Cracker Barrel reported its earnings earlier this week and, if you simply looked at the numbers, you’d think the company was in trouble. Same-store sales declined 2.6%, as my colleague Joe Guszkowski reported. Traffic declined 6.7%.
Yet the company’s stock soared more than 30%.
As is the case most of the time on Wall Street, the difference between a company’s apparent results and the reaction by investors is all about expectations. The results were better than expected—or feared, in this case—and then the highwayside family-dining chain raised expectations for revenue this year.
As a reminder, Cracker Barrel’s sales are down because of a social media backlash over the company’s logo change, which hammered sales and traffic to the chain’s restaurants.
And it’s not as if the company is out of the woods yet. Cracker Barrel’s performance on a two-year basis was an improvement from the previous period, but not by much. Same-store sales last quarter on a two-year stack declined 1.6%, compared with a 2.4% decline the previous period.
Comparisons in the current period are tougher, but executives on the company’s fiscal third-quarter earnings call noted that traffic trends are improving.
The company’s stock, meanwhile, remains a work in progress, even with the post-earnings spike. It remains down more than 19% over the past year and 37% from the company’s 52-week high.
Still, Cracker Barrel did this in the face of a substantial headwind in the form of gas prices.
The company’s quarter included April, when gas prices spiked. Those prices remain high, and the company said that trends are improving. Few chains are as affected by fuel prices as much as Cracker Barrel, given its focus on traveling consumers. That the company is upping its guidance in the middle of that kind of headwind speaks volumes.
And it shows that whatever wound that the company had when its logo controversy erupted last year was far more superficial than it appeared at the time.
The Cracker Barrel logo controversy was one of the most nonsensical material events we’ve seen hit a restaurant chain in our time covering the business.
The controversy was driven by people with a clear agenda. That includes a group that had been targeting the company over its policies on diversity, equity and inclusion. It also included the activist Sardar Biglari, who had been a thorn in the company’s side for 15 years. It was inflamed by bots, the Steak n Shake X feed and people sympathetic to any of them or who are just unthinking.
Maybe some people at Cracker Barrel made a mistake with the logo and the redesign, but we’ve seen many executives make far worse mistakes that have far worse consequences and still get promotions and eight-figure paydays. Predicting how social media will react is almost impossible, even for the most experienced of marketers.
Cracker Barrel deserves credit, however, for walking back the logo and keeping a management team, led by CEO Julie Masino, in place despite another proxy fight and an enormous amount of pressure. And let’s not forget, that team was leading a brand that, before the logo controversy, had easily outpaced the family-dining sector despite a difficult economy.
Indeed, one of the reasons for any current skepticism about its projections is because Cracker Barrel must now compare its results to one of the best quarters the chain had in years.
So, while Cracker Barrel did lose some customers, mostly new ones, the company focused on value, improved the quality of its food, and marketed to loyalty customers to keep them around. And the results appear to be working.
“We are pleased with the progress that we’ve been making, most intentionally around holding on to our core guests,” Masino told analysts, according to a transcript on the financial services site AlphaSense.