Bob Evans to focus on carryout sales

Bob Evans to focus on carryout sales

Company reports drop in 2Q profit on slow sales, impairment charges

Executives at Bob Evans Farms Inc. told investors that a push for carryout sales at the company’s namesake chain and streamlined operations at Mimi's Café are expected to reverse falling sales at both brands by the end of the year.

The call with investors Wednesday came after the Columbus, Ohio-based company cited slow sales and heavy impairment charges for a drop in second-quarter profit.

For the quarter ended Oct. 29, Bob Evans recorded net income of $7.8 million, or 26 cents per share, compared with year-earlier income of $15.5 million, or 50 cents per share. Revenue slipped 1.8 percent to $417 million, from $424.8 million in the second quarter of 2009. Blended same-store sales declined of 2.2 percent, comprising a 0.9-percent decrease at Bob Evans and a 5.6-percent fall at Mimi’s Cafe.

Chief financial officer Tod Spornhauer said the falloff in retail sales of packaged foods within Bob Evans’ restaurants accounted for most of the same-store sales decrease at the namesake chain.

Bob Evans to expand carryout options

Now that most Bob Evans units have phased out an in-store retail component that dragged down sales, the chain will shift its focus to growing carryout sales, chief executive Steve Davis said during the call with investors.

“Carryout is a growth opportunity for us,” Davis said. “What was off strategy was all the retail in the stores. It was a crutch and prevented us from getting after carryout sales. Our guests were screaming for this, and we weren’t providing it in a way they wanted it.”

In five Ohio stores equipped with a “Taste of the Farm” grab-and-go area to push carryout, off-premise sales are outpacing the rest of the system, Davis and Spornhauer said. Those units also recorded a rise in dine-in sales, they added.

Carryout sales now represent 11 percent of sales at Bob Evans, which Davis said brought Bob Evans in line with casual-dining averages with more room to grow. That push will be tagged in Bob Evans’ commercials for other sales-driving initiatives this quarter, like holiday gift cards and the recently launched Big Farm Burger platters.

“What we’re focused on is sequential comparable-sales improvement, and some of our initiatives have helped us turn the corner,” Davis said. “The burgers did well in test, carryout is starting to add a benefit, as will our gift card promotions and the Family Feast [holiday offering]. We have a nice arsenal of offerings, and we’ll see where we are at the end of the third quarter.”

Bob Evans plans to build three new namesake restaurants and remodel another 30 to 35 units in the current fiscal 2011 to include the Taste of the Farm concept, Davis said.

“The simple rule is we’re not going to go faster than we have the people capability for,” Davis said. “We’re going to remodel one market … because there are economies of scale from contractors, scale in marketing and the ability to do public relations.”

Mimi’s Cafe eyes operations

The bulk of Bob Evans’ $13.9 million pretax impairment charge in the second quarter was $10.3 million in closing costs for five underperforming Mimi’s Cafe units, all of which were around two years old in newer markets like Texas, Illinois and Tennessee, the company said.

Bob Evans recently rearranged Mimi’s field operations team, increasing the number of regional managers from 15 to 22, bringing veteran operators over from the Bob Evans side of the business, and putting a sales manager in every unit. To decrease complexity in the restaurants and focus on improving operations, the company canceled a new menu rollout in November.

“We’re starting to see more restaurants with positive sales, which is why we went to having a sales manager in every restaurant so they can focus on getting operations right,” Davis said. “We’ll never be a nationally advertised brand, so it really has to be about improving sales on a restaurant-by-restaurant basis.”

The company said it would not open or rebuild any new Mimi’s Cafe locations in fiscal 2011, but it likely would not single out any more units for impairment, either.

“We don’t look at stores for impairment until they’re two years old,” Spornhauer said, “and because of slowed development of the last few years, we won’t have many more stores entering the calculation.”

“Our No. 1 issue at Mimi’s is speed of service,” Davis said. “When you add complexity, speed of service and quality scores drop, and that’s not a prescription for growing same-store sales. … But with fewer menu changes and greater emphasis on the e-club, we will start to move the needle in the right direction.”

The company has grown its online loyalty club from just more than 100,000 members 18 months ago to more than 600,000 currently, with a goal of reaching 750,000 over the next six months, Davis said.

Bob Evans raised its operating income guidance for fiscal 2011 to a range between $108 million and $112 million, from a previously stated range between $105 million and $110 million.

Bob Evans Farms operates 569 namesake family-dining restaurants in 18 states and 145 Mimi’s Cafe outlets in 24 states. The company also is a producer and distributor of pork sausage and other retail products.

Contact Mark Brandau at [email protected] [3].