Why Cracker Barrel beats a Big Mac
The chain doesn't have McDonald's margins, brand or global reach, but it does pay a 2.8% dividend.
By Igor Greenwald, MoneyShow.com
Jim Jubak recommended McDonald's (MCD) shares the other day after finding its fast-food competitors' margins less than filling. And I wouldn't dare second-guess Jim, since he's forgotten more about stocks than I'll ever glean.
The global fast-food leader's 3.1% annual dividend yield certainly looks tasty, especially now that it's 75% above the yield on the ten-year Treasury note. But ask me if anyone can beat the Big Mac and I'll point you to the shares of Cracker Barrel (CBRL).
What does the roadside country cooking chain offer that the Golden Arches lack, besides meatloaf and grits? Try the following value menu.
CBRL is 16% cheaper than MCD based on its price-to-earnings multiple, and 24% judging by last year's cash flow.
It faces much easier comparisons after years of stagnation, years MacDonald's spent feverishly improving and growing.
Cracker Barrel has no exposure to the economic turmoil overseas, and much higher sensitivity to U.S. gas prices, which have just helpfully slid ahead of the peak summer driving season.
A much healthier chart, with CBRL shares closing Thursday at an all-time high while MCD languishes below its 50-day and 200-day moving averages.
And last but not least, CBRL has a big activist shareholder pressuring the company to improve its lackluster long-term results by buying the stock and waging a proxy fight
The last one is key, both for my interest in the stock and prospects for unlocking more shareholder value.
Company rife with controversies
Cracker Barrel was founded in 1969 in Lebanon, Tenn., by a good ole boy somewhat resembling the mustachioed figure on its logo. It grew into today's chain of 615 stores across 42 states by peddling nostalgia for the bygone America of country stores alongside buttery homestyle dishes.
Along the way, the founder, who died earlier this year, briefly demanded the firing of all employees suspected of being gay, because he thought they were making rural customers uncomfortable. Some years later, black customers sued, claiming they were made to feel unwelcome.
Cracker Barrel settled the suits and now explicitly bars discrimination on the basis of sexual orientation. Still, the format celebrates places and a time that weren't exactly models of diversity.
The Iranian 'threat'
Sardar Biglari was born in Tehran, eight years after the first Cracker Barrel opened its doors. When he was seven and Iran's Islamic revolution five, his family of royalist rug merchants escaped to San Antonio.
The 34-year-old entrepreneur models himself after idol Warren Buffett, though he has a racier appetite for expensive sports cars. He's already turned around a couple of restaurant chains -- Steak 'n' Shake and Western Sizzlin' -- that now operate as subsidiaries of his Biglari Holdings (BH).
But Cracker Barrel won't even give Biglari a seat on the board, though he's its largest shareholder with a stake of more than 17%. Instead, for the second year in a row Cracker Barrel is asking shareholders to approve a poison pill discouraging Biglari from accumulating more than 20% of the shares.
So while Cracker Barrel's executive chairman grew up in England and its new CEO is a woman, this is very much the good ole boys and girls versus a pushy immigrant outsider. Its old America versus new, the country store versus the rug merchant turned value investor.
Biglari has kept on buying Cracker Barrel in the market right on into May, while pledging to stick it out for the long haul and even promising to give advance notice before selling a single share.
Cracker Barrel hasn't been receptive to his criticisms about stunted profitability, overpriced billboards and the expense of employee bathrooms. But it scurried to freshen up its board a bit and promoted a CEO from within when Biglari first came calling. Also, on Thursday, the company replaced two directors Biglari wanted out.
Quarterly results announced this week beat expectations, with price hikes accounting for much of the 3.3% comp sales increase but customer traffic also up, for the second quarter in a row.
The company is buying back its shares alongside Biglari. The latter doesn't have an obvious path to seize control unless performance disappoints once more and other shareholders help him stage a coup. But every share he buys gives incumbent management another reason not to get complacent.
Of course, Cracker Barrel doesn't have McDonald's margins, brand or global reach. But it does pay a 2.8% dividend just for waiting to see whether Biglari can snatch any of the four board seats he is contesting.
He is one very hungry young man who's working hard to turn up the heat. Good ole Cracker Barrel had best keep cooking.
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It's good food @ CB and most of the time imo any restaurant the management is the key. The Army is a good as the Generals l!!!!
Every time I've eaten at Cracker Barrel, the food was delicious, hot, served in the amount of time it takes to serve "good"
food, and inexspensive.
Why, when we outsource our manufacturing jobs, would we be happy about threats to our "inner" businesses by the outside influences of another culture? Can't he find an empty building to start a middle-eastern deli! (I don't care what you say, that's funny, right there!)
Plenty of CBs in CO.
North Denver (120th st), Loveland (near the outlets), C Springs (Chapel Hills area) and even Pueblo! All right off 1-25.
"I support Biglari's efforts to improve a stagnant Cracker Barrel."
"It's worse yet to see jealous prejudice CEO's and execs too scared and proud to work with Biglari. I'd vote my 500 shares with him any day.
I don't think this is about mere prejudice. This Biglari man is a tyrant. It's no wonder the CEO and execs are scared of him.
" But (Biglari) he also did some pretty horrible things to the employees. His way of showing immediate improvement in the financials. . .take away benefits from the hourly employees, such as insurance and vacations, and wages. He would literally threaten the management teams with their jobs, not because of specific performance issues on an individual basis, but on general principal, starting off a regional meeting that I am familiar with by saying to the general managers, district managers, and regional managers present, 'take a look at those people around you, look at the person across the table, next to you, around the room. . . . at the next meeting like this we have in 6 months from now, half of you won't be here!' "
Does anyone ever actually READ these articles?? This isn't about good "set down mill with a medal fork " (now there's a good ol' boy) or mother and daughter bonding. This is a financial report, and a good hot meal and cozy atmosphere aren't the only things to make Cracker Barrel a good investment.
truthurts401 yes Mcdonalds is a stop gap whenever there is nothing else>Their help and back end people change like the weather.You never know what you're gonna get.
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Serious issues like drought and the deterioration of the developed world spell opportunity for this industry leader.
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