Cracker Barrel Can Survive the Crunch

You can count Cracker Barrel (CBRL - commentary - Cramer's Take) as another company that is weathering this recession fairly well. The 585-store casual dining chain just released pretty decent results that exceeded expectations, in the midst of a terrible environment for many restaurants, and shares surged nearly 17%. But as usual, I don't get too excited about big price moves related to one earnings surprise.

While second-quarter total revenue fell 0.7% to $630.2 million and net income fell 9% to $18.3 million, the company still beat consensus earnings estimates by 5 cents a share (81 cents vs. 76 cents consensus). Restaurant comps decreased a not-terrible, given-the- environment 1.5%, while same-store sales from the retail side of the business were down 7%.

Even the retail numbers are not horrendous, although I've always wondered whether Cracker Barrel would be better off converting the retail side of each of its locations into more restaurant seating. Most times I've been to Cracker Barrel locations over the years, the store has acted as a "waiting room" of sorts while patrons wait to be seated. I've rarely been when there has not been a wait, and it appears as though restaurant patrons are indeed buying, given the $161 million in sales that retail did last quarter. Perhaps we'll save this debate for another column.

Cracker Barrel ended the quarter with 585 stores, 15 more than a year ago. As I've pointed out in previous posts, I like that the company owns a great deal of its real estate, 404 locations at last count, which includes land and building. CBRL locations are typically near major highways, and it has been difficult to value these properties. However, the company may have provided some guidance here, having just announced its intention to do two sale-leaseback transactions that include 15 stores and a retail distribution center, with expected proceeds of between $55 million and $60 million.

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At the time of publication, Heller was long CBRL.

Jonathan Heller, CFA, is president of KEJ Financial Advisors, a fee-only financial planning he recently launched. Jon spent 17 years at Bloomberg Financial Markets in various roles, from 1989 until 2005. He ran Bloomberg's Equity Fundamental Research Department from 1994 until 1998, when he assumed responsibility for Bloomberg's Equity Data Research Department. In 2001, he joined Bloomberg's Publishing group as senior markets editor and writer for Bloomberg Personal Finance Magazine, and an associate editor and contributor for Bloomberg Markets Magazine. In 2005, he joined SEI Investments as director of investment communications within SEI's Investment Management Unit.

Jon is also the founder of the Cheap Stocks Web site, a site dedicated to deep-value investing. He has an undergraduate degree from Grove City College and an MBA from Rider University, where he has also served on the adjunct faculty; he is also a CFA charter holder.