Bob Evans Farms' (BOBE) CEO Steve Davis on Q4 2014 Results - Earnings Call Transcript

| About: Bob Evans (BOBE)

Bob Evans Farms, Inc. (NASDAQ:BOBE)

Q4 2014 Earnings Conference Call

July 09, 2014 10:00 AM ET


Scott Taggart - VP of IR

Mark Hood - CFO

Steve Davis - Chairman and CEO


Brian Bittner - Oppenheimer

Chris O'Cull - KeyBanc

Steve Anderson - Miller Tabak

Michael Lemke - Imperial Capital

Steve Loukas - Frontfour Capital

Michael Rome - Seaview Capital


Good day, ladies and gentlemen and welcome to the Bob Evans Farms 2014 Fourth Quarter Conference Call. At this time all participants are in a listen-only model. Later we will conduct a question-and-answer session and instructions will be given at that time. Please note today’s conference is being recorded. I will now hand the conference over to Mr. Scott Taggart, Vice President, Investor Relations. Sir, please go ahead.

Scott 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' fourth quarter fiscal 2014 conference call. With me this morning are Steve Davis, our Chairman and Chief Executive Officer and Mark Hood, our Chief Financial Officer. Our call today begins with summary of our performance from Mark, and then Steve will discuss 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 and filed with the Securities and Exchange Commission on Form 8-K.

And now, here's Mark Hood with the review of last year’s results and a look ahead at fiscal 2015. Mark?

Mark Hood

Thanks, Scott and good morning everyone. I am excited to take on my new responsibility at Bob Evans Farms as Company transitions from an investment phase to executing on growth initiatives with a strong brand and revitalized asset base in both segments. Our Company has the tools in place to drive stockholder value. We reported fourth quarter fiscal 2014 non-GAAP earnings per share from continue operations of $0.48 per diluted share. Compared to our last year, our results were down by $0.21 per diluted share. There were three large items that drove the decrease, the effects of which we do not except to continue into fiscal 2015.

First, our core Midwest markets experienced severe winter weather that continued into February and March. Winter weather especially impacted high volume weekends as the storm swept from west to east across our footprint. We estimate this impacted results by approximately 7.6 million and had a same-store sales impact of approximately 340 basis points. Recall, not only our sales and related profitability lost, we also experienced additional labor inefficiencies, food waste, cost for snow removal and due to the extreme cold, the additional cost for maintenance issues relating to prolonged freezing temperatures.

Second, also contributing to the shortfall was a slower than expected start-up at our expanded Sulphur Springs facility. Following plant closures at Springfield and Bidwell, Ohio, we consolidated all production volume to our newly expanded Sulphur Springs facility where we configured production processes to support the consolidated volume. The start-up complexity was higher than anticipated, resulting in higher waste and labor costs amounting to 2.8 million.

Third, higher sausage material cost including 6.6 million of sow and trim costs, lowered results, although we increased net pricing by approximately 3.5 million by reducing trade spending by 1.6 million and increasing prices by 1.9 million, the net impact was still 3.1 million.

A fourth quarter item which will have 2015 carryover is higher legal and professional spending which increased by 3 million with 1.7 million related to cost associated with responses to an activist stockholder and 1.3 million for supplemental staff resources and strengthening the Company’s internal processes and controls over financial reporting. These costs were offset by 3.1 million of bonus and other performance related favorability as the Company results did not meet its performance based incentive targets.

Compared to our third quarter guidance, weather impacted EPS by $0.21. Higher sausage material cost net of pricing had a $0.09 impact. Higher than expected start-up inefficiencies at Sulphur Springs had an $0.08 impact and higher legal and professional spending had an $0.08 impact. Combined, these items decreased diluted EPS by approximately $0.46. This decrease was partially offset by performance based compensation savings of $0.09 and tax favorability of $0.28 per share.

I want to address the delay in releasing fourth quarter fiscal 2014 results. Delaying in earnings in an SEC filing is an action that was not taken wisely. However given the additional review and assessment tasks resulting from ongoing remediation of material weaknesses and the Company’s internal controls related to deferred income tax and fixed asset accounting, it was the right action to take to ensure the integrity of our financial reporting.

Beyond the inherent value of improved internal processes and controls our investments related to supplementing staff resources and strengthening the Company’s internal processes and controls over financial reporting yielded quantifiable benefits as we realized 5.7 million of tax benefits, 3 million of which is included in discontinued operations during the fourth quarter. And we expect to generate annual tax benefits beginning in fiscal 2015 of approximately 1.6 million related to a refined calculation of section 199 deductions for domestic production activities resulting from BEF Foods’ product sales. We also expect these investments to result in greater focus on execution of tax and business planning strategies in fiscal 2015 and beyond.

We ended fiscal year 2014 with non-GAAP diluted EPS from continuing our operations of $1.68 per share. Our fiscal 2014 capital expenditures totaled 191 million as we completed key transformation of projects at both Bob Evans Restaurants and BEF Foods. Depreciation of 79.5 million an increase of approximately 10 million compared to the prior year was in line with our expectations.

Fiscal 2014 marks the end of our major investment initiatives. During the fourth quarter we repurchased 2.2 million shares at a cost of approximately 111 million. During fiscal 2014 we repurchased 4.4 million shares for a cost of 225 million completing the full authorization. Additionally we paid a quarterly dividend of $0.31 per share on June 16, 2014 to stockholders of record at the close of business on June 2nd. Since 2007 we have returned more than 800 million to stockholders through share repurchases and dividends.

Now let me review the significant investments made in fiscal 2014. At Bob Evans Restaurants these include, the Farm Fresh Refresh program with approximately 51 million invested in fiscal 2014. Costs associated with this initiative negatively impacted operating income by approximately 7 million due to closed restaurant days and pre-opening and related expenses. Additionally we invested 2.5 million to implement a new workforce management process including a new labor scheduling system. This tool is an important element in delivering continuous improvement benefits to help us achieve our margin improvement objectives.

At BEF Foods’ we invested approximately $55 million as we closed and consolidated three manufacturing facilities into our Sulphur Springs Texas facility. Closed our fresh sausage plant in Richardson, Texas and expanded the operations of our Lima, Ohio plant. The inefficiencies associated with the start-up of the Sulphur Springs expansion cost approximately 6 million compared to the prior year. Since 2007 we have reduced our plant network from nine facilities to four facilities as we work to improve long-term profitability and increase our ability to meet demand for refrigerated side dish products internally.

