Bob Evans Farms' (BOBE) CEO Steve Davis on Q1 2015 Results - Earnings Call Transcript

| About: Bob Evans (BOBE)

Bob Evans Farms, Inc. (NASDAQ:BOBE)

Q1 2015 Earnings Conference Call

August 27, 2014 10:00 AM ET

Executives

Scott Taggart - VP, IR

Mark Hood - CFO

Steve Davis - Chairman and CEO

Analysts

Brian Bittner - Oppenheimer

David Carlson - KeyBanc

Michael Halen - Bloomberg Intelligence

Patrick Clavin - MarisCapital

Mike Lemke - Imperial Capital

Operator

Good day, ladies and gentlemen and welcome to the Bob Evans Farms 2015 First 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. (Operator Instructions). Please note today's conference is being recorded.

I would now like to hand the conference over to Scott Taggart, Vice President, Investor Relations. Sir, please go ahead.

Scott Taggart

Thank you, Karen, and good morning everyone. This is Scott Taggart, Vice President of Investor Relations. I would like to welcome you to Bob Evans Farms' first quarter fiscal 2015 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 a 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 along with an updated investor presentation posted on the Investor Relations section of our corporate website at bobevans.com and filed with the Securities and Exchange Commission on Form 8-K.

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

Mark Hood

Thanks Scott and good morning everyone. Last night, we reported first quarter fiscal 2015 consolidated and net sales of $326.3 million, a decline of $3.1 million or 0.9% compared to last year. Non-GAAP net income for the quarter was $2.3 million or $0.10 per diluted share, compared to non-GAAP net income of $15.2 million or $0.54 per diluted share in the prior year period. We also reaffirmed our full year non-GAAP earnings per share guidance of $1.90 to $2.20 per diluted share.

Given recent sow cost trends, we have raised second quarter sow cost guidance to $90 to $95 per hundredweight from $80 to $90 per hundredweight, and raised our full year fiscal estimate to $87 per hundredweight. Additionally, we expect modest pressure on Bob Evans' restaurant cost of sales. However, exclusion of activism costs and a lower anticipated effective tax rate are expected to offset these impacts.

At Bob Evans restaurants, overall same store sales declined 2%, slightly below the national Knapp-Track family dining index decline of 1.6%. However, Bob Evans restaurants outperform regional Knapp-Track results by 60 to 120 basis points in our three largest markets, which comprise 83% of the Bob Evans system. Steve will provide further detail concerning regional performance and sales growth initiatives at Bob Evans restaurants shortly.

At BEF Foods, net sales increased 1.5% compared to the prior year. Increased sausage pricing was partially offset by a 6.1% decline in total pounds sold during the quarter, including a 19% decline in sausage pounds sold. Adjusted for net sales in the prior company at the company's Irvine, California production facility, which was sold during the second quarter of fiscal 2014, net sales of our ongoing business increased 5% on a dollar basis, and volume was approximately flat.

Bob Evans restaurants reported non-GAAP operating income of $5.5 million during the first quarter, compared to $16 million in the prior year. The primary drivers of the $10.5 million decline or a $4.7 million impact associated with discounted sales, $1.7 million of increased advertising expenses, $1.1 million of incremental depreciation, and $1.1 million of costs related to strengthening the company's internal control processes, and controls over financial reporting, and an $800,000 increase in repair and maintenance expenses.

BEF Foods' non-GAAP operating loss was $0.4 million during the quarter, compared to non-GAAP operating income of $6.7 million in the corresponding period last year. The primary drivers of the $7.1 million decline were a $6.7 million increase in sausage material costs, including sow and pork trim costs. $2.3 million of net plant inefficiencies, $2.2 million of increased freight, advertising and professional service fees, related to strengthening the company's internal processes and controls over financial reporting, and a $1.6 million in increase in depreciation. These increases were partially offset by a $5.7 million of increased pricing and reduced trade spending and discounts.

Average sow costs for the quarter were $87.87 per hundredweight, a 39% increase over the prior year period. Sow costs have recently trended above our full year guidance. We anticipate second quarter sow costs will range between $90 and $95 per hundredweight, an increase of approximately 20% over second quarter 2014 costs of $77.33 per hundredweight. This also increases our full year sow cost guidance to $87 per hundredweight from $85 previously. Our full year operating margin guidance also incorporates the impact of pork trim costs remaining at elevated levels. Combined, year-over-year sow and trim costs are expected to increase by $5 million in the second quarter.

The company's cash balance and revolver borrowings at the end of the first quarter were $3.6 million and $458.8 million respectively. The company was in compliance with its debt covenants and its leverage ratio is defined as an credit agreement, was 3.69 times at the end of the quarter.

