Cracker Barrel CBRL BBK

Notes on CBRL buy back

by Doug Lyon, PhD

Workproduct of DocJava, Inc. Copyright 2006

SSS is expected to be between 1 and 2%. Store growth is expected to be between 2 and 3%. EPS Projections are very sensitive to SSS, and, as we will show, so is the stock price. Traffic counts fell for 9 consecutive quarters (except for 0.2% rise in Q1'07). Positioning near the interstate (i.e., location) does not seem to be enough to grow the business.

November SSS were very disappointing. They report 0.5% at the Restaurant and 3% at Retail. Estimates were 2% and 8%. And gas prices eased (which was the old excuse). Emphasis is now on the December 28th report. However, December 28th report is being delayed until Jan. 3, 2007. Will we have a present for the new year, or coal in the stocking?

If they can boost the SSS in xmax, the dutch auction will probably go to the top-end of its range.

Was the delay an accident? Didn't the managment know that xmax comes but once a year? The time of expiration of the dutch auction follows the christmas season, which is relatively strong time of the year for CBRL. And the BBK comes just 5 days after the SSS report.

How can this be an innocent delay? Am I just paranoid?

Will the delay in the report boost the SSS by giving us the xmax holiday eating habits (and buying habits) of travellers? How does this paint the SSS report? And what about all the new billboards that CBRL is putting up in December. How will this impact the SSS?

The PE Ratio is now 17. Dividend is 1.3%. If the stock EPS is $2.97 in FY07, the price should be $50. But EPS estimates have been historically hard to predict for this company. They are very SSS sensitive.

The BBK is up to 17% of its outstanding shares at a price between $42 and $46 apiece. The last was $43.89. The BBK top price is a bit low, right now.

Based on the above analysis, we might infer the delay was deliberate. A calculated means of painting the SSS. What is managment thinking? SSS have, historically impacted stock price.

Last November 24th, the SSS disappointment caused a drop in price from $45 to $42. EPS projections have been lowered, due to depressed SSS in November.

Interesting that the drop occured BEFORE the SSS announcement on November 28th. How does that work?

Some investors seem to know about such things before the announcement. This leaves the rest of us on an un-even playing field.

The 17 P/E is at the high-end for this stock, which ranges from 13x to 18x P/E

The question of when to execute remains open. What will happen on Jan 3, 07? Market reaction appears to lead the announcment by 3 or 4 days. Jan 3 is a Wednesday. The tender offer closes Jan 8th. If CBRL wants to buy back its stock cheaply, it will want to paint the SSS in a negative light. What are they thinking here? What should a short term trader do?

Look for a 0.40 cent movement December 29th (Friday) and Jan 1, Monday. The market has a history of anticipating the SSS announcment correctly. This will set the tone for the next 3 days (i.e., play the momentum). If the trade goes against you, the down-side is limited, as we can always tender the shares. The question of when to buy for the purpose of tendering remains open. Waiting until Thursday (Jan 4) might be sensible. The tender offers close on Jan 8th is the following Monday.

The odd-lot priority rules apply on this one. You can buy 99 shares and tender into the dutch auction.

Update: The SSS were up 3.3% in December. The dutch auction went swimingly and executed at the top-price of $46/share. With odd-lots, the entire 99 shares were taken. With larger lots we saw a proration of 80%

Analysis: If you bought 1000 shares at 45, and tendered at $45, you sold 800 at 46 and, within a week, sold 200 at over $45.