Completion of these transformational investments in Bob Evans Restaurants and BEF Foods along with the expected plant efficiencies should yield approximately $20 million of savings during fiscal 2015 versus 2014.

In addition to the transformational investments we experienced a number of significant cost impacts in 2014. These include winter weather which adversely effected sales, labor, cost of sales and other operating expenses including utilities and facility repairs. We estimate the top line impact to be approximately 15 million and 13 million on the operating profit line. Extraordinarily high sausage material costs including sow and trim costs impacted operating results by more than 22 million.

Net pricing including reductions and trade spending are approximately 7.5 million partially offset the increases in input costs. Nearly 11 million of sales impact and an approximately 4 million of profit impact as a result of a supplier dispute that impacted BEF Foods. A key supplier informed us before the holiday season they would no longer supply side dishes to us. As a result, we had to cut customer orders and accelerate the installation of a third production line at our Lima, Ohio side dish manufacturing facility. Cumulatively these cost represented $1.30 per share diluted -- per diluted share headwind fiscal 2014. Partially offsetting these reductions where reductions and performance based incentive compensation as a result of performance to lower our required thresholds. Additionally we incurred 3 million of cost associated with activist stockholder responses in 2014 and such costs are expected to be 5.5 million in 2015.

Supplemental tax and internal audit staff resources and strengthening the Company’s internal processes and controls over financial reporting increased 2014 cost by 3 million and are expected to be 2 million in fiscal 2015. The key to success in fiscal 2015 will be successful execution against our key initiatives which includes the following.

For Bob Evans Restaurants an enhanced focus on marketing particularly TV and digital advertising highlighting new product news and entry level price points with a particular emphasis on driving dine-in and carryout performance at lunch and dinner; levering our newly refreshed asset base to drive dine-in, carryout and bakery sales; new product development including Broasted Chicken which Steve will address shortly. Taking advantage of our new labor management tools and processes to enhance the guest experience while controlling cost and opening up to eight new restaurants and licensing up to 10 new Bob Evans Express locations.

At BEF Foods, our key initiatives for fiscal 2015 are realizing higher margins on the sausage business as pricing actions are better aligned with higher sow cost, realizing benefits from the fiscal 2014 planned consolidation projects, increasing sales of side dishes, recapturing the sales loss from the supply disruption from a former supplier particularly in the key holiday period and increasing both store count and average use per point of distribution.

Turning to our fiscal 2015 outlook, we have tempered our expectations for the year. For fiscal 2015, we issued revised guidance of $1.90 to $2.20 per diluted share and provided Q1 guidance along with key performance drivers within yesterday’s release. We did this due to the unique factors and their timing that impacted 2014 performance. The sow market remains at relative high price levels and recent trade reports as well as the popular press reiterate the unfortunate fact that the PED virus is far from resolved. As such our expectation for $85 per hundredweight sows in fiscal 2015 is prudent versus our previous $70 per hundredweight guidance and we are tailoring pricing and trade strategies accordingly.

The revised EPS guidance also incorporates a more cautious outlook on top line trends. From a performance perspective at Bob Evans Restaurants, we now expect same-store sales of 1.5% to 2.5% for the entire year. This is based upon the same-store sales of negative 2.5% to negative 3% during the first quarter, a flat to low single digit increase during the second quarter and high single digit increases during the second half of the year as we rollover the severe winter weather of 2014 and complete the rollout of Broasted Chicken to all of our restaurants. We expect fiscal year 2015 BER operating margin of 5.8% to 6.2% including the impact of commodity cost increases of 2% to 3%.

From a performance perspective, the BEF Foods expect revenue of $430 million to $440 million during fiscal 2015 and an operating margin of 7.5% to 9.5%. Sow costs are expected to average $85 per hundredweight for the full year trading at an $80 to $90 range. For 2015, our capital expenditure guidance is $85 million to $90 million in line with our historical average. Additionally, we estimate 2015 deprecation to range from $83 million to $87 million. We expect an EPS benefit of approximately $0.12, net of interest expense rising from our 2014 share repurchase activities and we anticipate the accretive effect of 2015 share repurchases on fiscal 2015 EPS to be offset by increased interest expense.

Offsetting these benefits is an expected net cost of approximately $1.42 per share driven largely by higher taxes resulting from a more traditional tax rate in the 30% to 31% range. This impacts cost by $0.92 per share.

Increased performance-based compensation would impact $0.23 per share, yet our performance threshold for payment are met. Increased interest expense at $0.19 per share and costs associated with the ERP project of $0.08 per share. The ERP project is designed to improve our financial controls, payroll and benefits, BEF Foods costing and enhanced supply chain management. Our cash balance and revolver borrowings at the end of fiscal 2014 were $7.8 million and $458.9 million respectively.

The company was in compliance with its debt covenants at the end of the year and our leverage ratio as defined in the credit agreement was 3.27. We have however, initiated discussions with the lenders under our credit facility to amend the facility to provide additional flexibility under the financial covenants.

With that, I will turn the call over to Steve.

Steve Davis

Thanks, Mark and good morning everyone. As outlined in our earnings release yesterday, fiscal 2014 financial at Bob Evans Farms, Inc. was adversely impacted by a number of issues, most notably, historically high sausage material cost, abnormally severe and sustained weather across the Midwest where we have the heaviest concentration of Bob Evans restaurants, a supplier dispute that restricted sales of Bob Evans Farms Foods’ high growth refrigerated side dish product line and also complicated the segment’s plant expansion projects. And finally costs associated with supplemental tax and internal audit staff resources, strengthening the company’s internal processes and controls of the financial recording as well as costs related to activist stockholder responses. These dollars should have been invested in building our two businesses.

Unfortunately, these were unforeseen expenses when we started the year. Several of these issues were outside the company’s control. However, with transformational investment programs at both Bob Evans Restaurants and Bob Evans Farms Food completed during 2014, our focus in fiscal 2015 is fully on what we can control, execution of our growth initiative. Prior to the Farm Fresh Refresh remodeling program at Bob Evans Restaurants and the plant network optimization initiatives at Bob Evans Farms Food, our company was challenged by an asset base insufficient to meet the needs of today’s restaurants guests and grocery customers. As a result, sales suffered as evidenced by remodeled restaurants consistently outperforming non-remodeled restaurants.

