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Bear Of The Day: Cracker Barrel (CBRL)

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The road trip stops at Cracker Barrel (CBRL - Free Report) and its “Old Country Store” may be a relic of the past and the stock’s 30% decline from the highs it reached last year reflects a societal shift away from Grandma’s favorite rocking chair rest-stop.

The war in Eastern Europe has catalyzed extended global supply-chain back-ups which have adversely impacted Cracker Barrel’s costs and paper-thin margins in the near term, while its longer-term outlook remains ambiguous with an aging target customer base (average customer age is over 60).

Now that the federal mask mandate is off the table, more people than ever are turning to air travel (and away from road trips), which is rapidly returning to pre-pandemic levels with the latest bookings hitting record levels.

The reduction in road travel coupled with margin-crushing inflation/supply chain issues has Cracker Barrel analysts reeling in EPS estimates and driving CBRL down into a Zacks Rank #5 (Strong Sell).

The Business

Cracker Barrel Old Country Store offers an on-the-go (aka highway pit-stop) southern homestyle food menu and a unique in-store shopping experience with more than 660 company-owned Cracker Barrel and Maple Street Biscuit Company (late-2019 acquisition for $36 million) locations across 45 states.

The company has been around for over half a century now, having started on Highway 109 in Lebanon, Tennessee, a small town outside of Nashville, in 1969. However, its southern charm is beginning to lose its luster in the post-pandemic world as the next generation of consumers rejects the restaurant’s old southern values (which are beginning to look a lot more like discrimination).

The biggest issue with Cracker Barrel is its lack of material development beyond just another highway pit spot. Now I may not be the target customer, but I can anecdotally say that I’m not a fan of Cracker Barrel’s aesthetic, which is unpleasing to my senses (to say the least), and as a Millennial I know I’m not alone in this thinking.

The now largest consuming generation is very future-focused and not sentimental in the same manner as previous generations (which make up a large portion of this company’s patrons), leaving this aging business with similarly aging customers.

Cracker Barrel’s Maple Street Biscuit Company deal is an attempt to revitalize demand from younger generations who aren’t a fan of the old southern “aesthetic value” that the original restaurant was capturing.

Final Thoughts

CBRL has been in a clear-cut down spell for over a year now, having broken below its 200-day MA in July 2021, and has since been unable to break above this now declining trendline.

Plane & train travel is becoming the preferred method for vacationing, with the notion of discovering new cultures and discovering oneself (solo-traveling) being primary themes for Millennials. These next-gen values do not coincide with Cracker Barrel’s antiquated big family road trip consumer base of the past. Millennials are having babies like there is no tomorrow as of late, so we will see if they follow the old family road trip tradition of going to Cracker Barrel, but I see it as unlikely.

Inflation and an aging customer base represent the short and long-term concerns (respectively) plaguing CBRL shares. I wouldn’t hesitate to sell out of this losing hand, while it’s still trading above $100 a share.


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