Bob Evans Farms Inc. (BOBE) announced second quarter 2011 earnings of 26 cents per share, which missed the Zacks Consensus Estimate of 41 cents and were also 48% below year-ago quarter’s 50 cents.
Earnings reduced in the second quarter of 2011 on the back of a fixed asset impairment charge of $10.3 million associated with five underperforming Mimi’s cafes and approximately $3.6 million of charges, given that the company closed down its sausage-production lines and paid out retirement and severance costs in its restaurant business.
The lower-than-expected second quarter results were due to higher cost in the food product segment and challenges at the top line in the restaurant segment.
The company posted a 1.8% year-over-year drop in net sales to $417.0 million, as combined same store-sales fell 2.2%, resulting from a 0.9% same store-sales decrease at Bob Evans restaurants and a 5.6% slip at Mimi’s Cafe. The company’s net sales also fell short of the Zacks Consensus Estimate of $419.0 million.
By segments, restaurant net sales declined 2.1% to $338.1 million and food products net sales fell 0.6% to $79.0 million.
Cost of sales escalated 80 basis points (bps) from the year-ago quarter to 29.8%, and selling and general administrative expense was up 360 bps to 11.9%. However, operating wages fell 170 bps to 33.6% and other operating expenses dipped 20 bps to 16.4%. Interest expense plunged $0.3 million year over year to $2.2 million due to lower average borrowings.
Consolidated adjusted operating income of Bob Evans Farms improved 9.4% year over year to $27.8 million and operating margin expanded 60 basis points (bps) to 6.7%.
Financial Position
At the end of the second quarter, total debt was $172.3 million and stockholders’ equity was $638.7 million. During the quarter, the company repurchased 325,000 shares for a total of $8.9 million. The board has also authorized an additional share repurchase of $25 million in 2011.
Outlook
Bob Evans Farms raised its fiscal 2011 adjusted operating income outlook from the range of $105 million to $110 million to a range of $108 million to $112 million, based on better-than-expected second quarter 2011 results, excluding one-time charges. For fiscal 2011, it reaffirmed its revenues guidance of $1.7 billion.
The company plans to open three new Bob Evans restaurants in 2011 and projects sales in the range of $975 million to $985 million, with full-year same-store sales remaining flat to down 2%. The company does not plan to open any new Mimi’s Cafe restaurants in 2011. Sales are estimated to remain within the range of $380 million to $390 million, with full-year same-store sales declining 2% to 5%.
The company plans to remodel 30 to 35 Bob Evans restaurants and 3 Mimi’s Cafe restaurants in fiscal 2011 and expects capital expenditure in a range of $60 million to $65 million.
Our Take
We expect estimates to be mixed in the coming days as the company raised its adjusted operating income guidance, but second quarter results were below expectations due to higher charges and lower sales.
One of Bob Evans’ primary competitors, Chipotle Mexican Grill Inc. (CMG) posted third quarter earnings of $1.52 per share above the Zacks Consensus Estimate of $1.30, on the heels of a strong top-line growth buoyed by higher traffic count and new restaurant openings.
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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