Q2 2021 Cracker Barrel Old Country Store Inc Earnings Call
While the by zero after today's presentation there'll be an opportunity to ask questions. Please note. This event is being recorded I would now like to turn the conference over to Adam Hannon. Please go ahead.
Thank you good morning, and welcome to Cracker barrel of second quarter of fiscal 'twenty 'twenty One conference.
And the webcast. This morning, we issued a press release announcing our second quarter results.
In this press release and on this call we will refer to non-GAAP financial measures for the second quarter ended January 29, 2021, the <unk>.
Second quarter non-GAAP financial measures are adjusted to exclude the noncash amortization of the asset recognized from the gains on our sale leaseback transactions and the related tax impact the.
The company believes that excluding these items from its financial results provides investors with an enhanced understanding of the company's financial performance.
This information is not intended to be considered in isolation or as a substitute for net income or earnings per share information prepared in accordance with GAAP the law.
Last page of the press release includes a reconciliation from the non-GAAP information to the GAAP financials.
On the call with me. This morning are cracker barrels president and CEO Sandy Cochran.
Senior Vice President and interim CFO, Doug <unk>.
And vice President of S PNA, Jeff Wilson.
Sandy will begin with the review of the business and Doug will review the financials and outlook. We will then open up the call for questions for Sandy Doug and Jeff.
On this call statements may be made by management of their beliefs and expectations regarding the company's future operating results or expected future events.
These are known 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 expectations.
We caution our listeners and readers in considering forward looking statements and information.
Many of the factors that could affect results are summarized in the cautionary description of risks and uncertainties found at the end of the press release and are described in detail on our reports that we filed with or furnished to the SEC.
Finally, the information shared on this call is valid as of today's date and the company undertakes no obligation to update it except as may be required under applicable law.
I will now turn the call over to Cracker barrels President and CEO Sandy Cochran Sandy.
Thanks, Adam Good morning, everyone. Thank you for joining us kind of hope everyones, continuing to stay safe and healthy.
Before I begin I'd like to take them on okay and on.
To introduce Doug <unk> on our interim Chief Financial Officer.
Doug has been with cracker barrel for over 20 years and has served in a number of executive positions, including corporate controller and principal accounting officer.
Most recently of senior Vice president of sourcing and supply chain.
Doug has the deep knowledge of both cracker barrel in the restaurant industry and I'm confident that his perspective and leadership will contribute to our success and help drive long term value creation.
Today I'll begin my prepared remarks by briefly discussing our second quarter performance, then I'll discuss some of our upcoming plans and provide updates on several initiatives.
At the time of our last call. The industry had experienced an increased number of dining room closures and restrictions due to the nationwide resurgence of COVID-19.
And the situation continued throughout most of our second quarter.
As a reminder, the second quarter as the key period for us due to special connection with the holidays and the hour historically higher seasonal volumes, which are driven in part by seasonal travel.
As a result of the increase dining room closures on capacity restrictions as well as the impact of reduced travel our comparable store sales performance declined compared to the first quarter.
Our margins were also pressured by the higher mix of retail and off premise sales on operational inefficiencies related to the Covid challenges we face.
Despite the volatile environment I'm proud of how our teams provided our customary hospitality and of safe experience for our guests whether they dine in our stores or enjoyed our scratch made meals in their homes.
We continue to make progress on our key initiatives, we had a number of highlights during the second quarter, which I'd now like to speak to.
First we saw high demand for heat and serve including our new smaller family dinner offering which proved to be very popular during the holidays.
We believe the continued success of heat N' serve reflects the trust guests have in cracker barrel to provide the delicious homestyle meal for these occasions and we're pleased to be of part of so many of our guests holiday celebrations.
Second we continued our menu evolution initiative by further simplifying and streamlining our menu.
We believe this initiative, which is eliminated approximately 20% of our menu items since the summer reduces complexity and increases consistent execution, while still preserving the breadth and variety of offerings that our guests seek.
Third our Christmas and gift, giving Assortments helped us deliver strong retail performance. Despite the COVID-19 impacted environment as our unique merchandise and compelling price value relationships resonated with guests.
Additionally, I am proud of how our retail teams continue to effectively manage inventory levels and a very dynamic environment, which helped us achieve higher margin rates compared to the prior year quarter.
Lastly, Maple Street continue to successfully manage through the pandemic.
They had a strong quarter, including several weeks of positive comparable store sales at the end of the quarter when compared to the weeks in the prior year.
Even when excluding the benefit of being open on Sundays.
And their results exceeded our expectations.
Looking ahead, we are optimistic about our sales recovery, which we believe will be driven by a decrease in COVID-19 cases, more widespread availability of vaccinations stimulus spending from pent up demand.
I would now want to speak to some of the sales drivers we plan to drive both dine in and off premise performance.
We remain focused on menu innovation and I'm excited that we'll be executing the third phase of our menu evolution initiative.
This includes introducing new offerings to our core menu in the coming months, such as hand, breaded chicken tenders, which will include both of the classic and Sweden Smoky offering.
We believe these items further extend our strong equity and the signature fried chicken platform that we launched in the back half of fiscal 2019.
We continue to make progress on and are pleased with our beer and wine initiative.
The beer and wine program is now available in approximately 350 stores performance has been in line with our expectations and we're looking forward to having these offerings and approximately 600 stores.
