Company Overview
Zacks Rank #5 (Strong Sell) stock Cracker Barrel Old Country Store, also known as Cracker Barrel (CBRL) is an American restaurant and retail chain known for its Southern-inspired cuisine and nostalgic, country-themed atmosphere. Established in 1969, CBRL is often found alongside major highways and offers homestyle cooking, including dishes like grits and fried chicken and biscuits, served in a cozy, rustic setting. Attached to each restaurant, Cracker Barrel operates a gift shop that sells a wide range of products such as Southern-inspired home décor and vintage items. Cracker Barrel is popular choice for families and travelers seeking American comfort food.
The Restaurant Industry is Notoriously Cutthroat
Intense competition, razor-thin profit margins, and sky-high operating costs are among the reasons why most restaurants fail. With countless establishments vying for customers, eateries must consistently deliver exceptional food, services, and ambiance to attract and retain patrons. However, running a customer-friendly restaurant is just one piece of the puzzle that makes up profitability in this cutthroat industry. Economic factors have a huge impact on restaurant success.
Wage inflation and supply chain challenges are major headwinds for restaurants in the current economic climate. Cracker Barrel is suffering from both. The company’s profit margins are being squeezed because it is forced to pay higher wages while simultaneously paying more for the inputs needed to run the business.
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Traffic Woes
While the American consumer benefits from the wage growth described above, stubborn inflation continues to be a concern. Because gas prices continue to trend higher off already bloated levels, Americans are only driving when necessary. In the fourth quarter of fiscal 2023, the company witnessed softer-than-expected traffic, leading to slower revenue growth.
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Spotty Earnings Surprise History
Cracker Barrel fell short of Zacks Consensus EPS expectations in 6 of the past 13 quarters. To make matters worse, CBRL has a negative Zacks Earnings ESP (Expected Surprise Prediction) score, which means the company is likely to fall short of expectations when it announces earnings on November 16th.
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Relative Weakness & Bearish Chart Pattern
CBRL shares exhibit relative weakness and are down 24% year-to-date. Currently the stock is carving out a weak rally to the overhead 50-day moving average (bear flag).
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Bottom Line
Intense competition, rising operating costs, and economic factors such as wage inflation and supply chain disruptions are squeezing the company’s margins.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