Today with a revitalized and restructured asset base in each of our business segments, we are positioned to deliver sales growth along with continuous opportunities for margin expansion. The positive impact of the Farm Fresh Refresh remodel program is borne out by recent research conducted by WD Partners and Nation’s Restaurant News in this year’s consumer pick survey. This year’s survey shows Bob Evans narrowing the gap between its ranking and the position of its nearest competitor in the areas of food quality, value, service, menu variety and atmosphere.

Not surprisingly in the wake of the completion of the remodel program, Bob Evans Restaurants took the top position in the cleanliness category. Nonetheless with our transformational investments behind us, we began fiscal 2015 in a strong position to deliver upon our growth story.

Although the battle for market share continues unabated in our industry segments, we have a renewed ability to compete vigorously. I will now take a few minutes to highlight key results and the actions we are taking at Bob Evans Restaurants and Bob Evans Farms Food to leverage our recent investments and drive results in fiscal 2015 and beyond.

Our dining business was down 4.5%, carryout was down nine tenth of a percent, while our catering platform achieved positive sales growth of 12.1%. By day part, both breakfast and lunch were down 4% and dinner typically our most challenged day part was down 5.9%. Off premise sales were 12.6% of total sales. Adjusting that number for bakery and $5 to go items were added to our dine-in orders, total off-premise sales were 13.2% of total sales. Going forward, we will utilize this adjusted measure of off-premise sales to provide greater insight in to our drive to grow off-premise sales.

Throughout the fourth quarter, the Bob Evans Restaurant teams worked to ramp up the Farm Fresh Refresh program, to finalize new media and menu innovation and to refine the Bob Evans Express concept to drive sales in fiscal 2015. As a result of these efforts, we expect to effectively leverage the Farm Fresh Refresh remodeled restaurants as well as our new restaurant designed to drive fiscal 2015 same store sales and net sales growth. Specifically, there are four growth initiatives the Bob Evans Restaurant team will execute: number one, the recently launched Get in on Something Good! ad campaign; number two, our new Broasted Chicken platform.

Currently in its first 31 restaurant test expansion in the Cincinnati, Ohio market with expansion to all 191 Ohio restaurants by Thanksgiving and chain-wide implementation by the end of fiscal 2015.

Third, the successful construction and opening of eight new Bob Evans Restaurants and fourth, the expansion of the Bob Evans Express by up to 10 new locations during fiscal 2015. The Get in on Something Good! Campaign launched during the first week of fiscal 2014. This all new integrated marketing campaign includes television commercials, radio spots, print media, in-restaurant materials and digital media.

Television commercials are currently airing in marketing covering approximately 60% of our restaurants. As we continue read results from the TV spend, we will determine if expansion of TV media is warranted through targeted cable spending in additional markets.

Our new Broasted Chicken platform anchored by a $7.99 entry price point and the $9.99 three-course dinner is a key element of our sales building plan and earliest results in Cincinnati are encouraging. Bob Evans Restaurants’ Broasted Chicken is a thoroughly marinated, ham-breaded, oven-crusted chicken that is in a different league than everyday fried chicken.

Broasted Chicken requires the use of a trademark preparation and cooking method that combines frying and pressure cooking processes to produce fresh never frozen chicken that is the perfect combination of juicy and crispy, something that few in the restaurant industry can offer. And our guests in Cincinnati are appreciating the difference Broasted Chicken makes.

Leading up to the mid February to mid-March phased roll out of Broasted Chicken, Cincinnati was underperforming the rest of the chain across all day-parts. However, following the completion of the roll out, the test restaurants outperforms the rest of the chain at both lunch and dinner.

Prior to the launch, the Cincinnati market was underperforming the rest of the chain by 440 basis points for the same store sales basis at lunch and 570 basis points at dinner. Subsequent to the product and media launch, Cincinnati is now outperforming the rest of the chain by a 150 basis points at lunch and 820 points at dinner for 240 basis points overall.

With the addition of media support five weeks after the completion of the rollout under the Company’s new Get in on Something Good! Campaign on April 17, the Cincinnati test markets swung to positive same-store sales at dinner. Furthermore, the sales of Broasted Chicken jumped from 6.6% to 11.6% of sales after the introduction of media support, mixing higher than our previous and long-time top-seller, the Rise & Shine Breakfast which mixes at approximately 7%.

As I noted earlier, the dinner day-part is the most challenged part of the day for Bob Evans Restaurants. With dinner contributing the positive same store sales in Cincinnati, we expect to further drive positive overall same store sales as we balance Broasted Chicken messaging with breakfast messaging in the media mix this summer.

The goal was to bolster dinner and overall same store sales performance and reestablished Bob Evans Restaurant as a top dinner destination. Currently dinner represents 30% of our sales mix. The Broasted platform is ideal for future expansion to other categories beyond chicken, as we develop guest awareness and operational experience.

Ultimately, the Broasted cooking process is ideally suited to other proteins as well as appetizer items. Furthermore, the Broasted platform is well positioned for carryout and catering. And we expect it to be a key component of our continued off premise sales growth. We expect to have the Broasted Chicken platform rolled out to all 191 Ohio restaurants by Thanksgiving and system-wide by the end of fiscal 2015.

From an operational execution perspective, Bob Evans Restaurant recently launched its own owning the evening initiative to bolster lunch and dinner dine-in and carryout performance from both a guest metric and same store sales perspective.

This program shifts restaurant general managers and region leaders' time in restaurants from breakfast shifts to lunch and dinner shift which will ensure senior restaurant level and region level management teams will be present in our restaurants during our most challenged day-parts to diagnose and resolve issues that are hampering the performance at these key day-parts. In light of the Broasted Chicken launch, it is critical for us to have a strong management presence at the lunch and dinner day-part.

From a carryout perspective we are bringing the same process to bear, as we are currently rolling out new carryout training and procedures to 90 restaurants with the plan to go system-wide by end of the year to continue driving off premise sales growth. This will also bolster our carryout capabilities as we roll out Broasted Chicken which is expected to be a highly popular off premise item.

Finally with the completion of the Farm Fresh Refresh program, Bob Evans Restaurant looks forward to a higher level of new restaurant development in fiscal 2015 with the opening of up to eight new restaurants in existing markets. Our real estate development strategy over the next few years will favor deeper penetration of existing markets. This strategy will effectively leverage our existing operations, managerial talent and supply chain infrastructure, as well as our marketing investments.

