What: Bob Evans Farms' (NASDAQ: BOBE) stock rose 11% during the month of June, according to S&P Capital IQ data. With that improvement, shares are roughly flat for the year, but 20% below the 52-week high they set in early March.
So what: Bob Evans in mid-June announced a surprisingly strong end to its fiscal 2015. The restaurant and refrigerated food company booked a 2% sales gain, to $332 million, which was just above Wall Street's $330 million revenue target. Bob Evans managed an even bigger beat on earnings, though. Non-GAAP adjusted profit came in at $13 million, or $0.56 per share. Analysts were expecting $0.41 per share of earnings on that basis.
However, the restaurant business continued to struggle in the fourth quarter. Comparable-store sales rose by 2.1%, representing a slowdown from the prior quarter's 3.8% gain. Bob Evans' management enacted price increases as part of its long-term strategy of reducing guest discounts. While that boosted margins, it apparently hurt customer traffic trends.
On the plus side, Bob Evans' food business got a big shot in the arm from lower commodity prices -- especially pork. Pig prices dove, helping the company reap $11 million of cost savings on sausage production. Those savings translated into operating income of $14 million for the food division, compared to $3.3 million a year ago.
Now what: Bob Evans investors can expect lots of change during the next few quarters. Management is enacting a complicated turnaround strategy for the restaurants that includes cutting food costs, revamping the menu, raising effective prices, and decreasing labor expenses. The end result should be "profitable same-store sales growth with a significantly lower guest discount rate than the company employed for the last two years," Chief Financial Officer Mark Hood explained in a press release. At the same time, Bob Evans is busy shedding underperforming restaurant properties and using the proceeds to buy back its own stock. The company is also searching for a new chief executive.
All of that adds up to uncertainty for investors around the operations of this business. But shareholders can generally expect increasing cash returns and higher profitability -- as long as comparable-store sales continue to grow.
Demitrios Kalogeropoulos has no position in any stocks mentioned. The Motley Fool owns shares of Bob Evans Farms. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.