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Last Update: 17-Sep-18 10:44 ET
Keys to Cracker Barrel's Q4 Report Include Commodity Inflation and Comps (CBRL)
Before the open tomorrow morning, country-themed restaurant and gift store Cracker Barrel (CBRL) will issue its Q4 results, while also providing guidance for 1Q19 and FY19. Overall, the company has done an admirable job of navigating a very challenging and competitive casual dining environment. Not only is the field rife with competitors -- some of which are heavy on promotions -- but, CBRL has also been facing some food and commodity inflation, further pressuring margins.
However, CBRL has managed to exceed analysts' earnings expectations for seven quarters in a row, while maintaining positive same store sales growth. On top of that, CBRL has been shareholder friendly as well, recently increasing its quarterly dividend by 4%, while also declaring a $3.75 special dividend (was payable August 3, 2018).
Still, the stock has struggle to gain any upward momentum this year, down about 6% year-to-date. From a growth perspective, CBRL's performance looks rather lackluster, and the aforementioned commodity inflation concerns have lingered over the stock. It's also worth mentioning that from late 2014 through late 2017, the stock had ran higher by more than 70%. So, on the heels of that run-up, it isn't overly surprising that the stock has cooled off and consolidated in this $140-$170 range.
Q4 Expectations & Outlook
In its Q3 report on May 22, CBRL issued guidance for FY18, projecting EPS of $9.30-$9.40 compared to its prior guidance of $9.30-$9.50. For Q4, this implied EPS of $2.62-$2.72, which was below the $2.84 consensus at that time. Currently, consensus sits at $2.69. In its earnings press release, management stated that higher commodity inflation, as well as expenses related to its strategic initiations, pressured operating margins. Specifically, GAAP operating margins fell to 8.8% from 10.2% in the year-ago quarter. Therefore, it is reasonable to assume that the cause for the downside Q4 guidance was related to commodity inflation.
As for revenue, analysts are expecting $824.9 million in sales. The company has had a more difficult time meeting the Street's topline estimates recently, coming up short in five of the past seven quarters. That said, comparable restaurant sales have remained in positive territory, coming in at +1.5% last quarter. In a highly-promotional environment, CBRL has managed to keep prices firm, demonstrated by the +2.8% bump in average check size last quarter.
In addition to the main headline numbers and comparable sales figures, the key metric to keep an eye on will be operating margin, as this will be a gauge for commodity pricing pressure. As we just noted, operating margin took a sharp hit last quarter, and operating income fell by 11% to $63.3 million. If CBRL's margin shows some improvement over Q3, that will help to alleviate inflation concerns and offer some hope that the worst is over for CBRL in this regard.
As for its guidance, CBRL will need to forecast 1Q19 EPS and revenue of $2.33 and $732.5 million in order to meet consensus. And, for FY19, consensus is currently at EPS and revenue of $9.69 and $3.08 billion, respectively. In its Q3 earnings report, CBRL also said that it expects comparable restaurant growth of 1-2% and flat comparable store retail sales growth. So, any change to those expectations also have the potential to move the stock.
However, CBRL has managed to exceed analysts' earnings expectations for seven quarters in a row, while maintaining positive same store sales growth. On top of that, CBRL has been shareholder friendly as well, recently increasing its quarterly dividend by 4%, while also declaring a $3.75 special dividend (was payable August 3, 2018).
Still, the stock has struggle to gain any upward momentum this year, down about 6% year-to-date. From a growth perspective, CBRL's performance looks rather lackluster, and the aforementioned commodity inflation concerns have lingered over the stock. It's also worth mentioning that from late 2014 through late 2017, the stock had ran higher by more than 70%. So, on the heels of that run-up, it isn't overly surprising that the stock has cooled off and consolidated in this $140-$170 range.
Q4 Expectations & Outlook
In its Q3 report on May 22, CBRL issued guidance for FY18, projecting EPS of $9.30-$9.40 compared to its prior guidance of $9.30-$9.50. For Q4, this implied EPS of $2.62-$2.72, which was below the $2.84 consensus at that time. Currently, consensus sits at $2.69. In its earnings press release, management stated that higher commodity inflation, as well as expenses related to its strategic initiations, pressured operating margins. Specifically, GAAP operating margins fell to 8.8% from 10.2% in the year-ago quarter. Therefore, it is reasonable to assume that the cause for the downside Q4 guidance was related to commodity inflation.
As for revenue, analysts are expecting $824.9 million in sales. The company has had a more difficult time meeting the Street's topline estimates recently, coming up short in five of the past seven quarters. That said, comparable restaurant sales have remained in positive territory, coming in at +1.5% last quarter. In a highly-promotional environment, CBRL has managed to keep prices firm, demonstrated by the +2.8% bump in average check size last quarter.
In addition to the main headline numbers and comparable sales figures, the key metric to keep an eye on will be operating margin, as this will be a gauge for commodity pricing pressure. As we just noted, operating margin took a sharp hit last quarter, and operating income fell by 11% to $63.3 million. If CBRL's margin shows some improvement over Q3, that will help to alleviate inflation concerns and offer some hope that the worst is over for CBRL in this regard.
As for its guidance, CBRL will need to forecast 1Q19 EPS and revenue of $2.33 and $732.5 million in order to meet consensus. And, for FY19, consensus is currently at EPS and revenue of $9.69 and $3.08 billion, respectively. In its Q3 earnings report, CBRL also said that it expects comparable restaurant growth of 1-2% and flat comparable store retail sales growth. So, any change to those expectations also have the potential to move the stock.
