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Heller: Cracker Barrel Outlook Bears Watching

Restaurant chain's latest results offered a mixed picture for investors.

Jonathan Heller is checking in on one of his favorite restaurant chains, Cracker Barrel Old Country Store  (CBRL) - Get Cracker Barrel Old Country Store, Inc. Report, which recently released fourth-quarter and full-year 2021 earnings. The numbers reflect a downcast environment for restaurant chains.

“The markets, while not exactly amused, were somewhat forgiving as shares fell just under 3%,” Heller wrote on Real Money after the results. “Fourth-quarter revenue of $784.4 million missed consensus estimates by about $10 million, while earnings per share of $2.25 were off the mark by 10 cents.”

Additionally, restaurant same-store sales fell 6.8% versus the same quarter in 2019 -- 2020 comps are not meaningful due to COVID -- while retail store sales rose a solid 18.2% and represented a not-inconsequential 21% of revenue. "Off-premise" restaurant sales rose nearly 109% and were nearly 19% of total restaurant revenue.

“Perhaps Cracker Barrel's decision to increase the quarterly dividend 30% to $1.30 a share, which equates to a 3.85% yield, helped appease investors,” Heller noted. “However, that increase does not tell the whole story. Like many companies, CBRL stopped paying a dividend during COVID before reinstating it at $1.00 in late May. Raising the dividend back to $1.30, where it was before the pandemic, is more of a return to normalcy than it is a big surprise.”

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According to Heller, the company’s fiscal 2022 outlook stands out as a potential issue for investors.

“For one, the company has decided not to provide its typical annual guidance,” he said. “Second, the company stated that it expects fiscal 2022 commodity and wage costs to rise in the "mid-to-high" single digits. That's inflation, folks, and it won't just affect Cracker Barrel -- it likely will weigh on the entire restaurant sector. That means higher menu prices, a smaller bottom line or a combination of the two.”

Heller’s takeaway on Cracker Barrel and the restaurant landscape? “Keep an eye on this sector,” he said.

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