CBRL: Marketing Spend And Rebranding Recovery Efforts Will Restore Guest Traffic

Key Takeaways

• Enhanced guest experience and service standards may boost customer satisfaction and same-store sales growth through improved guest journey mapping.
  
• Investments in digital, off-premise channels and efficient menu processes are expected to enhance profitability, execution, and potentially lower labor costs.
  
• Macroeconomic uncertainties, supply chain issues, and elevated expenses could pressure revenue growth and compress net margins.

Catalysts

Develops and operates the Cracker Barrel Old Country Store concept in the United States.

• Cracker Barrel's focus on evolving and improving guest experience through comprehensive guest journey mapping and new service standards may drive higher customer satisfaction and repeat visits, positively impacting same-store sales growth.
  
• The company's strategic transformation includes enhancing its menu with craveable items and simplifying processes in the back of the house, which is expected to improve execution and lower labor costs, potentially boosting net margins.
  
• Investment in digital and off-premise channels, including a more profitable dine-in focus and streamlined offerings, has already improved EBITDA and is expected to continue bolstering future profitability.
  
• Cracker Barrel's remodel and refresh program, which remains in the test-and-learn phase, aims to significantly enhance store atmosphere and guest experience, potentially leading to increased foot traffic and higher sales, positively affecting revenue growth.
  
• The strategic refinement of Cracker Barrel's pricing capability, combined with a strong value perception among consumers, supports potential future price adjustments, which could drive revenue without sacrificing customer base, thereby enhancing overall earnings.

Cracker Barrel Old Country Store Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Cracker Barrel Old Country Store's revenue will decrease by 0.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.6% today to 2.4% in 3 years time.
• Analysts expect earnings to reach $86.3 million (and earnings per share of $3.82) by about September 2028, up from $57.8 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 19.6x on those 2028 earnings, up from 19.4x today. This future PE is lower than the current PE for the US Hospitality industry at 23.9x.
• Analysts expect the number of shares outstanding to grow by 0.28% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.5%, as per the Simply Wall St company report.

Cracker Barrel Old Country Store Future Earnings Per Share Growth

Risks

• There are macroeconomic uncertainties and consumer anxiety, which could impact consumer spending and lead to softer traffic trends, potentially affecting revenue growth.
  
• Challenges in maintaining supply chain reliability, such as egg supply issues due to avian influenza, could lead to increased costs and impact net margins.
  
• The company plans to refinance the $300 million convertible debt, with expectations of higher interest rates, which could result in increased interest expenses and affect earnings.
  
• The retail segment saw a decrease in revenue by 2.8%, indicating potential vulnerabilities in consumer retail spending that could continue to pressure total revenue.
  
• Elevated corporate expenses, including legal accruals and investments in strategic initiatives, could increase G&A as a percentage of sales and compress net margins.

Valuation

• The analysts have a consensus price target of $55.429 for Cracker Barrel Old Country Store based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $69.0, and the most bearish reporting a price target of just $47.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $3.6 billion, earnings will come to $86.3 million, and it would be trading on a PE ratio of 19.6x, assuming you use a discount rate of 11.5%.
• Given the current share price of $50.36, the analyst price target of $55.43 is 9.1% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.