On June 5, Bob Evans Farms (NASDAQ:BOBE), the restaurant chain and sausage-seller, will announce earnings for Q4 and FY 2006. The earnings call will take place the next morning -- perhaps over a hearty breakfast platter? -- giving interested parties time to digest the news. Read on to see what might be on the menu.

What analysts say:

  • Buy, sell, or waffle? Two analysts recommend ordering something off the menu (i.e., buying).
  • Revenues. Analysts expect a modest 3.6% year-over-year increase in sales for the quarter, to $396 million. For the whole year, revenue is expected to be 8.2% higher than fiscal 2005, at $1.58 billion.
  • Earnings. For the quarter, analysts predict $0.37 in EPS, more than double the year-ago figure. For the year, their prediction calls for $1.24 EPS, about 19% higher.

What management says:
In announcing April same-store sales, newly hired CEO Steven Davis said,

Same-store sales continue to be a challenge at Bob Evans Restaurants, and certainly a key focus as I begin working with the team at Bob Evans. Sales trends at the end of the fiscal month were significantly weaker, and in fact this trend has continued in early May. However, margins continued to improve during the fourth quarter. Restaurant margins improved due to reductions in both food and labor costs at Bob Evans Restaurants. In the food products segment, margins benefited from lower raw material costs and continued strong sales momentum.

What management does:
Things were going fairly well, despite declining net income, until last summer. Then sales growth dropped off a cliff. Stewart Owens, chairman and CEO, suddenly resigned on Aug. 10, right at the beginning of the October 2005 quarter. Larry Corbin was the interim CEO and president while the board searched for a replacement. A week after the end of the April 2006 quarter, Davis, former president of Long John Silver's and A&W for Yum! Brands (NYSE:YUM), was hired as CEO. Gross, operating, and net margins have reversed their declines from the previous two quarters.

The decrease in same-store sales has been a long-running problem at Bob Evans, though the trend has declined recently, providing hope for a turnaround. Of course, a sudden CEO change will put a damper on any business, but this must be reversed if the company wants to drive revenue growth with anything other than price increases.

Margins %*

10/04

1/05

4/05

7/05

10/05

1/06

Gross

70.7

70.0

69.6

69.6

69.7

69.9

Operating

7.4

6.2

4.6

3.8

3.9

4.6

Net

4.6

3.6

2.5

1.9

2.1

2.5

Sales Growth %**

26.5

30.7

21.9

23.4

4.3

4.9
* Trailing-12-month data for quarter ended in month indicated.
** Year-over-year comparison for quarter ended in month indicated.
All data from relevant company 10-K and 10-Q filings.

One Fool says:
Sudden executive resignations always make me wonder what's going on. "Personal reasons" can only cover so much. For me, they're a red flag to seriously review a company, with an eye toward selling if I own shares. Even though Mr. Corbin has been doing a fine job to help reverse declining margins, don't expect a miracle when the quarter and year-end results are announced. Same-store sales were down for each month of the quarter.

Looking forward, same-store sales will likely be a main focus of new CEO Davis as he begins his tenure at Bob Evans. The company highlighted his innovation and turnaround ability when they announced his hiring. Competitor CBRL Group (NASDAQ:CBRL) is facing a similar problem, though Denny's (NASDAQ:DENN) and IHOP (NYSE:IHP) had good same-store sales for their most recent quarters. Bob Evans must reverse its declines if it hopes to return to the margin and growth levels last seen more than a year ago.

Finally, I would expect stock-based compensation to be expensed for the first time this quarter, though it might wait until the new fiscal year begins. In fiscal 2005, earnings per share (EPS) would have been $0.16 less than the reported $1.05. The analysts do not appear to have included this expense in their estimates. If Bob Evans does report that expense, GAAP EPS will come in lower than expected.

Competitors:

  • Denny's
  • CBRL Group
  • IHOP

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Fool contributor Jim Mueller does not own shares in any company mentioned.