Why Bob Evans Farms Inc Shares Fell

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Bob Evans Farms Inc (NASDAQ: BOBE  ) were giving investors indigestion today, falling as much as 11% after a disappointing second-quarter earnings report.

So what: The casual-dining chain reported a per-share profit of just $0.35, missing estimates at $0.55, as sales from continuing operations increased 1% to $332.6 million, also falling short of expectations at $339.1 million. Management blamed higher-than-expected sow prices for the drop in profits, saying it reduced EPS by about $0.27. Same-store sales at Bob Evans Restaurants fell 1.9% as the company is in the process of overhauling its locations, though that slide was offset by 10.6% sales growth in its food-supply segment.

Now what: Given the drop in second-quarter earnings, full-year EPS guidance was also light at $2.60-$2.65, below the consensus at $2.72, though that range seems to indicate a strong second half. Management also said it sees same-store sales of 0%-1% for the second half of the year, though that seems optimistic given that comps got worse through the second quarter. I'm also a bit skeptical of the restaurant-makeover strategy considering that comps were down at the remodeled locations, though by less than the unremodeled ones. Casual-dining restaurants have struggled lately, and I'd like some evidence that the investment in updating its real estate is paying off before getting behind this stock.

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