What Cracker Barrel Serves Up to Investors

If you've driven on a highway in the South or Midwest, you've probably seen billboards for Cracker Barrel (CBRL 0.69%) -- and that's part of what makes Cracker Barrel such a compelling buy.

In this week's episode of Industry Focus: Consumer Goods, host Nick Sciple and Motley Fool contributor Asit Sharma dig deep into Cracker Barrel's business. They explain what sets Cracker Barrel apart from other restaurants, from its locations to its retail selections to its dabbling in music and more. On the other side of the coin, they explore a few risks for investors to keep an eye on, like its ill-advised spinoff chain, an unusual dependence on gas prices, and activist investor interest, to name a few. Tune in to learn more.

A full transcript follows the video.

Check out the latest  earnings call transcript.

Check out the latest Cracker Barrel earnings call transcript.

This video was recorded on Feb. 19, 2019.

Nick Sciple: Welcome to Industry Focus, the podcast that dives into a different sector of the stock market every day. Today is Tuesday, February 19th, and we're talking about the Cracker Barrel Old Country Stores. I'm your host, Nick Sciple, and today I'm joined by Motley Fool contributor Asit Sharma via Skype, and construction workers downstairs by their hammer sounds that you'll hear the rest of the show. Good to have you on the show, Asit!

Asit Sharma: Wonderful to be here! Thanks, Nick!

Sciple: Great to have you on, Asit! Excited to be talking about Cracker Barrel! Really interesting business model, half-restaurant, half-store. But first off the top of the show, let's update our listeners a bit on our last show that we recorded together about casinos. We mentioned off the top of that show that the major U.S. casinos, both Caesars and MGM, had had activist stakes being built in them over the past several months. We've had some news come out regarding that. Carl Icahn is reportedly pushing for Caesars to sell its business. He's been asked by several other investors in the casino to really push for a sale of Caesars. What are your thoughts about Carl Icahn's approach and the idea of a sale of Caesars and its assets?

Sharma: This is classic Carl Icahn. We were trying to guess the last time we talked about the [...] leaning toward aggressive action. Typically, Carl Icahn has his endgame already in mind. I think the stake is significant. He's got a 10.3% stake, I believe, in Caesars. Those are more entry stakes, the 1% to 2% that activist investors usually begin with to start agitating and asking for some kind of change. That's a stake that's verging on control levels. Once you get into this 10% to 20% region, it means you're pretty serious.

In having this very large stake, influential stake, with the history of his other takeovers and activist actions, I think one reason we saw this stock pop when this news came out last week is that people understand he will work aggressively to make this happen, and management will have to scramble. 

The unfortunate thing about emerging from bankruptcy, as Caesars did, is that it usually takes three to five years to establish a pattern that investors are very, very comfortable with. While a stock may receive an initial boost, there's a latency period in which management is proving itself and the new business model, the new paradigm, and that's a prime time for someone like Carl Icahn to come in and say: "Hey, this is still not performing up to par. Let's get this sold to bigger hands in the industry." And that's exactly what he's doing. What are your thoughts, Nick?

Sciple: I find it really interesting. I'm a Caesar's shareholder myself, it's been a rough couple of years holding the shares. I bought it right when it came out of bankruptcy, saw the opportunity from sports betting and its regional casinos and thought there had to be a way to leverage that value. Well, the share price has not reflected that this year. It'll be interesting to see what kind of value Carl Icahn might be able to wring out of the business. As a younger investor, in my 20s, this will be my first time crossing swords with Carl Icahn, so it'll be fun to watch that from the sidelines. Hopefully can generate a nice gain. We'll see.

Asit, now let's move on and talk about our main topic for this show, which is Cracker Barrel Old Country Stores, ticker CBRL. It's a really interesting business to me because it's so unique. It sells Southern-style food. There's not that many national restaurants that sell that. And it has a very, very aggressive theme, the classic old country store that you might see in Mayberry off Andy Griffith or something like that. And each one of them has an associated gift shop with it where you can go in and buy a little knickknacks. They target travelers. Over 80% of their stores are located along interstate highways. They advertise primarily through billboards. 

