Image Source: Cracker Barrel Presentation (10/17)
By Brian Nelson, CFA
Incredible.
Cracker Barrel (CBRL) just issued announced another special dividend, to the tune of $3 per share. This special dividend is in addition to the regular quarterly dividend of $1.30 per share, which was increased 4% from the previous quarterly dividend of $1.25 per share. All in, annualizing the new quarterly rate and including the special dividend in the sum, Cracker Barrel yields nearly 5% at the time of this writing. You won’t hear many talking about the firm’s lofty yield because a large part of it has been from the special-dividend variety, which has been recurring for the past many years.
On a fundamental basis, we have no qualms with the company’s fiscal third-quarter report, released June 4. Though we would have liked to see better traffic trends, both it and its comparable store restaurant sales growth of 1.3% “outperformed the casual dining industry.” Total revenue and earnings per share advanced modestly on a year-over-year basis in the period (2.5% and 3%, respectively), and management was upbeat in the press release, encouraged by “the early results of (its) new Signature Fried Chicken initiative.”
The casual dining space continues to face pressure from weak traffic, mostly due in our view to an oversaturation of themes, but we continue to believe that Cracker Barrel sports one of the most unique experiences for visitors, particularly with its unique country store concept. The restaurant continues to show that consumers are willing to absorb modest menu price increases (up 1.8% in the quarter), leading to higher average checks (up 3.1% in the quarter). The bigger long-term concern is income pressure as a result of increased labor and related expenses–see Texas Roadhouse’s (TXRH) most recent quarter–but Cracker Barrel continues to find ways to make it up on the gross margin line (cost of goods sold declined while revenue advanced in the quarter).
Looking forward to the remainder of its fiscal 2019 (ends July), the company continues to target earnings per share in the range of $8.95-$9.10, up from adjusted earnings per share of $8.87 recorded during last fiscal year. Cracker Barrel ended the quarter with $400 million in long-term debt and ~$168 million in cash and cash equivalents, revealing a very manageable net debt position. During the nine months ending May 2019, free cash flow leapt nicely to $149 million from $119 million during the same period last year. The company’s new $50 million buyback authorization should help support the equity, too, even though we think shares are about fairly valued. Cracker Barrel remains a holding in the Dividend Growth Newsletter portfolio.
Restaurants – Fast Food & Coffee/Snack: ARCO, DPZ, DNKN, JACK, MCD, PZZA, SBUX, WEN, YUM
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Brian Nelson does not own shares in any of the securities mentioned above. Some of the companies written about in this article may be included in Valuentum‘s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.