Q4 2022 Cracker Barrel Old Country Store Inc Earnings Call
Good morning, and welcome to the Cracker barrel fiscal 2022 fourth quarter earnings call.
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I would now like to turn the conference over to Jessica Hazel. Please go ahead.
Thank you good morning, and welcome to Cracker barrels fourth quarter fiscal 2022 conference call and webcast. This morning, we issued a press release announcing our fourth quarter and full year results in this press release and on this call well refer to non-GAAP financial measures for the fourth quarter.
Fiscal year ended July 29th 2022.
The non-GAAP financial measures are adjusted to exclude the noncash amortization of the asset recognized from the guidance on our sale and leaseback transactions and their related tax impacts.
The company believes that excluding these items from its financial results.
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 last pages of the press release include 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 CFO Craig <unk>.
And senior Vice President and C N Gen Te.
Sandy and Craig will provide a review of the business financials and outlook. We will then open up the call for questions for Sandy cracks and Jen.
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 in 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'll now turn the call over to Cracker barrels President and CEO Sandy Cochran Sandy.
Thank you Jessica and good morning, everyone.
This morning, we announced earnings per share that were above our expectations with an operating income margin of four 4% that came in within our anticipated range of 4.0 to four 5% of total revenue. Despite softer sales than we had predicted and inflation that was at the top end of our range for the.
Quarter.
Our teams worked extremely hard and did a good job navigating the headwinds from the third quarter, if that persisted through the end of our fiscal year.
Across the restaurant industry right now and management teams are confronting the challenge of navigating an environment of softer consumer demand and higher costs.
Coupled with the uncertainty about when either of these dynamics will abate.
Puts even more pressure than normal on pricing and menu decisions as we balance the desire for cost recovery against the potential impact on value perception and guest visitation.
Which if not properly managed can lead to more challenging long term behavioral shifts.
Well, we always manage our business at cracker barrel to perform well in whatever environment, we find ourselves we do so while focusing on the longer term success of the brand.
To the extent that we've taken pricing, we've done so deliberately and selectively and preserve the value sections of our menu and maintained attractive entry points.
We've also focused on the longer term initiatives to improve our business model that we outlined back in June and about which I will share some additional details in a moment.
We remain optimistic that this study perspective is the right one, particularly in this turbulent environment.
Looking back at the fourth quarter, the challenging environment and I discussed in June continue to impact us through the end of our fiscal year, including a slower than expected summer travel season fewer.
Fewer visits from guests 65 and older.
And high gas prices and other infiltration aerie pressures weighed most heavily on lower income guess.
Due to our unique business model, we felt some of these pressures more acutely than others, particularly in June and July when gas prices and broader inflation, where especially elevated in many households, abstained from or curtailed summer holiday related driving.
From a cost perspective food inflation came in at the very high end of what we expected.
As we believe this inflation will ease over the back half of fiscal 'twenty, three we decided to pass on much but not all of the cost impact in our pricing.
We believe this was the right decision to maintain our strong value proposition with our guests.
<unk> in the face of a potential recession.
Although we experienced lower visitation from guests over 65 during the fourth quarter.
We will continue our efforts to improve in this area. We were pleased that we gained traction with and saw increased visitation from younger guests, particularly millennials between the ages of 25 and 34.
Guess between 44 and 55.
We also experienced increased visitation from lower income guests generally.
All of these trends have continued into our first quarter of fiscal 'twenty three.
Indicating that our efforts to appeal to younger guests and our investments in value are bearing fruit.
We saw other positives during the fourth quarter as well our off premise sales remain solid and our retail teams continue their exceptional work in sourcing and supplying our stores with merchant ties that resonated with our guests.
It's allowed us to top $700 million in annual retail sales for the first time in our history.
All while maintaining a disciplined approach to inventory.
Finally, we remain bullish on Maple Street, and despite the unexpected construction delays and supply chain issues that kept us from opening the number of stores. We had hope to open in fiscal 'twenty. Two we remain very confident in the growth potential of this brand.
As always our investment decisions, we're focused on the longer term success of cracker barrel and the initiatives. We are pursuing in the current environment reflect this.
We're investing in our operations to ensure a consistent strong guest experience.
First thing in menu innovation to enhance check and to appeal to a broader guest base.
Investing in technology.
And making sure we maintain our critical competitive advantages so that we're well positioned in an industry when the inflationary pressures eventually ease.
That we were able to make these investments while still returning near record levels of capital to our shareholders is a testament to our prudent and thoughtful approach to capital allocation.
Through a compelling quarterly dividend and share repurchase program, we were able to return over $246 million to our shareholders in fiscal 'twenty two our second highest level in the last 15 years.
Craig will now go into some greater detail about the quarter and provide our expectations for the upcoming year and once Craig is finished I'll provide some additional details about our initiatives and our optimism about what's ahead Greg.
Thank you Sandy and good morning, everyone.
For the fourth quarter, we reported total revenue of $834 million restaurant revenue increased six 5% to $661 $9 million and our retail revenue increased three 3% to $168 $5 million versus the prior year.
Our fourth quarter comp.
Comparable store total sales, including both restaurant and retail grew by five 5%.
