These are decidedly dicey times for restaurateurs. Combine a notoriously fickle and competition-packed market with tougher economic times, and you've got a volatile mix. Although there are still some areas of strength -- Cheesecake Factory
Where, then, does CBRL Group
For the company's fiscal fourth quarter, total revenue climbed almost 9% as same-store sales rose 4.1% at Cracker Barrel and 1.9% at Logan's. Stripping out a legal settlement charge from last year, the operating margin improved slightly, and operating income grew 11.3%, which helped earnings per share grow more than 17%.
Those numbers sound good, right? I'm not so sure. When you break down the same-store-sales numbers, you see a more concerning trend. At Cracker Barrel, the average check rose 4.5%, but guest traffic was down 0.4% (and retail sales were down 2%). At Logan's, you see a similar pattern -- a 2.3% higher check, but 0.4% less traffic. It's certainly true that a restaurant has to be able to charge profitable prices, but it's ultimately the number of tuchuses in seats that spells success. A restaurant can't rely on menu inflation to sustain itself for very long.
That said, it's not all bad news. The company generated more than $100 million in free cash flow for the year, and its return on capital is slightly above average for the restaurant industry. What's more, on a purely subjective level, the food is pretty good. Were it not for the absolutely abysmal quality of service at my local Cracker Barrel, I'd actually go there once in a while.
As for the stock, I'm not too pleased to hear management blame poor retail sales on gasoline and mortgage payments, but that's a rather minor point. Looking at valuation -- P/E and enterprise value-to-free cash flow specifically -- CBRL Group doesn't look too badly priced. It's not quite cheap enough yet for me to bite, but I think it's worth keeping an eye on in case it should sell off further.
Further Foolishness, with a side of biscuits:*
- Well Done, Ruth's Chris
- Top Sirloin, Top Performance
- Benihana Stays Hot
- AFC Enterprises Plays Chicken
*Biscuits not actually included.
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).