Restaurant chain Cracker Barrel Old Country Store (NASDAQ:CBRL) is currently facing challenges and was forced to make drastic decisions, such as reducing its quarterly dividends by more than 80% from $1.30 per share to $0.25.
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With an estimated 43% of its sales coming from older generations, the company has been under strain as its loyal customers have remained hesitant about returning to pre-pandemic lifestyles. Subsequently, the company’s shares decreased by over 64% in the past three years.
The announcement has accelerated the stock’s decline, dropping 16.84% in the past week. Investors may want to avoid this one until management resolves its current burdens.
Cracker Barrel’s Strategic Pivot
Cracker Barrel Old Country Store develops and operates restaurants and retail outlets. Its format comprises a trademarked rustic old country store design and a restaurant menu featuring home-style country food.
A prolonged revenue downturn has led the company to embark on a strategic transformation plan. Its primary focus is on refining the brand, optimizing the menu, evolving the store and guest experience, winning in digital and off-premise operations, and enhancing the employee experience.
Analysis of Cracker Barrel’s Financial Outlook
Cracker Barrel’s earnings have dropped below what they were a decade ago. Yet, the company has maintained paying quarterly dividends at levels resulting in more dividends than profits. The company expects that its third and fourth-quarter fiscal results for 2024 will continue to be depressed, making sustaining the dividend payment unwise for the company’s long-term fiscal health.
The quarterly dividend was slashed to $0.25 per share for the dividend to be paid on August 6, 2024. Additionally, the company is retaining its current share repurchase authorization with a remaining availability of $138 million.
Management has forecast lower financial results than expected for the third and fourth quarters of fiscal 2024 due to low visitor numbers. Further, they’ve indicated that adjusted EBITDA for Fiscal 2025 is expected to align with or slightly decrease compared to fiscal 2024. However, the company projects a likely improvement in the second half of fiscal 2026, with acceleration into 2027. Projected Fiscal 2027 sales range from $3.8 to $3.9 billion and an adjusted EBITDA of approximately $375 to $425 million.
What Is the Price Target for Shares of CBRL?
Analysts following the company have taken a cautious stance regarding the stock. For instance, BofA analyst Katherine Griffen recently lowered the price target on the stock from $62 to $50 while maintaining an Underperform rating. She notes that the dividend cut was deeper than expected and that the magnitude of the investment needed to reinvigorate growth will likely depress the stock for some time.
Cracker Barrel Old Country Store is rated a Hold overall based on the recommendations and price targets issued by nine Wall Street analysts over the past three months. The average price target for CBRL stock is $68.29, representing a 41.36% upside from current levels.
The stock has been steadily trending lower and is currently trading at the bottom of its 52-week price range of $48.18-$104.27. It continues demonstrating negative price momentum, trading below its 20-day (56.73) and 50-day (60.65) moving averages. The downward slide has driven the stock into relative value territory, with its P/E ratio of 12.8x well below the Restaurant industry average of 25.9x.
CBRL in Summary
Cracker Barrel’s combination of kitsch and southern-style comfort food put it on the map, especially with older diners, who’ve been slow to return post-pandemic. The company is now trying to pivot to entice them back and attract more younger customers. To help pay for this transition, the company has slashed its dividend payment.
The stock shows negative price momentum and will likely continue to do so until the company can show tangible results from strategic transformation. The stock trades at a discount, but it could be more value trap than value at this point. Investors may want to keep tabs on turnaround efforts and revisit once signs of progress are observed.
