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Once upon a time, Bob Evans Farms (NASDAQ: BOBE) was a name that conveyed hearty good food offered in a homespun fashion that was the next best thing to the family dining room. But times have changed and today Bob Evans is a restaurant chain trying to find its footing amid a new assortment of artisanal, organic offerings.
How is the Bob Evans restructuring going? Well, on Tuesday the company reported first-quarter results that showed some strong progress as well as some clear plans for getting its balance sheet in order. The company reported net income of $4.3 million, compared with a $1 million loss in the year-earlier quarter, and said that its non-GAAP operating income jumped 21% to $20.3 million.
Revenues were less impressive. Total sales declined 0.6%, reflecting in part the closing of 18 restaurants in support of the Bob Evans restructuring, while same-store sales fell by a slightly smaller 0.3%. Bob Evans Foods sales fell 3.7%.
Investors, Be Cautious
The market gave the results a thumbs up to the Bob Evans earnings report and sent shares up more than 7% on Wednesday. But investors should remain cautious and consider the progress that the company made with some perspective.
For starters, much of the company’s earnings growth is the result of the restructuring in which it has sought to cut costs and improve efficiencies. While moves like closing underperforming stores and adopting new cost efficiencies like sale-leasebacks of some restaurants may help the business get its balance sheet in order, these moves will not ultimately achieve what the company really needs: growth.
As for its core business, the company deserves credit simply for keeping its total revenues relatively flat in a challenging market. But holding its own does not make a growth stock. It’s still unclear how Bob Evans’ restructuring will lead to real growth.
The Challenge of an Oldfangled Brand
In addition to reducing costs, allocating cash more efficiently, and growing sales, Bob Evans has identified improving its brand as one of the cornerstones to its restructuring. That may be the trickiest task of all that are facing Bob Evans.
Brands are important to all businesses, but for building restaurant loyalty they may be essentially critical. And for a brand like Bob Evans that’s associated with ham, bacon and other pork products, adopting a more modern, more healthy image could prove daunting.
It’s not that no one indulges in bacon anymore. But a restaurant that made its name selling pork falls into a different category as one that offers sausage along with fish, pasta, quinoa and kale. Bob Evans has spoken about updating its brand, but a visit to its website suggests that to date, it’s the same old Bob Evans that’s been around for decades.
Love it or hate it, Bob Evans looks like an old brand still in need of some updating. Until then, the jury will be out on this company’s restructuring.
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