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Group

Project - BUSN 370


Group Members: Daniel Prawira, Yosselin Gonzalez


Cracker Barrel Old Country Store, Inc. (CBRL) versus
Dennys Corporation and Subsidiaries (DENN)

Part One: Ratio Analysis

a.Trend Analysis
Cracker Barrel Old Country Store, Inc. (CBRL)
1. For the past 4 years, Cracker Barrell experienced a signi icant growth in their ROE (return on equity).
From (24% in 2013 to 36% in 2016). Return on equity shows how many dollar a company generates with
each dollar of shareholders equity. Cracker Barrell is proving that they are good stewards of the investors
money by constantly improving their ROE.
2. Times Interest Earned (TIE) also known as interest coverage is a sign of good inancial stability. Cracker
Barrell has increased in TIE over the years from (5.64-19.96) which means that they are generating cash 20
times more than their interest obligations.
3. Cracker Barrell Asset Turnover ratio has been stagnating for the 4 years operating between 1.80-1.90.
Same goes for their ixed asset turnover which is also stagnating at (2.6-2.7). With better management, the
company has potential if they utilize their assets more ef iciently and achieve a higher asset and ixed asset
turnover ratio which means, an improvement in their use of assets to generate more sales.
4. From 5.67% in 2013 to 9.63% in 2016, the Operating Margin for Cracker Barrell has gradually increased
signaling a constant growth in their operating ef iciency. This generally shows that after all the expenses they
put out, they still have almost 9.63% of their revenue which is higher than the industry average of 9.20%.
5. There is an increase in deferred revenues each year, this is a negative sign for Cracker Barrell. They are
losing money on their sales. this might be caused by doubtful accounts, but it can also be a case of
ineffectiveness in their operation.

Dennys Corporation and Subsidiaries (DENN)


1. In 2015, the current ratio of Dennys took a serious drop. From 0.7 to 0.36 a 50% downgrade of their
current ratio. The companys ability to pay their debt is now in question (below 1 means that assets are less
than liabilities), and they are not in good inancial health. The company will want to rebound and bring the
current ratio back up.
2. From 2013-2015, the debt-to-total capital of Dennys has increased and it took a big jump from 2014 to
2015. The company is highly leveraged using debts that started at 95% and at 2015 it is 145%. The above
100% debt-to-total capital states that the company is almost or fully inanced by debts. This is a high-risk
company where they are greatly leveraged by debts.
3. Dennys has a declining ixed asset turnover (4.56-3.54). The company can be said in over investing on
their property, plant, equipment, or other ixed assets, and are not using their ixed assets ef iciently to
produce sales.
4. The upside is that Dennys has an increasing trend of Return on Invested Capital (from 22% in 2012 to
31% in 2015). The business is pro itable in using capital that they earned. The company is good at turning
capital into pro it, the cash they get from the issuance of stocks and bonds are use ef iciently.
5. Dennys has a constant increase in their asset turnover, which indicates a smart usage of their assets in
generating revenue. Compared to their weak use of ixed assets, Dennys has a good trend of using their assets
(from 1.50 in 2012 -1.65 in 2015).

b.Comparing Ratio Averages

Liquidity Ratios
(4 Year average)

Ratio Cracker Barrel Dennys


Current Ratio 0.98 0.62

Quick Ratio 0.55 0.59

Debt-to-Total Capital 43.83% 110.36%

Time Interest Earned 12.19 5.47

Cracker Barrel has a stronger liquidity pro ile than Dennys when looking at all 4 measures of liquidity. They
have more cash and less debt. Cracker Barrel is able to pay off their interest expense 12 time over in a year,
while Dennys is only able to pay their interest expense 5 times over in a year.