Turning now to Bob Evans Express, I am pleased to announce we are finalizing details with two airport and two mall locations and expect to provide further information regarding the locations in the near future. Furthermore, we are in early discussions with additional airports, as well as other venues and expect to license up to 10 Bob Evans Express units in fiscal 2015. Our objective is to gain additional experience and insight from the operation of the concept in different types of venues prior to executing a more aggressive rollout schedule. We continue to view Bob Evans Express, as a licensing opportunity with national potential. Bob Evans Express unit growth will be achieved through partnership with a variety of organizations, including our current partner AVI Foodsystems and other potential future partners who have successfully penetrated the non-traditional food service segment.

From a financial perspective, we estimate the capital expenditure requirement, for potential Bob Evans Express license fees, will range from approximately $100,000 for a small footprint location for the limited product line to more than $350,000 for a more complex high volume airport or retail location. Within that range are layouts for hospitals, manufacturing facilities, malls and other retail locations. We project annualized revenue of a $150,000 at the low traffic, small footprint Bob Evans Express locations, and up to 1.8 million for high-volume location.

Our Bob Evans Express unit have constructed at our first location at BMW manufacturing plant in Spartanburg, South Carolina would require a CapEx investment from the licensee fee of approximately $200,000 and generate annual revenue of approximately $700,000. The revenue streams from the Bob Evans Express location to Bob Evans Farms Inc. will flow from four primary sources. Each Bob Evans Express location and venue type will be unique, and therefore subject to a negotiation process which will impact economics of each licensing deal. The four revenue streams are a one-time licensing fee of up to $15,000, a royalty fee of up to 6% of gross sales, an ad fund of up to 4% of gross sales, and product in-source from Bob Evans Farms Food.

Now turning to Bob Evans Farms Food. Bob Evans Farms Food is focused on four key initiatives in fiscal 2015 which include; one, restoring refrigerated side dish sales to double-digit growth in the wake of last year’s major supplier dispute and resultant disruption in our ability to meet customer demand; number two, the expansion of points of retail distribution and more SKUs in our existing and future locations; third, realizing the benefits of the plant network optimization project that was completed in 2014; and fourth, realizing higher margins on the sausage business as our pricing and trade spending strategies catch up to what appears to be stabilization in sow cost pricing albeit at a much higher historical level.

Our refrigerated side dish business is recovering nicely from the challenges we experienced last year. Our largest customer has reauthorized us for side dish distribution in its entire chain ahead of the peak holiday season and we recently secured a new authorization for distribution in 1,300 stores beginning in early fall. We generally lead with refrigerated side dishes when we are marketing to new accounts and this latest win represents progress towards achievement of our objective to achieve 40,000 retail points of distribution by fiscal 2018.

As for sow cost growth of our refrigerated side dish business remains one of the best methods for hedging exposure to continue to high sow cost. With that said, we believe we have appropriate pricing in place for the current sow cost environment and will adjust if necessary throughout fiscal 2015. For the first quarter of fiscal 2015 we expect sow cost to average $88 to $90 per hundredweight.

In light of the softness in the fresh sausage category, our sausage strategy in fiscal 2015 will be straight forward. We will shift trade spending from funds initially earmarked for the marketing budget. It is critically important to maintain a relevant shelf price and the fastest way to impact shelf price is through strategic trade spending. Later this year, in line with our ongoing efforts to fully leverage the natural synergies between our business segments, Bob Evans Farms Food will adopt to Get in on Something Good! campaign on its packaging and in its marketing communication as will Bob Evans Express.

I conclude my remarks this morning noting the strategy for 2015 as straightforward. For the transformational investments behind us, Bob Evans Restaurants and Bob Evans Farms Foods are operating under the same mandate to leverage revitalized asset bases with topline growth and continued effective management of cost drivers, most importantly input and labor cost. As an enterprise we are committed to achieving returns on our recent investments by supporting those business segments with sustained strategic marketing spending throughout the year.

Marketing programs must drive the topline. We have processes in place to ensure we are earning appropriate returns on our marketing investments. Programs, earning, and acceptable return well receive ongoing support development while those failing to meet expectations will be quickly modified or terminated. Likewise we continue evaluating our cost structure to ensure it is appropriately structured for building our business.

We have subjected our strategy and operating plans to rigorous review on a regular basis including consultation with independent financial advisors, and we are confident we are on the right course. In the past two years we have added four new Independent Directors to our Board, one of the practices that contribute to our top corporate governance ranking from ISF.

Many of our investors have asked is there a way to settle to Mr. Sandell instead of engaging in a costly, divisive proxy contest. We believe we have done our part to address our investors' concern. As we discussed in further detail in the preliminary proxy statement that we filed with the FDC, the Board has consistently attempted to work with Mr. Sandell to reach a constructive resolution of this costly and divisive proxy contest. In January the board attempted to settle Mr. Sandell’s written consent solicitation offering by Mr. Sandell the opportunity to consult with us in the selection of new Independent Directors that we intended to add to the Board prior to the annual meeting. He declined that offer. In April after we had completed a customary several months long search process involving an independent third party Director search firm, we appointed three highly qualified Independent Directors to the Board; Kathleen Lane, Kevin Sheehan and Larry McWilliams. In April after Mr. Sandell announced his nominees, we publicly stated that we would carefully consider and evaluate his candidates. And immediately following the close of the period for stockholder nominations, we tried to do just that. Our lead independent Director attempted to arrange for a meeting between Mr. Sandell’s Director nominees and certain of our independent Directors in a good faith objective effort to consider their candidacies. Mr. Sandell somehow found that objectionable. In the wake of Mr. Sandell’s public comments only one of his purportedly independent candidate replied to this invitation and he did so solely to decline the opportunity to meet.

Notwithstanding Mr. Sandell’s inflammatory statements we continue to try to reach a negotiated resolution. In June we proposed that two of Mr. Sandell’s nominees be added to the Board and have them join the Finance Committee which will be charged with undertaking a full review of the Company’s strategy. However, Mr. Sandell rejected this offer stating that he would settle for less than the majority representation on the Board, his term, only if the Board without any further review committed to implementing Mr. Sandell’s full agenda including all of his financial proposals.

In addition Mr. Sandell demanded reimbursement of up to $2 million for his thoughts related to the proxy contest. Though the Board desired the resolution of this time consuming and costly contest, it expressly left the door open for productive conversation on all of Mr. Sandell’s settlement terms, and was not prepared to commit to adopt these proposals as a condition of settlement.

