Bob Evans Farms Management Discusses Q3 2014 Results - Earnings Call Transcript

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 |  About: Bob Evans Farms, Inc. (BOBE)
by: SA Transcripts

Operator

Good day, ladies and gentlemen, and welcome to the Bob Evans Farms 2014 Third Quarter Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to hand the conference over to Mr. Scott Taggart, Vice President of Investor Relations. Sir, please go ahead.

Scott C. Taggart

Thank you, and good morning from New Albany, Ohio. This is Scott Taggart, Vice President of Investor Relations. I would like to welcome you to Bob Evans Farms' third quarter fiscal 2014 conference call. With me this morning are Steve Davis, our Chairman and Chief Executive Officer; Paul DeSantis, our Chief Financial Officer; and Sylvester Johnson, our Chief Accounting Officer.

Our call today begins with a summary of our performance from Paul, and then Steve will go into further detail with regard to developments within each of our segments. After that, we will open the call for questions.

Please note, our comments today contain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. These forward-looking statements include projections regarding anticipated future results. A number of risks and uncertainties could cause our actual results to differ materially from these forward-looking statements.

Our recent filings with the Securities and Exchange Commission include a discussion of these risk factors. We caution investors not to place undue reliance on forward-looking statements, which speak only as of the date of this conference call, and we undertake no obligation to update these statements.

Also, we will reference non-GAAP financial measures. We have provided a reconciliation of the non-GAAP information to the most directly comparable GAAP financial measures in our earnings release, posted on the Investor Relations section of our corporate website at www.bobevans.com and filed with the Securities and Exchange Commission on Form 8-K.

And now, here's Paul DeSantis with a review of the quarter's results and a look ahead at the remainder of fiscal 2014, as well as an early look at our expectations for fiscal 2015. Paul?

Paul F. DeSantis

Thanks, Scott, and good morning. I'd like to review the key components for our discussion today. We announced third quarter weather-impacted sales and profit performance; revised guidance for fiscal year 2014, primarily as a result of weather, and Bob Evans Farms' Foods' Sulphur Springs plant startup costs; the elimination of $10 million of carrying costs related to the divestiture of Mimi's Café; the anticipated completion of our $225 million stock repurchase plan. On February 24, we reaffirmed our quarterly dividend of $0.31 per share. We reported preliminary fiscal year 2015 guidance of $2.80 to $3 per diluted share, which we will fine-tune during our fourth quarter earnings release in June. We raised our long-term annual diluted EPS growth guidance range to 10% to 12%. We reaffirmed our 300- to 350-basis-point margin improvement by fiscal year 2018. And finally, we announced that our Board of Directors authorized up to $100 million of share repurchases for fiscal year 2015.

While there have been costs in the quarter related to bringing our newly expanded Sulphur Springs facility online, the continued severe winter weather and higher sow costs not completely offset by pricing, we remain confident in our ability to deliver significant profit growth beginning in fiscal 2015. As a result, we're issuing preliminary fiscal 2015 guidance of $2.80 to $3 per diluted share. The transformational activities we've invested in this year and last year and the absence of the other cost items are expected to help us deliver on next year's profit growth. As a reminder, during fiscal year 2014, we've been impacted by a number of cost items not expected to repeat in fiscal 2015.

For the third quarter of fiscal 2014, we reported non-GAAP EPS of $0.30 per diluted share. Compared to last year, our results were down by $0.26 per diluted share. There were 4 large items that drove the decrease, the effects of which we do not expect to continue into fiscal year 2015.

Severe winter weather was the primary driver of the decline versus last year. Approximately 60% of our restaurants are in our core Midwest markets that were particularly impacted by the severe winter weather. We estimated an impact from this of approximately $6 million, or $0.18 per diluted share, in the quarter and a same-store sales impact of approximately 3 percentage points. Recall, not only are sales and the related profitability lost, we experienced additional labor inefficiencies, food waste, cost for snow removal and, this year, due to the extreme cold, the additional costs for maintenance issues such as frozen pipes, water heater replacement and HVAC.

The dispute with a certain BEF Foods supplier continued through December. We estimate lost profitability of approximately $2.5 million, or $0.08 per diluted share. The primary driver of the lost profitability has been the sales effect, as we shorted customer orders due to lack of capacity. As a result, side dish volume declined by 9% as we were unable to ship those customers' orders. The lost sales effect of this dispute are now behind us, as we ramped up capacity at our Lima, Ohio production facility. Now we have work to do to regain the confidence of our customers. We've developed a plan that we expect will meet projected demand during next year's peak season without significant additional capital.

Sales are progressing favorably. During the month of February, we recorded a sales increase in BEF Foods of approximately 9%. Also contributing to the shortfall to last year is a slower-than-expected startup at our Sulphur Springs facility expansion. When we announced the closure of both our Springfield and Bidwell, Ohio facilities, we consolidated all production volume from Bidwell and Springfield to our newly expanded Sulphur Springs facility. We reconfigured the production processes to support the volume coming from those 2 plants. The startup complexity was higher than anticipated, resulting in higher waste and labor costs in the quarter. As a result, this quarter, costs to produce products were approximately $2.1 million, or $0.07 per diluted share, higher than last year. January production costs were exceptionally high and we're making progress in bringing those costs back into line with the expectation of improvement through the fourth quarter. And by next fiscal year, we expect to realize the full plant consolidation benefits anticipated.

High sow costs also had an impact on the quarter compared to last year. Sow costs were $4.5 million unfavorable, but our net pricing was up approximately $3.9 million as we reduced trade spending by $3.2 million and increased prices by $700,000. As a result, we were able to reduce the impact of the sow cost increases to $600,000, or approximately $0.02 per diluted share. Our net pricing levels are anticipated to offset expected sow costs in fiscal 2015, and we're prepared to continue to adjust our net pricing accordingly.

Legal and professional spending increased by $1.7 million due to costs responding to shareholder activism and strengthening the company's internal processes and controls over financial reporting, offset by a $1.6 million decline in performance-based compensation. Compared to our January guidance, incremental severe winter weather and higher-than-expected startup inefficiencies at Sulphur Springs contributed approximately $0.11 per diluted share in EPS shortfall. The sustained and severe winter weather and the Sulphur Springs startup inefficiencies continue into the fourth quarter.

Same-store sales in February were negative 6.7%, with an estimated weather effect of approximately 9%. And we are tempering our March and April same-store sales expectations to be in the minus 2% to 3% range in March due to continued sustained and severe winter weather and plus 1% in April, down from the 2% to -- plus 2% to plus 3% range we had been expecting originally for the entire fourth quarter.

