Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL) is a leading operator and developer of the iconic Cracker Barrel Old Country Store concept in the United States. The company has been a staple in the restaurant industry for decades, known for its unique blend of Southern-inspired cuisine, charming retail offerings, and warm hospitality. However, in recent years, Cracker Barrel has faced its share of challenges, including declining traffic and profitability.

Financials

In the fiscal year 2023, Cracker Barrel reported annual revenue of $3,442,808,000 and net income of $99,050,000. The company's annual operating cash flow was $250,457,000, while its annual free cash flow stood at $125,070,000. These financial results, while respectable, highlight the need for a strategic transformation to position the company for long-term success.

The third quarter of fiscal 2024 saw Cracker Barrel's total revenue decrease by 1.9% year-over-year to $817,135,000. This decline was primarily driven by a 1.5% decrease in comparable store restaurant sales and a 3.8% decrease in comparable store retail sales. The company's net loss for the quarter was $9,199,000, compared to net income of $13,968,000 in the same period of the prior year.

Despite the challenging quarter, Cracker Barrel's management team remains committed to executing a comprehensive strategic transformation plan to drive the company's long-term growth and profitability. The plan is built on 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.

Business Overview

Cracker Barrel Old Country Store, Inc. is principally engaged in the operation and development of the Cracker Barrel Old Country Store concept in the United States. As of April 26, 2024, the company operated 658 Cracker Barrel stores in 44 states and 63 Maple Street Biscuit Company (MSBC) locations in ten states.

The Cracker Barrel concept is known for its unique blend of Southern-inspired cuisine, charming retail offerings, and warm hospitality. The company's restaurants offer a full-service dining experience, serving breakfast, lunch, and dinner, while the retail stores feature a wide range of home decor, apparel, and specialty food items. Cracker Barrel's business model is designed to provide a comprehensive and memorable experience for its guests, positioning the company as a destination for both dining and shopping.

Challenges and Strategic Transformation

In recent years, Cracker Barrel has faced several challenges, including declining traffic and profitability. The company's comparable store restaurant sales and retail sales have been under pressure, driven by a variety of macroeconomic factors, such as inflationary pressures, higher interest rates, and lower consumer confidence.

To address these challenges, Cracker Barrel has unveiled a comprehensive strategic transformation plan, which is built on five key pillars:

1. Refining the brand: The company is evolving its brand across all touchpoints, including refining and strengthening its positioning to better reach existing and new guests.

2. Enhancing the menu: Cracker Barrel is introducing menu innovation focused on craveability and traffic drivers, streamlining processes to improve execution, and optimizing strategic pricing to protect value and improve profitability.

3. Evolving the store and guest experience: The company is delivering an exceptional guest experience through operational excellence and improved store design and atmosphere. Cracker Barrel is testing remodel prototypes and expects to complete 25-30 remodels in fiscal 2025.

4. Winning in digital and off-premise: The company is growing its off-premise business and leveraging technology, such as the Cracker Barrel Rewards loyalty program, to better understand consumer behavior and identify ways to drive frequency and engagement.

5. Elevating the employee experience: Cracker Barrel is upgrading training and development programs and tools, simplifying job roles, and utilizing technology to improve the employee experience.

These strategic initiatives are designed to drive relevancy, deliver food and experiences that guests love, and grow profitability over the long term.

Financial Performance and Outlook

Cracker Barrel's financial performance in the third quarter of fiscal 2024 was impacted by the challenges the company has been facing. Total revenue decreased by 1.9% year-over-year to $817,135,000, driven by a 1.5% decrease in comparable store restaurant sales and a 3.8% decrease in comparable store retail sales.

The company's net loss for the quarter was $9,199,000, compared to net income of $13,968,000 in the same period of the prior year. This decline was primarily due to lower revenue, higher labor and other operating expenses, and impairment and store closing costs.

Despite the challenging quarter, Cracker Barrel remains focused on executing its strategic transformation plan. The company has provided guidance for the full fiscal year 2024, expecting total revenue to be in the range of $3.47 billion to $3.51 billion. Cracker Barrel also anticipates full-year adjusted EBITDA of approximately $200 million to $220 million, which includes the benefit of a 53rd week.

The company's guidance reflects the lower-than-expected results in the third quarter, as well as downwardly revised expectations for the fourth quarter, primarily driven by lower traffic expectations.

Liquidity

Cracker Barrel's primary sources of liquidity are cash generated from its operations and borrowing capacity under its $700 million revolving credit facility. As of April 26, 2024, the company had $176 million in outstanding borrowings under the facility and $491.5 million in available borrowing capacity.

The company's capital allocation priorities include investing in the core Cracker Barrel business and the initiatives outlined in its strategic transformation plan. Cracker Barrel expects capital expenditures of $120 million to $125 million for the full fiscal year 2024.

In terms of returning capital to shareholders, the company's Board of Directors has approved a regular quarterly dividend. During the first nine months of fiscal 2024, Cracker Barrel paid a regular dividend of $3.90 per share and declared a dividend of $1.30 per share that was subsequently paid on May 7, 2024. However, the company is modifying its capital allocation policy to support increased investments in its business, and as a result, the quarterly dividend has been reduced to $0.25 per share.

Risks and Challenges

Cracker Barrel faces several risks and challenges that could impact its future performance, including:

1. Macroeconomic conditions: The company's business is susceptible to changes in consumer spending, inflation, and other macroeconomic factors that could affect guest traffic and spending.

2. Competitive landscape: Cracker Barrel operates in a highly competitive industry, with both traditional and emerging restaurant concepts vying for market share.

3. Supply chain disruptions: Disruptions in the company's supply chain, including the availability and cost of key ingredients and materials, could impact its ability to maintain consistent operations and profitability.

4. Labor challenges: Cracker Barrel's business is labor-intensive, and the company may face difficulties in attracting and retaining qualified employees, which could affect its operational efficiency and guest experience.

5. Execution risk: The successful implementation of Cracker Barrel's strategic transformation plan is critical to the company's long-term success, and any missteps or delays could hinder its progress.

Conclusion

Cracker Barrel Old Country Store, Inc. is a well-established brand in the restaurant industry, but it has faced significant challenges in recent years. The company's comprehensive strategic transformation plan, focused on refining the brand, enhancing the menu, evolving the store and guest experience, winning in digital and off-premise, and elevating the employee experience, represents a bold and necessary step to position Cracker Barrel for long-term growth and profitability.

While the company's recent financial performance has been impacted by macroeconomic headwinds and operational challenges, Cracker Barrel's management team remains committed to executing its strategic initiatives and delivering value to shareholders. With a strong brand, loyal customer base, and a clear roadmap for transformation, Cracker Barrel has the potential to emerge as a stronger, more resilient player in the industry. Investors should closely monitor the company's progress in implementing its strategic plan and its ability to navigate the evolving market conditions.