Bob Evans Farms Inc. and its new CEO, Saed Mohseni, described efforts to improve hospitality, and its menu at the company’s 527 restaurants and said they would lead to positive same-store sales by the end of the current fiscal year.
Wall Street wasn’t buying it. The family-dining chain’s stock fell more than 9 percent on Wednesday following an outlook investors considered discouraging.
Same-store sales fell 3 percent for the New Albany, Ohio-based company’s fiscal first quarter ended April 29, including 4.9 percent in April. They have not improved in May and June. “The first quarter started out negative,” Mohseni said on the earnings call. Executives expect “low single digit negative” in the period.
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Investors make their stock bets based largely on their views regarding how a company will perform in the future. That makes the outlook particularly important when it comes to stock price movement.
Bob Evans suggested that same-store sales for the current fiscal year would be in the negative low single digits to flat. That suggests the company is banking on positive sales toward the end of this fiscal year, given early fiscal year weakness.
That would come through a combination of menu and hospitality improvements.
Bob Evens restaurants see 90% decline in profit
Bob Evans’ Restaurants reported an operating loss of $2.8 million in the quarter, down from an operating profit of $6.5 million a year ago — and helping the company to a 90 percent decline in overall net income for the quarter.
The company blamed part of that decline in operating income on its increased spending on labor to improve hospitality, especially during peak periods from 10 a.m. to 2 p.m.
The company wants to increase table turns, reduce wait times and increase sales. “We know highly satisfied guests are more likely to recommend and return to the restaurant than guests who are just satisfied,” Mohseni said.
The company also had a regional meeting where general managers were trained on a new hospitality philosophy, called “The answer is yes, what is the question.” Bob Evans has also focused its current television advertising on hospitality and the company’s heritage.
“Family dining is a business where hospitality and connection with guests matters,” Mohseni said.
Mohseni said that the efforts have yielded results, even if they’re not showing up in the same-store sales numbers. Breakfast sales have improved. And consumers are having a more positive experience in the restaurants.
“Guest comments have improved substantially,” Mohseni said. “And negative comments are down in the double digits.”
The company is also banking on improving its value messaging, something its research also suggests it doesn’t do enough. The company has a $4.99 breakfast promotion, for instance.
Bob Evans is also banking on an improved menu at its restaurants. The company is planning to improve its core menu items and has a summer bacon promotion with bacon-themed items at every daypart.
“We will remain anchored in value and hospitality,” Mohseni said, “two areas our research reveals is an opportunity for us.”
“We recognize we are putting out a goal for the end of the year to turn positive,” he added. “But with high quality food and a focus on our value proposition, that could enable us to achieve our goal in the latter part of the year.”
Packaged food division sees profits lift
Still, the issues at Bob Evans Restaurants are offsetting improvements at the company’s packaged foods division, BEF Foods, which sells packaged foods at grocers and other retailers.
Operating profit at that division increased 13 percent. And BEF Foods expects to increase capacity this summer that should help it meet increased demand at peak periods while also expanding its reach.
“BEF Foods’ recent strong results is not an exception,” Mohseni said. “We have the talent, product quality and confidence to continue growing retailers nationwide after several years of reorganization.”
Yet the performance of BEF Foods could continue pressure on the company to spin it off or sell it. Activist investor Sandell Asset Management has pushed the chain for years now to sell the division.
The stock tends to trade more on the performance of the restaurants than it does the packaged-foods division. The division doesn’t produce many products for the restaurants — only 6 percent of BEF Foods’ sales are to Bob Evans Restaurants.
Executives didn’t discuss the prospect of a BEF Foods sale, with Mohseni noting that, “our intention is to make sure we continue to evaluate all options for Bob Evans Foods organization.”
Contact Jonathan Maze at [email protected]
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