Additionally, we expect startup inefficiencies to moderate but still be $1.5 million to $2 million unfavorable to last year through the end of the fiscal year in April. In the fourth quarter of fiscal 2014, there will also be approximately $1 million of severance costs in our non-GAAP results, reflecting the reduction of personnel actions taken yesterday.

Depreciation is expected at the higher end of our $75 million to $80 million range, but taxes are expected to be in the 26% to 27% range, reflecting the effect of our fixed tax benefits when expressed as a percentage of our reduced pretax earnings. As a result, our adjusted fiscal 2014 guidance is now $1.60 to $1.75 per diluted share to reflect these items and the third quarter results.

With regard to our share repurchase, during the quarter, we repurchased 783,000 shares, for a total of $38.6 million. Through the month of February, we repurchased an additional 994,000 shares, for a total of $48.7 million. We're on track to repurchase the entire $225 million authorization by the end of fiscal 2014.

We've taken steps to ensure we deliver our commitments for fiscal year 2015. Our margin innovation activities are running at full speed, and we're targeting virtually every line of our P&L for continued reductions. The year will be focused on tight execution against our growth drivers and our existing cost control initiatives.

We also announced yesterday that we're eliminating a number of headquarters positions, which we expect to close the remaining gap on the $10 million cost overhang left over from the Mimi's divestiture. As a result of our investment and the absence of certain other items impacting us this year, as detailed earlier, we have the confidence to issue fiscal 2015 guidance of $2.80 to $3 per diluted share.

For the Bob Evans Restaurants business, we estimate between $0.40 and $0.45 per share of benefit next year related to the end of the Farm Fresh Refresh investments, which are expected to be approximately $6.8 million this year. The program addressed deferred maintenance issues, the addition of the bakery sales layer and the expansion of our ability to support carryout and catering.

A $9 million to $10 million profit impact of sustained and severe winter weather February, which we had expected to be one of our best months of the year turned out to be one of the worst due to the weather. Weather aside, we're confident our initiatives will continue to drive the underlying strength in our business. Results in our markets not affected by weather, such as restaurants in Florida, which grew same-store sales in the quarter by approximately 4.4%, indicate success in our refreshes and the sales programs. And lastly, the absence of approximately $2.5 million of additional costs in fiscal 2014 related to the implementation of our new workforce management initiatives. These benefits will be partially offset by incremental depreciation and an expectation for more normal winter weather next year.

In the BEF Foods business, we estimate between $0.55 and $0.60 per share of benefit next year related to the following items: the plant network consolidation, which took place this year, in which we reduced our plant network from 8 plants to 4, including the sale of our California plant that had been supporting Mimi's Café; and the closure of our Richardson, Texas, Bidwell, Ohio and Springfield, Ohio facilities. We expanded both the Lima, Ohio and Sulphur Springs, Texas facilities. These closures and efficiency improvements are expected to result in an incremental $6 million to $7 million of savings next year. The Sulphur Springs, Texas facility is improving and, as a result, we expect the startup inefficiencies of $4 million to $5 million experienced during fiscal 2014 to be eliminated as well.

We increased sausage prices to offset sow cost inflation. This year, through the end of the third quarter, sow costs were unfavorable by almost $16 million. As I mentioned earlier, we're beginning to see the effects of our price increase and trade spend reduction. We expect incremental profitability to result next year as pricing stabilizes. And lastly, in December, the product shortages resulting from the dispute with a certain side dish supplier ended. The dispute cost us approximately $2.5 million in the quarter and $4 million for the entire year, driven primarily by order shortages.

Additionally, we expect the accretive effect of the share repurchases on fiscal 2015 earnings per share to be in the $0.35 to $0.40 per share range. Offsetting these benefits is an expected net cost of approximately $0.55 to $0.60 per share related to increased interest expense, increased investments in the ERP project and higher taxes resulting from a more traditional tax rate. We'll provide more detailed fiscal year 2015 guidance next quarter. With that, I'll turn the call over to Steve. Thank you.

Steven A. Davis

Thanks, Paul. Good morning, everyone. As Paul noted, fiscal third quarter performance at both Bob Evans Restaurants and Bob Evans Farms Foods was adversely impacted by several sales and cost challenges. However, these issues obscured a number of positive developments within both business segments that I will discuss this morning.

These developments, along with completion of multi-year transformational capital investment programs during fiscal year 2014 at Bob Evans Restaurants and Bob Evans Farms Foods provide us with the confidence to: one, announce a newly authorized share repurchase program of up to $100 million for fiscal year 2015; number two, increase our long-term annual diluted EPS growth guidance range to 10% to 12%; and, three, introduce a preliminary fiscal year 2015 diluted EPS guidance range of $2.80 to $3.

While we certainly would have welcomed a milder winter, making our newly remodeled restaurants across our core Midwest markets more accessible to guests, Mother Nature had other ideas. An unusually high number of weekend snow event and multi-day subzero cold snaps took a toll on Midwest sales performance. More than 60% of our restaurants are located in this region, a higher concentration than any of our major competitors.

Nonetheless, our new Thanksgiving strategy helped drive positive weather-adjusted same-store sales for the quarter, and we plan to further capitalize on Thanksgiving next year based on the knowledge gained from our first experience with system-wide operations during this year's holidays.

Furthermore, strong fiscal third quarter same-store sales gains of plus 4.4% in the nonweather-impacted Florida market, where we operate 40 restaurants, demonstrates the combined power of the Farm Fresh Refresh program and our new value-oriented sales layers such as the $7.99 knife-and-fork offering and the more established 3-course dinner platform, which continues to drive sales growth. Shortly, I will discuss the insights we gained from third quarter performance at Bob Evans Restaurants. I will also introduce our new restaurant marketing leadership team and the evolving strategies they are crafting to further capitalize on the power of a tiered pricing model to appeal to what has become a bifurcated guest base.

We have opportunities to more effectively address growth opportunities for on- and off-premise, with 2 distinct guest segments who have unique value expectations. This approach entails an integrated marketing strategy that supports strategic tiered pricing across all dayparts.

The Bob Evans Farms food supplier dispute that Paul referenced earlier resulted in a supply disruption of some of our key refrigerated side dish products, causing us to accelerate expansion projects at our Lima facility sooner than expected, thereby stretching management resources and creating greater inefficiencies than expected at our newly expanded ready-to-eat plant located in Sulphur Springs, Texas.

Bob Evans Farms Foods plant network optimization project entailed the closure of our Bidwell and Springfield, Ohio plants, with the associated volumes transferred to the Sulphur Springs plant; and the closure of our Richardson, Texas fresh sausage plant with volume transferred to our more efficient and geographically advantaged fresh sausage plants in Xenia, Ohio and Hillsdale, Michigan.

