Not everyone in the food service
business is thriving. Higher input costs and a cautious
with less income on average have been thinning out the hungry herds at
restaurants. One unique company that
stands out in the space is Cracker Barrel.
Cracker Barrel (CBRL - Free Report)
offers an affordable and tasty eat-in option
for locals (622 company-owned locations in 42 states) and a strong mail
that sells everything from food to furniture and even music.
Heck they even produce and sell special
edition CDs that feature acts like Brad Paisley and LL Cool J (how’s
Their average restaurant check amount
has been steadily increasing
roughly 2.6% annually over the last 5 years (we have seen similar, but
strength in earnings in that time frame as well). Another
fact I found interesting was that they
have a fairly even split between breakfast, lunch and dinner traffic
keeps their restaurants and stores (mostly positioned just off major
in a state of constant activity and operation.
Perhaps the bigger (or at least more interesting) story is
not the stock’s earnings momentum, but the recent maneuvers by Sardar
of Biglari Holdings (BH) who now owns $355+ million worth (19.99%
Cracker Barrel. Mr Biglari has been
trying to shake things up a bit at the company and has failed to gain
control he wants.
Just recently, Cracker Barrel
Chairman James W. Bradford Jr.
offered to buy back Biglari Holdings' shares at market price, which
Biglari to make roughly $70 million appreciation on his stake, but he
refused. Biglari owns Steak and Shake, a competitor
and has tried (and failed) to gain seats on the board of CBRL over the
years through proxy battles.
It seems Mr. Biglari sees upside in
CBRL regardless of his
diversions, which adds value to the stock here in my opinion.
earnings justify the rally?
In the most recent quarter, Cracker Barrel posted a 0.2%
increase in comparable store traffic, with a 3.3% increase in
sales. This marked the fifth consecutive quarter of increased traffic
sales. On an adjusted basis, operating income margin grew by nearly one
to 8.4%. Adjusted EPS for the quarter came in at $1.43, versus $1.20 in
year-ago quarter. Revenue grew nearly 4.5% to nearly $702.7 million.
Their guidance was a bit on the
conservative side, with
expectations in the $4.60 to $4.80 range compared with 2012 full year
$4.61. The Zacks consensus estimates are closer to the high end at
share. In 2013 the company is expected
to open 9- 11 new restaurants and stores.
Earnings momentum has been strong
despite some doubts surrounding
return on capital, the stock has delivered earnings growth and analyst
to up their estimates in the company.
Cracker Barrel reports on May 21st and has a positive ESP of
1.08% for the current quarter.
Shares currently trade at 16 times
forward earnings, which
is actually low for the space.
I certainly wouldn’t
use the word “value” to describe shares of CBRL, but looking at the
their peers, relative value is certainly appropriate. Shares have
20% in the last month alone, which is something to take into
that rise may be justified.
prices should remain somewhat stable and barring another major drought,
rise back to their peaks of last year.
Cracker Barrel has already secured 45% of their commodity related needs
of Sept. 19, 2012.
The company expects
comparable store restaurant and retail sales to increase anywhere from
2% to 3%
in 2013. This includes menu price
increases of about 2% and accounts for commodity inflation of 5.0% to
That should equate
to total revenue between $2.6 and $2.65 billion according to their
with analysts’ opinions looking bullish, I’d expect a strong year as
Cracker Barrel and
Red Robin are the only Zacks Rank #1 stocks in the space; Red Robin (RRGB - Free Report)
recently upgraded as well, but trades at 21 times forward earnings.
Other competitors like Bloomin Brands (BLMN - Free Report) ,
Jack in the Box (JACK)
and others have lower Zacks Ranks and higher multiples.
Cracker Barrel has
maintained relatively stable stock growth over the last two years.
It hasn’t been below its 200 day moving average
in that time and has recently gained momentum after reporting strong
Look for some
support around the 20 day moving average of $77.45, with substantial
around the $70.86 area which is where the lows of the earnings gap
the 50 day moving average and VWAP.
Shares are currently
forming a sideways to moderately bullish channel and are near the top
of their recent
range. Resistance will be minimal at the
52 week high of $81.42.
All in all it’s a good
dividend stock (yields 2.6% annually) with strong earnings momentum and
favorable Zacks Rank.
A Levy is one of the most highly sought after traders in the world and
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