Unfortunately, due to COVID-19 related delays on the permitting process. We now expect it will take until the first quarter of fiscal 'twenty two to achieve the full rollout.
We also continue to be pleased with our new digital platform that provides an integrated and improved user experience.
<unk> seen strong website traffic and conversion and we believe the digital store contributed to our off premise performance in the second quarter.
Looking ahead, we intend to further leverage its capabilities and introduce additional enhancements to reduce friction and improve convenience for both dine in and off premise guests.
We believe our digital store will allow us to extend our hospitality in new ways and empowered guests by giving them more control over their journey with us.
We recently introduced box meals for our catering menu, which include new catering only meatloaf sliders.
We believe these provide convenient and complete homestyle meal solutions and that the individually packaged meals will appeal to guests both during and after the pandemic.
We plan to further strengthen our differentiated offerings by featuring hand, breaded chicken tenders and additional planned catering offers such as our Sunday Homestyle chicken sandwich.
Catering has been pressured during the pandemic due to gathering size restrictions and remote work arrangements. We continue to believe there is growth potential in this category.
We're looking forward to the Easter off premise occasion and to provide variety we will be complementing this year's traditional heat n' serve ham meal available.
Available, both as a feast and the family dinner.
With the new Prime rib heat N' serve family dinner, which serves up to six for $109 99.
And which was well received and various test stores over Christmas.
While the Easter occasion is smaller than the Thanksgiving and Christmas occasions, we're optimistic that we will again see strong demand for our heat n' serve offerings.
In addition to the sales driving initiatives. We are also working to strengthen our margins I'm pleased with the progress we're making on our cost savings and we're focused on driving increased efficiency by improving productivity and enhancing off premise profitability.
We believe these initiatives will contribute to our continued recovery on the top line as well as margin improvements over the remainder of the fiscal year.
Turning to Maple Street. The team continues to work on building the new unit pipeline in refining operating processes and systems to support the scaling of the brand.
From the development perspective, our focus has been on securing the best sites with appropriate occupancy rates.
Fiscal year to date Maple Street has opened two company owned units one of which actually opened today.
Although our progress opening new units has been slower than anticipated we remain highly confident in the brand their business model and their growth potential.
In closing our second quarter was challenged due to the resurgence of Covid, which pressured our sales and margin results. Despite this on proud of the work of our teams and we continue to make progress on key initiatives.
While we anticipate ongoing challenges stemming from dining room capacity restrictions and the economic impacts of the pandemic. We are optimistic that assuming no resurgence as our sales trend will continue to improve and will help drive sequential quarterly improvements in our operating income margin in the.
Half of the fiscal year.
We are diligently working to further strengthen our business and ensure we are prepared to drive strong performance when the industry normalizes.
While we don't know when the inflection point will be we're looking forward to welcoming more of our loyal guests back into our stores and providing the hospitality and scratch made food where now theyre craving.
And with that I'll turn it over to Doug to review, our second quarter results.
Thank you Sandy and good morning to all I am pleased to be on the call with you today for.
For the second quarter, we reported total revenue of $677 2 million.
The decrease of 20% compared to the prior year quarter on.
Our restaurant revenue decreased 21, 4% and our retail revenue decreased 14, 8%.
In the second quarter, we experienced the significant increase in the number of dining room closures as well as more restrictive limits on capacity due to the resurgence of COVID-19.
At the peak of December approximately of 120 stores were operating with closed dining rooms.
The elevated closures and restrictions resulted in the second quarter comparable store sales declines that were larger than our first quarter declines.
For the second quarter comparable store restaurant sales decreased 21, 9%.
Which consisted of of traffic decline of 24, 2% and a two 3% increase in average check.
Pricing in the second quarter was one 2% and as a reminder, we purposefully were more modest share of our pricing in the first half of the fiscal year is still an anticipated approximately 2% for the full fiscal year.
Our off premise sales performance during the quarter was strong.
Comparable store off premise sales grew 78% compared to the prior year.
Of represented approximately 30% of total restaurant sales.
While our off premise growth decelerated relative to the first quarter, the second quarter of our seasonally strongest off premise quarter.
We again saw high demand for our heat n' serve meals, even with our higher price points. This year, our heat and serve offering is strongest in the second quarter and this year. It was even stronger as we mentioned in December our heat n' serve margins are lower than other off premise channels, but we're pleased with the contribution of the dollar margins.
<unk>.
We had solid retail performance on our retail team continued to do a great job on a difficult situation.
For the full quarter comparable store retail sales decreased 15, 3%, which included sequential monthly improvements.
In addition to the strength of our Christmas of giving Assortments.
Sandy mentioned, we also saw strong sales on our furniture grocery and personal care categories.
Now moving on to expenses.
The increased dining room closures and capacity restrictions resulted in significant sales deleverage that pressured our margins in the quarter.
Our total cost of goods in the quarter was 33, 2% of total revenue versus 32, 2% in the prior year quarter the.
The increase of total golf's cost of goods was primarily due to elevated retail sales as a proportion of total sales and the shift in the mix to off premise channels.
Our restaurant cost of goods sold was 26, 9% of restaurant sales versus 26% in the prior year quarter of 90 basis points of inquiries.
This was driven by commodity inflation of 2% outpacing our core menu pricing changes to menu mix higher food waste and onetime expenses related to our menu simplification initiative.
Our retail cost of goods sold was 54, 3% of retail sales versus 54, 4% in the prior year quarter.
