Bear of the Day: Cracker Barrel Old Country Store (CBRL)

Cracker Barrel (CBRL) is a Zacks Rank #5 (Strong Sell) that is engaged in the ownership and operation of full-service restaurants with a restaurant and a retail store in the same unit. The restaurants serve breakfast, lunch, and dinner, as well as dine-in, pick-up, and delivery services. The company’s gift shops comprise various decorative and functional items, such as rocking chairs, seasonal gifts, apparel, toys, cookware, and various other gift items, as well as various candies, preserves, and other food items. 

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Outside of the Covid crash, the stock has been steady over the years, trading around the same levels since 2015. However, recent earnings have put pressure on the stock that now threatens to break long lasting support levels.

Investors should be cautious with the CBRL as margin pressures might scare away long-term holders of the stock.

About the Company

Cracker Barrel is headquartered in Lebanon, TN and employs 70,000 people. The company was founded in 1969 and as of September 15, 2021, it operated 664 Cracker Barrel stores in 45 states.

CBRL is valued at $3 billion and has a Forward PE of 16. The company holds a Zacks Style Score of “A” in Growth and “B” in Value. The company also pays a 4% dividend.

Q1 Earnings

Cracker Barrel reported last week, seeing 7% miss on EPS. While revenues came in above expectations margins pressures are squeezing the bottom line. Increasing commodity costs and wage inflation are a double whammy and the company adjusted their operating margin to 5.5-6.0%.

Comparable restaurant sales were up 1.4% v 2019, while retail sales were up 17.16%.

The CEO commented that progress on staffing and efforts by their operating teams helped sales in the first quarter. Additional comments reiterated that their sales trends give them confidence into the second quarter.

However, margins issues are likely to weigh in on the bottom line early next year. This will have additional pressure on the stock and analysts are cutting estimates and price targets.

Cracker Barrel Old Country Store, Inc. Price and EPS Surprise

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Cracker Barrel Old Country Store, Inc. price-eps-surprise | Cracker Barrel Old Country Store, Inc. Quote

Estimates

The Q1 report showed margin problems, which was followed a drop in estimates across all time frames. Over the last 7 days, the current quarters numbers have fallen from $2.68 to $2.05, or 24%. For the current year, estimates have fallen about 5% over that same time frame.

The company does have some long-term growth opportunity in their Maple Street Biscuit Company restaurants. They are looking to open 15 new restaurants in 2022, but news sales are not likely to overtake their margin problems in the first half of next year.

Technical Take

The long-term trading range is key here, so let’s focus on that by looking at the chart going back to 2014. If you take out the COVID crash, you have a clear support zone in the $120-130 range. At the same time, you have a clear resistance zone around $180.

The stock hit that resistance earlier this year, but has since fallen back into that support zone at $130, bouncing back and forth between $130-$150.

The earnings number has cracked that support, so investors need to be really cautious as 2021 lows are now in sight. I would be worried, that those lows get taken out and we see a slow bleed below $120. From there the $100 level is in sight as it’s the 61.8% Fibonacci support level from the COVID crash lows to 2021 highs.

In Summary

Cracker Barrel is on the verge of a technical breakdown due to margin pressure. As inflation persists, the stock will continue to struggle. While there is a long-term growth story in Maple Street, investors are likely to be dealing with dead money in the foreseeable future.

The 4% dividend will bring in buyers as the stock goes lower, but there are plenty of places to put money that offer more opportunity. For those looking for a company in this sector, Dave & Busters (PLAY) might be a better bet. Last quarter the company saw an 88% EPS beat and the company is going on five straight earnings beats.


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Cracker Barrel Old Country Store, Inc. (CBRL): Free Stock Analysis Report

 

Dave & Buster’s Entertainment, Inc. (PLAY): Free Stock Analysis Report

 

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