Q2 2024 Cracker Barrel Old Country Store Inc Earnings Call
Operator: Good day, and welcome to the Cracker Barrel fiscal 2024 second quarter conference call. All participants will be in listen only mode.
Good day and welcome to the Cracker barrel fiscal 2024 second quarter conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an op.
Operator: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press the star key, then one on a touch-tone phone.
For communities to ask question to ask a question you May Press Star then one on a touchtone phone to withdraw your question. Please press Star then two.
Operator: To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Caleb Yohannes, Vice President, Investor Relations and Business Transformation. Please go ahead.
Please note this event is being recorded.
Speaker Change: Now like to turn the conference over to Caleb Johann Us sites.
Vice President Investor Relations and business transformation. Please go ahead.
Caleb Yohannes: Thank you. Good morning, and welcome to Cracker Barrel's second quarter fiscal 2024 conference call and webcast. This morning, we issued a press release announcing our second quarter results. In the press release and on the call, we'll refer to non-GAAP financial measures for the second quarter and January 26, 2024. The non-GAAP financial measures are adjusted to exclude the non-cash atomization of the assets recognized from the gains on the sale and leaseback transactions.
Caleb Johann: Thank you good morning, and welcome to Cracker barrel second quarter fiscal 2024 conference call and webcast. This morning, we issued a press release announcing our second quarter results.
Caleb Johann: In the press release and on the call, we'll refer to non-GAAP financial measures for the second quarter ended January 26 2024.
Caleb Johann: The non-GAAP financial measures are adjusted to exclude the noncash amortization of the assets recognized from the gains on the sale and leaseback transactions expenses related to the company's CEO transition expenses associated with the strategic transformation initiative, our corporate restructuring charge and employee.
Caleb Yohannes: Spence is related to the company's CEO transition and is associated with the Strategic Transformation Initiative. Corporate Restructuring Charge, and an Employee Benefits Policy Change and Related Tax Impact. The company believes that including these items in the 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 last pages of the press release include reconciliations from the non-GAAP information to the GAAP financials.
Caleb Johann: This policy change and related tax impact.
Caleb Johann: The company believes that excluding these items from the financial results provides investors with an enhanced understanding of the company's financial performance.
Caleb Johann: 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.
Caleb Johann: Last page of the press release include reconciliations from the non-GAAP information to the GAAP financials.
Caleb Yohannes: On the call with me this morning are Cracker Barrel's President and CEO, Julie Massino, and Senior Vice President and CFO, Craig Pimmel. Julie and Craig will provide a review of the business, financials, and outlook. We will then open up the call for questions. 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 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 of information.
Caleb Johann: On the call with me. This morning are cracker barrels President and CEO Julian This thing out and senior Vice President and CFO Craig <unk>.
Julian: Julian Craig will provide a review of the business financials and outlook. We will then open up the call for questions.
Julian: On this call statements may be made by management of their beliefs and expectations regarding the company's future operating results were expected future events. These are known as forward looking statements, which involve risks and uncertainties that in many cases are beyond management's control may cause actual results to differ.
Julian: Material interim expectations.
Julian: We caution our listeners and readers in considering forward looking statements and information.
Caleb Yohannes: Many of the factors that could affect the results summarized in the cautionary description of risks and uncertainties found at the end of this press release and are described in detail in our reports that we file with or furnish 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 Barrel's president and CEO, Julie Messina. Julie?
Julian: Many of the factors that could affect the results summarized in the cautionary description of risks and uncertainties found at the end of the press release.
Julian: And are described in detail in our reports that we file with or furnish to the SEC.
Julian: 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.
Julian: I'll now turn the call over to Cracker barrels President and CEO, Julie Massena Julie.
Julie Massino: Good morning and thank you. In the second quarter, we delivered solid sales, which included a meaningful improvement in our traffic trend of 300 basis points in Q2 compared to Q1. Our traffic driving tactics, particularly our efforts to improve the guest experience and the effectiveness of our marketing, are working in support of this improvement. However, while we were pleased with our sales results, our margins remained pressured.
Julie Massena: Good morning, and thank you.
Julie Massena: In the second quarter, we delivered solid sales, which included a meaningful improvement in our traffic trends, a 300 basis points in Q2 compared to Q1.
Julie Massena: Our traffic driving tactics, particularly our efforts to improve the guest experience and the effectiveness of our marketing are working and supported this improvement.
Speaker Change: Well, we were pleased with our sales results our margins remained pressured as I will touch on later improving profitability is a top priority.
Julie Massino: As I will touch on later, improving profitability is a top priority. We are confident we will see improvements as our initiatives gain traction, but we anticipate continued margin pressure in the near term, particularly in Q3, and improved margins in Q4. I'm going to start by covering some highlights from Q2, and then Craig will review our financials and give an update on our outlook. Then I'll come back and wrap up by providing an update on our strategic transformation and some of our plans to drive continued performance improvement. Our second quarter is an especially important quarter for us due to, first, our seasonally higher volume and, second, because of the emotional connection our brand has with guests over the holidays. We have the privilege of so many of them inviting us into their homes or coming into our stores to celebrate the holidays. This is truly special.
Speaker Change: We are confident we will see improvements as our initiatives gain traction, but we anticipate continued margin pressure in the near term, particularly in Q3 and improved margins in Q4.
Speaker Change: I'm going to start by covering some highlights from Q2, and then Craig will review, our financials and give an update on our outlook then I'll come back and wrap up by providing an update on our strategic transformation and some of our plans to drive continued performance improvement.
Speaker Change: Our second quarter is an especially important quarter for us due to first our seasonally higher volume and second because of the emotional connection our brand has with guests over the holidays. We have the privilege of film any of them inviting us into their homes are coming into our stores to celebrate the holidays. This is truly <unk>.
Speaker Change: Sure.
Julie Massino: As I noted on our last call, we had an excellent Thanksgiving from a sales perspective, and the teams carried this momentum through the remainder of the quarter. I want to thank our 70,000 plus employees for their tireless efforts and extraordinary hard work during the quarter to help our guests celebrate this special holiday season. From a culinary and marketing perspective, we leaned into our seasonal guest favorites such as Country Fried Turkey and Cinnamon Roll Pie, as well as our off-premise offers. We continue to see positive results from our marketing investments and refined tactics. In addition to promoting our seasonal offerings, a key focus of our marketing efforts during the quarter was highlighting Cracker Barrel rewards. For this campaign, we partnered with Dolly Parton to promote Cracker Barrel Rewards and her collaborative album Rockstar.
Speaker Change: As I noted on our last call we had an excellent Thanksgiving from a sales perspective and the team's carry this momentum through the remainder of the quarter.
Speaker Change: I want to thank our 70000 plus employees for their tireless efforts and extraordinary hard work during the quarter to help our guests celebrate the special holiday season.
Speaker Change: From a culinary and marketing perspective, we leaned into our seasonal guests favorites, such as country fried, Turkey, and cinema enrolled pi as well as our off premise offerings.
Speaker Change: We continue to see positive results from our marketing investments and refine our tactics.
Speaker Change: In addition to promoting our seasonal offering a key focus of our marketing efforts during the quarter was highlighting cracker barrel rewards.
Speaker Change: For this campaign, we partnered with Dolly Parton to promote cracker barrel rewards and her collaborative album Rockstar.
Julie Massino: This campaign was a resounding success and delivered a large number of impressions and high engagement rates and drove additional gains to our already strong levels of enrollment. We remain pleased with the early results of Cracker Barrel Rewards, which, as a reminder, launched in September. In addition to the strong enrollment levels, we are encouraged by the engagement, feedback, and response rates we are seeing.
Speaker Change: This campaign was a resounding success and delivered a large number of impressions and high engagement rate and drove additional gains to our already strong levels of enrollment.
Speaker Change: We remain pleased with the early results of Cracker barrel rewards, which as a reminder, launched in September.
Speaker Change: In addition to the strong enrollment levels, we are encouraged by the engagement and feedback and response rates we are seeing.
Julie Massino: One of the many benefits of the program is how it enhances our ability to directly engage with guests. We continue to test various campaigns and activations and measure their efficacy, and we're excited about learning more about what drives engagement with our members. For example, loyalty members accounted for nearly 50% of our Thanksgiving heat and serve sales, which we believe was partially driven by our direct engagement with them around this office. We continue to believe the program, with its easy-to-use and engaging design and rewarding value, will be a meaningful brand differentiator and traffic driver over the long term. Our retail business remains challenged. We believe this is due, in large part, to the pressures the broader retail industry is facing, particularly in more discretionary categories, which is resulting in a highly promotional environment. Although guests responded well to our value-focused holiday assortment, overall sales performance was softer than anticipated.
Speaker Change: One of the many benefits of the program as how it enhances our ability to directly engage with guests.
Speaker Change: We continue to test various campaigns and Activations and measure their efficacy and we're excited about learning more about what drives engagement with our members.
Speaker Change: For example, loyalty members accounted for nearly 50% of our Thanksgiving heat N' serve sales, which we believe was partially driven by our direct engagement with them around this offering.
Speaker Change: We continue to believe the program with its easy to use and engaging design and rewarding value will be a meaningful brand differentiator and traffic driver over the long term.
Speaker Change: Our retail business remains challenged.
Speaker Change: We believe this is due in large part to the pressures the broader retail industry is facing particularly in more discretionary categories, which is resulting in a highly promotional environment.
Speaker Change: Well guests responded well to our value focused holiday Assortments overall sales performance was softer than anticipated.
Craig Pimmel: However, the team has done a good job managing inventories and markdowns. Despite the sales softness, we grew our margin rate over the prior year, and our inventories, which are below the prior year, are well positioned. I'll now turn the call over to Craig for a more detailed look at the quarter from a financial perspective and to discuss our financial outlook for the rest of the year. After he finishes, I will then provide an update on our strategic transformation. Craig
Speaker Change: However, the team has done a good job managing inventories and markdowns.
Speaker Change: Despite the sales softness we grew margin rate over the prior year and our inventories which are below prior year are well positioned.
Speaker Change: I'll now turn the call over to Craig for a more detailed look at the quarter from a financial perspective and to discuss our financial outlook for the rest of the year. After he finishes I will then provide an update on our strategic transformation.
Speaker Change: Craig.
