Cracker Barrel's Capital Allocation: A Recipe for Disaster?

Ladies and gentlemen, let me tell you something: Cracker Barrel Old Country Store (NASDAQ:CBRL) is in trouble. The company's recent capital allocation trends are a red flag, and if you're invested in this stock, you need to pay attention. Let's dive into the numbers and see why this could be a disaster waiting to happen.

First things first, let's talk about Return on Capital Employed (ROCE). This metric measures how efficiently a company is using its capital to generate profits. Cracker Barrel's ROCE has been on a downward spiral. Five years ago, it was a respectable 17%, but now it's down to a measly 4.1%. That's right, folks, 4.1%! This is a clear sign that the company is struggling to generate returns from its investments.



But it doesn't stop there. Cracker Barrel's capital employed has remained roughly the same over the past five years. This means the company is using the same amount of capital but generating fewer returns. It's like trying to bake a cake with the same ingredients but ending up with a burnt mess. Not good, folks, not good at all.

Now, let's talk about the company's strategic transformation plan. Cracker Barrel is trying to drive relevancy, deliver food and an experience guests love, and grow profitability. Sounds great, right? But here's the catch: they're doing it by reducing their quarterly dividend to $0.25 per share. This is a clear sign that the company is prioritizing short-term growth over long-term shareholder value.

And what about the long-term outlook? Cracker Barrel expects fiscal 2027 sales of approximately $3.8 billion to $3.9 billion and adjusted EBITDA of approximately $375 million to $425 million. But here's the thing: they anticipate adjusted EBITDA in fiscal 2025 will be relatively in line with, or slightly lower than, fiscal 2024 results. That's right, folks, they're expecting to tread water for the next two years before things start to improve.

So, what does all this mean for you, the investor? It means you need to be cautious. Cracker Barrel's capital allocation trends are a recipe for disaster, and if you're invested in this stock, you need to consider your options. Do you want to ride out the storm and hope for the best, or do you want to cut your losses and move on to greener pastures?

The choice is yours, but remember: the market hates uncertainty, and Cracker Barrel is full of it. So, stay alert, stay informed, and most importantly, stay away from this stock until things start to turn around. BOO-YAH!