Why did the challenges the retail team phase. We are pleased they were able to achieve these results with less promotional activity and increased sell throughs at full price.
Labor and related expenses were $236 9 million or 35% of revenue in the second quarter compared to $284 8 million or 33, 6% of revenue in the prior year quarter. This 140 basis point increase was driven by several of.
Factors.
<unk> sales deleverage of fixed costs, including store management second an increase in labor deployed into higher wage to go specialist positions to support our elevated off premise business and third wage inflation on a constant mix basis of one 9%, which outpaced our core.
Menu pricing.
These impacts were partially offset by the cost savings initiatives. We've previously spoken about.
Other operating expenses were $166 $9 million or 24, 7% of revenue in the second quarter.
Adjusting for the noncash amortization of the asset recognized from the gains on the sale leaseback transaction other operating expenses were $163 7 million or.
We're 'twenty four two percentage of revenue compared to $171 6 billion or 23 percentage of revenue in the prior year quarter.
This 390 basis point increase was primarily driven by several items.
First sales deleverage on fixed costs net.
<unk> increased expenses associated with the growth of off premise.
<unk> third party delivery fees and to go supplies and finally higher rent expense, resulting from the previously completed sale leaseback transactions, we spoke about in our September earnings call.
General and administrative expenses in the second quarter of $34 million compared to $38 $4 million.
Our second quarter G&A results include approximately $3 $3 million of realized cost savings as well as reductions in general expenses due to the ongoing impact of COVID-19, compared to the prior year quarter.
As a percentage of sales G&A increased 50 basis points compared to the prior year, which was primarily driven by sales deleverage from fixed payroll and related expenses.
GAAP operating income was $14 4 million or two one percentage of revenue.
Adjusting for the noncash amortization of the asset recognized from the gains on our previously disclosed sale leaseback transactions.
Adjusted operating income was $17 6 million or two 6% of total revenue.
Net interest expense for the quarter was $10 8 million compared.
Compared to $3 $5 million from the prior year quarter.
The increase in interest expense was primarily due to higher debt after drawing on our revolving credit facility last year to bolster our liquidity.
In the second quarter, we recorded an income tax benefit of $10 $4 million, resulting from the carry back.
2020, federal net operating losses, and favorable resolution of state income tax audits.
We recorded second quarter GAAP earnings per diluted share of <unk> 59 adjusted.
Adjusting for the non cash amortization of the asset recognized from the gains on the sale leaseback transactions.
And the related tax effects adjusted earnings per diluted share were <unk> 70.
And our EBITDA was $45 million for the quarter.
Looking ahead, we expect that the improving sales trends we experienced the January and then the first part of February prior to the weather will continue.
And we are optimistic we will see sequential improvements on our quarterly comparable store sales through the remainder of the fiscal year.
Assuming there are no resurgence of COVID-19.
And that the vaccination programs remain on track.
We anticipate the third quarter comparable store restaurant sales will be down 11% to 14%.
Comparable store retail sales will be down 7% to 9% compared to fiscal 2019.
Assuming the third quarter sales expectations I just mentioned, we believe third quarter operating income margin improved 50 basis points to 100 basis points from the second quarter of fiscal 'twenty, one through the third quarter of fiscal 'twenty one.
Our third quarter margins will be pressured by our continued focus on hourly staffing and the retention of our store managers to support the higher sales volumes are we expecting in the fourth quarter.
Additionally, our third quarter margins reflect investment ramp up expenses associated with the continued rollout of key initiatives, such as beer and wine digital and our new menu.
Looking ahead, we expect continued improvement in sales and operating income margins in our fourth quarter.
Although we expect it will be fiscal 'twenty, two before our quarterly margins reached pre COVID-19 levels.
Now for the rest of our outlook.
We expect to achieve the remainder of our targeting of sustainable cost savings of $50 million in the third quarter.
As of right.
Provider. These cost savings are partially offset by continued investments in enhanced health and safety measures expenses related to our strategic initiatives, which are largely included in G&A and lastly, the net rent expense related to our sale leaseback transaction.
We anticipate commodity inflation in the second half of the fiscal year of approximately 2% in second half wage inflation on a constant mix basis of 2% to two 5%.
We expect second half general and administrative expenses of approximately $75 million and capital expenditures in the second half of approximately $60 million.
For fiscal 'twenty, one we now expect to open two cracker barrel stores, both of which of our reopened and three new Maple Street locations.
We now expect a GAAP effective tax rate of 17% to 18% for the full fiscal year.
To date, the impact from fiscal 'twenty, one unusual items, including the magnitude of the gain on the sale leaseback and the impact of loss carry backs resulted in unusual volatility on our quarterly effective tax rates.
The outcome of that volatility is that the third quarter of effective tax rate.
As expected to be approximately 100% in fourth quarter effective tax rate is expected to be approximately 5%.
We continue to have a strong liquidity position as a result of our actions and active balance sheet management in the second quarter, we generated $64 $3 million of cash from operations, which further strengthened our balance sheet.
Our cash at the end of the quarter was $569 million.
Given our strong liquidity position, we have begun to reduce our debt levels.
During the second quarter, we paid down $75 million, which brought our total debt down to $875 million at the end of the quarter.
Since the end of the quarter, we have further reduced our debt by $100 million and we plan to pay down on an additional $200 million by the end of fiscal 'twenty, one with the majority of that occurring in the third quarter.