Comparable store restaurant sales grew by six 1% over the prior year, driven primarily by 7% pricing.
The fourth quarter's 7% pricing consisted of 3% carryforward from a first quarter price increase and roughly 4% carryforward pricing from actions in the third quarter.
Off premise sales were roughly 18% of restaurant sales, which is in line with our long term retention expectation of the growth in off premise sales we experienced during the pandemic.
Comparable store retail sales increased 3% compared to the fourth quarter of the prior year home decor toys and men's apparel offerings delivered the largest increases by category.
Like Sandy I want to thank our team for all their hard work this year.
Moving on to our fourth quarter expenses total cost of goods sold in the quarter was 32, 9% of total revenue versus 31% in the prior year quarter.
Restaurant cost of goods sold in the fourth quarter was 28, 7% of restaurant sales versus 25, 1% in the prior year quarter.
This 360 basis point increase was primarily driven by commodity inflation of 18%.
As well as elevated freight costs, partially offset by pricing.
While we experienced inflation across our entire market basket. They are primary drivers of the increases were poultry at 35% inflation oils at 76% inflation and grains at 27% inflation.
I have been face to your with such historically high commodity inflation impacting the fiscal 'twenty to bottomline.
It is worth spending a minute on the broader inflation and pricing dynamic.
While we do not believe that labor costs will ease in the future of substantially.
We do believe that food commodity cost will be.
As such we made the decision, especially in the face of a potential recession.
Take moderately less price than we might have to offset this inflation.
As Sandy mentioned, we seek a balanced and consistent value proposition for our guests and believe this is important to maintaining a long term brand affinity.
Fourth quarter retail cost of goods sold was 49, 4% of retail sales versus 48, 8% in the prior year quarter.
This 60 basis point increase was primarily driven by modestly increased promotional activity.
And higher freight costs or represents terrific performance by our retail team at a time when many retailers have not performed as well.
Fourth quarter Labor and related expenses were 35, 5% of revenue versus 34, 2% in the prior year quarter, an increase of 130 basis points.
This was primarily driven by the unfavorable impact of wage inflation net of pricing.
And lower short term productivity levels, resulting from an increase in manager an oldie staffing versus the prior year when we were understaffed.
Holly.
Adjusted other operating expenses were 23, 3% of revenue versus 22, 6% in the prior year quarter. The 70 basis point increase was primarily driven by increased maintenance expense as we spend more on repairs for property and equipment due to shortages of replacement items.
As well as double digit supply and you can tell if there's inflation.
Moving beyond the store level margins, our general and administrative expenses in the fourth quarter were three 9% of revenue versus four 7% in the prior year quarter. This 80 basis point decrease was primarily due to lower incentive compensation.
These results culminated in GAAP operating income of $33.0 million adjusted for the noncash amortization of the asset recognized from the gains on the sale of the sale and leaseback transactions adjusted operating income for the quarter was $36 $2 million or four.
4% of revenue.
Net interest expense for the quarter was $2 $6 million compared to adjusted net interest expense of $6 $1 million in the prior year quarter.
This $3 $5 million decrease is the result of lower debt levels as well as a lower weighted average interest rate due to the convertible debt offering we completed in the fourth quarter of fiscal 2021.
Our effective tax rate for the fourth quarter was negative nine 9% compared to our expectation the lower tax expense was primarily driven by the earlier than expected settlement of a state income tax matter.
Fourth quarter GAAP earnings per diluted share were $1 47.
Adjusted earnings per diluted share were $1.57.
In the fourth quarter, EBITDA was $62 $4 million.
Turning to capital allocation and our balance sheet, we remain committed to a balanced approach to capital allocation. Our first priority remains investing in the growth of cracker barrel on Maple Street.
And that we plan to return capital to our shareholders, while maintaining appropriate flexibility and a conservative balance sheet.
In the fourth quarter, we invested $38 $3 million in capital expenditures, bringing our full year total to $97 $1 million for fiscal 2022. Additionally, we returned $88 $1 million for shareholders in the fourth quarter through a combination of dividends and share repurchases.
Bringing our year to date total to more than $246 million.
Lastly, we ended the quarter with $423 $4 million in total debt, representing a one four times net debt to EBITDA ratio.
In the near term and midterm, we expect to maintain a net debt to EBITDA ratio in the one three times to one seven times range.
With respect to our fiscal 'twenty 'twenty three outlook I'd like to provide some additional color to the guidance provided in this morning's release, everyone should be mindful of the risks and uncertainties associated with this outlook as described in today's earnings release and reports filed with the SEC.
We expect total revenue growth over the prior fiscal year to be in the range of 7% to 8%.
In addition to anticipated favorable comparable store total sales growth. This assumes the opening of three to four new cracker barrel locations and the opening of 15 to 20, New Maple Street locations.
Comparable store sales growth is expected to be primarily driven by approximately 8% total annual pricing.
We remain prudent and thoughtful approach to pricing by leveraging a test and learn methodology to carefully monitor the guest reaction versus the control group and believe this approach will continue to protect our strong value proposition.
We anticipate commodity inflation of approximately 8% for the fiscal year.
