Cracker Barrel reported 3QFY11 (April) EPS of $0.58 (excluding a $0.06 gain from the sale of property) that was significantly below consensus of $0.66 and that same-store sales were down -0.3% for the restaurants and up 0.1% for retail, again, missing consensus expectations. 


Yes, it’s true that two-year trends improved sequentially on a monthly basis, as the quarter progressed, but the company raised prices aggressively in April.  While the desire to protect margins is understandable to a point, traffic has been the Achilles Heel of this company for some time. 


We’ve seen CBRL raise prices before in this situation and the outcome seems inevitable: traffic will suffer.  As the saying goes, the definition of insanity is doing the same thing over and over and expecting different results.  The chart below shows the sequential deterioration in comparable restaurant sales at CBRL.





The excuse given by the company and the forever-faithful bulls is to attribute the disappointing results to the economic environment.  While that may be true to some extent - CBRL traffic does track Vehicle Miles Driven quite closely - the company is clearly failing to increase usage.  As you can seen in the chart below, CBRL has only generated positive traffic in 3 of the last 19 quarters. 


Versus comparisons easy and difficult, traffic continues to decline.  Yet management continues to raise menu prices every quarter.  While CBRL core users generate 80% of their revenues, it’s imperative to keep giving them a reason to come back more often.  Unfortunately, raising prices on you core customer is not a long term strategy that will drive increased customer visits.  The data bears this out; two-year traffic trends continue to show no indication of an inflection in traffic trends.  Two-year average traffic trends declined 80 basis points to -2.1% in the third fiscal quarter versus -1.9% in 2QFY11.  This trend has been negative as far back as the eye can see.


CBRL - A CONCEPT IN DECLINE - cbrl traffic versus miles drive



We will see what management has to say on the call later today, but I would be surprised if there are any plans being implemented to increase customer visits that have not already been discussed.  The pressing question of the day is why management believes they can raise prices 3% on a low income customer that is seeing its disposable income decline.



Howard Penney

Managing Director

Another French Revolution?

"Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

read more

Cartoon of the Day: The Trend is Your Friend

"All of the key trending macro data suggests the U.S. economy is accelerating," Hedgeye CEO Keith McCullough says.

read more

A Sneak Peek At Hedgeye's 2017 GDP Estimates

Here's an inside look at our GDP estimates versus Wall Street consensus.

read more

Cartoon of the Day: Green Thumb

So far, 64 of 498 companies in the S&P 500 have reported aggregate sales and earnings growth of 6.1% and 16.8% respectively.

read more

Europe's Battles Against Apple, Google, Innovation & Jobs

"“I am very concerned the E.U. maintains a battle against the American giants while doing everything possible to sustain so-called national champions," writes economist Daniel Lacalle. "Attacking innovation doesn’t create jobs.”

read more

An Open Letter to Pandora Management...

"Please stop leaking information to the press," writes Hedgeye Internet & Media analyst Hesham Shaaban. "You are getting in your own way, and blowing up your shareholders in the process."

read more

A 'Toxic Cocktail' Brewing for A Best Idea Short

The first quarter earnings pre-announcement today is not the end of the story for Mednax (MD). Rising labor costs and slowing volume is a toxic cocktail...

read more

Energy Stocks: Time to Buy? Here's What You Need to Know

If you're heavily-invested in Energy stocks it's been a heck of a year. Energy is the worst-performing sector in the S&P 500 year-to-date and value investors are now hunting for bargains in the oil patch. Before you buy, here's what you need to know.

read more

McCullough: ‘My 1-Minute Summary of My Institutional Meetings in NYC Yesterday’

What are even some of the smartest investors in the world missing right now?

read more

Cartoon of the Day: Political Portfolio Positioning

Leave your politics out of your portfolio.

read more

Jim Rickards Answers the Hedgeye 21

Bestselling author Jim Rickards says if he could be any animal he’d be a T-Rex. He also loves bonds and hates equities. Check out all of his answers to the Hedgeye 21.

read more

Amazon's New 'Big Idea': Ignore It At Your Own Peril

"We all see another ‘big idea’ out of Amazon (or the press making one up) just about every day," writes Retail Sector Head Brian McGough. "But whatever you do, DON’T ignore this one!"

read more