Regarding overall capital allocation, our board continues to evaluate the environment and they plan to maintain a balanced approach and.
In addition to investing the cracker barrel and Maple Street, New unit growth, we will continue to invest in strategic initiatives, including digital off premise and store technology, which will enable us to more effectively manage growth the business returns to more normalized levels.
Returning cash to our shareholders remains a priority.
We're optimistic we'll be able to reinstate the dividend in fiscal 'twenty two.
With that I'll turn it over to the operator for questions.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press. The Star then two at this time, we will pause momentarily to assemble the roster.
Yeah.
Our first question is from Gregory Frankfurt from Bank of America. Please go ahead.
Hey, thanks.
Thanks for the question.
Sandy the the first question I guess, it's really of two part question it seems like.
The way of lot of investors are looking at.
This is.
As a recovery sales in the recovery margin framework.
<unk>.
And so I.
I Wonder if you could give your thoughts on maybe why I don't know if it happens in 'twenty, two or 23 of late 'twenty, one why there might be an upside case for au. These post pandemic Bruce the pre pandemic and then Y on maybe even though.
100% sales recovery, rather than 105 margins could be even higher just any thoughts on that would be great I appreciate it.
Okay.
Well, where I think.
Everyone's trying to think about what what is life as we sort of move.
Past, the pandemic and I'm excited that I am excited that we have a number of sales driving initiatives to start with so beginning with the dine in the completion of our dinner initiative, which we started a couple of years ago. So our third Faisal.
We'll launch in April, which I think will.
Provide guests with a reason to come back.
We're making progress on beer and wine I'm excited about that we've got a lot of progress on our digital store, which I think will do a lot in terms of guest loyalty and it will help facilitate our off premise business.
In terms of our off premise business, we've seen explosive growth I think that we view.
The we will be able to maintain over 50% or we're hoping that we'll be able to keep about index.
In excess of 50% of the growth in that category. So I think theres a lot of good news on the top line.
In addition, we've been working on productivity enhancements and cost savings initiatives, Doug spoke about the cost savings progress were making.
Things in the productivity side, you heard about on menu simplification progress that we made over the last few months, which I think really position our field teams to be able to deliver.
A more consistent experience too.
To improve productivity and to allow room for future innovation. So I think we've got a lot of work on a variety of areas that will position the company when our guests come back to experience the brand however, they want to.
Thanks for the thoughts moving it back in the queue.
Okay.
The next question is from Todd Brooks from CL King. Please go ahead.
Yeah.
Hey, good morning, everybody I just have.
Couple of questions one if we look at.
The cracker barrel footprint in the.
Kind of obscene winter weather that we've had in a lot of the southern tier of the South East.
Maybe talk about what percent of the store base has been impacted due to the storms here in February and.
Maybe if we can walk through.
Whatever the projected impact from the storms.
Cause on the thinking around the operating margin improvement guidance sequentially from fiscal Q2, the fiscal Q3.
I can I can start and then Doug I'll, let you add more color I don't know that.
Todd if I can give you exactly the percentage we had stores of course, Texas was impacted I think it is.
Peak, we may have had 126 stores that were closed either because of the snow conditions or because of our employees were unable to get to the stores.
Beyond that though we had a number of communities when the temperatures in the south reached the kind of places they were over the last week, even when they werent closed it keeps people from.
From being out in it so our business was broadly and dramatically impacted.
So really disruptive in terms of production and a lot of those things.
All of that though was baked into the guidance that we gave through the third quarter or so and one of the reasons, we're not comfortable giving quarter to date guidance is that we really just started the quarter. We were into it a couple of weeks and then the storms hit so I think our quarter to date number would be a little.
The wouldn't be as meaningful as you might hope, but Doug do you want to add anymore.
Sandy I think debt.
As far as the the regional perspective and from the weather.
Sales of down there I think and just to reiterate with Sandy said the our expectations for February from a sales on operating perspective were included in our margins I think it might help if I talked to you a little bit more about what we're expecting with the 50 to 100 basis point range that we gave related to the improvements that we expect to see.
<unk>.
When we look at things that we really see the largest driver being a inc.
<unk> on our cost of goods sold because of a significant change continuing changes in our in our channel shift we expect seasonally to have lower retail cost of goods sold some of that is a continuation of the effect of sell throughs. Our team, we're having and reduced promotion promotional activity that we expect to see that cadence of the quarter.
We also expect as our off premise business continues to shift back into the dining room, we will have a lower restaurant cost of goods and thats kind of reflecting the change from the second quarter. When they were higher because of the heat n' serve we also start to have a little bit of the menu leverage we took the menu pricing late in January so.
We'll see the benefit of that for the full third quarter. So thats pretty much kind of takes you through our expectations on the margins there as we move through Q3.
That's very helpful. Doug. Thanks, and then just my follow up question if we.
Knowing that there is too much variability to talk about quarter to day trends, if we look back to.
The fiscal second quarter, and if you look across the store base could you maybe talk about spread in performance, maybe some of the the earlier to reopen markets or maybe the more liberal capacity markets versus some of the more restricted markets. So that we can get an idea of maybe.
You know in of reopening scenario of what some of the base might might recover too as we see capacity restrictions lift. Thank you.
Well, we are monitoring very closely the the the individual stores and regions and not surprisingly the business is better in those markets and communities, where there are the fewest restrictions.