Asset Management Ratios


(4 Year Average)

Ratio Cracker Barrel Dennys

Inventory Turnover 17.99 161.79

Days Sales Outstanding 3.12 13.71

Fixed Asset Turnover 2.64 4.30

Asset Turnover 1.88 1.59


Dennys has a much higher receivables and ixed asset turnover. Cracker Barrel however has a higher asset
turnover, which means they are being more ef icient with their assets (every $1 of assets is generating $1.88
of revenue, versus Dennys which is only generating $1.59 of revenue per $1 of assets).

Profitability Ratios
(4 Year Average)

Ratio Cracker Barrel Dennys

Op. Pro it Margin 8.28% 11.70%

Net Pro it Margin 5.12% 5.52%

Return on Assets (ROA) 10.18% 8.80%

Return on Equity (ROE) 28.91% 453.91%

Pro it Margin 5.41% 5.52%

Asset Turnover 1.88 1.59

Equity Multiplier 2.84 35.11

Return on Invested Capital (ROIC) 18.07% 25.08%

While Cracker Barrel has a stronger asset turnover, Dennys is able to generate a higher net pro it margin and
return on equity. Dennys is managing their expenses in a way that make them more pro itable than Cracker
Barrel and are using their high leverage to earn more Return on Equity (ROE). However, Cracker Barrel has a
much higher Return on Assets (ROA) and return on Invested Capital (ROIC)because the are much more
ef icient with their assets (see asset management section). Overall Dennys is being more pro itable as a
business since they have a higher operating and net pro it margin and ROE.

Pricing Ratios
(4 Years Average)

Ratio Cracker Barrel Dennys

Price to Earnings per Share (PE) 20,113.53 27.32

Price to Book Value per Share 5,840.35 134.67


(PB)

Cracker Barrel is valued much higher than Dennys on both measures of valuation. Investors are rewarding
Cracker Barrel with a premium stock price relative to Dennys given their stronger pro itability pro ile (see
pro itability section).
Part Two: Valuation

a.Stock Price Estimate

Restaurant Industry P/E Ratio


(Top 10 Companies by Market Value)

Company Ticker P/E Ratio*

McDonalds MCD 23.56

Yum! Brands YUM 25.48

Restaurant Brand Intl QSR 37.23

Chipotle CMG 516.51**

Yum China Holdings YUMC 19.88

Darden Restaurant DRI 22.35

Dominos Pizza DPZ 42.68

Dunkin Brands Brand Group DNKN 27.35

Cracker Barrel CBRL 18.78

Wendys WEN 27.4

Top 10 Industry Average 27.19

*As of 03/22/17
**Not Included in average

Cracker Barrel Dennys

Latest Earning Per Share 8.35 .25

Industry P/E 27.19 27.19

Stock Price Estimate 227.04 6.8

Latest Stock Price (03/22/17) 156.88 12.04

% difference 30.9% -77%


b.Valuation Analysis

According to our analysis Cracker Barrel is trading below where they should be while Dennys is trading
above. Cracker Barrel stock prices are below than where the industry is valued, on average. Dennys stock
prices are higher than where the Industry is valued, on average. Cracker Barrel has a better inancial standing
in general.

Dennys appears to be overvalued. It is currently trading at a stock price almost twice the amount of the
estimated stock price. So, we would rather own Cracker Barrel over Dennys because it is undervalued,
therefore we have the opportunity of growth when the stock goes up.
Part Three: Conclusion

Strengths of Owning Cracker Barrell instead of Dennys


1. Cracker Barrell has a strong inancial stability (40% debt to total capital) compared to Dennys which is
highly leveraged on debts.
2. Cracker Barrell is able to pay off its interest obligations 3 times better than Dennys (signi icantly higher
TIE).
3. Cracker Barrell is a good steward of investors money. The ROE of Cracker Barrell is constantly improving
while the ROE of Dennys is in dismay.

Strengths of Owning Dennys instead of Cracker Barrel


1. Dennys is smart in their use of invested capital, and can turn capital into pro it easily. Compared to
Cracker Barrell, Dennys has a higher ROIC (25%:18%)

2. Dennys has a higher operating pro it margin. Which means that after all the expenses, they keep more
percentage of their revenue compared to Cracker Barrell.