During the quarter, we completed an amendment to our revolving credit facility. The amendment provides the company additional flexibility on our leverage covenant through fiscal 2016. Non-GAAP net interest expense was $2.1 million in the quarter, an increase of $1.6 million compared to $0.5 million in the corresponding period last year, our borrowing rate on the outstanding debt was 1.91% at the end of the first quarter, compared to 1.45% at the end of the comparable prior year period. The effective income tax rate was 34.5% for the quarter compared to 31.1% for the corresponding period a year ago. The higher tax rate was driven by the net impact of the expiration of the Work Opportunity Tax Credit on December 31, 2013. The increased deduction for domestic production activities, and discrete items in the first quarter related to stock compensation and uncertain tax positions. For non-GAAP items the tax rate was 27.5%, reflecting the company's estimate of the annual effective tax rate.

From a capital allocation perspective, capital expenditures on the quarter were $16.7 million, and last week we announced that the board approved an increase of the company's $100 million share repurchase authorization to $150 million and extended the authorization period through the end of fiscal year 2016. There were no share repurchases in the first quarter. The Board also approved a quarterly dividend of $0.31 per share payable on September 22, 2014 to stockholders of record at the close of business on September 8, 2014.

During the quarter, we incurred $2.2 million of expenses related to stockholder activism, including the settlement of illegal matter, and now expect full year 2015 costs of $6.5 million, an increase of $1 million from our prior estimate. Costs for strengthening in the company's internal processes and controls over financial reporting were $1.4 million during the quarter, and full year 2015 costs continue to be estimated at $2 million.

We are reaffirming our EPS guidance range of $1.90 to $2.20 for the year. Second quarter earnings per share are expected to lower than the prior year, and we continue to expect the third and fourth quarters to show significant year-over-year improvements. The keys to achieving expected results, are the successful rollout of the Broasted Chicken platform, and our 'Own our Nights' initiative; continued growth in our off-premises sales layers, expanded holiday operating hours, and normalized weather, as we lap the severe winter weather of 2014. Additionally, BEF Foods is expected to benefit from the reauthorization of its refrigerated side dish products at its largest customer ahead of the key winter holiday selling season, along with product authorizations at a new customer account, in addition to achievement of expected gains and production efficiencies at our Sulphur Springs, Texas; and Lima, Ohio facilities.

With that, I will turn the call over to Steve, to add some color on our results, and expand on our key initiatives.

Steve Davis

Thanks Mark. Good morning everyone. Bob Evans Restaurants and Bob Evans Farms Food are making meaningful progress, as both businesses leverage the significant capital investment each has made over the last several years. As with any organization, we do face challenges, but however, our organization does now view itself as a victim to the macroeconomic and competitive environment.

As outlined in yesterday's earnings release, both Bob Evans Restaurants and Bob Evans Farms Food remain challenged by a macroeconomic factor. At Bob Evans Restaurants, a continued promotional competitive environment, along with weak consumer confidence, with our core lower middle and middle income guests in the Midwest remain the challenge.

At Bob Evans Farms Food, sausage input costs, including sow and pork trim, negatively impacted first quarter results by $6.7 million. We have built resilient businesses that we expect to ultimately thrive, regardless of transitory economic and competitive factors. This capability was not present, prior to the Farm Fresh Refresh remodeling program at Bob Evans Restaurant and the plant network optimization initiative at Bob Evans Farms Foods.

We continue to see evidence of the success and importance of the Farm Fresh Refresh remodeling program. While Bob Evans Restaurants' first quarter same store sales decline of 2% was slightly worse than the Knapp-Track family category that declined at 1.6, that metric does not tell the whole story.

Knapp family segment data shows that from a same store sales perspective, the East North central, the South Atlantic, and the mid-Atlantic were the three most challenged regions in the country, during our first fiscal quarter. These three regions, line up with the three regions having the highest number of Bob Evans Restaurant locations. The East North central region, comprised of Illinois, Indiana, Ohio and Michigan is home to 318 Bob Evans Restaurants or 50% of our total restaurants. In this region, Bob Evans Restaurants outperform the Knapp family segment same store sales decline of 2.8%, by 60 basis points.

In the South Atlantic, where 17% of our restaurants are located, we outperform the Knapp family segment same store sales decline of 3.6% by 120 basis points. Likewise, in the mid-Atlantic, with 9% of our restaurant locations, we outperform the 4.4 same store sales decline of the Knapp family segment by 120 basis points. These three regions account for 83% of our restaurants, and in each, we outperformed our family segment peers.

In Florida, which is a separate Knapp region and home to 48 Bob Evans Restaurants, we delivered a plus 4.5% same store sales increase, an impressive 640 basis point outperformance, relative to the 1.9% decline of Knapp family peers. Our Florida team is a leader in off-premise sales, and its post Farm Fresh Refresh management team has done an extraordinary job of leveraging that investment.