When I describe to you, Asit, that business model for Cracker Barrel, from a 10,000-foot view, this niche food genre targeting a niche part of the market, what do you think about Cracker Barrel's business model?

Sharma: I think it's unique. Maybe it has a precursor in the South in a place called Stuckey's. I don't know if you've ever seen those old locations. When I was a kid traveling along the interstates with my family, that was maybe the model of these locations, located off the interstate that were a chain offering food and convenience, other items, and also a gift shop. But beyond that, I haven't seen this model implemented. I do think it's a very strong model. 

I've been told that it's hard to discern that I'm from the South, but I grew up here in a small town east of Raleigh not far from Interstate 95, which runs north-south, as everyone knows, all the way from the top of the country down to Florida. I'm used to this rhythm of traveling down for vacations and seeing billboards along the highway. 

I think the model itself makes so much sense for two reasons. One is the real estate located along the interstate is clever. The location of being just off of major cities, but on the interstate, that enables a company to ensure that it's going to have traffic flows for long periods of time. Now, in my lifetime, I've seen traffic trends shift from exit to exit along the interstate, so it's not a slam dunk. But when you think about the way, in urban areas, neighborhoods shift and demographics shift even within five or 10 years if it's a fast-growing city, the interstate comparatively is much more stable. So, that's a great part of this model. 

The other thing that's interesting to me is, I think it makes for a recurring business. When you have your local chain that you love to eat at, or a local non-chain restaurant in your own town, familiarity can breed contempt. But this rhythm of traveling down, as I said, on a vacation or maybe for business, if you're encountering these signs only a few times a year, it can be something novel, especially with the gift shop, which we're going to talk a lot about today. When you add this element of a gift shop beside the restaurant, with novelties, and Cracker Barrel frequently rotates merchandise and adds seasonal items, that's another draw. 

Now, some of you listeners, younger listeners, may think, "Well, that sounds like a kitschy place to me. Who would want to stop at a restaurant like that? Who would want to go to this gift store and buy this merchandise?" Well, it turns out, there's a lot of people like that. They may be slightly aging as a demographic, but these have been solid numbers for a year, which makes this company a cash cow, another reason why I'm drawn to this business model. Maybe not the most exciting investment, but an intriguing one, nonetheless.

Sciple: Right, Asit! They're in such a tight niche that it's tough to see anyone coming after their area of the market. It's really a difficult model to replicate. You mentioned on the interstate highways. The interstates aren't going anywhere. Those were built during the Eisenhower administration and they're going to continue out into forever. These routes are particularly valuable places to locate a restaurant. 

Let's move to talking a little bit about the business and its strategy, where it's come to date. Cracker Barrel today owns 659 stores in 45 states. Given the cuisine that it serves, Southern home-style fare, you would expect most of the stores to be in the South and Midwest, and they are. Roughly two-thirds of its stores are located there. However, they're beginning to move out into the West. They just opened their first stores in California. 

You had an interesting comparison to this, a restaurant that maybe hasn't expanded to its full geographical potential that may be an interesting comp for Cracker Barrel. Do you want to talk a little bit about that, Asit?

Sharma: Absolutely. Investors who are listening who have shares in Dunkin' Donuts also watched the company become what was first a regional chain. And now, this isn't Northern cuisine, but it might as well be -- doughnuts, coffee. First, it extended in a Southerly direction, then toward the Midwest. There's this huge white space opportunity for Dunkin' Donuts on the West Coast. The question is, will that concept to take in California? I think a similar question can be asked of this rather niche concept. We've seen Dunkin' change its name from Dunkin' Donuts to Dunkin', streamline its stores, bring in a really new and renovated model of stores, to be this what they call on-the-go beverage-led company. I'm not saying that there's some causality here, but looking at how people approach fast food on the West Coast and what their preferences are, you can see that some of this shift is changing how they present themselves to appeal to that greater West Coast audience. 

