Argus Cuts Cracker Barrel To Hold

• Cracker Barrel Old Country Store, Inc. CBRL shares are down 8 percent year-to-date, declining steeply after hitting a high of $160.75 on July 13.
• Argus analyst John Staszak downgraded the rating on the company from Buy to Hold.
• Although the company delivered an EPS beat in fiscal 1Q16, its comp-store sales growth was weak and will face tough comps in the coming quarters, Staszak said.

Cracker Barrel reported robust EPS for fiscal 1Q16, ahead of the consensus estimate. Analyst John Staszak mentioned, however, that the company’s comp-store sales growth was weak.

Cracker Barrel’s revenue same in at $703 million, representing 2.8 percent y/y growth, missing the consensus estimate of $705 million. Same-store sales at Cracker Barrel restaurants rose 2.5 percent, short of the consensus expectation of 2.8 percent. Staszak pointed out that despite the solid EPS figure for the quarter, “many investors are unforgiving of any revenue weakness.”

Management kept its FY16 revenue and EPS forecasts at $2.90-$2.95 billion and $7.15-$7.30, respectively. It reduced its projection for an increase in commodity costs from 3.0-3.5 percent to 2.5-3.0 percent, while raising the operating margin guidance from 9.0 percent to 9.0-9.5 percent.

However, the company reduced its projection for restaurant same-store sales growth from 2.5-3.5 percent to 2.0-3.0 percent. Staszak said that Cracker Barrel would have to face challenging sales and earnings comps in the coming quarters.

The analyst commented, “We see little room for P/E multiple expansion in the near term and believe that a HOLD rating on CBRL is now appropriate. However, we would revisit our rating in the event of significantly stronger sales growth or a nonfundamental pullback to the $110 level.”