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Tennessee-based Cracker Barrel Old Country Store Inc.'s (CBRL - Snapshot Report) earnings of $1.02 cents per share in the third quarter of fiscal 2013 surpassed the Zacks Consensus Estimate of 95 cents by 7.4%. The earnings grew almost 26% from the year-ago quarter’s earnings of 81 cents.

Earnings also significantly beat the guidance range of 90 cents - 95 cents. Improvement in the top line and margin expansion boosted the earnings during the quarter.

Total revenue in the third quarter climbed 5.2% year over year to $640.4 million, thanks to higher traffic and positive comparable store sales (comps) growth at both restaurants and retail. The quarterly revenues also beat the Zacks Consensus Estimate of $630 million by 1.6%.

Quarter Details

Cracker Barrel operates through two segments: Restaurant and Retail. Through its restaurants Cracker Barrel serves a wide range of menu items for breakfast, lunch and dinner, whereas its retail services provide various products including rocking chairs, gifts, toys, apparel, cookware and foods.

Restaurant

Restaurant revenues jumped 4.5% year over year to $522.6 million. Comparable store restaurant sales rose 3.1% on the back of a 2.4% improvement in average check and a 2.3% upside in menu prices.

Retail

Retail revenues surged 8.6% annually to $117.8 million. Comparable store retail sales in the quarter also crept up 5.5% with the rise in traffic.

However, comps at both restaurant and retails were slightly affected by adverse weather conditions in the U.S.

Operating margin in the quarter expanded 50 basis points (bps) to 6.9%, owing to the decline in hourly labor expense, as a percent of total revenue. However, cost of goods sold, as a percentage of revenues, were up 30 bps to 31.5% with the rise in the cost of beef, pork, poultry and fruits, offset by lower seafood costs. Other operating costs were up 10 bps due to rise in advertising costs.

Store Update

During the quarter, Cracker Barrel opened one new restaurant. Year to date, the company has unveiled six new units. Thus, at the end of the third quarter, the company had 622 units across 42 locations.

The company intends to launch eight new Cracker Barrel stores in fiscal 2013.

Financial Position

At the end of the third quarter of fiscal 2013, Cracker Barrel had cash and cash equivalents of approximately $58.5 million versus $186.1 million in the previous quarter. Long-term debt was $400.0 million as compared with $512.5 million in the second quarter.

Fiscal 2013 Outlook Upped

Following the company’s improved financial performance to date, it has raised its earnings guidance for fiscal 2013. Adjusted earnings are now expected in the range of $4.75 to $4.85, increased from previous guidance of $4.60 to $4.80. Cracker Barrel, however, maintained its revenue guidance. Revenues are expected in the range of $2.6 billion and $2.65 billion.

The company has raised the lower-end guidance of comparable restaurant and retail sales from 2.0% to 2.5%. Comparable restaurant and retail sales are now expected to increase in the range of 2.5% - 3.0%. Adjusted operating margin is now estimated to be within 7.4% - 7.5%, up from the previous guidance range of 7.3% - 7.5%. Commodity inflation will increase by 3.5% - 4% from the year-earlier quarter.

Dividend Hike

Cracker Barrel has announced a 50% increase in its quarterly dividend to 75 cents per share. The company’s dividend has increased by threefold from Nov 2011.

Our Take

The company’s better-than-expected financial performances and increased guidance for earnings as well as margin for fiscal 2013 are quite encouraging. Cracker Barrel’s several initiatives such as refining menu pricing, unit expansion and better restaurant operations are expected to drive sales, going forward. However, increasing beef costs remains a major cause of concern, going forward.

Some other restaurateurs, like McDonald’s Corp. (MCD - Analyst Report), missed our estimates on both lines this season while Yum! Brands Inc. (YUM - Analyst Report) beat earnings but missed out on revenues. Another company, The Cheesecake Factory Inc. (CAKE - Analyst Report), was ahead of the estimates on both counts.

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