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Cracker Barrel Looks Appetizing
Cracker Barrel Old Country Stores (Nasdaq:CBRL) operates nearly 600 locations that offer a sit-down, "home-style food" restaurant with a retail concept "reminiscent of America's country heritage." The combination has turned many otherwise fickle food patrons into a loyal customer base. Vicinity to convenient highway stops hasn't hurt either. Sales stability coupled with old-fashioned cost cutting makes the stock worth a good, hard look.
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Third Quarter Sales and Profit Trends|
Revenues improved 1.9% to $578.2 million as same-store sales in the restaurant section grew 0.6% and increased 3.2% in the retail portion of the stores. Restaurant comps were driven by a 2.2% higher average check size, indicating that consumers are starting to spend more while eating out. Recent results at casual-dining rivals such as P.F. Changs China Bistro (Nasdaq:PFCB), DineEquity's (NYSE:DIN) Applebee's locations, Texas Roadhouse (Nasdaq:TXRH), and many of the Darden Restaurants (NYSE:DRI) concepts, including Olive Garden and Red Lobster, have confirmed this trend as overall sales and comps have improved.
Due to cost controls, management was able to leverage the minimal sales growth into double-digit profit growth. Cost of goods sold and labor costs fell to offset higher general and administrative expenses. This coupled with lower interest expense from the continued pay-down of long-term debt resulted in a 21% improvement in net income to $14.4 million.
Higher shares outstanding tempered the per-share profit increase, but earnings still rose a robust 17% to 61 cents per diluted share. This came in firmly ahead of analyst projections.
Outlook
For the full year, Cracker Barrel expects minimal sales growth between 1% and 2% as it plans to open six new stores. Restaurant comparable sales should increase by a range between 0.5% and 1% while retail comps could fall between 0.5% and 1%. Diluted earnings are expected to range between $3.50 and $3.60 per diluted share, which would represent a substantial improvement from the $2.89 reported last year.
Bottom Line
Reported net income at Cracker Barrel has come in below free cash flow generation as it has tightened capital expenditures and pushed through working capital efficiencies. In management's words, this "strong cash flow allows us to invest in our brand, pursue growth, maintain our dividend and reduce our debt."
Cracker Barrel is focused on reducing debt for now and should also return to buying back large amounts of stock, as it did a couple of years ago. Both will boost earnings per share, as will an improving economic climate. A reasonable forward P/E multiple below 13 should also allow for some multiple expansion as the business cycle moves into full gear. Throw in a current dividend yield of 1.6%, and the stock, even after a major run, looks pretty appetizing. (For more stock analysis, read Big Energy Dividends.)
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IN PICTURES: Top 10 Forex Trading Rules
Third Quarter Sales and Profit Trends|
Revenues improved 1.9% to $578.2 million as same-store sales in the restaurant section grew 0.6% and increased 3.2% in the retail portion of the stores. Restaurant comps were driven by a 2.2% higher average check size, indicating that consumers are starting to spend more while eating out. Recent results at casual-dining rivals such as P.F. Changs China Bistro (Nasdaq:PFCB), DineEquity's (NYSE:DIN) Applebee's locations, Texas Roadhouse (Nasdaq:TXRH), and many of the Darden Restaurants (NYSE:DRI) concepts, including Olive Garden and Red Lobster, have confirmed this trend as overall sales and comps have improved.
Due to cost controls, management was able to leverage the minimal sales growth into double-digit profit growth. Cost of goods sold and labor costs fell to offset higher general and administrative expenses. This coupled with lower interest expense from the continued pay-down of long-term debt resulted in a 21% improvement in net income to $14.4 million.
Outlook
For the full year, Cracker Barrel expects minimal sales growth between 1% and 2% as it plans to open six new stores. Restaurant comparable sales should increase by a range between 0.5% and 1% while retail comps could fall between 0.5% and 1%. Diluted earnings are expected to range between $3.50 and $3.60 per diluted share, which would represent a substantial improvement from the $2.89 reported last year.
Bottom Line
Reported net income at Cracker Barrel has come in below free cash flow generation as it has tightened capital expenditures and pushed through working capital efficiencies. In management's words, this "strong cash flow allows us to invest in our brand, pursue growth, maintain our dividend and reduce our debt."
Cracker Barrel is focused on reducing debt for now and should also return to buying back large amounts of stock, as it did a couple of years ago. Both will boost earnings per share, as will an improving economic climate. A reasonable forward P/E multiple below 13 should also allow for some multiple expansion as the business cycle moves into full gear. Throw in a current dividend yield of 1.6%, and the stock, even after a major run, looks pretty appetizing. (For more stock analysis, read Big Energy Dividends.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Ryan C. Fuhrmann
Ryan C. Fuhrmann, CFA, has a background in portfolio management, overseeing assets for high-net-worth individuals and covering a broad array of industries from a generalist perspective. An active student of investing, he focuses on communicating his ideas as an investment writer and learning from the financial community. Ryan is also actively involved with the CFA Institute. Feel free to visit his website at www.rationalanalyst.com.
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