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 MoneyShow.com Jun 1, 2012 9:42AM

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.


More from MoneyShow.com

A person born in Iran wants to tell a country restaurant in the U.S. how to run their business?  Go find someone else to stalk idiot.
Jun 2, 2012 2:21AM
Sadar Biglari did some good things for Steak N Shake, and quite frankly, without him, perhaps it would have stopped existing, primarily because of the former president and his lack of restaurant experience.  But 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!"  That's not the Warren Buffet way of doing things, with no respect for his employees.  He is no Warren Buffet!  Its great to expect extraordinary things in extraordinary times (trying to help the company survive), but perhaps even better results could have been obtained with cooperation and some other motivation than fear.
Jun 2, 2012 12:44AM
Cracker Barrel is delicious and affordable.  My mom and I eat breakfast there EVERY  Saturday morning.  It's a tradition that started years ago when I worked third shift.  The homey feel, the excellent service, the Delicious homestyle cooking, and the always changing inventory in the "country store" make Cracker Barrel an excellent place for our weekly mother-daughter time.  We've tried other restaurants, but they just don't compare.  This was an interesting article, and I will definitely look into Cracker Barrel stock.
Jun 1, 2012 8:17PM
If you dpn't like the atmosphere--don't go there and bit** about it.The Craker Barrels I have eatenat all kinds of people enjoy their food.And, being a private business, have the right to promote any time period they feel will help sell their brand.Why are so many people just looking for a fight. If America turns you off, then move across the pond.
Jun 1, 2012 10:03PM
I love Cracker Barrel and always have.  On our birthdays growing up we could choose whatever restaurant we wanted to go to.  Everyone else would always pick a fancy steakhouse me Cracker Barrel in Bloomington IL then in Morton once it was built.  Loved the shop and the food always made me happy.  My Grandma seemed to be the only one as happy as me that we were going there.  Now close to 20 years later I get a happy feeling when I take my boys there.  I have never experienced any race issues.  Nothing but pure happiness.  I hope they never change.  I can always go there and remember my mom and grandma.  
Jun 2, 2012 12:43AM

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!!!!

Jun 1, 2012 7:56PM
I just ate a CRB tonight, when they bring you a Hamburger, THEY Bring you a Hamburger.....almost more than I can eat...the price of a 1/2lb hamburger meal with the Coke Cake and Ice Cream.....$10 bucks..better than the Big Mac Deal and paying an extra50 cents for a piece of cheese..
  I love the Cracker Barrel.   On the way to Fla. my family always stooped at one to eat at as we were driving down south.  Now we have them all over. Thank god.  My Dad and mom always talked about opening up one. It was a mistake that they did not.
Jun 1, 2012 9:37PM

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!) 


Jun 4, 2012 3:28AM
Love Cracker Barrel.  I really wish they would come to Washington State.  Lots of military and retired military who would are familiar with CB.
Jun 4, 2012 9:41AM
Our favorite restaurant, and only four miles from the house. Yes!
Jun 1, 2012 10:06PM
mickey d dont have nothing on the cracker, cracker barrel has real food, real meat, mickey has horse meat in their burgers, I wont eat there
Jun 1, 2012 11:36PM


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.

Jun 3, 2012 10:01AM
New Tampa Resident:

"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.


Jun 4, 2012 12:16PM
Cracker Barrel is my breakfast of choice when on southern highways roadtrips. I refuse to do drive throughs, or any other chain for that matter. Stopping for meals at a local, privately owned restaurant gives me and my family the opportunity to interact with other indigenous cultures in America.
Jun 4, 2012 7:56AM
I've listed, in comments on some of these articles, relatively safe growth and income stocks and my two food-service stocks are MCD and CBRL.  Note the huge stock buybacks at CBRL have been going on since the 90's because of a hugh stock-option employee plan.
Jun 4, 2012 1:05PM
Our family enjoyed Cracker Barrel back in the 1990's and early 2000' . The food and service have become mediocre and the portions eem to be getting emaller all the time. The value we once saw at Cracker Barrel is gone and so are our frequent visits.
Jun 1, 2012 8:25PM

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.

Jun 4, 2012 2:00PM
No Cracker Barrels around my area of N.W. WA. but wouldn't hesitate to try one, BTW, I haven't eaten at MD's in over 20yr's! and never will eat their garbage!
Jun 4, 2012 3:37PM
If a company decides to be a company that resembles the 1950's model and racial landscape, then so be it, the customers can decide for themselves on that one.  As far as the orientation aspect, that is also a company decision and choice, customers and those applying for jobs can decide for themselves on that as well.  You see if a company decides that its "Mission Statement" is going to reflect the 1950's and that it will not include the orientation issue of the last little over 25 years, then so be it.  Some people, things and businesses don't want to bring their businesses into the 21st Century, so be it.  I personally would rather support those still in the 20th century then the 21st century, although I have no problem with blacks eating or working anywhere, but I do on the other issue.  One Last Thing, as best as you can, keep the ownership and board of the companies that are clearly from the U.S., still from the U.S., because slowly but surely those running the government have been turning over ownership of this country to foreign people, companies and nations; that should have never been allowed to happen, for one important reason "Pride" in what belongs here, what should be made here, so that being one of the largest nations can have confidence in what they bring to the table as opposed to what they bring to the table is Made Everywhere But Here!
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