Cracker Barrel Old Country Store Actually Gained 13.5% in the Second Half of 2022. Is the Worst Over?

What happened

Shares of Cracker Barrel Old Country Store (CBRL -2.26%) rose 13.5% in the second half of 2022, according to data from S&P Global Market Intelligence. That's a sharp turn from the 35.1% price cut the restaurant-and-gift-store chain's stock endured in the first half of last year. Should Cracker Barrel investors expect smooth sailing from here?

So what

Cracker Barrel arguably deserved a price adjustment in 2022, and not just due to macroeconomic concerns such as galloping inflation and labor shortages. The company has restored its top-line revenue trend to pre-pandemic levels, but earnings and free cash flow have not followed suit.

Management isn't sitting on its hands, of course. Cracker Barrel introduced a new breakfast menu over the summer, including a build-your-own-breakfast item that has turned out to be popular. The key demographic categories of very young and very old guests are coming back to Cracker Barrel stores after markedly lower foot traffic in those categories in 2021. Furthermore, the Maple Street Biscuits store brand -- "comfort food with a modern twist," according to that sub-chain's marketing materials -- is gaining ground with 17 new locations in 2022 and 54 total stores so far.

However, Cracker Barrel had to pull some uncomfortable levers to achieve these results. First-quarter revenue increased 7% year over year, which was slower than the 8% price increases behind those higher sales. At the same time, inflationary pressure drove the cost of goods sold 16% higher. So it's no wonder that Cracker Barrel's bottom line is fading despite the rising top-line sales.

Now what

This is a tale as old as country-fried steak. Cracker Barrel is fighting weak customer interest and rising expenses by boosting its menu prices. The idea is similar to the movie industry, where annual attendance has been trending downward for decades amid steadily rising ticket prices, resulting in a shiny but hollow uptrend in total box office sales.

Granted, that's not the only arrow in Cracker Barrel's quiver, but I don't expect a shareholder-friendly outcome in the long run if these trends continue. As a result, I don't recommend buying Cracker Barrel stock until management finds a more sustainable way to boost the business, preferably based on rising foot traffic to its stores rather than inflated meal prices.