Recent earnings
For the recent quarter ended February 1, Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL) posted a 0.2% increase in comparable store traffic, with a 3.3% increase in same-restaurant sales. This is the fifth consecutive quarter of increased traffic and sales. On an adjusted basis, operating income margin grew by nearly one point, to 8.4%. Adjusted EPS for the quarter came in at $1.43, versus $1.20 in the year-ago quarter. Revenue grew nearly 4.5% to nearly $702.7 million.
The company adjusted its full year 2013 guidance downward to reflect a tepid environment. Annual EPS is now expected to come in the $4.60 to $4.80 range. Last year’s full year EPS was $4.61. Analyst estimates remain at the high end at $4.77 per share. The latter price would suggest year-over-year growth of only 3.5%. Meanwhile, the company is opening eight new restaurants and stores.
Is Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL) management allocating capital poorly? That is the fundamental question. While over the past year, the market doesn’t seem to think so, we all know that can mean very little over the long-term.
Cracker Barrel flooded the market with shares (called a poison pill) to prevent Biglari Holdings Inc (NYSE:BH) from obtaining more than his current 19.99% stake in the company. Sacrificing some shareholder value in the near-term, management clearly believes it has the right idea, and that investor’s input and claimed board seats would be harmful.
How to invest in CBRL
Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL) trades at 14.25 projected forward earnings. Brinker, owner of Chili’s and Maggiano’s, trades cheaper at 13.22x, and has a much more favorable return on assets and equity (assuming Biglari is correct, for the latter). Given Cracker Barrel’s tepid growth prospects, and the continued notion that it may be misrepresenting its ROC, I am not sure the company is a buy today.
That’s not the end of the story, though. As mentioned before, Biglari Holdings has a $473 million market cap, and a price-to-book of 1.37x. Cracker Barrel’s stock grew mid-double digits through 2012, and Biglari Holdings grew less than 5%. With nearly 80% of the holding company’s market value in Cracker Barrel, why didn’t the stock perform closer in-line?
Book value for Biglari Holdings Inc (NYSE:BH) grew by nearly 25% in 2012 — far more than many other holding companies, including Berkshire Hathaway. Biglari trades at under 6.5x trailing EV/EBITDA. For comparison, Berkshire trades at 8.9 EV/EBITDA, and has a price to book of 1.35x. Berkshire, of course, has the Buffett name behind it, and a much more diversified holdings portfolio. Sardar Biglari does not have the kind-old-man image but, instead, he is a 35-year old with early success. However, some say he’s an arrogant power-snatcher. While I disagree with the naysayers, Biglari’s name likely does keep the company from holding anywhere near the reverie that Buffet does with Berkshire.
Given Biglari’s successful track record in the industry, and the tempting evidence that Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL) could be performing much better than it is, I believe the wise investment here is to buy Biglari Holdings. It has less downside potential, and a manager with a solid record for increasing cash flows and successfully allocating capital.
The article How to Invest in Cracker Barrel … the Smart Way originally appeared on Fool.com.
Fool contributor Michael Lewis has no position in any stocks mentioned. The Motley Fool recommends Cracker Barrel Old Country Store.
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