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Cracker Barrel's stock underperformed. Revenue was a problem.
dreamtime
When it comes to waking up, even breakfast isn't safe.
Cracker Barrel Old Country Store
(Ticker: CBRL), a folksy eatery known for its Southern cuisine, is the latest company to come under fire for its inclusive policies during Pride Month, though investors may be more concerned about its latest earnings report.
Cracker Barrel wasn't always welcoming in the face of anti-gay labor practices in the 1990s, but has since embraced diversity, according to a recent ad to celebrate Pride Month. This trend towards tolerance seems to be a good thing, especially since it is illegal to discriminate against employees based on their sexual orientation.
However, Cracker Barrel's Pride ad drew criticism from a number of conservative consumers and commentators, who have targeted many companies celebrating LGBTQ+ inclusion this year, despite often having long-standing commitments to equality. The company did not immediately respond to a request for comment.
Cracker Barrel shares are down more than 4% over the past five days, while the S&P 500 is slightly higher. Yet it seems that earnings and a poor forecast, not anti-Woke Crusaders, are the culprits.
On Tuesday morning, Cracker Barrel reported a disappointing fiscal third quarter, saying the company earned $1.21 per share while revenue rose 5.4% year over year to $832.7 million. Analysts were expecting earnings of $1.34 per share on sales of $845.1 million.
In addition, the company is expecting a sales increase of between 1% and 3% in the current fourth business quarter compared to the same period of the previous year. That translates to about $838.7 million to $855.3 million, down from the consensus estimate of $886.8 million. Visits from younger consumers, a key initiative by the nostalgia chain, were also flat during the quarter, potentially adding to investor concerns.
Citigroup's Jon Tower warned there could be further underperformance as “broader retail challenges begin to permeate the business, an aging customer base and excessive macroeconomic sensitivity among lower-income customers.” He's also concerned about Cracker Barrel's reduced sales projections coupled with ongoing cost cutting, a combination “that (1) rarely (if ever) translates to long-term value creation and (2) can be a very difficult cycle to reverse,” Tower retained the sell recommendation and the price target for the share.
Investors might also be concerned that Cracker Barrel's troubles are an anomaly in the industry.
“Two factors make us less bullish on CBRL stock relative to its casual dining peer group,” wrote Jeff Farmer, an analyst at Gordon Haskett. He cited same-store Cracker Barrel sales, which are up less than 10% from pre-pandemic levels, “a performance that lags the peer group by several hundred basis points,” as well as a slower recovery in earnings before interest and Interest Taxes (EBIT) Margins. He has an Underperform rating and a price target of $87 on the stock.
It wasn't all bad news: Cracker Barrel said its sustained cost savings and improvements to its business model will add up to $30 million to full-year earnings, with potential further gains in fiscal 2024. The older customer cohort also showed signs of continued growth of expenses.
Nonetheless, the missed quarter and bleak outlook weighed on shares, which were nearing the $100 mark prior to the report; At a recent check, they are down 2.2% to $93.11.
According to FactSet, only two of the nine analysts covering Cracker Barrel are bullish on the stock, while three are bearish and four are offside, a pattern that has persisted since March. Analysts' average price target of $95 is only slightly higher than where the stock is today.
Write to Teresa Rivas at [email protected]
