Bob Evans Farms Sings an All Too Familiar Tune


Source:  Wikimedia Commons

Silly me. Here I was all excited to pop open the Bob Evans Farms (NASDAQ: BOBE  ) fourth-quarter earnings results expecting to see more evidence that it is ready to bust loose. I figured that with Denny's (NASDAQ: DENN  ) and IHOP of DineEquity (NYSE: DIN  ) doing extremely well, Bob Evans couldn't be that far behind. Boy was I wrong.

The farm is seeing a drought
Bob Evans has used excuse after excuse each quarter by blaming everything from high bacon prices to an activist investor to the terrible winter storms with its locations concentrated right under the snow. The company estimated that bad weather alone caused a 9% decline in same-store sales for the month of February.

During the conference call in March, Steve Davis, CEO of Bob Evans, reassured investors by pointing to Florida as evidence that it wasn't management's fault. For the third quarter, same-store sales for Florida alone jumped 4.4% compared with an 1.8% drop for the overall system. 


Source:  Wikimedia Commons

Brand or no brand?
The Florida data provides convincing evidence that the brand itself is solid. As such, Bob Evans guided for same-store sales growth in April, when the weather clears, in the 1% range. This was below its original forecast of between 2% and 3% but was still solidly in the black.

Instead, April saw a 2.7% drop, the full fiscal fourth quarter ending in April saw an overall 4.1% plunge, and the earnings release and the conference call didn't even mention Florida at all. Are DineEquity's IHOP and Denny's simply cutting into Bob Evans' business?

The pancake heroes deliver a grand slam
With DineEquity and Denny's, we got results instead of excuses. Last quarter, Denny's reported its biggest increase in same-store sales in over seven years with a 3.2% gain. It was the 11th out of the last 12 quarters in which Denny's reported positive same-store sales.

DineEquity owns both Applebee's and IHOP. Last quarter its Applebee's same-store sales just ticked up 0.5%, but DineEquity's IHOP concept, which is more closely related to Bob Evans, popped 3.9%. It was the fourth quarter in a row of positive same-store sales gains.

Source: Bob Evans Farms

More indigestion
Bob Evans reported its fiscal fourth-quarter results on July 8. Net sales fell 2.3% to $326 million. Same-store sales slid 4.1% as previously mentioned. Adjusted net income from operations plunged 39%. In the release, Davis blamed, of course, "several challenges beyond the Company's control."

Davis added, "Fourth-quarter monthly same-store sales trends improved, becoming sequentially less negative during the period." While this is true, it came far short of the company's own guidance and I'm not sure how reassuring it is to have "less bad" sales results in April with little to no snow to use as an excuse like it had in February and March.

A question of weather
Bob Evans estimates that bad weather cost the company $8.1 million in sales and 3.4% in same-store sales. My question is this: unless Bob Evans has a crystal ball, how can it possibly know that? Sure, it knows what it does on average and it's easy to make a guess about closed stores, but what about the impact on sales from just slow days?

What about last year -- did it have no snow storms then too? Of course not. What about some honeymoon effect where some people might come in on Thursday just because the restaurant was closed on Wednesday? It seems like a much more complicated calculation with an answer truly less known than what Bob Evans is suggesting.

What's with the new guidance?
Bob Evans lowered its year-forward guidance from between $2.80 and $3.00 per share to between $1.90 and $2.20 per share. It cited that this was mainly due to "approximately $8 million of increased performance-based incentive compensation accrued to target levels."

Say what? What is that for and why did Bob Evans just learn about it now, or if it knew why wasn't it incorporated originally? Its results have been disappointing, so a surprise increase in performance-based anything doesn't pass the smell test since the company has been underperforming.

Foolish Takeaway
Just in case I haven't made it obvious enough yet, my Foolish takeaway is that I'll be sticking to its yummy breakfast while keeping the stock on the side, at least until we see more compelling numbers that look more appetizing.

 

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