Also, part of the plant optimization initiative was the recent expansion of our Lima, Ohio refrigerated side dish plant that we expect to further optimize as we continue applying lean manufacturing principles to that facility, which we acquired approximately 18 months ago.

The slower-than-expected production startup at Sulphur Springs dampened Bob Evans Farms Foods' third quarter performance. Nonetheless, our teams worked hard to address issues and challenges as they arose, prioritizing production over short-term cost implications in order to meet as many customer orders as possible. We fully expect Sulphur Springs startup issues to moderate during the fourth quarter and to be fully operating at planned efficiencies during fiscal 2015.

As we state in our most recent investor presentation, we expect these plant optimization initiatives to deliver an estimated 250 basis points of operating margin improvement.

Now some further insight into our performance and strategy at Bob Evans Restaurants. At Bob Evans Restaurants, third quarter results were obviously impacted by severe winter weather. As Paul noted, there were significant adverse impact to top line sales as well as cost of sales, cost of labor and direct operating expenses. However, I will focus my comments on the trends that were obscured by the weather impact and link them to the tactics and strategies we are implementing to drive sustainable positive same-store sales and earnings growth at Bob Evans Restaurants.

As you recall from last quarter, we noted Bob Evans Restaurants will pursue a 2-pronged marketing approach. Externally, we are increasing focus on new product news and integral price points at each daypart. This is augmented by an in-restaurant marketing highlighting our widening array of add-on opportunities and premium offerings.

We believe the Florida market, which generated same-store sales of 4.4% during the third quarter, shows the potential of this strategy combined with the impact of our Farm Fresh Refresh remodels when sales are not impeded by severe winter weather. We view our strategy as an opportunity to build guest traffic in trial with our external messaging while leveraging that effect with compelling point-of-sale marketing, featuring add-on and upsell opportunities within the 4 walls of our restaurants. As I now review each daypart, I will highlight these key drivers that generated positive sales growth: Our Rise & Shine breakfast, our 3-course dinners and our $5 Soup-to-Go carryout platform.

At a breakfast, our barbell marketing strategy was anchored by the $6.99 Sweet & Stacked hotcakes as the value leader to complement our Rise & Shine and other premium-priced breakfast bundles. However, along with the $6.90 offer, our latest menu design features a prominent callout offering a $2 choose any breakfast meat upsell offer. Nearly 50% of those guests ordering a $6.99 Sweet & Stacked breakfast opted for the breakfast meat upgrade. Along with the beverage incident rate of over 90% at breakfast, this strategy has been accretive to the average breakfast guest check. Our Rise & Shine premium price breakfast bundle also performed very well during the third quarter, growing 11.5% compared to last year.

At lunch, the $7.99 Knife & Fork Sandwich platform has been successful and, interestingly, nearly 40% of our guests who order a Knife & Fork Sandwich meal opt for the $2 make-it-a-3-course-meal option. So at the low end of the pricing spectrum, this new platform offers guests more variety and has been mildly accretive to the lunch guest check. However, the dynamic becomes more interesting in that we analyze the impact of the $2 3-course upgrade. The $2 upgrade option has been accretive to our 3-course dinner platform as sales grew 9.5%, including the impact of Knife & Fork sales relative to last year's third quarter. Excluding 3-course Knife & Fork sales, the 3-course dinner platform still grew at 3.6% compared to last year's third quarter.

The $7.99 Knife & Fork platform has been accretive from a margin perspective as well, as guests ordering the $7.99 Knife & Fork Sandwich generated essentially the same dollar margin as guests ordering a 3-course meal. And when the $2 make-it-a-3-course option is chosen, it is margin accretive relative to other 3-course offerings. Furthermore, guests who ordered a $2 upgrade are also more likely to order a beverage, further enhancing the guest check and significantly improving margin.

The $7.99 Knife & Fork platform is yet another example of our barbell strategy at work. A certain portion of guests who pass on the $2 upsells are clearly attracted to the low price points and are less likely to add a beverage as they are managing check. Alternatively, those guests who opt for the $2 3-course upsell are likely to see the value of the bundled price point and may still complement their larger meal with a beverage. We welcome and we'll continue to actively market to price-sensitive guest as well as guests who define value as more food for their money.

Throughout our dayparts, our barbell strategy drives sales and margins with lower-price offerings, enabling us to compete more effectively with quick service and fast casual for those guests who have smaller appetites and/or smaller budgets. Likewise, the tiered approach is an effective positioning, particularly at dinner, against casual dining competitors and has a real appeal with those guests who have more discretionary income and are looking to treat themselves with a larger meal.

At dinner, as with lunch, the $7.99 Knife & Fork offering is working synergistically with the 3-course dinner platform as we broaden our approach to pricing 3-course dinners. Our third quarter menu offered 3-course dinners at up to 3 different price points: $9.99, $10.99 and $11.99.

Early in December, along with the recipe enhancement, we increased the price of our steak offering to $10.99 from $9.99, and the mix of steak dinners within the 3-course platform declined only slightly to 33% of mix from 35% of mix, while the entire category continued to grow.

In January, we added new fish offerings to the 3-course platform, which resulted in a mix shift from our steak offerings. With average food costs approximately 10 percentage points lower than our steak offering, these fish dishes are significantly more attractive from a margin standpoint. We will continue experimenting with new offerings and price points within the 3-course platform to further enhance what has become a very successful sales driver at dinner, the day part that has historically been most challenged within our business in both the family dining and casual dining segments.

I'm pleased to report that despite the weather challenges of the third quarter, our off-premise business performed well, with a 3% increase in carry-out sales and a 17% increase in catering sales. Thanksgiving eve and Thanksgiving Day generated extraordinarily strong off-premise sales comprising a 50% of total sales during that 2-day period.

Our strongest carryout offer, $5 Soup-to-Go, grew more than 9% during the third quarter compared to last year, and the total $5 to go platform grew more than 20%, driven in part by the strong Thanksgiving demand for soups and side dishes.

Furthermore, even if we exclude Thanksgiving holiday sales, our off-premise business was up 1% relative to last year despite the weather challenges we experienced during the quarter.

Our marketing and operations teams are working hard to improve the off-premise guest experience, and these developments are an early sign we are gaining traction. As I indicated, our first experience with opening Bob Evans restaurants system wide from 7:00 a.m. in the morning to 2:00 p.m. on Thanksgiving Day was a key driver of our off-premise growth. It also generated additional dine-in revenue of approximately $1.3 million compared to last year. Overall, this year's Thanksgiving holiday period sales benefited by more than $2.2 million as a result of being open on Thanksgiving Day.