I wonder, too, as Cracker Barrel expands, what kind of obstacles it may run into in terms of consumer preferences. How might it change the look of it stores at all? That's a big draw to its fans. I'm fascinated by this comparison. We'll have to see as we go forward how this Westward expansion works for Cracker Barrel. 

Sciple: Yes. It's an interesting case where what makes it unique also maybe caps the upside of the investment over the long-term, given that its core demographic is limited geographically.

Let's talk about how the business makes money. About 80% of its revenue comes from the restaurant portion of the business, while 20% comes from the gift shop. I mentioned that they primarily target travelers. Over 80% of their stores are located along highways, and most of their advertising is outdoor advertising, billboards on the side of the highway, "Hey, come visit Cracker Barrel!" As a result of them primarily targeting travelers, the business can be correlated with rates of highway travel and the effect of gas prices on people's tendencies to travel on the highways, Asit. What have we seen in the past from this business when it relates to its correlation with gas prices and the amount of travel that people choose to do? 

Sharma: Absolutely. You couldn't call Cracker Barrel a cyclical business, but it is affected by cyclical factors in the economy. When economic growth slows and consumer discretionary spending crimps back a bit, that tends to hit Cracker Barrel's results. You'll hear management discuss it from time to time. They talk a lot about consumer discretionary income. I believe Sandra Cochran, the CEO, is very attuned to how the economy is doing in terms of GDP growth and what effect that might have. Commerce is going to go on and on, but this company's business is primarily that of leisure travelers -- and, we should mention, recurring visits from people who are located near a Cracker Barrel. Not all of their business is this drive-by-on-the-interstate. They do have a smaller group of customers. I'm not sure if we've come across this statistic yet, but maybe four-fifths of their business is this highway travel, and then you have a pretty sizable group of people who are drawn to the store in that fashion. 

Sciple: Right. You're always going to have that Sunday-after-church crowd. It really caters to that demographic as well. Another important factor when it comes to folks traveling is, the retail strategy really depends on folks getting into the store. You want to get folks into the store to eat your food, and then you want to convert them into paying customers. They operate across several verticals. Apparel is their largest demographic.

The most interesting part of their retail strategy is their music program. They have some exclusive music sold through CDs. Typically, as you would expect from the fare of the food, it's Christian and country-style music. What was really fascinating to me is, you go on their website, and there are four tabs on the Cracker Barrel website -- Menu, Shop, Catering, and Music. So, they really view this as something that attracts folks into the store and attracts loyalty. What thoughts, if any, do you have on Cracker Barrel's music program and how much of an asset it may or may not be to the business?

Sharma: I think it's a good asset. Whenever you can make a connection with your customer beyond your core offering, some type of emotional connection, or artistic in this case, that's strong for recurring business and opening up new channels of revenue.

I wanted to point out, similar to the music, one thing that Cracker Barrel is done is to get their merchandise into retail stores. Mostly, you'll see these food items in grocery stores, which is a more recent development. We're going to talk about an activist shareholder later in the show, and I think that's a result of this activist shareholder pushing the company to expand channels. Cracker Barrel has been very methodical in the way it's looked at expanding to other channels. If I can use a metaphor, if they have four tabs on the website, you don't see a gazillion tabs, so Cracker Barrel isn't trying to be everything to everyone. It's trying to have this one niche. I think that the music draw is a good one for their demographic. 

Now, maybe that says to you an older demographic, primarily a white demographic, country music. But, what we should say about Cracker Barrel is, they've been working really hard to expand their customer base. They've bought advertising on Hispanic channels because there's a growing Hispanic population in the South. They've reached out to millennials, which we'll talk about later in the show. So, even though this music niche seems geared toward a very specific type of customer, there's no reason that they can't add some Hispanic programming music to that in the future, and maybe some stuff that appeals to a younger crowd as well. I'll be watching that tab in the coming years to see how that changes. 

