Q3 2020 Cracker Barrel Old Country Store Inc Earnings Call
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I'd now like to turn the conference over to Adam Hanam manager of Investor Relations. Please go ahead.
Good morning, and welcome to Cracker barrel third quarter fiscal 2020 conference call and webcast.
Morning, We issued a press release announcing our third quarter results and providing an update regarding the impact of the cobot 19 pandemic on the company's business.
That's press release and on this call will refer to non-GAAP financial measures for the third quarter and nine months ended make first 2020 adjusted to exclude noncash asset impairment charges related to store assets expenses related to kind of at 19 impairment charge related to our equity investment impossible.
Social and their related tax impact of these items.
The company believes excluding these items from its financial results provides investors with an enhanced understanding of the Companys financial result.
Information not intended to be considered in isolation or as a substitute for net income or earnings per share information prepared in accordance with gap. The last page of the press release includes a reconciliation from the non-GAAP information to the GAAP financials.
On the call to me. This morning are cracker barrels president and CEO Sandy Cochran.
Senior Vice President CFO Jill Golder.
Vice president of at PNM, and CFO of emerging brands, Jeff Wilson.
They will begin with a review of the business and Jill will review the financials and outlook.
Then open up the call for questions for Sandy Jill and Jeff.
On this call statements may be made by management of their beliefs and expectations regarding the company's future operating results for expected future you bet.
These are not as forward looking statements, which involve risks and uncertainties that in many cases are beyond management's control and may cause actual results to differ materially from expectation.
We caution our listeners and readers in considering forward looking statements in information.
Many of the factors that could affect results are summarized in the cautionary description of risks and uncertainties out at the end up. The press release are described in detail in our reports that we filed with or furnished to the FCC.
Finally, the information shared on this call is valid at the today's date and the company undertakes no obligation to update it except as may be required under applicable law.
Ill now turn the call ever to cracker barrels president and CEO Sandy Cochran Sandy.
Thanks, Adam.
Good morning, everyone and thank you for joining asked why I Hope you and your families are staying safe and healthy during these trying times.
One of again by extending a heartfelt. Thank you to our employees both in the field and at the home office.
Throughout this difficult period have done an incredible job responding in adapting to the rapid and significant changes to our industry and our business.
Secular I want to say, thank you tour operators to Ben tirelessly working support our employees, our business and our mission a pleasing people.
I've been inspired by their extraordinary work and resilience during this most difficult time.
What a witness from our employees gives me confidence that we will not only succeed through that.
Well come out of this and an even stronger position.
We started the third quarter pleased with the momentum we had coming out of the second quarter. However in mid March we quickly pivoted to address the unprecedented challenges presented.
19 and to bolster liquidity.
Fortunately I believe our existing business priorities, such as accelerating off premises menu innovation.
Lets just relevant in the current and future environment as they were prior to the pandemic.
As our stores began closing their dining rooms in mid March we took numerous actions over the following weeks to ensure the health and safety of our guests to support our employees and to adapt to the new business realities.
Worked closely with health authorities, and we implemented elevated health and safety measures and in many cases, we were taking precautions that go above and beyond jurisdictional requirements.
That's your set we've implemented include providing face masks for employees on hand, sanitizers for employees in gas.
Wellness screening for employees, including taking their temperatures.
Feeling packaging for off premise orders frequently cleaning high touch point areas, including thoroughly cleaning tables and chairs in between settings.
And implementing social distancing measures throughout the entire guess Charlie.
From a menu standpoint, we implemented a limited menu, while our dining rooms will close to reduce the amount of required labor and to reduce food waste. While also introducing new off premise offerings proved to be popular such as family meal baskets, and a smaller sheet and serve offering.
We also implemented curbside delivery accelerated the rollout of the news third party delivery provider and we pivoted, our marketing messaging to focus on off premise.
To support all employees during this difficult period, we provided short term pain to our hourly store employees, that's our hours, where would do studio dining room closures.
We offered daily free meals to employees.
We also continued benefits eligibility for those who previously qualified based on hours.
Ended the payment windows for benefit premium payments.
Additionally, we partnered with other large employers to provide our employees supplemental employment opportunities.
We also provided one on one assistance from employees applying for unemployment benefits.
Not only do we believe these actions along with our people promise. We believe these are worthwhile business investments that'll help maintain strong retention and employee engagement.
Well all of our stores have remained open during the past dip from late March until late April all stores were limited to jump off premise only.
In addition to the close dining rooms, we believe our sales challenges have been further exacerbated by the fact that the breakfast and lunch day parts to account for a significant portion of our sales were especially impacted.
Additionally, travel locations, which also represent a meaningful part of our business have been greatly reduced in recent months.
Despite the sales challenges I'm pleased with the progress we've made on business priorities such as accelerating premise.
Producing menu innovation.
Part of our focus on cash conservation, we took a number of actions as we outlined in our 8-K Sandwich, Joe will also speak too.
