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Why Cracker Barrel Stock Dropped Like a Stone Today
Restaurant chain shares Cracker Barrel Old Country Store (NASDAQ:CBRL) dropped like a stone on Friday after the company provided a business update and cut its dividend. As of noon ET today, Cracker Barrel shares are down a disheartening 13% and now trade at their lowest price in 12 years.
Bad news for dividend investors
On the surface, it seems like business is good for Cracker Barrel. After all, revenue for the last 12 months, at US$3.4 billion, is close to an all-time high. And yours comparable restaurant sales increased modestly in the second quarter of fiscal 2024, the most recent quarter. But the company earnings per share (EPS) are currently lower than they were 10 years ago, which is a problem.
CBRL Revenue Chart (TTM)
Cracker Barrel has long paid quarterly dividends and has even paid several special dividends over the past decade. But with its profits deteriorating in recent years, it has been paying more dividends than it has earned – an unsustainable situation.
The company announced today that it will invest money to fix its business. Consequently, it is reducing its dividends by 80% to be able to pay everything. Investors didn’t like this and that’s why the stock fell.
Can Cracker Barrel change this?
I’m not sure the decision is necessarily surprising. Personally, I have been expecting a dividend reduction for some time. But investors still don’t like it now that it’s here.
Management thinks it can fix Cracker Barrel’s business. Capital expenditures are expected to increase during fiscal 2027. However, by fiscal 2027, it believes it could earn about $400 million in adjusted earnings before interest, taxes, depreciation and amortization (EBITDA ). For perspective, it had less than $300 million in fiscal 2023.
At the time of writing, the company has an enterprise value (EV) of $1.7 billion, according to YCharts. If it can actually achieve its goals, it will trade at an EBITDA/EV ratio of just four, which is quite cheap and suggests upside potential for the shares in the coming years.
However, Cracker Barrel will have its work cut out, so investors may want to see some progress before giving management the benefit of the doubt when it comes to fiscal 2027 targets.
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Jon Quast has no position in any of the stocks mentioned. The Motley Fool recommends Cracker Barrel Old Country Store. The motley fool has a disclosure policy.
Why Cracker Barrel Stock Dropped Like a Stone Today was originally published by The Motley Fool