Craig Pimmel: Thank you, Julie, and good morning, everyone. For the second quarter, we reported total revenue of $935.4 million. Restaurant revenues increased 1.8% to $730.7 million, and retail revenues decreased 5.2% to $204.7 million versus the prior year quarter. Comparable store restaurant sales increased by 1.2% over the prior year, and pricing was approximately 4.8%. Our quarterly pricing consisted of approximately 3.4% carry forward pricing from fiscal 2023 and 1.4% new pricing from fiscal 2024. Off-premise sales were approximately 23.7% of restaurant sales.
Craig: Thank you Julie and good morning, everyone for the second quarter, we reported total revenue of $935 $4 million restaurant revenues increased 1.8% to $737 million and our retail revenues decreased by four 2%.
Craig: <unk> to $204 $7 million versus the prior year quarter.
Comparable store restaurant sales increased by one 2% over the prior year.
Craig: Pricing was approximately four 8% our quarterly pricing consisted of approximately three 4% carryforward pricing from fiscal 2023, and one 4% new pricing from fiscal 2024.
Craig: Off premise sales were approximately 23, 7% of restaurant sales as a reminder, off premise mix. This elevated during the second quarter due to the seasonally higher sales for our heat n' serve offerings and catering business.
Craig Pimmel: As a reminder, off-premise mix was elevated during the second quarter due to the seasonally higher sales for our heat and surf offerings and catering business. Although we were pleased with the sales for these offerings, they had the lowest margins of all of our channels, which pressured our overall margins this quarter. Moving forward, we are focused on improving the profitability of this channel. Comparable store retail sales decreased 5.3% compared to the second quarter of the prior year.
Craig: Although we were pleased with the sales for these offerings they'd have the lowest margins of all of our channels, which pressured overall margins this quarter.
Craig: Moving forward, we are focused on improving the profitability of this channel.
Craig: Comparable store retail sales decreased five 3% compared to the second quarter of the prior year we.
Craig Pimmel: We saw declines across most categories; toys, food, and decor saw the largest decrease, although retail sales remain strong. We were pleased with how the team has effectively managed inventory levels, which remain below prior years. Moving on to our second quarter expenses, Total cost of goods sold in the quarter was 33.7% of total revenue versus 35% in the prior quarter. Restaurant cost of goods sold in the second quarter was 28.2% of restaurant sales versus 29.3% in the prior quarter.
Craig: We saw declines across most categories with toys food and decor seemed the largest decreases.
Craig: Although retail sales remained soft we were pleased with how the team has effectively managed inventory levels, which remain below prior year.
Craig: Moving onto our second quarter expenses.
Craig: Total cost of goods sold in the quarter was 33, 7% of total revenue versus 35% in the prior year quarter.
Craig: Restaurant cost of goods sold in the second quarter was 28, 2% of restaurant sales versus 29, 3% in the prior year quarter.
Craig Pimmel: This 110 basis point decrease was primarily driven by menu pricing, partially offset by higher mix of off-premise as our heat and serve and catering offerings have a higher cost of sales than other channels. Commodity inflation was approximately 1.4%, driven principally by higher beef and turkey prices. Second quarter retail cost of goods sold was 53.2% of retail sales, versus 54% in the prior quarter. This 80 basis point decrease was primarily driven by higher initial margins. Our inventories at quarter end were $172.7 million compared to $187.3 million in the prior year. With regard to labor costs,
Craig: This 110 basis point decrease was primarily driven by menu pricing, partially offset by higher mix of off premise as overheat. The serve occasion offerings have a higher cost of sales than other channels.
Craig: Commodity inflation was approximately one 4% driven principally by higher beef and Turkey prices.
Craig: Second quarter retail cost of goods sold was 53, 2% of retail sales versus 54% in the prior year core.
Craig: This 80 basis point decrease was primarily driven by higher initial margin.
Craig: Our inventories at quarter end were $172 $7 million compared to 187 $3 million in the prior year.
Craig: With regard to labor costs.
Craig Pimmel: Our adjusted second quarter labor and related expenses were 35.1% of revenue, which excludes approximately $5.3 million of favorability related to a change in an employee benefits policy. This compares to labor and related expenses of 33.6% in the prior quarter. This 150 basis point increase was primarily driven by our investments in additional labor hours to support the guest experience and hourly wage inflation of approximately 5.4%, partially offset by pricing. Adjusted other operating expenses were 22.5% of revenue versus 22% in the prior quarter. This 50 basis point increase was primarily driven by our investment in advertising. Adjusted general and administrative expenses in the second quarter were 4.8% of revenue, which was flat to the prior quarter, and excludes the following items, approximately $3.5 million in expenses related to the CEO transition and approximately $3.8 million in professional fees related to our strategic transformation initiative. All of this culminated in GAAP operating income of $30.8 million. Adjusted operating income for the quarter was $35.9 million, or 3.8% of revenue. Net interest expense for the quarter was $5.1 million compared to net interest expense of $4.4 million in the prior quarter.
Craig: Our adjusted second quarter Labor and related expenses were 35, 1% of revenue, which excludes approximately $5 $3 million of favorability related to a change in employee benefits policy.
This compares to labor and related expenses of 33, 6% in the prior year quarter.
Craig: This 150 basis point increase was primarily driven by our investments in additional labor hours to support the guest experience and already wage inflation of approximately five 4% partially offset by pricing.
Craig: Adjusted other operating expenses were 22, 5% of revenue versus 22% in the prior year quarter.
Craig: This 50 basis point increase was primarily driven by our investments in advertising.
Craig: Adjusted General and administrative expenses in the second quarter were four 8% of revenue, which was flat to the prior year quarter and exclude the following items.
Craig: Approximately $3 $5 million in expenses related to the CEO transition and approximately $3.8 million in professional fees related to our strategic transformation initiative.
Craig: All of this culminated in GAAP operating income of $38 million.
Craig: Adjusted operating income for the quarter was $35 $9 million or three 8% of revenue.
Craig: Net interest expense for the quarter was $5 $1 million compared to net interest expense of $4 $4 million in the prior year quarter. This increase was primarily the result of higher weighted average interest rates.
Craig Pimmel: This increase was primarily the result of higher weighted average interest rates. Our GAAP effective tax rate for the second quarter was negative 3.3%, which reflects favorable state income tax settlement. On an adjusted basis, our effective tax rate for the quarter was 1.2%.
Craig: Our GAAP effective tax rate for the second quarter was negative three 3%, which reflects favorable state income tax settlements.
Craig: On an adjusted basis, our effective tax rate for the quarter was one 2%.
Craig Pimmel: Second quarter GAAP earnings per diluted share were $1.19, and adjusted earnings per diluted share were $1.37. In the second quarter, adjusted EBITDA was $63.7 million, or 6.8% of total revenue. Now, turn it to capital allocation and or balance. The board remains committed to a balanced approach to capital allocation.
Craig: Second quarter GAAP earnings per diluted share were $1 19, and adjusted earnings per diluted share were $1.37.
Craig: In the second quarter, adjusted EBITDA was $63 $7 million or six 8% of total revenue.
Craig: Now turning to capital allocation and your balance sheet.
Craig: The board remains committed to a balanced approach to capital allocation or our first priority remains investing in the profitable growth of cracker barrel and Maple Street beyond that we plan to return capital to our shareholders, while maintaining appropriate flexibility and a conservative balance sheet.
Craig Pimmel: Our first priority remains investing in the profitable growth of Cracker Barrel and Maple. Beyond that, we plan to return capital to our shareholders while maintaining appropriate flexibility and a conservative balance. In the second quarter, we invested $26.4 million in capital expenditures, and we returned $29 million to shareholders in dividends. We ended the quarter with $452.3 million in total debt.
Craig: In the second quarter, we invested $26 $4 million in capital expenditures, and we returned $29 million to shareholders in dividends, we ended the quarter with $452 $3 million in total debt.
Craig Pimmel: Lastly, as we announced in our press release, the board declared a quarterly dividend of $1.30, payable on May 7, 2024, to shareholders of record on April 12, 2024. With respect to our fiscal 2024 outlook, I would like to provide some additional color on the guidance in this morning's release. Looking ahead, we continue to operate in an uncertain environment. However, we've been encouraged by the resiliency of the consumer and by the improvement in guest sentiment in recent months. However, the industry continues to face headwinds, and we expect industry traffic to remain pressured for the remainder of the fiscal year.
Craig: Lastly, as we announced in our press release, the board declared a quarterly dividend of $1.30 payable on May 7th 2024 to shareholders of record on April 12 2024.
Craig: With respect to our fiscal 2024 outlook.
Craig: I would like to provide some additional color on the guidance in this morning's release.
Craig: Looking ahead, we continue to operate in an uncertain environment, we've been encouraged by the resiliency of the consumer and by the improvements in guest sentiment in recent months. However, the industry continues to face headwinds and we expect industry traffic to remain pressured for the remainder of the fiscal year.
Craig Pimmel: According to the guidance, we now expect total fiscal 2024 revenue of $3.5 billion to $3.6 billion. The increase in our sales patterns reflects higher sales from increased advertising and our investments in other areas of the business. Thank you. Thank you. Thank you.
Craig: Turning to the guidance, we now expect total fiscal 'twenty 'twenty four revenue of $3 5 billion.
Craig: The $3 $6 billion.
Craig: The increase in our sales guidance reflects higher sales from increased advertising and our investments in other areas of the business.
Craig Pimmel: We now anticipate pricing of approximately 5% for the full year. We continue to anticipate the opening of two new Cracker Barrel stores, both of which have already opened, and 9 to 11 new Maple Street units during the year. We now expect commodity inflation of approximately 0% to 2% and hourly restaurant wage inflation of approximately 5%. As a reminder, and as noted in the reconciliation tables in our press release, our full-year outlook contemplates certain excluded expenses in addition to the non-cash amortization of gains from our sale lease. These include approximately $10 million in consultant fees related to our strategic transformation.
Craig: We now anticipate pricing up approximately 5% for the full year.
We continue to anticipate the opening of two new cracker barrel stores, both of which have already opened and nine to 11, New Maple Street units during the year.
Craig: We now expect commodity inflation of approximately zero percent to 2% and.
Craig: Or will the restaurant wage inflation of approximately 5%.
Craig: As a reminder, and as noted in the reconciliation tables in our press release or full your outlook contemplates certain excluded expenses. In addition to the noncash amortization of gains from our sale leaseback.
Craig: These include approximately $10 million in consulting fees related to our strategic transformation.
Craig Pimmel: Approximately $10 million of one-time CEO transition costs and approximately $2 million in corporate restructuring charges, partially offset by approximately $5 million of favorability from the change to the over-benefits policy. Our full year outlook also includes the benefit of a 53rd week this fiscal year. Taking all of this into account, we now anticipate full-year adjusted operating income of $125 million to $135 million. In addition to our second quarter operating income results, which were below our expectations.
