Filling your belly with a Deep Dish Dinner at Bob Evans (Nasdaq: BOBE) might empty your wallet a little more than you expected.
In conjunction with a 3.2% rise in menu prices last month, the company saw same-store sales at its namesake chain improve by a measly 1.1%.
These results stand in contrast to the much more exciting growth the restaurateur exhibited back in August. But macro conditions have only trended down since then, leaving customers with less disposable income to spend on eating out and resulting in a 1.8% drop in comps at the company's upscale Mimi's Cafe concept.
Not to mention, the breakfast scene isn't getting less competitive -- fast-food enterprises such as Burger King (NYSE: BKC) and Wendy's (NYSE: WEN) have been rising before dawn to serve their customers. And with IHOP's (NYSE: IHP) resurgence on the breakfast scene and old mainstays like Denny's (Nasdaq: DENN) attempting to reinvent themselves, at least you and I have plenty of choices for breakfast whenever the craving hits.
Of course, these chains -- with their affordable pricing and mighty tasty biscuits and gravy -- appeal to low- and middle-class customers. But these customers also feel the pinch of higher prices for gas and groceries.
A single month's results hardly reveal much about the direction a company is moving, so I thought it worthwhile to look into Bob's numbers since August and see how same-store sales and price growth stack up:
|
Sept '07 |
Oct '07 |
Nov '07 |
Dec '07 | |
|---|---|---|---|---|
|
Bob Evans Sales |
0.4% |
(1.9%) |
2.1% |
1.1% |
|
Bob Evans Prices |
2.6% |
1.8% |
2.8% |
3.2% |
|
Mimi's Cafe Sales |
(2.0%) |
(0.8%) |
(1.9%) |
(1.8%) |
|
Mimi's Cafe Prices |
3.9% |
3.7% |
2.8% |
2.8% |
The company certainly has been on a raising-prices roll. You might think higher menu prices translate to fatter profits, but gross margins have remained steady around the 35% level over the past five years. Of course, the price hikes are simply the company's way to pass on higher costs from commodities (a factor affecting many restaurant joints these days), so future price increases are most likely meant to maintain margins to offset inflationary costs.
Mimi's Cafe has been struggling lately, but the company has hired a new executive from (Best Stock for 2008 nomination) Yum! Brands (NYSE: YUM) to take charge of operations, productivity, and integration. Accordingly, investors should expect sales at the high-end chain to improve soon.
True, the company has experienced negative growth in the past five years. But Wall Street prices in 12% growth in the next five years, and with a loyal customer base and the possibility of stronger growth when the economy rebounds, I think this is one to keep an eye on.
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