings of 71 cents per share, which surpassed the Zacks Consensus Estimate of 67 cents, but was down 11.8% from the year-ago quarter's earnings of 68 cents.

The better-than-expected earnings were driven by positive comps at Bob Evans restaurant chains for the first time in two and a half years.

The company posted a 5.4% year-over-year drop in net sales to $418.7 million, partly due to a reduction in the total number of operational weeks from the year-ago period and lower same-store sales at Mimi’s Café. However, the company’s net sales were slightly below the Zacks Consensus Estimate of $420.0 million.

The company’s full-year earnings per share were $1.78 versus $2.28 per share in fiscal 2010. Revenues were $1.68 million in fiscal 2011, representing a year-over-year drop of 2.9%.

Quarter Performance

Segment wise, restaurant net sales declined 6.8% to $338.1 million as the reported quarter had a week less in terms of the number of operating weeks, but food products net sales jumped 1.0% to $80.6 million, driven by price increases and lower discount offerings to retailers.

The combined same-store sales at restaurants jumped 0.5%, resulting from a 1.2% rise in same-store sales at Bob Evans restaurants, but partially offset by a 1.3% slip at Mimi's Cafe.

Consolidated cost of sales escalated 50 basis points (bps) from the year-ago quarter to 30.7%, selling and general administrative expense was up 130 bps to 10.2% and other operating expenses spiked 10 bps to 15.6%. However, operating wages fell 240 bps to 31.9%. Interest expense plunged $0.2 million year over year to $2.1 million due to lower average borrowings.

Consolidated adjusted operating income of Bob Evans Farms increased 28.0% year over year to $32.9 million. Operating margin expanded 110 bps to 7.9% driven by cost saving initiatives.

Store Update

During the fourth quarter, the company opened two and closed 8 Bob Evans restaurants. Thus, at the end of the year, the company had 708 restaurants, out of which 563 were Bob Evans restaurants and 145 Mimi's Cafe restaurants.

In 2012, the company plans to open six new Bob Evans restaurants and remodel 56 restaurants, out of which 44 are in Detroit and Toledo. Bob Evans does not plan to open any Mimi's Cafe restaurants in 2012.

Financial Position

At the end of 2011, cash and equivalents were $57.7 million, long-term debt was $135.7 million and stockholders' equity was $664.1 million. During the quarter, the company repurchased 127,635 shares for $3.9 million.

Outlook

For fiscal 2012, Bob Evans Farms expects earnings per share in the 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 full-year same-store sales at Bob Evans restaurants in the range of 0.5% to 1.5%. Same-store sales at Mimi's Cafe restaurants are estimated in the range of flat to up 1%. Net sales of the Food Product segment are projected in the range of $330 million to $350 million.

Our Take

We expect estimates to be up in the coming days as the company reported positive comps at Bob Evans restaurants and are experiencing sequential improvement in comps at Mimi's Cafe. Additionally, despite an upside in costs, operating margin at food product segment continues to improve on the back of lean manufacturing productivity initiatives, better management of sales promotions and increase in the number of new-item authorizations by retailers.

One of Bob Evans’s primary competitors, Domino's Pizza Inc. ( DPZ - Analyst Report ) reported first quarter 2011 adjusted earnings of 42 cents per share, which surpassed the Zacks Consensus Estimate by 8 cents on the back of higher international royalty revenues, international store growth, lower general and administrative expenses, and low interest expense.

Bob Evans currently retains a Zacks #3 Rank (short-term Hold rating). We are also maintaining our long-term Neutral recommendation on the stock.