Cracker Barrel Old Country Store, Inc. 2024 Annual Report Review

Introduction

Cracker Barrel Old Country Store, Inc. (Nasdaq: CBRL) has released its 2024 Annual Report, providing a comprehensive overview of its financial performance, strategic initiatives, and operational highlights. This review delves into the key aspects of the report, offering insights into the company's business model, financial health, and future prospects.

Warren.AI 💰 7.5 / 10

Business Overview

Cracker Barrel operates a unique business model that combines a full-service restaurant with a retail store. As of September 13, 2024, the company operated 658 Cracker Barrel stores in 44 states and 68 Maple Street Biscuit Company (MSBC) locations in 10 states. The Cracker Barrel stores are designed to appeal to both travelers and local customers, offering home-style country cooking and a variety of retail items such as rocking chairs, seasonal gifts, toys, apparel, and cookware.

Strategic Transformation Plan

In 2024, Cracker Barrel announced a strategic transformation plan aimed at driving relevancy, delivering exceptional food and experiences, and growing profitability. The plan includes:

1. Refining the Brand: Evolving the brand across all touchpoints, including store design and atmosphere.
2. Enhancing the Menu: Introducing menu innovations and optimizing pricing strategies.
3. Evolving the Store and Guest Experience: Improving operational excellence and store remodels.
4. Winning in Digital and Off-Premise: Growing the off-premise business and leveraging technology, including the Cracker Barrel Rewards loyalty program.
5. Elevating the Employee Experience: Upgrading training and development programs.

Financial Performance

Revenue

Total revenue for 2024 was $3.47 billion, a 0.8% increase from 2023. This growth was driven by a 53-week fiscal year in 2024, which added $62.8 million in revenue. The restaurant segment contributed 80.5% of total revenue, while the retail segment accounted for 19.5%.

Comparable Store Sales

• Restaurant Sales: Decreased by 0.1% due to a 5.0% decline in guest traffic, partially offset by a 4.9% increase in average check.
• Retail Sales: Decreased by 5.5%, primarily due to lower guest traffic.

Cost of Goods Sold

• Restaurant: Cost of goods sold decreased to 26.6% of restaurant revenue, down from 28.1% in 2023, primarily due to menu price increases.
• Retail: Cost of goods sold remained relatively constant at 50.9% of retail revenue.

Operating Expenses

• Labor and Related Expenses: Increased to 36.6% of total revenue, up from 35.1% in 2023, due to higher staffing levels and wage inflation.
• Other Store Operating Expenses: Increased to 24.0% of total revenue, driven by higher advertising expenses and costs associated with the Cracker Barrel Rewards program.
• General and Administrative Expenses: Increased to 6.0% of total revenue, primarily due to costs related to the strategic transformation plan and CEO transition.

Impairment and Store Closing Costs

The company recorded impairment charges of $17.4 million for six Cracker Barrel locations and thirteen MSBC locations. Additionally, $5.5 million was incurred for closing four Cracker Barrel and two MSBC locations.

Net Income

Net income for 2024 was $40.9 million, down from $99.1 million in 2023. The decrease was primarily due to higher operating expenses and impairment charges.

Cash Flow and Liquidity

Operating Activities

Net cash provided by operating activities was $169.0 million, down from $250.5 million in 2023. The decrease was mainly due to lower net income and changes in working capital.

Investing Activities

Capital expenditures were $127.5 million, primarily for existing store investments, new store locations, and strategic initiatives. The company plans to increase capital expenditures to $160-$180 million in 2025.

Financing Activities

The company did not repurchase any shares in 2024. Dividends paid were $5.20 per share, but the quarterly dividend was reduced to $0.25 per share to support increased investments in the business.

Risk Factors

Inflation and Economic Conditions

The company faces risks related to inflationary pressures on food, labor, and other costs. While menu price increases have partially offset these pressures, continued inflation could impact profitability.

Competition

Cracker Barrel operates in a highly competitive industry, facing competition from national and regional restaurant and retail chains. The company’s ability to differentiate itself through its unique brand and guest experience is crucial for maintaining market share.

Supply Chain Disruptions

The company relies on a single distribution center for most of its retail inventory, which poses a risk in case of disruptions. However, the company believes it has adequate measures in place to mitigate this risk.

Conclusion

Cracker Barrel Old Country Store, Inc. has demonstrated resilience in a challenging economic environment. The strategic transformation plan is a positive step towards long-term growth and profitability. However, the company faces significant risks related to inflation, competition, and supply chain disruptions. Investors should weigh these factors carefully when considering an investment in Cracker Barrel.

Investment Score: 7.5/10

Cracker Barrel has a solid business model and a clear strategic plan, but the current economic challenges and competitive landscape warrant a cautious approach. The company’s focus on enhancing the guest experience and operational efficiency is commendable, but execution will be key to realizing its growth potential.