Foolish Forecast: Bob Evans' Down-Home Goodness

Restaurant chain Bob Evans Farms (Nasdaq: BOBE) will report fourth-quarter 2007 financial results on June 3. Let's see what investors can expect to be on the menu.

What analysts say:

• Buy, sell, or waffle? With just four analysts dining on what Bob Evans serves, there's not much to gnaw on. Three say hold -- essentially unchanged for, like, forever -- and one says "dig in!" with a strong buy.
• Revenue. Sales are expected to rise 5.5% to $441.5 million, with the full-year results coming in at $1.75 billion.
• Earnings. Profits, though, are projected to fall by a penny to $0.41 per share for the quarter, but they're also expected to come in 11% higher for the full year at $1.76 per share.

What management says:
Many people are familiar with the down-home goodness of Bob Evans restaurants, but they're probably less familiar with the company's upscale venture, Mimi's Cafe. They might be even less knowledgeable about the food processing division that has contributed nearly 19% of Bob Evans' revenue and more than a quarter of its operating profits in the past 12 months. In these lean times, that sausage-grinding operation separates Bob Evans from rivals such as Dine Equity's (NYSE: DIN) IHOP and Denny's (Nasdaq: DENN), even if their menus at times seem alike.

The real brand builder, though, has been its Bob Evans restaurants. But whether it's from hubris or some other quirk, management remains committed to expanding the faltering Mimi's concept, even though Bob Evans restaurants continue to outperform. In preliminary results announced last month, same-store sales rose 1.8% at Bob Evans restaurants for the year but fell 2.4% at Mimi's, yet management says it will still open more of the latter at a 15% clip. The 132 Mimi's locations it operates in 22 states are concentrated in California, Nevada, and Florida, areas hit particularly hard by the housing downturn.

What management does:
To counter the decline, Bob Evans has unveiled a value menu at Mimi's, a move that seemingly undercuts the concept of an upscale chain. The value menu may be necessary to revive sales, since the sales numbers accelerated their decline in April -- down 6% -- but it might just as easily underscore that the concept isn't working and really hasn't for a while, despite having brought in some fresh faces from Yum! Brands (NYSE: YUM).

Margin	1/07	4/07	7/07	10/07	1/08
Gross	35%	34.8%	34.7%	34.7%	35.1%
Operating	6.1%	5.9%	5.8%	6%	6.1%
Net	4%	3.7%	3.6%	3.7%	3.7%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
What should have been a workable concept in good times has become a bit of an albatross in these times of rising fuel and food costs. Restaurant patrons are simply opting to eat in more rather than dine out, except when they think they can get a good return on the dollars they spend. For Bob Evans, that happens at its eponymous chain and not at Mimi's Cafe. It amazes, then, that management continues to roll out more such restaurants with the money they could be putting into restaurants that work.

Shares at the chain have fallen more than 25% over the past year. At 15 times forward earnings, Bob Evans isn't the richest of its rivals -- that would be IHOP, which despite at heavy debt load trades at nearly 73 times this year's earnings -- but it also isn't the cheapest. If you're looking for a tasty treat in restaurants, you might look at CBRL Group's (Nasdaq: CBRL) Cracker Barrel, which has similar growth rates in revenue and profits, and similar long-term growth potential, but is selling at a discount to Bob Evans at just 10 times this year's earnings. CBRL's shares have also fallen by some 36% over the past 12 months.

Although the company's dividend yields 2% and it has authorized the repurchase of 3 million shares, you should consider eating at a Bob Evans restaurant but dining on someone else's stock.

Related Foolishness:

• Fewer Folks Pay More at Bob's
• 4 Restaurant Stocks to Buy in 2008
• Bob Evans Banks on Mimi's