Cracker Barrel Old Country Store, Inc. Q3 FY2025 earnings call

• Q3 performance included positive comparable store restaurant sales for the fourth consecutive quarter and adjusted EBITDA exceeding expectations. The quarter started soft, but actions were taken to support top line and manage expenses.
• Culinary highlights: Spring promotion with shrimp dishes, expanded pancake platform with new flavors. Operational highlights: Hourly turnover improved ~14 percentage points, internal net sentiment scores increased 2.3%, phase one of back house optimization initiative implemented with positive employee feedback.
• Q4 focus: Brand refinement work continuing, set to launch in August; Campfire Meals promotion with new offerings and advertising investment; Cracker Barrel Rewards achieving 8 million members, testing AI-driven personalization for rewards; AI used in traffic forecasting, guest relations, and cybersecurity.

In the third quarter, total revenue was $821.1 million. Restaurant revenue increased 1.2% to $679.3 million, with comparable store restaurant sales growing by 1%. Retail revenue decreased 2.7% to $141.8 million, and comparable store retail sales decreased by 3.8%. Off-premise sales were 19.1% of restaurant sales, compared to 18.9% in the prior year. Restaurant cost of goods sold was 26.2% of restaurant sales versus 25.9% in the prior year, driven by menu mix and commodity inflation. Retail cost of goods sold was 48.9% of retail sales versus 49% in the prior year, affected by higher vendor allowances and markdowns.

• Fiscal 2025 guidance: Total revenue expected to be $3.45 billion to $3.5 billion, pricing ~5%, commodity inflation mid-2%, hourly wage inflation mid-2%. Adjusted EBITDA anticipated to be $215 million to $225 million, including ~$5 million net tariff impact to Q4 EBITDA. Capital expenditures expected to be ~$160 million to $170 million.
• Q4 off to a strong start driven by Campfire promotion.

• Tariff impacts on retail products, with approximately one-third of retail products sourced from China, both directly and indirectly. Efforts to mitigate include negotiating with vendors, alternate sourcing, and pricing, but situation remains dynamic with more specifics to be shared in September.

Q: Jake, another question on the tariffs, the $5 million impact that you're seeing. Given your turnover of inventory, I would have expected the real impact to start a little bit later and so not actually to hit much of the fourth quarter. So how do we think of that $5 million impact? Is that directly, or are your costs fully impacted by tariffs at this point in the fourth quarter? What are the mitigating—efforts? What are they? Are there any in place in the fourth quarter? For instance, are you increasing retail prices to help offset the tariffs? Are you shifting away from the China supply? What are you doing in the fourth quarter? And should we think of—is it fair to think of that $5 million as a good run rate as we think about 2026, so $20 million for the year? Or is it just way too early to tell at this point?

A: Jake, the teams have been working on tariffs for months. We've been accelerating retail strategy reinvention, rationalizing SKUs, adjusting theme timing, negotiating with vendors, alternate sourcing, and being thoughtful about pricing. More to share on 2026 tariffs in September. The team is working to absorb impact, and it's dynamic.

Q: Thank you. Question back to phase one of the back of the house optimization initiative. You know, just understanding the benefits are probably only just starting now in fiscal Q4. Can you just talk about or help us understand, do you anticipate a permanent reduction in labor hours in the back of the house as a result of the fees? And do those fall to the bottom line, or do those get maybe reinvested into another area of the business? And then related to that, I think there's a phase two and then a phase three that we will see over the next couple of years. Can you remind us what those phases are related to and when you transition into the second phase?

A: The goal of back of house optimization is to improve food quality, make jobs easier. Phase one focused on process simplification. We expect phase one to flow through more in Q4 and 2026. Phase two is about using pre-chopped/sliced ingredients, phase three is equipment solutions. More benefit in Q4 and 2026, part of $50M - $60M cost save.

Q: Thank you. That's great color. And then I just want to ask about the remodeling initiative. You've called fiscal 2025 a test and learn year. So can you just talk about what you've learned thus far this year in terms of the different approaches you've taken with some of the projects? And if you'd be willing to talk about your plans for fiscal 2026 or how you're thinking about any number of stores or maybe CapEx?

A: It's a year of testing and learning. 20 remodels and refreshes complete, new remodel version launched in April. Results early, pleased with feedback, but details on 2026 plans to be shared in September as we continue to learn.

Q: I wanted to go back to the sort of traffic trends. I know that you said they started off soft in February and then improved. But I guess, as you think about all these initiatives, you said consumers or customers are choosing Cracker Barrel, but the traffic is still pretty negative. So I guess maybe you could help me understand, is this kind of a process where there are certain kinds of transactions that you're intentionally perhaps losing and then in lieu of that, you're getting perhaps some more profitable transactions at the higher end of the barbell. And then with respect to any kind of color on the trends across demographic groups? I know last quarter you said you were seeing some better performance among 55 and up consumers. So does that continue? And does that say anything about the efficacy of some of the traffic-driving initiatives?

A: Hi Sara, traffic in February was particularly challenged. We've been pleased with progress throughout the quarter. Demographic trends were steady, over-55 cohorts performed similarly to under-55. The quarter had bumps, but we're optimistic about long-term trends and the transformation's impact.