Cracker Barrel Soars Despite Complaints

Roadside staple Cracker Barrel Restaurant and Country Store (NASDAQ: CBRL  ) has been on an absolute tear as the chain grows earnings and beats estimates. For the first time in its market history, the stock is pushing $100 per share, with no immediate signs of slowing. Still, there are activist investors in the company who are highly critical and calling for change. Let's take a look at Cracker Barrel's recent earnings to determine if this is a necessary stop for your portfolio.

Earnings recap
Upon the company's latest earnings release this past week, investors and analysts found plenty of numbers to celebrate. For starters, the headline number was a 20% year-over-year increase in bottom-line profits. The culprits for the big gains -- a boost in same-store sales (up 3.1%) and an increase in the average check size (up a little more than 2%). On the retail side (the half of the restaurant you have to walk through to get to the food), same-store sales grew an impressive 5.5%. These gains represent the sixth consecutive quarter of growth for both restaurant and retail sales.

For the fiscal third quarter, sales ticked up more than 5% to $640.4 million. EPS grew to $1.01 from $0.82 in the year-ago quarter. The company also declared a bump in its dividend, now up to an even $3.00 per share and 50% more than the previous one. Management was happy to point out that, since 2011, the company has tripled its payout to income-seeking investors.

Things look strong going forward as well, with EPS guidance for the year now up to $4.85 from the previously issued $4.75.

The stellar report has the stock trading at its record highs, even in the face of some serious allegations from activist investor and QSR wizard Sardar Biglari of Biglari Holdings (NYSE: BH  ) . Does Biglari's argument still hold water in the face of the vastly improved Cracker Barrel?

Big "if"
As mentioned in prior articles, Biglari essentially believes that Cracker Barrel management misleads its investors when reporting the ROC of its new stores -- and by a big margin. He believes the company is earning in the neighborhood of 3% vs. claims of 16%.

But with these impressive same-store sales figures, which are much more difficult to fudge than ROC, is the company doing a better job at capital allocation than Biglari gives it credit for?

My honest answer is that I don't know. Biglari's investment in the company, now nearing a value of $500  million, has made the investor and his company's investors quite a bit of cash in a relatively short period of time. So why would he still be arguing for change at the company -- change that shareholders have voted down twice? Logically, Biglari's goal would be to further unlock shareholder value, suggesting that even at its near $100 stock price today (a more than 61% premium to the price one year ago), it has the potential to be worth a good bit more.

As for us
Given Cracker Barrel's outstanding growth on either side of the restaurant (a model that works great, when done well) and the potential for further value to come in the form of Biglari's efforts (the company tried to buy him out of his shares in February, and he said no), Cracker Barrel remains an attractive pick.

Investors interested in both capital appreciation and income should take a closer look at this fine purveyor of biscuits and gravy.

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