Cracker Barrel's Dumplings

Cracker Barrel parent CBRL Group (Nasdaq: CBRL  ) is going back to basics. The restaurant chain posted mixed results this morning, just two months after completing the sale of its Logan's Roadhouse casual steakhouse eatery.

How good -- or bad -- you see CBRL's results depends on where you stand in regards to the bottom line. Earnings from continuing operations fell by 23% to hit $20.5 million. However, on a per-share basis, those same profits rose 13% to $0.60 a share.

Why the discrepancy? Well, the company has repurchased 22.2 million shares through a pair of Dutch auction stock buybacks over the past year. The move helped offset the sting of higher labor costs and retail markdowns, despite weighing the company down with heftier debt payments.

Total revenue rose 4% to $612 million. The top line was fueled by favorable comps. Same-unit sales inched 0.5% higher on the restaurant side and 5.5% higher on the retail side.

If you're wondering why a casual dining chain breaks down its comps by food and merchandise, you have probably never been wooed by the inviting rocking chair-lined porches of a Cracker Barrel. Lavish gift shops with country collectibles occupy the entrance of every restaurant. Forcing patrons to walk through the shop on the way in and out of the dining room has its advantages. You go in for some chicken and dumplings and a peach cobbler, only to find yourself leaving with a holiday wreath and a throwback wooden toy. This past quarter, nearly 27% of the company's revenue came from the retail side.

Now that Logan's has left the picture -- Logan's Run, one could argue -- it will be up to Cracker Barrel to carry the load. Its first report as a swinging single this morning wasn't a good one. The company came up short against the market's top- and bottom-line expectations. With higher wages kicking in last month, shareholders may be concerned that it will be a bigger burden over the course of an entire impacted quarter.

Debt is another thorn. Interest expense ate up 2.4% of revenue this past quarter. It was just a 0.4% nibble during last year's fiscal second quarter. That should improve now that the company is flush with the proceeds of the sale of Logan's, but CBRL seems bent on buying back even more stock despite its leveraged lifestyle.

Buybacks have been popular in the restaurant space. Brinker International (NYSE: EAT  ) has been aggressive in buybacks over the past year. The same can be said for casual dining rival Darden (NYSE: DRI  ) .

Restaurant companies that are eating their own cooking? It's a savory image, but the restaurateurs are also taking chances by taking on debt to snap up those shares. CBRL expects improvement through the rest of fiscal 2007. Let's hope so. The only thing sadder than an uneaten peach cobbler is a row of empty rocking chairs at a Cracker Barrel off the interstate.

For related Foolishness, check out "Cracker Barrel's Dutch Menu."

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Longtime Fool contributor Rick Munarriz is a fan of Cracker Barrel and is also a shareholder. A new Cracker Barrel opens today that is just 22 miles from his home. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


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