Bob Evans Farms Inc. isn’t waiting to hire a new CEO to make significant changes to its business.
In recent months, Bob Evans has said it would update its menu to focus on breakfast and other more profitable offerings. In May, the company said it would cut $35 million in costs, beginning with a $14 million trim that included laying off 60 employees. Additionally, the company closed 18 underperforming restaurants, with plans to close two more, and began to work on a real estate sale or spinoff.
Bob Evans did all of this while searching for a new CEO to replace Steve Davis, who stepped down in December 2014.
“Things are changing at Bob Evans,” company CFO Mark Hood said during a call Wednesday discussing fourth-quarter earnings. Hood and Mike Townsley, president of packaged foods division BEF Foods, are currently overseeing the company. “We’re revisiting past decisions with open minds, and will change course where appropriate with a sense of urgency and efficiency,” Hood said.
The changes are hardly a surprise. In August 2014, activist investor Sandell Asset Management won four seats to Bob Evans’ 12-member board. Three of the other seven members joined the board last year, so a majority of members are new. In October 2014, Davis was replaced as chairman by Mary Kay Haben, and later resigned as director.
During the proxy, Sandell pushed the company to sell BEF Foods and spin off real estate. But the new board surprised observers in March when it said it would not sell the division, following a recommendation by the consulting firm Lazard.
But Bob Evans has changed its tune on a sale. Last week, when the company said it would sell or spin off as much as 60 percent of its real estate, Hood suggested that Bob Evans would maintain flexibility “to pursue a separation of the foods and restaurant at some point in the future if advisable at that time.”
Miller Tabak + Co. analyst Stephen Anderson suggested that other changes could come down the road, including refranchising. He also said the board is moving more aggressively to avoid another showdown this summer.
Many of Bob Evans’ efforts are taking place inside its restaurants, where the family-dining chain has focused on breakfast and de-emphasized less profitable items, such as three-course dinners.
Breakfast same-store sales rose 2.9 percent during the fourth quarter, the company said, making the morning meal its best performing daypart. Bob Evans has the most equity and highest profit margins during the morning, Hood said.
In contrast, sales of less profitable three-course dinners fell 330 basis points, Hood said.
Bob Evans is also reducing discounting. Customers used 27 percent fewer discounts in the fourth quarter, when discounting represented 2.2 percent of gross sales, Hood said.
The chain continues to expand its Broasted Chicken line, which is now offered in 48 percent of locations. Restaurants serving Broasted Chicken outperformed those without the item by 120 basis points, the company said.
The performance was primarily in off-premise sales at both lunch and dinner. But Bob Evans’ dine-in same-store sales fell during both of those dayparts, including a 3.9-percent systemwide decline in on-premise sales at dinner.
Avian flu presents another concern for the chain. Egg costs represent 4 percent of Bob Evans’ food spending, and the avian flu outbreak in the Midwest has led to a sharp increase in the cost of both shell and liquid eggs.
“We are closely monitoring the impact of the avian flu outbreak,” Hood said. “We’ve investigated a number of options if egg prices remain elevated.”
Still, Bob Evans’ fourth-quarter performance gave investors some positive news.
Earnings during the quarter included a 12.1-percent increase in adjusted net income, to $13.2 million, from $11.8 million, beating expectations. Investors bid up Bob Evans’ stock Wednesday by more than 2.5 percent. Its stock had been hovering near 52-week lows in the months since March, when it had said that it wouldn’t sell BEF Foods.
Bob Evans “posted a solid finish to a mostly forgettable” year, Anderson wrote in a note Wednesday.
Meanwhile, a board committee continues to look for a new CEO.
“The committee is balancing a sense of urgency with a mandate for identifying the right leader for Bob Evans for the long term,” Hood said. “While the search effort continues, the company’s operational turnaround initiatives are being executed and the strategic review and planning process undertaken by the board and management continue on course.”
Contact Jonathan Maze at [email protected]
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