Cracker Barrel Old Country Store, Inc. CBRL will likely benefit from off-premise business, digital initiatives and menu innovation efforts. Also, the emphasis on sales-building initiatives bodes well. However, traffic pressures and a volatile macro environment pose concerns.
Let us discuss the factors that highlight why investors should retain the stock for now.
Off-Premise Sales: Cracker Barrel continues to benefit from its robust off-premise sales. During the fiscal first quarter, comparable store off-premise contributed 17.1% of the quarterly restaurant sales. The company stated to have benefited from its catering business. The company achieved its goal of growing it to a $100 million channel in fiscal 2023.
Moving ahead, the company emphasizes enhancing its curbside pickup process, integrating off-premise applications and processes (with back-of-house technology) and streamlining processes. The company expects to attract new customers and drive sustained growth in its off-premise business through its virtual brand, Chicken and Biscuits.
Digital Efforts: Cracker Barrel focuses on technological enhancements to drive growth. It continues to invest in technology initiatives to enhance its digital store and revamp its app to streamline the ordering process, provide a personalized experience and reduce friction on mobile devices.
During the fourth quarter fiscal 2023 earnings call, the company stated that it will launch its Cracker Barrel Rewards loyalty program by the end of September 2023. It believes that the initiative will help drive traffic and be the key source of guest insight and data.
Sales Boosting Efforts: To address the challenges of the competitive restaurant industry, Cracker Barrel undertakes extensive marketing efforts, focusing on the brand’s differentiation, menu offering and value. To drive traffic, Cracker Barrel relies heavily on seasonal promotions and limited-time offers to boost its top-line performance.
During the fourth quarter of fiscal 2023, the emphasis on marketing and more pointed value messaging, particularly around lunch and dinner dayparts. It also initiated a new physical menu format (including images). The company remains optimistic and anticipates the initiatives to boost consumer appeal and drive check.
Menu Innovation: The company focuses on the Breakfast menu to drive incremental sales. To this end, the company initiated a two-phase rollout process that involves streamlining breakfast offerings, guest customization and a better value proposition.
During the fourth quarter of fiscal 2023, the company stated solid feedback regarding its breakfast category. Also, it reported increased sales from add-on options such as our shareable barrel bites, premium sites, beverage program and $5 take-home offerings. Moving ahead, the company remains optimistic on offerings (including Country Fried Turkey and Cinnamon Roll Pie) and anticipates it to be strong traffic drivers in the upcoming holiday season.
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Shares of Cracker Barrel have declined 24.8% in the past three months compared with the industry’s 7.4% fall. The downside was mainly caused by commodity and wage inflation and a challenging macro environment. Also, dismal traffic, courtesy of a challenged consumer environment, added to the downside. The company remains cautious and anticipates traffic pressures persisting during the first quarter of fiscal 2024.
The company is persistently shouldering higher expenses, which have been detrimental to margins. During fiscal 2023, the total cost of goods sold (as a percentage of total revenues) came in at 32.8% compared with 32.1% reported in fiscal 2022. The 70 basis points (bps) increase is attributable to commodity inflation and the high-cost environment. During the fiscal year, the adjusted operating margin was 3.5% compared with 4.7% in the prior year. The company anticipates an inflationary environment and lower consumer confidence to act as a headwind. The company expects wage inflation to range between 4-5% in the first quarter of fiscal 2024.
Zacks Rank & Key Picks
Cracker Barrel currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Retail-Wholesale sector include:
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