Furthermore, we had a small group of test restaurants that were open from 7:00 a.m. to 7:00 p.m. While we continue to evaluate our plans for next year, we believe there's an additional revenue opportunity of more than $2 million that we can capture next year through extending our hours beyond the 7:00 a.m. to 2:00 p.m. schedule based on our test markets. Additionally, we believe we have opportunities to increase next year's Thanksgiving profitability through improved labor scheduling, menu offerings and enhancements to our off-premise offerings to capitalize on the immense demand for carryout during the holidays. While our Mother's Day sales average approximately $5.3 million, Thanksgiving has the potential to supersede Mother's Day as our highest sales day of the year in fiscal 2015.

As I conclude my comments concerning Bob Evans Restaurants third quarter results, I would like to take a moment to highlight new restaurant marketing leadership that we recently put in place and note some changes we have made to our field operations leadership. In December, we hired Becky Johnson as Bob Evans Restaurant new Chief Marketing Officer. Becky was most recently Chief Marketing Officer at Applebee's and previously held the CMO title at Brinker International, as well as a variety of marketing, product and innovation roles with PepsiCo. Becky is tasked with filling our promotional pipeline and sales layers and positioning the Bob Evans brand effectively to drive consistent sustainable sales growth.

Additionally, in November, we hired John Fischer as Chief Concept Officer. John was most recently the Senior Vice President of Retail Merchandising and Restaurant Operations at the Pantry Incorporated, which owns and operates Kangaroo Express, the third-largest publicly traded convenience store chain in the U.S. Earlier in his career, John held a variety of roles at the Coca-Cola Company, most recently as Senior Vice President of marketing in the North American food service division, and he also worked at Colgate-Palmolive, where he gained significant consumer packaged goods experience both as a brand manager and in plant operations.

John is tasked with future growth, new concepts and the evolution of the Bob Evans brands and projects, such as Farm Fresh Refresh 2.0 and Bob Evans Express. John is also responsible for leading Bob Evans restaurant initiatives to drive off-premise sales to 25% of overall sales by fiscal year 2018.

We are excited by these recent additions to our leadership team. They are already making a difference, and we look forward to the impact these highly accomplished and talented individuals will have on Bob Evans Restaurant's growth trajectory.

From a field operations perspective, we are also making personnel changes to better align talent with the needs of the business. Effective this month, we are moving several operations leaders from our home office to lead portions of a redesigned field structure that reduces the span of control of each region from approximately 115 restaurants to 95 restaurants. These home office positions were formally tasked with planning and executing key transformational investments during the last several years, including the Farm Fresh Refresh remodel program, and the workforce management initiative. With these investments now in place, we believe it is important to move these resources from development to executional role in our field operations.

Furthermore, as we noted in our earnings release, Randy Hicks, President of Bob Evans Restaurants, has announced he will retire after an exemplary career that has spanned over 3 decades. Randy has graciously agreed to continue in his position for several months to facilitate transition to new leadership. A search process for Randy's replacement is currently under way.

Now, we'll turn to developments within the Bob Evans Farm Foods business. As Paul noted, Bob Evans Farms Foods third quarter results were adversely impacted by continued high sow costs, a slower and most costly than projected start-up cost accepted newly expanded Sulphur Springs plant, and reduced sales and increased expenses resulting from an ongoing supplier dispute that caused us to short holiday orders to key customers. The supplier dispute forced our hand in accelerating our plant expansions, which created greater inefficiencies in the startup process. We fully expect Sulphur Springs startup issues to moderate during the fourth quarter and to be operating at planned efficiencies during fiscal 2015. We continue to expect Bob Evans Farms Foods' recent plant expansions and closures to benefit Bob Evans Farms Foods' margins by at least 250 basis points in fiscal 2015. While we're disappointed, the Sulphur Springs startup was not as smooth as planned, our long-term strategy remains firmly in place. We view the recent expansions of our Sulphur Springs and Lima facilities, along with the closure of our Richardson fresh sausage plant, as key enablers of continued diversification away from products impacted by increasingly volatile and elevated sow costs. The Sulphur Springs and Lima expansions will reduce the likelihood of future supplier disputes, as Bob Evans Farms Foods continue to vertically integrate its core product lines.

As compelling as the margin improvements enabled by our plant optimization activities are, we are equally focused on the advantages the production capabilities these facilities will bring to our product innovation pipelines and our ability to better serve both the retail and food service channels. Without the capabilities these actions have brought to our manufacturing base, we will not be able to reach our long-term goals for increased points of distribution and SKUs per location.

Bob Evans Farms Foods is planning an evolution of its marketing strategy similar to the strategy adopted by the new marketing leadership at Bob Evans Restaurants. Bob Evans Farms Foods is moving away from a transaction-centric marketing bias to a more integrated approach that increasingly focuses on brand development and customer awareness, 2 key drivers as the segment focuses on our goal of 40,000 points of distribution by fiscal 2018, up from approximately 31,000 today, largely in regions where Bob Evans brand is not fully developed.

As similar to Bob Evans Restaurants, Bob Evans Farms Foods is realigning its talent as the investment phase of our transformational plant optimization projects come to an end. Effective this month, senior operational leadership will be reorganized to establish more direct lines of responsibility for plant level performance to specific individuals at the corporate level. This transition has entailed reassignments, as well as select reductions in personnel. As with our restaurant business, Bob Evans Farms Foods' resources must be realigned in order to reap the most expected returns from our recent significant capital investments.

Furthermore, as a result of the exploration of the transitional services agreement between Bob Evans Farms, Inc. and the buyer of Mimi's Café, a number of positions at our corporate headquarters have been eliminated. Adding to the $6 million to $7 million of other cost savings we previously identified, these actions, together with the realignment of both Bob Evans Restaurants and Bob Evans Farms Foods, we expect to close the gap to offset the $10 million of overhead costs formerly allocated to Mimi's Cafe. Subsequent to the divestiture of Mimi's Café, these carryover costs were charged to Bob Evans Restaurants and Bob Evans Farms Foods. In fiscal 2015, we will no longer be impacted by these costs. Our new enterprise resource planning system will aid the redesign structures of Bob Evans Farms Restaurants, Bob Evans Farms Foods and our corporate office.

As we have consistently noted, we are not rushing into a new ERP system. Our teams are progressing toward integration of our financials and food manufacturing systems by the end of fiscal 2015, with integration of Bob Evans Restaurants expected to begin in fiscal 2016. The ERP system will provide a readily accessible view into our plant level operations, a capability that we have not had in the past. Similar to our approach of reducing and reassigning staff in order to better focus on field execution, ERP will provide a level of restaurant and plant level information and accountability that will drive realization of the returns we expect from our transformational investments at Bob Evans Restaurants and Bob Evans Farms Foods.

