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Will Cost Savings Drive Cracker Barrel's (CBRL) Q2 Earnings?

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Will Cost Savings Drive Cracker Barrel's (CBRL) Q2 Earnings?

Strong sales-building initiatives along with cost-saving efforts are likely to drive Cracker Barrel's (CBRL) Q2 revenues and earnings.

Cracker Barrel Old Country Store, Inc. CBRL is scheduled to report second-quarter fiscal 2018 results on Feb 20, before market opens.

The company’s strong initiatives to drive revenues through efficient marketing, seasonal promotions as well as unit growth are likely to reflect in the to-be-reported quarter’s top line. Strong cost-cutting efforts may also reflect in the second-quarter results.

Notably, the company’s shares have rallied 15.4% in the past six months, outperforming the industry’s gain of 3.9%.

Let’s see how Cracker Barrel’s top and bottom line will shape up in the to-be-reported quarter.

Multiple Sales-Boosting Efforts to Drive Growth

The Zacks Consensus Estimate for fourth-quarter revenues is pegged at $787.60 million, reflecting a 1.9% year-over-year growth. Cracker Barrel’s sales-boosting strategies like seasonal promotions and limited-time offers are reflected in the estimated revenue growth.

The company is stressing on the growth in its off-premise business. It is introducing new catering, menu and in-store training of hourly employees to enhance business. Anticipating off-premise sales to be the primary source of full-year sales, the company is investing in marketing efforts like social and digital messaging, geo-targeted consumer emails and in-store collateral.

Coming to menu innovation, Cracker Barrel recently introduced a coffee platform in approximately 40 stores. The company believes that the platform will complement its all-day breakfast offering through its check favorability and promote guest perception of variety of menu offerings. Cracker Barrel is also introducing television and social media messaging to attract a greater number of consumers.

In the second quarter, the company supposedly worked on the quality and exclusivity of its assortments, placing greater emphasis on price-value relationship. All such strategies are likely to drive the top line in the second quarter.

Cost Cutting to Favor Earnings

Cracker Barrel has a wide range of cost-cutting mechanisms in place. The company altered its retail sales and service structure in a way that allows it to deploy fewer associates during the outlet’s low volume hours, thereby reducing store hourly labor by 25-30 hours per week.

Moreover, Cracker Barrel follows a specific food management program that includes operational improvements, additional focus on food reporting and analytics, as well as a food auditing process. This program resulted in reducing the restaurants’ cost of goods sold. On the utilities front, the company has undertaken the implementation of LED lighting, which is being installed on the exterior of its stores. This is improving energy efficiencies and driving cost favorability.

Notably, for fiscal 2018, the company is attempting to deliver between $7 and $8 million in annual cost savings. The cost-savings mechanism helps the company witness margin improvement and thereby favors earnings.

Subsequently, the consensus estimate for second-quarter earnings is pegged at $2.32, mirroring 5.9% year-over-year growth, higher than the company’s expected EPS range of $2.15 and $2.25.

Our Quantitative Model Does Not Predict a Beat

Cracker Barrel does not have the right combination of two main ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

Zacks ESP: The company has an Earnings ESP of -2.02%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Cracker Barrel has a Zacks Rank #2 (Buy).

Meanwhile, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.


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


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


Stocks to Consider

Here are a few stocks from the restaurant space that investors may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Domino’s DPZ has an Earnings ESP of +1.06% and a Zacks Rank #2. The company is slated to report quarterly numbers on Feb 20. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Cheesecake Factory CAKE has an Earnings ESP of +0.35% and a Zacks Rank #3. The company is slated to report quarterly results on Feb 21.

Zoe's Kitchen ZOES has an Earnings ESP of +13.16% and a Zacks Rank #3. The company is slated to report quarterly numbers on Feb 22.

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