Cracker Barrel CBRL S
December 31, 2008 - 11:15pm EST by
max318
2008 2009
Price: 20.59 EPS
Shares Out. (in M): 0 P/E
Market Cap (in $M): 461 P/FCF
Net Debt (in $M): 0 EBIT 0 0
TEV ($): 0 TEV/EBIT
Borrow Cost: NA

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Description

Ticker                     L / S                        Date                                        Name                                      Sector

CBRL                    Short                      12/30/08                                              Cracker Barrel                    Restaurants

 

CBRL

Consensus

FY08

FY09

Stock Price

$20.59

Sales

2,373

2,442

Fully Diluted Shrs M

22

EBITDA

201

208

Mkt Cap

461

EPS

$2.63

$2.77

Debt

818

Price / Sales

0.19x

0.19x

Cash

11

EV / EBITDA

6.3x

6.1x

Net Debt

807

P / E

7.8x

7.4x

Enterprise Value

1,268

Trailing 12 Mth Financials

TTM EBITDA $M

206

TTM Capex $M

-86

TTM FCF $M (ex working cap)

37

Mkt Cap / TTM FCF (ex working cap)

12.5x

 

CBRL is a heavily debt leveraged restaurant / gift shop operator that appears cheap on P/E. Relative to other 4x Debt to EBITDA consumer discretionary stocks, CBRL’s market cap has held up decently this year, mostly on the belief that it sits on $1B of easily monitizable real estate. 2009 could be a year of reckoning for CBRL as it feels the full impact of consumer spending declines and comes up against covenants in its borrowing agreements it won’t be able to meet. Monitizing the “C” off-highway real estate in this environment will be much more difficult than the market is assuming.

CBRL operates 579 “Cracker Barrel” restaurants, 90% of which are highway exit locations targeted at traveling families. The average location is 12k sq feet and derives 20% of its sales from an in-store retail / souvenir “store in store”. The restaurants are a step above MCD / BK locations with an average per person spend in the $8-9 range and sit-down, waiter service. 

Fixed Charge Covenants at Risk:

·         Fixed charge ratio ratchets up after April 2009. (3.5x before Apr ’09, 3.75x for 4/09-/4/10, and 4x after that). This is based on trailing EBITDA / interest expense. Based on $55M in guidance for interest expense, TTM EBITDA in April ’09 would essentially have to be flat with what they did from a year ago.

·         For the 1st 3 quarters of this fiscal year, EBITDA is already –12% vs last year.

·         CBRL can try to sell some of its restaurant real estate by April (thereby increasing rent and lowering EBITDA in the process), but it is more likely that the banks will allow the covenant violation in exchange for more interest. This realization of CBRL’s badly levered position and weakness before the banks, however, should be a catalyst to start to compress CBRL’s market cap in line with other “levered zombie” companies.

 

Relevering Real Estate Again to Meet Debt Maturities:

·         CBRL owns 410 of its 580 locations. The street estimates this value as $2-3 M / location and assumes sale leasebacks could be done to satisfy CBRL’s bank lenders.

·         CBRL used its real estate to borrow heavily ($800M) and repurchase ~$1.2B of stock over the last 4 years. Most of the bank loans mature in 2013.

·         Assuming CBRL could get ~$2M per location (a price of ~ $162 per square foot), and then lease it back from the real estate buyer at an 8% yield ($13 per square foot annually in rent), CBRL would add roughly $64M in rent expense to their income statement.

·         CBRL’s trailing net income is less than $64M. There would be a tax benefit to such a transaction, but adding significant rent expense to their income statement now would significantly eat into CBRL’s $2.50 - $3.00 EPS level.

Insider Selling and Margin Downside

·         Balance sheet aside, from an operational perspective, CBRL has been suffering from margin declines for years (stalling traffic, price wars, and commodity costs). EBITDA margins fell from 10.2% to 8.4% in the last two years, despite management’s margin improvement efforts.

·         Management has indicated that ~2% comp declines below –3% SSS plans could lead to one percentage point of EBITDA loss, or roughly $20M in EBITDA. Given the high fixed costs now from its interest expense, CBRL’s margins are moving low enough so that if calendar 2009’s comp is –9% instead of –3%, EBITDA could be in the $170M range and EPS could be ~$1.25-1.50. At above $20 the stock would no longer appear cheap and would be much further away from its loan covenants.

·         CBRL hasn’t really updated its outlook since the consumer pullback began. Their last reported quarter only included through October. Management has shied away from quantifying an outlook. Traffic in restaurants fell from –5% YoY to –7% YoY from August to October.

·         Insiders sold close to $1M in stock in the last few months after not making significant sales for several quarters.

 

 

Catalyst

Quarterly updates, covenant miss in results reported after April 09
    sort by    

    Description

    Ticker                     L / S                        Date                                        Name                                      Sector

    CBRL                    Short                      12/30/08                                              Cracker Barrel                    Restaurants

     

    CBRL

    Consensus

    FY08

    FY09

    Stock Price

    $20.59

    Sales

    2,373

    2,442

    Fully Diluted Shrs M

    22

    EBITDA

    201

    208

    Mkt Cap

    461

    EPS

    $2.63

    $2.77

    Debt

    818

    Price / Sales

    0.19x

    0.19x

    Cash

    11

    EV / EBITDA

    6.3x

    6.1x

    Net Debt

    807

    P / E

    7.8x

    7.4x

    Enterprise Value

    1,268

    Trailing 12 Mth Financials

    TTM EBITDA $M

    206

    TTM Capex $M

    -86

    TTM FCF $M (ex working cap)

    37

    Mkt Cap / TTM FCF (ex working cap)

    12.5x

     

    CBRL is a heavily debt leveraged restaurant / gift shop operator that appears cheap on P/E. Relative to other 4x Debt to EBITDA consumer discretionary stocks, CBRL’s market cap has held up decently this year, mostly on the belief that it sits on $1B of easily monitizable real estate. 2009 could be a year of reckoning for CBRL as it feels the full impact of consumer spending declines and comes up against covenants in its borrowing agreements it won’t be able to meet. Monitizing the “C” off-highway real estate in this environment will be much more difficult than the market is assuming.

