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Cracker Barrel Old Country Store Inc. (CBRL - Snapshot Report) reported third-quarter 2012 adjusted earnings of 86 cents per share, comfortably beating the Zacks Consensus Estimate of 74 cents as well as the prior-year earnings of 58 cents per share. Quarterly earnings exclude severance and other charges related to operational restructuring.The better-than-expected results were driven by top-line and comps growth.

On a GAAP basis, the company reported earnings of 81 cents per share compared with the year-ago quarter earnings of 64 cents per share. Total revenue of the company remained climbed 4.5% year over year to $608.5 million, thanks to comps and unit growth.  

Quarter Performance

Restaurant revenue and retail revenue jumped 5% and 2.2% to $500.0 million and $108.5 million, respectively.

On a comparable basis, restaurant sales rose 3.1% due to a 0.6% upside in traffic, 2.5% increase in average check and a 2.4% rise in menu prices. Comparable retail sales in the quarter also crept up 0.3%.

Gross margin in the quarter plunged to 68.8% from 69.1% in the year-ago quarter, based on higher cost of goods sold (up 0.3%). However, operating margin expanded 170 basis points (bps) year over year to 6.7% in the quarter, attributable to 40 bps slide in labor and related expense and 120 bps decrease in other store operating expenses and 10 bps dip in general and administrative expenses.

Store Update

During the quarter, Cracker Barrel opened 5 new restaurants. Thus, at the end of the third quarter, the company had 613 owned locations.

In 2012, Cracker Barrel plans to open 13 new units.

Financial Position

At the end of third quarter of 2012, Cracker Barrel had cash and cash equivalents of approximately $127.3 million compared with $52.3 million in fiscal 2011. The company also reduced its long-term debt to $536.0 million from $550.1 million in 2011.

Cracker Barrel has also recently hiked its quarterly dividend by 15 cents to 40 cents per share. This translates into a 60.0% increase from the prior dividend. The dividend will be paid on August 6, 2012 to the stockholders of record as of July 20, 2012.

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 1.5% to 2.0%. However, based on third quarter results and rising sales, the company again raised its adjusted earnings per share projection to $4.35 to $4.45 from the earlier estimate of $4.20 to $4.35. Cracker Barrel expects commodity cost pressure to continue in 2012 and foresee inflation of 5.0%-5.5%. Operating margin is estimated to be in the single-digit range of 7.4% to 7.6%.

The Lebanon, Tennessee-based company expects earnings per share in the range of $4.50 to $4.70 in 2013.

Our Take

We expect estimates to go up in the coming days, as the company reported better-than-expected earnings results and raised its earnings outlook for 2012. Cracker Barrel remains focused on enhancing shareholder value and ensuring growth of the company in the long term based on three strategies – increasing the core business, unit growth and extending the Cracker Barrel brand. In the near term, the company 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.

Cracker Barrel, which competes with Jamba, Inc (JMBA - Snapshot Report), currently retains a Zacks #3 Rank (short-term Hold rating). We also reiterate our long-term Neutral recommendation on the stock.

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