Earlier this morning, Cracker Barrel (CBRL 143.42, -7.33, -4.86%) issued Q4
results that came up well short of expectations as a dip in customer traffic
and continued margin pressure negatively impacted its performance. Additionally,
the company issued downside FY19 guidance and lowered its comparable store
restaurant growth for the year. As a result of the disappointing report, the
stock was hit to the tune of -5% in early morning trading.
Taking a closer look at the report, CBRL posted EPS of $2.19, missing the consensus by a whopping $0.50/share. In fact, that was its largest earnings miss in at least five years. CBRL also missed on the top line, with revenue coming in at $810.9 mln versus the $824.9 mln expectation.
In the earnings press release, management commented that the softer sales trend it saw in May continued throughout the quarter, with traffic lighter than anticipated -- particularly during the dinner daypart. The company continued on to say that some of the softness was due to its menu and marketing promotions not delivering the kind of strong results it had hoped for.
Specifically, comparable restaurant traffic was down 3.5%, following a dip of 1.3% last quarter. On the plus side, average check was up 3.1%, partially offsetting the weak traffic. But overall, comparable restaurant sales slipped by 0.4% for the quarter.
On top of that, the company's operating margin slid to 10.2% from 11.2% in the year ago quarter. Increases in cost of goods sold and labor related expenses were to blame. This was an improvement over Q3's 8.8% mark, though, as CBRL was able to offset some of the commodity inflation by reducing other operating and administrative expenses.
Turning to its guidance, CBRL is forecasting FY19 EPS of $8.95-$9.10 versus the $9.69 consensus. If we exclude the $0.50 miss this quarter, its guidance would still fall short of expectations at $9.45-$9.60, implying that CBRL is anticipating further traffic softness and/or margin pressure. That is indeed illustrated in its reduced comparable store retail sales growth of flat to 1%, down from its prior outlook of 1-2%.
To conclude, it was a rough quarter for CBRL as the company is facing a couple different challenges -- namely, a tough competitive, promotional climate and higher commodity costs. Its outlook suggests that it is expecting these challenges to persist throughout the year. Hopefully this quarter marks the worst of it, and with expectations now degraded significantly, some risk has been taken off the table for investors looking to take advantage of the sell-off today.
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