Look at same-store sales for the past two months and you'll get a sinking feeling in your stomach. The core Bob Evans Restaruants (86.2% of the restaurants owned by the company) experienced a 1.5% decline in August, even after an average menu price increase of 0.5%. In September, after an average menu price increase of 1%, same-store sales decreased 4.4%. That's not a pretty picture for this tired restaurant concept.
Mimi's Café (13.8% of restaurants) has been the company's growth engine. For a short time, it seemed like the ultimate ray of sunshine.
In July the company warned of impending trouble going forward and suspended earnings guidance. But it announced what seemed to be a great decision for 2005: It would open 15 new Mimi's Cafés (an increase of four over 2004), and it would open only 20 new Bob Evans Restaurants (down from 39 in 2004).
The logic was certainly to focus on the winner. But the winner has become winded. Mimi's reported a September same-stores sales increase of 0.1%. That's bad, especially considering there was a 1.3% average increase in menu prices.
The news from Cracker Barrel
Analysts have been expecting Bob Evans to earn $0.97 a share in 2005 (down from $1.04 last year). To me, that looks like a bit of a stretch given the weak first quarter and the continued weakness in same-store sales. The stock, if it earns $0.97 a share, trades for 23.7 times forward earnings. And that's a little rich for my blood, especially when I'm looking at a company that, at best, is expected to compound earnings by 10% annually for the next five years.
In the current operating environment -- with flagship Bob Evans eateries struggling, and high oil prices and other macroeconomic factors stifling results at similar restaurant companies -- it's pretty hard for me to get excited about this stock.
Are you looking for great companies selling at value prices (less than intrinsic value)? Let the Motley Fool Inside Value service help you find them. Clickherefor a free trial subscription today.