3. Dennys has a higher ixed asset turnover compared to Cracker Barrell, they are using their property,
plant, equipment, or other ixed assets to better use in their revenue productions.


Part Four: Financial Statements

See Appendix.



Appendix

CRACKER BARREL OLD COUNTRY STORE, INC.


CONSOLIDATED BALANCE SHEETS

(In thousands except share data)

July 29, July 31,


ASSETS
2016 2015

Current Assets:

Cash and cash equivalents 150,96 265,45


$ 6 $ 5

Accounts receivable 19,389 18,050

Income taxes receivable 16,184 --

Inventories 152,30 153,05


8 8

Prepaid expenses and other current assets 14,573 14,167


Deferred income taxes 2,320 6,094

Total current assets 355,74 456,82


0 4

Property and Equipment:

Land 303,41 303,26


6 7

Buildings and improvements 814,17 788,64


6 1

Buildings under capital leases 3,289 3,289

Restaurant and other equipment 572,55 541,40


1 9

Leasehold improvements 306,48 286,99


9 0

Construction in progress 11,924 7,464

Total 2,011, 1,931,


845 060

Less: Accumulated depreciation and amortization of capital leases 931,65 878,42


6 4

Property and equipment net 1,080, 1,052,


189 636

Other assets 61,735 66,748

Total 1,497, 1,576,


$ 664 $ 208

LIABILITIES AND SHAREHOLDERS EQUITY

Current Liabilities:

Accounts payable 132,49 133,11


$ 3 $ 7

Taxes withheld and accrued 37,561 39,061

Accrued employee compensation 61,187 67,421

Accrued employee benefits 27,928 27,717


Deferred revenues 64,028 58,980

Dividend payable 29,706 98,796

Current interest rate swap liability 180 1,117

Other current liabilities 15,734 19,402

Total current liabilities 368,81 445,61


7 1

Long-term debt 400,00 400,00


0 0

Long-term interest rate swap liability 22,070 8,704

Other long-term obligations 126,60 133,59


8 4

Deferred income taxes 53,726 50,031

Commitments and Contingencies (Notes 9 and 15)

Shareholders Equity:

Preferred stock 100,000,000 shares of $.01 par value authorized;


300,000 shares designated as Series A Junior Participating
Preferred Stock; no shares issued -- --

Common stock 400,000,000 shares of $.01 par value authorized;


2016 23,956,134 shares issued and outstanding; 2015
23,975,755 shares issued and outstanding 240 240

Additional paid-in capital 51,462 56,066

Accumulated other comprehensive loss (13,74


0 ) (3,725 )

Retained earnings 488,48 485,68


1 7

Total shareholders equity 526,44 538,26


3 8

Total 1,497, 1,576,


$ 664 $ 208
CRACKER BARREL OLD COUNTRY STORE, INC.
CONSOLIDATED STATEMENTS OF INCOME

(In thousands except share data)


Fiscal years ended

July 29, July 31, August 1,


2016 2015 2014

Total revenue 2,912, 2,842, 2,683,


$ 351 $ 284 $ 677

Cost of goods sold (exclusive of depreciation and rent) 928,1 924,1 872,7
76 71 58

Labor and other related expenses 1,006, 992,3 966,5


188 82 93

Other store operating expenses 554,5 523,3 506,5


34 07 33

Store operating income 423,4 402,4 337,7


53 24 93

General and administrative expenses 142,9 147,5 129,3


82 44 87

Operating income 280,4 254,8 208,4


71 80 06

Interest expense 14,05 16,67 17,55


2 9 7

Income before income taxes 266,4 238,2 190,8


19 01 49

Provision for income taxes 77,12 74,29 58,72


0 8 1

Net income 189,2 163,9 132,1


$ 99 $ 03 $ 28

Net income per share - basic $ 7.91 $ 6.85 $ 5.55


Net income per share - diluted $ 7.86 $ 6.82 $ 5.51

Basic weighted average shares outstanding 23,94 23,91 23,81


5,041 8,368 7,768

Diluted weighted average shares outstanding 24,07 24,04 23,96


4,273 8,924 6,015

Dennys Corporation and Subsidiaries


Consolidated Balance Sheets

December 28, 2016 December 30, 2015


(In thousands)
Assets
Current assets:

Cash and cash equivalents $ 2,592 $ 1,671

Receivables, net 19,841 16,552

Inventories 3,046 3,117

Assets held for sale 1,020 931

Prepaid and other current assets 9,408 14,143


Total current assets 35,907 36,414

Property, net 133,102 124,816

Goodwill 35,233 33,454

Intangible assets, net 54,493 46,074

Deferred financing costs, net 1,936 2,529

Deferred income taxes 17,683 29,159

Other noncurrent assets 27,797 24,591

Total assets $ 306,151 $ 297,037

Liabilities
Current liabilities:

Current maturities of capital lease obligations 3,285 3,246

Accounts payable 25,289 20,759

Other current liabilities 64,796 77,548

Total current liabilities 93,370 101,553


Long-term liabilities:

Long-term debt, less current maturities 218,500 195,000

Capital lease obligations, less current maturities 23,806 17,499

Liability for insurance claims, less current portion 14,853 15,949

Other noncurrent liabilities 26,734 27,631

Total long-term liabilities 283,893 256,079

Total liabilities 377,263 357,632

Commitments and contingencies

Shareholders' equity (deficit)


Common stock $0.01 par value; shares authorized - 135,000;
December 28, 2016: 107,115 shares issued and 71,358 shares
outstanding; December 30, 2015: 106,521 shares issued and 76,862
shares outstanding 1,071 1,065
Paid-in capital 577,951 565,364
Deficit (382,843 ) (402,245 )
Accumulated other comprehensive loss, net of tax (1,407 ) (23,777 )

Shareholders equity before treasury stock 194,772 140,407


Treasury stock, at cost, 35,757 and 29,659 shares, respectively (265,884 ) (201,002 )
Total shareholders' deficit (71,112 ) (60,595 )

Total liabilities and shareholders' deficit $ 306,151 $ 297,037


See accompanying notes to consolidated financial statements.

F-3

Dennys Corporation and Subsidiaries


Consolidated Statements of Income

Fiscal Year Ended


December 28, December 30, December 31,
2016 2015 2014
(In thousands, except per share amounts)
Revenue:

Company restaurant sales $ 367,310 $ 353,073 $ 334,684

Franchise and license revenue 139,638 138,220 137,611

Total operating revenue 506,948 491,293 472,295


Costs of company restaurant sales:

Product costs 90,487 89,660 86,825

Payroll and benefits 142,823 136,626 133,280

Occupancy 19,557 20,443 20,845

Other operating expenses 49,229 47,628 47,858

Total costs of company restaurant sales 302,096 294,357 288,808


Costs of franchise and license revenue 40,805 43,345 44,761

General and administrative expenses 67,960 66,602 58,907

Depreciation and amortization 22,178 21,472 21,218

Operating (gains), losses and other charges, net 26,910 2,366 1,270

Total operating costs and expenses, net 459,949 428,142 414,964

Operating income 46,999 63,151 57,331

Interest expense, net 12,232 9,283 9,182

Other nonoperating (income) expense, net (1,109 ) 139 (612 )

Net income before income taxes 35,876 53,729 48,761

Provision for income taxes 16,474 17,753 16,036

Net income $ 19,402 $ 35,976 $ 32,725

Basic net income per share $ 0.26 $ 0.44 $ 0.38

Diluted net income per share $ 0.25 $ 0.42 $ 0.37

Basic weighted average shares outstanding 75,325 82,627 86,323

Diluted weighted average shares outstanding 77,206 84,729 88,355