CBRL (NASDAQ:CBRL), operator of Cracker Barrel and Logan's Roadhouse restaurants, reported unexciting Q3 results last week. Compared with last year's quarter, same-store traffic was down around 1% in both chains, Cracker Barrel's retail sales are down 4%, and the net profit margin came in a bit lower, at 4.2% of sales. Thanks to inflation and new store openings, total sales for the quarter were up 7%, and net income rose 3%.
Of all of the reported numbers, however, one of the main ones to focus on is same-store sales growth, which clocked in at a measly 2% over Q3 of last year. For restaurant operators and retailers alike, the growth in sales after subtracting out the boost from recently opened shops is a key measurement.
The main reason is that CBRL has to dish out quite a bit of cash to open these restaurants, and the return on investment is vital. The company can fund this expansion with either owner earnings, which is cash that could otherwise be returned to shareholders, or debt. Either way, the projects need to meet certain rate of return requirements.
If, over time, the average sales growth on each of these units barely keeps up with inflation, then the money invested to build them isn't getting as good of a return. And neither will shareholders.
Now, in fairness to Cracker Barrel, other big players in the industry aren't putting up huge gains either.
For the month of April, Outback Steakhouse (NYSE:OSI) reported a 1% decline in same same-store sales growth for its namesake chain. Meanwhile, in their most recent quarters, Landry's (NYSE:LNY) and O'Charley's (NASDAQ:CHUX) saw little to no growth by similar metrics.
So at least CBRL isn't alone in its uninspiring performance. But what's holding the company and industry back? Well, there could be plenty of factors, but investors seem to be focused on two: competition and crude. Competition refers to the weed-like quality of new restaurant openings; they just don't stop springing up. And crude refers to, you guessed it, gas prices -- and this certainly doesn't help CBRL's interstate locations.
With this one-two combo, it will be interesting to see how much CBRL is able to grow shareholder value in the coming years. Traffic has dipped before for the company, and so far, it usually ends up back on track within a year or so. If this happens, and management can achieve solid margins, it would be in a much better position to create shareholder value.
Just can't get enough of restaurant reading? Check out:
Fool contributor Matt Thurmond, despite being a big fan of Logan's Roadhouse, owns no shares in any company mentioned in this article.