We anticipate mid teens commodity inflation will continue in Q1 and by the end of Q4, we anticipate slight deflation.
The largest drivers of commodity inflation are expected to be poultry produce and dairy with each category, representing approximately 13%, 13% and 9% of horror market basket respectively.
These three categories alone are expected to account for approximately 60% of our overall commodity inflation impact.
We expect approximately 5% wage inflation for the fiscal year with Q1 being the highest inflation quarter until we begin to lap the jump in prior year wage rates, which will result in a lower inflation rate for the second through fourth quarters.
We expect to deliver between 20 million and $25 million in cost savings during the fiscal year ending the year with an annualized run rate savings of approximately $13 million from the work we've done over the last several quarters to systematically identify business opportunities in the comp.
And developing initiatives to support cost improvements.
Some initiatives like our new food cost management system were introduced companywide last year, but can be further leveraged for more robust savings now that stores are more familiar with the new system.
Other initiatives like the new labor system are still in test.
Likely provide a meaningful savings in the later half of the fiscal year.
These larger initiatives, which we've spoken to combined with other actions, including improving hourly productivity, reducing food supplies and equipment costs through specification and sourcing changes and returning toward pre COVID-19 employee retention levels.
Which would deliver training and recruitment savings are all expected to have a favorable impact throughout the P&L.
We anticipate restaurant Cogs and labor unrelated to each delivered just under 40% of the annualized savings with much of the remaining 20% being realized in other operating expenses.
Yeah.
We anticipate that capital expenditures for the year will be approximately $125 million, including new store investments of roughly $30 million.
We expect to grow operating income by between 8% and 10% over the prior fiscal year.
In addition to considering the revenue growth commodity and wage inflation and cost savings God once I just spoke to.
This operating income growth expectation contemplates the following assumptions.
Continued inflationary pressures in other areas of the P&L, most notably supplies and utilities.
Moderation in retail margin compared to the prior year near historic high.
And incentive compensation normalization.
We anticipate fiscal 2023 first quarter operating income to be meaningfully below the prior year first quarter and below the quarter. We just ended.
We believe our operating income performance versus the prior year will improve with each quarter as commodity inflation moderates and our cost savings initiatives gained traction.
And as a result, we anticipate 2023 fourth quarter operating income to be well above the fourth quarter, we just reported.
We also believe there is potential upside in our operating income expectations.
Their work to be further moderation in the commodity environment.
And a potential downside operating income expectation.
If there were a worsening of the consumer environment.
Or if inflation across the P&L fails to moderate or even increase it further.
I'll turn the call back over to Sandy So she may share additional details around our business plans for fiscal 2023.
Thanks, Craig.
As Greg just outlined for you we expect to see compressed margins in the first half of the year, but believe they will expand significantly in the back half as commodity inflation subsides in the manner, we expect.
A bigger question is whether we eventually will get back towards pre pandemic levels of profitability and the answer is yes overtime.
Of course, we are taking and will continue to take shorter term actions to drive traffic reduce costs and selectively raised pricing in an appropriate manner to help offset high levels of commodity and wage inflation.
But our focus is on the sustainable cost savings that Craig referenced and the longer term top line initiatives that we're speaking to today.
I've already mentioned, our focus on investment and value, where we want to maintain our leadership position versus our competitors.
I'm pleased to report that this investment is paying off and that our value scores remain excellent even in the face of the elevated price increases we've taken so far.
According to Technomic data are relative gap versus competitors increased on nearly every value metric compared to the prior year for the most recently published period.
Including prices relative to other similar concepts and affordability.
We will continue to approach pricing in a way that will keep our value perception scores high.
While we try to restore visitations from our guests over age 65 to pre pandemic levels. We will continue to seek increased visitations from younger guests through targeted marketing culinary innovation and investments in technology.
Although it will take time to move from an over index position of visitation by guests who are over 65 to one that is more balanced we believe the things that we're doing to appeal to younger guests and families are working.
Our breakfast menu innovation has been well received our new culinary offerings are resonating and beer and wine is progressing well.
We will continue these efforts as well as making investments in technology to meet the expectations of our younger guests and further enhance their experience.
Now, let's talk about some of the other areas of focus for fiscal 'twenty three.
Yes.
This year, we will invest further in operational excellence hospitality and our employee experience in our stores, believing them to be exceptionally important to our brand and our long term success.
Our staffing levels remained strong and we will continue our efforts in training and development across the system.
Culinary innovation continues to be a key focus in our fiscal 'twenty three plans across our core menu and to support the continued growth of our catering business.
We've been pleased with the successful introduction of many new menu items during our dinner menu refresh.
And phase one of our breakfast menu launch.
Culinary pipeline is robust with some offerings designed to fill existing menu gaps and others to reduce back of house complexity and increased consistency of execution during peak weekend periods.
We will be pulling through many of these new offerings to our catering business, which we believe we can grow by 25% in fiscal 'twenty three to top $100 million.
We see real growth opportunity throughout this category, both business to business and business to consumer as more companies and families look to cracker barrel to provide a unique and highly desirable offering to their events.
