If I ever spend one of my birthday’s in a Cracker Barrel, things have gone drastically wrong…Anyway, I am looking to purchase some cracker barrel puts this week.
The position is a little risky because earnings are coming up next week, and other chains, namely PF Changs, Buffalo Wild Wings, and Chipolte all recently reported better than expected earnings. So, I plan on buying half a position before earnings and likely another half after earnings, depending on their results.
I am going to purchase puts mostly because I think the technicals indicate the stock is ready to roll over and head back to 16 if not lower. Cracker Barrel is similar to PF Changs, Buffalo Wild Wings and Chipolte in that they all are enjoying the benefits of a drop in gas prices and a decrease in raw costs. All of the chains are also dedicated to tightening their expenses, hiring more efficiently, and creating a better customer experience. However, there are some major differences between Cracker Barrel and the others.
First, Cracker Barrel has exposure to retail. I can’t imagine this “elegant rooster” as its depicted on their website being a hot seller…
Also, unlike the other 3 restaurants, Cracker Barrell is currently paying a dividend, and I am sure they are analyzing whether cutting it would help increase their cash flow. If by chance they did decide to cut or decrease their dividend, their stock would definitely take a tumble.
Finally, they have some issues with outstanding loans coming due that they will have to address during their coming earnings report which I think is a cause for concern.
Although buying before earnings can be risky, I think the risk is limited. In my opinion, even with fantastic earnings, CBRL will have a difficult time getting above 22. I am currently looking at June puts and will keep you posted when I purchase.
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