You’re tired and hungry after a long grueling road trip. There’s a McDonalds at every rest stop but you’re just not in the mood. After all, you already had McDonalds for breakfast and stopped at two others to use the bathroom. At the same time, you don’t want to go too far into town. The traffic on main roads right now feels too daunting after being in the car for 8 hours. You come to an exit and to your delight, in the distance, you see a large rustic old-west general store. This building is none other than Cracker Barrel; a 1900s-like southern restaurant chain. I found Cracker Barrel to have a unique business model, allowing it to compete with more established chains. I opened up a very small position and plan on adding more soon.
Cracker Barrel Old Country Store (CBRL) operates 660 restaurants across 45 states. Most of these locations are in the Southern U.S. and Midwest. Restaurants feature an old west motif with a connecting gift shop. When I visited our location here in Northern Indiana, I ordered the country fried turkey with mashed potatoes and mac n’ cheese. Each meal came with a generous serving of biscuits. The food was moderately priced, service was prompt, and portions were huge. We ate at around 12pm and were so full we didn’t need to eat dinner that day. After lunch I purchased a couple of Christmas gifts and bought myself a handmade all-natural bar of mint lavender body soap. There are many great restaurant chains out there, but Cracker Barrel is different.
Aside from the old-style gift shops attached to the restaurant, Cracker Barrel has a unique competitive moat other chains don’t have. The locations are primarily found on interstate highway exits. Per my example above, the locations give reprieve to weary travelers, allowing the chain to stand out among much larger resource rich competitors. On the financial side, CBRL pays a 3.3% dividend covered by a 54% payout ratio. Sales and earnings have risen handily over the past decade. Revenue even held up strong coming up flat during the financial crisis. Even better, the company carries a debt-to-equity ratio of 1.6, which is decent. The stock appears fairly valued, trading at a P/E of 17, close to its historical average.
Cracker Barrel is also expanding via acquisitions by purchasing Maple Street Biscuit Company for $36 million in cash. From a safety standpoint the company isn’t nearly as secure as businesses like Starbucks or McDonalds. These companies are priced to perfection and carry hefty valuations. Cracker Barrel, on the other hand, is still a very solid business. It also carries a much higher dividend yield, a lower valuation, and appears to have more opportunity to expand. Their market cap is only $3.9 billion and they only have 660 stores. I called CBRL a junior position because, like Honeywell, I only purchased a couple of shares. I’m still averaging in but I’m also trying to build up another significant cash position. If the market is going to correct, I want to have ample funding for the opportunity.
DISCLAIMER: I am long on CBRL and HON. I am not a licensed investment adviser or tax professional. I am not liable for any losses incurred by any parties. This blog should be viewed for entertainment and/or educational purposes only. Any transactions published are not recommendations to buy or sell any securities. Please consult with an investment professional before making investment decisions.