And we are seeing that it but it's a little more complicated because you could say well then Florida would potentially be a strong simple.
And we're pleased with the.
The progress, we're making and particularly the southeast where the restrictions of gone, but if the store is dependent on tourism, it's probably not feeling it. So you know where we are not necessarily seeing the travel to some of our destination store.
Yet that we are hoping to see certainly in the summer.
And and as we move through the spring and vaccinations sort of open up and people are comfortable moving around a bit more.
The only thing I would add to that is I think we've talked to you in the past about.
On interstate versus off Interstate stores and with the softness in travel we see a little bit.
Less of a recovery on our on Interstate stores, but we're picking up in the in the off the Interstate which is a good day.
The next question is from Jeff Farmer from Gordon Haskett. Please go ahead.
You have a couple of questions and a follow up so I will start with the follow up.
The <unk> off premise sales were.
I think in the range of 17 to 18000 per week pre Covid I think you guys were seven to 8000 per week.
I think you just said that you were looking to keep an excess of 50% of of that sort of the increase in off premise, but of 50% of what I guess is the question of what number you're referring to because you did see that seasonality seasonally high sort of F. F. <unk> of premise number so 50% of what is the the.
The question.
Got it.
I'll take that.
Then probably good that I clarify what we're looking to try to model here as we look sort of longer out further is how sticky is on our off premise business.
So first of all it varies by channel in terms of our view about it individual continues to be the largest channel, which we think.
Some of that is going to convert back to the dining rooms. When they open we think our catering channel is going to grow when people start doing gatherings, and we think our heat n' serve.
We're hoping it's pretty solid we've been doing a lot of work on the assortment there and we think that that.
Is it is a really interesting place for the brand debate in general, though what I meant on my comment is that long term we'd like.
To believe that we can retain in excess of 50% of the growth that we've experienced in our off premise business over the last year.
And then on the questions.
The the fiscal third quarter of same store sales guidance I think that implies average weekly sales of roughly $62000 of weak if my math is somewhere close.
Is that the run rate, you're seeing now or is that a run rate you anticipate growing too as you move through the quarter.
Yeah, that's that's the.
Good question and the.
Well I'll clarify on a couple of different ways no. That's not what we're seeing right now we certainly we're encouraged by the trends that we saw in January come in in the February.
Think of that will grow into the sales expectations that we provided over the remainder of the quarter and I think just to add a little clarification as well.
We did guide versus 19 and gave you a range of 11 to 14 and when you convert that into what we think comps look like versus 'twenty that gets you around 50% on the restaurant side and when you look at that on retail it's in the range of 65% to 70%.
Okay and then the final question you did touch on this in the prepared remarks, but as it relates to the $50 million.
And cost savings that you are pursuing this year and the offsets.
I think you gave a little bit of color here, but there is obviously the sort of the rent offset I think there is roughly $8 million of incremental G&A expense of my name is some stuff, but just some sort of additional clarity there in terms of what that growth $50 million of cost savings could look like on the net basis in fiscal 'twenty one.
I think.
So to remind you as we've talked about those cost savings. We do have several offsets in terms of lot of the offsets of related to our sales driving activities.
And the the largest piece of that was related to our beer wine expenses, we also or.
And making the investments in our digital business and we also have some offsets related to the the health and safety measures, which have been on the numbers and as we think about our business model post Covid, we believe believers health and safety measures will come out of the expenses really not prepared to talk about exactly what that look.
Like until we get probably end of the fall when we have a little better perspective from our own planning and we give guidance for 'twenty two.
Okay. Thank you.
The next question is from Jake Bartlett from true. Please go ahead.
Great. Thanks for taking the questions on my first.
It's about your expectations from the third quarter and just kind of goes back to the on the February results and I know, you're not sharing them but.
Because if we had those we'd be able to understand what you're expecting from March and April but can you just talk broadly on how close to <unk>.
Fully recovered do you think you'll be by April it seems like.
This guidance.
Scenario, where youre actually very close.
On kind of speak to your.
The confidence of.
Speed of the recovery that you're expecting.
Okay. Jake we thought we're going to make you happy by giving your third quarter guidance of nationalism.
Yeah, I love it.
No we're not.
Month over month that improves as the vaccines stimulus money.
People feel better restrictions loosen so.
We're hoping that it just continues to improve as we go continue through the third and into the fourth but we're not prepared to break it down month by month at this time.
Okay and the comment on margins I think the comment was that you would expect flat operating margins and 22.
Sales were at 19 level, maybe if you can kind of repeat that but I'm on.
Wanted to make sure I understood. The moving pieces just in light of the the margin savings of $50 million savings that you've gotten.
It seemed like you could be at a higher margin in 'twenty two than you were at 19, but maybe maybe if you could just clarify that comment.
Yeah, Let me give you a little bit of both of them.
Perspective on that I guess first off we really havent given any details that relates to 'twenty two yet.
And I think couple of things you have to keep in mind is as we when we do guide. The 22 is that we had the changes related to the sale lease back which will change our operating margins compared to 19. So there will be some step down from that which would then be offset by some of the cost savings initiatives that we have.
The rollout of some of the ongoing costs, we've talked about of the investments in a few things like that but it's really not going to be a flat number.
Got it so maybe to put it another way if you do you would you expect margins to be higher or lower than 19.
At the same sales level.
'twenty two with the same sales level.
Thank you.
We're not providing guidance on margins right now for 'twenty two.
