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Cracker Barrel (CBRL) Down 11% YTD: What's Hurting the Stock?

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Shares of Cracker Barrel Old Country Store, Inc. (CBRL - Free Report) have been negatively impacted by the coronavirus pandemic. Notably, the company is witnessing dismal traffic due to social-distancing protocols.  Also, rise in labor costs along with high debt levels are adding to the negatives. So far this year, shares of the company have declined 11.2% against the industry’s 6.9% growth.

Let’s discuss and try to assess what’s hurting this Zacks Rank #4 (Sell) company.



Coronavirus Impact: The coronavirus pandemic has negatively impacted the company’s operations during the third quarter of fiscal 2020.

During the fiscal third quarter (ended May 1, 2020), the company’s comparable restaurant sales and comparable store retail sales declined 41.7% and 45.5%, respectively, on a year-over-year basis. Moreover, the company’s results in fiscal fourth quarter are likely to have been impacted by the coronavirus pandemic.

Although some of the restaurants have reopened their dining rooms, the company’s saw dismal traffic owing to social-distancing protocols, shelter-in-place orders and capacity restrictions. We believe that the coronavirus outbreak will further hurt traffic and sales in the coming quarters as well.

Moreover, owing to the uncertainty of the crisis, the company has withdrawn its 2020 guidance.

Dismal Traffic: Even though comps have increased over the past few quarters, decline in traffic continues to be a major concern for companies in this space. In fiscal 2019, traffic declined 0.7%. The downtrend continued in the first and second quarter of fiscal 2020, with traffic declining 1.5% and 0.2%, respectively. During the third quarter of fiscal 2020, comparable store restaurant traffic declined 43.6%. Dismal traffic in the fourth quarter of fiscal 2020 is likely to continue due to the social-distancing protocol.

High Labor Costs: Despite cost-saving initiatives, higher labor costs due to increased wages are expected to keep profits under pressure. Also, the company is apprehensive about inflationary costs. Meanwhile, management is making significant investments to support the training and launch of several initiatives as well as its value testing. Although these initiatives are expected to drive Cracker Barrel’s top line during fiscal 2020, initial investments might dent margins. Moreover, expenses for opening units are expected to hurt margins. Resultantly, operating margin in third-quarter fiscal 2020 was (18.3%), down 2,710 basis points from the year-ago quarter. The decline was caused by increases in operating as well as general and administrative expenses along with cost of goods sold and labor-related expenses.

High Debt: At the end of May 1, 2020, the company’s long-term debt stood at $940 million, compared with $460 million on Jan 31, 2020. As a result, the company’s debt-to-capitalization was 78.6% compared with 60.6% as on Jan 31. Moreover, the company ended third-quarter fiscal 2020 with cash and cash equivalents of $363.3 million, which may not be enough to manage the high debt level.

Stocks to Consider

Some better-ranked stocks worth considering in the same space include, Papa John's International, Inc. (PZZA - Free Report) , Jack in the Box Inc. (JACK - Free Report) and El Pollo Loco Holdings, Inc. (LOCO - Free Report) . Papa John's sports a Zacks Rank #1 (Strong Buy), while Jack in the Box and El Pollo Loco carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Papa John's has a three-five year earnings per share growth rate of 8%.

Jack in the Box 2021 earnings are expected to surge 17.5%.

El Pollo Loco has a trailing four-quarter earnings surprise of 94.1%, on average.

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