Cracker Barrel Benefits From Sales & Cost-Cutting Efforts

Cracker Barrel Old Country Store, Inc.’s (NASDAQ:CBRL) multiple sales boosting and cost-cutting initiatives are impressive. However, rising labor costs amid a tepid sales environment along with limited geographical presence remain potent headwinds for the company.

Recently, Cracker Barrel posted strong second-quarter fiscal 2018 results wherein both the top and bottom line surpassed the Zacks Consensus Estimate. Notably, this quarter marked the 27th successive earnings beat. However, the company reported lower-than-expected revenues in 11 of the last 12 quarters.

Sales Boosting and Cost-Cutting Initiatives are Major Tailwinds

Cracker Barrel uses seasonal promotions and limited time offers to boost its top-line performance by attracting both regular users and less-frequent guests. Moving ahead, the company aims to continue investing in new product news that will drive business frequency.

In fiscal 2018, Cracker Barrel aims to meet consumers' needs for convenience via growth in its off-premise business. Also, the company plans to enhance its off-premise platform by introducing new catering menu offering and the in-store training of hourly employees. In fiscal 2017, Cracker Barrel tested and enhanced off-premise platform in roughly 100 stores and completed its system-wide rollout of the off-premise platform by fiscal first-quarter of 2018. Apart from new product offering, the test featured value messaging across four weeks of local television and in-store advertising. Further, it intends to extend the test with additional markets and television weeks from January to March.

Coming to menu innovation, the company recently introduced a coffee platform in approximately 40 stores. It believes that the platform will complement the strength of its breakfast all day offering, drive check favorability and promote guest perceptions of menu variety. The rollout of the crafted coffee program at all stores is expected to be complete by the end of fiscal third quarter.

Cracker Barrel Old Country Store, Inc. Revenue (TTM)

Cracker Barrel Old Country Store, Inc. Revenue (TTM) | Cracker Barrel Old Country Store, Inc. Quote

Additionally, Cracker Barrel has an effective cost-cutting mechanism in place. In fact, the company undertakes various measures to keep costs under control. In the beginning of fiscal 2017, the company targeted to reduce annual operating cost by $15 million to $20 million. It delivered 15% above the high end of its fiscal-year target and achieved its three-year strategic goal of removing $50 million in annual cost from the business by fiscal 2017-end. For fiscal 2018, the company anticipates to deliver between $7 million and $8 million in annual cost savings.

Rising Cost and Limited Geographic Diversity Remain Overhangs

Despite the company’s efficient cost-saving methods, higher labor costs and expenses related to various sales-boosting initiatives are weighing on its margins. Subsequently, Cracker Barrel’s shares have gained just 1.2% in a year’s time, significantly underperforming the 11.5% gain of the industry it belongs to.

Although Cracker Barrel has a substantial domestic presence, it loses out on international front. While the other restaurant chains like Yum! Brands (NYSE:YUM) , McDonalds (NYSE:MCD) and Papa John’s (NASDAQ:PZZA) are pursuing aggressive global expansion strategies, Cracker Barrel seems to be weak on this front.

Furthermore, a soft consumer spending environment in the U.S. restaurant space might continue to affect traffic. Also, Cracker Barrel’s retail business has been negatively impacted by challenges in the retail industry. Thus, the company’s top line is likely to remain under pressure.

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

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