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Here's Why You Should Steer Clear of Cracker Barrel (CBRL) Stock
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Following a challenging year in 2023, Cracker Barrel Old Country Store, Inc. (CBRL - Free Report) continues to grapple with strong headwinds, including commodity and wage inflation and declining comparable store retail sales. Also, dismal industry traffic and shifts in consumer discretionary spending are a concern.
Shares of CBRL have declined by 16.5% in the past three months, against the S&P 500 and the Zacks Retail - Restaurants industry’s growth of 7% and 1.5%, respectively. Earnings estimates for the fiscal 2024 have moved south to $4.62 per share from $4.78 in the past 30 days. This depicts analysts' concern over the company’s growth prospects. The Zacks Consensus Estimate for the company’s fiscal 2024 earnings per share (EPS) indicates a decline of 15.5% from the previous year’s reported levels.
Image Source: Zacks Investment Research
Let’s discuss the factors likely to impact this Zacks Rank #4 (Sell) company’s growth potential.
Factors Impeding Growth
Cracker Barrel has been persistently witnessing inflationary pressures that are affecting its operational performance and reducing profit margins in the past few quarters. Despite cost-saving initiatives, higher labor costs due to increased wages and investments in additional labor hours are expected to keep profits under pressure persistently.
During the second quarter of fiscal 2024, comparable store retail sales declined 5.3% year over year. The company witnessed declines across most categories, with toys, food, and decor experiencing the largest decreases.
During the quarter, the company witnessed a 130 basis points (bps) decline in the total cost of goods sold (as a percentage of total revenues) to 33.7% year over year. Although the total cost of goods sold declined year over year, labor and other related expenses and other store operating expenses, as a percentage of total revenues, increased year over year by 90 bps to 34.5% and 50 bps to 22.9%, respectively. The increase in labor and other related expenses was driven by investments in additional labor hours to support the guest experience and hourly wage inflation of approximately 5.4%.
For fiscal 2024, Cracker Barrel expects commodity inflation to range from approximately 0% to 2% and hourly restaurant wage inflation to be approximately 5%.
In the quarter, adjusted operating margin was 3.8%, down from 4.5% reported in the year-ago quarter. The downside was mainly due to a rise in labor and related expenditures, other operating expenses and general and administrative costs. From a quarterly cadence perspective, CBRL expects its third-quarter adjusted operating income to be lower than the prior year’s levels.
Although the company reported solid sales in the quarter, with a notable improvement of 300 basis points in traffic trend compared to the first quarter, it acknowledges operating in an uncertain environment. The industry is still facing challenges and CBRL expects industry traffic to remain under pressure for the rest of the fiscal year.
Key Picks
Some better-ranked stocks in the Zacks Retail-Wholesale sector include:
The Zacks Consensus Estimate for EAT’s 2024 sales and EPS indicates 4.9% and 30.4% growth, respectively, from the year-ago period’s levels.
Texas Roadhouse, Inc. (TXRH - Free Report) carries a Zacks Rank #2. It has a trailing four-quarter negative earnings surprise of 3.9%, on average. The stock has gained 43.3% in the past year.
The Zacks Consensus Estimate for TXRH’s 2024 sales and EPS suggests rises of 14.1% and 25.8%, respectively, from the year-ago period’s levels.
Shake Shack Inc. (SHAK - Free Report) carries a Zacks Rank #2. It has a trailing four-quarter earnings surprise of 92.6%, on average. Shares of SHAK have increased 87.2% in the past year.
The Zacks Consensus Estimate for SHAK’s 2024 sales and EPS indicates 14.6% and 91.9% growth, respectively, from the year-ago period’s levels.
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Here's Why You Should Steer Clear of Cracker Barrel (CBRL) Stock
Following a challenging year in 2023, Cracker Barrel Old Country Store, Inc. (CBRL - Free Report) continues to grapple with strong headwinds, including commodity and wage inflation and declining comparable store retail sales. Also, dismal industry traffic and shifts in consumer discretionary spending are a concern.
Shares of CBRL have declined by 16.5% in the past three months, against the S&P 500 and the Zacks Retail - Restaurants industry’s growth of 7% and 1.5%, respectively. Earnings estimates for the fiscal 2024 have moved south to $4.62 per share from $4.78 in the past 30 days. This depicts analysts' concern over the company’s growth prospects. The Zacks Consensus Estimate for the company’s fiscal 2024 earnings per share (EPS) indicates a decline of 15.5% from the previous year’s reported levels.
Image Source: Zacks Investment Research
Let’s discuss the factors likely to impact this Zacks Rank #4 (Sell) company’s growth potential.
Factors Impeding Growth
Cracker Barrel has been persistently witnessing inflationary pressures that are affecting its operational performance and reducing profit margins in the past few quarters. Despite cost-saving initiatives, higher labor costs due to increased wages and investments in additional labor hours are expected to keep profits under pressure persistently.
During the second quarter of fiscal 2024, comparable store retail sales declined 5.3% year over year. The company witnessed declines across most categories, with toys, food, and decor experiencing the largest decreases.
During the quarter, the company witnessed a 130 basis points (bps) decline in the total cost of goods sold (as a percentage of total revenues) to 33.7% year over year. Although the total cost of goods sold declined year over year, labor and other related expenses and other store operating expenses, as a percentage of total revenues, increased year over year by 90 bps to 34.5% and 50 bps to 22.9%, respectively. The increase in labor and other related expenses was driven by investments in additional labor hours to support the guest experience and hourly wage inflation of approximately 5.4%.
For fiscal 2024, Cracker Barrel expects commodity inflation to range from approximately 0% to 2% and hourly restaurant wage inflation to be approximately 5%.
In the quarter, adjusted operating margin was 3.8%, down from 4.5% reported in the year-ago quarter. The downside was mainly due to a rise in labor and related expenditures, other operating expenses and general and administrative costs. From a quarterly cadence perspective, CBRL expects its third-quarter adjusted operating income to be lower than the prior year’s levels.
Although the company reported solid sales in the quarter, with a notable improvement of 300 basis points in traffic trend compared to the first quarter, it acknowledges operating in an uncertain environment. The industry is still facing challenges and CBRL expects industry traffic to remain under pressure for the rest of the fiscal year.
Key Picks
Some better-ranked stocks in the Zacks Retail-Wholesale sector include:
Brinker International, Inc. (EAT - Free Report) carries a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 212.7% on average. Shares of EAT have surged 31.9% in the past year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for EAT’s 2024 sales and EPS indicates 4.9% and 30.4% growth, respectively, from the year-ago period’s levels.
Texas Roadhouse, Inc. (TXRH - Free Report) carries a Zacks Rank #2. It has a trailing four-quarter negative earnings surprise of 3.9%, on average. The stock has gained 43.3% in the past year.
The Zacks Consensus Estimate for TXRH’s 2024 sales and EPS suggests rises of 14.1% and 25.8%, respectively, from the year-ago period’s levels.
Shake Shack Inc. (SHAK - Free Report) carries a Zacks Rank #2. It has a trailing four-quarter earnings surprise of 92.6%, on average. Shares of SHAK have increased 87.2% in the past year.
The Zacks Consensus Estimate for SHAK’s 2024 sales and EPS indicates 14.6% and 91.9% growth, respectively, from the year-ago period’s levels.