Bob Evans Farms provided an update concerning a range of strategic initiatives and results for the fiscal 2015 third quarter ended Friday, January 23, 2015.
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Commenting on strategic initiatives the board is addressing, Mary Kay Haben, non-executive chair of the board, said, "Last December, the Board of Directors concluded that the Company would benefit from new leadership and enhanced execution. In the wake of that leadership change, the Board and management are working together with a high sense of urgency to implement actions to enhance performance and create shareholder value.
"With these objectives in mind, the finance committee of the board, with the assistance of independent advisors, was charged with conducting a comprehensive review of strategic alternatives. The finance committee unanimously reached several conclusions and advised the board that:
Working with Lazard, it thoroughly reviewed the possibility of a separation of the BEF Foods business and concluded that a sale or spinoff of the segment, at this time, would not enhance shareholder value, and that continued focus on operations improvement would deliver greater benefits to our shareholders.
"Because the Company's tax basis in its BEF Foods business is low, a taxable sale would be accretive only if it occurred at an EBITDA multiple significantly in excess of recent valuations for which food businesses have traded.
"With input from its outside advisors, the Finance Committee also concluded the annual costs and lost synergies that would result from a tax-free spin-off would be significant. Additionally, the need to allocate the Company's debt between two smaller companies, and the one-time costs and significant management attention that would be required, make such a transaction not advisable at this time.
"The Company has retained JP Morgan to work with the Finance Committee, in addition to Lazard, in reviewing the potential for real estate transactions or other changes to the Company's capital structure.
"Working with these advisors, the Finance Committee is continuing to evaluate various alternatives with respect to all, or a portion of, the Company's real estate assets, including a potential REIT spin-off, a sale-leaseback, and other real estate financing transactions; and
"Working with Deloitte, the Company has reviewed its G&A and certain other cost structures and identified $35 million of potential annual cost savings, which it has already begun to implement and which it expects to realize over a three year time frame.
"The implementation costs to achieve these savings are expected to be approximately $4 million. Additionally, the Company is putting in place an enterprise-wide lean efficiency team to focus on other savings opportunities in addition to those identified to-date.
The Board has thoroughly reviewed, and unanimously endorsed, the conclusions and recommendations of the Finance Committee."
On a GAAP basis, the Company reported net income of $5.9 million, or $0.25 per diluted share, compared with net income of $6.2 million, or $0.24 per diluted share, in the comparable period last year.
On a non-GAAP basis, net income was $14.3 million, or $0.60 per diluted share, compared with net income of $8.2 million, or $0.31 per diluted share, in the comparable period last year.
Bob Evans Restaurants' net sales were $250.4 million, an increase of $9.9 million, or 4.1 percent, compared to net sales of $240.5 million in the corresponding period last year.
Same-store sales were 3.8 percent in the quarter, slightly below the national Knapp-Trackâ„¢ family dining index increase of 3.9 percent.
During the third quarter of fiscal 2015, Bob Evans Restaurants opened two new restaurants located in Simpsonville, KY, and Seffner, FL.
Bob Evans Restaurants' GAAP operating loss was $2.0 million, compared to GAAP operating income of $6.6 million in the corresponding period last year. Bob Evans Restaurants' non-GAAP operating income was $6.1 million, compared to non-GAAP operating income of $8.7 million in the corresponding period last year.
The primary drivers of the $2.5 million decrease were: a $3.9 million negative impact of higher food costs due to increased discounting, menu mix changes, increased off-premise sales mix, and higher commodity costs; a $2 million negative impact of increased labor and benefit costs driven primarily by healthcare costs and wage rates; and $1.3 million of increased operating expense resulting from increased marketing and utility expenses.
Drivers were also $0.8 million of increased S,G&A costs as a result of a $1.2 million incremental discretionary 401k match, offset by $0.4 million of net S,G&A savings. These items were partially offset by $3.7 million of sales leverage and $1.8 million of reduced depreciation expense. ■