Finally, we'll be highly focused on developing and rolling out our loyalty program, which is gen. Tate explained last quarter should be particularly impactful for our brand with our strong guest engagement travel guests and restaurant and retail offerings.
We're taking the time to get it right as we believe the program needs to be compelling and well developed before we launch it.
The back end integration and other requirements are critical and we anticipate an initial launch by the end of the year.
With respect to Maple Street, our new President John Maguire has hit the ground running and is building an appropriate team to support growth.
As I've said before although we didn't open as many units in fiscal 'twenty two as we had expected due to extraneous factors and construction delays. We remain excited about the Maple Street concept and the new units. We've opened are performing in line with expectations.
We expect to open 15 to 20 units in fiscal 'twenty three before accelerating further in fiscal 'twenty four and 'twenty five.
With that I'll open it up for questions.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
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At this time, we will pause momentarily to assemble our roster.
And our first question here will come from Brian Mullan with Deutsche Bank. Please go ahead.
Okay. Thank you.
The release mentioned better traffic and sales trends in the final few weeks of the quarter, which was encouraging to hear I guess could you just speak to what you think was behind this improvement the declining gas prices illogical factor when my guess, but.
I'm wondering if you could if there's anything going on with that guest behavior with the older demographic.
From the prepared remarks, it sounds like maybe that guess is not all the way back to where it was pretty covered but I'm just curious if there's been any improvement.
Late at all and if you could just describe the mindset of the situation I guess is in right now that would be really helpful to hear.
Hi, Brian . Thanks. This is Craig good morning, I'll start us off and then I'll turn it over to I'll turn it over to Jan.
<unk>.
I guess it was a two parter there are as you know, what's driving the acceleration or the improvement in the second half and then what does it mean in the second part of the quarter and what does it mean for the first quarter. So as it relates to.
The first quarter.
We're not going to disclose much there other than to say that.
You think about the comps right as you think about how the comps and how they impact us in particular.
In.
A year ago. We were August for example was impacted by by Delta. So that has an impact on how we how we're going to comp base first.
First is that on a month to month basis, there are model other than.
And a lot of other factors to consider there when we're lapping on a lot of extraneous activities things such as Delta as I mentioned in the things such as the invasion of Ukraine and gas prices and so on so I think overall.
Pleased with the progress, but it's still lumpy so with that I'll turn it over to Jen can add some more context.
Yeah, I think as regards to your question about the 65 plus consumer.
First of all we don't have that data sorted by week, but I can speak to how that group performed for us for the quarter as a whole we still see them holding back visits I think that's true for the category as a whole and it's certainly true for our brand where they represent a really important group they have a disproportionately large number.
Of boomers and matures and we are still seeing their visits lower than year ago on the flip side, you know what as Sandy said in her prepared remarks, we were pleased to see higher than year ago visits from our our younger millennial guests also the gen xers, but in particular the <unk>.
25% to 34 year olds, the millennial guest although.
Those increased.
Frequency is not quite enough to offset the negative headwinds.
Fact that are 65, plus guests have not returned to their pre COVID-19 visit levels.
Okay. Thank you for that and then just a follow up question on the you know on the retail business as you put together the 2023 guidance I'm wondering if you could just speak to how you thought about retail gross margins and what some of the important factors to consider are including your current level of inventory Craig I think you mentioned an expectation of moderation.
The prepared remarks, but if you could just speak to the magnitude or elaborate on that that would be helpful.
I'll I'll I'll start it off and elaborate so first of all on the.
On the margins I was really pleased with what the retail team was able to deliver in the fourth quarter and are in the face of a very challenged consumer and a very promotional retail environment I think that speaks to that.
The quality of the products and the value that we have out there with that being said, though what we're anticipating as we run go into 'twenty. Three is some return to a more normal kind of markdown cadence, which we will manage through that through the year as we are.
Please do as we exit our theme business isn't just work the product through well what we're seeing is some abatement on the freight side. So our container costs appear to be coming down and that's that's helping offset a little bit of that markdown.
The risk that we see elevating in this year.
Terms of our inventory level, which was higher at the end of 'twenty two than we saw in the prior year. The majority of that is the biggest single piece of that was we accelerated our holiday merchandise.
The shipments so that we would be sure we receive them in time and that ended up in those hitting the fourth quarter instead of the first quarter or this or even some of them would have had last year in the second quarter.
Thank you.
Okay.
Our next question will come from Alton Stump with loop capital. Please go ahead.
Great. Thank you and thanks for taking my question.
Sorry, if I missed this but just on the commodity front for full year 'twenty. Three did you say how much is covered for the year or like you know you know, but any color that you can give us as to.
What the spot exposure variability could be.
Course of fiscal 'twenty three.
Hi, Alton I'll start start off with that one so we were about 30% cover on for fiscal 'twenty three at this point in a way that's working as if you think about calendar 'twenty. Two so through December . We are you know our coverage ratio is very high.
And for calendar 'twenty three it's.
It's very very low.
And.
So we're working through right now exactly how much we wanted to lock and win.
