Restaurant stocks are always popular with investors, and there are many opportunities. A great player in this industry is Cracker Barrel Old Country Store Inc. (CBRL, Financial). It posted excellent quarterly results including a 1.14% increase in total revenues. Total revenues for the first six months increased 0.68%. During the quarter Cracker Barrel opened two units, totaling 645 at the end of the quarter.
Cracker Barrel Store provides a friendly home-away-from-home in its old country stores and restaurants. The company’s restaurants serve breakfast, lunch and dinner, and the menu includes meatloaf and homemade chicken n' dumplings as well as its signature biscuits using an old family recipe. Cracker Barrel’s old country retail store offers offer various decorative and functional items.
Strong second-quarter results
On Feb. 21, the Lebanon, Tennessee-based company reported its financial results for the second quarter ended Jan. 27. Total revenue increased 1.14% to $772.68 million compared to $764 million for the comparable prior-year period. Revenues of the restaurant segment increased 1.75% to $591.11 million compared to $580.92 million for the same period last year. On the other hand, revenue from the retail segment was $181.57 million, a decrease of 0.82% compared to $183.08 million in the year-ago quarter.
Gross profit for the reported quarter increased 3.74% to $517.76 million compared to $499.07 million in the prior-year period. The gross profit margin increased to 67% from 65.32% in the same period last year.
Cracker Barrel's operating income increased 17.27% to $82.7 million compared to $70.52 million in the year-ago quarter. Operating income as a percentage of total revenues increased 10.7% from 9.23% in the same period last year. Net income increased 9.31% to $52.73 million, or $2.19 per diluted share, compared to $48.24 million, or $2.01 per diluted share for the comparable prior-year period. Net income as a percentage of total revenues went up 6.82% from 6.31% in the prior-year period. The company’s EBITDA increased 17.27% to $82.7 million, compared to $70.52 million for the comparable prior-year period.
Cracker Barrel's cost of goods sold decreased to 3.78% to $254.92 million compared to $264.93 million. Cost of goods sold as a percentage of net sales also decreased to 32.99% from 34.68% in the prior-year period. Net interest expense for the reported quarter increased 1.96% to $3.64 million, compared to $3.57 million in the year-ago quarter. On the other hand, general and administrative expenses decreased to 1.94% to $34.82 million, compared to $35.51 million.
Cracker Barrel ended the quarter with cash and cash equivalents of $185.7 million, an increase of 8.19%, compared to $171.64 million in the year-ago quarter. Long-term debt remained flat to $400 million and inventories for the reported quarter increased 3.26% to $155.88 million, compared to $150.96 million for the comparable prior-year period.
First six months results overview
The following chart shows Cracker Barrel's financial results for the first six months of fiscal 2017.
| Metrics | Six months ended January 2017 | Six months ended January 2016 | % change |
| Total revenue | $1.48 billion | $1.47 billion | 0.68% |
| Restaurant revenue | $1.16 billion | $1.14 billion | 1.75% |
| Retail revenue | $317.86 million | $323.43 million | (1.72)% |
| Gross profit | $1.01 billion | $978.73 million | 3.67% |
| Operating income | $158.44 million | $135.83 million | 16.64% |
| Net income | $101.08 million | $89.11 million | 13.43% |
| EBITDA | $158.43 million | $135.83 million | 16.64% |
| Cost of goods sold | $468.03 million | $487.9 million | (4.07)% |
| General and administrative expenses | $68.9 million | $69.83 million | (1.33)% |
| Net interest expense | $7.31 million | $7.11 million | 2.81% |
| Net cash provided by operating activities | $149.5 million | $85.61 million | 74.63% |
Projections
For fiscal 2017, Cracker Barrel expects its total revenue of approximately $2.95 billion and diluted EPS will be in the range of $8.10 to $8.25. Comparable store restaurant sales and comparable store retail sales are expected in the range of 0.5% to 1.0% and nearly 2.0%. Operating income as a percentage of total revenues is projected in the range of 10.0% to 10.5%. Cracker Barrel expects its depreciation expense and net interest expense in the range of $85 million to $87 million and approximately $15 million. Additionally, Cracker Barrel plans to open eight new Cracker Barrel stores and four new Holler & Dash Biscuit House restaurants.
Strategy
Cracker Barrel's long-term plans are:
- The company is providing its guests seasonal menu offerings which will improve the company’s sales mix.
- The company is going through cost-saving initiatives and has reduced operating costs by $15 million to $20 million.
- To improve margins, Cracker Barrel is introducing food management and LED lighting. Further, the company is updating its kitchen equipment.
- To attract more and more customers, Cracker Barrel is expanding its footprint.
On a concluding note
Overall, Cracker Barrel is a rock-solid company with 47 years of growth and financial success, balanced approach to capital allocation, strong balance sheet, remarkable white space opportunity and experienced management team.
Cracker Barrel's consistent focus on business model improvements has delivered remarkable margin expansion. The company’s growth has outperformed its peers and has consistently increased its annual dividend. Finally, with the recent quarterly release, the company is aiming for a better future and is set to deliver greater shareholder returns.
Disclosure: I do not hold any position in the company.
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