Company Overview
Cracker Barrel Old Country Store, Inc. (CBRL) is a legendary restaurant and retail chain that has been delighting customers for over 55 years. Founded in 1969 by Danny Evins in Lebanon, Tennessee, Cracker Barrel has grown to become an iconic American brand, operating 658 stores across 44 states as of April 26, 2024. The company's unique blend of nostalgia, hospitality, and comfort food has won the hearts of millions of loyal patrons over the decades.
As Cracker Barrel celebrates its 55th birthday, the company finds itself navigating a dynamic and ever-changing restaurant industry. The macroeconomic challenges of rising inflation, interest rates, and consumer debt levels have created a complex operating environment. However, Cracker Barrel's management team, led by CEO Julie Masino, has outlined a strategic transformation plan designed to drive long-term growth and profitability.
Historical Background
Cracker Barrel's journey began with a unique concept by Dan Evins, who envisioned a family-style restaurant and retail store catering to interstate travelers. The first location opened along Interstate 40 in 1969, offering a nostalgic "country store" experience. The company's early years were marked by rapid expansion across the southeastern United States, leading to its initial public offering in 1981. By 1987, Cracker Barrel had reached a milestone of 100 locations.
Throughout its history, Cracker Barrel has faced various challenges. In the early 2000s, the company encountered a significant public relations crisis due to a lawsuit alleging discrimination against gay and lesbian customers. Additionally, the company had to adapt to industry-wide challenges, including increased competition from fast-casual dining concepts and shifting consumer preferences.
Despite these obstacles, Cracker Barrel remained committed to its core strengths, focusing on providing a differentiated dining and retail experience rooted in nostalgia and Southern hospitality. This unwavering dedication to its brand identity has been a key factor in the company's enduring success and popularity among customers.
In a strategic move to diversify its portfolio, Cracker Barrel acquired the Maple Street Biscuit Company cafe chain in 2019. This acquisition complements the flagship brand and demonstrates the company's commitment to growth and adaptation in the evolving restaurant landscape.
Recent Financial Performance
In the company's most recent fiscal fourth quarter ended August 2, 2024, Cracker Barrel reported total revenue of $894.4 million, up 6.9% from the prior year period. This increase was primarily driven by an additional $62.8 million of revenue from the 53rd week in the quarter. Comparable store restaurant sales increased 0.4% over the prior year, with pricing contributing approximately 4.2%. Off-premise sales accounted for 17.2% of restaurant sales. Comparable store retail sales, however, decreased 4.2% compared to the fourth quarter of the prior year, with declines seen across most categories.
For the full fiscal year 2024, Cracker Barrel reported total revenue of $3.47 billion. Net income for the year was $40.93 million, with operating cash flow of $168.98 million and free cash flow of $40.69 million. In the fourth quarter specifically, net income was $18.14 million, with operating cash flow of $69.52 million and free cash flow of $22.05 million.
Strategic Transformation Plan
Cracker Barrel's strategic transformation plan, announced in May 2024, is centered around five key pillars: refining the brand, enhancing the menu, evolving the store and guest experience, winning in digital and off-premise, and elevating the employee experience. The company has made significant progress on these initiatives, which are aimed at driving relevancy, delivering exceptional food and experiences, and growing profitability.
One of the key focus areas has been refining the Cracker Barrel brand. The company has partnered with a top-tier agency and conducted extensive research to identify opportunities to increase brand love and drive increased consideration and traffic. This work has been led by new Chief Marketing Officer Sarah Moore, who joined the company earlier this year.
Enhancing the menu is another critical pillar of the transformation plan. Cracker Barrel has introduced several new offerings, including limited-time items like the sweet and spicy bee sting chicken tenders and the Hashbrown Casserole Shepherd's Pie, which have been well received by customers. The company has also implemented a strategic pricing initiative, utilizing a "barbell" approach to maintain its strong value proposition while driving profitability.
Evolving the store and guest experience is another key focus area. Cracker Barrel has invested in maintenance capital to ensure its stores meet brand standards and remain desirable places to work. The company is also testing a remodel program, with plans to complete 25-30 full remodels and 25-30 "refresh" projects in fiscal 2025. Initial results from the pilot remodel stores have been encouraging, with consistent traffic and sales growth.