The West North Central and the South Central regions, where 4% and 5% of our restaurants are located, respectively did not benefit from the higher concentration that we have in our other markets. In these markets, we underperformed our Knapp peers by 270 to 300 basis points. The regions with the best same store sales performance, category performance, according to Knapp-Track were, the mounting space [ph] with a same store sales percent increase of 0.6%, and Texas and California with same store sales increase of 0.5% and 0.2% respectively. Two states where our nearing competitors have a meaningful presence. Bob Evans Restaurant does not currently operate restaurants in these three higher growth regions.

I will now take a few minutes to highlight recent results and the actions we were taking at Bob Evans Restaurants to drive improved sales and margin performance. Our tactics for driving same store sales in fiscal year 2015 vary by day part. Our breakfast business, which generated a plus 0.7% sales increase during the first quarter, is our strongest day part from both a sales and guest satisfaction perspective. Breakfast is the most straightforward day part operationally, as it benefits from the staff that is our most tenured. Guests who are ordering primarily from the breakfast portion of the menu-only, and the competitive set of less diverse than our other day parts. The opportunity at breakfast is to continually effectively market menu innovation, such as our Sweet & Stacked platform, which is a most recent example.

At our lunch segment, where we reported a minus 2% same store sales decline during the quarter, the breadth of orders increases, as guest ordered breakfast and non-breakfast item, server and back of the house shift changes bring on slightly les tenured staff into the restaurant, and we typically see a lower guest satisfaction score relative to breakfast. However, overall operations at lunch are satisfactory, and as a result, our focus is driving sales through effectively marketing menu innovation, which includes our Broasted Chicken and our launch market, and our slow roasted platform in the rest of the chain.

Our marketing at dinner, where same store sales declined minus 4.7% during the quarter, is also concentrated on Broasted Chicken and the slow roasted platform. However, dinner operations are more challenged during the day part, as our back of the house and server staff are the least tenured of all the day parts. Carry out sales are at their highest, and guests order everything from breakfast entrees to lunch items to three course dinner.

Finally, dinner is the most competitive day part, as we also compete with the casual and fast casual players more directly in the evening. Considering the highly competitive dinner category as the most complex, and we oftentimes have our least experienced staff in place at this time, it may come in as no surprise, that the dinner day part has the lowest guest satisfaction score.

While menu innovation and marketing are important components to improving sales at the dinner day part, they are not sufficient on their own to reverse our trend. Recognizing the necessity of a significantly improved guest experience for not only attracting but retaining and building frequency among our guests at dinner, we have introduced the Own Our Night program. I will discuss this program in a moment, within the context of our Broasted Chicken platform rollout.

As for our carry-out business, same store sales did increase 1.9% during the quarter. Our carry-out business shares many of the same challenges as our dinner day part. Our guests have many carry out options, and in order for us to compete effectively and continue driving growth in the sales layer, we must manage complexity more effectively, ease the ordering and pick up process for our guests, and drive sales through effective marketing of promotion of menu items.

Our current carry out offer of free quarter soup with a purchase of a family meal to go bundle, builds [ph] trial of both offerings. New marketing alone will be insufficient to drive carry-out, which has been our lowest guest satisfaction rating. Therefore, we introduced an operational improvement program called carry-out acceleration. This program includes three key elements; enhanced staff selection and training to ensure our carry-out team members are multi-skilled and equipped to offer sales oriented friendly, accurate and efficient service. Two, improved procedures and processes to enhance order efficiency and accuracy, with a focus on visual order confirmation to minimize incorrect orders; and then three, more effective resource planning to ensure our carry-out counters are staffed with our most capable staff, at a level consistent with demand throughout the day.

As we noted last quarter, the launch of Broasted Chicken in Cincinnati represents a key element of our sales growth plan. In conjunction with the Farm Fresh Refresh program, the Own Our Night initiative, further menu innovation across all day parts, and improved advertising and marketing programs, we expect to achieve our 2015 fiscal sales performance goals. Each of these elements work together to drive sales.

This past quarter was a first full quarter with Broasted Chicken in the Cincinnati market, and we are pleased with the results so far. Dinner same store sales increased plus 3.6%, relative to a minus 5.2% decline in the rest of the system. Lunch same store sales declined only 0.4%, relative to a minus 2.1% decline at other restaurants. Overall, Broasted Chicken represented 11% of Cincinnati sales mix during the quarter.

Cincinnati's breakfast same store sales declined minus 2.5% relative to an increase of 0.8% at our other restaurants. During the quarter, we offered a $4.99 price point on our Sweet & Stacked Hotcakes in the Cincinnati test market. While the remainder of the system, Sweet & Stacked Hotcakes were priced at $6.99. Since this offer was not heavily advertised on TV, and it did not drive incremental traffic, it simply cost us on the top line. We believe this price reduction cost us at least 120 basis points, versus Cincinnati's overall same store sales increase of 0.4%. Therefore on an adjusted basis, Cincinnati should have generated a 1.6% same store sales increase, relative to the rest of the system same store sales decline of minus 2.2%.

