Cracker Barrel Faces No-Win Stock Problem After Logo Capitulation
Cracker Barrel shares are struggling, but does the stock’s selloff create an opportunity?
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It seems that management at Cracker Barrel Old Country Store CBRL upset some of its customers by changing the logo of the Southern-themed restaurant chain. Since a controversy about that change began last week, the stock suffered mild losses, falling by 3.5%.
Emotional Reactions Tend to Fade
This type of emotional reaction can cause a stock to hit an air pocket, but the effects are usually temporary. For example, shares of United Airlines UAL fell sharply in 2017, after a video of an innocent paying customer being dragged down the aisle went viral.
Some consumers swore they’d never fly United again. I’m sure they forgot that oath as soon as they became inconvenienced.
In April 2023, shares of Anheuser-Busch Inbev BUD dropped from the mid-$60s to the low $50s, as an advertising campaign rankled some patrons. As of Tuesday, the stock trades at $62.
That return may not seem impressive, but since the Bud Light fiasco began, BUD is outperforming competitors Molson Coors TAP, Sam Adams SAM and Constellation Brands STZ.
Shareholders of all three competitors have suffered outsized losses, perhaps due to a drop in overall alcohol consumption. According to a recent Gallup poll, only 54% of U.S. adults consume alcohol, a record low.
A Stock Picker, Not a Picky Eater
I have no experience with Cracker Barrel, other than a few meals while traveling down South. It was fine, but then again, I’m not picky. I also enjoyed breakfast at Waffle House, probably due to the novelty factor.
Do I believe the current Cracker Barrel controversy will weigh on the stock? Perhaps for a short time, and then it’ll be forgotten. In short, no.
In fact, Cracker Barrel has already made an about face, switching back to their previous logo after the controversy.
Does that create a buying opportunity for shares of Cracker Barrel? Also no.
Why? This is just not a good stock.
Consider Cracker Barrel’s returns for the past six years. In each of those years, shareholders lost money:
2019: -3.83%
2020: -14.19%
2021: -2.49%
2022: -26.35%
2023: -18.64%
2024: -31.42%
A No-Win Situation
Taking the above into consideration, you can understand why Cracker Barrel management felt some changes may be in order. But if customers perceive the wrong changes are being made, people get upset. It’s a no-win situation.
To make matters worse, Cracker Barrel’s chart has formed a bearish pattern. That head and shoulders formation (L-H-R) began forming in May, long before the current controversy erupted. The pattern suggests Cracker Barrel shares could fall into the mid-$40 range.
Bottom Line
Cracker Barrel may be an OK place to eat, but there’s no way I’d own shares of this stock. The restaurant business is tough enough as it is, and consumers are still dealing with the worst bout of inflation in over 40 years. Add in the current controversy, it’s hard to see any upside for Cracker Barrel.
At the time of publication, Ponsi had no positions in any securities mentioned.