Following our public disclosure of our repeated attempts to settle, Mr. Sandell’s representative contacted our representative with a new purported settlement offer in which they finally withdrew their demand that the company adopt their entire agenda as a condition of settlement.

On the Wednesday before the 4th of July weekend, they gave us an exploding settlement offer that is one that would expire at the time that the company issued its fourth quarter results. This proposal would have required among other things that our Board add five Director nominees selected by Mr. Sandell in his full discretion and would have three Independent Directors who joined the Board prior to 2014 resign.

In addition, Mr. Sandell demanded that the Finance Committee consist solely of two Sandell nominees and two of the incumbent Directors added to the Board in April. You can do the math. But this means Mr. Sandell demanded that two thirds of the Board and the entire Finance Committee be comprised of either new Directors or Directors with only minimal recent experience with the company’s business operation strategy and our guests.

While we value dynamic and independent leadership and are not so captivated by our own ideas that we do not welcome fresh thinking, as we have shown by adding four new independent Directors in the last two years, we also think a certain amount of continuity on the Board and familiarity of the business is important to continue to deliver value to our stockholders.

Accordingly we do not believe that a turnover of two thirds of the Board in a span of less than three months as proposed by Mr. Sandell is in the best interest of all stockholders.

On July 3rd the next day after receiving Mr. Sandell’s proposal, the company proposed a settlement that would result in three of Mr. Sandell’s nominees being added to the Board. Under this proposal following the annual meeting, Mr. Sandell’s nominees would constitute one quarter of the Board and at that point only half of the Board including a majority of the independent directors would have been newly added to the Board this year insuring another fresh and independent review of Mr. Sandell’s proposal.

Additionally, as part of the settlement, our proposal included two Sandell nominees to the finance committee, replacing two of our retiring directors, resulting in a six person finance committee, half of which would have been new to the Board this year. Under our settlement proposal, the finance committee would then be charged with reviewing and making recommendations to the full Board with respect to Mr. Sandell’s proposals as well as other opportunities to enhance stockholder value and would have the ability to retain an additional independent investment bank to assist with any review.

As you probably saw on Monday, Mr. Sandell, rather than engage in a constructive dialogue in response to our proposal, chose to issue a press release which tellingly omitted the details of both our latest proposal as well as the details of their own proposal.

And so at this point, while we remain amenable to a resolution of the proxy contest that would include adding some number of the Mr. Sandell’s nominees to the Board and to a finance committee empowered to review Mr. Sandell’s proposals, we are unfortunately continuing down the road of a costly and distracting proxy contest. I do want to assure all of our stockholders that our Board remains open to pursuing a process that will avoid the distraction of a costly and divisive proxy contest. In closing as always, we welcome your questions on this call as well as in follow-up one-on-one meetings.

With that I thank you and we now welcome your questions.

Question-and-Answer Session


Thank you. (Operator Instructions). Our first question comes from the line of Brian Bittner from Oppenheimer.

Brian Bittner - Oppenheimer

One major concern that continues to linger I think is the fact that your earnings outlooks over the recent past have been massively reduced on a pretty consistent basis and it does look as though there are still some very optimistic assumptions in this freshened 2015 outlook and I just think we need to address some of those, particularly the same-store sales guidance first. Your same-store sales right now are running down in the low single-digits with arguably good weather in all the stores remodeled and I understand you have Broasted Chicken rolling into the base and what not. But why are we assuming an unprecedented high single-digit comp for your asset base for the second half of this year? It does seem like a stretch and I just wonder why put that pressure on your store base to achieve such a target and embed that into the earnings outlook?

Steve Davis

Well, let me just give you some of the pieces of the sales that will lead to the earnings. We talked about Broasted. So that’s rolling out by the end of this month. Our biggest sales markets are Ohio. So we’re concentrating the rollout there. The one thing that everybody needs to factor-in is that all of Ohio will be in Broasted Chicken by Thanksgiving. Additionally, Thanksgiving was only open till 2 o’clock of last year and just by staying open to 10 o’clock, that’s almost fourth-tenth of a percent in same-store sales for the entire system. The thing we didn’t do last year is we kind of soft rolled that Thanksgiving rollout. So basically we’re going to put on TV that we are open. I think a lot of our guests were pleasantly surprised. The sales that came in, came in at different points of the day. So we now have better sense on how to handle Thanksgiving.

When you look at weather and the impact on the business, not only do we have the disproportionate footprint, we also have a high preponderance of seniors. So if you take normalized weather, we will get our seniors back because when we did our study, we saw that we have lost lot of our core users during that timeframe. A lot of our core users are baby-boomers and seniors. But we are putting carryout TV and radio back on. That was probably a miss by the team last year. So part of our carryout growth was driven by TV. So you will us put TV against that as well as radio. Q1 was our best sales quarter. Q2 and Q3 and Q4 were our softest quarters. So that’s where we have the greatest opportunities.

And the other thing we shouldn’t underestimate is our teams have fewer things to launch. Last year we were doing all of our farm fresh refreshes, we were launching a labor initiative. So basically the focus for the team now is basically twofold, drive sales, drive profits and then get growth throughout the door. We are also discovering that less of a reliance on our BEMail, which when you do BOBE, that can be expensive. We have been doing more Valassis drops, which is FSIs, which we’re bringing new faces and new guests in. So you are going to see us shift our focus from BEMail to Valassis because we are seeing incremental. So, whenever we do a Valassis drop we’re seeing positive sales. And I don’t want to estimate our operation’s nighttime focus. Our guest loyalty index scores are dinner and a carryout and one of the things we said to the team is the only way we’re going to fix that is the shift when our restaurant managers are in the restaurant and when our above restaurant leaders are in the restaurant. We see a difference of about 10 points in guest loyalty index with carryout. So even though we’ve been growing carryout, it’s our lowest guest loyalty score. So by having that visibility of having some of our restaurant general managers and our area coaches in restaurants in the evening -- And this is not a program. This is something that’s going to go on in perpetuity. This is also going to better set us up for the Broasted launch. And let me tell you a little bit about the Broasted launch. We first launched this in four restaurants. We then expanded it to the 31 restaurants. We only put one Broaster in each location. We didn’t know how well it was going to do. Once we turn the TV on, we doubled the mix. All of a sudden we started running out of product. So we didn’t even pushed carryout, because we wanted to take care of the dining room.