Okay. Yeah, I was just trying to understand the moving pieces, but just lastly.
Doug if you could clarify where we are in the $50 million of savings do you I think you mentioned.
What was saved in G&A, but I think.
Maybe I missed it the <unk>.
Impact in.
In labor, so maybe just to kind of make sure we understand what's left to come of that in the third quarter and then on pricing I just want to make sure I understand.
What it implies 3% pricing in the back half of the year.
And just wanted to double double check that.
Is that.
What is driving that is the case what is driving the kind of much the more aggressive.
Pricing outlook.
Well I'll start on the just on general on the pricing and then Doug can give you the any.
Any additional detail on the cost savings, which.
So first of all on pricing as we mentioned in prior quarters, we were going to be conservative in the first half. So we guided for the year to 2%, but we were conservative.
And our initial pricing actions through the first half and the end of January we took another pricing change.
And I'm trying to not say something that Doug wishes I Didnt close then.
We do plan some additional pricing actions over the course of the year selectively on.
All of that getting to the guidance for the year of.
On the forum was about 3%, yes, yes, yes, 3% the price.
2% sorry.
In terms of our cost savings.
What else do you want on Wednesday, we're moving along the cost savings are in G&A and Theyre also in store operating expenses the largest part.
By the design.
The September call was the largest part of it was coming out of the store operating area, we achieved about $20 million of cost savings in the prior year. So that left the balance to the to the earn this fiscal year and about half of that was in Q1 and the other half from Q2, roughly I'm, sorry Q2 of <unk>.
Three over the course of this fiscal year, when we really ramped up the cost savings with this fiscal quarter Theres, a little bit left that'll carry over the balance of the year, but it's pretty small.
Great I appreciate it thank you.
The next question is from Brett Levy from and Kim. Please go ahead.
Great. Thanks.
You started to talk a little bit about some of the progress youre, making it at Maple Street how.
How should we think about what you can do from the development standpoint in the <unk>.
Not just.
Throughout the day this year and into next year, but also.
What can we see longer term out of it went to a point where it starts to become a more.
More meaningful needle mover from a profit contribution and how.
How are you thinking about.
What you may have learned over this course of the last year for the traditional barrel locations.
On.
Let me start on on all hit the Maple Street and then.
Touch on the cause of Cracker barrel. So first as I said in the prepared remarks, we're really pleased with the performance in <unk>.
They've exceeded our expectations, both on the comps and in the progress they're making.
On the operating income margins.
Ben really so focused on making sure we will.
We had the best sites as we opened new locations and that we understood. What the best site look like which is why we've probably gone a little slower than we had originally planned to I'm excited about the sites that we have identified as I mentioned there'll be three that opened this year of the first one in the Louisville second one.
Today is in Murfreesboro.
I think that as we we will be entering new markets as well as looking for existing additional locations around the existing markets and I'd like to say that in the next fiscal year, we'll be looking at growth in the double digits back to where we had originally thought and that sort of <unk>.
<unk> 20 range.
So then it starts to become meaningful on both the.
On certainly the top line.
Numbers for us.
In terms of the barrel I wasn't sure what.
Did you mean in terms of real estate or in terms of the P&L.
Well I would start with and then I was going to lead that into.
With all of that you've learned from off premise and the continued progress you are making digitizing. The store what are you seeing from a what are you learning from a the ability to.
It closer to the customer.
Understand their habits, more and maybe even drive some labor efficiencies just through the technology of the tests, we've discussed in the past.
Well.
So I'll go back on the P&L.
Is we're really focused on initiatives that drive incremental top line and then improve productivity and then the cost savings have already on outline those.
In terms of what we're learning on our real estate, we're certainly trying to understand the impact of off premise and how that should impact our store design. So it's everything from how the parking lot of it should be set up.
Dedicated to go space, we've been maybe not surprised pleasantly surprised at how popular our front porch dining has been so we're thinking about that is as how that should play into our prototypes.
Certainly as we understand technology more that'll get incorporated into our into both the design of our boxes as well as the equipment that we're putting in in the back of the kitchen.
And as we continue through with our menu evolution like I said, we're about to complete phase three of our dinner.
Of our dinner then we will start on breakfast, where we will be thinking about what kind of equipment and kitchen layout would allow our operators to deliver that menu more productively.
So we've got a lot of work against how to improve the productivity of new boxes, hoping that that will potentially allow us to continue and maybe even increase the number of new units cracker barrel units that we feel comfortable opening.
Thank you that the tough.
The next question is from Alton Stump from Longbow Research. Please go ahead.
Great. Thank you hey, good morning.
I just want to ask first on.
On the off premise of margin front, obviously, the being lower.
Which is understandable, but I was kind of think long term you know given the fact that that probably will be a bigger piece of your business. Even after the Covid goes away eventually.
How do you think about.
At a weighted debt.
I close the gap on.
On March for whether its target of more pricing on off premise and ore.
Hopefully you can scale coming of that cost.
What's kind of the moving pieces, you think that could over time potentially you know kind of close the gap on your on.
Margin versus on premise.
Sure.
So I'll take that we are doing a lot of work we're doing a lot of cross the brand on a whole variety of areas about how to improve our margins, but specifically on on Prem So individual to go probably the biggest thing.
We're working on is how to increase the check because if you just look at the rate on individual to go it's actually pretty well in line with dine in its debt.