    CBRL operates 579 “Cracker Barrel” restaurants, 90% of which are highway exit locations targeted at traveling families. The average location is 12k sq feet and derives 20% of its sales from an in-store retail / souvenir “store in store”. The restaurants are a step above MCD / BK locations with an average per person spend in the $8-9 range and sit-down, waiter service. 

    Fixed Charge Covenants at Risk:

    ·         Fixed charge ratio ratchets up after April 2009. (3.5x before Apr ’09, 3.75x for 4/09-/4/10, and 4x after that). This is based on trailing EBITDA / interest expense. Based on $55M in guidance for interest expense, TTM EBITDA in April ’09 would essentially have to be flat with what they did from a year ago.

    ·         For the 1st 3 quarters of this fiscal year, EBITDA is already –12% vs last year.

    ·         CBRL can try to sell some of its restaurant real estate by April (thereby increasing rent and lowering EBITDA in the process), but it is more likely that the banks will allow the covenant violation in exchange for more interest. This realization of CBRL’s badly levered position and weakness before the banks, however, should be a catalyst to start to compress CBRL’s market cap in line with other “levered zombie” companies.

     

    Relevering Real Estate Again to Meet Debt Maturities:

    ·         CBRL owns 410 of its 580 locations. The street estimates this value as $2-3 M / location and assumes sale leasebacks could be done to satisfy CBRL’s bank lenders.

    ·         CBRL used its real estate to borrow heavily ($800M) and repurchase ~$1.2B of stock over the last 4 years. Most of the bank loans mature in 2013.

    ·         Assuming CBRL could get ~$2M per location (a price of ~ $162 per square foot), and then lease it back from the real estate buyer at an 8% yield ($13 per square foot annually in rent), CBRL would add roughly $64M in rent expense to their income statement.

    ·         CBRL’s trailing net income is less than $64M. There would be a tax benefit to such a transaction, but adding significant rent expense to their income statement now would significantly eat into CBRL’s $2.50 - $3.00 EPS level.

    Insider Selling and Margin Downside

    ·         Balance sheet aside, from an operational perspective, CBRL has been suffering from margin declines for years (stalling traffic, price wars, and commodity costs). EBITDA margins fell from 10.2% to 8.4% in the last two years, despite management’s margin improvement efforts.

    ·         Management has indicated that ~2% comp declines below –3% SSS plans could lead to one percentage point of EBITDA loss, or roughly $20M in EBITDA. Given the high fixed costs now from its interest expense, CBRL’s margins are moving low enough so that if calendar 2009’s comp is –9% instead of –3%, EBITDA could be in the $170M range and EPS could be ~$1.25-1.50. At above $20 the stock would no longer appear cheap and would be much further away from its loan covenants.

    ·         CBRL hasn’t really updated its outlook since the consumer pullback began. Their last reported quarter only included through October. Management has shied away from quantifying an outlook. Traffic in restaurants fell from –5% YoY to –7% YoY from August to October.

    ·         Insiders sold close to $1M in stock in the last few months after not making significant sales for several quarters.

     

     

    Catalyst

    Quarterly updates, covenant miss in results reported after April 09

    Messages


    SubjectNew Writeup
    Entry12/31/2008 11:15 PM
    Membermax318
    Description:

    Ticker                     L / S                        Date                                        Name                                      Sector

    CBRL                    Short                      12/30/08                                              Cracker Barrel                    Restaurants

     

    CBRL

    Consensus

    FY08

    FY09

    Stock Price

    $20.59

    Sales

    2,373

    2,442

    Fully Diluted Shrs M

    22

    EBITDA

    201

    208

    Mkt Cap

    461

    EPS

    $2.63


    SubjectCBRL Bank Bebt
    Entry01/01/2009 05:23 PM
    Memberbruno677
    Bank Debt trading at 60 cents on the dollar. Beyond me why this stock trades at 20.59. Think it is a great short and a great write up.

    Subjectsales leaseback
    Entry01/01/2009 10:31 PM
    Memberjim211
    I don't own this one way or the other, but I own something similar. When you say a sales leaseback would add $64 million of rent expense, wouldn't it also cut interest expense roughly the same amount? The cash from the sale leaseback would pay down debt, right? I'm not saying one way or the other whether such a deal could be executed in this environment, just making sure I understand what you are saying.

    SubjectRE: sales leaseback
    Entry01/02/2009 04:56 PM
    Memberperspicar744
    Thanks for this idea Max.

    Without the Real Estate how much would they save on Depreciation and real estate taxes? I'm unclear on the current carrying value of the RE in the suggested sale/leaseback.

    Could you give the calculation of how you arrived at $64m of rent expense?

    I'd like to clarify the swap between 64m of rent and the interest exp, depreciation, & RE tax savings. Thx!

    Subjectany thoughts
    Entry04/07/2009 09:51 AM
    Memberrookie964

    on CBRL's recent outperformance?

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