Cracker Barrel Old Country Store, Inc. CBRL solid marketing efforts, increased focus on menu innovation and cost-cutting initiatives are impressive. However, dismal traffic and rising costs remain potent headwinds for the company.
Let’s delve deeper and analyze the factors that substantiate why it is alright to hold on to the stock for now.
Factors Likely to Drive Growth
In a bid to address the challenges of the competitive restaurant industry, Cracker Barrel undertakes extensive marketing efforts, mainly focusing on the brand’s differentiation, menu offering and its value. Going forward, the company aims to continue investing in new product news that will drive business frequency.
In order to drive traffic, the company relies heavily on seasonal promotions and limited-time offers to boost its top-line performance as they are appealing to both regular users and less-frequent guests. Notably, in fiscal 2019, off-premise sales (as a percentage of total revenues) increased 150 basis points year over year.
In fiscal 2020, the company aims to meet consumers' need for convenience via growth in its off-premise business. In fact, it plans to enhance its off-premise platform by introducing catering menu offering and in-store training of hourly employees.
The company is continuously focusing on rejuvenating its menu, which serves as the backbone of its riveting growth potential. Cracker Barrel’s in-store menu features Fried Chicken Benedict bowl, a Ham n' Maple Bacon bowl as well as Sausage, Grits Cakes and Green Tomato Gravy bowl. In 2018, it completed the rollout of crafted coffee. The company believes that the platform will complement the strength of its breakfast all day offering and promote guest perceptions of menu variety.
Additionally, the company has an effective cost-cutting mechanism in place. Currently, it is carrying out its cost-saving plan through its two prime initiatives — food waste and labor management. For fiscal 2020, Cracker Barrel expects cost savings synergies of $11-$13 million. Over the long run, the same is targeted at $40 million.
Factors Deterring the Stock
Even though comps have increased over the past few quarters, decline in traffic continues to be a major concern for the stock. In fiscal 2019, traffic declined 0.7%. In the first quarter of fiscal 2020, traffic decreased 1.5%.
Despite the company’s efficient cost-saving methods, higher labor costs and expenses related to various sales-boosting initiatives are weighing on its margins. Operating margin in fiscal 2019 was 9.2%, down 50 basis points (bps) from 9.7% in fiscal 2018. Subsequently, Cracker Barrel’s shares have declined 3% so far this year, significantly underperforming the 20.3% growth of the industry.
Zacks Rank & Key Picks
Cracker Barrel carries a Zacks Rank#3 (Hold). Some better-ranked stocks in the same space include Chuy's Holdings, Inc. CHUY, Chipotle Mexican Grill, Inc. CMG and Dave & Buster's Entertainment, Inc. PLAY. While Chuy’s sports a Zacks Rank #1 (Strong Buy), Chipotle and Dave carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Chuy’s, Chipotle and Dave have impressive long-term earnings growth rate of 17.5%, 19.7% and 14.8%, respectively.
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