Sciple: Yeah. A really fascinating offering from what ostensibly is a restaurant business. On the retail side, very profitable, over $400 per square foot on the retail side of the business. A really profitable part of the business, and really drives the cash cow aspect of Cracker Barrel, which is what you mentioned off the top. They've really put an emphasis on their dividend over the past several years. Last year, they declared a $3.75 special dividend. The business yields almost 3%, 2.94% today. Really, an interesting dividend opportunity from Cracker Barrel, particularly if you think the expansion opportunities are limited and they can keep squeezing the juice out of what their current assets are. What thoughts do you have about Cracker Barrel's dividend and what opportunity it might provide, Asit?

Sharma: It's a reflection on how the company allocates its capital. Again, not to get too far ahead of ourselves because we've got a great conversation in the second part of the show coming up about how it's used its capital. The special dividends plus the regular dividends, which are rising, I was just doing some thumbnail calculations, they'll return to shareholders 5-6% a year, effective yield, if they keep issuing these dividends. 

In the past, the company has really poured its excess capital not toward shareholders' pockets, but to expansion, and not always to good effect. In past years, the company expanded without much of a game plan, didn't focus on unit profitability, just looked at that aggregate punch that every new store gives you toward your top line. I think this reflects a more mature focus in some ways. When you have a cash cow business, you have to show shareholders a little bit of the money. Now, if you can optimize the business in such a way that you're also expanding and getting a high return on invested capital from stores, new units, etc., that's even better. But at base, shareholders expect to see some when they see a mature business. This business has been around for a few decades. When they see a mature business that's yielding a lot of excess cash flow, they want theirs. The company started their special dividend in 2015 and have increased it every year. I think in the last five years or so, they've shown more of an appreciation for their own shareholders. 

Sciple: Yeah, definitely an interesting opportunity to come from Cracker Barrel.

Asit, let's talk about some, I don't know about red flags, but things to keep in mind for Cracker Barrel. The first thing to watch for Cracker Barrel is their same-store sales. The red flag for me is that traffic has been declining over time. You've seen this at restaurants in general, but for Cracker Barrel, it's particularly important because as we mentioned, the retail strategy of the business depends on bringing folks into the restaurant to eat and then selling them retail merchandise in connection with that visit. 

Last year, traffic declined 1.9% and resulted in retail sales being essentially flat for the year. However, in the most recent quarter, we have seen things tick up a little bit with restaurant sales up 1.4% in the most recent quarter, driven by an average check increase of 3%. 1% of that was actually folks buying more off the menu from an increase in menu prices resulting from new menu items, not just increasing the price of items left on the menu. They also had really powerful retail sales driven by strong performance in apparel and accessories and toys, which I thought was particularly interesting given the Toys R Us bankruptcy over the past year.

When you look at these same-store sales figures, Asit, and the way they have performed in the recent past for Cracker Barrel, what stands out to you from those numbers?

Sharma: What stands out to me is management's analysis of the traffic decrease. You said, Nick, that the traffic trends have been decreasing over time. That's certainly the case. But when you listen to management's calls last year -- actually, I usually read transcripts, a shortcut. Listeners, we often talk about management calls. You can find transcripts online to search for the transcript of an earnings call for a company and skim over it. It is such a great thing to do if you own shares of any company. Sorry for that little bit of diversion there, but important point.

I was skimming these, reading these transcripts from quarters two through four of last year. What took me by surprise was that management itself seemed a little bit surprised at why traffic had declined. Some of these are longer-term factors for the company that management should be dealing with. 

