Same-store sales at Bob Evans Farms Inc. fell 4.3 percent in the first quarter, but the New Albany, Ohio-based company is hanging its hat on an improvement in August, to a 2-percent decline, on the eve of a new menu debut that it says will help bring customers back.
“We’re encouraged by moderating sales trends that began in July,” Bob Evans CEO Saed Mohseni said during an earnings call Wednesday.
Bob Evans’ new menu will debut at its 522 restaurants on Thursday.
“We believe we’re making fundamental changes to the business that attracts a broader guest count,” Mohseni said. “Those guest counts will help us improve the fundamental part of our business.”
Restaurants reported a 5.5-percent decline in transactions in the first quarter ended July 29. Weakness was spread across all dayparts, but especially at dinner, where same-store sales fell 8.4 percent.
Executives noted that breakfast, despite a 1.2-percent decline in same-store sales for the daypart, remains particularly strong. More than half of all transactions in the first quarter included at least one breakfast item, the company said.
Mark Hood, Bob Evans chief administrative officer, said the chain wants to upgrade lunch and dinner items “with the same approach we took at breakfast.”
Executives said the new menu will accomplish that. Among other things, the new menu lets customers order any entrée as part of a three-course meal for an additional $2, with soup or salad and a dessert.
Mohseni said the menu was “received especially well by younger users and lighter users.”
Service remains paramount, Mohseni said, and Bob Evans will invest in labor where needed. Service improvements have helped lead to more positive customer comments and fewer negative comments, he said.
“We believe hospitality is an important element in improving guest feedback,” Mohseni said.
Still, Bob Evans’ improving same-store sales helped lure more investors to the company. The company’s stock price rose more than 6 percent in Wednesday morning trading.
Or perhaps investors were encouraged by the company’s comments regarding a potential split of Bob Evans’ two main businesses: Its restaurants and its highly profitable packaged foods division.
Mohseni left open the possibility that Bob Evans could spin off the packaged foods business in comments during the earnings call.
“I’ve been very, very clear that all options for Bob Evans are under consideration by the board of directors,” he said. “At the end of the day, it’s a complex transaction. The board is very much committed to finding ways that can enhance shareholder value.”
“These are two great businesses,” he added later. “They can certainly thrive as separate businesses.”
Sandell Asset Management, an activist shareholder that owns 7 percent of Bob Evans stock, and which has pushed for major changes for three years, has stepped up pressure to spin off Bob Evans Foods. That includes a presentation released last week speculating that the division could be worth more than the entire company.
Thomas Sandell, CEO of Sandell Asset Management, jumped on the earnings call Wednesday to question executives about a potential split.
“Are you getting any closer?” Sandell asked. “It’s taking a little bit of time here. What’s the timeline here? How much longer do we have to wait for the company to realize the full potential of Bob Evans?”
Mohseni, however, preached patience, noting that he only became CEO at the beginning of the year.
“Our ultimate goal is to provide the best solution, not the quickest solution, for shareholders,” he said.
Mohseni stressed that Bob Evans has “professional advisors” who are working with the board and management on options. He would not say who the advisor is, under questioning from Sandell.
In the meantime, Bob Evans is focused on improving operations at restaurants, which have struggled to generate consistent sales growth for years, even as family-dining competitors have thrived.
Bob Evans’ restaurant revenue fell 7.7 percent in the quarter, to $220.4 million, from $238.7 million the previous year, due to the decline in same-store sales and some restaurant closures.
Overall revenue fell 4.8 percent, to $306.3 million, from $321.7 million the previous year.
But net income doubled, to $9.2 million, or 46 cents per share, from $4.3 million, or 19 cents per share the previous year, amid cost cuts. Bob Evans has eliminated $32 million in annual and other corporate costs.