As encouraging as Broasted Chicken overall sales have been, its impact on off-premise sales has exceeded even our expectations. Cincinnati's off-premise same store sales increased 13% during the first quarter, compared to 1% increase in all the other markets. Broasted Chicken accounted for 56% of the 13% increase in off-premise same store sales in the Cincinnati test market. This was driven by promoting Broasted Chicken carry-out on television. We are also launching a brand relevant Broaster Box, which will be a signature icon to promote Broasted Chicken in a typical format. Again, here we see the power of combining menu innovation with the Farm Fresh Refresh remodel that was designed to drive new sales layers, including off-premise sales.

We continue to learn from the results generated by the Farm Fresh Refresh program and the Broasted Chicken platform. We are adjusting our tactics accordingly to better balance our promotional and marketing mix, to maximize the impact of Broasted Chicken on our most challenged day part lunch and dinner, while continuing to build on our chain-wide strength of breakfast.

We are currently rolling out the Broasted Chicken platform in Dayton and Columbus, two of our larger markets, and we will continue incorporating new marketing and operational insights, as we implement the program in our additional markets. So far, although early, we are seeing great traction in our launched restaurants in these markets.

With Broasted Chicken focused on our most challenged lunch and dinner day parts, operational readiness and execution is crucial, and that's what the Own Our Night initiative is all about. This initiative complements the four-pronged Broasted Chicken implementation approach we are taking in each market, which is comprised of the following four elements; equipment installation, back of the house staff and server training, supply chain readiness, and a three to four week soft launch, followed by the TV introduction, both in print and electronic media.

The Own Our Night program shifts general managers and regional manager [indiscernible] time in restaurant from breakfast to lunch, and especially dinner shift. This will ensure senior restaurant level and regional level management teams are present to diagnose and resolve issues that are hampering performance and delivery of great guest service experience at these key day parts, rather than a host of new initiatives, policies and procedures, this program is primarily focused on bringing best practices from our successful breakfast dine and day part, to the afternoon and evening hours, as well as our off-premise business. In light of the impact Broasted Chicken is having on our evening business, it is critical and crucial to have a strong management present at lunch, dinner and carry-out.

For those markets where Broasted has not yet been introduced, the Own Our Nights and carry-out acceleration initiatives are an important part of running management and staff, for the increased dinner sales that Broasted Chicken will bring. But until Broasted Chicken arrives, these markets are driving sales through marketing focused on our Sweet & Stacked Breakfast platform, and the slow roasted launch and dinner platforms. The slow roasted meals platform is operationally simple, since it promotes two of Bob Evans signature items, slow roasted turkey and slow roasted pot roast.

The carry-out marketing message in all markets is the free soup of the purchase of a Family Meals To Go; a higher ticket bundled menu item. This also encourages our guests to get into the practice of ordering soup, along with the carry-out order. In the end, whether a restaurant has Broasted Chicken or slow-roasted meals, they have the tools necessary to drive positive same store sales.

Now as I conclude my remarks on Bob Evans Restaurants, I will note we remain on-track to open eight new restaurants and 10 new Bob Evans Express locations by the end of fiscal 2015. Furthermore, our Broasted Chicken rollout schedule remains in place, with all 192 Ohio restaurants expected to have Broasted Chicken by early November, with the rest of the chain receiving Broasted Chicken by the end of fiscal year 2015.

Now turning to Bob Evans Farms Foods; with sow and trim costs remaining high and recently reaching levels above our guidance range for the fiscal year, we remain focused on four critical areas; number one, regaining product authorizations lost during last year's refrigerated side dish product shortages, which was caused by a supplier dispute. Two, manage our sausage pricing and trade spending policies to offset as much as sow cost impact as possible, without significantly impacting long term market share and sales growth. Three, achieving improved planned efficiencies to drive throughput and margins, and four, leveraging the expertise of external consultants, to help us drive additional costs of the Bob Evans Farms Foods plant network.

As for the refrigerated side dish business, authorizations, along with regaining full authorization at our largest customer for the holiday season, new customer account authorization have put us in a position to more than offset the sales impact of last year's supplier dispute. We continue to regain the trust of our existing retail accounts, while also signing new accounts for our refrigerated side dish products. As we have often said, increased refrigerated side dish sales are our best option for mitigating the impact of sow costs. These products not only shield us from high sow costs, but their quality and convenience are in line with consumer needs, and their margins and shelf life are in line with retailer's needs, which is a winning combination.

