Cracker Barrel Earnings Soar

Cracker Barrel Old Country Store, Inc. (CBRL: 43.60 0.00 0.00%), a family-dining restaurant chain, recently posted better-than-expected second-quarter 2010 results on the heels of menu price increases, lower food and labor costs, and ‘Seat to Eat’ initiative.

The quarterly earnings of $1.09 per share surpassed the Zacks Consensus Estimate of 90 cents, and soared 34.6% from 81 cents delivered in the prior-year quarter. The quarterly earnings topped the Zacks Consensus Estimate by 21.1%. Cracker Barrel’s earnings surprise, when compared to the Zacks Consensus Estimate for the preceding four quarters, varies between 8% and 25.8%, with the average being 15.6%.

Management now expects fiscal year 2010 earnings in the range of $3.35 to $3.50 per share, which is well ahead of the current Zacks Consensus Estimate of $3.27. Over the last 30 days, the Zacks Consensus Estimate has shown a marginal improvement of 0.6% with two out of 11 analysts covering the stock revising their estimates in either direction.

Beneath the Headline Numbers

Cracker Barrel’s total revenue for the quarter rose marginally by 0.4% to $632.6 million. Comparable store restaurant sales fell 0.2%, including a 2.1% increase in the average check. The average menu price increase for the quarter under review was nearly 2.4%. Comparable store retail sales tumbled 3.0% for the quarter. Comparable restaurant traffic also dropped 2.3%, but fared better than the Knapp-Track Traffic Index for the fourteenth successive quarter.

Management now expects total revenue to be flat to up 2%, comparable store restaurant sales to be down 0.5% to up 1%, and comparable store retail sales to be flat to down 2% for fiscal year 2010.

Despite a marginal increase in the top-line, gross profit rose 3.2% to $420.7 million, helped by a 4.8% drop in the cost of goods sold. Labor and other related expenses fell 2.4%. Operating income for the quarter climbed 25.7% to $49.4 million, whereas operating margin expanded 160 basis points to 7.8%. Cracker Barrel now expects operating margin between 6.7% and 6.9% for fiscal year 2010.

During the reported quarter, Cracker Barrel opened two new locations, and since the end of the quarter, it has opened one more unit. The company currently operates 594 locations in 41 states. During fiscal year 2010, the company plans to open six units.

Cracker Barrel ended the quarter with cash and cash equivalents of $13.2 million, long-term debt of $595.2 million, and shareholders’ equity of $173.1 million. During the quarter, the restaurant chain reduced its debt by $41.4 million and repurchased 205,000 shares. Management anticipates capital expenditure for fiscal year 2010 in the range of $70 million to $75 million.