NEW DIRECTIONAL CALL PLAYS
Cracker Barrel Old Country Store - CBRL - cls: 133.42 chg: +1.99
Stop Loss: 129.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 248 thousand
Entry on January -- at $---.--
Listed on January 22, 2015
Time Frame: Exit prior to earnings in late February
New Positions: Yes, see below
Why We Like It:
The falling price of gasoline in the U.S. is a significant tailwind for the restaurant industry. AAA said the price of gas has fallen 119 days in a row with the national average down to $2.04 a gallon. Looking in the rearview mirror we can see how it affected the restaurant industry.
According to TDn2K's Black Box Intelligence data restaurants saw their same-store sales grow +3.1% in December, the fastest pace in three years. The fourth quarter of 2014 delivered the fastest same-store sales growth in the last six years. Another industry analyst believes that having more money in their pocket from low gas prices means that consumers are willing to trade up from fast-food to more traditional dining options.
One firm that should benefit is CBRL. According to the company, "Cracker Barrel Old Country Store, Inc. provides a friendly home-away-from home in its old country stores and restaurants. Guests are cared for like family while relaxing and enjoying real home-style food and shopping thatâ€™s surprisingly unique, genuinely fun and reminiscent of America's country heritage â€¦ all at a fair price. Cracker Barrel Old Country Store, Inc. (CBRL) was established in 1969 in Lebanon, Tennessee and operates 634 company-owned locations in 42 states." Another detail that makes CBRL unique is that 85% of the company's locations are at Interstate highway exits (likely near a gas station).
Earnings last year were decent. The company has developed a trend of beating Wall Street's estimates and then guiding lower. Management has either been super cautious on guidance or they're trying to manage expectations. Their most recent earnings report was November 25th. CBRL earnings were up +16% to $1.42 a share. That beat estimates of $1.29. Revenues came in at $683 million, above the $665 million estimate.
CBRL said their same-store sales surged +3.3%, which was above the industry average.
Once again CBRL management lowered their immediate quarter guidance but this time they did raise guidance for FY2015.
Looking ahead the restaurant industry should see easy comparisons to January and February last year since much of the country was blanketed by winter storms. On the other hand several states raised their minimum wage, which began on January 1st this year so that has the potential to impact restaurant industry margins.
Technically shares of CBRL have just performed a 38.2% Fibonacci retracement from their recent high. This bounce might be an entry point. However, I want to see CBRL break through some short-term resistance. Tonight I'm suggesting a trigger to buy calls at $135.15. We will plan on exiting prior to the company's earnings report in late February.
Trigger @ $135.15
- Suggested Positions -
Buy the MAR $140 CALL (CBRL150320C140) current ask $2.45
Option Format: symbol-year-month-day-call-strike