I'm going to read you a few of the traffic factors that management cited. First was underperformance of the Campfire menu. This was a menu that was introduced about three years ago which was very popular. Cracker Barrel introduced new items that, in its own words, didn't resonate with customers. So, possibly we're seeing some customer fatigue there. Cracker Barrel also changed its media strategy in the middle of last year with the idea of running fewer weeks of promotion and marketing but with a higher intensity. That did not pan out, so they've gone back to their more regular cadence. Higher gas prices which hit customers' discretionary income and reduced miles traveled in core Cracker Barrel states was also cited. This is what I was talking about earlier. Gas prices can have a pretty quick effect on the company's financials in any given quarter. Again, it's not a cyclical business, but you always have to be ready to hear this for management, "Well, gas prices shot up, so traffic decreased."

And this was, again, surprising -- a decline in guest experience metrics. This is an execution item. Whenever you see customer satisfaction results declining or customers not interested in the menu, that's a little bit of lack of execution on management's part. I think management pretty much realized that. Good on them to dig into it, talk about it on the call. They offered some solutions. I should actually say; one last factor was lack of emphasis on value offerings and craveable offerings. Again, this idea of the menu not being replenished with stuff that appealed to customers. 

These are the solutions that management offered. They now have a new innovation called bone-in fried chicken, which is part of their craveable menu approach. They also have shifted back to a value offering cadence. We see this in the quick-service restaurant industry quite a bit. When results suffer, companies will come with limited-time offerings. $2 for $5, you've seen that on all the major quick-service restaurants. Cracker Barrel doesn't quite have this type of offering, but it will give specials. It has a messaging for a daily special, which it's doing. It's also trying to leverage its off-premises business, which is an interesting trend. Again, this is something we'll talk about in just a bit. It's trying to increase its catering business and add items to the menu that are conducive to having people order. They're actually adding trucks in major markets to facilitate this off-premises business.

Sciple: Yeah. Interesting to see the issues with the menu. When you look at a business that's been around as long as Cracker Barrel, to think that maybe the menu is not resonating as much as it has in the past, maybe is a source of concern. Definitely something to watch for the business, particularly the traffic numbers that I mentioned, the connection of that to the retail side of the business.

Another part of the business that's emerging and maybe has some question marks for investors when you take a look at it is this Holler & Dash fast casual concept that Cracker Barrel has begun rolling out. They have seven stores across the country today. This is a fast-casual concept that sells biscuits and biscuit-type sandwiches. Interestingly, it only addresses the breakfast and lunch parts of the day, when typically the dinner part is the most profitable daypart. I've actually been to one of these. They opened one in my college town, Tuscaloosa, Alabama, right down from the football stadium a couple of years ago. It was pretty good. For someone who was born and bred in the South, I didn't think it was the best biscuit I've ever had, but it was an interesting concept. It's crowded much of the time. From what you've looked at relating to Holler & Dash, what red flags or what stands out to you in connection to this concept that Cracker Barrel is experimenting with?

Sharma: First, let's talk about the green flags. The good part of this equation is, I mentioned earlier, the company is trying to reach out to the younger demographic, millennials, Gen X, Gen Y. This is the embodiment of that strategy. I think that it's necessary to perhaps have, either within the Cracker Barrel stores or a spin-off concept like this, something that will entice the younger consumer. 

It's problematic, though. If you look at the major urban cities -- these are located in Atlanta, Charlotte, of course Birmingham, major Southern cities. We should describe what's actually on the menu. Many of the entree-like dishes are actually biscuit preparations. You have a biscuit served with a protein and a side that's served up as an entree. Nick, what did that run you? Maybe $8, $9 for a biscuit?

Sciple: Yeah, I'd say between $8 and $12. I've only been once, so don't quote me on that, but that sounds accurate. 

Sharma: Listeners, tweet at us if you've been to one or if you happen to be from the South. We're going to talk a little bit here. Indulge me, those who aren't from the South, about biscuit culture. I'm here in the middle of it in North Carolina, obviously home of Bojangles. As you go further south to Nick's territory, I think it only becomes more intense. 

