Instant Analysis: Cracker Barrel Bucks the Trend in Casual Dining

By Markets Fool.com

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What happened

Cracker Barrel(NASDAQ: CBRL) posted surprisingly strong results in its fourth-quarter earnings report, even as many of its rivals were swept up in a "restaurant recession." Comparable sales improved 3.2% in the quarter at its restaurants and 3.5% at its retail stores, easily besting rivals like Chili's-parentBrinker Internationaland Ruby Tuesday, which have seen comparable sales slide along with much of the restaurant industry. Ruby Tuesday even let go of their CEO earlier this week as the stock continues to stumble. Management noted it was the company's best outperformance of the casual dining industry in fiscal 2016.

Nonetheless, traffic declined in the quarter by 1.2%, but a menu price hike helped drive its average transaction higher. Earnings per share ticked up 7.6% to $2.12 on a 4% revenue increase as cuts on SG&A costs helped drive increased profitability.

Does it matter?

Despite the strong quarter, shares actually dipped 7% following the report as the company's guidance was weaker than expected. Management sees revenue of $2.95 to $3 billion in fiscal 2017, representing just 1-3% growth, and expects EPS at $7.95-$8.10, also 1-3% above 2016's figure at $7.86.

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Comparable sales growth is expected to be 1-2% for the year and the company also projects commodity food deflation of 2-3%. Food deflation has been a double-edged sword for restaurants as it helps them save on costs, but it's also caused prices to fall at the grocery store, leading some customers to shy away from eating out. Comparable sales also slowed throughout the fourth quarter, falling to just 1.6% in July. With just eight new restaurants planned for 2017, the company is growing its footprint at a modest pace, meaning expectations for growth fall on comparable sales.

Cracker Barrel offers a solid dividend at a 3% yield, but if the stock continues to fall management may want to consider a share repurchase program. With little store growth, the company could put its cash to use for investors and boost earnings per share.

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Jeremy Bowman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.