A moment ago, Mark detailed the effect of sow and trim costs and our ability to partially offset those costs through pricing and trade. He also noted, we will achieve planned efficiencies during fiscal year 2015. Our fresh sausage planned consolidation and resulting efficiencies are ahead of our expectations. Our Lima, Ohio refrigerated side-dish plant and Sulphur Springs, Texas ready-to-eat plant still have opportunities to achieve further production efficiencies.

Therefore, in order to accelerate realization of production efficiencies at those two locations, we have retained leading external consultants, with strong productivity and process improvement practices. We leverage these external consultants several years ago, as we introduced lean manufacturing technique for our fresh sausage plant network, and we expect to reap similar results from this effort.

I will conclude my remarks this morning, by noting our management team and the eight incumbent board members, who were elected at last week's annual stockholders' meeting, welcome and look forward to working with our newest board members, Douglas Benham, Charles Elson, David Head and Michael Weinstein. I also want to extend the company's gratitude to Larry Corbin, Rob Lucas, Cheryl Kryger, and Bill Ingram, for their combined 98 years of dedicated service they provided to Bob Evans Farms Board. Their insight, dedication and passion for this company have been an inspiration for me and to the entire Bob Evans Farms organization.

Our company has always been and remains open to new ideas and perspective. The new members of our board will complement the strong strategic operational and financial skill-sets of our continuing board members. Bob Evans himself said, don't look for the future in a rear view mirror, and true to that philosophy, we are determined to effectively execute the continued transformation of Bob Evans Farms to better serve our guests and customers, while continuing to reward our stockholders.

We are focused on delivering on the promise of largely completed, multiyear transformational investment program at Bob Evans Restaurant and Bob Evans Farms Foods, as we shift to an intensified concentration on executing the fundamentals.

Additionally, significant time, resources and dollars have been spent on remediation and activism readiness. These dollars will now be redirected to building the sales and profits of the restaurant and the food products businesses. We look forward to remaining focused on executing our growth plans.

In conclusion, we have completed the necessary significant investments in our businesses, and are committed to delivering shareholder value through sustainable long term profit growth, dividends and share repurchases. As we continue to evaluate our strategy, all topics remain on the table, and all points of view are welcome. Diversity of thought and openness to exchange have historically driven important developments critical to our company's long term success.

On behalf of the company's Board of Directors, senior management team and employees, I want to thank all of you for your interest in Bob Evans Farms and I look forward to a continued open dialog with you. Your feedback, whether supportive or critical, is so important to our continued success. As always, we welcome your questions on this call, and as well as we follow-up in our one-on-one meetings.

And with that, I thank you, and we are now open to your questions.

Question-and-Answer Session

Operator

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

Brian Bittner - Oppenheimer

Thank you.

Steve Davis

Good morning Brian.

Brian Bittner - Oppenheimer

Good morning. On the BEF side of the business, you guys said the inefficiencies in the plants were a $2 million something headwind. I guess I would have thought, with the kind of restructuring behind us, that efficiencies would actually be a tailwind, starting this quarter. So can you just talk a bit more about -- more about what that was and when you expect to start being in tailwind?

Mark Hood

Yeah Brian, it's Mark. Let me kind of talk to that a little bit. First of all, the process of combining multiple facilities down to two on the non-sausage part of our business, really lets us see costs more efficiently I think, and have better insight into the efficiencies than we had before the consolidation. So I think some of it is just about recharacterization of the ability to look at the class and call out inefficiencies.

Secondly, I think the complexities associated with multiple products and gearing up the throughput for the busier part, also has uncovered some challenges that we need to do from a staffing standpoint, and we are focused on it, as Steve mentioned in his remarks, we would expect to see continued improvement as we move through the second quarter into the fall season.

Steve Davis

I was just going to say, when you have lower sow costs, I think a lot of these things were happening anyway. It's just that when you have high sow cost, all of a sudden you will start turning over more stones though. The good news is we are discovering these things, and maybe in the past, they have been masked by the fact that you have much lower sow costs, and the fact that you have four facilities to get your arm around versus nine, and the sausage facilities are actually ahead of schedule. It allows us to get even tighter on our focus.

Brian Bittner - Oppenheimer

Okay. And then on the same store sales side, I am still having a tough time picturing the high single digit same store sales growth in the second half. The Broasted Chicken definitely helped the Cincinnati market, but that market still is up a half a point and I am just wondering -- figure out where -- how do we get to the high single digits -- even if all the system has -- the Broasted Chicken is -- it still seems a though, outside of that, we are seeing same store sales declines in the core business outside of Broasted Chicken. So how do we build that bridge to the high single digit growth in the second half of the year?

Mark Hood

Besides the rollovers with weather, and I think mark had mentioned the thanksgiving sales and some other things, this is also the time where we have an easier overlap, even before the snow season, so that's point one.

Let me tell you a little bit about Cincinnati and why we are optimistic about what can happen with Broasted; when we rolled this out in the Cincinnati market, we basically gave every restaurant one broaster, and based on volume now, we went back and retrofitted the market, and a third of the restaurants now have now two broasters.

