Columbus, Ohio-based full-service, family restaurant chain Bob Evans Farms has posted total net sales of US$277m for its Q1 ended 26 July, up 4% from US$267.5m year on year.

Net income was US$20.6m, or US$0.57 per share on a diluted basis, compared with US$15m, or US$0.43 per share, a year ago.

Diluted earnings per share (EPS) for the quarter increased 33% from a year ago to above analysts' expectations, reflecting improved profitability in both the restaurant and food products businesses.

Restaurant segment

In the restaurant segment, Q1 same-store sales increased 0.6%. Average menu prices were up 2.7%. Overall, total restaurant sales rose 6%. Operating income advanced 16%, as operating margin expanded a full percentage point, to 11.7%. Food, labour and other operating costs were all lower as a percentage of sales.

The company continues to target approximately 30 new restaurant openings for the FY. At the end of the Q1, 495 restaurants were in operation.

Food products segment

The food products segment benefited from significantly lower raw material costs during the quarter. Operating income was US$4.9m, up sharply from US$325,000 in Q1 2001. Hog costs in the sausage business averaged about US$26 per hundredweight, compared with US$45 year on year. Pounds sold from comparable products (principally sausage) increased 3%. Overall, reported sales for the segment were down 7%; however, sales for the Q1 2002 included US$2.7m in sales from Hickory Specialties, which was sold in last year's Q2. Adjusted to exclude Hickory Specialties' sales last year, the segment's sales were down 1%, reflecting reduced average selling prices.

Stewart K. Owens, chairman and CEO, said: "We are pleased to again report record EPS and continued margin improvement on both sides of our business.

"At the same time, we are concerned about the softer and more erratic trends in our restaurant same- store sales over the last two months - which we believe others in the restaurant sector are also experiencing. While we are fine-tuning our marketing programmes accordingly and continuing to focus on cost controls at the restaurant level, weaker-than-expected national or regional economic conditions could make it more difficult for us to achieve our earlier sales growth targets for the restaurant segment in FY 2003."

"Operating profits in our food products segment remain strong," Owens continued. "Raw material costs are running well below our expectations in the sausage business, and we expect them to remain favourable for most of our current FY. As a result, we are not changing our EPS guidance of about US$2 for FY 2003. In addition, we expect another strong overall earnings comparison in the Q2, with earnings in the range of about US$0.55 per share, compared with US$0.47 (excluding one-time items) reported a year ago."

Owens concluded: "While we are concerned with maintaining our current sales and earnings momentum, the primary focus of our senior management team remains on continuing to execute our proven long-term strategies for building the Bob Evans brand: a steady, controlled expansion pace in the restaurant business and the introduction of new and complementary homestyle retail food products."

Bob Evans' balance sheet remained strong. At the end of the Q1, stockholders' equity was US$541.2m, or US$15.2 per share, compared with only US$52.5m in total debt obligations. During the quarter, the company repurchased 86,000 common shares; management has been authorised by the board to repurchase up to two million shares during FY 2003.

Consolidated financial results

(unaudited, US$000s, except per share data)
                                                 Three Months Ended
                                        26 July 2002        27 July 2001
     Net Sales
        Restaurant Segment                 $234,037             $221,467
        Food Products Segment                42,984               45,994
           Total                           $277,021             $267,461

     Operating Income
        Restaurant Segment                  $27,361              $23,634
        Food Products Segment                 4,895                  325
           Total                            $32,256              $23,959

     Income Before Income Taxes             $31,729              $22,794

     Net Income                             $20,624              $15,044

     Earnings Per Share
        Basic                               $  0.58              $  0.43
        Diluted                             $  0.57              $  0.43

     Average Shares Outstanding
        Basic                                35,438               34,810
        Diluted                              36,257               35,153