Cracker Barrel Old Country Store, Inc. (CBRL Quick QuoteCBRL - Free Report) continues to benefit from its off-premise business model, retail business and the acquisition of Maple Street Biscuit. The company’s cost-cutting and sales-building efforts also bode well.

However, wage and commodity inflation are potential headwinds for the company. So far this year, shares of Cracker Barrel have gained 5.5%, underperforming the Zacks Retail – Restaurants industry’s 12.6% rise.

Let’s take a look at the factors influencing this Zacks Rank #3 (Hold) company's growth. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Factors Driving Growth

Menu Renovation Driving Sales: 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 all-day breakfast offering, drive check favorability and promote guest perceptions of menu variety. The company also plans for a dinner menu evolution by introducing new high-quality food items in the same. Going forward, the company expects to expand this initiative and evolve its menu to reinforce the core strength of desirable homestyle food. For fiscal 2022, it expects to shift to the breakfast menu, the first phase of which is streamlining the categories of breakfast offerings to alleviate confusion, enabling guest customization with a build-your-own homestyle breakfast and better highlighting the company’s value proposition.

Sales-Building Efforts: In a bid to address 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 both regular and less-frequent guests. Robust sales-building efforts, vaccinations and the easing of capacity restrictions have helped the company achieve average weekly sales of nearly $59,000 in July, compared with $54,000 per week during April. The company also benefited from its beer and wine program, digital investments, and its menu-evolution efforts. In fiscal 2021, the introduction of a new dinner menu and the continued roll-out of beer and wine to the stores have helped the company to generate higher sales.

Downsizing Cost: Cracker Barrel has an effective cost-cutting mechanism in place. The company undertakes various measures to keep costs under control. Currently, it is carrying out its cost-saving plan through its 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. During fiscal 2021, the company generated labor-related cost savings of $7.5 million, primarily driven by the strategic action it took during the fiscal third quarter. Incentive and other compensation costs also decreased during the period. On the utility front, the company has undertaken the implementation of LED lighting, which is being installed on the exteriors of its stores. This is likely to boost efficiencies and drive cost favorability, going forward. Meanwhile, the company expects costs savings of approximately $50 million over the long term.

Off-Premise Sales: Cracker Barrel aims to meet its 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. During fourth-quarter fiscal 2021, comparable store off-premise sales rose 108.6% from the fiscal 2019 level. Meanwhile, the company 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 guests’ experience. The company is also very optimistic about single-location test of its virtual brand chicken and biscuits. It is planning to increase the test to 19 more locations. The company’s off-premise sales remained elevated in the fourth-quarter fiscal 2021 and more than doubled from the fourth-quarter fiscal 2019 level. It also retained nearly 75% of the peak off-premise growth from pre-COVID levels. For fiscal 2022, the company plans to drive off-premise sales through awareness building, advertising and partnerships with third-party delivery companies.

Rewarding Shareholders: Cracker Barrel has been consistently enhancing shareholders’ returns through share repurchases and dividends. During fourth-quarter fiscal 2021, the company announced a hike in its quarterly dividend payout. It raised its quarterly dividend by 30%, which indicates its intention to utilize free cash for boosting shareholders’ returns. The company raised the quarterly dividend to $1.30 per share (or $5.20 annually) from the previous payout of $1.00 (or $4.00 annually). The hiked dividend will be payable on Nov 9, 2021, to shareholders of record as of Oct 22, 2021. Management has also approved share repurchases of up to $100 million.

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Concerns:

Despite cost-saving initiatives, higher labor costs due to increased wages are expected to persistently keep Cracker Barrel’s profits under pressure. The company is apprehensive about inflationary costs that are likely to be incurred. Expenses for opening units are anticipated to hurt the company’s margins. During the fourth quarter of fiscal 2021, gross margin was pressured by commodity inflation of 5.1%. Anticipated wage and commodity inflation in the range of mid-to-high single digits for fiscal 2022 may hurt margins. The company expects inflation to be moderate across fiscal 2022.

During fourth-quarter fiscal 2020, comparable store restaurant sales declined 6.8% from the level recorded in the same period in fiscal 2019.

Three Retail – Restaurants Stocks Worth Buying

A few better-ranked stocks in the same industry include Jack in the Box Inc. (JACK Quick QuoteJACK - Free Report) , The Wendy's Company (WEN Quick QuoteWEN - Free Report) and Yum! Brands, Inc. (YUM Quick QuoteYUM - Free Report) , each carrying a Zacks Rank #2 (Buy).

Jack in the Box has a trailing four-quarter earnings surprise of 26.4%, on average.

Wendy's and Yum! Brands’ earnings for 2021 are expected to rise 43.9% and 22.4%, respectively.