Cracker Barrel Outpaces the Broad Restaurant Industry With Its Latest Results

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Cracker Barrel (NASDAQ: CBRL) stock is showing signs of a rebound after the company released its latest bout of earnings. It was not a perfect end to the company's fiscal year, but a few things went right to give investors some optimism.

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The bad news

Cracker Barrel revenue for the quarter ended July 28, 2017 was $743.2 million, little changed from last year's $745.6 million. Revenue was also unchanged for the full year, coming in at $2.93 billion.

It was a tough period for the restaurant chain, especially for the stores that are adjacent to each of the company's restaurants. A tough retail environment, in which heavy discounting has been the norm, was to blame. It was a lackluster year for comparable sales for the company's restaurants, too, as that industry has also become hypercompetitive. In a nutshell, new restaurants are opening even though Americans aren't going out to eat any more than they were last year.

Fiscal Year Ended July 28, 2017

Restaurant Comparable Sales

Retail Comparable Sales

Q1

2.2%

(4.0%)

Q2

0.6%

(2.2%)

Q3

(0.4%)

(4.7%)

Q4

(0.8%)

(4.4%)

For the whole year, restaurant comps were at 0.2%, while the retail side of the business was at negative 3.7%. Offsetting the falling foot traffic and helping revenue come in flat was the opening of eight new locations, bringing the total location count up to 649.

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The good news

The saving grace for Cracker Barrel's fiscal year finale was that earnings per share increased 5% to $2.23. For the whole year, earnings were up 6% to $8.37. The bottom line was able to rise in spite of the negativity surrounding the business due to falling food and labor costs.

Another positive: Comps on restaurant sales, which make up 80% of revenue, beat the restaurant industry average over the last 12 months. Comps for the U.S. restaurant industry have been declining by at least 1% every quarter since the summer of 2016.

Cracker Barrel management struck an upbeat tone for the year ahead. Revenue is expected to increase 6% to $3.1 billion, on the back of as many as 13 new location openings and expected comparable-restaurant sales of 2.5% to 3.5%. Performance on the retail side is should stay flat or reverse course, coming in at 0% to 1% in the year ahead.

As a result, management sees earnings between $8.85 and $9.00. That would be another 6% rise compared to fiscal 2017 at the low end of guidance.

What investors should do

Guidance for the next four quarters is an about-face from the performance in the previous fiscal year, so investors should be cautious. Cracker Barrel warned as much when it struck a conciliatory note regarding risks to its expectations. Both the restaurant and retail industries are expected to face continuing challenges, driven by changes in the way consumers shop and dine out.

Also worth considering is the fact that management's guidance doesn't include any impact from hurricanes Harvey and Irma. Both catastrophes have forced businesses to shut down for a time, and traffic for Cracker Barrel in Texas and Florida will likely decrease as communities recover and rebuild. Those events could have a detrimental effect on share prices, but investors shouldn't get too hung up on that prospect. The real reason to buy Cracker Barrel, as I outlined here, is for its 3.2% dividend.

In spite of some potential hiccups coming, there was enough positive news in this report to keep things looking up for investors in the Old Country Store.

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Nicholas Rossolillo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.