Some of the actions are temporary in nature, such as an employee furlough and the suspension of capital expenditures.
We look forward to welcoming back the furloughed employees and resuming postponed initiatives.
Other actions such as our organizational realignment or the field and home office strengthened our business model both in the short term and the long term.
We believe these sustainable business model improvements will result in annualized ongoing savings of approximately 50 million.
As weve reopened dining rooms, we have transitioned stores to menus that include greater variety compared to the limited menu rubber off premise only stores, we are appropriately balancing menu, Brett with labor productivity in food waste amid the still depressed traffic levels.
Staffing our stores with experienced employees has also been a priority during the reopening phase.
I believe the employee support actions I referenced earlier combined with our strong culture and our efforts to stay in touch with employees has facilitated the effect of restaffing ever stores as traffic has improved.
I'm pleased that.
Of course were dining rooms or <unk>.
Proximately, 70% of our par for employees have returned to work.
I believe our ability to raise staff with experienced employees will provide an advantage someone looking forward to walking me back many more of our employees.
I've been encouraged by the recent sales trends as we bring opened dining rooms and welcome in fact guest into our stores, we've seen steady improvement in a weekly comparable store restaurant sales trends.
Weve reopen dining rooms, and I'm optimistic that we will sustain this positive momentum.
Looking ahead, we'll continue to focus on business priorities, such as driving topline growth by introducing signature craveable food.
Accelerating our off premise business and we'll continue to enhance employee and guest experience.
So we remain focused on conserving cash in the near term, but we'll balance this approach by making select investments to support our business.
Prior to the pandemic, we're in the process of Rolling a major menu evolution initiative that included simplification.
Well as the introduction of new offerings.
As weve reopened dining rooms, we then migrating stores should the new menu and we plan for all stores to transition to it in the coming months.
In addition to introducing offerings, such as a new chicken pot pie and Saturday fried pork chops.
We believe a new menu results an increased consistency in execution.
And then a better highlights our signature offerings in abundance value and variety.
I've been pleased with the result, so far on both guests and operators have responded positively.
Another exciting initiative is the addition of a beer and wine tableside beverage program.
We conducted distance of research and determine guess had a strong interest in beer and wine options to provide additional variety.
To make their visits and occasions more enjoyable.
Additionally, the findings also indicated this was a way to reduce the v. cios and especially during weekend dinner.
Part of the Lemonade beer and wine selection, we're also featuring Orange and Strawberry, most says which have been quite popular.
Test is currently in approximately 20 stores, we've been pleased with the guest response and look forward to expanding the test.
We expect it off premise demand will remain elevated for the foreseeable future and that will continue to see strong growth in this business.
And you to leverage successful off premise initiatives, such as curbside delivery third party delivery family meal baskets.
Oh really working to optimize and enhance our off premise operations.
Can you do invest in technology initiatives to enhance the guest experience in service enabler for sales drivers and business model improvements.
We believe the pandemic and the growth and off premise has accelerated the adoption and acceptance of digital usage and has further emphasize the importance of convenience.
You bet applying recent learnings toward digital strategy in are accelerating our work in this area.
For example, when the process of rolling out pay in App, which allows guests the option of convenient contact list payment via their mobile device.
Coming months were also preparing to launch what we refer to as the digital store, which is a new digital property that provides an integrated and enhanced user experience.
Yes, ordering food in retail.
We believe investments such as these provide increased convenience and allow us to extend our hospitality in new ways.
A marketing messaging will focus on driving awareness of our reopened dining rooms, as well as our curbside and third party delivery, while also reinforcing our everyday value.
Increased or use of our social and digital channels, which are more flexible inefficient and a proven effective in recent months.
Continue to believe that Billboards and TV, you're also effective ways to drive awareness and frequency.
Our fourth quarter marketing plans include some national TV.
Additionally, we'll be updating our creative on our billboards in the coming mountains.
We remain excited about the future Maple Street escaped company, you believe they experienced less severe declines and cracker barrel.
Due to their higher off premise mix and the fact that fast casual segment was less impacted the casual dining.
Despite the challenges presented by the pandemic the integration has progressed well and I've been impressed with how they manage through the crisis.
Several of the former Holler and dash locations had been converted to Maple Street. Some while early I'm pleased with the performance of the converted stores.
What would be completing the remaining from versions in the coming weeks.
The resilience they've demonstrated in recent months has reinforced the attractiveness of their brand and their business model and we look forward to accelerating their growth.
Unfortunately, they eat or attainment segment, and punchbowl, social or hit, especially hard by the pandemic EMEA men's challenges it presented which resulted in the closure of all their locations.
After extended discussions and in keeping with our disciplined approach to capital allocation.
And our strategy to focus our resources on the core brands during the pandemic, we made the difficult decision to not provide additional funding.