So now going forward with Dayton and Cincinnati, I think I mentioned this on the last call, we had product shortages galore, and then we also figured out our supply chain better, because we are bringing in fresh chicken. A lot of those issues that we had at Cincinnati, which actually probably tamped down sales, plus the fact that we were selling Hotcakes at $4.99, and weren't advertising it, that just pretty much eroded the top line, and we estimated that was about a little bit over a point. So if we take all the inefficiencies of the test market, then you also take the fact, that we won't be selling breakfast items at $4.99, plus we bring in every person who is responsible for Broasted Chicken here to the home office to train.

We didn't do that in Cincinnati, so people are going to be a lot better trained, the supply chain is in a much better shape, our response time is better, if we run out of product. I'd say about a third of our Columbus and Dayton restaurants will also have two Broasters, because they are higher volume, so it means much greater upside; and then people aren't going to be surprised by 6% sales mix, I think a lot of people just got blown out of the water; because very rarely we launch anything without advertising and if this is at 6%, then we put it on television, it makes a 12%. So the team had no real skills and forecasting of what was coming at them. That should not be a problem in Dayton and Columbus, and we are already seeing much better execution coming out of the two. So that's why we are optimistic about what can happen with Broasted Chicken.

Slow roasted is going to be great platform, because it takes a lot of pressure off the grill. Slow roasted turkey and pot roast, that will require any grill time or space. So that helps our speed of service, it's also a 10.99 price point, we sold a lot of turkey and pot roast in the past. So this is a good time of the year to get that comfort food. We are headed towards the fall in a cooler weather, and then we have also got some new bakery items we just launched, that infested fairly well. So we got a lot of guns blazing between the Broasted Chicken launch, the carry-out acceleration program, the new bakery items we are putting out, and then we are going to build on the Sweet & Stacked platform, we can go beyond Sweet & Stacked Hotcakes to get some exciting things in test.

We are rebuilding that pipeline and getting items tested. So between the overlap and the new products and then the operational improvement, we think that was going to drive us towards a number that we are guiding.

Brian Bittner - Oppenheimer

Okay. Then just real quick last question on the covenants, the debt covenants, what's the leverage ratio for the covenants now?

Mark Hood

Yes. Hey Brian its Mark. Again, we filed that in the 8-K, but our current coverage limit is 4.5 versus the old 3.75, and that steps down over the next eight quarters, back to the 3.75.

Brian Bittner - Oppenheimer

Okay. Thank you.

Mark Hood

Thank you, Brian.

Operator

Thank you. Our next question comes from the line of David Carlson from KeyBanc.

David Carlson - KeyBanc

Hi gentlemen.

Steve Davis

Hey Dave. Good morning.

David Carlson - KeyBanc

Couple of quick questions for you. The argument has been out there, that there is a significant amount of G&A savings potentially available. Has the company taken a close look at supports and are spending to determine whether it's running as lean as possible?

Mark Hood

David its Mark again; obviously short time here, so I haven't had the chance to thoroughly evaluate that, but the company did some efforts along that line back in early spring, in terms of taking a hard look at support centered costs. Again I think, we continue to look at that, as we look forward, obviously, some elements that are set in our G&A line, in the future we believe, walk away in terms of the heavy level of professional fees spent on both activism and remediation, additionally buried in that line item is the expense portion of our ERP system, which as we call out in guidance is about $4.5 million number this year. So I think there is a lot of understandings people need to learn in terms of the G&A. But there is no question that we as a management and leadership team are focused on being as efficient as possible in our G&A and spending only dollars that drive successful guest experience and flow-through to our retail customers on the food side.

Last year, we had announced $10 million of carryover costs, and by the end of the year, we had it out. So we know how to take G&A out of the system. The other thing I would point out is, there is going to be some reclassification of some items. For example, we have our manager in training salaries and corporate G&A. Technically, that should be a sign to the restaurant business, so you will see some reclass, just so that people can do better apples to apples comparison of our G&A. But I will end the comment by saying, we always have opportunity to improve G&A. We always have teams. We got a whole margin innovation team and G&A is on that list. So suffice it to say, there is always opportunity to improve G&A.

David Carlson - KeyBanc

Okay, thanks. And the -- what can be described as a pretty acrimonious proxy fight that just ended with the election of -- for the activist nominees. How do you really reconcile two strategies that are really so dissimilar now?

Steve Davis

Well all I can say at this point is, when we bring our Board members on, we will do what we do with all our board members. They will go through a thorough orientation, they will get a chance to sit down and review the business with all of us and our advisors, and we will take a hard look together. So first things first, we got to get the results certified, but we have already reached out to some of the board members, welcoming them, and we look forward to the new members coming on board.

