Tag Archives: Cracker Barrel

CRACKER BARREL (CBRL) WRITE-UP

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Key Economic Metrics Summary (from 10K – August 13, 2019)

CONCLUSION – Selling at just over 16x Adjusted EPS estimates for the year ending 7/31/20 and a little under 10x trailing twelve month EBITDA,  we consider that CBRL has more upside potential than downside risk. Punch Bowl Social is small relative to the size of CBRL, Maple Street Biscuit even more, so neither will move the EPS needle by much any time soon, but both could be intriguing to investors and allow for multiple expansion. Cracker Barrel’s Board of Directors has done a credible job of “returning cash to shareholders”, by way of stock buybacks, the regular dividend that equates to a current yield of 3.4% and special dividends of $3.75 and $3.00 in 2018 and 2019. Cracker Barrel is most accurately described as a cash cow rather than a growth vehicle at this point in their maturity cycle, but the cash flow is well managed, and two new concepts can allow for an attractive return on incremental invested capital.

THE COMPANY: Cracker Barrel Old Country Store, Inc. (CBRL) is principally engaged in the operations and development of the Cracker Barrel Old Country Store concept. Founded in 1969, they are headquartered in Lebanon, TN. As of September 18, 2019, there were 660 Cracker Barrel stores in 45 states. The format consists of rustic, old country store design which features a full-service dining room and a menu that focuses on home-style country foods. The entryway functions as a general store offering a wide variety of decorative and functional items such as rocking chairs, seasonal gifts, toys, apparel and foods. All locations are freestanding buildings with approximately 20% of the space dedicated to retail. The front porch features a row of rocking chairs that are utilized by guests during long waiting periods.  Cracker Barrel’s restaurants represent 80% of the revenue and their retail represents 20%. On July 18, 2019, the Company purchased about 58.6% of the “economic ownership interest” and 49.7% of the voting interest of PBS HoldCo., LLC, operator of Punch Bowl Social. As of 11/1/19, CBRL’s investment in PBS was $89.1M. Punch Bowl Social, with 19 locations averaging about $7.5M, can best described as an adult oriented Dave & Buster’s (but with a lot better food). On October 10, 2019, the Company purchased 100% ownership of Maple Street Biscuit Company, a breakfast and lunch fast casual concept (with 28 company owned and 5 franchised units), for $36M.

STORE LEVEL UNIT LEVEL ECONOMICS (Source: 10K):

UNIT LEVEL ECONOMICS COMMENTARY: AUV – Restaurant Average Unit Volume increased from $3,724,000 in fiscal 2018 to $3,735,000 in fiscal 2019; an increase of 2.6%. This was due to the increase in average check by 3.3%. The retail AUV decreased from $902,000 in fiscal 2018 to $887,000 in 2019 due primarily to a decrease in retail traffic and price markdowns on slower moving merchandise. COGS – Total Cost of Goods Sold decreased in 2019 to 30.3% of sales compared to 30.9% for fiscal 2018. The decrease was primarily due to the menu price increase, lower food waste and a shift to lower cost menu items partially offset by food commodity inflation of 1.6% for the restaurant side. For the retail side, the contribution to the decrease resulted from lower markdowns and a decrease in the provisions for obsolete inventories. Labor and Other Related Costs – increased to 35.1% of sales in fiscal 2019 compared to 34.8% of sales in fiscal 2018. This increase was primarily due to an increase in store hourly labor costs (wage inflation that exceeded menu price increase) and an increase in store-level bonus expense in 2019. Other Operating Costs – increased from $601,889,000 in fiscal 2018 to $626,453,000 in fiscal 2019. The increase was primarily a result from an increase in maintenance of 0.3%, depreciation of 0.2%, supplies of 0.2%, store manager conference expense of 0.1% all due to higher costs associated with wage increases and for depreciation resulted from a higher capital expenditure. (Cracker Barrel combines multiple costs into this category which includes: utilities, operating supplies, repairs and maintenance, depreciation and amortization, advertising, rent, credit card and gift card fees, real and personal property taxes, general insurance and costs associated with their bi-annual Manager’s Conference and training events.) Store Level EBITDA – decreased from $666,144 in fiscal 2018 to $656,324 in 2019. The decline was a result of the increase in labor costs and other operating expenses partially offset by the savings from lower COGS.

At newly acquired Maple Street Biscuits, targeted AUV is over $1M and targeted store level EBITDA is over 17%. Punch Bowl Social has AUVs approximating $7.5M.

DEVELOPMENT COMMENTARY: For fiscal 2019 the company opened 8 new locations and closed 1 underperforming location for a fiscal year-end total of 667 locations. Expansion plans for fiscal 2020 include six new Cracker Barrels and one new Maple Street. Additionally, six of the seven unit Holler & Dash chain that has been incubating within CBRL will be converted to MSB. PBS is on hold for the moment, as a new smaller prototype is being developed. Longer term expansion plans for both MSB and PBS have not been established, no doubt to be discussed at length during the analyst meeting scheduled for June’20.

