EAT Brinker International Inc

Bob Evans Farms Inc. (BOBE) has announced third quarter 2012 earnings of 69 cents per share, breezing past the Zacks Consensus Estimate of 60 cents per share and the year-ago quarter earnings of 51 cents per share.

The better-than-expected results were driven by cost-control initiatives of the company and improving sales trend.

The company posted net sales of $428.3 million, which remained flat year over year as combined same store-sales in the restaurant segment inched up 0.1%, resulting from a 1.6% hike in same store-sales at Bob Evans restaurants, partially offset by a 1.6% plunge in comps at Mimi's Cafe.

Segment wise, restaurant net sales were also flat year over year at $337.3 million and the company continues to witness improved performance at both the brands, driven by efficient sales initiatives and effective marketing and promotional programs. However, food products net sales crept up 0.1% to $91.0 million, driven by innovative menu offerings and higher demand for both its sausage and side dish categories.

Cost of sales escalated 60 basis points (bps) from the year-ago quarter to 32.1% due to commodity cost pressure in the foods segment, while other operating expenses spiked 20 bps to 16.3%. However, selling general and administrative expense dipped 10 bps to 8.6% and operating wages fell 180 bps to 31.2%. Interest expense also plunged $0.2 million year over year to $1.9 million due to lower average borrowings.

Consequently, consolidated adjusted operating income of Bob Evans Farms expanded 19.0% year over year to $30.3 million. Operating margin expanded 120 bps to 7.1% in the reported quarter.

Store Update

During the reported quarter, the company did not open any new Bob Evans restaurants. Thus, at the end of the quarter, the company operated 709 restaurants, out of which 564 were Bob Evans restaurants and 145 Mimi's Cafe restaurants.

In 2012, the company plans to open six new Bob Evans restaurants and remodel 90 restaurants. Bob Evans, however, has no plans of opening any Mimi's Cafe restaurants in 2012.

Financial Position

At the end of the third quarter, cash and cash equivalents were $47.9 million, long-term debt was $97.1 million and stockholders' equity was $658.3 million. During the quarter, the company repurchased 567,303 shares for $18.8 million. The company currently has 3 million shares remaining under $50 million share repurchase authorization.

Outlook

For fiscal 2012, Bob Evans Farms tightened its earnings per share outlook, by raising the lower end from $2.36 to $2.38 and reaffirming the higher end of $2.44. The company also reaffirmed its revenue guidance of $1.7 billion and long-term earnings per share growth of 7% to 10%.

However, the company foresees lower consumer spending, adverse weather condition and rising commodity costs as headwinds in 2012.

The company expects same-store sales at Bob Evans restaurants to remain positive for the fourth quarter. Same-store sales at Mimi's Cafe restaurants are estimated in the range of negative 3% to 1% in the fourth quarter. Net sales of the Food Product segment are projected in the range of $320 million to $330 million in 2012.

Our Take

We expect estimates to go up in the coming days as the company reported better-than-expected results, raised the lower end of EPS guidance and continues to make efforts to uplift the performance of both the brands Bob Evans and Mimi’s.

Bob Evans currently retains a Zacks #2 Rank (short-term Buy rating). We are maintaining our long-term Neutral recommendation on the stock. 

One of Bob Evans’ primary competitors, Brinker International Inc. (EAT) reported adjusted earnings per share of 47 cents in the second quarter of 2012, beating the Zacks Consensus Estimate by a couple of cents.

Based in Columbus, Ohio, Bob Evans Farms is a full-service restaurant company that owns and operates under the brands - Bob Evans and Mimi’s Cafes.

 
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