My introduction to Bob Evans Farms (Nasdaq: BOBE) came after a night of, shall we say, overindulgence, at a Terre Haute, Ind., fraternity house. At about 8 a.m., a shaggy-haired crew headed over to the nearest bright-red restaurant to recharge with coffee, biscuits, and gravy.
That sums up the core challenge for Bob Evans. The company -- which sells pork products in addition to operating its more visible red restaurants -- is well known for morning comfort food. But it needs to draw the dinner crowd if it hopes to compete with its countrified strip-mall neighbor Cracker Barrel, run by CBRL Group (Nasdaq: CBRL), or more diverse peers such as Brinker International's (NYSE: EAT) Chili's or Darden Restaurants' (NYSE: DRI) Red Lobster, Olive Garden, and others.
It's not that Bob Evans is foundering. Results released this morning for the quarter ended Jan. 23, 2004, show a 7% sales increase on a 2% price increase on average menu items. Compared to last year, operating income dropped 10.7%, however, and earnings were down 6.4% to $0.44 per share. But these look like unusual hiccups related to some bad luck with weather and ill timing of costs for new restaurant openings.
Getting back to dinner, management seems focused on increasing the suppertime traffic to existing locations, and that can only be a good thing. (If you're renting the tent, you might as well dance under it all day.) Toward that end, Bob Evans will be concentrating on evening initiatives like higher-margin meat entrees, which will also be marketed as low-carb. It is even considering a shakeup in service policies and a rethink of design and architecture.
The company issued 2004 guidance of $2.05 a share, down a couple of percentage points from last year's record results. Though it's also lately experienced negative free cash flow, investors would be wise to watch the red shed. Bob's got a strong brand, and if the dinner plans can draw carnivores away from the full parking lots of protein-purveyors such as Outback Steakhouse (NYSE: OSI), Mr. Evans' farm may yet turn things around.
If Bob Evans wants advice on how to redecorate those restaurants, he could check out the Fool's Interior Design and Decorating discussion board.
Seth Jayson owns no shares of any companies mentioned in this article, but he will share his biscuits and gravy if you ask politely.
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