Shares of restaurant chain Cracker Barrel Old Country Store (CBRL 1.37%) dropped like a rock on Friday after the company provided a business update and slashed its dividend. As of noon ET today, Cracker Barrel stock was down a disheartening 13% and now trades at its lowest price in 12 years.
Bad news for dividend investors
On the surface, it would seem like business is fine for Cracker Barrel. After all, its trailing-12-month revenue of $3.4 billion is close to an all-time high. And its comparable-restaurant sales were modestly up in the second quarter of its fiscal 2024, it's most recent quarter. But the company's earnings per share (EPS) are currently lower than they were 10 years ago, which is a problem.
CBRL revenue (TTM) data by YCharts; TTM = trailing 12 months.
Cracker Barrel has long paid a quarterly dividend and has even paid several special dividends during the past decade. But with its deteriorating earnings in recent years, it's been paying out more in dividends than what it's been making -- an unsustainable situation.
The company today announced that it's going to invest money to fix its business. Consequently, it's cutting its dividend by 80% so it can afford everything. Investors didn't like that, and it's why shares are down.
Can Cracker Barrel turn it around?
I'm not sure the decision is necessarily surprising. I've personally expected a dividend reduction for some time. But investors still didn't like it now that it's here.
Management thinks it can fix Cracker Barrel's business. Capital expenditures are expected to rise through fiscal 2027. However, by fiscal 2027, it believes it can earn roughly $400 million in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). For perspective, it had less than $300 million in its fiscal 2023.
As of this writing, the company has an enterprise value (EV) of $1.7 billion, according to YCharts. If it can truly hit its goals, it trades at an EBITDA-to-EV ratio of just four, which is quite cheap and suggests upside potential for the stock in coming years.
However, Cracker Barrel will have its work cut out for it, so investors might want to see some progress before giving management the benefit of the doubt when it comes to fiscal 2027 targets.