David Carlson - KeyBanc

My final question, you guys guided $0.06 to $0.12 of the first -- fiscal first quarter, I think you gave that guidance in early July. I think of the timing about two to three weeks left in the quarter and fiscal 2015 guidance did include costs associated with the active shareholder response. When you include those costs for comparability sake, it appears fiscal first quarter EPS would have come in below the low end of guidance. You seem to be -- your sales performance was better than you expected during the quarter, it appears that BEF Foods came up short of expectations. I think you guys went through some of the elements on that. But that said, what really gives you confidence and your visibility to meeting your sales margin goals at the good segment for the full year?

Steve Davis

I will start off the initiatives that talked about earlier, that Brian had asked about. So that's what we have got going on the restaurant side. And in terms of the food product side, we are making great traction with our number one customer, that's where we lost most of our authorizations. We picked up another key account, which was 1,300 stores, both in sausage and side dishes. So we are getting good traction on the top line, with the food products business.

Our biggest challenge to the team is the middle of the P&L for food products. When you get plants consolidated, it gives a greater visibility, but you still got some opportunity to get costs out of the system, so that's going to be the focus there. And then quite honestly, the sooner you can get out of remediation costs and activism and all that other stuff, that's money doesn't go to build the business. So I am looking forward to investing in money that builds the business as opposed to pay professional fees.

David Carlson - KeyBanc

Thank you guys.

Steve Davis

Thank you.

Operator

Thank you. And our next question comes from the line of Michael Halen from Bloomberg Intelligence.

Michael Halen - Bloomberg Intelligence

Good morning.

Steve Davis

Good morning.

Michael Halen - Bloomberg Intelligence

My questions regard to Broasters. How much do they cost and how much space do they take in the kitchen? How much complexity do they add to the system, and do you have any other products in development that will be made in the Broasters?

Steve Davis

Yeah I will answer part of the question. I will let Mark talk about the cost aspect. We did some back of the house simplification and before we brought the Broasters in, we decided that there are some things that we could take out. Last year, we launched the one step sausage gravy project. In the past, we used to bring in raw sausage, cook it, mix it with gravy mix, it was about a two hour process. Now our food products business makes sausage gravy for all of our restaurants, so you got consistency in costs, consistency in quality, and you took out some labor in the back of the house.

The second thing we did is, we used to chop lettuce in the back of the house, and salads actually are one of our top 10 platforms in the company, but we were chopping a lot of lettuce in the back of the house, so now we went to pre-cut lettuce. Those tasks were done typically by folks in the back of the house. So now instead of chopping lettuce or making one step sausage gravy, there is going to be fine chicken.

We already have the hood [ph] in the back of the house, so that made it easy. We used to have these large four burner stoves where we did things like make sausage gravy. Those aren't in use as much. So back of the house space was not an issue, and because we made those one step sausage gravy and then fresh cut lettuce that allowed us to redeploy that towards Broasted.

And then in terms of new products, we are testing and we will talk about in probably future quarters. Some of the other items, because when we first looked at Broasted, we said what else can we do. So we have got a whole series of products that we are putting in the pipeline. They range from appetizers to side-dishes to other proteins that we can cook in the Broaster. Mark, you want to talk about the investment aspect of it?

Mark Hood

Sure. So again I think the total investment in rolling out the Broasted platform is a little over $18 million, that locks down to an average cost of probably around 35,000 per location, and again as Steve mentioned, some Broasters get more than one Broaster, so that cost includes not only the equipment, but the installation costs of installing it and make sure we got the right denting [ph] as Steve talked about.

There is also a significant amount of training that goes along with the project that is expensed as we go on that. So I think that's -- and that capital expenditures within the guidance that we provided, and maintained currently.

Michael Halen - Bloomberg Intelligence

Great. And has there been any change to the mix of sausage gravy, since you switched to the pre-made version?

Steve Davis

No actually, we had like zero complaints on our sausage gravy. We had a lot of inconsistency, because when you got 500 some odd locations making sausage gravy every morning; cooking raw product and then making gravy mix, you are going to have some variations. Our complaints went to virtually zero, and we have not seen any drop off in our sausage gravy sales.

Michael Halen - Bloomberg Intelligence

Well I am a big fan, so I am happy to hear that.

Steve Davis

Great.

Michael Halen - Bloomberg Intelligence

All right. Thanks guys.

Steve Davis

Thank you, Michael.

Operator

Thank you. And our next question comes from the line of Patrick Clavin from Maris.

Patrick Clavin - MarisCapital

Hey gentlemen, how are you? Just a real quick question on the share repurchase program. You increased this from $100 million to $150 million in terms of authorization recently, but didn't repurchase any shares in the first quarter. Can you just explain a little bit of thinking behind increase, if you aren't even close to utilizing what you have in place, and your plans for it going forward?

