CRACKER BARREL OLD COUNTRY STORE, INC Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Key Highlights: Delivered positive comparable store sales for the second consecutive quarter, outperforming the Black Box Casual Dining Industry by 290 basis points. Improved dinner traffic trends. New menu items like Hashbrown Casserole Shepherd's Pie and Pot Roast resonated with guests. Optimized pricing initiative delivered strong flow-through and improved value perception scores. Cracker Barrel Rewards drove incremental sales and traffic. Four pilot remodel stores showed sales and traffic lift, especially in Indianapolis.
• Menu Enhancements: New menu items such as Hashbrown Casserole Shepherd's Pie and Fried Apple French Toast Bake were popular. Back-of-house optimization initiative aimed to drive efficiencies and improve profitability. Price optimization initiative was based on consumer willingness to pay, competitor pricing, and store operating costs.
• Guest Experience Evolution: Progress in key operating metrics like guest satisfaction, hourly turnover, and speed metrics. Remodel program: 4 pilot stores in fiscal 2024 showed sales/traffic lift; 19 stores remodeled and 12 refreshed in fiscal 2025. Incorporated new elements like menu items and employee dress code.

Segment Performance

• Restaurant Segment: Total revenue was $683.3 million, up 3.4% from the prior year. Comparable store restaurant sales increased 2.9% over the prior year, with pricing contributing approximately 4.7%. Off-premise sales were approximately 18.4% of restaurant sales.
• Retail Segment: Total revenue was $161.8 million, down 0.8% from the prior year. Comparable store retail sales decreased 1.6% compared to the prior year. Decor and toys categories saw the largest declines, partially offset by increases in kitchen food and bed and bath categories. Inventory levels were below prior year.

Guidance

• Fiscal 2025 Outlook: Total revenue expected to be $3.4 billion to $3.5 billion. Pricing was approximately 5%. Opening of 2 new Cracker Barrel stores and 3-4 new Maple Street units. Commodity inflation was 2%-3%. Hourly restaurant wage inflation was 3%-4%. Adjusted EBITDA was expected to be $200 million to $250 million. Adjusted G&A expenses were elevated in fiscal 2025. Expect to refinance $300 million convertible debt, leading to higher interest expense. Full year GAAP effective tax rate was negative 7% to negative 11%, adjusted effective tax rate was 0% to negative 4%. Capital expenditures were $160 million to $180 million.

Risks

• Forward-Looking Statements: Involved risks and uncertainties beyond management's control, detailed in SEC reports.
• Retail Challenges: Industry headwinds impacted retail sales, being super discretionary and subject to consumer spending pinch.
• Actuarial Reserves: Increases in workers' compensation and general liability reserves due to actuarial calculation changes.
• Hurricane Impact: Unfavorable impact on total store operating expenses related to hurricanes.
• Legal and Settlement Expenses: Charges related to wage and hour arbitrations and legal settlement expenses affected adjusted G&A.

Question and Answer

• Q: Talk about 2Q-to-date period and momentum A: Thanksgiving week was important. The team made changes from last year, with an emphasis on the dine-in occasion, and was pleased with how it played out.
• Q: Loyalty program breakdown A: Over 6 million members. Members came more often, spent more, had a higher check than nonmembers. Testing ways to use them to power the business.
• Q: Efficiency efforts and back-of-house work A: Initial stages focused on labor productivity, job satisfaction. Tested in 20 stores, expanding to full region. Multiyear initiative with $50-60M structural cost savings.
• Q: Retail business outlook and gross margins A: Industry headwinds. Team managed inventory levels well. Margins were up in Q1 but expected unfavorable full year. Holiday promotion 'Seasons of Savings' resonated, poised to capture last-minute shoppers.
• Q: Gift card breakage and atypical items A: $6M gift card breakage benefit, offset by $9.3M atypical costs, net drag to EBITDA. $6M benefit to reverse in Q2.
• Q: Remodel program terminology and performance A: Refresh separate from 4 remodel tiers. '25 was a test-and-learn year. Evaluating economics and efficacy of investments. Refresh showed good results.
• Q: Menu innovation and marketing A: Menu items resonated due to guest and team input. Innovation process improved. Marketing mix evaluated with new CMO; loyalty helped target marketing.
• Q: Average check growth and value scores A: Check up 5.8% in quarter, 4.7% from price, 1.1% favorable mix. Value scores improved but not yet shared externally, evaluated via Google Ratings and internal tools.
• Q: Quarter trends and regional performance A: Outperformance vs casual dining industry was relatively steady regionally. Stronger in Northeast/Midwest, softer in Texas. Gradual improving trend at dinner.
• Q: Remodel initiatives and investment allocation A: Early days of transformation. Some initiatives moved from transform to run. Remodels still test-and-learn, focusing on capital stewardship and guest/team feedback.