While there continues to be significant uncertainty and we expect our industry will be challenged in the coming months I'm very confident in the future of our company and in our ability to drive long term value creation.
Cracker barrel remains one of the most differentiated brands and I believe our scratch made food everyday value genuine hospitality and the trust guess haven't asked to deliver on their expectations will continue to make us a preferred dining destination.
Additionally, I firmly believe we have the resources and strategies in place to successfully navigate through this environment strengthen our business and drive shareholder returns.
Before turning it over to Jill I want to once again express my gratitude to our employees I know this it's been a difficult time there were many challenges remaining.
But we will get through this and we will come out of this even stronger than before.
And with that I'll turn it over to Jim.
Good morning, and thank you Sandy given the circumstances my prepared remarks today will primarily focus on our sales performance financial impacts related to covert 19, our liquidity position and capital allocation.
I want to begin by discussing our sales performance for the quarter Cracker barrel comparable store restaurant sales decreased 41.7% as traffic declined 43.6% and average check increased 1.9%.
The quarter started strong with February comparable store restaurant sales, a positive 2.4% before declining by 36.5% in March and 78.6% in April.
Due to the cobot impact.
Comparable store retail sales decreased by 45.5% in the third quarter.
We are encouraged by our recent topline trends, we've seen sequential improvements in weekly comparable store sales since we began reopening dining rooms and comparable store a restaurant sales force doors with open dining around this were down approximately 32% in the most recently completed physical weak compared to decline.
Approximately 76% first store is limited to off premise only.
I would now like to speak to some of the piano impacts related Kobe 19 at Sandy outlined we took a number of actions in response to the pandemic to ensure the health and safety of our employees and gas support our employees and strengthen our business model. For example, we provided additional paid to our hourly employees there.
Hours were being reduced due to dining room closures, which totaled approximately $17 million. In addition, as noted in the earnings release in the third quarter, we incurred approximately $7.1 million in Kogan related expenses, which include items, such as food waste due to dining room closures severance.
And meals, we provided to our employees as well as inventory write downs.
Additionally, we recorded an impairment charge of $18.3 million in store assets as well as a 132.9 million dollar impairment charge related to our equity investment in punchbowl social.
Third quarter GAAP earnings loss per diluted share were $6.81.
Excluding the $7.1 million in Kogan related expenses, the impairment related to store assets and the impairment related to punchbowl, social as well as the related tax impacts adjusted earnings loss per diluted share were $1.81.
Andy mentioned, we also took decisive actions to strengthen our business model. We believe these initiatives such as the organizational realignment will result in sustainable annualized savings of approximately $50 million.
Turning to liquidity and capital allocation, we believe that going into the pandemic. The company was well positioned to deal with liquidity challenges due to the following first our consistent profitability and cash flow generation.
Second our prudent approach to capital allocation.
Third our conservative leverage ratio.
For the increase in our credit facility to $950 million in 2018, and lastly, our ownership of a significant portion of our locations.
That said given the unprecedented challenges we're facing we took additional actions to further bolster liquidity.
In addition to what we've already mentioned in our prepared remarks, we suspended our dividend and share repurchase programs.
We said, we substantially suspended cap ex except for a strategic initiatives and essential store maintenance.
We aggressively managed retail inventories, including canceling orders where feasible.
We fully drew down on our revolver and then on May 28, we exercised an accordion feature to increase our borrowing capacity by an additional $40 million.
And lastly, while we were within our covenants during the third quarter, we received covenant relief for the next three quarters beginning in our current fourth quarter.
Taking into account our recent initiatives to strengthen our business model and conserve cash combined with how well our operators have been managing their costs. We estimate our weekly cash burn rate is neutral at comparable store a restaurant sales down approximately 45%.
This estimate is that the corporate level and if there was modest investments in key initiatives.
We're also plays that we were able to keep all of our stores open and that they have consistently generated positive variable cash flow, while operating and off premise only model.
We believe we have a strong liquidity position as we ended the quarter with approximately $363 million of cash on hand, which would further strengthened by drop on the accordion. However, the environment and outlook remain uncertain and we believe we have additional options to further increase liquidity should this be warranted.
We have been working closely with the board to appropriately modify our capital allocation strategy in light of the current circumstances.
We plan to give additional updates as appropriate, but I want to provide some commentary on how we're currently thinking about capital allocation.
Investing in cracker barrel will remain a capital allocation priority.
Although we are focused on cash conservation in the near term, we will be making prudent investments in our menu evolution initiative.
Our beer and wine program, our digital strategy and our point of sale system.
We plan to increase our investments as our business normalizes and as we generate more cash.
We look forward to resuming unit growth for both cracker barrel and Maple straight.
We're still working to finalize our fiscal 21 plans and we tentatively expect to open to cracker barrels and physical 21.
These two stores were originally planned to open in physical 20, but they were delayed due to the pandemic.