Mark Hood

Yeah, I will take that one. Its Mark; again, I think what we said that the year-end calls, we thought that our action on a previously authorized repurchase program would be back half weighted, as we wanted to allow the earnings recovery that's in our guidance to begin to occur, before we took action on it, and quite honestly, what we did with the increase from $100 million to $150 million is to align the authorization to the share repurchase opportunities and our amended revolver.

Patrick Clavin - MarisCapital

Got it. Just curious, why would you wait until earnings recover to implement the share repurchase program, rather than taking advantage of a depressed share price ahead of that earnings recovery?

Mark Hood

Again, we got to manage multiple tasks here, and one as we'd also maintain a healthy look at our leverage ratio and want to keep that at a reasonable level, as we execute.

Patrick Clavin - MarisCapital

So do you feel like you're currently in place to be able to implement this buyback program, or do you now have the cash flow in order to do that currently?

Mark Hood

Again, we have the availability of cash flow to implement it. We are just cautious in the execution.

Patrick Clavin - MarisCapital

Got it. Okay. Thank you.

Operator

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

Mike Lemke - Imperial Capital

Good morning guys. My question was actually on the repurchase as well, so it was answered. So good luck for the rest of the quarter.

Mark Hood

Thank you.

Steve Davis

Thank you.

Operator

Thank you. (Operator Instructions). And we have a question from the line of Matt [indiscernible] Capital.

Unidentified Analyst

Thanks for taking the question. I just have a couple of quick ones. First, when is the first scheduled meeting for the new board? Two, on the pancake thing in Ohio, you said that you guys are doing Hotcakes at $4.99, and you didn't advertise and that hurt. Could you explain the decision tree in the corporate structure on who makes that decision in terms of advertising and kind of how you thought through lowering prices and not kind of putting that out there? And then also, I noticed in the release, that the trends in the quarter on the same store sales; you didn't break it out by category, in terms of dinner, lunch, breakfast, etcetera; but they got across the month, July being the worst performer. Could you just go into a little bit of detail there? Thanks guys.

Steve Davis

Sure. Once we get the board in place, then we will know when the next meeting is. So we are just waiting for the final certification of the results. There is a table in the earnings release on page three that breaks out the sales by quarter and also by day part. So let me get back to your original question; when you're doing a test market, you try to keep something constant, and so in some markets, we did have $4.99 Sweet & Stacked Hotcakes, and in some of those markets it was advertised, and those markets did outperform. So if you are going to have little price points, you got to have advertising on TV, to drive the additional traffic; because all the television was on Broasted, we don't have enough TV dollars to do a split message. We realized that, if we are going to try to drive a $4.99 price point, you got to have it on television. So its part of the test protocol. We didn't do that nationally, so that's you do test markets, and as I mentioned earlier, there were a lot of good learnings coming out of Cincinnati that's leading to the springboarding of what we are doing next with Broasted Chicken.

One of the advantages of doing a phased roll out, is that you get to learn as you roll out. So every time we roll out to a market, we are going to learn, we are going to be smarter, and we are going to fine tune our marketing. So as with all test markets, you never get it right the first time, and that's why you test. Most important thing is, you make the adjustments after you make the learning, so the decision was made by the team. We did the analysis, we saw an opportunity to improve, until we made the improvements.

The same thing happened with the number of Broasted; somebody could say, gee, why didn't you know to have more than one Broaster per location? Well, because it was a capital investment. We weren't sure if it was going to work. So we said, let's just put one Broasted machine in each restaurant. What we are finding is, we now understand, based on the dinner volume and the carry-out volume, and the overall volume of the restaurant, whether you should have one small Broasted machine, whether you should have one large broasted machine, or whether you should have a large broasted machine, and a small machine or two large machines. So that's the advantage of doing a test market, so you get smarter coming out, as you roll out a new initiative.

Unidentified Analyst

Right. That's awesome. Thank you guys. And also just on the trends into the quarter, I guess what I was talking about before was, it looked monthly things had had -- that July was the worst month. Could you just kind of highlight what happened in the quarter, as opposed to just for the quarter?

Steve Davis

Probably dinner, we saw the softening in dinner. So it highlights the importance of getting broasted out, and slow roasted is also a dinner solution as well. Owning the nights is the operational piece that's going to get after the nighttime operations and carry-out acceleration. We are seeing some great success on that, which was part of the dinner business, which we would expect to see that improve as well.

Unidentified Analyst

Awesome. Thanks guys. Appreciate it.

Steve Davis

Thank you.

Operator

Thank you. And this concludes our question and answer session for today. I would like to turn the conference back to Steve Davis for closing comments.

Steve Davis

Yeah. Thanks again everyone for joining us today. If you have additional questions, please give us a call. As always, we 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 second quarter results with you some time in November. Thank you and have a great day.

Operator

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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