We're factoring in a couple of things one is here's what's happening in the spot market, but to lock for 'twenty. Three there is a premium for that so those are conversations that we're having right now so right now, 30% locked and heavily weighted to calendar 'twenty two.
Got it thanks for that color I am not just as a quick follow up and I'll hop back in queue, but I think I heard you mentioned Craig that you expect your menu pricing to be up 8%. This year, obviously that would imply additional.
Chris If you could take into what you are going to flow through from what you've taken over the last 12 months, but.
Just the timing of when do you expect that pricing.
Over the course of a full year 'twenty three.
Yeah, I don't think so.
Just to make sure Im Super clear on this point. So the 8% is total so that includes anything new in anything that were.
Comp and on and there is some by quarter, but nothing dramatic so I won't really drill down much further than there.
Okay got it thank you so much.
Yeah.
Our next question will come from Jeff Farmer with Gordon Haskett. Please go ahead.
Great. Thanks handful of guidance follow up so you guys provided the revenue growth and operating income growth guidance.
For 'twenty, three but what does that suggest or mean for what youre looking for for an operating income margin for the year.
Jeff I'll take that one I would and I would just really candidly I would I wouldn't extrapolate from from the Oi growth.
8% to 10% then I think you know I think that will get you what you need when you when you combine that with the revenue of seven to eight.
Okay.
Okay I'll move on from now until then.
Sticking with the guidance here, you're guiding to 7% to 8% revenue growth the 8% menu pricing, there's some small single digit percent unit growth contribution.
To that revenue growth. So then the question I have for you and the components that we don't have a would be traffic and average check. So I'm just curious in terms of your expectation for 7% to 8% revenue growth knowing again, the guidance for 8% menu pricing and what equates to low single digit unit growth.
What does that mean or what's implied for both traffic and average check in the okay.
And we've got another component, which is retail Jeff I'll, let Craig take that take the question, but that's another line in our calculation yes.
Down from there a little bit building on Sandys point, so the unit growth between Cracker, Maryland Maple Street is about 100 basis points. So let me again just to make sure I'm Super clear on this the 7% is total corporate revenue growth embedded in that there was about the <unk>.
Basis points of unit growth between Maple Street.
And and pack a barrel and then we can lay out the 8% and figure out what that contributes and then obviously that's going to impact the restaurant side of the business not the retail side. So it doesn't flow through you don't get to 8% contribution from that you get something closer to in the 6% range or 600 basis.
Point range and we are continue to be pleased with our retail business and that will be we expect that to be a contributor as well then in terms of in terms of traffic without provided an exact number.
What I would I think what we would say there is.
We are contemplating that.
As we comp on some of these unusual items.
For example.
Omicron gas prices that were in the four to $5 range and those things impacted our business. We anticipate that there will be a positive traffic comp from that that comparison.
Okay. That's.
That's helpful and final one for me I apologize for being long winded here. So it sounds like you guys might not be giving too much detail or I might have missed it but in terms of thinking about.
A year ago at this time, you did provide us with quarter to date are I believe it was same store sales metrics versus 2019.
That was helpful in terms of establishing a baseline off of which we were going to work with for the balance of the year. You guys were nine weeks into the quarter again, I apologize if I missed it but is there anything you can share in terms of either AWS or a quarter to date AWS or same store sales versus.
Either a year ago or 2019 in terms of helping us.
Butter understand where both restaurant and retail numbers stand.
Again nine weeks through the quarter, where we are right now.
Good question, Jeff will try to add a little bit more texture without disclosing the quarter to date. So a couple of things there is.
Quarter to date can be a little tricky again, because we've talked about all of these unusual things that where we are wrapping on and it's particularly impactful for cracker barrel. For example, the delta away from last year, but what I would say is that we do anticipate our first quarter sales to be relatively in line with our fiscal year.
Fiscal year guidance.
Oh I'm sorry, the last one was when you see sales you mean at same store sales or the revenue number.
The revenue number Tony revenue, Okay. I appreciate that thank you.
Our next question will come from Katherine Griffin with Bank of America. Please go ahead.
Hi, Thank you for taking my question.
I was wondering just about some.
Some of the trends that you saw with the younger customer base I understand that some of that is a reflective of.
I guess I'm return on on targeted marketing I think I'm also just curious how sticky do you expect that customer base to be going forward I just wonder if there are any differences.
Theres last summer travel do you then get customers, perhaps that that aren't traveling and how can we compare that you know between you know why you are seeing right now and our next year, which perhaps contemplate some normalization of the.
Summer travel.
Thanks, Katherine and I'll, let Jim speak to the specifics, but just in general first as we've always said we were really pleased to see the data that indicated that we were seeing an increase in that guest and I think it's a result of a number of things as you mentioned the marketing both the content.
Of it and.
The way, we're delivering the marketing general speak to that as well as some of our menu initiatives I'll, let Jim get more specific but we had a number of check driving initiatives and innovation that we think particularly appeal to that group certainly our beer and wine.
Efforts, we were targeting that group in particular, which we thought would have an interest and then some of our technology that we've been working on whether it's mobile pay and and and things like that we think are particularly important to that group. So.
Jan do you want to speak to how sticky you hope it is or believe it is.
Yeah, Hi, Catherine I think.