We’re now in a position to better leverage that Broaster a little while because a, we know that the mix can go up to 12%; b, we know the times of the day when the product is going to hit; and then c, we’re going to have the operators in a much better position of readiness and that’s why we’re doing a phased rollout. We’re phasing the rollouts so the teams can get ready, get their carryout procedures in order, get their night time operations in place. And then my expectation is that we’ll do better than we did in Cincinnati, because Cincinnati we never dreamed that we see 12% mix. We did see 6% mix on advertise, but as long as I have been in this business, I have never seen product mix double like this. There’s only been a couple of products that I can think of in the 30 years that I have been with the business where I have this kind of a lift.

Brian Bittner - Oppenheimer

And I appreciate the Broasted Chicken rollout. I appreciate the comments about thanksgiving. But your sales, your same store sales are down in the first quarter with good weather, with the whole asset base. Refurbish so I guess the question than is why our same store sales down in the first quarter?

Steve Davis

Well part of it is, as I mentioned, when we looked at where our guest loyalty scores have been, our best guest loyalty scores are at breakfast and our breakfast sales through this quarter have been positive. And our TV message been on breakfast. But as I said to the team our biggest day part issue is dinner and if you think dinner, you get lunch right. So by shifting the focus for our TV as well as our print to more dinner and lunch, getting our night time operations against that, that’s where our biggest opportunity is. So our assumption is the work that we’ve done on breakfast will hold and we will start making traction on lunch and dinner. And that’s going to be the focus for the remainder of the year and then carryout. If you get dinner right, you got to get carryout right as well.

Brian Bittner - Oppenheimer

Okay. The earnings guidance that we have now does assume I think a lot of cost that I guess weren’t. And the guidance that you had initiated three months ago, why weren’t some of these costs in that original guidance and now it’s been put into guidance for instance, the $8 million of performance incentives, maybe you can talk about that. Just wondering why the guidance now includes some cost where three months ago it did not?

Mark Hood

Brian its Mark. Let me try and address that with my little bit of experience here. But again, I think the big factors in the reduction I think, just focus on would be sow costs driving more than $0.40 of the reduction. About $0.28 of that would be the lower top line estimate in terms of same store sales. The next largest item would be the activist shareholder costs, so about $0.16. About $0.08 related to ERP. That’s probably the real miss in our cost estimate in the original guidance when we went out earlier than normal. Normally I think the bonus aspect itself will end up -- when you zero out the bonus payment in 2014, which is performance based and then you plan for success in 2015 you have to on an accounting basis plan to accrue for that. So that’s what the cost add back there is. Obviously that will not be paid if we do not hit our incentive performance goals which are above the top end of the guidance range.

Brian Bittner - Oppenheimer

Okay. And then asking, was the performance incentive cost in the guidance prior or is that new to the guidance?

Mark Hood

That was in the guidance. But, I think we didn’t carry the presentation of the guidance number to the full extent. We did in preparation for this call.


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

Chris O'Cull - KeyBanc

Mark, I know you were recently hired, but can you help us understand what needs to happen and when you can expect to have internal financial reporting controls to a level that would allow the Company to make timely reports?

Mark Hood

Again, hopefully we’ve made our last untimely report. I think the team has worked very hard and had a lot of help, I’ll call it -- getting the remediation of our tax and fixed asset accounting from the past completed. I think the analysis would be if you hadn’t reconcile your checkbook for the last 10 years, it takes a while to do that and you find a lot of mistakes that you made along the way. So I think we’ve completed substantially the remediation effort as we speak today. What remains to be done is to the see the ongoing effective execution of that work and have sufficient testing to where the remedial material weaknesses can be declared remediated. So I have full expectation that we’ll timely report our results as we go forward.

Chris O'Cull - KeyBanc

Okay. Is the ERP implementation -- is the financial suite already implemented with the fixed asset accounting?

Mark Hood

It is not. We’re, I’m going to call it knee deep in going through having to identify it and mapping the processes and requirements from how they existed to how they need to be conformed to a state of the art financial system. And that is scheduled to go live early in 2015 or first quarter of 2016. One thing about ERP is making sure that these investments have immediate benefit. So obviously with the financial systems, that’s one place. The second that would be helpful is with our food costing systems for Bob Evans Farms Food. Then you get the natural benefits from human resources and payroll and we’ve had a lot of success with supply chain and getting savings but this will give us better system to do even more of that. So this is an investment that you’ll be hearing more about in terms of how it’s going to help us. But for years we’ve been dealing with manual systems and manual procedures and this will take some of the manual effort out, which takes away a lot of the manual mistakes.

Chris O'Cull - KeyBanc

Just moving on to the operations of business; the average check growth was less in the fourth quarter than it has been. Do you expect that check growth will be less in 2015 than it was in ’14? And will the Broasted Chicken boost the average check?

Steve Davis

I’ll answer the two questions separately. I think there was more of an aberration. There was a little bit more discounting going on in the fourth quarter. So that was driving some of that check decline. As we increase our carryout mix that’s going to drive check. We’re also selling more of the three course dinners. You and I have talked about this before. When you put pictures of things on the menu, it has a tendency to sell. For example; we just put a picture of country fried steak we already set in line item but now it’s the third highest selling item we have in the F grade food cost. So we’re learning a lot about menu management and stimulus in response as it relates to what guests will buy when they see the menu.

I expect the check to go up when we launched Broaster, we saw an increase in the number of three course dinners we were selling, because you combine fruit salad, three pieces of chicken and then dessert, that’s a pretty nice value. So we saw a lot of people take the $9.99 on that, have a drink, even probably do the calculation on the guest check. And we were holding back on pushing Broasted carryout, because we weren’t even able to take care of what was in the dining room. We didn’t know that we needed restaurants with more than one broaster. We just gave every restaurant one broaster and then launched a test. What we’re going to different going forward is now that we have the volumes, that we know how many prices of chicken are being sold per day, we will have some restaurants with two broasters. So you won’t have restaurants running out.

Our number one complaint on Broasted Chicken was out of stock. So that just goes to show you the power of what this can do for us if we get the operations right. So yes, we expect this to go up. And part of that will be driven by the three course dinner but the other part will be driven by selling probably more carryout Broasted dinners and that’s usually the -- we got the 10 meals under $20. There will be a Broasted 10 meal under $20.

Chris O'Cull - KeyBanc

And then I apologize, I may have missed this, but the media plan for ’15, is it going to be -- is media spend going to be up every quarter in ‘15? And can you help us understand maybe the magnitude and whether most of its going to TV or another medium?

