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Cracker Barrel Tops Estimates

CBRL DPZ

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Cracker Barrel Old Country Store Inc. (CBRL - Snapshot Report) reported first quarter 2012 adjusted earnings of $1.09 per share, outpacing the Zacks Consensus Estimate of 97 cents. Quarterly earnings exclude a charge of 6 cents related to the proxy war with Biglari Holdings Inc. . The better-than-expected results were driven by sequential upside in restaurant and retail sales.

On a GAAP basis, the company reported earnings of $1.03 per share, surpassing the year-ago quarter earnings of $1.01 per share. Total revenue of the company remained flat year over year at $598.4 million, due to lower comps, which were somewhat compensated by unit growth.  

Quarter Performance

Both restaurant revenue and retail revenue remained flat year over year at $481.5 million and $116.9 million respectively.

On a comparable basis, restaurant sales dropped 1.6% due to a 3.8% decline in traffic, partially offset by higher average check (up 2.2%). The upside in average check was driven by a 2.1% rise in menu prices and a favorable mix impact of 0.1%. However, guest count remained low given the prevailing economic challenges. Comparable retail sales in the quarter also dipped 1.3%.

Gross margin in the quarter plunged to 68.8% from 70.0% in the year-ago quarter, based on higher cost of goods sold (up 1.1%). Moreover, operating margin slipped 10 basis points (bps) year over year to 7.5% in the quarter, attributable to a 60 bps dip in labor and related expense and 50 bps decrease in other store operating expenses, partially offset by 10 bps spike general and administrative expenses and a 5.5% rise in food cost prices.

Store Update

During the quarter, Cracker Barrel opened 3 new restaurants. Thus, at the end of the first quarter, the company had 606 owned locations.

In 2012, Cracker Barrel plans to open 15 new units.

Financial Position

At the end of first quarter of 2012, Cracker Barrel had cash and cash equivalents of approximately $49.8 million compared with $52.3 million in fiscal 2011. The company also reduced its long-term debt to $545.4 million from $550.1 million in 2011.

Outlook

For 2012, the company continues to expect total revenue in the range of $2.55 billion to $2.6 billion and comparable restaurant and retail sales to be up flat to 1.5%. The adjusted earnings per share are projected in the range of $4.10 to $4.25. Cracker Barrel expects commodity cost pressure to continue in 2012, and foresee inflation of 5.5%-6.5%. Operating margin is estimated to be in the single-digit range of 7% to 7.2%.

Our Take

We expect estimates to go up in the coming days, as the company reported better-than-expected earnings results and encouraging sales results for the first three week of November. Cracker Barrel is taking several initiatives like media spending, refined menu and pricing strategies and improved restaurant operations and services to drive traffic and sales. Moreover, the company continues to make efforts to control cost.  However, cost inflation and uncertain economic conditions, which result in lower traffic, remain challenges going forward. The Zacks Consensus Estimates for 2012 and 2013 are pegged at $4.19 and $4.54 per share, respectively. Cracker Barrel, which competes with Domino’s Pizza, Inc (DPZ - Analyst Report), currently retains a Zacks #2 Rank (short-term Buy rating). We also reiterate our long-term Neutral recommendation on the stock.

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