Net Income Increases 17 Percent, Driven by Restaurant Margin
Improvements and Favorable Tax Rate
Productivity Gains Offset Sales Declines
Company Reaffirms Outlook for Fiscal 2010
COLUMBUS, Ohio, Aug. 11, 2009 (GLOBE NEWSWIRE) -- Bob Evans Farms, Inc. (Nasdaq:BOBE) today announced financial results for the 2010 first fiscal quarter ended Friday, July 24, 2009.
First-quarter commentary
Chairman and Chief Executive Officer Steve Davis said effective cost management enabled the Company to meet its first-quarter operating income goals, despite significant top-line challenges. "The restaurant segment continues to improve its profitability due to lower cost of sales and well-controlled labor costs, even with negative sales relative to the prior year," Davis said. "This improvement more than offset the food products segment's operating income decline, which was due primarily to a 51 percent year-over-year increase in sow costs.
"Our same-store sales were below our expectations in a quarter where both restaurant concepts faced their toughest comps of the year," Davis said. "However, third-party research from NPD Group and Knapp-Track indicates both restaurant concepts trended better than their respective peer groups in June and July.
"The food products segment faced similar top-line challenges, overlapping 13 percent comparable pounds-sold growth in the prior year, in a quarter where we reduced our promotional discounts offered to retailers in an effort to maintain margins.
"Despite these top-line challenges, our strong cost-management efforts in the first quarter have given us the confidence to reaffirm our operating income outlook for the 2010 fiscal year."
First-quarter consolidated results
The Company reported operating income of $25.1 million in the first quarter of fiscal 2010, a 6.9 percent increase compared to $23.5 million in the first quarter of fiscal 2009. This improvement is due primarily to significantly lower food and operating expenses in the restaurant segment, as well as lower SG&A in the food products segment. The Company's first-quarter fiscal 2009 reported results included expenses of $0.7 million for a legal settlement.
The Company reported net income of $16.1 million in the first quarter of fiscal 2010, a 16.7 percent increase compared to $13.8 million in the first quarter of fiscal 2009. The net income improvement is due to the factors cited for the operating income comparison, as well as a 500 basis-point year-over-year improvement in the Company's first-quarter effective tax rate.
Below is a line-by-line summary of the Company's consolidated fiscal 2010 first-quarter income statement.
* Net sales -- Net sales were $429.5 million in the first quarter of
fiscal 2010, a 2.5 percent decrease compared to $440.3 million in
the first quarter of fiscal 2009. This decrease is the result of
same-store sales declines at Bob Evans Restaurants and Mimi's Cafe,
as well as sales declines in the food products segment.
* Cost of sales -- Cost of sales was $125.5 million, or 29.2 percent
of net sales, in the first quarter of fiscal 2010, compared to
$130.4 million, or 29.6 percent of net sales in the first quarter
of fiscal 2009. The lower cost of sales is primarily the result of
lower commodities costs, positive mix shifts and effective supply
chain management in the restaurant segment, partially offset by a
51 percent year-over-year increase in sow costs in the food
products segment, which averaged $43.00 per hundredweight compared
to $29.00 a year ago. The higher cost of sales in the food products
segment reduced operating income by approximately $2.2 million, or
320 basis points, compared to a year ago.
* Operating wages -- Operating wages were $150.1 million, or 34.9
percent of net sales, in the first quarter of fiscal 2010, compared
to $152.7 million, or 34.7 percent of net sales, in the first
quarter of fiscal 2009. This increase as a percentage of sales is
the result of minimum wage increases and negative leverage due to
same-store sales declines at both restaurant concepts, partly
offset by a reduction in labor hours in the restaurant segment.
* Other operating expenses -- Other operating expenses were $69.5
million, or 16.2 percent of net sales, in the first quarter of
fiscal 2010, compared to $73.6 million, or 16.7 percent of net
sales, in the first quarter of fiscal 2009. This improvement is due
to lower utility, pre-opening and advertising expenses in the
restaurant segment.
* SG&A -- Selling, general and administrative expenses were $38.4
million, or 8.9 percent of net sales in the first quarter of fiscal
2010, compared to $40.2 million, or 9.1 percent of net sales, in
the first quarter of fiscal 2009. This improvement is due to the
benefit of converting the food products segment from a direct-store-
delivery (or DSD) distribution system to a warehouse system in
response to retailer needs, as well as the favorable variance from
the $0.7 million in expenses for a legal settlement in last year's
first quarter, which offset deleverage from declining sales.
* Net interest expense -- The Company's net interest expense was $2.7
million in the first quarter of fiscal 2010 compared to $2.9
million in the first quarter of fiscal 2009.
* Income taxes -- The Company's effective tax rate for the first
quarter of fiscal 2010 was 28.1 percent. This compares to an
effective tax rate of 33.1 percent in the first quarter of fiscal
2009. The lower effective tax rate is the result of more favorable
settlements with state income tax agencies than anticipated.
* Diluted weighted-average shares outstanding -- The Company's
diluted weighted-average share count was 30.9 million in both the
first quarter of fiscal 2010 and in the first quarter of fiscal
2009. The Company did not repurchase shares in the first quarter.
First-quarter restaurant segment summary
The restaurant segment reported operating income of $20.4 million, or 5.7 percent of net sales, in the first quarter of fiscal 2010, compared to $17.6 million, or 4.8 percent of net sales, in the first quarter of fiscal 2009. This improvement is due primarily to significantly lower cost of sales, resulting from more favorable commodities costs, effective supply chain management and mix shifts to higher-margin products, as well as lower operating expenses.
