Here's Why You Should Steer Clear of Cracker Barrel (CBRL) Stock
Cracker Barrel Old Country Store, Inc. CBRL has been witnessing strong headwinds due to commodity and wage inflation and a challenging macro environment. Also, dismal traffic, courtesy of a challenged consumer environment, added to the downside.
Shares of the company have declined 29.7% in the past year against the industry’s growth of 6.1%. Earnings estimates for the fiscal 2024 and 2025 have been revised downward by 11.7% and 8.2%, respectively, in the past 60 days.
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Let’s discuss the factors likely to impact this Zacks Rank #5 (Strong Sell) company’s growth potential.
Primary Concerns
Cracker Barrel’s performance has been affected by commodity and wage inflation, supply chain challenges and a challenging macro environment.
The adjusted operating margin was 4.4% during the fiscal year compared with 5.1% in the prior year. Inflationary conditions mainly caused the downside concerning the cost of food, ingredients, retail merchandise, transportation, distribution, labor and utilities.
The company anticipates high inflation and lower consumer confidence to act as a headwind. Although it has been strategically increasing prices to mitigate the impact of inflation, it expects the headwinds to persist for some time. The company projects wage inflation to be 4-5% in the first quarter of fiscal 2024.
The decline in traffic remains a major concern for the stocks in this space. In the fourth quarter of fiscal 2023, the company witnessed softer guest traffic, unlikely to its expectations for the quarter. In fiscal 2023, comparable store restaurant traffic declined 3.5% against the 8% growth reported in the previous year. Cracker Barrel believes that this will continue for most of the first quarter of 2024, courtesy of a challenged consumer environment.
High debt is a concern for the company. Long-term debt as of Jul 28, 2023, came in at $414.9 million compared with $444.5 million reported in the previous quarter. The times-interest-earned ratio at the end of the fiscal fourth quarter came in at 7.1x compared with 7.4x reported in the previous quarter.
The company ended the fiscal fourth quarter with cash and cash equivalents of $25.1 million (compared with $22.5 million reported in the previous quarter), which may not be enough to manage the high debt level.
Key Picks
Some better-ranked stocks in the Zacks Retail-Wholesale sector include:
Arcos Dorados Holdings Inc. ARCO sports a Zacks Rank #1 (Strong Buy). It has a trailing four-quarter earnings surprise of 35%, on average. The stock has gained 13.3% in the past year. You can see the complete list of today’s Zacks Rank #1 stocks here.
The Zacks Consensus Estimate for Arcos Dorados’ 2023 sales and EPS suggests rises of 19.2% and 13%, respectively, from the year-ago period’s levels.
El Pollo Loco Holdings, Inc. LOCO currently carries a Zacks Rank #2 (Buy). It has a trailing four-quarter earnings surprise of 23.7%, on average. Shares of LOCO have dropped 4.6% in the past year.
The Zacks Consensus Estimate for LOCO’s 2024 sales and EPS indicates a 3.5% and an 18.3% growth, respectively, from the year-ago period’s levels.
Yum! Brands, Inc. YUM carries a Zacks Rank #2. It has a trailing four-quarter earnings surprise of 2%, on average. Shares of YUM have gained 10% in the past year.
The Zacks Consensus Estimate for YUM’s 2023 sales and EPS indicates a 5.9% and a 15.1% growth, respectively, from the year-ago period’s levels.
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Cracker Barrel Old Country Store, Inc. (CBRL) : Free Stock Analysis Report
Yum! Brands, Inc. (YUM) : Free Stock Analysis Report
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El Pollo Loco Holdings, Inc. (LOCO) : Free Stock Analysis Report
