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Cracker Barrel Strategic Efforts Bode Well: Should You Hold?

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It has been a volatile year for the Retail-Food & Restaurants industry so far. Year to date, the industry has declined 4% against the S&P 500’s 1.7% gain. Under such circumstances, Cracker Barrel Old Country Store, Inc. (CBRL - Free Report) , which has witnessed its shares rise more than 670% in the last 10 years, is trading sideways in 2018. Even though the company looks promising on its efficient cost-saving initiatives, higher labor costs and expenses related to various sales-boosting initiatives are weighing on its margins.

Also, Cracker Barrel loses out on international front despite having a substantial domestic presence. While the other restaurant chains like Yum! Brands (YUM - Free Report) , McDonalds (MCD - Free Report) and Papa John’s (PZZA - Free Report) are pursuing aggressive global expansion strategies, Cracker Barrel seems to be weak in this regard.

Read on to find out the company’s strategic initiatives to revive its past glory.

Menu Innovations & Expansion Efforts

Cracker Barrel is continuously focusing on rejuvenating its menu, which serves as the backbone of the company’s riveting growth potential. In third-quarter fiscal 2018, the company’s in-store menu featured Fried Chicken Benedict bowl, a Ham n' Maple Bacon bowl and a Sausage, Grits Cakes and Green Tomato Gravy bowl.  In April, Cracker Barrel also completed the rollout of crafted coffee. The company believes that the platform will complement the strength of its breakfast all day offering and will drive check favorability. By focusing on menu innovation, Cracker Barrel is trying to increase its traffic and in turn sales. Also, the company’s continuous expansion strategies act as a key catalyst. In the third quarter of fiscal 2018, Cracker Barrel opened four company-owned restaurants including the first California location. Again, it opened one Holler & Dash location in Charlotte, North Carolina. So far this year, the company has expanded its footprint by opening eight restaurants in total.

Digitalization & Sales Building Initiatives

In a bid to offset the challenges of the competitive restaurant industry, Cracker Barrel has undertaken extensive marketing efforts that are mainly focused on the brand’s differentiation, menu offering and its value. Currently, it makes use of national cable along with local Spanish television for advertising. This, in turn, is increasing the company’s market coverage and brand awareness.

Furthermore, Cracker Barrel relies heavily on seasonal promotions and limited-time offers to boost its top-line performance as they are appealing to both regular users and less-frequent guests. In fiscal 2018, the company intends to meet consumers' needs for convenience via its off-premise business growth. Meanwhile, management will continue investing in its product line-up for improving guest experience and employee training to support long-term plans within this space. Multiple delivery options will also be tested this fiscal year. In the third quarter, the company made significant progress with its To Go sales by offering a new range of menu.

Cost Saving Initiatives

Cracker Barrel has an effective cost-cutting mechanism in place. Impressively, it undertakes various measures to keep costs under control. For fiscal 2018, the company expects to deliver annual cost savings in the $7-$8 million range. Currently, the company is carrying out its cost savings plan through its two prime initiatives — food waste and labor management.

Additionally, 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, thus reducing store hourly labor by 25-30 hours per week. Cracker Barrel believes that this initiative will be a significant contributor to its cost savings.

Cracker Barrel carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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