In classic "I just saved a bunch of money on my car insurance" fashion, Bob Evans'
I always thought that Bob Evans was a company that sports an interesting business mix -- it operates a chain of red-roofed restaurants, engages in the manufacture and sale of pork products, and recently acquired the Mimi's Cafe restaurants. We Fools prefer to see focus in our companies, but with the way this company's main shtick has been performing lately, one can only praise the management for diversifying with a more profitable venture.
Bob Evans' immediate problem lies in declining same-store sales at the company's restaurants, which fell 4.2% during the quarter. Also, hog costs are higher now, standing at $50 per hundredweight -- compared with $38 a year ago -- and this clearly hurt the company's food products business. But the real problem seems to be Bob Evans' inability to pass its higher costs on to the customers in its 580 restaurants. While average menu prices went up 2.2%, same-store sales declined: Contrast that with the experience at Mimi's Cafe, where average menu prices went up by 3.9% and same-store sales followed with a 4.4% increase.
To be fair, this past quarter hasn't been the most stellar for restaurant operators. Same-store sales were also lower than expected at Applebee's
The management seems to be concerned as well and is addressing the problem by cutting in half its restaurant expansion in 2006 and upping the number of new Mimi's Cafe restaurants from 12 to 15. Still, whether this will be enough remains to be seen. Though the Mimi's concept has a lot of promise, at the end of 2005, the company will still own six times as many restaurants as cafes.
Mimi can only help so much. But if Bob is to truly get better, he'll have to do it on his own.
For related Foolish food for thought, see:
Fool contributor Marko Djuranovic does not own shares in any companies mentioned in this article. He remembers fondly the Bob Evans breakfasts he had in college. Mmmmm... gravy 'n' biscuits!