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Here's Why You Should Retain Cracker Barrel (CBRL) Stock Now

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Cracker Barrel Old Country Store, Inc. (CBRL - Free Report) continues to benefit from its focus on menu innovation and off-premise business model. The company also has a robust delivery channel. This along with cost-cutting efforts might aid in margin expansion. In the past year, shares of Cracker Barrel have gained 45% compared with the Zacks Retail – Restaurants industry’s 40.9% rise.

However, increasing labor costs and traffic-related concerns are potential headwinds for the company.

Factors Driving Growth

Menu Renovation: Cracker Barrel is relentlessly focusing on rejuvenating its menu, which serves as the backbone of the company’s riveting growth potential. The company’s in-store menu features Fried Chicken Benedict bowl, a Ham n' Maple Bacon bowl as well as a Sausage, Grits Cakes and Green Tomato Gravy bowl. The company believes that the platform will complement its breakfast all-day offering, drive check favorability and promote guest perceptions of menu variety. Moreover, it plans to strengthen the dinner daypart by introducing new high-quality food items in the menu. During the second quarter of fiscal 2021, the company introduced box meals, which include new meatloaf sliders. It is also focusing on home-style meal offerings that are likely to attract customers during and after the pandemic. Coming to the beer and wine tableside beverage program, the initiative expanded to approximately 350 stores in second-quarter fiscal 2021. Going forward, the company expects to expand this initiative at nearly 600 stores. The complete rollout of this expansion plan is anticipated by first-quarter fiscal 2022.

Off-Premise Sales: The company aims to meet consumers' need for convenience via growth in its off-premise business. In fact, it plans to enhance its off-premise platform by introducing catering menu offering and in-store training of hourly employees. Due to the pandemic, off-premise sales have increased sharply and are expected to remain elevated in fiscal 2021. Cracker Barrel continues to focus on off-premise initiatives, such as curbside delivery, third-party delivery and family meal baskets. It also continues to invest in technology initiatives to enhance guest’s experience. To this end, the company plans to roll out Pay in App that allows contactless payments via mobile devices. It is also initiating the launch of digital store that enhances customer experience for ordering food and retail. During the third quarter of fiscal 2021, the company witnessed strong website traffic and customer conversion in its digital store, thereby boosting its off-premise performance in the quarter.

Cost-Saving Plans: Cracker Barrel undertakes various measures to keep costs under control. Currently, the company is carrying out its cost-saving plan through two prime initiatives — food waste and labor management. The company changed the structure in its retail sales and service functions and now cross-trains its retail sales associate and cashier positions. This system-wide change allows it to deploy fewer associates during the outlet’s low volume hours, thereby reducing store hourly labor by 25-30 hours per week. It also initiated a new food management program that includes back of the house process improvements, additional focus on food reporting and analytics as well as a new food auditing process. On the utility front, the company has undertaken the implementation of LED lighting, which is being installed on the exterior of its stores. Meanwhile, the company expects costs savings of approximately $50 million over the long term.

Sales-Building Strategies: To combat the challenges of the competitive restaurant industry, Cracker Barrel undertakes extensive marketing efforts, mainly focusing on the brand’s differentiation, menu offering and its value. In order to drive traffic, Cracker Barrel relies heavily on seasonal promotions and limited-time offers to boost its top-line performance as these are appealing to regular users and less-frequent guests. Robust sales-building efforts, vaccinations, the easing of capacity restrictions and stimulus package have helped the company in delivering average weekly sales of nearly $70,000 in April, compared with $56,000 per week during January of fiscal 2021.

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Higher labor costs due to increased wages are expected to persistently keep profits under pressure. Also, the company is apprehensive about incurring inflationary costs. Meanwhile, management is making significant investments to support training, launch of several initiatives and value testing. Although these moves are expected to drive Cracker Barrel’s top line during fiscal 2021, initial investments might dent margins. Moreover, anticipated wage inflation in the range of 3% to 3.5% and commodity inflation of nearly 5% during fourth-quarter fiscal 2021 may hurt margins. The company believes inflation to be moderate in fiscal 2022.

Furthermore, even though Cracker Barrel’s comps have increased over the past few quarters, decline in traffic continues to be a major concern for the stocks in this space.

Zacks Rank & Key Picks

Cracker Barrel carries a Zacks Rank #3 (Hold).

Some better-ranked stocks which warrant a look in the same industry are Bloomin' Brands, Inc. (BLMN - Free Report) , Red Robin Gourmet Burgers, Inc. (RRGB - Free Report) and Chuy's Holdings, Inc. (CHUY - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Bloomin' Brands, Red Robin’s and Chuy's Holdings’ 2021 earnings are expected to rise 410.1%, 98.8% and 82.1% year over year, respectively.

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