As I conclude my prepared remarks this morning, I will note that despite the nearly $11 million impact of the challenges we encountered during the third quarter of fiscal 2014, which include severe winter weather, higher year-over-year sow costs, the Bob Evans Farms Foods supplier disruption, and startup inefficiencies at the Sulphur Springs plant, our confidence in and commitment to our long-term growth strategies are no way diminished. As I said earlier, it is this confidence that enables us to: one, announce a newly authorized share repurchase program of up to $100 million for fiscal year 2015; two, increase our long-term annual EPS growth guidance range from 8% to 12%, to 10% to 12%; and three, introduce a preliminary fiscal year 2015 diluted earnings per share growth guidance of $2.80 to $3.

The expected completion of Farm Fresh Refresh 1.0 this fiscal year increased new restaurant development to 8 to 10 new restaurants in fiscal 2015, the impending opening of the first Bob Evans Express in a mall environment, and realizing the growth enabled by Bob Evans Farms Foods plant optimization program are all crucial steps for achieving returns on what has been a historically high capital investment year at Bob Evans Farms Incorporated.

The critical investments have been made. The strategic course has been set and we now have the teams and processes in place to execute. As most recently evidenced by our announcement of a newly authorized share repurchase program of up to $100 million in fiscal year 2015, we are bullish on the promise of revitalized asset bases in both businesses, our rejuvenated marketing team at Bob Evans Restaurants and the potential for leveraging increasing vertically integrating production at Bob Evans Farm Foods to drive sales growth at new and existing points of distribution.

We expect a significantly enhanced ability to produce free cash flow as annual capital expenditures return to historical norms in the $85 million to $150 million range beginning in fiscal 2015. Enhanced free cash flow generation, along with meaningful share repurchases, and the steady dividend and earnings growth generated by 2 transformed businesses are what we believe continues to make Bob Evans Farms a compelling investment. And by executing up to $100 million of our newly authorized stock buyback program by the end of fiscal 2015, we expect to have returned nearly $900 million back to our investors since 2007.

With that, I thank you. We now welcome your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Brian Bittner from Oppenheimer.

Brian J. Bittner - Oppenheimer & Co. Inc., Research Division

I think we all appreciate the 2015 guidance, and I do think it's going to be a very exciting year for your company. But I think you need to help build our confidence around the accuracy of this projection, I think, given 2 things, given the fact that 2014 had to be lowered about $0.60 within a 6-week window, and just given -- you talked a long time about a lot of different things. So, why be so confident this far out that, that projection is going to prove accurate here?

Paul F. DeSantis

Sure, Brian. This is Paul. I'll start with that. So when we look at the key drivers that have been affecting the forecast, the biggest -- there are 2 very large drivers that are affecting that. The first one is the weather. The second one are the startup costs at Sulphur Springs, and those 2 items are big; they're meaningful. And so when we started to lay out our preliminary fiscal year '15, we started to look by component to understand what had affected us this year. And then, as you know, we had the items that we've been talking about all year long, such as the investments we made in workforce transformation, the investments that we made in the Farm Fresh Refresh. And so, as we laid all that out, we know that those aren't continuing next year. We know that this exceptionally bad weather is not going to continue next year. And so -- and we know that Sulphur Springs is on track for where we expect it to be. And so we started to take into consideration those components. We then looked at what's been happening with the foods business on a recent basis in terms of pricing offsetting the sow costs, and we started to get comfortable that we were headed in the right track on that. You certainly saw from the notes that we reduced both trade spending and increased pricing in the quarter. And so as we start to layer all that together, we get the confidence that says that we can deliver on the 2015 in the range that we're looking at. And so as a result of that, we felt comfortable to come out with that early range.

Steven A. Davis

And then, Brian, basically, a lot of the transformational work is going to be complete. So instead of remodeling restaurants, people will be focused 100% on driving sales and profit, and taking care of our guests. We'll go from 8 plants to 4, which is obviously a lot easier to run and do lean manufacturing, and then they're also going to be focused on filling orders. And, I think, Paul had mentioned in his part of the discussion that we're seeing some of the food product sales bounce back as we get our production under control, start filling orders. And then the one effect that we didn't talk about is that even though snow hurts the restaurant industry, it actually helps the grocery side of the business because at some point in time people have to eat, and we have started to see that reflected in our food products numbers. So that, along with all the things that Paul discussed, I think, is the main reason why we feel confident to come out with this guidance. And, we've pressure-checked a lot of the assumptions, and this is a kind of an unusual year for weather. And we also said we're just going to have higher sow costs in our estimates. Historically, we always bring in some of the forecast sow costs for us. What we're finding is a lot of the misses have to do with things that you can't forecast, like PED. I mean, who know -- who would have ever forecasted that? So we're just modeling high sow costs. I think our guidance at the beginning of the year was $55 to $60. I think at the time, everybody thought that was overly conservative. It turned out to be overly aggressive, and we're just modeling high sow costs, and so that's built into our numbers.

Brian J. Bittner - Oppenheimer & Co. Inc., Research Division

Okay. For Florida, the comps there were obviously much better than the rest of the system. But is there anything that you can point out about that market that makes it structurally stronger than the rest of the asset base x weather? Are they much new stores? Or does any additional color you can give on the Florida market and why the sales outperformance is happening there would be really helpful.

Steven A. Davis

Actually, some of those restaurants are older, which was much to my surprise. We have 48 restaurants in Florida, and I believe we started opening restaurants in the '80s and '90s, so many of those restaurants were very old, and we put a new leader in place. And like you said, weather didn't seem to be an impact. It was cold in northern Florida, but the rest of Florida has been holding up pretty nicely. So, I would attribute it to the fact that we have much older center entry restaurants, and we've gotten to the point where we do a good job of training people upfront. We've perfected the art of remarketing the restaurants after we reopen. And the teams now expect this, so that we're past a lot of the learning curve. So, I think, as we come into the final innings of the Farm Fresh Refresh, we hope to continue to see those trends continue.

Brian J. Bittner - Oppenheimer & Co. Inc., Research Division

Okay, and this is the last question. It's more a big-picture. Same question here, on your long-term outlook, you went from 8% to 12% to 10% to 12% earnings growth in the long-term. I guess the question is why such a tight range when, obviously, the volatility in the model is so intense and so large, we saw that this quarter. Why a 10% to 12% range?

