Encouraged by second-quarter results from the company’s namesake restaurant brand and packaged-foods business, officials for Bob Evans Farms Inc. expressed optimism that the Columbus, Ohio-based firm could increase its long-term earnings growth — most likely, however, without the Mimi’s Café chain still in its portfolio.
Bob Evans announced a strategic review for Irvine, Calif.-based Mimi’s Café, though chief executive Steve Davis noted during the company’s fiscal-2013 second-quarter earnings call that the future is bright for Bob Evans restaurants and the company’s BEF Foods segment.
He credited “the sustainability and long-term growth potential of the transformations we have achieved” in those divisions for Bob Evans raising its long-term earnings-per-share growth guidance to an annual range of 8 percent to 12 percent, an increase from the previous guidance of 7 percent to 10 percent.
The namesake restaurant chain’s remodeling program, the key source of executives’ confidence, would accelerate in the coming quarters, Davis said. He also noted that the packaged-foods diversification into more sales of side dishes and its acquisition of the Kettle Creations food manufacturer would make BEF Foods’ future growth less dependent upon sales of sausage and less vulnerable to volatility in sow costs on the commodities market.
Mimi’s Café, charges drag down earnings
Bob Evans’ second-quarter net income fell 18.9 percent to $10.3 million, or 36 cents per share, compared with $12.7 million, or 42 cents per share, in the second quarter of fiscal 2012. Several pretax charges for restructuring the company’s packaged-foods business negatively affected earnings, Bob Evans said.
Revenue for the Oct. 26, 2012-ended second quarter increased 0.9 percent to $410.9 million, reflecting sales growth in the namesake family-dining chain and the packaged-foods division, partially offset by a same-store sales decline at Mimi’s Café.
Same-store sales grew 1 percent at Bob Evans, and the brand remodeled 45 stores during the quarter. However, same-store sales declined 5.6 percent for Mimi’s Café.
The continuation of Mimi’s prolonged same-store sales slump led Bob Evans Farms to begin a formal pursuit of strategic alternatives for its casual-dining chain. “The strategic fit and long-term growth potential of Mimi’s Café relative to our other businesses prompted us to initiate a process to evaluate our strategic alternatives for that segment,” Davis said, “including but not limited to a potential sale.”
Until the review is completed, however, Mimi’s will continue to attempt a sales turnaround by building up its takeout and catering businesses, he said. “Part of getting into catering is to make it simple for the consumer, focusing on packaging and making it a great value,” Davis said. “They’ve completely retooled an outdated catering program. Then it’s just about getting people maniacally focused against customer service.”
The company will remodel three Mimi’s locations in fiscal 2013 but does not plan to build any new units.
Bob Evans also announced that its Farm Fresh Refresh restaurant remodeling program would accelerate. The company is aiming to complete the reimaging of all 565 restaurants by the end of fiscal 2014, one year earlier than originally projected. By the end of fiscal 2013, 56 percent of the chain is expected to be remodeled.
Chief financial officer Paul DeSantis said Bob Evans would not only increase the pace of Farm Fresh Refresh remodeling but also would raise other goals for the program, including reducing the number of store days lost to closure, a faster realization of profitability and an overall lower cost to remodel each restaurant.
“We are at that critical point now, with enough refreshes under our belt that the overall positive effects will start to accelerate as we add more units to that pool of transition restaurants,” he said. “As we get more restaurants into completion, that’s where we see the sales and profit acceleration.”
DeSantis said the combined food and labor costs of remodeled locations that were open for all of fiscal 2012 are now running about 1.5 percent lower as Bob Evans begins to realize some of the intended efficiencies of the refreshes. Increased sales, new sales layers like bakery items and catering, and service enhancements from retrained staff are driving the margin improvements, he said.
“The real benefit of the five days we’re closed is in the retraining,” Davis added. “We couldn’t send our employees to refreshed units to practice when we began this program, but now we can send them to nearby ‘new Bob’s’ locations to learn. We’re getting a chance to practice with the new Bob Evans, and that’s why we’re getting off to a better start with each new refresh.”
He added that many of the company’s contractors are getting better at completing more remodels on a faster schedule as well.
Columbus, Ohio-based Bob Evans operates 565 namesake family-dining units in 19 states and 145 Mimi’s Café locations in 24 states.