Will Cracker Barrel Ever Shake Off Biglari Holdings?

Will Cracker Barrel Ever Shake Off Biglari Holdings?

Cracker Barrel Old Country Store will release its quarterly report on Tuesday, and investors have watched the roadside restaurant chain's stock soar to all-time record highs, almost doubling in just the past year. Yet despite the favorable move, stockowner Biglari Holdings continues to push Cracker Barrel toward changing the way it manages capital. As happy as they are to see Cracker Barrel shares rise, have investors had enough of Biglari's efforts?

Cracker Barrel stands out from competitors Denny's and DineEquity by housing retail gift shops within its restaurant locations. That has spurred some allegations from Biglari that Cracker Barrel's reported financials are misleading compared to Denny's and DineEquity's food-only results. Yet Cracker Barrel has strongly, and thus far successfully, resisted Biglari's attempts to impose change on the restaurant chain. Let's take an early look at what's been happening with Cracker Barrel over the past quarter and what we're likely to see in its report.

Stats on Cracker Barrel

Analyst EPS Estimate


Change From Year-Ago EPS


Revenue Estimate

$646.72 million

Change From Year-Ago Revenue


Earnings Beats in Past 4 Quarters


Source: Yahoo! Finance.

Can Cracker Barrel earnings feed investors well this quarter?
Analysts have had mixed views about Cracker Barrel earnings in recent months, cutting estimates for the quarter ended in October by $0.18 per share but raising full-year fiscal 2014 and 2015 projections by roughly 1.5% to 2.5%. The stock has kept soaring, with another 16% rise just since late August.

Cracker Barrel came into the quarter on a relatively strong note, with its prior-quarter results giving investors much of what they wanted to see. Same-store sales rose 2.6% for its restaurants and 1.1% for its retail divisions, and a nearly 4% jump in overall revenue helped earnings beat estimates by $0.08 per share. Future guidance for fiscal 2014 wasn't quite as favorable as investors had hoped, leading to a brief share-price decline, but overall Cracker Barrel did well in a tough environment in which both Denny's and DineEquity faced challenges of their own.

But that hasn't stopped Biglari from pushing hard to get representation on Cracker Barrel's board and to implement a $20-per-share special dividend. Shareholders resoundingly defeated the latest of Biglari's proxy battles, with very few other investors joining Biglari and its roughly 20% stake in the company in voting for the activist investor's proposals.

Meanwhile, Cracker Barrel has forged ahead with growth initiatives of its own. Last month, the company said it would start selling bacon and lunch meat to stores, having entered into a licensing agreement with a unit of meat giant Smithfield Foods. The deal could help Cracker Barrel get name recognition in urban areas, setting the stage for more business when shoppers venture on the open road.

Cracker Barrel has also done well in paying down debt. Although Biglari argues that less debt is actually bad in the current low-rate environment, Cracker Barrel still faces a fairly heavy burden, and eliminating it will put the chain in even better competition position against Denny's and DineEquity, both of which have much higher debt-to-equity ratios.

In the Cracker Barrel earnings report, watch to see how the company responds to Biglari's ongoing efforts. So far, its strategy of simply operating its business effectively has been the best response shareholders could hope to see.

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