Are there any prized truffles -- those expensive tree-root fungi prized by gourmands -- to be sniffed out of the latest earnings report from restaurant and food-products company Bob Evans Farms
Look at restaurant revenue (84.8% of total sales; 56.1% of operating profits). Then dig a little deeper, and root out Mimi's Cafe, acquired in July 2004 for $104 million in cash and the assumption of $79 million in debt. Same-store sales at Mimi's rose 5.1%, and average menu prices ascended 2.6%. Ah, the aroma of firm sales and pricing.
The same is not true at the 589 namesake Bob Evans Restaurants. (There are only 93 Mimi's locations.) The unusual fragrance there isn't a truffle -- it's the foul odor of same-store sales falling 3.4% from the comparable year-ago period, and average menu prices slumping 0.6%. The company blames the shortfall on the Midwest's slumping economy (where a majority of its restaurants are located) and less frequent visits from its core older customers.
Problems in the Midwest can be confirmed by recent announcements from Outback Steakhouse
Only 20 new Bob Evans Restaurants will open in 2005 (down from 39 in 2004), primarily because of what management refers to as uncertainty within its realm. New Mimi's openings will shoot up to 15 (an increase of four over 2004).
The final truffle to be unearthed is food services (15.2% of total sales; 43.9% of profits). This operation has been hogtied by skyrocketing pork prices, but the latest quarter's sales rose 4%, and net income expanded 9% after adjusting for an extra sales week in the latest quarter. Pork prices are flattening, and new Bob Evans products -- from macaroni and cheese to prepared dinners -- are showing sales momentum that contributed to improved profitability over the previous quarter. These supermarket products may promise a viable revenue stream outside Bob Evans' core restaurant segment.
Analysts were expecting the company to earn $1.58 a share in the coming fiscal year, which ends in April 2006. That's a reasonable 16.7 times forward earnings. But the company has decided to temporarily stop giving earnings guidance, and it expects earnings to fall significantly in the first quarter.
Don't expect the truffles to pull this porker out of the fire. The company says comparisons will "possibly" improve later this year. Here's a news flash for the company: Comparable-store sales numbers are in the midst of what seems to be a continuing decline. Whatever the reason, it's unlikely that anything short of a strong shift to the contrary (particularly in the core Bob Evans franchise) will significantly change the company's fortunes. Furthermore, fewer visits from an aging (and, since elderly customers aren't the best long-term prospect, dwindling) customer base at Bob Evans' core franchise restaurants do not bode well.
Bob Evans' stock is down by more than 5% today and down 10.9% over the past 52 weeks. More downside should be expected until the namesake restaurants can turn around same-store sales and allow the prized truffles to buoy investor sentiment.
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