CBRL Group, better known as Cracker Barrel Stores and Restaurants (CBRL) is set to report earnings Wednesday May 28th.

CBRL is expected to earn 48 cents per share for its 3rd quarter. We expect Cracker Barrel to announce earnings that will be inline or slightly lower than investors’ and analysts’ expectations.

We believe there is a better than 50/50 chance CBRL management will offer softer guidance for their 4th quarter than is currently expected by Wall Street.

During their 2nd quarter conference call, CBRL’s management offered flat guidance for their 3rd quarter while its same store sales were still positive. Late this quarter same store sales fell dramatically; down 9.7 percent for the 5 week period ending on May 2nd.

Recently, Moody’s senior analyst, Bill Fahy downgraded the outlook for the entire restaurant sector from stable to negative. Fahy said with increasing commodity, energy prices and labor costs could plague this sector for the next 12 months.

The Correct Call sees this negative outlook reflected in the Dow Jones Restaurant/Bar sector and CBRL’s charts as the short-tem moving averages and MACD are crossing under the longer term lines: usually a reliable sell signal.

Suggested Option Trade:

Aggressive investors may wish to consider the CBRL July 30 put options. If we have made The Correct Call, this stock could trade as low as 24 in the weeks following a weak earnings report and outlook. At $27.5 by June 15th, CBRL’s July 30 Put options offer investors more than a 50% return from Friday’s close of $2.

Suggested Stop Price: $34.63

Disclosure: Long July 30 puts