Shares of Cracker Barrel Old Country Store (CBRL 0.91%) have been in decline as the negative comparable-sales trend that's been affecting restaurants has finally caught up with the store and diner chain. Investors may be unhappy with the latest performance, but this could present a good buying opportunity.
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The last quarter in review
Cracker Barrel's latest quarter, which ended in April, had flat year-over-year revenue of $700.4 million and a 4% drop in earnings per share to $1.95. When adjusting for tax items, comparable earnings per share increased 7% from the same time a year ago.
Through three quarters of the company's fiscal year, revenue is up 1% and earnings per share are up 7%.
The big news, though, was the restaurant chain's comparable sales figures. Traffic fell 2.1%, only partially offset by a 1.7% rise in average check size, making for a negative 0.4% comparable sales figure for the quarter. Retail sales at the attached gift shops fell 4.7%.
|
Time Period |
Restaurant Comparable Sales |
Retail Comparable Sales |
|---|---|---|
|
Fiscal Year 2016 |
2.2% |
2.7% |
|
Q1 2017 |
1.3% |
(4%) |
|
Q2 2017 |
0.6% |
(2.2%) |
|
Q3 2017 |
(0.4%) |
(4.7%) |
Data source: Cracker Barrel quarterly earnings. Cracker Barrel's fiscal year ends at the end of July.
Cracker Barrel's stores have been having a bad year, affected by less foot traffic and a general retail environment where heavy discounting has become necessary to entice customers into a purchase. The bigger concern, though, were the restaurant figures that dipped into the negative. Cracker Barrel had been able to stave off the negative comps figures that most other restaurant chains have been dealing with for nearly two years, but the problem has finally made inroads at the country-style diner, too. The chart below shows the overall restaurant industry.
Data source: TDn2K. Chart by author.
The saving grace in the quarter was the quarterly dividend increase to $1.20 per share, previously at $1.15, as well as the declaration of a special dividend of $3.50 per share that was payable in July. Since that payout, investors have grown negative on the company, resulting in share value declines.
What's next?
For the full fiscal year, Cracker Barrel thinks it will reach $2.95 billion in revenue and earnings per share between $8.25 and $8.35. That would be a 1.4% revenue increase, coming mainly from nine new location opened during the past year, and a 5% to 6% increase to the bottom line.
Those are respectable numbers, especially from a company that is only opening new restaurants at about a 1% to 2% rate each year. High growth is clearly not the name of the game here. The company has predicted full-year comparable-store restaurant sales of between flat and 0.5% and full year comparable-store retail sales of roughly negative 3.5%.
Image source: Cracker Barrel Old Country Store.
What is worth considering is that dividend payment. At current stock prices, the annual yield on the dividend is at 3.2%. Adding in the special dividend just received brings that number up to a 5.8% payday. It's worth noting that the $3.50 special dividend from back in July is just that: special. It isn't regularly declared, and it is solely at the discretion of the company's board whether to pay such special dividends.
This is the third year in a row, though, that it's been doled out. Management has reiterated several times that it is dedicated to returning value to shareholders. While investors should not bet on an annual special payout, the normal quarterly dividend makes Cracker Barrel stock worth a look for those looking for income generation from their portfolios. With a payout ratio below 60%, the company also has room to grow its regular dividend.
The next earnings report is Sept. 13, for the fiscal year ending July 28. Investors will get a fresh look then at how the business is doing.
