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Bob Evans plans $200M sale-leaseback

Bob Evans plans $200M sale-leaseback

Company to sell restaurants, headquarters, manufacturing plants by end of year

Bob Evans Farms Inc. plans to complete a $200 million sale-leaseback consisting of restaurants, its headquarters and a pair of manufacturing plants by the end of the year, as it continues to look for a new CEO, the company said this week.

Executives said Wednesday that they expect the sale-leaseback to generate $160 million to $170 million in proceeds. The sale of Bob Evans’ New Albany, Ohio, headquarters and two manufacturing plants could generate an additional $85 million to $90 million.

Bob Evans expects to use the proceeds to pay down debt and buy back shares.

Executives with the owner of the Bob Evans family-dining chain also said they remain “open” to the possibility of a potential separation of its retail food maker, BEF Foods, though it would have to get a strong price to make the sale worth it.

“We continue to evaluate ways to unlock the value of BEF Foods in an accretive way,” Bob Evans chief financial officer Mark Hood said during the company’s first-quarter earnings call Wednesday. He said that taxes on BEF Foods are “quite low” and would require a sale multiple of at least six to seven times cash flow to break even, and a much higher multiple to make a deal worth it.

Bob Evans is “excited” about the turnaround at BEF Foods and “appreciates” the division’s earnings contribution to the company, Hood said.

The real estate announcement and the comments on BEF Foods come a year after a slate of candidates nominated by the activist investor Sandell Asset Management won four seats on Bob Evans’ board. Longtime CEO Steve Davis stepped down soon after.

A sale-leaseback and a sale of BEF Foods were centerpieces of the proxy fight. Since then, the company has focused on the sale-leaseback while expressing doubts about the viability of a sale of the packaged foods division.

Last week, Bob Evans named former Arby’s CEO Doug Benham executive chairman as it searches for Davis’s replacement. Benham said during the call that the CEO search “has not and will not stand in the way of continued progress” at the company.

Executives said the sale-leaseback would not preclude other potential efforts to generate shareholder value with its real estate — perhaps through a spinoff of some properties in a real estate investment trust, or REIT.

But such a spinoff, they said during the call, would require the company to improve its restaurant operations, which would increase the value of the real estate.

Bob Evans reported improved overall profitability in its first quarter ended July 24.

Net income increased to $4.3 million, or 19 cents a share, reversing a net loss of $1 million, or 4 cents per share, in the same period a year ago.

Total company revenue, however, fell 1.4 percent, to $321.7 million. Much of that was due to a 0.3-percent decline in same-store sales at Bob Evans Restaurants.

And much of the profit improvement came at BEF Foods. Operating profit at the restaurants declined in the quarter, to $9.8 million, from $14.9 million.

Bob Evans shifted away from a heavy discounting strategy in the quarter. Traffic fell 5 percent, while menu mix and pricing increased 4.8 percent in the period.

Customers are also taking their food with them. Same-store on-premise sales decreased 2.2 percent, while off-premise same-store sales rose 14.2 percent.

Bob Evans has recently started to emphasize its breakfast menu, which represents 40 percent of company sales and generates higher profits. Last month it introduced a new “Best in Class Breakfast” menu with fresh sausage, eggs, orange juice and other items.

It is also adding Broasted Chicken at all of its restaurants. More than half of the company’s 550 restaurants that offer the product outperformed those that don’t by 2.1 percent, executives said.

Bob Evans’ improved profits helped give executives confidence to improve its earnings guidance for the year, to $1.85 to $2 per share, from $1.75 to $1.95. The company expects to find $17 million in cost savings this year, executives said.

The improved profits, guidance and sale-leaseback all proved to be a boon to investors Wednesday. Bob Evans’ stock price increased 7 percent in morning trading.

“Our teams remain laser focused on continued improvement in both businesses, and continued execution of our strategic initiatives,” Benham said during the call. “Our investments in our business have started to yield returns.”

Contact Jonathan Maze at [email protected].
Follow him on Twitter: @jonathanmaze

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