Why Is Cracker Barrel (CBRL) Down 41% Since Last Earnings Report?

It has been about a month since the last earnings report for Cracker Barrel Old Country Store (CBRL). Shares have lost about 41% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Cracker Barrel due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Cracker Barrel Q2 Earnings Beat Estimates, Up Y/Y

Cracker Barrel reported mixed second-quarter fiscal 2020 results, with earnings surpassing the Zacks Consensus Estimate and revenues missing the same. Adjusted earnings came in at $2.70 per share, which outpaced the Zacks Consensus Estimate of $2.44 by 10.7%. The bottom line also increased 7.1% year over year. With this, the company posted earnings beat for the sixth straight quarter.

Revenues of $846.1 million missed the consensus mark of $847.6 million by 0.2% but increased 4.2% from the prior-year quarter’s figure. The upside was primarily driven by positive comparable restaurant sales, opening of four new Cracker Barrel locations and acquisition of 28 company-owned Maple Street locations.

Comps Details

Comparable store restaurant sales increased 3.8% in the reported quarter courtesy of a 4% uptick in average check, partially offset by a 0.2% decline in comparable store restaurant traffic. Also, the average menu price rose about 2.2%. Nonetheless, comparable store retail sales in fiscal second quarter inched up 1.3% from the prior-year quarter’s figure.
Operating Highlights

Operating income in fiscal second quarter totaled $79.1 million, up 3.2% year over year. Operating margin was 9.4%, down 10 basis points from the prior-year quarter’s figure.

The decline in operating margin was caused by increases in operating as well as general and administrative expenses, partially offset by reductions in cost of goods sold and labor-related expenses.

Balance Sheet

As of Jan 31, 2020, cash and cash equivalents were $72.8 million, down from $169.6 million as of Feb 1, 2019. Long-term debt amounted to $460 million at the end of the quarter, up from $400 million in the prior-year quarter. Inventory at the end of the quarter under review amounted to $157.4 million, up from $151.4 million at the end of first-quarter fiscal 2018.

Net cash provided by operating activities was $184 million in fiscal second quarter compared with $190.9 million in the prior-year quarter.

Additionally, in the quarter under review, the company repurchased $5.8 million of shares.

Fiscal 2020 Outlook

Cracker Barrel expects total revenues in the range of $3.15-$3.2 billion. The company expects comparable store restaurant sales growth in the range of 2-2.5%, while comparable store retail sales growth is expected to be approximately flat. It continues to expect menu pricing to be approximately 2%. The company expects capital expenditure of approximately $125 million and an effective tax rate of 16%.

Furthermore, Cracker Barrel aims to open six Cracker Barrel stores and one Maple Street location in fiscal 2020. Management continues to project GAAP earnings per share in the range of $8.5-$8.65 for fiscal 2020. The projection includes the impact of 80 cents owing to investment in Punch Bowl Social as well as 15 cents due to transaction and integration expenses related to the acquisition of Maple Street

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

VGM Scores

At this time, Cracker Barrel has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Cracker Barrel has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.