When you walk into a Cracker Barrel restaurant, you pretty much know what you’re going to get. (And you know what kind of candy will tempt you on the way out.) And when it comes to its action in the investing world, the situation isn’t all that different.
Cracker Barrel Old Country Store, Inc. (CBRL) is a successful restaurant chain that’s had a very good run operationally and on the stock market. The position’s come back from its all-time record-high quite significantly, and with a forward price-to-earnings ratio of around 15 and a 4.2% dividend yield, this company may be coming back into the “buy” zone.
Cracker Barrel’s business is directly related to economic activity and travel spending, given the company’s large number of locations on interstate highways.
Uncharacteristically, the company’s most recent quarter produced a slight comparative reduction in total revenues. For the quarter ending January 31, 2014, Cracker Barrel’s sales were $698.5 million, compared to $702.7 million in the same quarter of the previous year.
But earnings held up, growing to $37.0 million from $35.0 million, comparatively. Management recently increased its dividend substantially. The company’s stock chart is featured below:
Chart courtesy of www.StockCharts.com
Cracker Barrel reports its updated quarter results next week. Currently, the company is operating 625 stores in 42 states.
Management recently initiated a cost reduction program, looking for $50.0 million in annual savings by fiscal 2017.
The company’s average check has been experiencing solid growth in recent months, but comparable restaurant traffic has been down. Citing bad weather, strong competition, and an overall reduction in vehicle traffic (weather-related and shorter vacations), the company had to lower its fiscal third-quarter earnings guidance to between $1.18 and $1.23 a share, down from the previous range of $1.20 to $1.30.
Naturally, like so many other corporations, when things get tight, management looks for ways to keep shareholders happy. The company just announced another dividend increase. This time, it was a 33% improvement in the quarterly dividend to $1.00 a share, payable on August 5 to shareholders of record on July 18.
One activist investor is advocating for a large special dividend to be paid to shareholders and/or the outright sale of the company. But shareholders consistently vote against this strategy.
In any case, in order for Cracker Barrel to get its share price moving again, it’s going to have to turn comparable restaurant and store sales around—and that’s no easy task.
From the investor’s perspective, rising dividends are helpful and Cracker Barrel has done so for its fifth consecutive year. (See “Pullback in Stock Prices Makes These Dividend Payers Attractive Again.”)
Top-line growth for this company is slow. But over the last several years, earnings have been a standout and growth should get back on track going into the next calendar year.
Below $90.00 a share, this position would become a decent value and an attractive investment to income-seeking investors.
Restaurant stocks can really pay when traffic numbers improve. Cracker Barrel has proven it can increase its average check; now all the company needs to do is get more boots into its stores, so more advertising and promotions are likely.