Let me make this clear right away: Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL) has nothing whatsoever to do with Cracker Barrel cheese, which is a product of Kraft Foods Group Inc (NASDAQ:KRFT).
OK, with that out of the way, let’s bite into the earnings of this specialty food store chain.
There’s a pretty good chance you’ve seen one of CBRL’s 600-plus stores at some point, since they are spread over 42 states. I dropped into one last summer in Rehoboth Beach, Delaware, where my cousins have a summer home.
I loved the store and the concept. CBRL offers homestyle Southern fare, good ol’ fashioned American cuisine in a family-friendly atmosphere that also extends the American theme.
Restaurants are facing challenges every day, as new and innovative approaches to dining keep appearing on the landscape. But it’s for that very same reason why this kind of comfort food experience will never go out of style.
Quarterly earnings reflect this, as second-quarter revenue rose 8.2% to $756 million. More importantly, comparable store sales increased 7.9%, partially driven by a 3.2% average check increase and 2.5% menu price increase. These are solid comps for a restaurant.
In fact, January has proven to be surprising strong in comps, with restaurant traffic up 8.3%, restaurant sales up 11.4% and retail sales up a staggering 15%. Operating income came in at $71.2 million, and earnings per share blew out last year’s $1.55 per share by coming in at $1.96, up 28%.
Year-to-date revenue is up 7% from $1.3 billion to $1.4 billion, with gross profit up 6% to $955 million. Store operating income is up 16% to $197 million. Net income is up 26% to $81.2 million. EPS is now $3.38 per share, up 26% from $2.68. Free cash flow is robust and growing, at $115 million for year, up from $24 million.
For the year, CBRL believes EPS will come in between $6.40 and $6.50 per share and includes food commodity inflation.
Cracker Barrel has always had a fairly conservative approach to debt. It only carries $400 million as of now and at a very low interest rate, and has $182 million in cash. That’s a great balance sheet.
On valuation, CBRL stock was trading today at about $150, about 23x 2015 fiscal year earnings. Now, based on the 26% EPS increase we’ve seen so far this year, CBRL may be considered a value.
However, analyst estimtes for 2016 are for $6.95, only an 8% increase. Those estimates might be revised, but considering long-term growth is also projected at only 11%, one has to wonder if CBRL can keep up the growth.
Restaurant trends are subject to geographical influences, and I think of Cracker Barrel as the restaurant equivalent of what Buckle Inc (NYSE:BKE) represents in clothing — simple, straightforward products geared towards regular Americans. That is a trend worth pursuing because the restaurant represents American values and those will remain important to many consumers.
The stock is up 239% over the past five years, compared to 85% for the S&P 500. I think if you are looking for a growth stock, and don’t want to risk the volatility that goes along with Chipotle Mexican Grill, Inc. (NYSE:CMG), Cracker Barrel may be worth considering.
As of this writing, Lawrence Meyers did not own shares in any of the aforementioned securities.