We would like to get more of attachment either beverage or an add on or a retail item or something to get the checkup well, we're working on our supply cost so that because that's a big part of our on Prem business, we're looking to reduce labor not the technology play whether that's getting more guests to.
Through our digital.
Uh Huh App.
So that they order that way and pay that way, which reduces the labor that we need to provide we think in some of our offers like our heat n' serve we've got pricing power.
And and we're working on new offers that will appeal I mean just fees.
Individual box meals that we've launched in the last week or so as of catering offer.
That was in response to both of the pandemic.
The interest in having individual kind of meals versus per se, but.
Also just a lot of gas they need an individual on.
Offer to just that's what best fits the occasion they have so.
You know I think that our teams our culinary teams our technology teams on our operators are working on attacking every part of delivering an off premise experience, which is why we believe we will be able to make some progress on our off premise margin.
Yeah.
Great very helpful. Thank you Sandra.
A quick follow up and I'll hop back in the queue. It's Doug I think I heard you correctly that you said you got the.
The tax rate will be 100 per cent and.
The <unk>, 5% of for futures.
All of the moving piece of its drive that big of it.
<unk> three versus four of a few on the tax rate from.
Yeah. So when you think about taxes the.
The large gain that we had for the sale leaseback caused a relatively high tax rate compared to the rest of the year.
And then we have the carry back that we recorded in Q2.
Both of which have an impact on cash taxes paid and so it.
To some degree of taxes are kind of of solve when you're recording them on an interim basis. So as we look at our effective rate for the year and you apply that against.
Our earnings through each of the next quarters. That's just the the rate that it takes the solves it was really those are the things that happened in the prior periods that are driving it as opposed to activities in the <unk>.
Next few quarters.
Got it thank you.
You'll get the price Alton from we didn't know who was kind of asked the tax question.
Yeah.
Yeah.
Of all excited about interest rate.
All of that.
Right.
The next question is from Bob Derrington from Telsey. Please go ahead.
Yeah. Thanks.
Doug if you could clarify that last point on the tax.
If we think about it you know I assume you're talking about the GAAP tax during the quarter would you be reporting the third quarter on an adjusted basis.
I was talking about the GAAP tax rates and the guidance that we gave.
And ultimately.
When we report the third quarter it would be.
On a.
On a GAAP and adjusted basis. So you have the visibility.
Okay, all right that's terrific I assume that but you know I hate to make it the assumptions and also as it relates to the menu pricing could you clarify for US you know as I.
Look around the industry most of your peers generally are taking menu pricing a little bit more so in markets, where minimum wage rates are going up is that generally kind of a part here as far as the the.
The incremental menu pricing that you've taken in or anticipating.
Yeah, we introduced pricing tiers.
I don't know four of five years ago, largely as we started moving out west and our growth was in areas, where there was pretty significant.
Increases in minimum wage so we were already positioned to do it and yes, as we think about our pricing increases we are looking at and taking more price in areas, where we need to offset.
The minimum wage increases.
Gotcha, Okay, and Doug I appreciate the excuse me of the clarification on the the same store sales converted to adjusted for this year versus last.
As I look at some of the numbers it appears as though that's pretty much in line with the current consensus expectations.
But you know as I'm thinking and as we look out to the fourth quarters of the do the July quarter.
Last year travel trends were significantly impacted by a of.
The the Covid spread and as I look at some of the National surveys recently talks.
Talking about a pent up demand for travel.
It certainly seems like it's going to be pretty.
Pretty aggressive expectations by consumers to get out of on the road in <unk>.
Head for the beaches or someplace else.
Sandy how do you find enough people to staff the stores. If in fact, you of the trends sequentially continued to build within the particularly strong travel season during the summer.
Well first let's all hope that once we are getting through the city of America does in fact on and get out on the road and.
And the.
While they're out we are going to be ready to to feed them. Our operators I can tell you on extremely focused on ensuring that we are both staffed and trained as we as we head into that and one of the benefits that we had through the actions that we took.
From the very beginning of the pandemic is that we've really focused on employee retention and I think our operating teams have done a phenomenal job.
Of.
The retention of our employees through whether it's keep in touch plan or the the the kind of benefits that we provided over the course of this thing on the kind of flexibility that we have been able to provide.
We are have focused on what is the right level of staffing and how do we get there.
In connection with our HR team.
So that we are ready.
Gotcha. Thank you for that and then last question you.
You had previously talked sandy about.
You know our store in which you are doing some testing with different ideas and things about the virtual brands any anything else that you can share with us at this point about some of those thoughts.
Well.
Yeah.
So what we what you're probably referring to is our CB kitchen.
So I'll just remind you the what we tested in the Indianapolis market.
We converted a cracker barrel box, which we converted to.
Just an off premise only.
Facility.
Pleased with what it's done it's only been in operation for a few months.
On the months, but I do believe that its ability to provide heat n' serve offerings. For example, during the holidays to really help us serve that market, we're continuing to test in there and understand the opportunities that we have there, especially when catering comes back to that market had of dedicate.
Of the facility and how that might allow us to do additional offerings there to supplement the capacity that we have in the market.
Actually well, where we're excited we're launching in the knee a virtual brand tests there on Friday.
It's chicken and biscuits, it'll be provided sort of delivery only.
And you know, it's a unique opportunity to see how.
On the offer of something that cracker barrels known for resonates as adult as of delivery only offering and will keep you posted as we go along.