We currently expect to open approximately 15 Maple straight units, we believe Maple straight has attractive unit economics with eight you. These over $1 million in a normal noncovered environment and an investment cost below $750000.
With respect to our regular dividend the board continues to evaluate this and intends to reinstate the dividend as soon as we are in a condition to do so.
Lastly regarding capital allocation. We are currently above our long term leverage ratio target due to our increased debt and reduced EBITDA and we plan to balance our investments and the return of cash to shareholders with Rightsizing our debt levels.
As announced in March we have withdrawn our previously issued fiscal 2020 outlook, including earnings guidance. However, I would like to provide some comments around our future expectations.
As of this weekend 505 stores had opened dining rooms, the situation remains fluid, but presently we hope to have substantially all dining rooms open by the end of June however, it will likely be sometime before we are able to completely liffe restrictions at all of our dining rooms, and we expect that off premise.
Sales growth will remain elevated for the next several quarters.
Looking ahead, we believe we will potentially benefit from several factors first we are a trusted differentiated brand with loyal guests second the geographic concentration of our stores has not been in parts of the country that where most impacted.
Third our interstate locations position us well in the event that families choose to take vacations by car. This summer.
However, our restaurant outlook is cautious for several reasons.
There continues to be quite a bit of uncertainty around consumer willingness to revisit full service restaurants in general in the near term.
Additionally, our older guess, maybe more hesitant to return because they are at higher risk for covet 19.
And lastly, there's a lot of uncertainty around the economic impacts of the pandemic.
Retail sales for May have been encouraging as weve reopened dining room, but our outlook for retailers also cautious we expect that retail will continue to be pressured by social distancing measures in both the dining room and the retail area. Additionally, we anticipate that our retail business will be further challenge by the board.
Water environment as our merchandise is highly discretionary and we believe consumer spending will be more restrained.
Our teams have done a nice job managing inventories and they are focused on the sell through of our merchandise, especially our seasonal assortments.
Due to the highly promotional environment, we do anticipate lower retail margins.
Lastly, we're closely monitoring our restaurants supply chain and have been having regular discussions with our vendor partners.
Today, we have not seen and we do not expect any meaningful disruptions or supply issues for the remainder of our fiscal year. Although we do believe it is likely we will see elevated commodity market volatility in fiscal 2021.
Because of the numerous uncertainties surrounding the economy and the restaurant and retail industry our outlook is cautious.
And we anticipate that these industries and our business will be facing pandemic related challenges for some time as a result, we expect our earnings performance will likely be somewhat choppy in the coming quarters. Despite this we believe we are well positioned to successfully deal with these challenges and continue to drive long term.
And value creation.
I will now turn the call over to the operators that we can take your questions. Thank you.
Thank you we will now begin the question and answer session.
To ask a question you be aggressive Star then one on your Touchtone phone.
If you are using a speakerphone please pick up your hands before pressing the keys to withdraw your question. Please press Star then too.
We will pause for just one moment a simpler roster.
Our first question today will come from Gregory Francfort of Bank of America. Please proceed with your question.
Thanks. Thanks for the question I, just I had a couple.
The first two were just on the on the topline.
You know clearly all crime Mrs has expanded pretty substantially and as you guys open dine ins and I'm curious how sticky that business has been just you know you'd say that would be helpful.
Good morning, Greg. Thank you for your question Yeah, we have been I'm pleased with the performance of the restaurants as we've reopened our dine in so as we said in our prepared remarks.
We've seen that dine in performing restaurants significantly improved down 32% or so and they have retained much of that off premise. We've not seen much decrease their overall cannibalization has been little but I guess I would say it's still early days. So we'll see how you know how that trends.
Yes, again, we've only got about 100 stores that have been had their dining room opened for three weeks.
Got it Okay got it and then and then.
The two other questions I had would maybe sandy you've had a lot of good perspective in the past on.
The consumer and stayed to the consumer.
I'm, having trouble kind of getting a given kind of.
Elevated incomes around unemployment, but that seems to be rolling off in a in July and I'm curious, what's your thoughts on how the industry is going to stay or is that happens I'm in and then the up to the other question I was just on the on the employee turnover and your comments on the par for employees.
He said 70% of returned to work.
Or is that your money how much of the employee base that is in kind of if you're having seeing any trouble kind of getting people to kind of return to work in this environment. Thank you for but well thought.
Well, let me start with the consumer I think everyone's having trouble predicting what's kind of happen what what we've seen really to reiterate stuff.
Common shown made in her prepared remarks, but.
As we've been reopening dining rooms, we've been pleased with some [noise].
With the reaction we've had so guests are coming back but to dine with us in the restaurant as well as continuing to use the off Prem business, maybe more than we had expected and to buy a retail product, which I think is a credit to.
Our retail team and the assortment and how is it's resonating with that being said, though.
We are sensitive than some of that may be.