SAME STORE SALES COMMENTARY: Comparable same store sales consist of sales of units open at least six full quarters at the beginning of the year and measured on comparable calendar weeks.

RECENT DEVELOPMENTS: Per Q1 Earnings Release and Conference Call

The closing of Maple Street Biscuit took place in Q1, and $14.2M worth of stock was purchased as well. The decline of $$0.17 per share included $0.11 related to transactional and integration expenses related to MSB and $0.25 loss from the equity method of investment in PBS. The overall negative comp included an increase of 2.1% in restaurant sales included a 3.6% check increase and 1.5% traffic decline. Retail retail sales decreased 0.9% in Q1.

The income statement line by line: Total Cost of Goods Sold was down 100bp to 29.3%. Restaurant Cost of Goods was down 60bp to 24.6%. Retail CGS was down 170bp to 49.6%. Labor and Related Expenses was flat at 35.2%. Other Store Operating expenses was up 90bp to 21.7%. Store Operating Income (after depreciation) was up 10 bp to 13.8%. G&A was flat at 5.3%. Operating Income was up 10bp to 8.5%. Pretax Income was up 20bp to 8.0%. Provision for Taxes was flat at 1.4%. Net Income, after 80bp loss from unconsolidated subsidiary, was down 60 bp to 5.8%.

For fiscal 2020, ending 7/31, the Company guided to GAAP EPS of $8.50-$8.65, driven by: comp restaurant growth of about 2.0%, retail growth of about 1.0%, Operating Income margin of about 9.0% of sales (versus 8.5% in Q1), capex of $115-125M, an effective tax rate of 16-17%. This also includes an equity method loss of $0.80 from Bunch Bowl Social, as well as $0.15 loss from integration of MSB ($0.11 of which has already been recognized). MSB management is relocating to Nashville and PBS is staying in Denver, still to be led by CEO Robert Thomson.

Product emphasis during Q1 included a heavy emphasis on the Signature Fried Chicken Platform. Homestyle chicken is now available all week long, not just on Sunday, and a new Homestyle Chicken BLT sandwich was supported by six weeks of national TV.  Off premise sales are expanding by way of third party delivery available in nearly 600 stores, as well as 235 catering vans and several new catering sales managers.

Conclusion: Provided at Beginning of Article

 

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CRACKER BARREL REPORTS Q3 – stock up at first, giving it back a day later – A METAPHOR FOR THE RESTAURANT INDUSTRY

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CRACKER BARREL REPORTS Q3 – stock up at first – giving it back a day later – A METAPHOR FOR THE RESTAURANT INDUSTRY

Cracker Barrel Old Country Store, Inc. (CBRL) reported their third quarter yesterday morning, with earnings beating estimates by $.02, announcing a $50M share repurchase, increasing the quarterly dividend from $1.25 to $1.30/share, and declaring a special dividend of $3.00 per share. Sounds great, and it’s not bad, but this well run company with a strong balance sheet, providing great value to their customer base, is fighting, like everyone else, the battle for market share. The following template shows some of the historical operating details, as well as analyst estimates going forward.

RECENT DEVELOPMENTS, PER Q3’19

Here are some of the details you should know. While same restaurant sales were up 1.3%, traffic was down 1.8%, outperforming the casual dining industry, to be sure, with the average menu price up 3.1%. Comp retail sales were down 2.6%.

For the third quarter:  A reduction in the cost of goods offset other higher line items. Cost of goods was down 90bp, labor was up 50 bp, other store operating expenses was up 30 bp, store operating income was barely up, by 10bp. G&A offset that by 10bp, so operating income came in flat at 8.8% of revenues, up 2.8% for the year. Below the operating line, interest expense was 10 bp higher, income tax was 10bp lower, Net Income After Taxes was flat at 6.8%, generating $2.09 per share fully diluted, up from $2.03.

For the three quarters to date, ending April: cost of goods was down 30bp to 30.8%, labor was up 50 bp to 35.1%, other store operating expenses were up 40bp to 20.3%, store operating income was down 60bp to 13.8% (after depreciation), G&A was flat at 4.9%, operating income was down 60bp to 8.9%, pretax income was down 60bp to 8.4% and Net Income After Taxes was down 150 bp to 6.9%.

Company guidance for the full year is essentially unchanged. Comp store restaurant sales will be about 2%, retail comps will be flat to slightly negative, food commodity inflation will be about 2% for the year, operating income will be 9.0-9.3% of sales (so the fourth quarter will help), EPS expectations are unchanged at $8.95-9.10 (compared to $10.29 in ’18, which reflects an accounting adjustment and 52 weeks this fiscal year vs. 53 in ’18.

