Sector Headwinds Finally Catch Up To Cracker Barrel

In a strong indication that softening casual dining trends have started to hurt Cracker Barrel Old Country Store, Inc. (NASDAQ: CBRL), the company guided FY17 restaurant same-store sales (SSS) to a range of 1–2 percent, which is below the restaurant's long-term target of 2–3 percent.

"CBRL's 1–2 percent SSS guidance range is the lowest in five years for the company and reflects an expectation for continued sector headwind in coming quarters as well as dwindling menu pricing power," Wells Fargo analyst Jeff Farmer wrote in a note.

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Cracker Barrel introduced FY17 EBIT margin guidance in the range of 9.5 to 10.0 percent versus the 9.6 percent margin reported in FY16.

"CBRL has guided to 2–3 percent commodity basket deflation and 1–2 percent menu pricing, which when using the middle of the range for both implies the company could see as much as 100bps of COGS favorability," Farmer noted.

However, Farmer cut his FY17 EPS estimate to $8.07 (+7 percent year-over-year and at high end of $7.95–$8.10 guidance range) from $8.36. The analyst, who has a Market Perform rating on the stock, also trimmed his valuation range to $130–$135 from $162–$166.

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