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Robust Off-Premise Sales Aid Cracker Barrel (CBRL), Inflation Hurts

·5 min read

Cracker Barrel Old Country Store, Inc. CBRL is benefiting from off-premise initiatives, expansion efforts, menu innovation, improvement in dine-in traffic and other sales-building efforts. Consequently, the company’s shares have increased 19.5% year to date compared with the industry’s growth of 10.8%. However, high inflation remains a concern. Let delve deeper.

Growth Drivers

The company is benefiting from robust off-premise sales. It continues to focus on off-premise initiatives, such as curbside delivery, third-party delivery and family meal baskets. It also continues to invest in technology initiatives to enhance the guest experience. To this end, the company plans to roll out Pay in App that allows contactless payments via mobile devices. It is also initiating the launch of a digital store that enhances the customer experience for ordering food and retail. Notably, investments in this direction are likely to boost its hospitality services along with customer experience in a brand-new way.

During fiscal third-quarter 2021, the company witnessed strong website traffic and customer conversion in its digital store, thereby boosting its off-premise performance in the quarter. The company is also very optimistic about the single location test of its virtual brand chicken and biscuits. It is planning to increase the test to 19 more locations.

The company is also witnessing an improvement in dine-in traffic. During third-quarter fiscal 2021, it witnessed an increase in dine-in traffic, robust off-premise sales and double-digit retail sales growth compared with third-quarter 2019. Robust sales-building efforts, vaccinations, the easing of capacity restrictions and stimulus packages have helped the company in delivering average weekly sales of nearly $70,000 in April compared with $56,000 per week during January. The company also benefited from beer and wine programs, digital investments and its menu evolution efforts.

Meanwhile, Cracker Barrel’s continuous expansion strategies are also helping the company drive growth. With three openings year to date in the fiscal (through Apr 30, 2021), the total number of company-owned Maple units under operation came in at 37. Although the progress is likely to get hampered due to the pandemic, it is bullish on its business model and growth potential. During the pandemic, Maple Street sales have been robust.

Cracker Barrel is continuously focusing on rejuvenating its menu, which serves as the backbone of the company’s riveting growth potential. During second-quarter fiscal 2021, the company introduced box meals, which include new meatloaf sliders. Notably, the company is focusing on home-style meal offerings that are likely to attract customers during and after the pandemic. Coming to the beer and wine tableside beverage program, the initiative has expanded to approximately 350 stores in the fiscal second quarter. Going forward, the company expects to expand this initiative to nearly 600 stores, with a full rollout expected by first-quarter fiscal 2022.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

Concerns

Despite cost-saving initiatives, higher labor costs due to increased wages are expected to persistently keep profits under pressure. Also, the company is apprehensive that inflationary costs are likely to be incurred. Meanwhile, management is making significant investments to support training, launch of several initiatives and value testing. Although these moves are expected to drive Cracker Barrel’s top-line growth during fiscal 2021, initial investments might dent margins. Moreover, expenses for opening units are anticipated to hurt the company’s margins.

Moreover, anticipated wage inflation in the range of 3-3.5% and commodity inflation of nearly 5% during fourth-quarter fiscal 2021 might hurt margins. The company believes inflation to moderate in fiscal 2022.

Zacks Rank & Key Picks

Cracker Barrel currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Better-ranked stocks in the same space include Chuy's Holdings, Inc. CHUY, Dine Brands Global, Inc. DIN and Texas Roadhouse, Inc. TXRH, each sporting a Zacks Rank #1.

Chuy's Holdings has a trailing four-quarter earnings surprise of 127.6%, on average.

Dine Brands’ 2021 earnings are expected to surge 268.7%.

Texas Roadhouse has a three-five-year earnings per share growth rate of 10%.

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DINE BRANDS GLOBAL, INC. (DIN) : Free Stock Analysis Report

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