Inflation Weighs On Cracker Barrel Results
Cracker Barrel NASDAQ: CBRL has been, to us, an attractive dividend growth stock over the years but my how the times have changed. While the 3.6% dividend yield looks safe enough, for now, the payout is still below the pre-COVID levels and we’re not holding our breaths for any large increases any time soon. The business is rebounding and gaining momentum but so too are rising costs. The company experienced a significant decline in its operating margins that we don’t see subsiding, not without aggressive price increases, that is. The point is that Cracker Barrel may still be an attractive yield but it’s not enough to overcome the bearish outlook for stock prices.
Mixed Results Drive Cracker Barrel Lower
Cracker Barrel did not have a horrible quarter but it also did not have an inspiring quarter and that was what the market needed. The $784.93 million in consolidated revenue is up 21.4% over last year, 7% versus two years ago, and 210 basis points better than the Marketbeat.com consensus but failed to drive significant gains on the bottom line. The company experienced an 82% decline in YOY GAAP operating margin, roughly 425 basis points versus 2019 levels, that sapped revenue strength and clouds the outlook. On an adjusted basis, earnings were only as expected while GAAP EPS of $1.41 fell short of the Marketbeat.com consensus by $0.06.
On a segment basis, comp restaurant sales are up 1.4% versus 2019 while retail is up 17.6% but don’t read too much into that. Cracker Barrel has made some price increases over the past year or so to offset inflation and those increases more than offset the strength. Off-premises dining continues to be a driver of sales, however, rising 168% on a two-year basis to account for 20% of the net. The bad news there is that off-premises dining brings added costs and ultimately cuts into the bottom line.
Looking forward, the company is expecting store traffic to remain strong and even pick up over the holidays. Execs refrained from giving specific guidance but did say the 4th quarter had started off strong and that comps were expected to accelerate on a quarter-to-quarter basis. The bad news is that margin will remain in the 5.5% to 6.0% range due to wage, commodity, input cost, and other rising cost pressures.
“Although we still face an uncertain business environment, our sales trends give us confidence that we should see further improvement in our comparable store sales in the second quarter,” commented Sandra B. Cochran.
Cracker Barrel Declares Dividend
Cracker Barrel declared the next dividend payment soon after releasing the FQ1 results maintaining the payout at the previous level. This is worth a yield of roughly 3.6% with a payout ratio of 61%. This isn’t a prohibitively high payout ratio but the balance sheet is another red flag. While the company’s leverage is very low, so too is its cash flow and coverage which is why we aren’t expecting much in the way of increases this fiscal year. Not without a fundamental change in the business.
The Technical Outlook: Traders Shed Cracker Barrel
Shares of Cracker Barrel fell more than 7.0% in the wake of the FQ1 report and could go much lower. The move confirms resistance at the short-term moving average and suggests to us the 9% short-interest ratio could be getting larger. The next key level for support is near the $130 level, a move below there could shave 10% to 20% off the stock price with a quickness.
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