Growing up in the heart of Cracker Barrel territory, I enjoyed my share of meals at the Old Country Store. I still haven't figured out that mind-numbing game where you're supposed to jump all of the wooden pegs until there's only one left, but I can't say I ever left hungry. That's why it's difficult to imagine the company would struggle with sales. But after a rough 2006, the company is looking to restore its growth this year.
For the first quarter of fiscal 2007, which ended Dec. 22, comparable restaurant sales slid 0.8% while retail sales rose 2.5%. While it's good that CBRL Group's (Nasdaq: CBRL ) press release noted that restaurant and retail sales are up 5% and 15%, respectively, for the 10 days ended Jan. 1, 2007, some of that growth may be due to lower comparisons with the year-ago period and more shoppers using gift cards, which aren't actually spent until after the holiday.
Despite diluted earnings per share increasing by 2% for fiscal 2006 (after expenses for stock options), the bottom line actually fell 8.1% to $116.3 million from $126.6 million in 2005. See, making $704 million in share repurchases took a nice 35% piece out of the pie for shareholders. More repurchases are planned for the near future, thanks to the sale of Logan's Roadhouse to private equity investors last month.
However, shareholders eventually need to see some improvement in the core business. Management blames high gas prices for cutting into consumer discretionary spending. While higher food-commodity prices and complex seasonal menus hurt margins, the 2006 letter to shareholders seems to honestly address these issues and present tactics for improvements.
CBRL Group is never going to trade at the valuations the Street gives to its darlings, such as Panera Bread (Nasdaq: PNRA ) and Starbucks (Nasdaq: SBUX ) . With CBRL Group's growth running about 5% to 7% annually, any valuation near 20 times earnings per share sounds about maxed out. But if you can wait for Mr. Market to offer a sale, there's no replacement for a company like this one that continually draws repeat business for those simple basics: good food at a good price with friendly service.
Cracker Barrel is one of those solid restaurant chains that seem to keep chugging along, in spite of the occasional hiccup. Good food simply doesn't go out of style, and this is one company that has demographics on its side, particularly the increasing number of retired Americans who are now spending more time on the road. As Motley Fool CAPS player woodruffdavid says, Cracker Barrel stores are "friendly to RV travelers and will let you park overnight when needed and then serve you a good breakfast to start off the next day!" That sounds pretty good to me.
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Fool contributor Jason Ramage holds no financial interest in the companies mentioned here.
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