Cracker Barrel Old Country Store Inc. (CBRL) reported second quarter 2011 earnings of $1.20,  in line with the Zacks Consensus Estimate, but climbed 10% from the prior-year quarter. The upside was primarily due to higher sales and operating income. 

Quarter Performance

Total revenue inched up 1.2% year over year to $640.3 million, but was below the Zacks Consensus Estimate of $653 million. The year-over-year upside in revenues was due to a 1.0% rise in restaurant sales and 1.9% hike in retail sales.

On a comparable basis, restaurant sales were up 0.3%, driven by higher average check of 1.8%, partially offset by a 1.5% decline in traffic due to bad weather condition. However, excluding the adverse weather impact of 90 basis points (bps), same restaurant sales rose 1.2%.  Comparable retail sales in the second quarter grew 1.3%.

Gross margin in the quarter plunged 65.7% compared with 66.5% in the year-ago quarter, as cost of goods sold spiked 80 bps. However, operating margin expanded 40 bps year over year to 8.2% in the quarter, on the back of lower labor and other related expenses and general and administrative expenses, partially offset by higher other store operating expenses.

Store Update

During the quarter, Cracker Barrel opened 1 new restaurant. Thus, at the end of the quarter, the company had 597 owned locations.

Financial Position

At the end of the second quarter, Cracker Barrel had cash and cash equivalents of approximately $63.2 million compared with $47.7 million in fiscal 2010. The company also reduced its long-term debt to $570.3 million as compared with $573.7 million in 2010.

Outlook
 
For fiscal year 2011, Cracker Barrel trimmed its revenue outlook. At present, the company expects total revenue growth in the range of 2.5% to 3.5% compared with its previous forecast of 3.0% to 4.5%. The guidance is premised on the opening of eleven new units during the year. Comparable restaurant sales are estimated to increase within the range of 1.5%–2.5% and comparable retail sales to go up between 2.0%–3.0%.

However, the company reaffirmed its earnings per share guidance to be approximately $3.95 to $4.10. Capital expenditures to be between $90 million and $100 million. The company will continue its share repurchase activity in 2011 and repay $25 million of its long-term debt.

Our Take

We expect estimates to go down in the coming days, as the company reduced its outlook, based on the impact of harsh weather in the second quarter and continuing pressure from cost inflation. The Zacks Consensus Estimate for 2011 is pegged at $4.08 and $4.61 for 2012.  

One of Cracker Barrel’s primary competitors, Brinker International Inc. (EAT) reported second quarter 2011 adjusted earnings per share of 38 cents, surpassing the Zacks Consensus Estimate of 32 cents. The upside in earnings was driven by continued margin expansion at Chili’s and top-line growth at Maggiano’s.

 
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