What to Look for With Bob Evans' Earnings

Will Bob Evans Farms (NASDAQ: BOBE  ) finally deliver strong same-store sales like some of its competitors have? Family restaurants Denny's (NASDAQ: DENN  ) and Cheesecake Factory (NASDAQ: CAKE  ) have been racking up consecutive same-store sales increases for years on end. Look for clues that Bob Evans Farms has turned the corner back to growth mode when it reports its fiscal second-quarter results after hours on Dec. 3.

First-quarter fiscal results
In last quarter's earnings release, Bob Evans Farms reported adjusted net sales up 1.9% to $329.4 million. Adjusted operating income dropped 17% to $22.7 million. It blamed the decline in income in part on a spike in food costs, most notably bacon and pork. The closure and remodeling of certain Bob Evans restaurants also took a toll.

Same-store sales dropped 0.7% for the Bob Evans restaurants. The company blamed the drop on the remodeling of 60 of its 554 restaurants. Bob Evans pointed out in its release that restaurants that had been remodeled more than a year ago showed a 1.1% gain in same-store sales. Restaurants remodeled less than a year ago showed a 2.7% gain compared to the non-remodeled restaurants, which showed a 2% drop.

Clearly, the old design isn't working anymore. While the 2.7% gain is encouraging, the reason most restaurants report same-store sales for restaurants open more than a year is to help eliminate the "honeymoon period" in which new restaurants see a spike in sales initially as guests are curious and stop in.

Despite the uncertainty, CEO Steve Davis stated, "We are confident in the successful performance of our key growth investments and margin improvement initiatives." He then went on to detail the amount of capital returned to shareholders through dividends and buybacks. This implies confidence in the future, as actual cash tends to speak louder than words.

In the conference call, CFO Paul F. DeSantis stated, "We expect to see the remodel sales-related lift begin to accelerate in the third quarter, through the fourth quarter." It will be interesting to hear an update on the latest outlook in the upcoming conference call. Bob Evans launched a new menu Aug.1, so that could be a wild card that gets growth going again as well.

Davis added, "In the third and the fourth quarter is when you'll start to see the benefit of having those closed store days decline, which will obviously positively impact the positive same-store sales."

The competitive environment
Denny's reported its third-quarter results on Oct. 28. Its same-store sales improved 1.2%. This is a hair more than the 1.1% from Bob Evans remodels after a year, and it was also the ninth quarter in a row of positive same-store sales growth for Denny's. CEO John Miller did mention that Denny's was able to grow "despite the challenging economic environment." While Denny's didn't give 2014 guidance yet, it's been very aggressive with stock buybacks. The company bought back 2% of its outstanding shares last quarter alone. This implies that quite an optimistic outlook will be forthcoming.

Cheesecake Factory last reported its results on Oct. 23. Total revenue was up 3.5% to $469.7 million. Adjusted net income rose 6% to $28.1 million or $0.52 per share. Same-store sales only nudged up 0.8%, but it was the 15th quarter in a row of positive growth for Cheesecake Factory. CEO David Overton did note the "soft industry trends and a highly promotional environment." Despite this, the company continues to pay a dividend and buy back shares. Clearly, Cheesecake Factory is confident in the future as well.

Foolish final thoughts
The earnings release and conference call should both contain a decent amount of information about the remodeling of the restaurants. Watch Bob Evans' same-store sales, as this statistic is the most important right now for the company and its turnaround plan. If Bob Evans can get back to growth mode, even just a little, when the economy picks up it may shine.

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