Foolish Forecast: Cracker Barrel Paves a Simpler Road

CBRL Group (Nasdaq: CBRL  ) , holding company for Cracker Barrel Old Country Stores, bills itself as "Half restaurant. Half store. All country." As of December, the company became all Cracker Barrel after selling off the Logan's Roadhouse restaurant chain. Tomorrow's results will shed light on how it is performing after jettisoning Logan's and using the proceeds to buy back a boatload of stock.

What analysts say:

  • Buy, sell, or waffle? Fourteen analysts currently follow Cracker Barrel. Three are bullish, one is bearish, and 10 are gliding back and forth in the rockers with hold ratings.
  • Revenue. Analysts on average expect $550.3 million in third-quarter sales for negative year-over-year growth of 14.6%.
  • Earnings. Analysts project earnings to be $0.45 per share, or a 19.6% fall from last year's $0.56.

What management says:
CBRL only offers full-year guidance, and back in February, it announced projected fiscal 2007 continuing sales growth of 6.5%-7.5% and same-store sales of 1%-2%. Management didn't proffer full-year earnings guidance but did mention a goal of 7%-7.2% operating margins from continuing operations. But overall, "fiscal 2007 is a transition year for CBRL" as it focuses on running one restaurant concept and its recently altered capital structure.

What management does:
Net margin used to hover close to 5% but recently fell below 4%, suggesting CBRL has work to do to improve profitability. Only peers such as OSI Restaurant Partners (NYSE: OSI  ) , and Denny's Corp. (Nasdaq: DENN  ) are doing worse from a bottom-line perspective, while Applebee's (Nasdaq: APPB  ) , Darden Restaurants (NYSE: DRI  ) , and Brinker International (NYSE: EAT  ) have managed to post higher net margins, even as top-line expansion slows thanks to store maturity. Going forward, will Cracker Barrel fall down under like Outback Steakhouse, or stay relevant as Olive Garden has managed to do?

Margin

10/05

1/06

4/06

7/06

10/06

1/07

Gross

30.5%

30.7%

31.0%

31.5%

31.6%

31.4%

Operating

7.8%

8.0%

8.0%

8.0%

8.0%

7.8%

Net*

4.8%

4.7%

4.5%

4.4%

4.1%

3.8%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.
*Continuing operations.

One Fool says:
CBRL has a solid track record of growing its store base and generating operating cash flow that exceeds reported net income by a wide margin. The sale of Logan's looks to have been a good move as it brought in some cash, which management used to reduce its outstanding share base. It also means management can now focus on the Cracker Barrel restaurants and Old Country Stores, which are a somewhat unique concept in the dining industry, allowing the company to capture retail and food sales from the hungry and restless road-trip traveler. Time will tell if the more-focused strategy will revitalize growth and profitability trends.  

Shop the aisles for more related Foolishness:

OSI Restaurant Partners is a Motley Fool Inside Value pick.

Fool contributor Ryan Fuhrmann has no financial interest in any company mentioned. Feel free to email him with feedback or to discuss any companies mentioned further. The Fool has an ironclad disclosure policy.


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