CBRL - Not losing sleep over rising gas prices?

CBRL today reported its 6th consecutive quarter of negative traffic, with 3Q08 posting the biggest decline of -3.3%. And the trends are not improving as the company enters its most critical summer months as May (only 3 days remaining) same-store restaurant sales are expected to be flat to slightly positive, which implies another month of 3%-plus traffic declines since menu prices are currently running up about 3.6%. This less than encouraging monthly data point might be one reason why the company reported today that it will no longer be providing sales results on a monthly basis beginning in FY09, but to be fair, CBRL is just joining the many other restaurant companies that have already stopped doing so.
  • CBRL's CEO Michael Woodhouse started today's conference call, saying: With that let me begin by acknowledging that we are in a very challenging consumer environment. We are often asked; how the higher gas prices will affect summer travel. First, about 60% of our customers are local and our focus is to drive traffic from the local market as well as the traveler. But to answer the question directly a Triple A study released a couple of weeks ago said that 1% fewer people were expected to travel by car over the holiday week end. Our studies show that 70% of the Cracker Barrel guests are planning to travel as much or more than usual.
  • My first question is can you share those studies? Although he points out the challenging environment, his other comments (particularly his last one) imply that he is not too worried about the impact higher gas prices will have on summer travel, which is a little hard to believe. The company's most recent 10-K highlights the importance of the upcoming summer months on the company's bottom line: Historically, our profits have been lower in the first three fiscal quarters and highest in the fourth fiscal quarter, which includes much of the summer vacation and travel season. We attribute these variations primarily to the increase in interstate tourist traffic and propensity to dine out during the summer months, whereas after the school year begins and as the winter months approach, there is a decrease in interstate tourist traffic and less of a tendency to dine out due to inclement weather.
  • According to the U.S. Department of Transportation, travel on all roads and streets in the nation declined 4.3% in March (down 2.3% year-to-date through March), and this is before the more recent upticks in gas prices. Making matters worse for CBRL is the fact that about 88% of its restaurant store base is located in regions of the country that are experiencing year-over-year travel declines that are worse than the already bad national average. As of September 28, 2007, 71 of the companies 565 stores (about 13%) were off-interstate stores, which leaves the rest located primarily along interstate highways. Although the company is switching its development mix to include more off-interstate stores going forward (plans to open approximately 45% of its new stores along interstate highways as compared to 68% in 2007), based on the company's current mix, gas prices could impact travel (and traffic) during CBRL's critical summer months.

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