Craig: Approximately $10 million of one time CEO transition costs.
Craig: Approximately $2 million of corporate restructuring charges.
Craig: Partially offset by approximately $5 million of favorability from the change to or benefits policy.
Craig: Our full your outlook also includes the benefit of a 50 <unk> week this fiscal year.
Craig: They can all of this into account, we now anticipate full year adjusted operating income of $125 million to $135 million.
In addition to our second quarter operating income results, which were below our expectations.
Craig Pimmel: Our updated range reflects a higher level of advertising investment and the movement of some cost reduction benefits from fiscal 2024 to fiscal 2025 to ensure we are fully focused on retaining and further strengthening our guest experience gains. From a quarterly cadence perspective, we expect our Q3 adjusted operating income to be meaningfully below prior year. Due to the stated investments in labor and advertising, as well as the timing of other expenses, we expect Q4 Adjusted Operating Income to be above the prior year, primarily due to improved traffic, pricing, menu mix, and the benefit of the 53rd week. We now expect a full-year GAAP effective tax rate of 1% to 4% and an adjusted effective tax rate of 5% to 8% and capital expenditures of $120 million to $135 million.
Craig: Our updated range reflects a higher level of advertising investment.
Craig: And the movement of some cost reduction benefits from fiscal 2020 for the fiscal 2025 to ensure we are fully focused on retaining and further strengthening our guest experience gains.
Craig: From a quarterly cadence perspective, we expect our Q3 adjusted operating income to be meaningfully below prior year.
Craig: Driven by the state grid investments in labor and advertising.
Craig: As well as timing of other expenses.
Craig: However, we expect Q4 adjusted operating income to be above prior year, primarily due to improve the traffic.
Craig: Price than men's.
Craig: Menu mix and the benefit of the 50 <unk> week.
Craig: We now expect a full year GAAP effective tax rate of 1% to 4% and an adjusted effective tax rate of 5% to 8% and capital expenditures of $120 million to.
$135 million.
Julie Massino: I'll now turn the call back over to Julie so she may share additional details on our business plans and areas of focus. Thanks, Craig. I now want to provide an update on our strategic transformation. As a reminder, this program kicked off in late September, and the early months included a diagnostic phase in which we conducted significant guest research, both with Cracker Barrel users and non-users. Our research confirms my own observations that I shared with you last quarter. The Cracker Barrel brand is beloved by guests and employees, and we are working with a strong foundation.
Craig: I'll now turn the call back over to Julie So she may share additional details on our business plans and areas of focus.
Julie Massena: Thanks, Craig I now want to provide an update on our strategic transformation.
Julie Massena: As a reminder, this program kicked off in late September and the early months included a diagnostic phase in which we conducted significant guest research both with cracker barrel users and non users.
Julie Massena: Our research confirms my own observations that I shared with you last quarter, the cracker barrel brand as he loved by guests and employees and we are working with a strong foundation.
Julie Massino: But it is also clear to me that we have a lot of work to do and some key areas to take the brand to the next level and improve our performance. This work revolves around three critical imperatives that have come out of our research which are informing our strategy and key work streams. One is driving relevancy.
Julie Massena: But it is also clear to me that we have a lot of work to do in some key areas to take the brand to the next level and improve our performance.
Julie Massena: This work revolves around three critical inherited that have come out of our research, which are informing our strategy and key work streams, one driving relevancy.
Julie Massino: Two, delivering food and an experience that guests love, and three, growing profitability. While I'm going to talk about each today, I want to announce we will be holding a standalone investor presentation in May, prior to our Q3 earnings call, at which time we will provide a more detailed strategy update. I look forward to sharing more with you then.
Julie Massena: Two delivering food and an experienced the guests love and three growing profitability.
Julie Massena: Well I'm going to talk about each today I want to announce we will be holding a standalone investor presentation in may prior to our Q3 earnings call at which time, we will provide a more detailed strategy update.
Julie Massena: Look forward to sharing more with you than details will be forthcoming.
Julie Massino: Details will be forthcoming. Turning to the three imperatives, The first is driving relevancy, which means evolving the brand to meet changing consumer tastes and needs. In my view, while we've taken some steps in this direction over the past few years, we need to do more. Cracker Barrel is a timeless brand, but even timeless brands must evolve as consumer preferences change, which means evolving our brand positioning, our stores, our menu, and our messaging.
Turning to the three imperatives. The first is driving relevancy, which means evolving the brand to meet changing consumer tastes and needs.
Julie Massena: And my view well, we've taken some steps in this direction over the past few years, we need to do more cracker barrel is a timeless brand, but even timeless brands must evolve as consumer preferences changed which means evolving our brand positioning our stores, our menu and our messaging.
Julie Massino: We've already started this work. In the coming weeks, we will be commencing a brand repositioning initiative, which entails a full review of our brand strategy and identity. A refined positioning will inform all aspects of the brand, from menu and marketing to digital and store experience. We have also begun testing changes to decor, lighting, paint, and fixtures, and our initial work suggests that we can update and brighten our interiors in a way that appeals to both core guests and people newer to the brand. Future changes will be informed by the learnings from this test and others, as well as our brand strategy work, and we are committed to being disciplined and thoughtful before deploying capital and expanding design changes to our stores.
We've already started this work.
Julie Massena: In the coming weeks, we will be commencing our brand repositioning initiative, which entails a full review of our brand strategy and identity are.
Julie Massena: Our refined positioning will inform all aspects of the brand from menu and marketing digital and store experience.
Julie Massena: We have also begun testing changes to decor lighting paint and fixtures and our initial work suggests that we can update and brighten our interiors in a way that appeals to both core guest and people in New York to the brand.
Julie Massena: Is your changes will be informed by the learnings from this test and others as well as our brand strategy work and we are committed to being disciplined and thoughtful before deploying capital and expanding design changes to our stores.
Julie Massino: With respect to our food and guest experience, it goes without saying that we must provide delicious, craveable food and unique retail products. And we must deliver an improved experience that keeps guests coming back time and time again. Incredible food is an important part of what we do at Cracker Barrel, and I'm excited to announce today that we are launching Golden Carolina BBQ Chicken Tenders and a Fresh Berry French Toast Bake.
Julie Massena: With respect to our food and guest experience. It goes without saying that we must provide delicious craveable food and unique retail product and we must deliver an improved experience that keeps guests coming back time and time again.
Delicious incredible food is an important part of what we do that cracker barrel and I'm excited to announce today that we are launching Golden Carolina, Bbq chicken tenders, and our fresh Berry French toast fake.
Julie Massino: Innovation will continue to fuel relevancy in our menu for our guests. We recently launched a core menu revamp test, and while it is only in a few stores, it is a significant test because of the scale of the changes. This test includes approximately 20 new items, several modified items, and over 20 deletions as we seek to balance our innovation with simplification. We recognize that not all of the menu changes from this test will work and make it to the next phase.
Julie Massena: Innovation will continue to feel relevancy in our menu for our guests. We recently relaunched our core menu revamp test and while it is only in a few stores is a significant test because of the scale of the changes.
Julie Massena: This test includes approximately 20, new items, several modified items and over 20 deletions at least seek to balance our innovation with simplification.
Julie Massena: We recognize that not all of the menu changes from this test will work and make it to the next phase, but I believe it's important that we become more agile and innovative and I'm pleased with how the teams responded to my challenge to move quickly to develop and implement these initiatives and to test and learn in a more agile way.
Julie Massino: But I believe it's important that we become more agile and innovative, and I'm pleased with how the teams responded to my challenge to move quickly, to develop and implement these initiatives, and to test and learn in a more agile way. In addition to innovating with menu items, we are also innovating through day-parted offers. Today, we are also debuting an early dinner deals menu. This dine-in only menu includes seven smaller-portioned entrees starting at $8.99 that will only be available Monday through Friday from 4 to 6 p.m. We believe this menu will resonate with our more price-conscious guests and that it will drive incremental traffic during a non-peak period to our most challenged daypart.
Julie Massena: In addition to innovating with new menu items. We are also innovating through day part. It offers today. We are also debuting an early dinner deals menu. This dine in only menu includes seven smaller portion of the entrees starting at age 99 that will only be available Monday through Friday from <unk>.
Julie Massena: Four to six P M.
Julie Massena: We believe this menu will resonate with our more price conscious guests and that it will drive incremental traffic during a non peak period to our most challenged day part importantly, we believe it will do this without adding additional operational complexity.
Julie Massino: Importantly, we believe it will do this without adding additional operational complexity. Operational excellence and consistent execution are a top priority. After considering over two dozen different key metrics as part of our research, we have honed in on the metrics that are most highly correlated with comp store sales growth and are focusing on these to drive meaningful improvements to the overall guest experience and create sustainable traffic growth. As part of our focus on what matters most, we are in the process of rolling out enhanced reporting of these metrics to our field leadership, and we believe the improved level of focus will empower our teams to quickly diagnose where The guest experience is not limited to the in-store experience.
Julie Massena: Operational excellence and consistent execution are a top priority.
Julie Massena: After considering over two dozen different key metrics as part of our research we have honed in on the metrics that are most highly correlated with comp store sales growth and are focusing against these to drive meaningful improvements to the overall guest experience and create sustainable traffic growth.
Julie Massena: As part of our focus on what matters. Most we are in the process of rolling out enhanced reporting of these metrics to our field leadership and we believe the improved level of focus will empower our teams to quickly diagnose where they can most impactful we react in real time.
Julie Massena: The guest experience is not limited to the in store experience. It is equally important to engage and delight our guests outside of our four walls and to win in digital as.
Julie Massino: It is equally important to engage and delight our guests outside of our four walls and to win in digital. As I mentioned, we are proud of the initial success of our Cracker Barrel rewards program, but it is still early. The power of loyalty in digital is realized through the scaled collection of guest data, capitalizing on behavioral insights through robust test and learn campaigns, and delivering individualized experiences that drive engagement, incremental sales, and increased visitation.
Julie Massena: As I mentioned, we are proud of the initial success of our cracker barrel rewards, but it is still early.
Julie Massena: The power of loyalty and digital is realized through the scaled collection of guest data capitalizing on the behavioral insights through robust test and learn campaigns and delivering individualized experiences that drive engagement incremental sales and increased visitation with our recent success I believe we can do more to faster.
Julie Massino: With our recent success, I believe we can do more to faster realize these goals. Finally, we must improve profitability. Our margins have compressed in recent years.
