Why Cracker Barrel Stock Crumbled on Friday

What happened

Shares of restaurant company Cracker Barrel Old Country Store (CBRL 0.56%) crumbled on Friday after the company reported financial results for the first quarter of its fiscal 2023 and lowered expectations for the rest of the year. As of 11:30 a.m. ET, Cracker Barrel stock was down 11%.

So what

Cracker Barrel is a tale of two lines: the top and bottom. On the top line, things look OK. Q1 revenue came in at almost $840 million, which was up 7% year over year. But the gain was almost entirely due to a 7.8% increase in menu prices.

The bottom line is a different story. Like most restaurants, Cracker Barrel's profit margins are thin in the best of times. However, the company's operating income plunged 45% year over year to $23.6 million, largely due to inflationary pressures on its expenses. 

In other words, Cracker Barrel is raising prices to compensate for inflation, but it hasn't been enough so far. And with profits dropping, the market turned on Cracker Barrel stock today.

Now what

Cracker Barrel also lowered its guidance for profitability going forward, which wasn't well received either. Previously, management guided for up to 8% full-year revenue growth in fiscal 2023, and it maintained this guidance today. However, it only expects an operating margin of about 4% in fiscal 2023 compared to previous guidance of closer to 5%.

Cracker Barrel does expect some growth from opening up to four new Cracker Barrel locations and up to 20 new Maple Street Biscuit Company locations in fiscal 2023. But this is modest growth, considering it already has more than 660 locations.

This being the case, I imagine most investors buy Cracker Barrel stock not so much for growth, but for its dividend, which currently yields over 5%. However, its upcoming dividend of $1.30 per share exceeds earnings per share at the moment. In other words, it needs to find ways to grow earnings even in this inflationary environment if it's going to continue paying this high-yield dividend -- something for dividend investors to be aware of, for sure.