Will Cracker Barrel's Tariff Mitigation Plan Protect Margins Ahead?

Tariffs have emerged as a fresh overhang for Cracker Barrel Old Country Store, Inc. CBRL, threatening to weigh on margins just as the company executes its broader transformation plan. In its third-quarter fiscal 2025 earnings call, management disclosed that approximately one-third of retail products are sourced directly from Chinese vendors, a significant exposure as new tariff rules loom. Additionally, Cracker Barrel faces indirect exposure through domestic suppliers also reliant on Chinese manufacturing, making the impacts widespread.

Management estimates that tariffs will pose a $5 million headwind to the fiscal fourth quarter adjusted EBITDA. While not insurmountable, this new pressure comes at a time when Cracker Barrel attempts to rebuild retail momentum following a 3.8% decline in comparable store retail sales in the third quarter of fiscal 2025. The consequence may lead to tighter retail margins, constrained promotional flexibility, or limited innovation in retail product development.

To counteract the tariff drag, Cracker Barrel initiated a three-pronged mitigation strategy, including aggressive vendor negotiations, alternative sourcing from non-China regions and selective price increases. Simultaneously, the company is accelerating an update to its retail strategy, which includes SKU rationalization, fewer seasonal themes and a more focused promotional calendar, to mitigate the impact of tariffs.

While these countermeasures may reduce exposure in the long term, the near-term impact remains fluid. With consumer sentiment already fragile, any additional disruption to pricing or product availability could place further stress on the discretionary retail side of Cracker Barrel’s dual business model.

Tariff Challenges Impacting Other Restaurant Stocks

Sweetgreen, Inc. SG and Starbucks Corporation SBUX are also navigating the tariff landscape with tailored mitigation strategies, underscoring the industry-wide ripple effect of U.S.-China trade tensions.

At Sweetgreen, management noted a 75-basis point tariff-related headwind in second-quarter 2025, primarily stemming from packaging materials sourced from China. The company has already initiated a transition to alternative suppliers and expects to cut that exposure nearly in half by the second half of the year. Importantly, Sweetgreen has pre-purchased components for many of its upcoming Infinite Kitchen locations, buffering short-term impacts. The company expects tariffs to raise new unit build-out costs by around 10%.

Meanwhile, Starbucks also faces tariff-related risks from imported packaging and merchandise tied to China. To mitigate these challenges, the coffee giant has begun localizing production and adjusting sourcing strategies. Though not entirely immune, Starbucks’ global manufacturing footprint offers a degree of insulation that Cracker Barrel currently lacks.

CBRL’s Price Performance, Valuation & Estimates

Cracker Barrel’s shares have gained 54.9% in the past three months compared with the industry’s rise of 3.4%.

CBRL's 3-Month Price Performance

From a valuation standpoint, CBRL trades at a forward price-to-sales ratio of 0.43, significantly lower than the industry’s average of 4.11.

The Zacks Consensus Estimate for Cracker Barrel’s fiscal 2025 earnings per share (EPS) implies a year-over-year decline of 9.1%, while that for fiscal 2026 EPS indicates an uptick of 10.2%. The EPS estimates for fiscal 2025 and 2026 have increased in the past 30 days.

Cracker Barrel currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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