Cracker Barrel or Bob Evans: Which Should You Take a Bite Of?

Bob Evans Farms (BOBE) and Cracker Barrel (CBRL) both reported earnings over the last two days, and both appear to be doing a good job improving business.

Still, there’s likely not room in your stomach … I mean, portfolio, for both downhome breakfast eateries. With that in mind, let’s take a look at which company you’re better off ordering up a serving of.

Cracker Barrel

Cracker Barrel reported some some solid first-quarter numbers on Monday, with total revenue increasing 5% year-over-year and diluted earnings per share growing 26%. Its restaurants, which account for 82% of  overall revenue, saw comparable restaurant sales increase just over 3%. The average check size accounted for 77% of that increase, while growing restaurant traffic chipping in the remaining 23%.

On the retail side, Cracker Barrel saw same-store sales increase by 5.5% in the quarter, and the only blemish was a soft April in which retail store comps decreased by 0.5%. Other than that, things were pretty darn good.

No wonder the company upped its guidance for the entire year to revenue of at least $2.6 billion and adjusted earnings per share of at least $4.75. Plus, investors also got a delicious side dish: a dividend hike of $1 annually to $3 per share.

So what’s not to like? Well, the fact that pesky minority shareholder Biglari Holdings (BH) continues to call for a special dividend. Sardar Biglari, CEO of Biglari Holdings, can best be described as the egomaniacal version of Warren Buffett. On two occasions he’s lost proxy fights to gain seats on Cracker Barrel’s board.

In February, Cracker Barrel offered more than $300 million to buy out Biglari’s 20% stake. The company and board feel Biglari’s ownership of Steak ‘n Shake makes its interest in Cracker Barrel conflicting. I couldn’t agree more.

Biglari doesn’t agree, though, and instead thinks that’s a complete waste of money. Instead, it wants Cracker Barrel to use the funds to do a general share repurchase open to all investors or pay a one-time special dividend.

Considering that Biglari Holdings’ pretax income in its latest quarter was $1.4 million — far less than the $7.7 million in the previous year — it’s laughable that the company wants to tell Cracker Barrel how to run its business. Heck, if not for its investment in Cracker Barrel, it would be in a much sorrier state. Its Steak ‘n Shake business saw its pretax income decline 36% in the quarter on a 1% increase in revenue.

Cracker Barrel’s the real business — not Biglari.

Bob Evans

Bob Evans Farms, on the other hand, is in the midst of a company transformation that hopefully will create sustainable profits. Three things stand out in its efforts:

  1. Farm Fresh Refresh Program: In 2010, Bob Evans did a test remodel of several of its Ohio locations and found  they delivered above-average returns. As a result, it began a full-fledged store remodeling program and so far the results have been very encouraging. One plus: a big boost in its carryout business. It generated less than 8% of revenue in 2009, but Bob Evans estimates it will be 25% by 2018. In addition, the remodels introduced a bakery in each location, which are expected to generate 7% of its overall revenue by 2018.
  2. Mimi’s Cafe: Earlier this year, Bob Evans cut the cord on Mimi’s Cafe — a California-based chain it bought in 2004 for $182 million. While this may have seemed like a questionable move, as Bob Evans agreed to sell the business for the bargain price of $50 million, it was actually a case of addition by subtraction. Everything it had tried with the chain seemed to fail, making Mimi’s little more than an expensive distraction.
  3. Kettle Creations: Last August, Bob Evans acquired Kettle Creations — its supplier of mashed potatoes and mac ‘n’ cheese — for $50 million to become more vertically integrated. Since then, the company’s food business has seen revenue take off as Kettle Creation enters new markets and strengthened Bob Evan’s sides business. The foods segment saw net sales in fiscal 2013 increase just under 11% to $349 million. Plus, its non-GAAP operating income was $30.8 million or almost 9% of revenue — a 250 basis point improvement from 2012.


Although I’ve always liked Bob Evans’ vertical integration of its two segments, I see Cracker Barrel as the restaurant company with less work necessary in order to make good money.

While Biglari is pesky, he’s also a confirmation of the company’s strengths. It’s strong business is the precise reason he continues to stalk Cracker Barrel.

Luckily, I don’t believe he’s going to get his way — nor should he. Cracker Barrel’s management has done a good job rewarding shareholders and they’ll continue to do so well into the future.

So which stock should you take a bite of? I’d go with Cracker Barrel.

As of this writing, Will Ashworth did not own a position in any of the aforementioned securities.

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