Paul F. DeSantis

Yes, I think, Brian, what we wanted to do was we wanted to reflect our latest thinking in terms of where we expect to go. And so we wanted to reflect that next year is the execution year; next year is the year where we hit that $2.80 to $3 a share. And so -- and then that sets us up for continued and sustained growth over the next few years. We also wanted to reflect the fact that we have clearly articulated our 3x leverage. And so when we think about our EPS, we know that we're going to get some growth from the underlying business, and we also know that there will be a percent or so growth coming from accretion as we model that on a go-forward basis. And so the 8% on the bottom really was not reasonable as we looked at that. And so, we took the 8% up to 10%, as a result of all of those factors.

Operator

And our next question comes from the line of Will Slabaugh from Stephens.

Will Slabaugh - Stephens Inc., Research Division

I wanted to ask you a little bit more about weather. And to the extent that there have been enough normalized days, weather days, I guess for this to be applicable, can you talk about what you've seen from a sales perspective from those days where you haven't been severely impacted by weather in markets outside of Florida? Obviously, that one's performing quite strong, but just if that even makes sense for some of your core Midwestern markets?

Steven A. Davis

Well, unfortunately, this has been an interesting year from a weather perspective. I mean, usually we don't talk about weather in North Carolina and South Carolina and even, like I said, in Northern Florida. So we've seen weather impact. And if you've ever tracked -- I've never seen anybody name winter storms. But typically, these winter storms start east of the Mississippi, which is the beginning of our footprint, right there in Kansas, and have swept all across the Eastern seaboard and even down into the Southeast. And what we're also finding is ice is worse than -- obviously, worse than snow and cold weather because just this past weekend, there were ice storms and sleet, and we saw some pretty significant impacts even in the East Coast. So in my lifetime, I haven't seen a storm like this. I mean, you usually get snow or you get cold. You usually don't get both. And then throw in ice storms, that makes for a tough period. The other thing that a lot of people underestimate is we have a high preponderance of seniors coming to our restaurants. And when the weather drops way below 0 and you've got lots of snow, when I look in the restaurants, I'll see families and their kids, but I'm noticing an absence of a lot of our regular seniors who come on a regular basis. Paul, you want to talk specifically about the calculations in the numbers?

Paul F. DeSantis

Yes, so what we've been doing is we've been tracking storm by storm, named storm, and we've been looking at the results. As we've been going into the storm, we've been looking at markets that are impacted. That helps us understand the top line effect. But the other effects, the labor, the food waste, we look at trends as well going in and then coming out. Food waste is pretty easy because we measure that on a restaurant-by-restaurant, week-by-week basis. And then the other thing that's really affected us is all the maintenance associated with this. So back to the point that Steve talked about, the cold has a real impact on things like frozen pipes and the like. And it doesn't take very long for a few exploding pipes in restaurants to add up to significant cost, which we've had to reflect at the end of the quarter.

Will Slabaugh - Stephens Inc., Research Division

That's helpful. And then a quick question on the margin expansion plans and the 350 basis points over time. As we're seeing many factors contribute to this year coming in below where I know you'd hoped, what does that do for you in terms of work to get back to that 350 bps goal? And I'm assuming that cost cuts sent out last night likely weren't in your minds when you initially came up with that figure, so I'm just wondering if that essentially have that margin base deflated this year is going to make it that much more difficult to hit that goal of 350 basis points over time?

Paul F. DeSantis

I mean, we're -- we don't think so. The short answer is we don't think that's the case. So this year, we made a lot of investments this year. So Farm Fresh Refresh, that was an investment. The workforce management was an investment. Closing 3 plants and selling 1, and consolidating that into the remaining 4 plants, that's been a big investment, too. And so all of those investments have, to one extent or another, impacted us this year. We -- and then we've talked about the weather. So our expectation is that next year, we're back to more of a normal trend. Our margin innovation initiatives that we've been talking about are continuing. So as you well know, we're focused by business unit on the key line items and key activities that we need to drive this margin expansion over time. And so from our point of view, the goals we've set on a margin basis are top quartile margin goals. They're not unachievable. We have plans in place to get there. We've taken the actions that we think that put us on that path. We expect to see the results of that starting next year. And then we know that we have our ERP implementation, which then underpins the whole next series of activities that get us there. And so over time, we're confident we get to that 300 to 350 basis points of margin improvement, and we think we're going to take a big step in that direction by delivering on next year's plan.

Steven A. Davis

And the last time we did any type of plant consolidation with food products and also did lean manufacturing, we did see some margin improvement. So we based those calculations on our experience. And then recognize that snow not only impacts the top line, it impacts cost of labor, it impacts cost of sales, because a lot of times, you have 1-day shelf life on food. And then the other thing is like Paul had mentioned, the extreme cold led to situations with higher utilities. We have sprinkler systems that were frozen that would burst, and then we had some heating systems that went down. All of that is expense. So barring another cataclysmic winter like we had this year, we expect more normalized margins, better same-store sales, and then you'll start to see the margin enhancements coming through by the elimination of the -- or completion of the Farm Fresh Refresh program plus the fact that when you've got a network that goes from 8 to 4 locations, you'll see the improvement on the margins there. So we're still confident we can hit those margins.

Will Slabaugh - Stephens Inc., Research Division

Got you. One more big picture question, if I could. Looking at the free cash flow, you mentioned that CapEx number comes down quite a bit in the coming years as your remodels roll off. So in thinking about what you want to do with that free cash, obviously, this year and then you mentioned next year, obviously, that commitment to returning that to shareholders has been pretty strong. Should we think about, over time, as the CapEx does come down, that buyback is sort of the #1 thing you're going to think about there. Or are there other things that work into that equation?

Paul F. DeSantis

I mean, in barring any acquisition in the foods business or -- the buyback is exactly the key. And that's why we articulated this target 3x leverage ratio to try to be able to fit all the pieces together to say that as we get through making the investments we've made this year, as we get to a more normalized profit level, that we are going to stick to that 3x leverage, and the buyback is the key to keeping us in that range.

Operator

And our next question comes from the line of Stephen Anderson from Miller Tabak.

Stephen Anderson - Miller Tabak + Co., LLC, Research Division

Steve, a quick question about the PED virus. Just, I don't know if you have had any indications from the supply community regarding the extent of the virus and when you expect any kind of -- this virus to lift?

Steven A. Davis

We don't have real good insights. There was an article in the Columbus Dispatch, obviously, agriculture is huge in our state, on Saturday, February 15, and they were talking about some type of a vaccination. But your guess is probably as good as mine on this one. We obviously don't control any of this. What we do control is what we can assume our prices are going to be and then plan the business around that. So we don't have any additional insight on PED, but what we are doing is just planning on higher sow costs. And then if the sow costs come in lower, that will be favorability. But versus in the past, where maybe we would sit down with our prognosticators and they would give us a forecast for the year, we're just going to forecast high and then hope for the best, and also have some other things in our hip pocket like pricing and trade spending reductions in case we see a lift of $85, like we saw earlier last quarter.

