Beating Buffett

Cracker Barrel shares did great from the June 12, 2009 write-up through the Jan. 15, 2010 expiration date of the proposed buy/write trade.

CBRL increased by 37.9% (from $28.08 to $38.72) over the next 6.1 months.

Our combination play outperformed it easily, though, with a cash-on-cash return of + 61% for the same half year.

Cracker Barrel 2Q profit jumps nearly 40 percent, shares hit 52-week high on easy analyst beat

Symbol Price Change
CBRL 42.99 +0.64

LEBANON, Tenn. (AP) — Cracker Barrel Old Country Store Inc. said its fiscal second-quarter profit rose nearly 40 percent on higher prices and customers spending more when they ate out.

Shares on Tuesday rose to a new 52-week high on the results, which handily beat expectations.

The restaurant chain, known for its down-home cooking style, earned $25.4 million, or $1.09 per share, during the three-month period that ended Jan. 29.

That compares to a profit of $18.4 million, or 81 cents per share, during the same period the prior year.

Revenue edged up less than 1 percent to $632.6 million.

Analysts surveyed by Thomson Reuters expected the restaurant to earn 90 cents per share on revenue of $634.8 million.

During afternoon trading, shares rose $3.16, or 8 percent, to $43.02, off from a new 52-week high of $43.15.

Sales at restaurants open at least a year fell 0.2 percent, but the average check rose 2.1 percent during the quarter. The average menu price rose 2.4 percent. Restaurant traffic at stores open at least a year fell 2.3 percent during the quarter, though the decline lessened in January.

Within the company’s stores, which sell candies, gifts and other items, sales at stores open at least a year fell 3 percent in the quarter.

The company expects earnings per share for fiscal 2010 between $3.35 and $3.50. Analysts expect earnings per share of $3.27, according to Thomson Reuters

Weekday Trader | THURSDAY, MAY 6, 2010

Cracker Barrel Serves Up Warm, Tasty Returns
By TERESA RIVAS - Barrons.com

Shares of the casual-dining chain should continue to perform well, thanks to an improving economy and some innovations.

INVESTMENT GAINS ARE A dish best served warm, a notion that Cracker Barrel Old Country Store (ticker: CBRL) understands well.

The casual-dining and gift-shop chain is one of the best players in a business with a solid history of returning capital to shareholders.

Its new initiatives to expand its footprint and improve margins dovetail well with its exposure to the slowly recovering consumer economy.

Shares have risen just over 60% in the last year, outstripping the gains of its peers tracked by the Dow Jones U.S. Restaurant & Bars Index and the overall market.

But the stock still changes hands at just 12.6 times forward earnings, below rivals like Bob Evans Farms (BOBE) and the industry giant Darden Restaurants (DRI). Increased traffic during the coming summer season, coupled with its continuing market-share gains, should propel the stock further.

Stifel Nicolaus analyst Steve West says that he believes “improving fundamentals and a potential consumer rebound could lead to earnings upside and meaningful share-price appreciation.”

Cracker Barrel Old Country Store (CBRL)

Stock Price: $47.44
52-Wk High: $53.43
52-Wk Low: $25.39
Market Cap: $1.1 billion
Est. FY 2010 EPS:* $3.53
FY 2011 P/E: 12.5 times
Est. Long-Term EPS Growth**: 11.2%
Est. (FY’11/FY’10) EPS Growth: 11.6%
Revenue (trailing 12 months): $2.4 billion
Dividend Yield: 1.6%
CEO: Michael Woodhouse
Headquarters: Lebanon, Tenn.
* Cracker Barrel’s fiscal year ends in July.

** Based on analyst estimates looking ahead three to five years.

Sources: Morningstar, Barron’s, Yahoo Finance, Thomson Reuters
The stock also pays a 1.6% dividend and had an average return on equity above 57% in 2009, which increased to 62.5% in the first quarter.

As an investment, Cracker Barrel is helped by the quality of its management and the way it has structured itself. For example, the company doesn’t franchise, and it serves three meals a day, allowing it to manage its costs more effectively than other chains. Its attached gift shops, which had been hurt during the recession, should also begin to add to the revenue again.

Tennessee-based Cracker Barrel has nearly 600 restaurants in 41 states. Although many are located along interstates, the company is beginning to diversify from this model. Restaurants serve Southern staples such as turkey with mashed potato and gravy, while gift shops sell licensed food, along with toys, candy and home décor.

Cracker Barrel’s new “Seat to Eat” initiative, which aims to have customers seated and eating in 14 minutes or less, gets more customers through the door during peak times and reduces waiting. West notes that this is working well in the 20% of the stores where it has been implemented, and should boost both margins and traffic as it expands.

Management has also noted that this program has cost less to execute than they had anticipated.

Its low price points have also allowed Cracker Barrel to win new customers during the downturn, a phenomenon that MKM Partners analyst Stephen Anderson believes should continue to boost earnings: “Although Cracker Barrel often is thought of as a value-based concept, we argue the company gained new customers who may have traded down from more expensive concepts (particularly bar-and-grill) in the past recession, and we think Cracker Barrel is a “sticky” concept that is allowing it to keep many of these customers in the recovery.”

With an average meal costing a mere $9, Anderson argues that Cracker Barrel will continue to be a compelling value, allowing the chain to “maintain a consistent customer base without hurting the top line or resorting to margin-sapping discounts.”

Consumers’ slow recovery also means that many are hitting the road again this vacation season, but staying closer to home and often driving instead of flying.

Morgan Keegan analyst Robert Derrington raised his comparable sales and earnings-per-share projections for the company, citing “confidence in Cracker Barrel’s management’s margin-building initiatives and recent channel checks. We believe strong spring-break travel [and] same store sales-lift in key geographic regions…are contributing to even better same store sales, margins and EPS versus previous expectations.”

These trends should support Cracker Barrel and allow it to “outperform its casual dining industry peers in same store sales and traffic growth, which it has done now for the fourteenth consecutive quarter,” according to Derrington.

Henry Sanders, senior portfolio manager of the Aston/River Road Dividend All Cap Value Fund, believes that the market is also ignoring the value of the company’s real-estate holdings, as it owns the vast majority of its locations. “They sold about a dozen of their stores a few months back, and if you look at the prices they got — about $3 million per store — and extrapolate it, that adds up to well over a billion dollars in real estate that doesn’t show up on the balance sheet but gives us a high degree of comfort.”

Of course the price of gasoline does play into the equation to some extent, given Cracker Barrel’s placement along highways. Yet gasoline’s slow creep upward hasn’t been dramatic enough to make a serious dent, and as West notes, “if gas hits $4.50 a gallon again, everyone’s going to be in trouble.”

A dip in consumer spending could also hurt the company, but such statistics as “vehicle miles traveled,” along with Cracker Barrel’s sales, have been trending up in recent months, and will likely continue to do so through the summer. Restaurants even recently introduced a grilled chicken baby spinach salad (albeit with bacon dressing) in a nod to health-conscious consumers.

Therefore, Cracker Barrel should keep rolling forward.

Cracker Barrel reported Q3 EPS up 20% and raised guidance from a range of $3.35 - $3.50 to $3.50 - $3.60 for the FY ending July.

This represented a nice gross margin expansion from 5.1% to 5.5% on an 1.9% revenue increase year-over-year.