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Bob Evans restaurant

Bob Evans 2Q traffic falls on reduced discounting

Company hopes new menu and technology can reverse sales weakness

Bob Evans Restaurants’ continued shift away from discounting hurt traffic and dragged down same-store sales in the second quarter, the company said this week.

Same-store sales fell 3.2 percent in the quarter ended Oct. 23. Average check increased 2.5 percent, due to the reduction in discounts, but traffic fell 5.7 percent in the period.

“Second quarter same-store sales performance did not meet our expectations,” said Doug Benham, executive chairman of Bob Evans parent company Bob Evans Farms Inc., which also includes a packaged foods subsidiary BEF Foods. “Turnarounds are often choppy, and our second quarter restaurant sales results reflect that.”

Bob Evans stock fell by more than 5 percent at one point in trading on Wednesday, hitting a new 52-week low of $36.56 before bouncing back somewhat, to be down 2.5 percent by early afternoon.

Executives said during the company’s earnings call Wednesday that they have strategies in place to lure customers back. Bob Evans is working on menu strategies, for instance, that would limit bundled meals on the menu so customers have opportunity to customize their meal orders.

It is also working on improving the quality of food offerings and investing in labor to improve service. Chief financial officer Mark Hood said the company is shifting marketing spending from broadcast to local and digital media that is more targeted.

Bob Evans is also planning to roll out a new technology platform systemwide next year that could enable the company to start a loyalty program. Hood said the platform would enable the company to use more targeted discounts.

“We’re adjusting tactics rather than abandoning our strategy of improving food offerings, lowering discounts, optimizing menu offerings and investing in labor,” Hood said.

Falling restaurant sales and profits at the restaurants offset improving performance at the BEF Foods division.

Sales at Bob Evans fell 2.5 percent, to $325 million, from $333.3 million, but sales at the restaurants division fell 4.3 percent, or $10.4 million, to $230.7 million in the period due to the sales declines and closures of underperforming locations.

The company closed 20 locations in the first half of the company’s fiscal year. The chain now has 548 locations.

Net income in the quarter rose 6.5 percent, to $6.4 million, or 29 cents per share, from $6 million, or 26 cents per share, a year ago. But much of that difference came due to strong improvements at BEF Foods, where operating income doubled in the quarter. Operating income at the restaurant division fell 36 percent, to $13.3 million, from $20.6 million.

Egg costs were a big problem for Bob Evans. The company paid $2 million more for eggs in the quarter, a 0.9 percentage point increase in costs that had a 6 cents per share impact on earnings. Hood said during the call that avian flu was to blame.

Bob Evans’ sales problems in the second quarter were spread throughout the day, with all dayparts reporting declines in same-store sales. But breakfast, the company’s most popular daypart, declined 0.4 percent. Dinner was the biggest problem: Same-store sales in the evening fell 6.2 percent.

Benham said the company is working on plans to improve dinner business, including a three-course dinner that is more profitable.

But the chain’s Broasted Chicken platform didn’t sell well in the quarter either. Locations with Broasted Chicken reported same-store sales declines of 3.3 percent, compared with 3.1-percent declines at locations without the product.

Breakfast items remain popular all day, despite the introduction in the quarter of all-day breakfast at quick-service chain McDonald’s Corp.

Breakfast as a percentage of company sales increased slightly, to 39.8 percent, from 39.2 percent. But the percentage of all checks systemwide with at least one breakfast item increased in the quarter from 48.7 percent to 50.1 percent.

Despite the company’s sales problems, Bob Evans executives said they still expect the company’s earnings per share to range from $1.85 to $2. But the company has changed how it expects to meet those expectations. Hood said the company has identified another $5 million in savings.

Still, analysts were concerned about the company’s traffic figure. KeyBanc Capital Markets analyst Chris O’Cull said in a note today that the traffic results were “alarming.”

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

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