Julie Massena: To realize these goals.
Julie Massena: Finally, we must improve profitability.
Our margins have compressed in recent years. This is due to a number of reasons, including historically high inflation, particularly on the labor side, but we believe there's significant margin recapture opportunity if we drive topline growth and reengineer some aspects of our business model to reduce the amount of fixed labor currently required.
Julie Massino: This is due to a number of reasons, including historically high inflation, particularly on the labor side, but we believe there's a significant margin recapture opportunity if we drive top-line growth and re-engineer some aspects of our business model to reduce the amount of fixed labor currently required and simplify our menu and process. Ultimately, our goal is to deliver compelling shareholder returns, and improving profitability is the biggest lever for achieving this. One of the areas where we are doubling down is building our strategic pricing capabilities, as our research shows that this is one of our biggest near-term opportunities. We've shared with you on previous calls that Cracker Barrel has taken pricing in a thoughtful and careful manner so as to preserve our value. This is true, and the teams have done a good job as far as they've been able.
Julie Massena: Simplify our menu and processes.
Julie Massena: Internally our goal is to deliver compelling shareholder returns and improving profitability is the biggest lever for achieving this.
Julie Massena: One of the areas, where we are doubling down is building our strategic pricing capabilities as our research shows that this is one of our biggest near term opportunities.
Julie Massena: We have shared with you on previous calls that cracker barrel has taken pricing in a thoughtful and careful manner, so as to preserve our value.
Julie Massena: This is true and the teams have done a good job as far as they have been able.
Julie Massino: What we need to improve, and what we are working hard on now, is dramatically improving our pricing sophistication. And by that, I mean our capabilities to really measure and understand price elasticity at various levels to allow us to move to a more barbell pricing structure, utilizing the menu and messaging to more efficiently drive desired behaviors and getting more granular with our pricing at the market, store, and item level. To be clear, this does not mean simply taking higher prices.
Julie Massena: What we need to improve and what we are working hard on now is dramatically improving our pricing sophistication and.
Julie Massena: And by that I mean, our capabilities to really measure and understand price elasticity at various levels to allow us to move to a more barbell pricing structure utilizing the menu and messaging to more efficiently drive desired behaviors and getting more granular with our pricing at the market store and item level.
Julie Massena: To be clear this does not mean simply taking more pricing rather it means improving our internal capabilities to be even more surgical and thoughtful with our pricing across the entire menu and across all stores.
Julie Massino: Rather, it means improving our internal capabilities to be even more surgical and thoughtful with our pricing across the entire menu and across all stores. In the coming weeks, we will be launching the first of many tests using our significantly refined approach, and these learnings will inform our future pricing actions, tests, and strategies. In closing, we're encouraged by our progress, but we have much work to do. Although we anticipate continued margin pressures in the near term, we firmly believe that our focus on the three imperatives, one, driving relevancy. Two, delivering food and an experience that guests love.
Julie Massena: In the coming weeks, we will be launching the first of many tests using our significantly refined approach and these learnings will inform our future pricing actions tests and strategy.
In closing, we're encouraged by our progress, but we have much work to do.
Julie Massena: Although we anticipate continued margin pressures in the near term, we firmly believe that our focus on the three imperatives, one driving relevancy to delivering food and an experience that guests love and three growing profitability, we will build on our momentum and deliver long term value creation.
Julie Massino: And three, growing profitability. We'll build on our momentum and deliver long-term value creation. Obviously, there is a lot of work to do, and it will not be quick or easy, but I am excited and optimistic about the path we are on.
Julie Massena: Obviously, there was a lot of work to do and it will not be quick or easy, but I am excited and optimistic about the path we are on it.
Operator: I look forward to providing additional details on our strategy and initiatives in May and to keeping you informed as we move ahead. I'll now turn it over to the operator for questions. We will begin the question and answer session. To ask a question, you may press star then 1 on your touch screen.
Julie Massena: I look forward to providing additional details on our strategy and initiatives in may and to keeping you informed as we move ahead.
Speaker Change: Now I'll turn it over to the operator for questions.
Speaker Change: We will begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone, if you're using a speaker phone. Please pick up your handset before pressing the keys.
Operator: If you are using a speakerphone, please pick up your handset before pressing the button. If at any time your question has been answered and you would like to withdraw your question, please press star then 2. Our first question comes from Catherine Griffin with Bank of America. Please go ahead. Hi, thank you very much for the question. I was interested in the figure you provided about the loyalty customer sales mix at Thanksgiving and was wondering if you could talk a little bit more about how you are integrating promotions or value messaging into the loyalty program, especially as you're starting to get it off the ground and driving enrollment ahead of plan. We continue to test and learn our way through this.
Speaker Change: Anytime Youre question has been addressed and you would like to withdraw your question. Please press Star then two.
Copper: Our first question comes from copper.
Copper: Katherine Griffin with Bank of America. Please go ahead.
Katherine Griffin: Hi, Thank you very much for the question I was interested in the the figure you provided about that loyalty customer sales mix I'm at Thanksgiving and was wondering if you could talk a little bit more about how you are integrating promotions or value messaging into the loyalty program I'm, just especially as you're starting to.
Katherine Griffin: Get it off the ground and and driving enrollment.
Katherine Griffin: Okay.
Katherine Griffin: Yeah.
Katherine Griffin: Are ahead of plan, we continue to test and learn our way through this as I mentioned in the prepared remarks over 50% of our heat N' serve business came from people in the loyalty program and we believe this is due to our direct engagement with them. We're continuing to test other different engagements with them and offers and we will be able to share more of that as we continue down the <unk>.
Operator: As I mentioned in the prepared remarks, over 50% of our heat and serve business came from people in the loyalty program, and we believe this is due to our direct engagement with them. We're continuing to test other different engagements with them and offers, and we'll be able to share more of that as we continue down the journey. But we continue to be optimistic about what we're seeing with this program. Okay, thank you.
Katherine Griffin: Arnie.
Katherine Griffin: But we continue to be optimistic about what we're seeing with this program.
Arnie: Okay. Thank you and then D are just in the second quarter the year on year rate of growth and labor cost per store was the lowest it's been in in a couple of years and I'm wondering how sustainable that level of growth is and then maybe how that reflects the investments you're making in labor you know assuming that the slower rate of growth isn't just that.
Craig Pimmel: And then, just in the second quarter, the year on year rate of growth in labor costs per store was the lowest it's been in a couple of years. And I'm wondering how sustainable that level of growth is, and then maybe how that reflects the investments you're making in labor, assuming that this lower rate of growth isn't just a function of moderating, you know, wage inflation more generally. Hi Catherine. It's Craig.
Arnie: I'm kind of a moderating you know wage inflation more generally.
Arnie: Hi, Catharine, it's Greg I'll I'll take that one there is a bit of both of those in there we clearly invested significantly in labor and in the second quarter and that hasn't worked out well, there's a lot of ways, we're seeing the benefits and the guest experience and has all the benefits and say.
Craig Pimmel: I'll take that one. There is a bit of both of those in there. We clearly invested significantly in labor in the second quarter, and that has worked out well in a lot of ways. We're seeing the benefits in the guest experience, and we saw the benefits in sales. At the same time, wage inflation is moderating nationally and is moderating for us. So, you have a couple of moving pieces there.
Arnie: At the same time wage inflation is moderating nationally and it's moderate then or off so we have to you have a couple of moving pieces. There the wage rate moderation is a bit of a good guy so to speak but.
Craig Pimmel: The wage rate moderation is a bit of a good guy, so to speak, but we also invested a lot. So, as we kind of go forward and we kind of think about fiscal 25 and beyond, as Julie talked about, improving profitability is one of the three key imperatives, and the labor component of the business model and kind of continuing to get that right will be a big part of that. Great, thank you. The next question comes from Jeff Farmer with Gordon Haskett, please go ahead.
Speaker Change: But we also invested reinvested a lot so as we kind of go forward and we kind of think about fiscal 'twenty five and beyond as Julie talked about improving profitability is one of the three key imperatives and the labor component of the business model and kind of continuing to.
Speaker Change: Get that right will be a big part of that.
Speaker Change: Great. Thank you.
Speaker Change: Okay.
Speaker Change: Next question comes from Jeff Farmer with Gordon Haskett. Please go ahead.
Craig Pimmel: Thanks. I believe you guys noted that the upward revision in that 2024 revenue guidance number was at least partially driven by increased advertising. Assuming I heard that right, what is the advertising increase relative to what you guys were thinking last quarter? And when the dust settles, where would you expect advertising spend as a percent of sales and FY24 to land? Hi Jeff. It's Craig.
Jeff Farmer: Thanks, I believe you guys noted that the upward revision in that 'twenty 'twenty four revenue guidance number was at least partially driven by increased advertising, assuming I heard that right.
Jeff Farmer: What what is the advertising to increase relative to what you guys were thinking last quarter.
Jeff Farmer: And when the dust settles, where would you expect advertising spend as a percent of sales.
Jeff Farmer: And in FY 'twenty four to land.
Jeff Farmer: Hi, Jeff It's Craig the.
Craig Pimmel: Traditionally, Cracker Barrel's advertising as a percent of sales or marketing as a percent of sales was somewhere in a kind of mid-to-high 2% range. And now we are expecting to be in a kind of mid-to-low 3% range through this fiscal year. The approach that we've taken is really a test-and-learn kind of data-driven approach. If we go back to, let's say, Q4, In Q4, we were disappointed. In fiscal 23, we were disappointed in our top-line performance.
Craig: Traditionally cracker barrels advertising as a percent of sales and marketing as a percent of sales or somewhere in that kind of mid to high 2% range.
Craig: And now we are expecting to be in the kind of mid to low 3% range through this fiscal year. The approach that we've taken is a really a test and learn can a data driven approach. If we go back to let's say Q4 in Q4, we were disappointed in Q4 fiscal 'twenty three.
Craig: We were disappointed in our top line performance than what we saw at that time as well we had pulled back a bit on advertising others had had increased our share of voice was.
Craig Pimmel: And what we saw at that time was while we had pulled back a bit on advertising, others had increased, and our share of voice was quite low. And as a result of that, we did a lot of testing. And what we're seeing is, on the margin, it is profitable for us to invest more in advertising. Now, clearly, it compresses our overall margins as a company, but the total dollars delivered are favorable. So we're going to continue to use a test-and-learn approach as we look at our marketing mix. But for the near term, we do expect it to be higher than what we saw in prior years. Okay, and then just one more unrelated thing.