Steve Davis

Yes there is still things going on. One is we hired some new folks in marketing, some of the expenses for reallocation and some other things. But what the team has done and the challenge we gave them was spend less on non-working media and spend more money on working media. So you’ll see about a $2 million shift in total media spend, and then you’ll see an incremental $1 million being spent on media. Now since we’re launching Broasted, most of that media expenditure will happen in Q2 and Q3, because Ohio is where most of our advertising dollars go anyway, because those are our biggest markets and our highest volume markets.

So as we go throughout the year, you’ll see us put more money in media. And as I mentioned earlier we’ll be shifting out of BEMail to more of Valassis, which is bringing in new faces and new users. That’s why we were seeing positive sales when we did the Valassis draw out.


Thank you. Our next question comes from the line of Steve Anderson from Miller Tabak.

Steve Anderson - Miller Tabak

I just wanted to go little bit deeper into the first quarter sales trend. You mentioned that you saw a little bit more of a discount on the frequent guests. Can you give a breakdown in terms of many mix shift of the cost decline resulting from that?

Steve Davis

Yes. Well like I said, our breakfast sales have been slightly positive. So we’re pleased to see that when we put the stacked hotcakes on television it turned the breakfast business around. But as you are well aware, that’s only a third of our business. So we shifted to TV recently to focus more on dinner, assuming we’re going to hold the line on our breakfast business. We talked about the shift in the discount strategy and then we’re starting to launch Broasted Chicken starting in Dayton and then going through the rest of the Ohio and that will be done by Thanksgiving. So good news; breakfast is trending the way we want it to; lunch and dinner are not. And then, the nighttime focus; making sure we got our operations great at night, because if we get that right, that’s our biggest hold in terms of same store sales. It’s also a third of the business. So you put all that together, we’re basically readying the organization for Broasted Chicken launch because we’ve got the operators focused on nighttime operations, we’ve got more of the marketing against dinner and now we’re going to have a new product launch.


Thank you. (Operator Instructions) Our next question comes from the line of Michael Lemke from Imperial Capital.

Michael Lemke - Imperial Capital

I just have two quick questions. One is on the BEF Foods sales targeted 16% to 18% growth, can you walk through how each of the key initiatives counts towards that? And then on CapEx, I was -- I guess been waiting for -- as the store refresh winds down, for CapEx to come down. Can you talk about like when you expect it to normalize to the levels like before you started the store refresh? Thank you.

Steve Davis

Sure. Let’s start with -- I'll let Mark start with CapEx because he’s been delving into that whole piece, but he can give you the CapEx walk.

Mark Hood

Yes, again CapEx, again obviously down significantly in 2015 versus 2014. We still have a couple of items that are different in there relative to I’ll call it the historical base and obviously the costs of implementing the ERP system is a driver of piece of that. That number is in the current years in the $14 million - $15 million range. We also have with eight new stores an element that we haven’t had in the historical and those -- and probably about a similar number and then obviously it would have got capital in there in the current year for the Broasted program.

Steve Davis

So, I’ll answer your first question, which is the walk on the food. If you go back last year, right before our key season we were alerted by our key suppliers that they were not going to be supplying us and it hit us in two places. One we’re in the middle of the product launch and then two we are right going into our peak season. Clearly that damaged our ability to fulfill all of our orders during that timeframe. We shorted a lot of customer orders. And we did have some cutback from our number customer. Since then we have met with number our customer as I said in the script. We’ve gotten all of our existing items back plus the more new items. We also picked up a whole new chain of 1300 stores on mashed potatoes. And so we’re basically getting back to the growth rate that we had before the supplier disruption kicked in.

Our peak season kicks in right around October, both on sausage but most importantly on side dishes. The other thing that’s not going to be taking place is once the supplier disruption kicked in, we had to accelerate doing line three. So in the middle of our most important part of the year, we were adding a new production line which created disruption and that’s why we were shorting orders.

But the good news is all of that is behind us. I can’t say a whole lot more about the supplier disruption because we are in litigation. I will say that we have repaired relationships with our number one customer. We will have our items back in. There was great consumer response to the absence of those products. So it shows the power of our business.

And then we also aren’t going to be behind the eight ball on sausage pricing because if you remember last year every quarter I think we guided the year at $55 to $60 and then I think by the end of the year we were guiding to $75 to $80. So in many respects we were always behind on sausage pricing. Now that it looks like this PED virus is going to be around for a while and we’re dealing with $80 to $90 sow cost, we won’t fall behind on our sausage pricing strategy. And then additionally, in the past we may have done coupons or maybe have done some digital marketing or some other things. Our issue right now in sausage is making sure we’re competitive at the shelf price level. So we’re going to shift dollars out of marketing into trade spending because we’ll move more volume with a two for six or two for seven sausage roll promotion than we will dropping an FSI and getting about 1% redemption on a coupon.


Thank you. Our next question comes from the line of Nikhil Gupta from Frontfour Capital.

Steve Loukas - Frontfour Capital

This is actually Steve Loukas. Just have a question -- I actually have two questions. Just going down a little bit further on the same-store sales trend, for the fourth quarter you put up a negative 4.1. You kind of have a weather adjusted number of down 70 basis points, so effectively pointing to roughly 3.5% weather impact. April was down 2.7% and obviously you’ve seen that negative trend continue into the first quarter. Help us just reconcile how you can kind of have a weather adjusted number of 70 basis points you have in April that’s down close to 3% and then we’re seeing the continuation of that trend into the first quarter?

Steve Davis

Well one of the things that happened at the end of the year is as we were incurring or seeing some of these expenses coming in, we did cut back on marketing spending. So one of the things that we are going to preserve and I said this in the script, there are lot of costs that we knew were coming that we had to absorb. So we wound up cutting some of our marketing spending. We finally got back on air probably in the middle of May with TV advertising. Spring is one of our big quarter. So one of the things we’re going to do better this year is better balance our market investments. We now have all of the costs that we think are going to hit us fully loaded into our guidance. And so we won’t be in a situation where we’re seeing expenses and then having to cut back on marketing. We did that both on food products and we also did it on the restaurant business as well.

So by putting all of the cost in trying to better understand what the full costs are going to be, the teams now have what they need to market the business. And as I mentioned earlier, yes this is going to be a hockey stick, but it’s going to be driven by a new product launch, a shift to a nighttime focus, shifting away from BEMail and going to Valassis and then just getting better operations to drive those marketing investments.

