Cracker Barrel Earnings Might Not Soar With Its Stock

Cracker Barrel (CBRL 4.12%) will release its quarterly report on Wednesday, and judging from the way the company's stock has soared to all-time highs lately, it's clear that investors are expecting good things from the restaurant company. But it's far from clear whether Cracker Barrel earnings will be strong enough to justify those gains, especially with analysts expecting a modest pullback from year-ago earnings levels.

Cracker Barrel has an unusual business strategy, with its restaurants also carrying a fairly large selection of retail goods that help supplement its overall revenue. But a continuing battle with Biglari Holdings (BH 1.61%) has providing major distractions from the combination retailer/restaurateur's core business success. Let's take an early look at what's been happening with Cracker Barrel over the past quarter and what we're likely to see in its report.

Stats on Cracker Barrel

Source: Yahoo! Finance.

Can Cracker Barrel earnings post a surprise this quarter?
In recent months, analysts have actually gotten slightly more optimistic about Cracker Barrel earnings, adding a penny per share to July quarter estimates and $0.04 per share to their consensus for the 2014 fiscal year. The stock has climbed even further, rising 9% since mid-June.

The nice surprise that Cracker Barrel investors got last quarter came in June, when the company reported a 30% jump in its profits for its April quarter. A boost in menu pricing helped produce a 3.1% rise in same-restaurant sales, while its retail operations fared even better, posting 5.5% growth in comps. Lower costs for its workers also contributed to profit margins. As a result, Cracker Barrel boosted its range of earnings guidance, pushing the upper limit of its expectations up a nickel per share. It also kicked up its dividend by 50% to $0.75 per share quarterly, lifting its dividend to nearly 3%.

But the big controversy that continues to loom large over Cracker Barrel involves a long dispute with Biglari, which owns 20% of the company. Despite its big position, Biglari hasn't convinced its fellow Cracker Barrel shareholders to support change at the chain, blocking attempts to give Biglari seats on Cracker Barrel's board.

One reason has been its ability to compete strongly. With its recent Wholesome Fixin's initiative, Cracker Barrel is answering the call to healthy food that Chipotle Mexican Grill (CMG -1.34%) and other innovative companies have helped to establish and foster. Yet Cracker Barrel and fellow country-oriented casual-dining chain Bob Evans (BOBE) have also done a good job of fighting Chipotle by appealing to their comfort-food base, ensuring that they don't alienate customers who are happy with traditional food offerings.

In the Cracker Barrel earnings report, watch to see how the company's leaders respond to the ongoing wrangling with Biglari. With shareholders supporting current management in light of share-price gains, strong growth would continue to leave Biglari without much leverage to persuade investors that change is necessary. But if earnings are weak, then it could open the door to Biglari's arguments in the long run.

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