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Cracker Barrel (CBRL) Down 8% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Cracker Barrel Old Country Store (CBRL - Free Report) . Shares have lost about 8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Cracker Barrel due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Cracker Barrel Post Wider-Than-Expected Loss in Q3

Cracker Barrel reported dismal third-quarter fiscal 2020 (ended May 1, 2020) results, wherein earnings and revenues not only missed the Zacks Consensus Estimate but also declined on a year-over-year basis. 

Loss during the quarter came in at $6.81 per share, which was 44.3% wider than the Zacks Consensus Estimate of $4.72. The company had reported earnings per share of $2.09 in the year-ago quarter. 

Adjusted loss (excluding the impairment charges related to store assets, expenses related to COVID-19, the impairment charge related to Punch Bowl Social, and the related tax effects) was $1.81 per share during the quarter.

Revenues of $432.5 million also missed the consensus mark of $453 million by 4.4%. The figure declined 41.5% on a year-over-year basis primarily due to lower traffic owing to the closure of dining rooms. As a result, breakfast and lunch day part sales were negatively impacted. Of these revenues, 83.3% was contributed by Restaurants and 16.7% was added by Retail supply chain.

Comps Details

Comparable store restaurant sales declined 41.7% in the reported quarter owing to a 43.6% fall in comparable store restaurant traffic, partially offset by a 1.9% uptick in average check. Moreover, comparable store retail sales in the fiscal third quarter declined 45.5% from the prior-year quarter’s figure.

Operating Highlights

Cost of goods sold (exclusive of depreciation and rent) increased 240 basis points (bps). General and administrative expenses rose 150 bps year over year.

Operating loss in fiscal third quarter totaled $79 million against an operating profit of $65.1 million in the prior-year quarter. Operating margin was a negative 18.3%, down 2710 bps from the prior-year quarter. The decline in operating margin was caused by increases in operating as well as general and administrative expenses along with cost of goods sold and labor-related expenses.

Excluding $18.3-million impairment charges related to store assets and approximately $7.1 million of COVID-19-related expenses, adjusted operating loss was $53.6 million.

Balance Sheet

As of May 1, 2020, cash and cash equivalents were $363.3 million, up from $167.6 million as of May 3, 2019. 

Inventory at the end of the quarter under review amounted to $146.3 million, down from $152.6 million at the end of third-quarter fiscal 2019. 

Long-term debt amounted to $940 million at the end of the quarter, up from $400 million at the end of the prior-year quarter.

On May 28, the company withdrew approximately $40 million through an exercise of an accordion feature to increase borrowing capacity under its credit facility, which is scheduled to mature in May 2021.

Net cash provided by operating activities was $87.2 million in the first nine months of fiscal 2020 compared with $252.6 million in the comparable prior-year period.

However, due to uncertainty tied to the COVID-19 pandemic, the company has suspended its share repurchase activity as well as dividend payment program.

Fiscal 2020 Guidance Suspended

Given the level of uncertainty regarding the coronavirus impact, the company has withdrawn its 2020 guidance.

Stores Update

Although Cracker Barrel was operating only through delivery and takeaway services from late March through late April, the company started to initiate dine-in openings thereafter. 

For the week ended May 29, 2020, comparable store restaurant sales for stores with dine-in service fell approximately 32% year over year. As of May 29, 2020, the company operates 505 stores with limited dine-in service and expects to substantially increase it across all its stores by June-end.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted 63.46% due to these changes.

VGM Scores

Currently, Cracker Barrel has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Cracker Barrel has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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