Because we do have the the benefit of the stimulus checks and the enhanced unemployment, it's hard to determine the degree to which that's impacting in and what the reaction will be to the unemployment rate. After the come tree opens back up and then sort of where the recession, how deep is the echo.
Anomaly problems and how the what the reaction of the consumers will be so as Joe mentioned, where we think we've got some positives in terms of the brand we.
Probably the biggest is that we think that it's a strong brand with one they trust.
The comfort food, we sell is just that I think it reminds people those happier safer times, a adding value will be important and we've got a tremendous offer for everyday value.
I think we're positioned well in the event that consumers do travel by car and.
You know the headwinds that we've talked about to what degree will people.
He comfortable using full service.
Particularly our older guess.
And and all the uncertainty about whether in the fall we're going to have.
Other outbreaks and what kind of impacts those are going to have in the community. So I guess, that's a long way of saying that I know you're trying to get a read on the consumer and so away, but we're pleased with where we are so far in terms of the unemployment.
You know we've had I think on our par fours overall, it's there's about 20000 of them now I don't know how many of them.
Continue to come to work for us and obviously, we're bringing people back but it much lower levels.
Much fewer hours are being used in our restaurants and were pre pandemic. We are pleased with our ability to retain it particularly our experience tenured employees.
There have been pockets of feedback that some employees were reluctant to come back. Many of those are those are ones that maybe uncomfortable, giving their personal or their family situation in terms of safety.
So we feel good about how we're navigating that in terms of bringing employees back.
Thank you for all those thought I appreciate it.
Yes.
Our next question will come from Brett Lee by of MKM Partners. Please proceed with your question.
Great. Thank you for taking my question I hope everyone is doing well.
We could talk a little bit more on how you're thinking about the cash the sustainable cash savings from both a a gross and net perspective.
What are the the what's coming out of the system. What do you still have to Oh, that's in the system.
Like the magnitude of some of the items you talked about including the technology and if you could just walk us through.
On the Casper and your cash flow generation, how you're thinking about that not just the static 45% comp decline but.
The puts and takes as you're layering back in incremental costs, whether it be the labor at the store level yield level support or in the corporate pause for there.
Hi, good morning bread to jail, so I'm going to start with kinda. They end of your question I'll start with kind of where we are from a cash standpoint, how we got here and then how we're thinking about it going forward. So you know as we said in our prepared remarks.
Our cash burn is neutral for comparable store sales were down about 45% and that assumes a prudent in Beth you know prudent investments and we talked on the call about all of the actions we've taken to conserve cash.
And if you think about when this started back in March when we filed an 8-K on we shared that on March 24th we had $400 million in cash at that point in time.
When we ended the quarter of May 1st we had $363 million and cash.
So over that approximately five and a half [noise] six week time period, we burn in less than $7 million and cash per week and that includes making some of the investments that we made to take care of our employees and some health and safety investments. So the team has done a really nice job.
Bob managing the business that we have today [laughter], so we've been profitable at the variable level.
So clearly as we talked about the fact that now that we're starting to open dining rooms were seeing sales that would get you to the point, where you would be generating some cash.
So let me go back to how we'll think about that HM We're certainly spending.
And time kind of reevaluating our capital allocation strategy I would say that I mean, we continue to have a balanced approach with high we're highly disciplined around our investments in that will remain at guiding principles for us.
We will prioritize investing in Korea in Cracker barrel that is our top priority, while while we maintain a cash conservation in the near term and as Sandy mentioned in her prepared remarks, and we're really looking at the key investments will be around.
Around menu evolution.
Beer and wine that digital strategy and point of sale.
As we then build more cash we'll look to.
New store openings, we mentioned that we would have to cracker barrels that would open they were supposed to open in fiscal 20, they have been pushed back to 21.
And then we'll expect to.
Open units for Maple Street, which were very excited about that brand.
Then beyond that of course, our regular quarterly dividend remains a priority and the board will continue to evaluate that and when to reinstate that depending on what our conditions are.
And just kind of coupled with all of that our long term our current debt levels are above our long term leverage target. So we will balance reducing debt with then returning cash back to shareholders.
So and of course, our capital allocation strategy will be an ongoing conversation as we navigate through these uncharted waters here.
So hopefully that gets you to all of your question.
Just one follow up on technology.
You had been running at about 150, Pos systems, a year, but now that you've seen the merits of digitizing world. How quickly do you think you can get both the Pos systems fully integrated at the store level, but also.
Elevate your your digital ordering app capabilities, and then I'll, let it go to the Q.
Okay. So today, we've got approximately 170 stores have our new point of sale.
And again, we paused that rollout with the start of the pandemic.
You know the Pos it does help us both from I guess facing standpoint, as well as the employees standpoint. So we are you know we're excited about it so.
So will you know we're going to balance all of these investments the digital strategy as Sanjay mentioned you know it it's really helps with the guest experience, it's going to make it much easier for our guests.