Operator

And our next question comes from the line of Chris O'Cull from KeyBanc.

Christopher T. O'Cull - KeyBanc Capital Markets Inc., Research Division

Paul, what is the earnings contribution from a 1% change in same store sales for 2015? I'm just trying to get a -- I'm trying to understand how sensitive earnings are in '15 to changes in Bob Evans Restaurant comps?

Paul F. DeSantis

Sure. So if we say that we're roughly $1 billion in sales, then 1% is $10 million. And assuming between a 40% and 50% flow-through, you'd get $4 million to $5 million worth of impact just from same-store sales one way or the other.

Christopher T. O'Cull - KeyBanc Capital Markets Inc., Research Division

Okay, 40% to 50% flow-through. Okay, that's healthy. And then, Steve, did the Florida stores receive incremental advertising during the quarter to support remodels?

Steven A. Davis

Actually, none of our restaurants would ever receive incremental marketing. If they did get television, all we did was change the commercial and we had a specific commercial spot that highlighted that we had just remodeled our restaurants and come see our new bakery, come see our new carryout. So it's more of a brand spot as opposed to a product promotion spot. So it was a shift in the message versus any incremental media. So good question.

Christopher T. O'Cull - KeyBanc Capital Markets Inc., Research Division

Okay. And then just in terms of the BEF Foods, what are the risks that the side dish business is going to continue to see some sales declines the next few quarters given the shorting of some of the customers? And were there any relationships that could be permanently damaged there?

Steven A. Davis

I wouldn't say permanently. We've been very transparent with some of our challenges, how they came about. And we have very good relationships with many of our retailers. Some of our retailers, when we weren't able to supply side dishes, actually shifted their promotional emphasis to our sausage business, which is why our sausage came in so strong. And the fact that we did not take pricing in advance of the rising sow costs actually helped us out, and we think, in the long run, we'll be in a better price position on the shelf, which will help us continue to grow the sausage business. But the good news is we actually saw some good movement on some products that maybe customers hadn't tried before like our large sizes of macaroni and mashed potatoes, and the retailers saw that by carrying both of those items. They actually grew the category. This is not bragging. We are the category leader. We have the highest volume per point of ACV distribution. And our products promote well and provide margins better than raw meat, because most of our buyers are the meat buyers. So in their mind, this is a higher-margin item than the bulk of a lot of things that they do sell. So I'm not underestimating any damaged relationships, but our team has done a nice job of keeping the customer in the loop when we did have shortages. We're already starting to think about planning for next year. And the focus now is on getting our plants filling the orders, of which we have recovered on the side dish business, and promoting good relationships with our retailers.

Christopher T. O'Cull - KeyBanc Capital Markets Inc., Research Division

Should we assume, though, in the next few quarters, that we'll see declines in comparable pounds sold or revenues for that division?

Steven A. Davis

I think Paul had given February, and said we were up 9%. So if we're having serious problems, we wouldn't have been up 9% since that's 1/3 of our business.

Christopher T. O'Cull - KeyBanc Capital Markets Inc., Research Division

Okay, good. I missed that part. And then how quickly do you think you can adjust pricing for sow -- to mitigate sow prices? And also, what if sow prices were to fall dramatically, would you consider pulling back on prices?

Steven A. Davis

Well, what we typically do is we wouldn't adjust the shelf price. What we would do is increase the trade spending, because that's a lot easier to recover, and you'll see us doing a lot more of that. And you're right, when these things see-saw, our approach has always been to adjust our trade spending. Because at the end of the day, it's the net price that you're selling the product. But if you use the trade spending as your toggle switch, you can respond a lot more quickly than you can with a list price. And then when you do a list price, a lot of times, you got to price protect for 90 to 120 days and you don't see the impact versus if I lowered trade spending, that happens right away.

Christopher T. O'Cull - KeyBanc Capital Markets Inc., Research Division

Okay. And then just one modeling question, Paul. You guys have a unique -- obviously, unique business model with the BEF Foods. And in G&A, it looked like, I read in the Q or K, that you had distribution cost embedded in G&A expense for BEF Foods, and it was the first thing listed in that category. So I'm just trying to get a sense for how large your distribution costs are within G&A.

Paul F. DeSantis

Yes. No, that's a good question. We'll break that number out and disclose that on a go-forward basis so you can get a sense for what it is. Because in that -- in there is -- in that SG&A, it's not only in the foods business, it's not only that distribution, but there's also a marketing and media spending that's in there. In the restaurant business, that's in other operating income. So we've said that in our Ks, what we can do is start to break those expenses out for you on an ongoing basis so you can get a sense for what it is. The distribution cost is basically volume-driven. So as volume changes, the distribution will move up and down accordingly.

Operator

[Operator Instructions] Our next question comes from the line of Michael Gallo from CL King.

Michael W. Gallo - CL King & Associates, Inc., Research Division

A couple of questions. I was wondering, when you look at the weather impact, obviously, it gets a little hard to parse out given the number of days. But I was wondering on the take-out business, on the days that you didn't have weather, whether you saw greater take-out as people got prepared for storms. And also just the general trend, perhaps I missed it, in what you saw an overall take-out mix and percentage in the quarter.

Steven A. Davis

We did see our carryout sales go up as well as our catering. Catering is something that, say, for example, if somebody does a couple of thousand dollar catering order, we'll figure out a way to get the food over to the location and, typically, that happens during the day. In terms of what drove the carryout business is we talked a lot about Thanksgiving. When we originally planned to be open Thanksgiving Day, I don't think any of us realized that we'd still do 50% carryout, because typically the day before Thanksgiving, it's 50% carryout. And a lot of it's because we sell our Farmhouse Feast. What we discovered is that a lot of people still want to do carryout on Thanksgiving Day. And so next year, knowing that we're going to be at 50% carryout, we're going to staff for that. Our teams approached it, Thanksgiving Day, more like a Saturday or Sunday, which is more like a 85%, 15% mix of carryout to dine-in sales, so we forecasted wrong. We'll be in a better position next year because we'll actually have live data to operate from. And then the other thing is we expect that carryout to be continue to be strong on that particular day as we stay open until 7 o'clock.

Michael W. Gallo - CL King & Associates, Inc., Research Division

Okay, great. Question for Paul, just a follow-up. On the FY '15 guidance, appreciate all the detail. But I guess when I walk through the bridge of items and puts and takes you lay out there, I think it only comes to $2.35 to $2.60 in earnings. So is the rest just expected growth from the base business? Or is there something I'm missing there?

