Biglari Capital Corp. Issues Letter To Shareholders Of Cracker Barrel Old Country Store, Inc.

Rhea-AI Summary

On November 5, 2021, Biglari Capital Corp. issued a shareholder letter addressing significant concerns about Cracker Barrel's performance and governance. With an 8.7% ownership of Cracker Barrel, Biglari criticized the company for poor capital allocation and failure to execute its 2017 plan. Notably, a $137 million loss from an investment in Punch Bowl Social highlighted management's missteps. Biglari emphasized the need for strategic focus on Cracker Barrel's core brand and called for transparency and accountability from the Board, especially after unearned bonuses were approved amidst declining performance during the pandemic.

Positive

• Biglari Capital holds 8.7% of Cracker Barrel's shares, indicating strong investment interest.
• The recent appointment of Darryl Wade to the Board brings relevant industry experience, potentially benefiting the company.

Negative

• Management lost $137 million on a failed investment in Punch Bowl Social, reflecting poor capital allocation.
• Cracker Barrel's total shareholder return significantly underperformed compared to peers and the S&P MidCap 400 across one, three, and five-year periods.
• Approximately 64% of shareholders voted against the Company's Advisory Vote on Executive Compensation, indicating dissatisfaction with management's performance.

SAN ANTONIO, Nov. 5, 2021 /PRNewswire/ -- Biglari Capital Corp. today issued the following letter to shareholders of Cracker Barrel Old Country Store, Inc. (NASDAQ: CBRL). See below for the shareholder letter in its original form.

Dear Fellow Cracker Barrel Shareholders:

We are one of the largest and longest-standing shareholders of Cracker Barrel Old Country Store, Inc. (the "Company"), with an ownership of 2,055,141 shares, representing approximately 8.7% of the Company's outstanding shares.

Last year we raised concerns about the Company's poor capital allocation and its failure to execute the three-year plan it announced in 2017. We also identified a gap on the Board — namely, a member with relevant industry expertise. Although the recent appointment of Darryl Wade to the Board may be a step in the right direction, more change is necessary to reverse the trend of the Company's underperformance.

In our judgment, management and the Board must focus their efforts on the core brand rather than on the distraction of extraneous activities that have proved to be value destructive. For instance, within eight months of finalizing an investment in Punch Bowl Social, a bar concept, management lost a staggering $137 million of shareholder money, representing an investment loss of 100%. Shareholders deserve greater transparency.

Our assertions are supported by the Company's poor stock performance, which is a direct reflection of its poor corporate performance. Total shareholder return is significantly lower than that of the casual dining peer set, as cited by the Company in its 2020 investor presentation, as well as the S&P MidCap 400 Index over one-year, three-year, and five-year periods. Additionally, the Company's share performance has lagged behind both the peer median and the S&P MidCap 400 Index since the onset of Covid-19 and since the 2020 shareholder meeting held on November 19, 2020.

		Total Shareholder Return
		1-year		3-year		5-year		Since Covid Impact (2/20/20)		Since 2020 Shareholder Meeting
Peer Median		61.4%		(0.9%)		36.8%		(0.6%)		30.6%
S&P MidCap 400		52.0%		60.5%		108.5%		38.7%		34.3%
Cracker Barrel		22.5%		(7.9%)		22.3%		(15.4%)		0.3%
Better/(Worse) than Peer Median		(38.9%)		(7.0%)		(14.5%)		(14.8%)		(30.3%)
Better/(Worse) than S&P Midcap 400		(29.5%)		(68.4%)		(86.2%)		(54.1%)		(34.0%)
* Peer group includes: BJ's Restaurants, Bloomin' Brands, Brinker International, Darden Restaurants, Dave & Buster's, Denny's, Dine Brands, Texas   Roadhouse, and The Cheesecake Factory
Source: Factset data as of 11/01/2021

The Company's poor share performance, in our opinion, signifies investors' waning confidence in leadership's ability to effectively address the ongoing industry challenges. Undoubtedly, the Company's performance trails that of its peers. This substandard outcome has occurred despite the Company's superior capital structure. All casual dining chains face similar challenges, but the Board and management have failed to address them, as evidenced by the Company's relative underperformance with respect to its peers.  

We remain concerned about the Board's steadfast support for the executive team and its apparent inability or unwillingness to hold management accountable for the Company's underperformance. Last year, despite the Company's precipitous decline in business due to the Covid-19 pandemic, the Board not only approved unearned performance bonuses to executives but also removed the performance criteria by which executive equity grants for the year are assessed. Furthermore, a majority of shareholders (approximately 64% of votes cast) voted against the Company's Advisory Vote on Executive Compensation Proposal. In the context of an unprecedented Covid environment, we question the Board's judgment in granting performance bonuses and removing performance criteria for management, at the expense of shareholders.

Cracker Barrel is an iconic brand with great potential. In our view, CEO Sandy Cochran and the current Board must focus their efforts on realizing the Company's full potential instead of pursuing projects that add little incremental value. Furthermore, the Board should consider a more aggressive dividend payout policy. There is significant opportunity for the Company to raise its dividend and issue a one-time special dividend. Ideally, the Company would target a near 100 percent dividend payout ratio: a higher regular dividend and a special dividend that would be adjusted based on earnings for the fiscal year. By way of background, the Company had paid dividends in each of fiscal 2015, 2016, and 2017, at levels approaching its earnings for those years. We were an influential force behind such payouts in the past.

We believe the greatest value lies in making existing Cracker Barrel units more productive rather than expanding into new territory or making acquisitions. As one of the largest shareholders of Cracker Barrel, we look forward to maintaining an ongoing dialogue with management and the Board. We firmly believe, however, that as a direct result of the limited relevant industry experience on the Board, management will likely continue on with a strategy that has failed to create shareholder value.

Sincerely,
/s/ Sardar Biglari 
Sardar Biglari

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SOURCE Biglari Capital Corp.

FAQ

What are the concerns raised by Biglari Capital regarding Cracker Barrel on November 5, 2021?

Biglari Capital criticized Cracker Barrel for poor capital allocation, including a $137 million loss on an investment, lack of accountability from management, and underperformance relative to peers.

How did Cracker Barrel's shareholder return compare to its peers?

Cracker Barrel's total shareholder return was significantly lower than its peers and the S&P MidCap 400 over one, three, and five-year periods.

What actions does Biglari Capital suggest for Cracker Barrel's Board and management?

Biglari Capital calls for increased focus on Cracker Barrel's core brand, transparency, and possibly a more aggressive dividend payout policy.

What percentage of shareholders voted against Cracker Barrel's executive compensation proposal?

Approximately 64% of votes cast by shareholders opposed the Company's Advisory Vote on Executive Compensation.