Steve Loukas - Frontfour Capital

Okay. And then just as a follow up question, in regards to BEF Foods, we’ve seen some big multiples paid for some packaged food businesses. What is your reaction to that? How do you think about this business, about whether its core, kind of what type of valuation do you become indifferent? And I guess I would just ask, how can you defend kind of continuing to spend management time on a business that -- you’re going to be challenged to grow the acquisition because of where multiples are. Yes, you still have some organic growth in front of you but we’ve got a real turnaround here in front of us on the restaurant side where we’ve had some serious challenges over the last number of quarters. I put that question to you?

Steve Davis

Yes, that’s fair question. So if you look at what some of our biggest challenges were on the food products business, it was historically high sow cost. Now clearly when you project your cost, you say this is where we are going to invest in the business in terms of marketing and the like and as those numbers kept running up, I mentioned earlier, we had to cut back on some of those marketing investments. We now have a firm grip of what we think sow costs are going to be.

We went into the year with an understanding with the food products that we were going to be in our supplier agreement until the end of January. That got pulled out from underneath us. We had to run and scramble. Once you start to put all that behind you, you take the transformational investments that we made in the food products business, which gives you a lower cost structure. We finally have a better sense for what sow costs are going to be. I mean hell, we had heard of a PED a year ago. Now we understand the full impact and it’s not a short term phenomena, it is a long-term phenomenon. And then we believe the startup costs related to having to scramble and launch a new product and try to figure out a way to supply our customers during our peak season, all of that is behind us. So a lot of the noise that we have in 2014 will be behind us.

In terms of commenting on any other the multiples that other business have gotten, I really don’t have an opinion on that. No one has ever come to us with an opportunity or an offer to buy the business. So I can’t tell you what that multiple looks like. What I can tell you is that we are committed to taking the transformational investments we’ve made in the food products business, continuing to grow it. We recently just received a large tax benefit as a result of the foods business because of the transfer between -- the sausage and the other products that are made for food products going to the restaurants. So we just think of $1 million benefit that we had -- didn't have in the past. Who knows, maybe there is more there. So between the brand synergies, the insourcing strategy and our desire to continue to grow the business and like you said, we are picking up more stores and more doors than our SKUs. We’re growing the business. So our plan now is to grow the business and we’re open minded. If something were to come along, obviously we’d take a look at it but the goal is right now to grow the food products business.

Steve Loukas - Frontfour Capital

Well, let me just ask the question very directly. If someone were to offer you a Hillshire-type multiple, how do you feel about that?

Steve Davis

I can’t express an opinion on that.


Thank you. (Operator Instructions). Our next question is a follow up from the line of Steve Anderson from Miller Tabak.

Stephen Anderson - Miller Tabak

On the approximation, you mentioned the decline in third-party food service sales. Now that had been a source of growth in the last and recent years. Do you have any clarity to try to build back that line item on BEF Foods side?

Steve Davis

Yes, what happened Steve quite honesty was we really had to focus on taking care of our retail customers, plain and simple. So yes, we are still committed to food service and growing that channel. But we really did have to make sure that our top customers did get the products that we had committed. We did short some orders. If we had tried to continue to grow food service business, we would have shorted more retail orders. We make more money on retail than we do food service.

So the focus clearly is on making sure we get the retail business right and then anything we can do on the food service side, we will do that to drive it. So yes, we are committed. You will continue to see us do more in-sourcing with the restaurants. We are now fully up to speed on one plus one step for us. Grade E, that wasn’t in the numbers last year. So we expect that things could happen with our foods service business this year.


We also have a question from the line of Michael Rome from Seaview Capital.

Michael Rome - Seaview Capital

Could you explain, or give us some input on management’s discussion about the act of this approach regarding real estate and expense structure overall. It looks like you’re making a great job at fixing the restaurant business, but there is some concern about the overall level of expense and also a real estate loan.

Steve Davis

Yes. So let me talk about the expenses and clearly this was an aberrative year. 2014 was an aberrative year. Number one, you still had some of the Mimi's carryover cost that we talked about at the beginning of the year. We feel like we have gotten that reduced. We plan to reduce our expenses as much as we can on remediation and other things that don’t grow the business. Activism is an expense that we have been very candid about. That’s a McKinsey study out there and that actually shows what those numbers could look like. So we try to do our best to continue to lower our cost. But last year we did have some aberrative things happen.

We as a company have been very disciplined about closing restaurants. On my watch we’ve closed probably 75 restaurants. We have gone from nine facilities to four. We have consolidated corporate offices. We have done over a $125 million of asset restructuring over the last seven to eight years. We have done a pretty good job with supply chain. We believe that with ERP, that will help us more. So we’ve always got an eye on expenses. And we just invested in a major label program. So we’re looking at all aspects of our costs, and try to do what we can to reduce them, but keep in mind 2014 was an aberrative year.

As it relates to real estate, to me the simple way to think about doing anything with real estate is, I’ve come behind sale leasebacks before and you wind up with a high lease expense, and if your goal is to try to improve margins, you’re going to increase the lease expense. And that’s going to escalate over time. And I have had experiences on a couple of businesses where I’ve seen that lease expense continue to grow every year and every five years.

So we feel that we can get what we need to get done. We’re borrowing at very low rates. We have flexibility. We’ve got great banking relationships. So there is no real need to monetize the real estate. And if you do that, that’s going to be one of your most expensive forms of debt. So we’ve put that in our investor presentation and hopefully we’ve been clear about that.

And then to the question about CapEx, this is an average year for CapEx. If you look at our CapEx trend, if you just take it; all the CapEx that’s been spent over the last seven to eight years and divide it by the number of years, it’s about $100 million. So our guidance is slightly lower than that. So we’re back to what I will call historical CapEx levels.

And the restaurants, make no mistake, needed to be refreshed. We never had a remodel program in our history. But I think once every 25 years is not overly excessive in terms of remodeling your asset base. We think that investment will hold for the next seven to 10 years. So that’s our point of view on expense control and that’s our point of view on whether or not any type of monetization of our real estate would make any sense.


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

Steve Davis

Yes, thanks everybody for joining us today. If you have any additional questions, please give us a call. As always a welcome comments and feedback from all current and prospective stockholders. If we don’t hear from you in the meantime, we will look forward to sharing our first quarter results with you in August. Thank you, and have a great day.


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

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