CRACKER BARREL OLD COUNTRY STORE, INC Q2 FY2025 earnings call

Brand Refinement

• Conducted comprehensive analytical restaurant and retail guest journey mapping and audit.
• Finalized new brand strategy, with elements incorporated in TV/billboard campaigns and spring menu.

Menu Enhancement

• Focused on dinner day part, introduced shrimp dishes and new pancakes.
• Back-of-House Optimization Initiative tested in Q2 and rolled out system-wide, with updated timing on labor savings.

Store and Guest Experience

• Improved turnover, experience, and service scores.
• Introduced new guest-focused service standards.
• Remodel program ongoing with 25-30 full remodels and refreshes in fiscal '25.

Digital and Off-Premise

• Prioritized profitable channels, streamlined offerings, refined allocation, and increased pricing, driving Q2 EBITDA improvement.

Total revenue for the second quarter was $949.4 million. Restaurant revenue was $750.5 million, up 2.7% from the prior year, and retail revenue was $199 million, down 2.8% from the prior year. Comparable store restaurant sales grew 4.7%, while comparable store retail sales increased 0.2%. Adjusted EBITDA was $74.6 million, which is 7.9% of total revenue.

Fiscal 2025 Outlook

• Total revenue expected $3.45 billion to $3.5 billion.
• Pricing approximately 5%, opening 1-2 new Cracker Barrel stores and 4 new Maple Street units.
• Commodity inflation 2% to 3%, hourly wage inflation ~3%.
• Adjusted EBITDA expected $210 million to $220 million.
• Anticipate refinancing $300 million convertible debt, GAAP effective tax rate negative 13% to negative 19%, adjusted effective tax rate negative 2% to negative 8%, capital expenditures $160 million to $180 million.

Tariffs

• Retail business exposed to imports from China, working on negotiating with vendors, finding alternate sources, and pricing.

Egg Supply

• Avian influenza outbreak caused capacity loss, leading to incremental egg costs, but contracts in place through fiscal 2026.

Macro Uncertainty

• Soft traffic trends due to poor weather and macroeconomic uncertainty, but expecting improvement in Q4.

Q: How should we be thinking about same-store sales in the back half of the year?

A: Q2 was strong, but February had challenges. Third quarter pressured by consumer challenges, but Q4 expected to improve with innovation pipeline.

Q: How is consumer angst manifesting across income and age cohorts?

A: Gains with over 55 age cohort, relatively similar performance between under 60K and over 60K income groups.

Q: How much of margin improvement was from Heat n' Serve and catering?

A: Changes to Heat n' Serve improved experience, labor gains, but Q3 has training costs, Q4 expected full benefit from Back-of-House initiative.

Q: Exposed to imports from China?

A: Retail business has ~30% purchases from China, working on negotiating, alternate sources, and pricing, impacts contemplated in guidance.

Q: Egg inflation impact and next year's outlook?

A: Eggs in low single-digit COGS mix, $4M incremental costs in second half, contracts in place through 2026, pricing helps offset.

Q: Pricing power and breakfast/lunch trends?

A: Still have pricing room, breakfast strong, innovation in pancakes, dinner items resonating, early dine specials for value-conscious.

Q: Remodels and consumer feedback?

A: Remodel program is test and learn, early stores showing lift, will deep dive in September call.

Q: Offsets to egg incremental costs?

A: Raised guidance with puts and takes, deferring some spending to fund incremental costs.