Bob Evans Farms, Inc. announced its financial results for the fiscal 2016 third quarter ended January 22. On a GAAP basis, the company reported net income of $12.9 million, compared with net income of $5.9 million, in the corresponding period last year. On a non-GAAP basis, net income was $12.9 million, compared with net income of $14.3 million.
Third-quarter fiscal 2016 commentary
President and CEO Saed Mohseni says, “BEF Foods delivered another strong quarter with 33 percent year-over-year non-GAAP operating income growth and continued double-digit pounds-sold growth of both its refrigerated side-dish and sausage product lines. During its transformation over the last several years, BEF Foods’ plant network has been optimized as nine production facilities have been reduced to four. Furthermore, its sales mix has become more profitable and its margin structure has become more stable as our higher-margin, nationally-distributed refrigerated side-dish product line continues to grow faster than our regional sausage business which is subject to more input cost volatility. BEF Foods continues to successfully execute its strategy of replacing lower-margin food service sales with higher-margin branded retail sales. With our refrigerated side dish manufacturing facility operating near peak capacity this past holiday season, I am pleased to report the expansion of our Lima, Ohio, plant is on-schedule and on-budget. We expect to bring the new capacity on-line this summer in preparation to meet holiday demand later this calendar year.
“While BEF Foods’ performance reflects the impact of a successful transformation process, Bob Evans Restaurants is earlier in its turnaround. A third-quarter same-store sales decline of 3.6 percent reflects a 6.5 percent decline in transactions, partially offset by 2.9 percent of pricing and favorable menu mix. We expected sales challenges as we rationalize our pricing and discounting strategies and work to improve the guest experience. However, we are encouraged by the results of our recent efforts to significantly improve the quality of our breakfast offerings, along with implementing new initiatives to elevate the guest experience and redefine the price-value relationship at Bob Evans Restaurants. Earlier this year, a few months after launching our upgraded breakfast menu, Bob Evans Restaurants was named ‘Favorite Breakfast Chain’ by Market Force Information. We are moving in the right direction and there is much more to come. Breakfast sales have stabilized and we are working to implement similar improvements across all dayparts.
“At the corporate level, we continued to make progress with our real estate monetization initiatives as we closed on a $30 million mortgage of our corporate support center early in the fourth quarter and reached an agreement for a $200 million sale-leaseback of up to 145 restaurant properties that we expect to close by the end of the fiscal year. Additionally, we have realized nearly $12 million of cost savings fiscal year-to-date, as part of our three-year plan to reduce annual corporate and other expenses by $35 million. We expect to achieve total fiscal 2016 savings of $18 million, equating to an annual savings rate of nearly $30 million.”
Bob Evans Restaurants’ net sales were $238.6 million, a decline of $11.8 million, or 4.7 percent, compared to net sales of $250.4 million in the corresponding period last year. Same-store sales declined 3.6 percent in the quarter, with the balance of the net sales decline due to net restaurant closures. Bob Evans opened one new restaurant during the third quarter and has closed 20 restaurants fiscal year-to-date.
Bob Evans Restaurants’ GAAP operating income was $14.5 million, compared to GAAP operating income of $14.2 million in the corresponding period last year. Bob Evans Restaurants’ non-GAAP operating income was $14.5 million, or 6.1 percent of sales, compared to $16.8 million, or 6.7 percent of sales, in the prior year, a decline of $2.3 million. The decline resulted from an approximately $3.9 million margin impact of lower sales combined with the net impact of a $0.4 million increase in food cost rate; a $2.3 million increase in labor and benefit cost rate driven primarily by an increase in average hourly wage rates, partially offset by a reduction in health insurance costs and direct labor hours; a $0.8 million decline in other operating expenses driven primarily by lower utility costs; a $2.3 million decline in S,G&A costs (excluding property gains) due primarily to a decline in severance and bonus compensation costs; a $1 million decline in depreciation expense; and a $0.2 million gain net of impairment on the sale of nonoperating restaurants.
BEF Foods’ net sales were $107.9 million, an increase of $1.1 million, or 1.0 percent, compared to $106.8 million in the corresponding period last year. Pounds sold increased 8.8 percent while average net selling price per pound declined 7.8 percent compared to the prior year period. The decline in average net selling price reflects an increased sales mix of lower-priced side-dish products relative to sausage, as well as reduced net sausage pricing (through increased trade spending) to remain price-competitive in a lower sow cost environment. From a net sales perspective, a 16.1 percent increase in side-dish pounds sold and an 11.1 percent increase in sausage pounds sold were partially offset by an $8.2 million increase in trade spending (reduces net sales) and a 10.8 percent decline in foodservice pounds sold.