Cracker Barrel Old Country Store
has long welcomed instant geniuses—just not this one.
A fixture along America’s interstates for half a century, the homey chain known for its wooden “country genius” peg puzzles faced repeated proxy fights over 11 years from abrasive Warren Buffett imitator
Sardar Biglari.
The major shareholder’s criticism of the company is over—at least for now—following a truce and standstill agreement inked in September that saw an 11th board seat created for the handpicked nominee of his investment vehicle,
The mutual nondisparagement agreement signed with Mr. Biglari came in handy following Friday’s release of fiscal first-quarter results. Earnings per share fell by 45% year-over-year and guidance for revenue growth for the rest of the fiscal year came in at a disappointing 6% to 8%, which is less than anticipated commodity inflation. Shares fell 8% in morning trading.
Mr. Biglari’s past criticism of Cracker Barrel rings somewhat hollow, though. Since his activist campaign gave Biglari Holdings control of Steak ‘n Shake in 2008, Cracker Barrel’s shares have produced, through Thursday’s close, more than 20 times its return and about twice that of the S&P 500. But Cracker Barrel has had a tough pandemic, lagging behind a basket of casual dining peers such as
and
since February 2020.
Reasons include its roadside rather than destination nature and an older, budget-conscious clientele pinched by the rising cost of living. It has more diners over the age of 65 than competitors and its average check per guest is barely $12. Its attempts to appeal to younger clients are an awkward fit with its unique format. For example, allowing guests to pay at their table through QR code could dent impulse purchases of tchotchkes and candy at attached country stores that guests typically navigate to settle their check. Those stores are more than an afterthought with sales per square foot higher than clothing retailer Gap. Restaurant revenue is responsible for less than four-fifths of sales. Introducing alcohol sales at most restaurants is another recent step that could change the chain’s character.
The chain’s recent performance, and perhaps sheer exhaustion after five proxy fights, has given Mr. Biglari an opening. Adding seasoned executive
Jody Bilney
to the board probably won’t hurt, but radical change such as Steak ‘n Shake’s aggressive cost-cutting might.
Despite its poor performance in the era of Covid-19, loyalty apps and high inflation, Cracker Barrel’s return on invested capital topped 20% in the four years preceding the pandemic—something of which none of its large competitors can boast. Biglari Holdings itself only exceeded that mark once, and that was nine years ago. Biglari Holdings didn’t respond to a request for comment.
Cracker Barrel’s attempts to get with the times haven’t worked well—notably its unfortunate 2019 investment in “eatertainment” company Punch Bowl Social, which had a Gen-Z and millennial clientele. But its existing formula has and should shine again once economic stresses recede.
Growth avenues are, sadly, limited—its store count has barely budged recently and it is slowly expanding its Maple Street Biscuit Company—but a dividend yield of 5% shows that the company is a fairly good steward of capital. It might have devoted more cash to share buybacks over the years instead had it not wanted to avoid further enlarging the stake of its most annoying shareholder.
Write to Spencer Jakab at Spencer.Jakab@wsj.com
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