Yesterday, EAT announced their intention to deliver on the goal they laid out over a year ago and Michael Woodhouse, CEO of CBRL, made some very revealing comments about the current sales trends as measured by the Knapp Track.


In response to a question about why Cracker Barrel trends are so poor he said “when we look at us versus the average Knapp-Track, when we look at where we are in our ranking within Knapp-Track, which we have available to us, we haven't dropped substantially in terms of where we rank.  It's simply that the average in Knapp-Track is being impacted by, we believe, at least two very large chains that are on a big rebound. So, the weighted average is skewed higher than it otherwise would be.”


I assume Mr. Woodhouse is confirming something we already know; Chilis’s sales are recovering.  Additionally, while Knapp Track trends going forward will be important to watch, at this juncture I have no reason to believe that the current improvement in one and two year trends at Chili’s won’t persist.


My bullish case for EAT has been primarily based on significant operational improvements being implemented by the management team but there is a certain amount of “financial engineering” that will also provide support for the stock price.  The company is aggressively using its significant free cash flow stream to shrink its share base. 


Here are the recent announcements from the company regarding share repurchases.

  1. In November 2010, the Board of Directors authorized a $325 million increase to our existing share repurchase program.  As of March 30, 2011, approximately $258 million available under the current program.
  2. Yesterday, EAT the Board of Directors authorized another $250 million in share repurchases.


My take away is that the company has been very active in buying back stock in the current quarter.   I believe that this should continue, as the chart below illustrates and – as a result - the risk of EAT missing numbers in the coming quarters seems very low.  In fact, if the Knapp Track numbers continue to show improvement Brinker should continue to trade very well.


EAT - LITTLE RISK IN THE NUMBERS - eat stock buyback



Howard Penney

Managing Director


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