We believe it will be sticky in fact, we think this represents steady progress. We also saw some increases in the third quarter and so the fourth quarter increases were actually building upon some good progress in the third quarter.
And then and in fact, we have had this multi generational guest space for some time, what we're now seeing is increased frequency, especially among these 24 to 34 year olds, we rate really high in terms of food value and just the environment I think a lot of these folks are in that stage of their life, where they are.
We're going to have families and so what cracker barrel represents is very appealing for them our menu innovation, our breakfast news build your own breakfast Strawberry Cheesecake pancakes, a lot of the items that we launched in the fourth quarter were particularly intended for this group and then of course as Sandy.
Said, we did.
Put a sharp focus on our targeted digital behind these.
<unk> families and we're seeing that continue to come to fruition. So we believe this is part of our continued progress against growing frequency with this group.
I'll add one more thing Katherine just on the retail side, one as Craig mentioned, one of our biggest categories in the fourth quarter were toys, which we think also was a reflection of the visitation we were getting from these these young families.
Okay, Yeah, no I appreciate that color because actually I wanted to follow ups I wanted to ask was.
Yes. It does if you have a sense of how I guess that demographic that is supporting the retail business versus a gyn and I mean, it sounds like you got higher visitation from from a millennial customer base, they are likely to shop at the store as well.
But so is that am I right in terms of I guess, making that assumption that it's pretty much one to one in terms of the types of customers that are likely to shop in and Theyre in a retail store and then I have one more question to ask after that.
Well, let me say one of the things that I think is incredibly impressive about our retail team is how hard they work to be sure that our assortment sort of has broad appeal no guests left behind us.
Times, what they'll use to be sure that.
Somewhere in the store, there's something for every one of the areas that we saw the most strength, we're really varied home decor, which Craig pointed out a lot of that was our seasonal assortments. So our Halloween.
Assortment, which has some of the most amazing costumes for example, I think in the industry and and some items was incredibly popular our toy assortment that I've already mentioned.
And then third a men's apparel, which I think reflects the retail team trying to be sure we had something for that guest and.
It was probably a bigger percent increase than dollar, but that's a relatively new area of focus its things like wax to this camp shirts and some of our licensed.
Men's product, but it was very successful.
It brought appeal. So just generally I think we were on trend are we were on brand are we at attractive price points and we had a lot of variety for for everyone.
And I think this is maybe more anecdotal, but what you see in restaurant is you there and a lot of ways different use cases for example, do you see the cadence they go out and they get their son Sunday breakfast breakfast when they get a treat on their way out right and then you've got a mom and dad and they pick something up I know you haven't.
And grandpa, they're shopping for something as well I think what's interesting with the retail business is the assortment and how good of a job the team does with covering the bases covering the bases with appealing to different cohorts.
Okay. Thank you I'm, all I can get back into queue for that third question. Thank you.
Our next question will come from Jake Bartlett with true Securities. Please go ahead.
Great. Thanks for taking the questions.
Well I wanted to start just back on the on the sales growth guidance for 2023.
Craig I think you just made a comment that you expect the first quarter to be the same as the full year. So do you mean, you expect the first quarter revenue to grow 6% to 8% similar to the full year.
I wanted to make sure I understood that.
Jacob in line you know so the seven to eight.
Total company total sales grow.
In very rough terms, what we would say is we expect Q1 to be in line with that annual guidance.
Okay, great great.
And then you mentioned in Sandy kind of you're trying to get into just to remind us that retail is a component of this growth. So.
Are you expecting retail to grow faster they need to be a positive.
Driver of that 6% to 8%, meaning it would be growing faster than that.
Obviously youre growing up really strong result in 2022.
And then just on that on a kind of a year over year growth in the fourth quarter was up three 3% so.
So basically the question is is retail growth.
He helped drive that 60% essentially.
Greater than that.
Yeah, I think retail will be a contributor.
But you know as you as you noted the retail business has been a very strong performer since as soon as 2019, so it's going to be a contributor but as a component. It will we do not expect that it will be above above that toward all it is a we do expect that it will grow and contribute to.
The total of 7% to 8%, but we were not expecting.
Above 8%.
I guess that otherwise do you expect restaurant sales to grow faster than the 7% to 8%.
Uh huh.
I'd say the.
Yes.
In.
In line I guess is where I think this is where I would land with that one restaurants sales. We think are in that general in that general range now we have the price of eight.
And that's going to be the biggest contributor kind of one to one.
Restaurant sales.
Great and then.
A question on the pricing.
In your comments.
About kind of being careful I'm wanting to maintain the value proposition for consumers.
Interesting that the commentary about menu pricing was going to be that it would be kind of rolling off.
We especially given your expectation food commodity cost to start rolling off.
But I think what I'm hearing is that you expect seven 8% for the whole year. So that I think would imply that as price rolls off over the next.
Through the whole fiscal year that youre going to be adding pricing.
So Craig I think your comment was that you should kind.
I would expect roughly 8% for each quarter. So I just want to make sure I got that right.
I guess, how comfortable if that is true.
That would be maintaining the right value.