Craig: No and as a result of that we've done a lot of testing and what we're seeing is on the margin.
Craig: We it is profitable for us to invest more in advertising they'll clearly compresses it compresses our overall margins of the company, but the total dollars delivered is favorable so we're going to continue to use a test and learn approach as we look out over market, then our marketing mix, but for the near term, we do expect it to be.
Craig: Higher than what we saw in prior years.
Speaker Change: Okay, and then just one more unrelated I I think you said you've done some work on.
Craig Pimmel: I think you said you've done some work on... Analyzing the metrics, fundamental metrics that are most correlated with same-store sales growth. Can you share some of the findings from that? What were some of those metrics? So it's interesting here, we've looked at a lot of metrics, and I think coming out of that, where I don't think there is a big, "aha," no one knew this, you know, X was correlated with Y. A lot of what we're trying to do with this change is focus because we were really reporting on a wide array of metrics, each of which individually is correlated with good traffic performance. But there were, we believe that was too much, and what we wanted the team to do was to focus on the critical few things that make the biggest difference, and so that was the approach that we took.
Speaker Change: Analyzing our the metrics fundamental metrics that are most correlated with same store sales growth can you share some of the findings from that what were some of those metrics.
Speaker Change: So its interesting there we.
Speaker Change: Looked at a lot of metrics and I think coming out of that where I don't think there was a big Aha no. One knew with Exco is correlated with why a lot of what we're trying to do with this change is bogus because we were really reporting on a wide array of metrics each of which individually are correlate.
Speaker Change: Did with good traffic performance, but there were we believe that was too much and what we want it seem to do is to focus on the critical few things that make the biggest difference and so that was the approach that we took is really about intense focus on our critical few important things. So we're not going to go into that.
Craig Pimmel: It's really about intense focus on the critical few important things. So we're not going to go into the exact metrics because I think everyone would agree with them. It's more important that we have kind of backed away from some other metrics that we think were maybe distracting and instead focused on the ones that matter the most. All right, and I apologize.
Speaker Change: The exact metrics because.
I think everyone would agree with them is the more important that we have kind of backed away from some other metrics that we think we're may be distracting and instead focus on the ones that matter the most.
Speaker Change: And I apologize I just sneak one more in a what was traffic in the quarter I might've missed that.
Craig Pimmel: I'll just speak one more in. What was traffic like in the quarter? I might have missed that. Traffic was negative 4% for the quarter.
Speaker Change: Traffic was negative 4% for the quarter alright. Thank you.
Operator: All right. Thank you. www.larryweaver.com. The next question comes from Jake Bartlett with Truist Securities. Please go ahead.
Speaker Change: The next question comes from Jake Bartlett with Truth Securities. Please go ahead.
Operator: Great. Thanks. Thanks for taking the question. My first question, Craig, just to make sure I understand the benefits adjustment. I think 5.3 million in the second quarter in labor. Is that correct? Do I hear that right?
Jake Rowland Bartlett: Great. Thanks, Thanks for taking the question My first Greg just to make sure I understand the benefit suggests I mean, I think like <unk> 3 million.
Jake Rowland Bartlett: In the second quarter in labor.
Jake Rowland Bartlett: Is that is that correct I hear that right.
Craig Pimmel: And is that something that's going to continue? So is this a benefits change that's going to have a four-quarter benefit, and we just kind of go from there? Or is this kind of a one-time thing?
Jake Rowland Bartlett: Is that something that's going to continue so is this a benefits change that's going to you know.
Jake Rowland Bartlett: A full quarter benefit and then we just kind of go from there or is this kind of a one time thing.
Craig Pimmel: It's a non-recurrent benefit, so it was a good guy, so to speak, to the P&L that related to a benefit change that we made at the beginning of the calendar year. So in the spirit of, there are a number of costs that are non-recurrent that we are backing out this year.
Speaker Change: It's a nonrecurring benefit so it was a good guy so to speak to the P&L that related to a benefit change that we made at the beginning of the calendar year. So in the spirit.
There are a number of costs that are nonrecurring that we are backing out. This year. This is a nonrecurring item is a permanent change in our benefits program that created a nonrecurring benefit and as a result of that we remove that we remove that benefit from the second quarter adjusted results.
Craig Pimmel: It's a permanent change in our benefits program that created a non-recurrent benefit, and as a result of that, we removed it, we removed that benefit from the second quarter adjusted results. Okay, so it is, it is backed out of the adjusted results that you... Correct. It's already been backed out of the adjusted published results, yes, and also out of the annual guidance. Okay. And then, you know, just building on Jeff's question about, you know, advertising and, you know, maybe others like the investments in hours, I'm wondering, you know, at the midpoint of guidance is about 70 base points of margin compression in 24. What of those, you know, the factors that are compressing margins, what is not recurring going forward? I mean, I guess, do you expect advertising to remain in the kind of the 3% plus range long term? You know, is there any kind of outsized investment hours that might not recur next year?
Speaker Change: Okay. So it is it is backed out of <unk>.
Speaker Change: Adjusted results for the year.
Speaker Change: Alrighty backbone of the published results, yes, and also out of the annual guidance.
Speaker Change: Okay and then.
Speaker Change: Just building on Jeff's question about advertising and maybe others like like.
Speaker Change: The investments in hours I'm wondering you know at the midpoint of guidance is about 70 basis points of margin compression in 'twenty for one of those.
Speaker Change: The factors that are compressing margins what are not recurring going forward I mean, I guess do you expect for advertising to remain in the 3% plus range long term and was there any kind of outsized investment in hours that might not recur next year, how can how should we think about the margins in 'twenty four and have reflected that.
Craig Pimmel: How should we think about, you know, the margins in 24 and how reflective they are of the margins going forward? You know, as Julie shared, improving profitability is one of our three key imperatives. And refining the business model, inclusive of the labor model, will be a big part of that. Now having said that, we've just spent all this time and all this money invested in labor to improve the guest experience. So we're not going to unwind that in a risky way.
Speaker Change: Are the margins going forward.
Speaker Change: As Julie shared improvement and profitability is one of the is one of our three key imperatives and refining the business model inclusive of the labor model will be a big part of that now having said that we've just spent all of his time with all this money invested in labor to improve the guest experience. So we're not guaino.
Speaker Change: Unwind that in a in a risky way what we're doing is structurally.
Craig Pimmel: What we're doing is structurally trying to change and working on removing the amount of fixed labor that we have in the business so that we can flex up and down more appropriately with labor. So that work is underway. That's probably a mid-term solution.
Speaker Change: Trying to change working on removing the amount of fixed labor that we have in the business. So that we can flex up and down it.
Speaker Change: More appropriately with with labor. So that work is underway. That's probably are made at a mid term solve.
Craig Pimmel: From an advertising perspective, we're going to continue to look at that using a test and learn approach, using a media mix analysis type of approach. And if it's more, if it's meaningfully more profitable for us to have our, you know, somewhat higher than we have traditionally advertising level, then we'll make that decision then. And if at some point it's not, then we'll make, we're going to make whatever decision is most profitable for the company over time. One, you know, one bit of a big positive there as we think about the loyalty program and how that, how that benefits us over time. Today, we're spending a lot in a kind of mass market; we are doing some targeting and digital and so on, but it's still a version of mass marketing.
Speaker Change: From an advertising perspective, we're going to continue to look at that using that test and learn approach using a medium mix analysis type of approach.
And if it's more of a is meaningfully more profitable for us to do have a somewhat higher than we have traditionally advertising level. Then we'll make that decision then and if at some point. It's not then we will make we want to make whatever decision is most profitable for the company over time, one one bit of a big positive there as well.
Speaker Change: Think about the loyalty program and how that how that benefits us overtime today, we're spending a lot in kind of mass market. We are doing some targeted and digital and so on but it's still a version of mass market, then and as the loyalty program continues to scale, we'll be able to talk to guests in a much more targeted more.
Craig Pimmel: And as the loyalty program continues to scale, we'll be able to talk to guests in a much more targeted, much more one-on-one way. And there are some efficiencies that come with that as that program scales over the long term.
Speaker Change: More one to one way and there are some efficiencies that come with that as that program skills over the long term.
Speaker Change: Okay.
Julie Massino: And last question, Julie, on the last call, you mentioned that, you know, a focus on value, that competitors were getting a little more intense with value, you're focusing on your 20 under 12, your breakfast, you know, 899 price points. My question is how that went, and was that a contributor to the results in the second quarter? And then, you know, going forward, you haven't mentioned value in this call very much. Is that still something that you think you need to lean in on?
Speaker Change: And last question Julie on the last call you.
Julie Massena: You mentioned that you.
Julie Massena: A focus on value that value had been competitors, we're getting even more intense with value you were you're focusing on your 'twenty under 12 your breakfast.
Julie Massena: 899 price points.
Julie Massena: The question is how how that went and treated was that a contributor to the.
Julie Massena: The results.
Julie Massena: In the second quarter, and then going forward I know you haven't mentioned value in this call very much is that still something that you think you need to lean in on you know you're still seeing some competitive pressures from from your.
Julie Massino: You know, are you still seeing some competitive pressures from, you know, competitors getting very, you know, focused on value? Any kind of commentary around that aspect would be helpful. Sure thing. Look, value is important, and it has been important at the Cracker Barrel brand for, probably forever. And value is something that guests are constantly calculating, right? It's how much food did I get, what did I pay for it, how was my experience, what was the whole thing like?
Julie Massena: Competitors getting very focused on value in any kind of commentary around that aspect would be helpful.
Speaker Change: Sure. Thanks.
Speaker Change: Look value is important and all it has been important to the cracker barrel brand for her.
Speaker Change: Probably forever and value is something that guests are constantly calculating right. It's how much food did I get what they pay for it how is my experience what was what was the whole thing likes the value is this this is really complicated guest equation that people are really applying a lot of judgment to.
Julie Massino: So value is this really complicated guest equation that people are really applying a lot of judgment to. So we are constantly looking at both value scores, which we perform very well on, by the way. And value is something that we have protected historically here at Cracker Barrel. When I talked about pricing in my prepared remarks, value will continue to be an important part of how we evaluate our pricing architecture and strategy going forward, recognizing that every time a guest interacts with us, they're making a value judgment about the entire equation. But also importantly, some of those guests are very value priced at points.
Speaker Change: So we are we are constantly looking at both value scores, which we perform very well and by the way and value is something that we have protected historically here at cracker barrel.
