Cracker Barrel Old Country Store, Inc.

Estimates have been rising for Cracker Barrel Old Country Store, Inc. (CBRL - Snapshot Report) after the company posted better than expected results for the first quarter of its fiscal 2012. Earnings per share came in at $1.03, beating the Zacks Consensus Estimate by 6%.

Analysts are projecting solid earnings growth for Cracker Barrel over the next couple of years. Based on current consensus estimates, analysts expect 12% EPS growth in 2012 and 9% growth in 2013. In addition to this, the company pays a dividend that yields 2.0%.

Valuation is attractive too with shares trading at just 11.4x 12-month forward earnings, a discount to the industry average.

Company Description

Cracker Barrel Old Country Store, Inc. was founded in 1969 and is headquartered in Lebanon, Tennessee. The company operates 608 restaurants and gift shops in 42 states. It has a market cap of $1.2 billion.

The company has been in the news a bit recently as activist investor Sardar Biglari, who owns nearly 10% of the company, has tried to get a seat on the Board of Directors. The company urged shareholders to deny him a spot, however, and recently reported that Biglari was beaten by a "significant" margin in a preliminary shareholder vote.

Third Quarter Results

Cracker Barrel reported better than expected results for the first quarter of its fiscal 2012 on November 22. Earnings per share came in at $1.03, beating the Zacks Consensus Estimate by 6 cents. It was a 2% increase over the same quarter in fiscal 2011.

Total revenue was flat year-over-year at $598.4 million. Comparable-store restaurant sales declined 1.6%, but improved sequentially as a 3.8% decline in comparable restaurant traffic was partially offset by a 2.2% increase in the average check.

The retail side of the business (which accounts for nearly 20% of total revenue) saw a 1.3% decrease in same-store sales.

Higher food commodity prices squeezed the gross profit margin a bit. But this was offset by lower labor and related expenses and other store operating expenses.

Excluding proxy contest charges related to Sardar Biglari's attempt to gain a seat on the Board of Directors, the operating margin improved from 7.6% to 7.8% of total revenue.

Outlook

Management remains cautious about the outlook for consumer spending and commodity costs in 2012, but is encouraged by improving sales trends. The company expects earnings per share in the range of $4.10 and $4.25 in 2012 on revenue of $2.55-$2.60 billion. Management also expects comparable-store restaurant and retail sales growth between 0% and 1.5%.

Analysts revised their estimates considerably higher for both 2012 and 2013 off of the solid Q1 results. This sent the stock to a Zacks #2 Rank (Buy).

The Zacks Consensus Estimate for 2012 is now $4.26, slightly above guidance, and representing 12% growth over 2011 EPS. The 2013 consensus estimate is currently 9% higher at $4.64.

Dividend

In addition to solid EPS growth, Cracker Barrel offers investors a dividend that yields a solid 2.0%. Since 2004, the company has raised it at a compound annual growth rate of 11%:

Valuation

The valuation pictures looks very reasonable for CBRL. Shares trade at just 11.4x 12-month forward earnings, a discount to the industry average of 13.3x. Its PEG ratio is an attractive 1.06 based on a long-term EPS growth rate of 10.8%.

The Bottom Line

With rising estimates, solid growth prospects, a 2.0% dividend yield, and very reasonable valuation, Cracker Barrel offers investors attractive total return potential.

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Co-Editor of the Reitmeister Value Investor.

Read the full analyst report on CBRL