As the... forgive me, as the hipsters have delved into food culture, and as millennials have become interested in cuisine in major Southern cities -- and I live in Raleigh, so that's a great example -- there's quite a bit of new takes on classical Southern fare in any number of great restaurants. It's difficult, if you live in one of these cities with so much great biscuit cuisine -- and to back me up, I just noticed last night in my grocery store that we have a magazine called Our State, which is a gloss of major stuff going on in North Carolina. A really fun magazine. A whole issue devoted to restaurants that are just like Holler & Dash. These are restaurants which have outré takes on biscuits. It's a hard concept to parachute in -- not that it's parachuting. Obviously, Cracker Barrel is from this area and they worked with two local restauranteurs to begin the concept, so I shouldn't call it parachuting. But to originate this concept here, it's tough. This is a place where there are so many great interpretations on biscuits night. I understand why they did it. The biscuit is part of a core menu in Cracker Barrel. In fact, one of the things that management mentioned that it would do to increase traffic in is work on its biscuits in Cracker Barrel locations. 

I understand it, but I think the red flag here is there's fierce competition in this area. Nick, you mentioned, the company has slowed its pace from the initial few that it opened. They're opening at a very slow rate now. Maybe they're taking some learnings from the first few restaurants and tweaking the concept.

Sciple: Yeah. It's going to be interesting to see how it plays out. Definitely a growth opportunity for a business that appears to be maturing. We'll have to see how things play out.

One other red flag that stands out for investors, or yellow flag, maybe, is the presence of an activist stake in this business. Biglari Holdings is run by Sardar Biglari. He has held a very large stake in Cracker Barrel over a period of time, up to nearly 20% for a long period, although he has been selling it down over the past. He's been very open about criticizing management's capital allocation strategy. He's been behind some of the shareholder-rewarding aspects of Cracker Barrel's dividend policy over the past few years. What should investors know about this activist stake in Cracker Barrel and what it means for the investment?

Sharma: Biglari Holdings now, I believe based on an article you sent me, their holdings are down to about 15% from a close to 20% stake. This 20% stake has been a sore point for management for many years because they've always felt that Sardar Biglari and Biglari Holdings are going to take a greater stake. So, they adopted this poison pill to combat that. But investors should know that actually, by remaining under a complete control, Biglari Holdings has had a positive impact on the stock. They've helped improve operating margin, they've helped improve cash flow, which has rewarded shareholders. They really agitated against this expansion without looking at profitability first. Some other things they've done, they forced management to break out the retail sales, which management had never done. There are several actions that the company has taken that Biglari Holdings has agitated for. 

An interesting thing that you pointed out to me, Nick, is that they've never given credit to the activist shareholder. The activist shareholder will point out that X, Y, or Z needs to be done in a very loud voice, and the pattern is that management will, next quarter, start implementing those changes as if they came up with it themselves. I guess, if the share price is rising, Biglari Holdings doesn't need the credit, but I find that very interesting. 

The one thing that I really quickly wanted to talk about in terms of this poison pill, this dispute between management and Biglari Holdings. Biglari Holdings has always maintained that it doesn't really want to have more than a 20% stake. For its side, it's said, "If we take more than a 20% stake, that's going to trigger a debt covenant, which will then make us have to immediately pay $164 million to our lenders. We're not going to go above 20%." One other thing that Biglari has always maintained is, there's an act on the books in Tennessee called the Tennessee Control Share Acquisition Act, which prohibits a shareholder who owns a 20% or greater stake in a company from voting more than 20% of their share. So, even if they were to acquire 30%, 40%, 50%, they wouldn't have the voting control past 20%. 

They've often argued, "This whole poison pill issue is moot. We can't because of our debt covenants, and anyway, the law prohibits it." Management's never really responded to that. I will say, going forward for shareholders, you want Biglari to keep that 15% stake. They've been good for Cracker Barrel. They've kept management honest. They've been responsible for a lot of good change. Your druthers would be for Biglari to stay invested and stay active with this company. 

