Bob Evans Farms executives are expecting future rewards from investments being made now in their restaurant and prepared-foods businesses.
The Columbus-based food company turned in a disappointing second-quarter performance, largely because of one-time charges and restaurant remodeling expenses, as well as a notable sales slowdown at its Mimi’s Cafe casual-dining restaurants.
Now, the company not only wants to sell Mimi’s, but also is speeding up its Bob Evans Restaurant remodeling program — called “Farm Fresh Refresh” — completing all 565 restaurants a year ahead of schedule by the first half of 2014, as well as expanding its prepared-foods business.
“Both segments have transformed their operations and their approach to the marketplace during the last six years,” the company’s chairman and CEO, Steven Davis, told securities analysts during a recent conference call. “Both have been the drivers of our annual 9 percent adjusted (earnings per share) growth over the last five years.
“The potential of these two dynamic growth vehicles is what gives us the confidence to raise our long-term annual guidance growth to 8 to 12 percent, up from our previous guidance of 7 to 10 percent.”
KeyBanc Capital Markets securities analysts Christopher O’Cull and David Carlson think the accelerated restaurant remodeling and Mimi’s sale would help Bob Evans overcome its recent financial underperformance.
“We view both of these actions as favorable and would suspect they will offset the disappointing fiscal results,” they wrote in a research brief.
Remodeled Bob Evans restaurants are selling 5 percent more food in their first year, partly because of new bakery and carryout operations.
“We are at that critical point now where we have enough refreshes under our belt that the positive overall contribution of the refresh program is expected to really start to accelerate,” Bob Evans’ chief financial officer, Paul DeSantis, told analysts during the conference call.
In addition, investments in the company’s foods business are yielding solid growth. In the second quarter, Bob Evans completed its $50 million purchase of Kettle Creations in Springfield, a company that had been making mashed potato and macaroni and cheese side dishes that Bob Evans sells in grocery stores.
Now, Bob Evans has consolidated a product line at Kettle Creations and is expanding the plant, which is near full use.
Bob Evans also is expanding its Sulphur Springs, Texas, manufacturing plant, where it will consolidate other operations. “Ultimately, we expect between $7 (million) and $8 million in annual benefits, beginning in 2015, once the closures are completed,” DeSantis said.
Refrigerated side dishes and food service are beginning to eclipse pork sausage sales in the foods business, said Stephen Anderson, senior restaurant analyst at Miller Tabak & Co. That makes the foods unit more diverse and balances the risk of rising pork prices, Anderson said.
But a big question mark hangs over Bob Evans’ share price: Will the company be able to divest Mimi’s, its French-inspired casual restaurant business? “They’ve had 22 straight quarters of negative (comparable restaurant sales),” Anderson said.
To stem the decline, Bob Evans recruited Mark Mears from the Cheesecake Factory as president to drive the Mimi’s concept about 18 months ago, he said. Now, Bob Evans has hired the investment bank Lazard to explore strategic options for Mimi’s, including a sale.
“My gut, based on what has happened in recent years, is it’s probably going to be someone who has some experience in picking up distressed restaurant assets, like a Golden Gate Capital (Macaroni Grill, California Pizza Kitchen) or a Sun Capital Partners (Boston Market, Friendly’s),” Anderson said.