On the conference call:

National TV supported sales in the quarter, highlighting the food and value. The newest food platform revolves around Southern Fried Chicken (read our article from two days ago relative to healthier eating by way of meatless products). There was apparently quite a bit of training involved with this new platform, and the Company declined to break out how much of the labor increase was related to that but said that most of the labor increase was wage related. National TV and new creative on the billboard system will continue to be employed. Off premise sales increased 110 bp as a % of total sales, up over 15% YTY, but the total % was not mentioned.  Retail sales were disappointing but inventory optimization and control of shrink improved gross margin (CGS was 48.8% vs. 51.1% in ’18). Unfavorable weather cost them about 30bp. EBITDA for the quarter was up 6%.

Commodities, beyond ’19, are expected to be a bit more volatile and a bit of a headwind, pork (about 10% of the commodity mix), in particular. From a retail standpoint, an effort is predictably being made to diversify away from Chinese suppliers. New unit productivity upticked a bit, especially with higher menu prices on the West Coast. Wage inflation continues to be a challenge, but it is hoped that guests will benefit from higher disposable income. The use of tablets with the POS system is helping to control labor costs.  Menu price increases are targeted at about 2% per year. Delivery is being expanded, now in about 350 stores (out of 660), using Doordash. Other vendors may be used, chosen market by market. They believe this business is “highly” incremental.

The Bottom Line:

We view CBRL as one of the most consistently managed and well positioned casual dining chains. It is safe to assume that less well situated chains are having even greater difficulty in their attempts to build market share and increase cash flow and earnings. We note that there are quite a few restaurant companies that can be considered strong cash flow generators, and some of that will be “returned to shareholders” through dividends and stock repurchases. These days, however, very few restaurant companies can be considered  attractive growth vehicles over the foreseeable future. Investors like to see a growth rate in earnings per share of at least 50% of the P/E multiple, which generally ranges in the high teens. Very few companies are predictably growing earnings per share close to 10% annually.

Roger Lipton

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CRACKER BARREL (CBRL) REPORTS Q4 – A METAPHOR FOR THE INDUSTRY

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CRACKER BARREL REPORTS Q4 – A METAPHOR FOR THE INDUSTRY

If anybody thinks it is getting any easier out there, Cracker Barrel’s report this morning should provide a dose of reality.

The conference call doesn’t take place for a couple of hours, but we know enough to comment. Comp sales declined 0.4% in Q4, ending 7/31, but the average check increased by 3.5% (menu price increase was 2.7%) , so traffic was down about 3.5%. The trend of the comps, on a monthly basis was very consistent: -3.8% in May and July, -2.7% in June.

Operating income in Q4 was 10.2% of revenues, down 100 bp from a year earlier, negatively affected by increased labor (60 bp) as well as cost of goods (110 bp) , partially offset by reductions in “other operating expenses” (20 bp) and G&A (50 bp).  Diluted EPS  was $2.55 vs $2.23, but adjusting for the extra week this year, EPS was down $.04 Importantly, the tax rate was only 21.8% this year, compared to 32.7% last year, which, combined with the extra week, provided the increase in EPS. The fourth quarter basically mirrored the full year, ending 7/31.

The brief commentary in this morning release, regarding sales trends, said “”the traffic was challenged, particularly with light er users and during the dinner daypart, some of which was attributable to our menu and marketing promotion not delivering…..While our results did not meet our expectations, I am confident that our initiatives and plans for ‘2019 will drive improved performance.”

Guidance for ’19 includes comp sales of 0 to 1% positive, for both restaurant and retail segments.  Commodity inflation of 2% is expected (which reverses the benefit of recent years). Operating income margin will be about 9.3% of sales (vs. 9.7% in ’18). The tax rate will be 17-18% (vs. 11.1% in ’18). EPS will be $8.95-$9.10 (vs.$8.87 in ’18). This is a reduction from the previous Street estimate of $9.69.

This quick update is not intended to analyze CBRL as a stock, but presented as a commentary on how a well run restaurant company is coping with today’s environment.

Bottom line: As a regular customer of Cracker Barrel, when I have visited my daughter in Birmingham, ALA, the value for the money is extraordinary and the service has always been just fine.  I don’t think any customer, analyst, or investor would argue that Cracker Barrel is dropping the ball from an operating standpoint.   Relative to the reported results, it is worth noting that commodity prices have turned higher, a significant change from the help this line item has provided in the last couple of years. Also, the materially lower tax rate this year, and next at CBRL, is not going to be a recurring benefit in future years. This affects all US companies, not just those in the restaurant industry. The challenge for all restaurant/retail companies, especially those with a very large footprint,  is how to “differentiate your commodity”.  It continues to be tough out there in restaurant/retail land, in spite of the bullish commentary about how the economy is “booming”.

Roger Lipton

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