Paul F. DeSantis

No, that's exactly what it is. So what I laid out in those ranges were the large items that were really not expecting to reoccur in 2015. We still have an expectation that we're going to grow the business, so we talk about 8 to 10 new restaurants, we talk about same-store sales growth, in addition to the effect of the weather and the Farm Fresh Refresh closures. We talk about growth on the top line in the Foods business. And so I didn't count any of that in order to get there. That's basically the difference that gets you to the $2.80 to $3 a share.

Michael W. Gallo - CL King & Associates, Inc., Research Division

All right. Paul, what were the cash and total debt balance at the end of the quarter?

Paul F. DeSantis

I think the total debt balance was around $400 million. I think I said it in my script. Let me find that real quick. And then cash would've been pretty nominal. We keep the cash fairly low and just pay off our revolver if we're generating any cash. So we were at $373 million of debt at the end of the quarter.

Michael W. Gallo - CL King & Associates, Inc., Research Division

Okay. And then in terms of -- just final question. When I look at food products, the food service sales component of that looked like it was down about 20% in the quarter. I know that's been an area that has grown significantly over the last 2 or 3 years. I wonder if you can give us some color on what happened there and are there any specifics you can give there.

Paul F. DeSantis

Yes, on the food service side, there are a couple of effects going on there. So food service is where we're using to support the Bob Evans restaurant business. So when we talk about in-sourcing, you'll see it hit the food service side. Food service was also supporting the Mimi's business. And so after we sold the Mimi's business and then ended up selling and closing the facility that was out in California, that took a huge hit out of the food service business from a volume perspective, not necessarily from a profit perspective. So that those are the effects that you're seeing going through food service other than just the underlying business growth.

Michael W. Gallo - CL King & Associates, Inc., Research Division

So would you expect that, that will stay in that low-20s range going forward? Or -- I know it had been up as high as 30.

Paul F. DeSantis

Yes, food service is -- it'll depend on where our capacity is and what's happening with the retail business. So we use food service to help us absorb cost in the facilities. And so to the extent that we can grow the retail business, then the food service business would play a lesser role.

Operator

And our next question comes from the line of Mike Lemke from Imperial Capital.

Michael Lemke

The first one is your fiscal 2015 CapEx guidance span seems to have widened out from 95 to 105, to 85 to 115, versus -- or since the last call. Can you just explain, I guess, what's causing the clarity to -- or what's causing that change? And then the second question was just how you -- or if you could just refresh us on how you think about when's the right time to start terming out some of your debt?

Paul F. DeSantis

Sure. So both good questions. So on the capital, we're -- as we look at what's happening, we're trying to refine what we will be spending capital on for next year. So we're looking at the new restaurant development we'll be doing, we're looking at marketing initiatives, and we have a lot of irons in the fire right now. So back to the earlier question about what we're doing to drive growth, we think we have a lot of opportunities to drive growth. Some of that may require capital. We're also trying to refine the maintenance capital requirements for our facilities. So we've closed a number of facilities. We've done some consolidation. And since we're a quarter out from when we normally give guidance, we thought it would be prudent to put a bigger range in and then refine that as we get closer to the fiscal year. So that's why we've done what we've done. Does that answer the question?

Michael Lemke

Yes, it does. And I guess, just on the how you think about terming out the debt?

Paul F. DeSantis

Yes, that's a good question as well. So we're looking at -- we're in -- we're studying that to see what the best alternative is for us, what an appropriate mix is of term versus variable debt. And we're -- this is our first year that we've had a full set of revolver debt. Historically, we would've been both. Not only have we been low debt, we've been 100% fixed because the debt that we did have was all private placements. So this year, we've been almost 100% on the revolver, which is all variable. And I think what we'll do is as the year starts to progress, we'll think about where we ultimately want to be in that mix and then go from there.

Operator

And the next question comes of Michael Halen from Sidoti & Company.

Michael Halen - Sidoti & Company, LLC

The personnel reductions in BEF don't come as a surprise. But can you speak about where you can cut labor in the restaurants without negatively impacting the customer experience?

Paul F. DeSantis

Yes. That's when -- one of the things that we did this year was we put into place a whole new workforce management process. And the part of that workforce management process is a whole new labor scheduling system. And what we're doing with that labor scheduling system is working really closely with our market research group to study guest and consumer response. We're looking at where we can take hours out of the restaurants that don't impact the guests. And so if you think through a lot of the shoulder periods between peak periods, if you have people in the restaurant during those times and they're not actually helping and supporting guests, that's an opportunity for us. And so as we've started to roll this model out, because all the restaurants have been on it now for some time, we're starting to look at how we can tweak that in order to take those hours out without affecting the guest experience. And so that's where we are right now.

Steven A. Davis

And essentially, this new labor model, it's really not so much a model. It's helping our guys forecast and separate the differentiation between the hours that we need for dine-in and the hours that we need for carryout. And historically, I think we had always been a little bit short on that as the carryout business has grown. So one of the opportunities for better labor management is just better alignment of dine-in labor to dine-in sales and carryout labor to carryout sales. So part of this labor model is teaching the restaurant general managers how to better forecast the business, and we provide them a model to forecast the business. And what they are allowed to do is go in and adjust it based on their knowledge of events that are going to be taking place, or things that the model can't capture, like a parade or like Halloween or some other event, where there may be something different in their trade area or in their particular restaurant that the rest of the system doesn't see.

Operator

And our final question for today comes from the line of Stephen Anderson from Miller Tabak.

Stephen Anderson - Miller Tabak + Co., LLC, Research Division

Just a final question from before with regard to the potential of the -- for headquarters reductions in labor. Have you -- is there a dollar figure for that?

Paul F. DeSantis

Yes. We haven't announced a dollar figure. What we've done and what we've said is that rounds us out to get us to our overall reduction of the Mimi's carryover cost. So we had talked about the carryover cost being about $10 million, and this was the last step in us being able to offset that cost.

Operator

And that concludes our question-and-answer session for today. I would like to turn the conference back to Steve Davis for any closing comments.

Steven A. Davis

Yes, thank you very much. And as always, we welcome comments and feedback from all current and prospective shareholders. And also as a reminder, our updated investor presentation is available on our website and as we have filed on the SEC's website. It reflects the current conversations that we've had with you as our investors concerning our perspectives on creating shareholder value through our long-term growth strategies and our strategic balanced approach to capital allocation. So if we don't hear from you in the meantime, we look forward to sharing our fourth quarter results and a more detailed look at fiscal 2015 guidance with you in June. Thank you, and have a great day.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This does complete the program and you may now disconnect. Everyone, have a good day.

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