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Earnings, Not Woke Culture, Have Investors Canceling Cracker Barrel

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Cracker Barrel stock has been underperforming. Earnings have been an issue.


When it comes to woke, even breakfast isn’t safe.

Cracker Barrel Old Country Store (ticker: CBRL), a folksy eatery known for its southern fare, is the latest company to come under fire for its inclusive policies during Pride Month, though investors may be more concerned about its recent earnings report.

Cracker Barrel wasn’t always so welcoming, given antigay workforce practices in the 1990s, but has since moved to embrace diversity, as evidenced by a recent advertisement celebrating Pride Month. That evolution toward tolerance would seem like a good thing, particularly as it’s illegal to discriminate against employees based on sexual orientation.

However, Cracker Barrel’s Pride ad drew fire from a number of conservative consumers and commentators, who have targeted many companies celebrating LGBTQ+ inclusion this year, despite often long histories of supporting equality. The company did not immediately respond to a request for comment.

Cracker Barrel shares are down more than 4% over the past five days, a period when the S&P 500 has edged higher. Yet it seems that earnings and a downbeat forecast, rather than anti-woke crusaders, are the culprit.

On Tuesday morning, Cracker Barrel reported a disappointing fiscal third quarter, saying it earned $1.21 a share, on revenue that rose 5.4% year over year, to $832.7 million. Analysts were expecting earnings of $1.34 a share on revenue of $845.1 million.

In addition, the company said it expects revenue to climb between 1% and 3% from the year-ago period in the current fiscal fourth quarter. That equates to roughly $838.7 million to $855.3 million, below the consensus estimate of $886.8 million. Visits by younger consumers, a key initiative for the nostalgic-themed chain, were also flat in the quarter, which may have added to investor worries.

Citigroup’s Jon Tower warned that more underperformance may come, given “broader retail challenges starting to percolate through the business, an older customer base, and outsized macro sensitivity among lower-income customers.” He’s also wary about Cracker Barrel’s reduced top-line guidance paired with ongoing cost cuts, a combination “which (1) rarely (if ever) leads to long-term value creation, and (2) can be a very difficult cycle to reverse.” Tower kept a Sell rating and $79 price target on the stock.

Investors may also be concerned that Cracker Barrel’s problems are an outlier in the industry.

“Two factors leave us less constructive on CBRL shares, relative to the shares of the casual dining peer group,” wrote Gordon Haskett analyst Jeff Farmer. He called out Cracker Barrel’s same-store sales, which were up less than 10% compared with the prepandemic period, “a performance that lags the peer group by several hundred basis points,” as well as a slower recovery in its earnings before interest and taxes margins. He has an Underperform rating and an $87 price target on the shares.

It wasn’t all bad news: Cracker Barrel said its sustainable cost savings and improvements to its business model will contribute as much as $30 million to the full fiscal year’s profits, with potential further gains in fiscal 2024. Its older customer cohort also showed continued signs of spending.

Nonetheless, the quarterly miss and lackluster outlook weighed on the shares, which had been approaching $100 before the report; at a recent check, they’re down 2.2% to $93.11.

According to FactSet, only two of the nine analysts that cover Cracker Barrel are bullish on the shares, while three are bearish and four are sidelined, a pattern that’s held since March. The average analyst price target of $95 is only fractionally above where the shares stand today.

Write to Teresa Rivas at teresa.rivas@barrons.com