A loss of $6.81 per share (GAAP) or $1.81 per share from continuing operations. Revenue down 41.5% versus the same quarter last year. Same-store sales down 45.5%.
All else being equal, those horrible numbers normally would equate to a business that is in deep trouble. But under the circumstances it could have been worse. Shares of the company in question were down less than 1% after posting these results before Tuesday's market open. Much of this was expected. However, if you told me six months ago that this company's third-quarter results would look like this, I would have called you crazy or a doomsdayer.
The company in question is Cracker Barrel Old Country Store Inc. (CBRL) , also the subject of Monday's column. It was the type of quarter we will be seeing more of from casual diners, and hopefully, one year for now it will be a blur and chalked up as a very odd one-time event.
This was an interesting quarter for other reasons as well. Cracker Barrel actually beat estimates from continuing operations by 39 cents a share; the loss was expected to be $2.20 a share. However, it is the bottom-line (GAAP) loss of $6.81 a share that bears explanation and may be the impetus of a proxy fight.
That loss is the result of a $133 million non-cash impairment charge Cracker Barrel took on its investment in Denver-based Punch Bowl Social, a short-lived experiment that was a disaster for the company. Cracker Barrel made the investment -- a non-controlling interest that gave the company 58.6% of the economic ownership, but just 49.7% of the voting rights -- in the then 17-location concept that featured craft alcoholic beverages and made-from-scratch food last July. In late March, Cracker Barrel announced it was taking the charge after all 19 Punch Bowl Social locations were closed amid the pandemic, leaving Punch Bowl Social facing foreclosure unless CBRL would guarantee or pay off the fledgling company's debt. Cracker Barrel opted to walk away.
Clearly, the coronavirus-forced closings played a huge role in this episode, but it was a costly mistake. Hard to say how this investment would have played out otherwise, but it was a stretch from CBRL's core concept.
Enter Biglari Holdings (BH.A) , which has whittled down its stake in Cracker Barrel over the years from about 20% but still owns 8.6%. Biglari has been critical of CBRL in the past, primarily due to the belief that it was not properly allocating capital, and has launched and lost a few proxy fights in the past.
As I mentioned in a column last month, Biglari fired off a letter to Cracker Barrel CEO Sandy Cochran reiterating Biglari's early doubt about the Punch Bowl Society investment and also questioning the timing of pulling out. Cracker Barrel made the exit just two days prior to passage of the CARES Act, which might have aided Punch Bowl Society.
Biglari's letter, correctly in my view, questioned the rationale of not waiting and at least evaluating the CARES Act's potential impact. It has been a long time since I've agreed with any of Biglari's actions, but I am on board with this one. Time will tell if the company moves toward a proxy contest; they have not ended well in the past for Biglari, but this time around it seems more justified, in my opinion.
For its part, Cracker Barrel ended the quarter with $363 million in cash, much of which is the result of drawing on the company's revolver. As a result, its debt has ballooned to $940 million, up from $400 million last quarter -- not uncommon for publicly traded restaurants trying to ride out the pandemic.