To order, both food and retail it will streamline their experience, we expect to roll out pay in App in the fall time period. So they they too are not Mitch mutually exclusive kind of moving down the digital cap as well as the pls path, but how quickly we do both of those.
Will depend on where we are from a liquidity standpoint.
Thank you. Our next question will come from John Power with Wells Fargo. Please proceed with your question.
Great. Thanks, I was curious if you could dig in a little bit today that the decision to test the beer and wine and perhaps why why now and how you're testing it in the stores, obviously with a limited dining room at the moment Oh I'm curious.
See how you're trying to get the right results to decide whether or not it makes sense to push forward and then thinking about it itself you know what do you plan on using national brands or do you plan on doing house beverages in house and ultimately can this move to though the retail channel within your stores as well and then a follow up as well.
Right.
Well so first of all we've been thinking about this for a long time and have.
And Oh, well over a year and began by doing research to understand.
The guess interest in this.
And we began testing this pre pandemic, so I think it rolled out in January.
Down in Florida. So we did have an opportunity to get some experience prior to our dining room shutting down and we were pleased with the result.
What we found from.
From the research and from the test results that.
I guess, where many of them had had already communicated to us a desire for wine and beer is a way to make their visits and occasions more enjoyable what way what our current menu is is beard thing Bob brands like Buddy.
Wiser Bud light Paps Blue ribbon, we have a hard to side or on the menu and then our wines are us Sutter home. So we've got a white and a red it's a very select limited menu.
And then my most is which have actually proven to be surprising Lee popular at least it was surprising to me how popular they would be.
So we had some opportunity we got some learnings before we had to shut down we were long ways through the process.
We put that on pause and then when we were able to open dining rooms again, we opened them with the beer and wine assortment down in Florida. So now we have about 20 stores up and running we continue to monitor the reaction to it to sales and so on and so.
So far we're pleased and we will just continue to roll. It out is we believe that's the right thing to do for the brand.
And do you see this moving into the retail channel in all within the stores over time.
I'm not and when you say the retail channel we do in some places offered it as part of the to go some communities allowed us to offer we didn't see a lot of take on that partly I don't think people thought of as that way.
But no I don't see it being offered in the retail store, Okay, and then just I'm thinking about the retail business itself. It it looks like it managed very well throughout the trough the crisis and I'm just curious you could talk too.
I think I feel you'd mentioned earlier.
We're expecting it to be choppy from this point board, but how are you going to manage inventory over the next several months I know this business. There's a lot of seasonal items in there. So I how can you manage that knowing that.
Perhaps you're gonna have much choppier demand environment going forward and your business is a little bit more seasonal than than others.
I think our retail teams have done a phenomenal job managing as.
Well as and could that that that risk.
Combination of knowing what we what we had and what we had coming in we canceled.
I'll quite a bit of our inventory where we could.
Where we couldn't we were we got promotional where we needed to be and I have been really pleased with response from the consumer to that.
And we modified I'm going forward, our assortments to reflect what we thought would be choppy. So for example.
Although there will be a presence of Thanksgiving in the stores as we go that's a big seasonal desorption for so we'll be very little Halloween, It's a shorter holiday, we weren't sure whether parents would be comfortable with trick or treating and whether there would be those kind of gatherings. So we were very cautious.
Yes about our investment in inventory on things like that.
So we've been navigating through it as best we can quite a bit of our inventory has a long seasonal approach and so.
So we we're thoughtful about how we can keep it on the floor.
In us in an environment, where we don't have as much traffic as we would wish.
But I think that's the assortment the quality b the way the assortment is paying off on the fun retail fine uniqueness stalled you great value at a price that a lot of people can afford somewhat of an impulse has been has been very.
We encouraging to us not maybe not surprisingly the it was an elevated amount of retail sales during the pandemic when people would come to pick up their off Prem and things like the food food wall and personal care. So there were couple categories that actually I think we were weaker.
And for what consumers were looking for.
Great and then yeah, let me just ads on the inventory so given the large declines in traffic that we've seen can you know combined with the fact that we do have some seasonal merchandise, we do have elevated elevated inventory levels and.
And yeah, we believe that in the next quarter. So you'll see additional markdown Bandar pressure on margins yeah. Okay. The last one for me just on that $50 million of up new savings can you just help us bucket like where we expect these in the stores is it going to be somewhere in the Cogs channel the store operating expenses labor.
If you could help kinda.
Quantify where there is going to settle that'd be helpful. [noise].
Sure well first of all I'm really pleased with the teams quick action and focus on trying to strengthen the business model.
Both in areas that will benefit us in the short term in the long term and as we said the $50 million in cost savings, we think will be longer term I do want I mentioned that some of these initiatives were planned we pulled them forward as a result of the pandemic. So for example.