Oh, that's great that's exciting and then the last thing.
So you mentioned the heat and serve the prime rib meal would be available.
Eastern time this coming Easter.
That's correct.
Terrific well, we really enjoyed it around the holidays. Thanks.
Thanks, so much take care.
The next question is from Jon Tower from Wells Fargo. Please go ahead.
Hey, Thanks for taking the call or the question I just have a few if I may and just kind of following up a little bit on the wage question.
Earlier.
Perhaps you can help us understand the structure of wages in the store today I know it differs by state, but perhaps the minimum wage.
On the percentage of employees at the <unk>.
Store that are subject to set the minimum wage.
And then how much of that is tip credit and then maybe sandy or Doug from a higher level kind of your thoughts on longer term wage rate inflation because of the beauty from forces playing out on the market still uncertain as to what's going to happen from a government level. But then there is a large retailer that's bumping up their wage rates right now and that might be good for you.
Top line, but on the other side there might be some pressures on trying to retain or bringing in new talent on.
On the other side of the equation. So just hopefully you could provide a little bit of color on that as well.
So I assume what you mean on mix is that in.
And a cracker barrel restaurant, we have tipped and non tipped employees and.
Depending on the rules in each market the minimum wage actually what's more important to us is the tip credit what can have a bigger financial impact to us is a change to the tip credit versus the change to the minimum wage so we're monitoring boat.
The tipped versus non tipped mix.
I don't Doug I'll, let you know that off the top of your head on one of the issues for US has been in an environment, where we've shifted out of the dining rooms and into off premise business that has shifted that mix into more non tipped employees, which tend to be tend to be more expenses.
The.
The higher wage rate.
So.
Where we are of course watching the way this is unfolding and the states that we're in and the communities. We're in it will take a few years to work its way through.
We will be able we believe to offset some of these pressures through pricing increases and certainly we're focused on how to offset.
All of our labor.
Needs through productivity improvements in technology.
So I am not is it.
Does that respond to your question.
Yes, just the split essentially at the store level. If you have that maybe I can follow up later the difference between the 10 versus non debt. That's fine. If you don't have it right now I can move on to another question on much of the one to the normalized one why don't we follow up later, because you don't want the one we have right now with the problem.
When dining rooms, reopen right exactly yes, no I appreciate that and then just.
Following up earlier Sandy you've made comments about <unk>.
Actually being or bigger ports being part of the prototype going forward and the kind of sparked the question of.
And I think 10th last year were a nice.
The Nice addition to keep sales coming as in dining room restrictions were there. So what's your thinking about spring and summer this year.
Who is going to be options again in fiscal 'twenty, one and into 'twenty, two or are those going to be taken off the table.
Oh actually where we're actually talking about that right now here on the store I think we've got about.
Maybe 125 of our soil official front porch dining stores.
Meaning stores that we have provided outdoor furniture for I think there's probably 200 or so on the official.
The front porch dining rooms, where the stores have.
Just move some of the dining room furniture, since we had excess furniture as we reduce capacity of the dining room.
Out to the front porch to service guests.
I think that it will definitely be of part of the third and fourth quarter.
And we're evaluating you know to what degree it's going to be permanent.
The guests love it it's not always very easy for our field teams to take care of guests out there, we really didn't design access to the front porch in a way that works as well as it should and we the covering the season you know in the rain and some of that so I think our operators.
We're working through where we should continue to have front porch dining and what that looks like.
Got it. Thank you and then just lastly on the beer and wine tests I know you'd mentioned that the standard to a few more.
The stores and it was coming within your expectations can you talk about the impact that it's having to those stores from a sales standpoint, and even I would assume a lot of it is is being consumed at the dinner time.
Maybe you'd be willing to break out the mix between lunch and dinner and any surprises youre seeing so far with the program as it's rolled out.
Well so the the.
The mix the and this is I think what we actually said in the last call. It's about 1% of sales and we believe we can double it and I still believe we can both we can double that.
We can take them continue to be optimistic about this one of the things that we've seen is because Florida was the first market to launch beer and wine and the Covid restrictions have reduced significantly in fact, I don't even know if the RNA in Florida right now we've enhanced our emphasis on marketing and Trey.
<unk>, there and I'm seeing real positive results in Florida. So.
That bodes well for the rest of the system.
It's.
Surprisingly the number one seller, though continues to be most of it. So it's not if it's not necessarily the dinner time that you say, although people do drink of medicines, even when they get pancakes at dinner.
But the most of it is by far a leading seller strawberry and Orange. We have found we've tested some new items, we have put a few.
The tests and then the probably the highlights from that may be a menu additions like sangria.
And the Blue Moon, which we believe have.
We might be adding to the lineup so the the team.
Of the team is working on the assortment the field operators are working on how to deliver.
On that new beverage program effectively and appropriately on our marketing team is really working hard on how to tell our guests that we even have this.
And particularly in an environment, where we really can't have any point of sale or very much point of sale information on the table.
Got it I appreciate all the color.
Thank you.
There are no more questions in the queue. This concludes our question and answer session I would like to turn the conference back over to Sandy Cochran for any closing remarks.
Well. Thank you all for joining us today Cracker barrel continues to be one of the strongest and most differentiated brands in the industry I remain confident in our strategy and initiatives and I believe we're well positioned to drive strong performance when the industry normalizes. We appreciate your support and look forward to speaking to you on a few months.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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