Cracker Barrel (NASDAQ: CBRL) Will Reward Patient Investors

Many restaurants have struggled mightily since March. Cracker Barrel NASDAQ: CBRL, best known for its comfort food, has been no exception.

Last week, Cracker Barrel reported its Q1 2021 earnings (the period ending October 30, 2020). Comps were down more than 16% yoy and retail sales were down 8% yoy. The numbers did, however, compare favorably to last quarter when comps were down 39% yoy and retail sales fell 32% yoy.

Cracker Barrel’s off-premise business was largely responsible for the improvement. The CEO had this to say on the Q1 call:

“The demand for off-premise remains strong. During the quarter, we continued to focus on leveraging successful initiatives such as third-party delivery and curbside pickup, enhancing our off-premise operations, and building brand awareness and affinity. Comparable store off-premise sales grew 122% compared to the prior-year quarter and represented approximately 25% of total restaurant sales compared to approximately 9% in the prior-year quarter.”

That’s all well and good, but with coronavirus cases peaking, it’s clear that the vaccine is the only thing that will return Cracker Barrel’s overall business to growth.

Salivating Over Fiscal 2022 and 2023 Projections

Cracker Barrel’s fiscal 2021 started on August 1, 2020. Earnings are improving over recent quarters, but its going to be an uphill battle for Cracker Barrel over the next couple of quarters.

2022 seems a long way off, but Cracker Barrel’s fiscal 2022 starts in less than eight months. I’m salivating over the projections: $8.15 in EPS, good for a 16.7x P/E. Fiscal 2023 is expected to be even better: $9.14 in EPS, which would equate to a 14.9x P/E.

The thing is, attractive as those ratios look, the numbers may be a little too conservative.

Pent Up Demand Could Propel Cracker Barrel

Certain restaurant chains derive most of their sales from their local communities, but capturing traveler dollars is a key part of Cracker Barrel’s business model. Like my colleague, family road trips often included a pit stop at Cracker Barrel.

I don’t think our experiences are unique. Cracker Barrels are often placed right off the highway, and the food is a godsend in the middle of a long road trip.

On the Q1 call, management talked about the impact of travel (or the lack there of) on sales: “We've got some stores that maybe they were more travel-related and that the absence of the travel leading into the season we believe had an impact on them.”

Okay, but how does pent up demand come into play?

 Once the vaccine is widely distributed, people aren’t going to start jetting around the world right away. Heck, they might not even be able to: many countries could remain closed to tourists.

After 12-15 months stuck mostly inside, however, people are going to feel the need to travel. They’ll satisfy that urge by, you guessed it, taking road trips. Cracker Barrel will get a lot of business, not just because more people will be taking road trips, but also because many of those same people will have not been to Cracker Barrel in over a year.

Don’t Overlook Beer and Wine Initiative

On the Q1 call, management talked about its beer and wine initiative. Currently, 250 stores offer beer and wine, but Cracker Barrel expects that number to grow to nearly 600 stores by the end of fiscal 2021. That might not sound like a lot, but Cracker Barrel has less than 700 stores total.

Right now, beer and wine sales are only responsible for 1% of dine-in restaurant sales in stores that offer them. But Cracker Barrel thinks it can more than double that percentage over the next 12 months.

A 2-3% boost to dine-in sales is nothing to sneeze at, but it’s not going to make-or-break Cracker Barrel. But I’m taking the long view here: this initiative is in its infancy and there’s reason to believe that beer and wine sales could grow even more over the next few years. That would be a boon for Cracker Barrel shareholders.

Post Earnings Dip Offers Attractive Entry Point

Cracker Barrel shares took a tumble on Monday, soon after earnings were released, dropping nearly 7%. Shares have since recovered some of those losses, but still trade below where they were a week ago.

I would take this as an opportunity to pick up CBRL shares. Cracker Barrel is an excellent long-term play and any short-term weakness should be taken as a buying opportunity.