I think we're probably going to be seeing grocery store coming up pretty sharply.
That narrative of grocery being more extensive and restaurants will likely flip.
He has come down.
One you might right I mean is it right that you expect about 8%.
Incremental pricing throughout the year and then our total pricing and then help them.
So Jake I'll start and then Sandy will build on it and then can jump in as well.
So again, we've got the total revenue growth of 7% to eight for the year and Q1, we've said, it's kind of generally in line and it will kind of leave it leave the guidance part of it there.
The other.
Factor here is the cumulative pricing.
Over the last few.
A few years and.
You know over really through our 22 year you'd be taking a 2021 'twenty two we've had.
The rough terms about 10% price and we've had inflation that's well in excess of that right. So as we think about the overall business model as it relates to inflation and cost saves and then and then price to ensure that we are deliberate in maintaining.
A great value.
I think.
With that lens, we think there are there is room, there and we're.
We're comfortable at that at that level. So I'll turn it over to Sandy if you can add a little bit more yeah, I guess, what I'll reiterate is the thoughtfulness that goes into our pricing strategy. We've we've moved away from really two big increases a year or two modest increases a year or two more frequent.
Smaller increases that we monitor.
We always have a hold out group. So we try to assess the impact that's having on menu mix and and.
Agree we can frequency.
And so we're being very thoughtful about it.
And I think Jan and her team are being very careful to ensure that even after the price increase that guests can find value on the menu in all day parts.
Throughout the menu.
We'll be doing the increases.
Through so I guess there is about four five planned for the year, but we'll monitor each one.
And adjust as we see either the commodity environment changing significantly or the guest reaction to the price changes.
Yeah, I would just add one one thing which is that we we've already taken our August pricing action right, which was.
Likely to be the largest of the year and now we will carefully monitor that across our holdout group our guest satisfaction surveys, we monitor sprinkler, we check our guest relations. So we have four or five different.
Sources that we're monitoring every week to see if there's any trade down risk or traffic risk.
And then we.
We hold the option to not take those back half price increases should we see some of those trends.
Trends that you mentioned in your question, we can always.
Pulled off.
Great. That's very helpful. Thank you so much.
Our next question comes from Jon Tower with Citi. Please go ahead.
Great. Thanks, Thanks for taking the questions just a few if I may on the G&A outlook can you just remind us of what the incentive comp reset was and how that's kind of factored into the guidance for fiscal 'twenty three.
Okay.
Hi, John what I would say with again, that's one without getting too specific there.
What I would do is kind of look at what a typical G&A number has been for cracker barrel and then look at Q4 and I think that you know that could give you a pretty good sense of normalization.
Okay. So no savings embedded in that it's essentially I think you alluded earlier to the call that most of that's coming at the restaurant level that 20 to 25 million is that a gross or net number on the cost savings.
Can you elaborate a little bit on the gross versus net just to make sure we're defining it.
Are there any offsets on the inflationary side that that might be.
Offsetting some of the.
Outright cost savings that you would think in a basic or non inflationary environment.
There are so on an ongoing basis right.
We're doing well.
And we have cost saving initiatives, we have a bigger one now and then we have investments that we're making at the same time to support the growth of the company a lot of things in technology is important in the loyalty program and so on so I think big picture are there are there are investments that we haven't necessarily called out but I would focus.
On if you kind of take the pieces that we've given and the overall oi growth.
I think they're.
There are other components in there that are smaller.
In between in between the guidance components that we provided.
Okay.
And then just getting to the.
Kind of following up on the questions earlier regarding the customer base and that's an increase.
Increased visitation with with the millennial cohort I'm just curious if you could provide some color on where you think you're sourcing these customers from and frankly, how these customers may be using the menu differently.
Then city older customer base, it sounds like they're responding to some of the promotions.
And new menu items that you've added like are you seeing say greater alcohol attach or different day part usage and you know are you seeing higher average checks because this consumer group versus the older demographic.
Yeah, I'll take that one to start it's Jan.
<unk>.
I think that they are enjoying the breakfast launch that we introduced a whole new breakfast menu on June 21.
And younger guests tend to like customization, and we brought them out with the build your own homestyle breakfasts section, we not only see that mixing above our expectations and above our test, but we see these younger families being able to get breakfast just the way they want it and so we we see them mixing into that with a high.
Hi.
High percentage, we also see them loving the news we've brought to the beer and wine category and also to our NAV categories, which are in spite of tough economic environment, We're seeing really strong retention of our overall beverage incidents, which I think is a testament to a lot of those new items.
We launched performing above our expectation.
And then finally these groups tend to have a high incidents with what we call barrel bites, which our share of all sort of snack couple items, such as the new ones. We put on our menu in the first quarter, which are fried pickles, and what you might call cheese, Kurt so they seem to enjoy disproportionately are.
Beer and wine and then also our barrel bites and so that's contributing favorably to our check.
If it was there a second part of your question.
Yeah, do you happen to know where you're sourcing some of these customers from or are they people who wouldn't be going out.
And getting you.
Food away from home normally and they see your advertising and are responding to a promotion or something you're hitting them with digital channels or are you pulling in from other.