All the realignment was one that was planned so the two key areas, where you're going to see the that benefit of those ob and ramp up in the restaurant labor primarily around the management labor side, and then in the Gionee and as we go through they here, we can give you more.
Around the dollar amounts, but those are the two key categories.
Thank you very much I appreciate and best of luck.
Thank you.
Our next question comes from the Jeff Farmer with Gordon Haskett. Please proceed with your question.
Thanks, how are they a couple of follow question. So the first is in terms of these restaurants that are opened and they're putting up the the 32% same for sales declines in a week ended ended May 29, I'm curious how consistent performance was across markets, meaning was there shouldn't be a wide range of central sales performances.
And then I think even more importantly in terms of thinking about Tennessee, and Georgia. Some of the markets are states that opened up the earliest theoretically if god cracker barrel units in operation for the better part of five weeks.
What is their performance look like in the context about 32% Super Sills deployed number that you guys referenced and then I have one more follow up.
So great question jobs, I mean, it answer it more broadly I'm. So some first of all as we've looked through out the pandemic broadly the performance has been relatively similar so just kind of since it started the only place that we've really.
Nothing much differentiation broadly kind of going back through April and May was the.
They interstate.
The stores that are right off the inter stage were modestly more impacted than those that are in more suburban area. That's the big differentiator.
Now fast forward to more recent times when we've had some other restaurants reopen for dine in and know that we don't have a lot of experience for that the variability really flows more with that capacity restrictions.
Versus anything else.
Okay. So in terms of thinking about just Tennessee, and Georgia as to those first states that opened as as we mentioned.
Is it is it safe to assume that they're probably doing at least a little bit better than down 32% considering they've been open for five weeks or is that not the way to think about it.
I think it's a little early to talk about it we just don't have as much data on it.
And then all following up on a John's questions. So the $50 million in cost saving opportunities.
You alluded to it but really the question is how much of that is incremental or above and beyond some of the cost saving opportunities that youve identified in the past. So in terms of thing about that 50 million dollar numbers that 2030 40 million more than you were considering you know pre pandemic environment, how should we think about Doug.
So you know as a reminder, and thanks for bringing it up we had a number of initiatives that we were working towards to take out low value added cost to strengthen the business model. This fiscal year pre pandemic, we were tracking to delivering $11 million and saving the initiatives that are in that 50.
The million dollars are in addition to the initiatives that were in that $11 million. So much of those are new.
That's very helpful and just last one so same usage you noted that you're all I'm, putting words in your melted your couldn't good optimistic this will continue to deliver topline recovery momentum.
With that said I'm curious and you can you did touch on it but what are the two or three things that you see having the largest impact on driving incremental sales.
Recovery as we move forward over Oh, let's call them on the June.
Well I think it's whether communities opened up and whether capacity restrictions.
Our lifted which those will be connected and then whether even when that happens consumers feel comfortable.
Moving around and getting out in dining in restaurants and having.
You know taking road trips and vacations and to the degree that.
That happens.
You know I'm optimistic that we'll be there and we'll be.
Ready to welcome them and provide them with hospitality and retail product and so on but I think that's probably the biggest issue it.
Yes, as some communities are concerned we have other outbreaks and that tends to set back.
The People's comfort and doing that that's going to set us back some.
But more if the economic environment post the pandemic is such that when the enhanced on when everything settles out you know people are feeling I'm not comfortable spending money then that's going to have to be another issue that will deal with but as.
Joel is said and I think I've said, we do believe that this brand for all the reasons I've said is one that is you know well position.
In out of that.
Thank you.
Our next question comes from Jake Bartlett with Suntrust. Please proceed with your question.
Great. Thanks for taking the questions you're like my first one is you still need the weekly cash burn and if you could help us just maybe decompose that a little bit I want to make sure I understand whether its including any capex, whether its including any changes that we're working capital and I think you also be implicate.
She is that you'd have you positive unit level margins at negative 45%, we didnt see that in the first quarter. So just wanted to confirm you you expect fairly meaningfully positive margins you had negative 45% the unit level.
Any help you could give is well on just kind of what the right run rate is Virginia days, we try to try to work the fallout.
Okay, great well and I think we're still trying to work this all out to but I think the teams have done a really nice job. So.
So again, if you look at what our burn rate was Jake you know if you go back to kind of through the.
So that experience and even with those investments when we were significantly down our cash burn rate over that five six week period was you know about $7 million and that's when we were significantly down so when we say that at 45% we are cash.
Neutral that does include.
All cash out the door. So it includes gionee. It includes capex spending so it's it's total cash I'm working capital total cashed any changes there.
So then now as we're hopefully moving towards the north side of that number and we get to position, where we're going to generate cash.
It. This is this will be where the team will really focus on balancing cash generation with where we want to reinvest back in the business and start stepping back in there. So I think for US it's hard to answer that question with a number because it's going to be a bit of a journey for us.
Our next question will come from all Scott with Longbow Research. Please proceed with your question.
