What happened

Shares of restaurant chain Cracker Barrel Old Country Store (CBRL -3.88%) were down 17.5% in December, according to data provided by S&P Global Market Intelligence. The company started the month off by reporting financial results that displeased the market. However, later in the month, some analysts started circling the wagons on what now may be a deep value stock.

So what

On Dec. 2, Cracker Barrel reported financial results for the first quarter of its fiscal 2023, which showed profitability problems. Q1 revenue was up 7% year over year and management is forecasting 6% to 8% growth for the year. But the market is rightly concerned about profits in an inflationary environment.

Q1 net income was down 49% year over year for Cracker Barrel, mostly due to wage inflation and food inflation. Management has raised menu prices to compensate. But for fiscal 2023, it still believes that its operating margin will only be about 4%. For perspective, it was 4.7% in fiscal 2022.

Cracker Barrel's slumping profits are why the stock was down in December.

Now what

Cracker Barrel stock did experience a slight reprieve late in the month as some analysts warmed up to it a bit. On Dec. 20, C.L. King analyst Andrew Wolf reinstated coverage of the company with a buy rating, according to The Fly, believing the company has room to grow its earnings again down the line.

Cracker Barrel stock currently trades at similar levels to where it traded in 2015, which could mean it has room to run if it can restore its profit margins as Wolf suggests. However, from my perspective, investors may want to wait a bit longer for the smoke to clear.

Consider that the latest data from the Bureau of Labor Statistics shows ongoing food inflation. The food index was up 0.5% in November alone on top of 0.6% inflation in October. This will continue to put pressure on Cracker Barrel's margins as well as those of all restaurant companies.

Moreover, capital expenditures are starting to rise for Cracker Barrel because it's ramping up the expansion of its Maple Street Biscuit Company brand. At the end of Q1, it owned 54 locations and intends to open 12 to 17 more during this fiscal year.

This could be a good growth opportunity for Cracker Barrel. However, management doesn't break out the numbers for its Maple Street brand -- in fact, in important metrics like same-store sales and average unit volumes, it excludes Maple Street. Therefore, it's difficult to know whether this can be a meaningful driver of shareholder value.

For these reasons, even though it fell sharply in December, I'd continue waiting on Cracker Barrel stock to have greater clarity on its business prospects in 2023.