CBRL - Cracker Barrel: Strategic Plan Appears Promising But Concerns Remain

2024-05-17 12:29:58 ET

Summary

• Management announced an 80%+ dividend reduction to help fund strategic investments over the next three years.
• The company provided a soft medium/long-term outlook, while updated indications for the remainder of the year are weaker due to lower-than-expected traffic.
• Lack of visibility on the strategic front remains and could prevent a re-rate from materializing.

Investment thesis

In my previous n ote on Cracker Barrel (CBRL) published on April 4, I mentioned that caution was warranted regarding investing in the stock, despite shares trading at a significant discount. The investment thesis at the time was that although the strategic revamp under the new CEO was necessary to stabilize its operating performance, the high dividend payout coupled with declining earnings could pose downside risks to investors if management were to cut or reduce dividends. Moreover, the overhaul hampered the assessment of potential margin recovery over the long term. A lack of short-term catalysts and limited visibility on the outcome of the recent turnaround plan would likely prevent a re-rate from materializing....

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