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Cracker Barrel is struggling and inflation is the culprit

While revenue rose 7%, profits could not keep up with rising commodities costs, even offset with menu price increases

Some restaurant chains appear to be impacted more by macroeconomic uncertainty and inflationary pressures than others: While Cracker Barrel’s revenues grew 7% in the first quarter ended Oct. 28, thanks in large part to multiple price increases (totaling 7.8%), profits were down as a result of astronomical commodity costs.

Price increases not only helped to keep Cracker Barrel’s revenues and average check afloat, but same-store sales growth of 4.3% as compared with last year was boosted by a return to normalcy following the prevalence of the COVID-19 Delta variant at the same time in 2021.

“We continue to operate in a challenging environment of economic uncertainty that makes predicting the balance of the year particularly difficult,” Craig Pommells, CFO of Cracker Barrel said during Friday’s earnings call. “Consumer confidence, recession risks, inflation and supply chain constraints are some of the things that, depending on whether, when, and how much they shift, can impact our business positively or negatively for the balance of the year.”

During the first quarter, traffic was also a challenge, particularly during the softer month of October, as compared with the stronger month of August, presumably as people began traveling again. Cracker Barrel is confident that their margins will improve the rest of the fiscal year, with particular improvements around wage inflation. The overall sentiment, however, is that commodities and other external factors are “volatile” right now, Pommells said.

Another part of the business to look forward to is Cracker Barrel’s continued digital transformation. CEO Sandra Cochran mentioned during Friday’s call that the company launched a brand-new app at the start of November, “which greatly improves the user experience, and reduces friction to make ordering and reordering much easier.” Cochran also said that the app precedes the launch of a new loyalty program which they will be rolling out in the fourth quarter of 2023.

Despite some of the challenges stated above, Cracker Barrel is confident in its growth strategy, particularly for Maple Street Biscuit Company, with a planned 12-17 new restaurant openings planned for 2023.

For the first quarter, Cracker Barrel’s revenue increased 7% to $839.5 million. Net income was $17.1 million or $0.77 per share, as compared with the prior year quarter’s net income of $33.4 million or $1.42 per share. Cracker Barrel opened 3 net new Maple Street Biscuit Company units last quarter, with no Cracker Barrel openings or closures, bringing the portfolio net total to 718 restaurants.

Contact Joanna at [email protected]

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