Talk about falling off a proverbial cliff.
That's exactly what casual dining name Cracker Barrel Old Country Store Inc. (CBRL) did from Feb, 21 to March 18 as its shares went from $168.80 to $56.72, a 66% drop in less than a month. Not that such a plunge was uncommon for publicly traded restaurants, especially casual diners, as the coronavirus forced the closure of formerly busy locations where takeout was not a large revenue source.
Since then, Cracker Barrel shares have rebounded to about $107 as of last Friday, a nearly 90% rise since the March bottom. Looks good on paper, but the stock is still down more than 35% since late February. It certainly could have been worse. This industry has experienced recessions, which never are good for restaurants as consumers typically rein in discretionary spending and eat out less, but this was a forced shutdown, a totally different animal. It makes me wonder whether the turnaround in the stock price is premature.
During recessions, valuations change dramatically, and historically we've seen price-to-earnings (P/E) ratios compressed into single digits. However, we really have no guide or history for the current situation. Restaurants are typically a top-performing post-recession sector, but we have no experience in what a post-pandemic economy will look like.
Judging by what I've observed the past week or so, with temperatures rising and summer in the air, it appears that many consumers are over the pandemic and are over being forced to stay inside. I still see a lot of masks, especially inside stores where they are required, but fewer and fewer elsewhere.
One question is whether and when folks will flock to their favorite restaurant, as in sitting inside, not outside as pre-ordered food is delivered to their cars. I must admit, I've had no problem being out and about during this pandemic. I've been to grocery stores countless times (always with a mask); it's a pre-pandemic ritual I was unwilling to give up. Honestly, though, I don't know if I am ready to sit in a restaurant.
Cracker Barrel, is one of the higher-quality restaurant names, has a very loyal following, owns great real estate, and in the past several years has been returning a lot to shareholders in the form of regular and special dividends and buybacks. The "great real estate" part of that equation has not changed, although you need to wonder whether all the working from home during the pandemic will become the new normal and permanently altering the need for commercial real estate. Perhaps the loyalty has not changed, if the older crowd Cracker Barrel tends to draw feels safe going back. The thing that has changed is the dividend situation, at least for now.
In late March, Cracker Barrel deferred its March declared dividend, which was to be paid in May, until September. The company has paid a substantial special dividend each of the last five Julys along with its regular dividend, and you can't see that happening this year.
Looking ahead, Cracker Barrel will report third-quarter results Tuesday on an 11 a.m. ET call. We'll get a look at how the company has fared in takeout-only mode; the consensus is calling for a loss of $2.20 a share. Cracker Barrel currently trades at 16x next year's consensus earnings estimate of $6.62 a share. That estimate was reduced from $9.09 just three months ago.
Bottom line for me on Cracker Barrel: Love the company, but it is too early to tell on the stock. The latter sentiment is true for many restaurant names, in my view.