Customers Flock To Cracker Barrel Old Country Store
Summary
- Good execution and lower gasoline prices contributed to the expansion of Cracker Barrel Old Country Store’s fundamentals.
- The popularity of the store within a restaurant concept increased.
- Cracker Barrel Old Country Store pays a decent dividend.
On Feb. 24, country store and restaurant chain Cracker Barrel Old Country Store (NASDAQ: NASDAQ:CBRL) came out with its Q2 FY 2015 earnings announcement and 10-q. The company has done well so far this year on the fundamental front and is beating the Wall Street expectations game. The stock was up roughly 9% on the day of the announcement. Let's take a look to see what's going on with the company.
The numbers
So far in its FY 2015, Cracker Barrel Old Country Store saw its year-to-date revenue, net income and free cash flow increase 7%, 26% and 354% respectively year-over-year. The company sits on an ok balance sheet. Its $183 million in cash and equivalents came to 33% of stockholder's equity last quarter. I like to see companies harbor cash amounting to 20% or more of stockholder's equity. However, its long-term debt to equity came in at 71% of stockholder's equity which is above my personal threshold of 50%. So far this year, Cracker Barrel Old Country Store's operating income exceeds interest expense by 14 times. The rule of thumb for safety lies at five times or more.
More popular than ever
Cracker Barrel Old Country Store's year-to-date same store sales increased 5.6% at its restaurants and 4.4% at its stores. This was driven, at least in part, by a 3% increase in restaurant traffic so far this year giving indication that customers like their experiences at Cracker Barrel Old Country Store's location. I always like to see companies expand their fundamentals due to increased popularity of products and services.
The customer experience stands out at the company. While people wait for a table they can shop at the country store while friendly employees stand ready to assist and greet. Lower gas prices also enhance the customer experience. Moreover, the company expanded its location footprint. Cracker Barrel Old Country Store's location count came in at 634 representing a 1.4% increase vs. the same time last year.
Extra foot traffic filtered down to the bottom line. Cracker Barrel Old Country Store's year-to-date revenue growth exceeded the growth in expenses causing the margins to expand in addition to net income. Year-to-date operating margins stand at 8.8% vs. 7.6% the same time last year. Year-to-date profit margins come in at 5.6% vs. 4.8% the same time last year. Movement of inventory and lower capital expenditures contributed to the increase in free cash flow.
Solid dividend
Cracker Barrel Old Country Store sports a solid dividend. I always compare how much a company pays out in dividends to its free cash flow. My personal preference is that a company pays out less than 50% of its free cash flow in dividends and retains the rest for other uses. So far this year Cracker Barrel Old Country Store has only paid out a prudent 41% of its free cash flow in dividends. Currently the company pays its shareholders $4 per share per year translating into an annual yield of 3%.
Thoughts on the future
Lower gasoline prices will provide a short term catalyst for increased spending at Cracker Barrel Old Country Stores. Long-term success will depend on the company's ability to execute on the experience it provides customers. Finally, Cracker Barrel Old Country Store trades at a P/E ratio of 23 vs. 18 for the S&P 500 giving it some market price risk. The company's dividend yield may make it an excellent addition for the dividend investor and provide a cushion in the event of a downturn in the company's stock price.
This article was written by
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