Great. Thank you and what they stick question could you just.
The two questions. One you know how do you see sandy the.
Competitive environment pointing out your over next quarter to obviously.
You know they your own stores, our position you know up better than you know.
You know, which appears in the kinds of space, they're seeing an even bigger <unk> you are oh, presumably it will be pretty good environment, you've already got very strong everybody platform of course, but how do you kind of see.
Well what promotion strategy is it could be different than you know what it would have been if we had not had kobin as look up we're going to quarter too.
Well I think that.
Let me speak to where I certainly think were focus now I think that the consumer coming out of this is going to be very focused on value and so we are.
Rethinking every element of our the menu, even though we're rolling our.
Dan or new dinner menu, we took a looks to be sure. The we thought that it was delivering the value that we would need coming out of this.
We are rethinking our pricing strategy to ensure that we.
Don't get over over ambitious about where we think we can price and so you know we're just continue to focus on ensuring that consumers.
And I guess the come to eat with US, we'll be able to find value in a variety of places on the menu and I think that's probably going to be the environment that we will be in for some time, how that plays out among the competitive environment I'm sure. It would be very promotional and they'll be a lot of people that are.
Doing deals and competing on price and competing in every way. They can think of to do it and now known as a lot of people out there who are.
You know gonna be fighting for the the.
Market share that will be out there. So I feel like we are well positioned.
As as as best we can.
Thanks, that's helpful and that's one follow up you know that's going to go off premise in store footprint, obviously on premises growing nicely heading into cold, but now its.
Is the elevated levels, probably will be for some time, because it's kind of big Bob.
Your whole three to five year period is there an opportunity for you too.
Open up smaller locations on average that would have a bigger.
Curbside off premise and not as big of <unk>.
You're thinking about currently.
Well certainly the shift to offering with the consumer has.
Has it.
What someone say accelerated behavior and a very short time, the wood, what's coming over a number of years anyway, and our off premise team is has sort of reopened and his rethinking be off premise strategy. So whatever we thought was gonna be important word reassessing.
In light of where the consumers are now where the competitors are now where the technology is now.
And everything is on the table, so including things like I'm, assuming what you're talking about as some version of a goes kitchen or is he between you know we've we've thought about all of those things.
Where those will be prioritized and win versus the other opportunities. We believe we have we're not ready to discuss yet.
Our next question will come from Todd Brooks would C.L. King. Please proceed with your question.
Hey, good morning, everyone. Thanks for taking my questions just two quick ones.
One if we can talk about capacity interest at your reopening.
Are you seeing any kind of peak periods, where the restaurants have been capacity constrained and then.
We also school the capacity discussion over to the retail side to the house, what you're finding and how.
How you're controlling the flow of customers.
Moving through the the retail.
Sales space and and how that's impacting the retail business.
Okay. Todd. Thank you for the question. So I guess is we think through at one there's theres a bit of variability and just you know we don't have a lot of experience with the Dave open here about where we really hit peak capacity is more at dinner and more.
On the weekends, so that's really more when we have.
Kind of a governor on the sales that we can do there and then kind of flowing through to their retail side. I mean again, we've been pleased with their trends and we've been pleased with the frankly, the attachment rate that we've been able to generate for both the dine in sales that we have delivered as well as the off premise sales.
Yeah.
Okay. Okay, Great and then you other ones just kind of a definition question.
I look at the 18 million dollar store asset impairment charges is that.
Is that something store level, where we need to think about potentially some unit closures out of the pandemic or is it more something lower to knock that level that's across the entire store base just what's what's comprising my charge. Thank you yeah. Yeah. So its yet so it's a straight asset impairment yeah. We're always my hearing.
Our store performance and evaluating our impairment test so when we looked at that when we did our impairment test and looked at Q <unk> future cash flows we thought it was appropriate for the accounting guidelines to write down approximately $18 million in store assets. So it's just an.
Counting charge, it's not a store closure implication that said, we will continue to look at our overall store performance that we have no closures to announce at this time.
Thank you. This concludes our question and answer session I would now like to turn the conference back over the Sandy Cochran for any closing remarks.
So I'm going to.
Kind of close this call it's been such an unusual time with maybe a summary of the key points that I hope you got out of out of this and.
The pandemic created unprecedented challenges in disruptions, we quickly took actions.
Our operators did a fantastic job of dealing with the environment, we were able to keep.
All of our locations open although all of our dining rooms were closed we navigated I think the crisis, well and have gained a lot of learnings.
As a results were strengthening our business model I think we're well positioned for the future. We're encouraged by what we've seen with three openings and we are near term cautious, but confident in our ability to drive long term value creation. So I appreciate you being on the call.
So I hope everyone stay safe and we're looking forward to speaking with you again in September.
[noise] and it right.
The conference has now concluded. Thank you very much for attending today's presentation. You may now disconnect.
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