Hurt by higher food costs and a slowdown in restaurant traffic, Cracker Barrel Old Country Store (NASDAQ:CBRL) revealed on Wednesday a narrowed fourth-quarter profit, though its fiscal guidance trumped Wall Street expectations.
Meanwhile, one of the companys largest stakeholders, Sardar Biglari, with a 9.3% stake in Cracker Barrel, released a letter to shareholders indicating the companys failure to perform up to expectations.
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I believe that the Cracker Barrel Board has failed to perform up to the companys potential, Biglari said, who urged his fellow shareholders to back his proposal and elect him to the board.
Since current board members do not have much equity in the company, their incentives, in my judgment, center on pay, perks, and prestige, he said in the letter. In contrast, ours center on performance.
Biglari, who heads Biglari Holdings, a vehicle through which he allocates capital in order to own a part of or whole businesses, also chastised Cracker Barrel for poor accounting practices and lacking transparency.
However, the company has opposed Biglaris efforts to gain board seats since June, claiming it would be detrimental to the company and shareholder interests having a rival restaurant owner lead the company. Biglari Holdings parents the Steak 'n Shake restaurant chain.
The Cracker Barrel board has said it held many conversations with Biglari in good faith to avoid a proxy battle.
The Lebanon, Tenn.-based restaurant chain set forth strategic initiatives such as lower menu prices that it hopes will lift its fiscal profit ahead of Wall Street expectations.
Cracker Barrel posted net income of $17.54 million, or 75 cents a share, compared with $27.4 million, or $1.14 a share, in the same quarter last year, below average analyst estimates polled by Thomson Reuters of 91 cents. Excluding costs related to severance, organizational changes and a new bank facility, the company would have earned a dollar a share.
Revenue for the three months ended July 29 was $612.9 million, virtually flat from a year ago, and missing the Streets view of $621.4 million.
Sales were impacted by a 4.2% decrease in comparable restaurant traffic and a 1.4% drop in comparable restaurant sales, as well as higher food commodity prices, both issues of point with Biglari, who claimed that its decision to raise menu prices during the recession was ill-advised.The company, he said, has failed to raise traffic in each of the last seven years.
Companies in the food and beverage industry have been struggling against rising commodity costs, forcing many to raise prices and take a hit to their profit.
We are not satisfied with our sales and traffic results for the quarter, Cracker Barrel CEO Sandra Cochran said in a statement. The economic environment continues to be challenging, and we believe it contributed to weak summer travel and declines in customer traffic.
In an effort to work its way through the challenging economy, the company said on Tuesday that it plans to introduce more accessible entry price points on its menu and improve the guest experience through changes to its operating platform.
The retailer predicts fiscal 2012 revenue in the range of $2.55 billion to $2.6 billion with earnings between $4.05 and $4.20 a share. Wall Street is predicting sales of $2.44 billion and a profit of $3.76 a share.
Partially offsetting weaknesses in the fourth quarter was a 2.8% increase in average checks and lower operating expenses.