Speaker Change: When I talked about pricing in my prepared remarks value will continue to be an important part of how we evaluate our pricing architecture and strategy going forward recognizing that every time, a guest interacts with us, they're making a value judgment about the entire equation, but also importantly, some of those guests are very value price.
Point focused so we'll be taking both of those into account we're protecting some great price points I mean, I don't know if you've been enjoying cracker barrel lately, but if you come in and you get modest pancake breakfast from US. It's 899, its three pancakes as two exits your choice of meat like that's an incredible value one that we celebrate one that our guests love.
Julie Massino: So we'll be taking both of those into account. We're protecting some great price points. I mean, I don't know if you've been into a Cracker Barrel lately, but if you come in and you get Mama's Pancake Breakfast from us, it's $8.99, it's three pancakes, it's two eggs, it's your choice of meat. Like, that's an incredible value. One that we celebrate, one that our guests love, and then if you literally just get our Southern Fried Chicken dinner, it's half a chicken, which is an incredible amount of value.
Speaker Change: And then if you literally just got like our southern fried chicken dinner.
Speaker Change: Z chicken, which is an incredible amount of value well, we may not consider that a value price point that feels like a tremendous value to another cohort of rguest. So we're taking all of those things into account as we think about value into the future and how we pair that with pricing architecture and strategy.
Julie Massino: While you may not consider that a value price point, that feels like tremendous value to another cohort of our guests. So we're taking all of those things into account as we think about value in the future and how we pair that with pricing, architecture, and strategy. The last thing I would mention that I'm super excited about, which is another key way to think about value, especially for our value-oriented guests, is today we launched an early dinner deal as part of our new spring menu. Early dinner deals are only Monday through Friday from 4 to 6 p.m. We have seven entree choices that start at $8.99, and all of them are under $10.
Speaker Change: The last thing I would mention that I'm Super excited about is which is another key way to think about value, especially for our value oriented guest is today, we launched as part of our new spring menu early dinner deals early dinner deals are only Monday through Friday from four to six P. M. We have.
Speaker Change: Seven entree choices that started 899 and all of them are under $10. So it's a it's an incredible value and again really speaking to some of our guests who are value price point focused.
Julie Massino: So it's an incredible value. Again, speaking to some of our guests who are value price point focused. But to really put a sharp point on it, Jake, value is an important part of our strategy here at Cracker Barrel. It has been. It will be.
But to really put a sharper point on it Jake value is an important part of our strategy here at Cracker barrel. It has then it will be but it's a really multifaceted thing that when you look at across several different metrics.
Julie Massino: But it's a really multifaceted thing that we look at across several different sectors. Great. I appreciate it.
Speaker Change: Great I appreciate it thank you.
Craig Pimmel: Thank you. The next question comes from Dennis Geiger with UBS. Please go ahead.
Speaker Change: Our next question comes from Dennis Geiger with UBS. Please go ahead.
Craig Pimmel: Great. Thank you. And, Julie, thanks for the commentary and the detail on the transformation and some of the key learnings and those three imperatives. Looking forward to the event in May, and I'm sure you'll touch on more of the details then, but just curious if at a high level you guys could sort of talk at all about maybe the investment potential around some of those imperatives in the transformation opportunity, what that might mean from a capital allocation priority perspective, anything at I know you touched on some of this earlier, Craig, but any commentary there that you're able to touch on today by chance? Thanks, Dennis. You know, the board's approach to capital allocation has been very consistent and thoughtful.
Dennis Geiger: Great. Thank you and Julie Thanks for the commentary on the detail on the on the transformation and some of the key learnings and those three imperatives I'm looking forward to the event didn't you may end and I'm sure you'll touch on more of the details then, but but just curious about a high level you guys could sort of talk at all about maybe the investment.
Dennis Geiger: Joel around some of those imperatives, the transformation opportunity what that might mean from a capital allocation priority perspective anything at a high level to share there if anything.
Speaker Change: Shifting I know you touched on some of this earlier, Craig, but any commentary there that you're able to touch on today by chance.
Speaker Change: Thanks Dennis.
Craig: Our approach to capital allocation has been very consistent and thoughtful and they look at it every quarter or something that they examine and first and foremost they're prioritizing the profitable growth of the cracker barrel and Maple Street, and then beyond that it's returning capital to shareholders, primarily that had been through the quarterly dividend of <unk>.
Julie Massino: They look at it every quarter as something that they examine. And, first and foremost, they're prioritizing profitable growth for both Cracker Barrel and Maple Street. And then, beyond that, it's returning capital to shareholders. Primarily, that has been through the quarterly dividend of late. When I think about this strategy, you know, it's funny, I almost didn't talk about the store refresh test that we have going on because I was worried that people would immediately go to, you know, spending capital and capital allocation. I wanted to use that as an illustrative point more to just share my management philosophy around agile testing and learning and just to show you all that we are moving forward with the strategy and the key imperatives of driving relevancy, So the board's going to continue to look at capital allocation, but know that we are really focused on those three strategic imperatives as we lay out the strategy and move the brand and business forward. Very helpful; I appreciate that.
Speaker Change: Right.
Speaker Change: When I think about this strategy you know, it's funny I almost didn't talk about the store refresh tests that we have going on because I was worried that people would immediately go to you know spending capital on capital allocation I wanted to use that as an illustrative point more to just share my management philosophy around agile.
Speaker Change: Testing and learning and just to just show you all that we are moving forward and as the strategy and the key imperatives of driving relevancy, delivering our food and experience at Gaslog and improving profitability.
Speaker Change: The board is going to continue to look at capital allocation, but know that we are really focused on those three strategic imperatives as we lay out the strategy and the branded business forward.
Speaker Change: Very helpful. Appreciate that I appreciate that and then maybe just one more do you kind of touched on it some but but anything else notable on sort of your customer behavior changes that you saw in the quarter either across the restaurant.
Craig Pimmel: And then maybe just one more, you kind of touched on it, Tom, but anything else notable about sort of your customer behavior changes that you saw in the quarter, either across the restaurant or the retail business? I don't know if you're kind of breaking anything down by income cohort, if there's anything notable. Any changes there, or has it generally been largely consistent? Thank you. I think we'll both comment on this.
Speaker Change: Or the retail business I don't know, it's kind of breaking anything down by income cohort. If there's anything notable any changes there or is it generally been largely consistent thank you.
Speaker Change: I think will both comment on this I'll start by saying that one thing I'm. Most optimistic about is we've seen some nice growth in the 25 to 44 cohort as well as the 65 plus cohort. So again traffic was in a better place for us in Q2, and so we felt like we really.
Craig Pimmel: I'll start by saying the one thing I'm most optimistic about is we've seen some nice growth in the 25 to 44 cohort, as well as the 65 plus cohort. So, again, traffic was in a better place for us in Q2, and we felt like we really improved our guest experience scores, but we're, we're optimistic about some of those cohort growth rates. I'll let Craig talk a little bit more about that, but I'll build on that point, especially with the 65 plus, as we go back to our 2023 Q4 and even into Q1 of 2024. The softest cohort, age cohort, was 65 plus.
Speaker Change: Improved our guest experience scores, but we're we're optimistic about some of those cohort growth I'll, let Craig talk a little bit more about the rest of this I'll build on that point, especially with the 65 plus as we go back to our clinic 23, Q4, and even into Q1 of 'twenty 'twenty four the soft.
Speaker Change: This cohort age cohort was 65, plus and with our second quarter results. We saw a really significant improvement I was still still down a bit but a meaningful improvement at very meaningful improvement versus where we were at the end of a fiscal 'twenty three and into the early part of fiscal 'twenty four it so that was a big positive.
Craig Pimmel: And with our second quarter results, we saw a really significant improvement. Now we're still down a bit, but a meaningful improvement, a very meaningful improvement versus where we were at the end of fiscal 23 and into the early part of fiscal 24. So that was a big positive. Thinking about the income cohort, if we just break that out into two groups, the under-60K and the over-60K, really steady, not a big story there, pretty consistent between the two groups. The bigger story is really in the age cohorts and the improvement that we've seen with the 65 plus. Very helpful, guys.
Speaker Change: Thinking about the income cohorts, if we just break that out into two groups. The under 60, K and over 60, K really steady not a big story they are pretty consistent between between the two groups. The bigger story is really in the age group works and the improvement that we've seen with the 65 plus.
Speaker Change: Very helpful guys. Thank you.
Craig Pimmel: Thank you. The next question comes from Brian Mullen with Piper's, And thank you. Just a question on Maple Street.
Speaker Change: Next question comes from Brian Mullan with Hyperscale.
Brian Mullan: Go ahead.
Brian Mullan: And thank you just a question on Maple Street, Juliet Love to get your perspective on this business you know as you think about all the things you need to tackle with the core Cracker barrel brand you know where does where does maple street fit into that is that a real growth opportunity or is it potentially something you'd look to part ways with overtime just any thoughts on your assessment.
Julie Massino: Juliette, I'd love to get your perspective on this business. You know, as you think about all the things you need to tackle with the core Cracker Barrel brand, you know, where does Maple Street fit into that? Is that a real growth opportunity? Or is it potentially something you'd look to part ways with over time?
Julie Massino: Just any thoughts on your assessment? Thanks, Brian. Myself and the management team right now are insanely focused on Cracker Barrel. We are working very, very hard on the strategic transformation and getting this business back to growth and the three imperatives that I talked about earlier, driving relevancy, delivering food and experiences that our guests love, and improving profitability. Maple Street. We're not talking about that today, but we'll share more in the future. There's a lot to love about Maple Street.
Juliet: Thanks, Brian.
Juliet: Myself and the management team right now are insanely focused on cracker barrel and we are working very very hard on the strategic transformation and getting this business back to growth and the three imperatives that I talk about talked about earlier, driving relevancy, delivering food and experience that our guests love and improving profitability.
[noise] Maple Street, we're not talking about that today, but we'll share more in the future. There's a lot to love about Maple Street, it's great food, It's got a nice weekend business that right. Now we are really focused on growing cracker barrel and returning it to strike.
Julie Massino: It's great food, it's got a nice weekend business, but right now, we are really focused on growing Cracker Barrel and getting it back. Okay, thank you for that. Just as a follow-up, just a good segue, the core Cracker Barrel store portfolio, as you're doing all your work, do you think store closures could be a part of something with the strategic process? Do you see any stores that the overall company might benefit from closing? I'd just love to get your take on it. Hi Brian, it's Craig.
Speaker Change: Okay. Thank you for that just doesn't follow up is just a good segue to the core cracker barrel store portfolio as you're doing all your work you know do you think store closures could be a part of something.