Sciple: Yeah. I would say, he would be much more identified, at least from a shareholder's perspective, as a white knight than a corporate raider in this situation, and really has been very rewarding for shareholders over time. If he's beginning to sell down his stake, I don't know if there's any read-through to that for investors as to what the potential upside might be for the investment over the long term. Definitely something to continue watching, both for his advocacy and maybe as a signal of what opportunities there are for the business.

Last thing I wanted to address, we've touched on this a few times, is how the rise of off-premise sale, this food delivery concept, how that might affect Cracker Barrel. Obviously, we mentioned that Cracker Barrel's retail strategy depends on getting folks into the restaurant, to eat at the restaurant, and then converting them into retail customers. Of course, if folks use delivery, they never end up in your restaurant, and they can never be converted. Cracker Barrel is investing some in off-premise sales. You mentioned some food truck concepts they might be doing as well as, they're expanding their catering and takeout offerings. What are your thoughts on the rise of off-premise sales and what that means for Cracker Barrel as an investment going forward?

Sharma: It's obviously an important trend for the company to explore. We see so many companies -- Chipotle is a great example of trying to expand off-premise sales either through catering, or have people come in and take food away. For Cracker Barrel, it's more catering. The only question that I've got -- I know you've got a great question, Nick -- the only question that I have is, given that so many of the locations are interstate locations, so they're not smack in the middle of big urban areas, they tend to be around smaller metropolitan areas, how big is the opportunity to do business catering? I think it's limited. Sure, it may be a good revenue stream to explore, but I have my doubts that it's this major source of income that management is trying to communicate that it could be. I'm a little skeptical on that front.

Sciple: Yeah. Wrapping it all together, I think Cracker Barrel exists in a niche that makes it very difficult for someone to come in and disrupt where they operate. However, both due to the nature of the business and that you need folks to come into the restaurant to sell things, which is moving counter to trends toward delivery, as well as the retail items that it sells, its old country store theme, the Southern food, is going to cap its ability to really grow and move nationwide. I may be wrong there, but that's my belief.

I think Cracker Barrel, given the assets that it has and its positioning, is going to continue to make money over time. It's going to be probably a really attractive investment from a dividend perspective, spitting out cash over time. However, from a capital appreciation point of view, I don't know how excited I would be in buying this business looking for it to double over the coming years. What are your thoughts on that thesis, Asit?

Sharma: I think that growth will rest more on menu innovation than almost anything else because it is this niche product. I agree with you. We'll see how this westward expansion works. There may be some opportunity within the next five or 10 years for some unexpected returns, let's say if units accelerate faster than expected or the concept really takes out West. But if you are a dividend-oriented investor and you want capital appreciation with some downside protection, this isn't a bad stock to look at. That's where the beauty of this particular concept lies. 

Like you said, Nick, the interstates are going to be here long after you and I are gone. I believe Southern food will be popular within the South long after you and I are gone. There is something to be said for buying this model for what it gives to you, that, so far, 5% to 7% effective yield on the rising dividend and special dividend. 

Sciple: Yeah, definitely an interesting investment opportunity. Asit, I'm heading down South tomorrow for Mobile, Alabama Mardi Gras. Maybe I'll get hold of some Southern food while I'm down there. Thanks for coming on the show, Asit! Great to have you! Looking forward to having you on again soon!

Sharma: Absolutely! It was fun! Thanks so much, Nick!

Sciple: You're welcome. As always, people on the program may own companies discussed on the show, and The Motley Fool may have formal recommendations for or against the stocks discussed, so don't buy or sell anything based solely on what you hear. Thanks to Dan Boyd for his work behind the glass. For Asit Sharma, I'm Nick Sciple. Thanks for listening and Fool on!