By Paul Goodwin, Chief Analyst of Cabot China & Emerging Markets Report
Originally from Cabot Wealth Advisory, 3/10/15
My recommendation of Cracker Barrel Old Country Store is motivated by a news story I found online recently that snapped my head back a bit.
Since 1992, the U.S. Census Bureau has been keeping track of how Americans spend their money. And there have been some big changes.
In 1992, people in the U.S. spent $162 in grocery stores for every $100 they dropped in restaurants.
That ratio seems about right to me, since preparing dinner and eating at home has always been the default setting in my home.
But data for January 2015 shows that-for the first time ever-Americans actually spent more money eating in restaurants than they did in grocery stores. It was close; restaurants and bars took in $50.475 billion in January, compared to revenue of $50.466 billion in grocery stores.
There are lots of reasons for this trend, many of them quite fascinating, but I went looking for a stock to recommend to honor this momentous occasion.
Cracker Barrel (CBRL) is a mid-market restaurant chain that earned its way into Cabot Top Ten Trader this week. Here’s what Mike Cintolo had to say about it:
Why the Strength
With gas prices and unemployment both at six-year lows, Americans have more discretionary income to spend than at any time since the Great Recession. And in true American fashion, many of them are spending it on food. That was certainly the case at Cracker Barrel last quarter, as traffic increased 4.7% and same-store sales jumped 7.9% at the Tennessee-based restaurant chain with a country flair. Seasonal promotions such as the restaurant’s apple cider barbecue chicken and triple berry French toast contributed to Cracker Barrel’s strong fiscal second-quarter performance, which ended January 30. Earnings per share continue to improve too as the company cuts $20 million in costs this year. The combination of cost-cutting and increased customer traffic has prompted Cracker Barrel executives to raise their full-year financial outlook. The company now expects EPS of $6.40 to $6.50 in its current fiscal year, a marked improvement over the $5.64 per share it earned in 2014. As long as gas prices remain low and the U. S. economy doesn’t implode, Cracker Barrel should continue to benefit along with the rest of the retail sector.
CBRL has been a long-term winner, but, like all stocks, it goes through corrections. CBRL pulled out of a long swoon in October 2014 and the stock ran to 140 at the end of 2014. After a seven-week consolidation, the stock popped higher on that good earnings report, nipping above 153 a couple of weeks ago. A little time for digestion has CBRL trading at 149, and you should be able to get in at least a point lower is you’re patient. I’d recommend using a stop at 138 for protection.