Speaker Change: With the strategic process do you see any stores that you might be the overall might benefit from from closely slipped I wanted to get your take.
Speaker Change: Hi, Brian It's Greg you know, we're always looking at the at the store portfolio. So as a part of our regular regular process and I can tell you that we don't have a lot of stores are not not cash flow positive, but it is something that we take.
Craig Pimmel: We're always looking at the store portfolio, so it's a part of our regular process. And I can tell you that we don't have a lot of stores that are not cash flow positive, but it is something that we take a regular look at. And we're going to continue to do that. It's especially important as you think about a broader kind of strategy update; we'll take a deeper look as well. But as a company, at the cash flow, at the unit level cash flow level, there are not a lot of stores there that you kind of go, hey, these are just, you know, very cash flow negative. Okay, thank you. The next question... Pod Brook, Ben.
Speaker Change: A irregular look out there we're going to continue to do that.
Speaker Change: Specialty in Florida, and if you think about a broader kind of strategy update will it will take a deeper look as well, but as a company.
Speaker Change: Our cash flow at a unit level cash flow level, we are not a lot of stores. There that you Gotta go Hey. These are just you know a very cash flow negative.
Speaker Change: Okay.
Speaker Change: Okay. Thank you.
Speaker Change: The next questioner.
Speaker Change: Questioner is Todd Brooks from Benchmark company. Please go ahead.
Craig Pimmel: Go ahead. Hey, thanks for taking the time to answer a couple of questions here. The first is a bigger picture question for Julie or Craig. I know we'll hear more about this at the May event, but I think part of the challenge with Cracker Barrel is understanding what sort of margin you're looking to return to over time. So this was a 9% operating margin business in 2019. You have incremental pressures on all three of the key restaurant level lines, some inflation-based, but a few hundred basis points on occupancy and other that may just be the structural growth of off-premise.
Todd Brooks: Hey, Thanks for taking a couple of questions here. The first is a bigger picture question for Julie or Craig.
Todd Brooks: I know, we'll hear more about this at the May event, but I think part of the challenge with Cracker barrel is understanding what sort of margin youre looking to return to over time so.
Todd Brooks: This was a north of 9% operating margin business in 2019.
Todd Brooks: Incremental pressures on all three of the key restaurant level line some inflation.
Todd Brooks: But a few hundred basis points in occupancy, although that may just be the structural growth.
Craig Pimmel: Is there anything that you can share with us today about where, and not the when, but the where and what we think the margin potential is for the Cracker Barrel business if you're successful with the three pillars? As Julie shared, I thought, Craig, as Julie shared, improving profitability is one of the key imperatives. If you kind of think about where she talked a bit about strategic pricing, so that obviously is going to kind of get leveraged as a percent of sales across the full P&L. So that's a big one.
Todd Brooks: Off premise is there anything that you can share with us today about where.
Todd Brooks: And not to win but the where and what we think the margin potential is for the cracker barrel business, if you're successful with the three pillars.
Speaker Change: As Julie sure. That's I thought it's Greg is really share the improving profitability is one of the key imperatives that if you kind of think about where if you talked a bit about strategic pricing. So that obviously is going to kind of get leverage as a percent of sales across the full P&L. So that's the big one at we've also talked about.
Craig Pimmel: We've also talked about labor, and clearly, we are investing in labor. We're doing it to drive an improved guest experience. We're happy with the guest experience results. And at the same time, we want to make the model more variable.
Speaker Change: Votes Labour and clearly we were invested in labor, we're doing it to drive an improved guest experience, we're happy with the guests experience results.
Speaker Change: And at the same time, we want to make the model more variable do you want to take out some of those fixed costs. So we've covered goes and we have ongoing cost save our margin optimization initiatives really across the across the entire P&L. So we're we're really working on all of it I think.
Craig Pimmel: We want to take out some of those fixed costs, so we've covered those. And we have ongoing cost savings and our margin optimization. Initiatives really across the entire P&L. So we're really working on all of it. I think the two big ones that we've highlighted so far are in the strategic pricing area and then, over the medium term, not necessarily the very short term, midterm labor as well, but we are looking at really every part of the P&L. So do you think a recovery is possible?
Speaker Change: The two big ones that we've highlighted so far on this kind of strategic pricing area and then over the mid term not necessarily the very short term the midterm labor as well, but we are looking at really every part of the P&L.
Speaker Change: So do you think a recovery is possible or is there just something structural about the business being different about Craig where.
Craig Pimmel: Is there just something structural about the business being different now, Craig, where we're trying to recover back to 7% and getting people focused on that magnitude of recovery versus going back to kind of prior levels? Yeah, we're not sharing a level in terms of the exact percent of sales right now, but we think there is meaningful upside in the overall profitability of the company, certainly from a dollar perspective, you know, very, very significant. Now, as Julie said, it'll take some time, and we're being really careful about it, and we're prioritizing and ensuring that the business is relevant, and we have a healthy top line. But over time, we think it's meaningful without putting an exact point on what the OI percent target is. Okay, great. Thanks. And then my second question, obviously better than we were looking for from a restaurant, was the same store sales performance in the quarter. Congratulations on that!
Speaker Change: We're trying to recover back to 7% and getting people focused on on that magnitude of a recovery versus back to kind of prior levels.
Speaker Change: Yeah, we're not we're not sure yet.
Speaker Change: A level in terms of the exact percent of sales right now, but we think there is meaningful upside in the overall profitability of the company certainly from a dollar perspective, you know very very significant now as Judy said it will take some time and we're being really care.
Speaker Change: Full about it and we're prioritizing and ensuring that the business is relevant and where we have a.
Speaker Change: Healthy topline.
Speaker Change: But overtime, we think is meaningful without putting an exact point on what the O Y percent target is.
Speaker Change: Okay, Great. Thanks, and then my second question.
Speaker Change: Obviously better than we were looking for from a restaurant same store sales.
Speaker Change: Performance in the quarter Congrats on that I know typically you don't like to give color but.
Craig Pimmel: I know you typically don't like to give color, but other industry participants saw real pressures in January, and that is included in this quarterly result. So anything you can share about the cadence of same-store sales, how they were running until maybe January, and any sense of if things have normalized at all as we're moving farther away from those January headwinds. Thanks.
Speaker Change: Other industry participants saw real pressures in in January that is included in this quarterly results. So anything you can share about cadence of same store sales how they were running until maybe January and if any sense of if things have normalized at all as we're moving farther away from those January.
Speaker Change: Thanks.
Craig Pimmel: I think what we can do, as we break that apart a little bit, obviously, I know the top of mind is probably what happened with the weather and what the weather impact was, and as you all know, our quarter is November, December, January. So we have a little bit of a bad guy there for the weather, but we also have a little bit of a good guy for the catering and heat and serve business, which was a strong benefit in November and into December. So, all in all, we were pleased with the quarter; there were a lot of moving pieces there. We think we've been helped, we think our performance has been helped by advertising in a profitable way on the margin, we think it's been helped by the labor investments, but we're also monitoring, and we were careful to call out the industry headwinds. The industry does continue to face headwinds, and you will continue to see that. Okay, great.
Speaker Change: I think what we can and we break that apart a little bit obviously, you know top of mind is probably what happened with with weather and what was the weather impact and as you. All know our quarter is November December January so we have a little bit of a bad guy there for weather, but we also have a little bit of a good guy.
Speaker Change: For the kids are in and heat and serve business that was a strong benefit in November and and into December. So all of it. We were pleased with that we're pleased with the quarter a lot of moving pieces there.
Speaker Change: We think we've been helped me think of where performance has been helped by the advertising in a profitable way on the margin. We think it's been helped by our by the labor investments, but we're also monitoring now we were careful to call out the industry headwinds the industry does continue to face faced headwinds and you continue to see that.
Yeah.
Speaker Change: Okay, great Thanks to Bob.
Craig Pimmel: Thanks to both of you. The next question comes from Jon Tower with Citi. Please go ahead. Great, thanks for taking the questions. A few, if I may.
Speaker Change: Our next question comes from Jon Tower with Citi. Please go ahead.
Jon Tower: Great. Thanks for taking my questions just a few if I may 1st going back to the day part offers the early dinner.
Julie Massino: First, going back to the day part offers, the early dinner dines, I was curious what you could tell us if you've tested across the system or some of the store base, what you've seen and tested in terms of consumer response. Yeah, thanks, Jon. We actually did not test this.
Jon Tower: I was curious what you could tell us if you've.
Jon Tower: Has it across the system or some of the store base, what you've seen in test in terms of consumer response.
Speaker Change: Yeah. Thanks, John we actually did not have this we and a desire to move Ashley forward, we evaluated the pros and cons.
Julie Massino: We, in a desire to move agilely forward, evaluated the pros and cons of it, and we think it is something that our guests are really going to love. It is very operationally easy for us and really focuses on a day part for us that is challenged. So we felt there was a low risk in moving forward with it, which is why we've launched it across the entire system today. There are some of our best-loved items at a great price point available Monday through Friday from 4 to 6 p.m. So we're optimistic that our guests will respond and come on in for some of their favorites at this early dinner time part. Yeah, maybe just drilling into that a little bit. Can you just provide an update on or some color on what happened in the quarter with respect to daypart performance? It sounds like dinner is still a challenge, but maybe that compared to the rest of the day.
John: It is something that our guests are really going to love. It is very operationally easy for us.
John: And really focuses on a day part for us that is challenged so we felt there was low risk and moving forward with it which is why we've launched it to the entire system. Today. There are some of our best loved items at a great price point available Monday through Friday from four to six P. M. So we're optimistic that our guests will respond.
John: And come on in for some of their favorites.
John: This early dinner day part.
John: Yeah, maybe just drill into that a little bit can you just provide an update on or color on what happened in the quarter with respect to take part.
John: Performance it sounds like and are still challenged but maybe that versus the rest of the day.
Julie Massino: Sure, you know, breakfast remains a core strength for us. A lot of people know and love us for our breakfast offerings, and during the quarter and really throughout the last kind of trailing 12, breakfast has remained a spot of strength for us. Lunch has also been good to us, mainly, as Craig said earlier, because of that brunch kind of overlap that you see happening at lunch. Dinner is the day part for us that is the most challenged right now, and where you'll see a lot of our innovation focus, and a lot of the growth-thriving efforts that we're focused on right now are around that dinner day part where we know we can be more relevant and more competitive. Okay. And then, just in terms of talking about the labor improvements that you're hoping to derive, it sounds like you're potentially structuring labor differently in the back of the house. Is that, are you contemplating potentially pulling some of the prep out of the store going forward? Food.
