In addition, same-store sales declined 0.6%. Management insists that its Farm Fresh Refresh restaurant renovations are delivering significantly improved same-store sales over its un-renovated locations. However, investors won’t see the full benefit of these renovations until fiscal 2015.
In the meantime, its stock, which is up quite a bit this year, should take a beating if the $200 million it expects to spend on capital expenditures for renovations this year doesn’t convert into profitable growth. Time will tell, but I’m weary of the next 12 months. It might be wise to wait this out and look to buy once the outcome is more certain.
For the most part, Cracker Barrel’s fourth-quarter report was workmanlike. This was the company’s seventh consecutive quarter of positive comparable store traffic, restaurant sales and retail sales.
Its comparable restaurant sales increased 2.6% while its comparable retail sales were more up a more subdued 1.1%. Its operating income in Q4 increased 9.2% year-over-year when adjusting for 2012’s additional week of sales. On a margin basis the company improved half a percentage point in the quarter to 8.1%.
Moving to the bottom line, its diluted earnings per share on an adjusted basis increased 19% in Q4 and 15% for the entire fiscal 2013. Free cash flow was $135 million this past year enabling it to pay down $125 million in debt, repurchase $3.6 million of its shares and payout $45 million in dividends.
The only fly in the ointment was the company’s outlook for Q1 2014. CEO Sandy Cochran sees EPS between $1.05 and $1.15, considerably less than the analyst estimate of $1.32. Higher commodity costs were partly to blame for the lukewarm outlook. The news knocked its stock for a 2% loss Wednesday, but investors shouldn’t worry. Cracker Barrel still expects full-year operating margins at least 20 basis points higher than in 2013.
Sardar Biglari, CEO of Biglari Holdings (BH), has spent the better part of the last two years badgering Cracker Barrel’s management for seats on its board. Now, Biglari, whose firm owns 20% of CBRL, is seeking a $20 per share special dividend. Although heavy-handed, the request demonstrates why it makes sense to own Cracker Barrel stock. First, it’s clearly a good company or BH wouldn’t own so much of its stock. Second, although its efforts to extract additional profits from its investment in CBRL is nothing more than greenmail, Biglari wouldn’t do that if he thought the move would jeopardize the $500 million in Cracker Barrel shares it owns.
All three stocks have had a good year. In June, I picked Cracker Barrel over Bob Evans. As far as I’m concerned, not much has changed between the two, and Denny’s has already been on a multi-year run that seems unlikely to continue. The difference-maker here is that potential $20 special dividend. While I don’t agree with Biglari’s methods you can’t ignore the possibility.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.