Cracker Barrel Earnings Up, But Shares Drop As Company Eyes Higher Expenses

Shares of Cracker Barrel NASDAQ: CBRL were trading lower Tuesday after the restaurant chain reported better-than-expected third-quarter earnings.

As we all know, the restaurant industry was one of the hardest hit by pandemic closures. Cracker Barrel’s results are a good illustration that the economy is bouncing back, and fast. 

However, the report also showed that new challenges now loom, despite customers’ eagerness to return to restaurants. 

Cracker Barral also said Tuesday it would back dividends after temporarily halting the program after March 2020’s payout. 

Mid-session Tuesday, shares were down 2.75%, or $4.43, to $156.47. 

The company reported earnings per share of $1.51, up from a loss of $1.81 per share a year ago, when Covid restaurant closures began to affect the food-service and hospitality industries. 

Revenue was $713.4 million, up 65% from the year-earlier quarter. It marked the first revenue growth since the quarter ending in January 2020. 

Topping Wall Street Views

The quarter handily trounced expectations. Analysts had forecast earnings to come in at $0.39 per share on revenue of $675.6 million. 

Restaurant-industry-specific metrics looked good. Same-store sales climbed 102.8%, topping expectations for an increase of  68.3%. 

In its earnings release, Cracker Barrel also said it declared a quarterly dividend of $1.00 per share, payable on August 6 to shareholders of record on July 16.

In the release, Cracker Barrel President and CEO Sandra B. Cochran said, "The pace of our sales and margin recovery in the quarter exceeded expectations as we welcomed guests back into our dining rooms and our off-premise business remained strong.”

She added, “As the ongoing recovery from the pandemic brings us closer to 2019 sales levels, I am confident our solid execution, unique brand, and the strategic initiatives implemented during the pandemic will support growth in long-term shareholder value."

The stock was trading higher in the pre-market, and gapped up at the open, rising as high as $165.21 before reversing sharply lower in heavy volume. 

So what happened? Clearly, customers are coming back as the post-pandemic economy speeds along at a faster clip than anticipated.

For one thing, the company expects fiscal fourth-quarter revenue to be in line with results from 2019, disappointing for analysts who would rather see bigger growth. In addition, earnings could be impacted by the same thing affecting just about every company these days: Higher commodity and labor prices. 

Commodity and Wage Inflation Ahead

Cracker Barrel said it expects “commodity inflation of approximately 5.0% and wage inflation on a constant mix basis of between 3.0% and 3.5%.”

Additionally, the company said it expects to repay up to $500 million in debt during the 2021 fiscal year, including up to $165 million in the fourth quarter.

Tuesday’s post-earnings slide is a continuation of a downward trend that began in mid-April. The stock has been consolidating below its April 14 high of $178.82, its best levels since July 2019. 

Cracker Barrel had a rough road as it rallied back from the 2020 meltdown. Rather than essentially trading higher above its 50-day moving average, the stock formed a series of consolidations with higher highs and higher lows. 

Shares advanced 58.24% over the past year, but are down 5.70% over the past three months. 

Technically, Cracker Barrel is underperforming some of its restaurant-industry peers, including The One Group Hospitality NASDAQ: STKS, BBQ Holdings NASDAQ: BBQ, Fat Brands NASDAQ: FAT and Red Robin NASDAQ: RRGB. 

Several of those stocks are also in a consolidation. Part of that is due to uncertainty about rising commodity and labor prices, and part is due to broad-market choppiness in recent weeks. 

Although the future looks bright for Cracker Barrel, it’s premature to buy. Investors are well-advised to wait until the stock resumes a fresh rally accompanied by heavy upside trading volume. That way, you’ll avoid buying during a downtrend, when you could see the stock’s value continue to decline.