Buy, Sell, or Hold Cracker Barrel Stock?

The Cracker Barrel Old Country Store Inc. (NASDAQ: CBRL) has decreased by more than 10% over the last five days, with a closing price near $55 (as of this writing). The decline followed management’s choice to swap its long-established “man on a barrel” logo for a minimalist yellow barrel – a decision that triggered backlash on social media as well as among conservative commentators. Adding to the strain, new tariffs on imported goods like rocking chairs and seasonal decorations have negatively impacted gift shop sales, leading the company to reduce inventories and postpone product launches.

Despite the stock seeming affordable based on a sales multiple, weak growth, slim margins, significant leverage, and limited resilience during downturns overshadow the allure of its nostalgic brand. The recent period of volatility highlights these risks. For further insights, see Buy or Sell Cracker Barrel Stock?

As always, investing in a single stock involves concentrated risk. The Trefis High Quality (HQ) Portfolio is structured to mitigate stock-specific risk while providing potential upside. Additionally, see Is Booking Holdings Stock Staring at 40% Downside?

Let’s delve into the specifics of each of the evaluated factors, but first, for a brief overview: With a market capitalization of $1.2 billion, Cracker Barrel offers Southern-style dining and retail experiences across the U.S., providing breakfast, lunch, dinner, and various service options including dine-in, pick-up, and delivery.

[1] Valuation Looks Moderate

CBRL is trading at a 0.3x price-to-sales multiple, significantly lower than the S&P 500’s 3.2x, and its P/E ratio of 21.3x is approximately in line with the market’s 21.5x. Nevertheless, the stock appears pricey based on cash flow, with a P/FCF ratio of 48.8x compared to the index at 23.8x. For further information, refer to: CBRL Valuation Ratios

[2] Growth Is Weak

Cracker Barrel’s revenue growth has been modest. In the last three years, sales increased at a CAGR of 2.9%, lagging behind the S&P 500’s 5.3%. Revenues rose just 2.8% over the past year (to $3.5 billion) and edged up 0.5% year-over-year in the most recent quarter, compared to the index’s 6.0%. For further details, refer to: CBRL Revenue Comparison

[3] Profitability Appears Very Weak

Over the previous 12 months, CBRL reported an operating income of $77 million, reflecting a margin of only 2.2%. Operating cash flow was stronger at $186 million (5.3% margin), while net income amounted to $58 million (1.6% margin). In contrast, the S&P 500 averages an 18.7% operating margin, a 20.1% cash flow margin, and a 12.8% net margin—highlighting CBRL’s structurally weaker profitability. For further information, visit: CBRL Operating Income Comparison

[4] Financial Stability Looks Weak

CBRL has a burdensome balance sheet in comparison to its peers. By the end of the quarter, debt was at $1.1 billion against a market cap of $1.2 billion, implying a debt-to-equity ratio of 93.5% as opposed to the S&P 500 average of 20.7%. Liquidity is scarce, with cash of merely $9.8 million out of $2.1 billion in assets—just 0.5%, compared to the index average of 7.0%.

[5] Downturn Resilience Is Very Weak

CBRL has typically performed worse than the S&P 500 during downturns, experiencing deeper downturns and slower recoveries. In the 2022 inflation shock, shares fell 64.5% compared to the index’s 25.4% and remain significantly below previous highs. During the 2020 pandemic, CBRL declined 66.4% vs. 33.9%, but fully recovered in 357 days. In the 2008 financial crisis, the stock plummeted 76.9% compared to 56.8%, yet it recovered more quickly—507 days relative to the S&P’s 1,480 days.

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