Cracker Barrel's loyalty program, Cracker Barrel Rewards, launched in September 2023 and has already amassed 6 million members. These members visit 50% more often and have a 10% higher average check than non-members. The company sees the loyalty program as a long-term traffic driver and brand differentiator.
Lastly, the company is prioritizing the employee experience, with a focus on staffing, retention, and simplifying job roles. In the fourth quarter, hourly turnover improved by 13 percentage points compared to the prior year, and manager turnover decreased from 27% to 22%.
Financials and Outlook
For fiscal 2025, Cracker Barrel expects total revenue of $3.4 billion to $3.5 billion, with pricing of approximately 5%. The company plans to open two new Cracker Barrel stores and three to four new Maple Street units. Commodity inflation is expected to be 2-3%, and hourly restaurant wage inflation is projected at 3-4%. Cracker Barrel anticipates full-year adjusted EBITDA of approximately $200 million to $215 million, as it continues to invest in its strategic initiatives.
The company's guidance also includes a GAAP effective tax rate of negative 7% to negative 11% and an adjusted effective tax rate of 0% to negative 4%. Capital expenditures are expected to range from $160 million to $180 million. Management has noted that fiscal 2025 is considered an "investment year" as many of their strategic initiatives will be in the early stages, with significant improvement in financial results expected in the back half of fiscal 2026 and further acceleration in fiscal 2027.
Liquidity and Recent Challenges
As of the most recent financial reports, Cracker Barrel's debt-to-equity ratio stands at 2.73. The company has $12.04 million in cash and access to $491.53 million under its 2022 Revolving Credit Facility. The current ratio is 0.61, and the quick ratio is 0.21, indicating potential short-term liquidity challenges.
It's worth noting that Cracker Barrel faced some challenges in its recent past. In 2020, the company entered into a sale-leaseback transaction involving a significant portion of its Cracker Barrel properties, which raised concerns among some investors. Additionally, the COVID-19 pandemic significantly impacted the company's operations, leading to store closures and financial difficulties.
Product Segments
Cracker Barrel operates in two main product segments: Restaurant and Retail.
The Restaurant segment is the primary revenue driver, accounting for 82.2% and 80.1% of total revenue in the third quarter and first nine months of fiscal 2024, respectively. This segment offers a full-service menu of homestyle country food, including breakfast, lunch, and dinner items. Popular menu offerings include pancakes, meatloaf, chicken and dumplings, and roast beef.
In the third quarter and first nine months of fiscal 2024, the restaurant segment experienced a 1.5% and 0.2% decrease in comparable store restaurant sales, respectively, compared to the prior year periods. This decline was primarily due to decreased guest traffic, partially offset by an increase in average check. The average check increased by 3.4% and 5.1% in the third quarter and first nine months, respectively, driven by menu price increases.
The Retail segment generates the remaining portion of total revenue, accounting for 17.8% and 19.9% in the third quarter and first nine months of fiscal 2024, respectively. This segment involves the sale of various souvenirs, apparel, food items, home goods, and other merchandise through gift shops located adjacent to each Cracker Barrel restaurant.
The retail segment also faced challenges, with a 3.8% and 5.8% decrease in comparable store retail sales in the third quarter and first nine months of fiscal 2024, respectively, compared to the prior year periods. This decline was attributed to decreased guest traffic.
It's important to note that Cracker Barrel's business is highly seasonal, with lower revenues and operating income in the first and third fiscal quarters and higher revenues and operating income in the second and fourth fiscal quarters. Retail sales, which are primarily made to restaurant customers, peak in the second quarter due to the holiday shopping season.
Industry Trends
The casual dining industry has faced significant challenges in recent years, with the COVID-19 pandemic and macroeconomic factors impacting consumer demand. However, Cracker Barrel has worked to adapt its business model and implement its strategic transformation plan to drive growth and profitability in this evolving landscape.
Conclusion
Despite the obstacles faced in recent years, Cracker Barrel has demonstrated resilience and a commitment to adapting to the changing industry landscape. The company's strategic transformation plan, coupled with its iconic brand and loyal customer base, positions Cracker Barrel for long-term success as it navigates the evolving restaurant environment. While fiscal 2025 is considered an investment year, management is optimistic about the potential for significant improvements in financial results in the latter half of fiscal 2026 and beyond.