Full service restaurants, or perhaps even a limited service locations.
I think that in general I would say we are seeing increased frequency among our millennial guest base, but I don't have information to share about where where they're not going if you will.
Got it and then.
Just a follow up on the development side, obviously, it's a call for a faster development this year versus 22.
And I believe you said that you'd mentioned.
There were some supply chain issues in 'twenty, two in particular that kind of delayed.
The openings of particularly Maple Street. So I was wondering if you could provide some color on what signs you are seeing to suggest that.
The guidance for for 'twenty three it's more attainable then last year, you know, maybe youre seeing permitting delays improve or even just the ability to source equipment.
And it's gotten better relative to what it was six months ago.
Well I think all of that's the case you know the pandemic impacted the numbers we've opened for a whole variety of reasons supply chain was a lot of it.
I guess the labor to get the construction done you know what was another piece supply chain. So at times, we just couldn't get the equipment, we needed to open but it was also just.
On getting real clarity about real estate. So in each of those areas I think it's improved for both Maple Street and for Cracker barrel. So I am more optimistic about the Maple Street hitting their opening schedule for the fiscal year. This year then.
I was how we ended in the fourth quarter, we were only able to get.
With three of the ones done than we had hoped to do I think six as well as I think what we'll see in the cracker barrel side is more our ability to get higher new unit growth modestly higher new unit growth in fiscal 'twenty, four and what we've just announced.
Thank you for taking my questions.
Our next question will come from Todd Brooks with the Benchmark company. Please go ahead.
Hey, Thanks for squeezing me in I, just have a couple of quick follow ups here Craig.
You've given fairly specific guidance for where operating income.
As expected to come in for fiscal 'twenty three the one component of that maybe if we can just spoilt with up to maybe a whole year thought.
Where do you expect G&A.
Two to come in relative to that guidance of kind of a 165 to 168 million and operating income for the full year.
I think it was G&A.
Without getting too specific there beyond beyond the guidance.
Is.
To look at.
The history, and recognizing that Q4 had some incentive compensation.
Adjustments and.
And we do have some investments that we're making as well and you know Maple Street, and technology and things of that and things of that nature, but without kind of getting an exact number I was trying to provide some direction.
Okay, Great and then secondly.
Giving back to the inventory levels Sandy you pointed out the fact that.
Some of the elevation that we may have seen kind of coming out of Q4 was related to landing product earlier for holiday year over year can we boil this down to maybe retail units how much they were up year over year inventory at the end of July , but then as you come to a more.
Apples to apples by at the end of October what you would expect the unit inventories to be up year over year for retail.
<unk>.
Let's say I, probably can't answer exactly that way, but let me try to give you a little more color on the increase in inventory versus prior year, I'd say about 10% of it is price increase.
So that's what's embedded just from.
Across the board price increases.
Again, and then about 40% of it is probably the holiday acceleration.
And then another big component of it may be $20 million or so is the inventory invested in supporting our everyday business, which we have seen very good growth that would be like our food and our chocolate candy right now is doing really well.
Some of that product, we were under inventoried before that do do a lot of the supply chain. So we've been able to get into.
Into stock with that so those are probably the three biggest components of the increase.
Okay, great. So when we're talking about inventories and potential markdowns picking up.
And maybe the first half of the year. It's it's it's just picking up relative to historically strong.
Full price selling performance last year versus.
Kind of a discomfort with the inventory levels on the retail side.
Given the environment.
Yes, thanks for letting me clarify so what were anticipating is a marked down rate being higher than last year, but lower than pre pandemic.
Meaningfully lower than the pre pandemic and that though is something we are monitoring every day, we understand that the environment with the consumer can change and as we had particularly into the Christmas season, which is of course, a very big unimportant season for our retail team.
In particular, we're monitoring it and then we're monitoring the macro retail environment as it gets more and more promotional we understand we have to operate with that backdrop. So.
Our expectation is that we're going to have a strong retail.
Selling season to the holiday or seasonal business as I mentioned in Halloween and harvest were very strong and I am optimistic that our Christmas seasonal system.
Performance will be also that way.
Okay, great. Thank you Bob.
Okay.
Our next question is a follow up from Katherine Griffin with Bank of America. Please go ahead.
Hi, Thank you I'm sorry to continue to ask about this but just again on the younger customer base. One thing I wanted to drill down into is are there differences I think John asked about day part, but I'm also curious about a weekday versus weekend do you can you give us a sense of just like that.
The differences I guess in the types of frequency in that cohort.
I would say based on the pretty thorough and detailed learnings we have from our segmentation study that we completed about nine months ago. We don't see any major difference in terms of which days of the week theyre coming or day, part theyre not markedly or meaningfully different from <unk>.
Our other guest.
Okay, great. Thanks for squeezing me in.
This will conclude our question and answer session I would now like to turn the conference back over to Sandy Cochran for any closing remarks.
Well. Thank you everyone I look forward to building on our efforts from last year in executing on our fiscal 'twenty three priorities between our sustainable cost savings and investments in critical areas like value guest experience and broader guest appeal I believe we're well positioned to drive strong performance.
This year and beyond.
Yeah.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.