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The Bottom of the Cracker Barrel

CBRL Group (Nasdaq: CBRL  ) , the holding company for Cracker Barrel Old Country Stores, just reported third-quarter sales that fell below expectations, and it's hard to see what will get the firm heading in the right direction, especially compared with its sizzling competition in the restaurant industry.  

CEO Michael Woodhouse said that "fiscal 2007 is a year of transition for CBRL" in the company press release, which also included a fourth-quarter outlook even though only full-year guidance usually is included. Perhaps company officials want to offer more clarity, because a number of moving parts are masking the ability to see how the core Cracker Barrel restaurants and Old Country retail stores are performing.

For starters, CBRL sold off its Logan's Roadhouse chain, leaving it with a single restaurant concept. Also, the firm undertook a recapitalization in which it used the Logan's proceeds and other capital to buy back stock. It is also redeeming convertible notes and working to offset increasing shares outstanding as the debt converts to common shares.

So while capital structure adjustments are confusing investors, tough restaurant and retail trends are making for weak sales at the company's stores. For the third quarter, total sales increased only a couple of percent, while same-store sales were flat for the restaurants and fell 0.9% in the retail stores. Reported earnings also fell slightly, even though CBRL stated that operating earnings grew almost 19%.

Looking further out, I'm finding it hard to see how CBRL will revitalize overall growth. Getting rid of Logan's should help management focus on the core Cracker Barrel Old Country Stores, but the recapitalization will do little do boost store traffic, which has been struggling, and new-store growth doesn't appear to be enough of a focus right now while the company tries to boost the efficiency of the existing stores.

Overall, there is little to get excited about at CBRL. The company generates decent cash flow, but higher debt levels will reduce the amount that flows to shareholders. For more tasty growth prospects, investors may want to consider Chipotle Mexican Grill (NYSE: CMG  ) , Texas Roadhouse (Nasdaq: TXRH  ) , and Buffalo Wild Wings (Nasdaq: BWLD  ) , because consumers are flocking to these chains for lunch and dinner. The breakfast options are more limited, but McDonald's (NYSE: MCD  ) is the main rival for the customers Cracker Barrel is targeting -- highway travelers -- and it's experiencing the type of revival Cracker Barrel can only hope for.              

For related Foolishness:

Buffalo Wild Wings is a Motley Fool Hidden Gems selection, and you can learn much more about it with a free 30-day trial. Chipotle is a Hidden Gems andRule Breakers pick.

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

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10/25/2016 4:00 PM
CBRL $133.12 Down -1.91 -1.41%
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