Speaker Change: Sure you know breakfast remains a core strength for us a lot of people know and love us for our breakfast offerings and during the quarter and really throughout the last kind of trailing 12 breakfast as remainder spot of strength for US lunch has also been good to us mainly as Craig said earlier because of that branch.
Speaker Change: Kind of overlap that you see happening in lunch dinner is the day part for US. It is the most challenged right now and where Youll see a lot of our innovation focus and a lot of the growth driving efforts that we're focused on right now are around that dinner day part, where we know we can be more relevant and more competitive.
Speaker Change: Okay, and then just in terms of talking about the labor.
Speaker Change: Prevents that youre, hoping to drive it sounds like you're potentially structuring labor differently in the back of the house.
Are you contemplating potentially pulling some of the prep out of store going forward.
On food.
Craig Pimmel: Yeah, I would say it's early days on that one, but we're looking at all of it. You know, number one is we need great food, it needs to be relevant, and it needs to be a good employee experience. But we're looking at what exactly needs to be made from scratch in the store versus brought in as some version of value-added. But it's still early, so I can't say that we've committed to these individual items, but it's something that we're clearly looking at. One of the challenges with the model is that it is very heavily scratch-made across a lot of items.
Speaker Change: Yeah, Yeah, I would say, it's it's it's early days on that one but we're looking at we're looking at all of it you know number one is we need great food it needs it needs to be relevant as it needs to be a good employee experience.
Speaker Change: But we're looking at Hawaii, what exactly needs to be made from scratch in the store versus brought in and some version of a value added but it's still early so I can't say that we've committed to two.
Speaker Change: These individual items, but it's something that we're clearly looking at you know one of the challenges with the model. It is very heavily scratch made across a lot a lot of items and that is fine when traffic volumes are very high and it is more of a more challenged.
Craig Pimmel: And that is fine when traffic volumes are very high, and it is much more challenging when traffic volumes are moderate. So because of that, we are looking at all those pieces, and we're going to make those decisions based on the analysis once we complete the test. Great, thank you. Two more, if I may.
Speaker Change: When traffic volumes.
Speaker Change: Moderate so because of that where we are looking into all of those pieces and we're going to make those decisions based on their analysis once we complete the testing.
Speaker Change: Great. Thanks, just two more if I may firstly I was wondering if you could drill a little bit more into the loyalty platform in terms of having any sort of specifics regarding sign ups and you Didnt I know, it's early days, but perhaps any frequency and I'm curious.
Julie Massino: First, I was wondering if you could drill a little bit more into the loyalty platform in terms of adding any sort of specifics regarding sign-ups and even, I know it's early days, but perhaps any frequency, I'm curious. In aggregate today, is the platform, including, I guess, some of the elevated marketing spend, profitable yet? I'll start a little bit and then Craig can talk about profitability, but what I would say is we're pleased with the enrollment levels. We're not going to share absolute numbers right now.
Speaker Change: Aggregate today is the it's the platform, including I guess somebody elevated marketing spend profitable yet.
Speaker Change: I'll start a little bit and then Craig can talk to the profitability, but what I would say is we are pleased with the enrollment levels, we're not gonna share absolute numbers right now and we are ahead of our plan them, which is exciting to US. We were ahead of plan going into this quarter and then obviously the partnership with Dolly Parton was extra.
Julie Massino: We are ahead of our plan, which is exciting to us. We were ahead of plan going into this quarter. And then, obviously, the partnership with Dolly Parton was extraordinary and helped drive even more incremental enrollments than we were already seeing. So that's exciting.
Speaker Change: Ordinary and helped drive even more incremental enrollments than we were already seeing so that's exciting we are seeing some incremental traffic and we continue to expect to see that in the second half that's in our projections and the way that we're looking at the back half of the year and we're seeing strong engagement, which is really.
Julie Massino: We are seeing some incremental traffic. We continue to expect to see that in the second half. That's in our projections and the way that we're looking at the back half of the year. And we're seeing strong engagement, which is really one of the most exciting things for us. You know, people, our guests have really responded well to this program. The program is so unique.
Speaker Change: One of the most exciting things for US you know people our guests really responded well to this program. The program is so unique when you look at other loyalty programs out there.
Craig Pimmel: When you look at other loyalty programs out there, the fact that you can earn on the restaurant side and on the retail side, and then we're letting you redeem on both the restaurant and retail sides seems to really be resonating with our guests as well as our employees. So the early days are very positive. In terms of profitability, this is more of an investment year. The ramp-up cost for a program of this scale has a restaurant component and a retail component. You can participate as you when you pay at the cash register; you can participate through the app.
Speaker Change: Actually you can earn on the restaurant side and on the retail side and then we're letting you redeem on both our restaurant and retail side seems to really be resonating with our guests as well as our employees. So the early days.
Speaker Change: Very positive.
Speaker Change: Yeah in terms of profitability. This is more of an investment year the ramp up costs for a program of this scale has the restaurant component has a retail component you can participate as you are when you pay at the cash Register you can participate participate.
Speaker Change: Through through the App, it's a big it's a big program and then there are also costs that are associated with just the scale up there to sign up cost there is the cost associated with building the.
Craig Pimmel: It's a big program, and then there are also costs that are associated with just the scale-up. There are the sign-up costs. There are the costs associated with building the point liability.
Speaker Change: Point liability.
Craig Pimmel: So all of that means this is an investment year for the program, and as we think about FY25, as we start to compile over that, and some of those ramp-up costs become a smaller proportion, we would anticipate the program being a more meaningful contributor to profit. Thank you. And then just last one from me, in terms of thinking about the cadence of the ad spend for the balance of the year, based upon guidance, it would sound like it's going to be more fourth quarter weighted, but maybe I'm incorrect in that. Yeah, I think we tried to talk more a little bit more holistically to say... In prior years, we were in a mid to high 2% range, and this year, we're more in the kind of low to mid. The Bulletproof Executive 2013, Right, sorry, but cadence for the balance of the year, the third and fourth quarter, should we expect kind of equal spend across the two? Yeah, yeah, I would think of the percentage; I would kind of stick with that lower to mid 3%.
Speaker Change: So all of that means this is an investment year for the program and as we think about FY 'twenty five as we start to comp over that in some of those ramp up costs become a smaller proportion we would anticipate the program being a more meaningful contributor to profits.
Speaker Change: Got it. Thank you and then just last one for me in terms of thinking about the cadence of the AD spend for the balance of the year.
Speaker Change: Based upon the guidance it would sound like it's going to be more fourth quarter weighted but maybe I'm incorrect in that assumption.
Speaker Change: Yeah, I think we've tried to talk more a little bit more holistically to say prior years, we were in the mid to high 2% range and this year were more in the kind of low to mid 3% range.
Speaker Change: Right, sorry, but cadence for the balance of the year third and fourth quarter is it should we expect kind of equal spend across the two yeah. Yeah, I would think of as a percentage I would kind of stick with that low to mid 3% range.
Speaker Change: Okay great.
Craig Pimmel: Okay, great. The next question comes from Andrew Wolf with C.L. King.
Speaker Change: Yeah.
Speaker Change: The next question comes from Andrew Wolf with C. L. King. Please go ahead.
Operator: Please go ahead. Hi, I want to follow up on the ad spend increase and the rate. And again, I might have missed this. Is that more of a response just to the market, obviously? www.youtube.com or the link in the description below, you know, under advertising, and that's sort of a new run.
Andrew Wolf: Hi, I wanted to follow up on the AD spend increase the rate.
Andrew Wolf: And again I might have missed this but is that more of a response just the market obviously certain competitors gone, we're not doing it to be.
Andrew Wolf: [noise] aggressive and so on or is that you think that the business was under.
Andrew Wolf: You know under advertising and and that's sort of a new run rate.
Operator: Thanks, Andrew. As Craig mentioned, when we really looked at Q4 of 23, one of the key learnings we took away from it was that we did pull back on advertising, and we believe that that hurt our top line. So as we looked at this year and really focused on driving relevancy, driving the business, we started evaluating advertising spending, tactics, messaging, channels, all of those things. So that test and learn approach is really fueling where we find ourselves this year and will continue into the back half of the year. So we're pleased with the investments that we've made because it is helping us with the top line. We saw that in Q2. We saw it in Q1.
Andrew Wolf: Thanks, Andrew It's Craig mentioned, when we really looked at Q4 of 23, one of the key learnings. We took away from that was that we were we did pull back on advertising and we believe that that hurt our top line. So as we're looking at this year and really focused on driving relevancy a driving.
Andrew Wolf: The business at least started evaluating AD advertising spending tactics messaging channels all of those things so that test and learn approach is really fueling where we find ourselves this year and will continue into the back half of the year. So we're pleased with the investments that we've made because.
Andrew Wolf: It is helping us with the top line we saw that in Q2, we saw in Q1 things like college football things like NASCAR. The local heavy up tests that we did in Q1, we've expanded that into Q2, you should really look at how we're able to surround some of those national buys with some of these local have yet to really drive trough.
Julie Massino: Things like college football, things like NASCAR, the local heavy-up test that we did in Q1, we've expanded that into Q2 to really look at how we're able to surround some of those national buys with some of these local heavy-ups to really drive traffic and be relevant to our guests and let them know what's going on at Cracker Barrel. Thank you. The other question I have is on strategic pricing, which you want to improve a lot. You know, is that strictly sort of a processes and training issue, or is there also some data, you know, either through loyalty or other sources to get the right input, you know, to get the right output?
Andrew Wolf: <unk> and be relevant to our to our guest and let them know what's going on at Cracker barrel.
Speaker Change: Thank you. The other question I have is on.
Speaker Change: The strategic pricing.
Speaker Change: You want to approve a lot.
Speaker Change:
Speaker Change: You know is that strictly sort of our processes and training issue or is there also some data.
Speaker Change: Neither through loyalty or other sources.
Speaker Change: We get the right from you know to get the right output and can you give us a sense of the timing how quickly that can be rolled through the <unk>.
Julie Massino: And can you give us a sense of the timing, how quickly this can be rolled out through the business? Sure. Yeah, I would say it's a combination of both, but mostly a more data-driven approach.
Speaker Change: Sure Yeah, I would say, it's a combination of both but mostly a more data driven approach. So the team's done a great job in the past holding back stores really trying to understand the impact of pricing and consumer response to it but we can be even more strategic and data driven across the way we structure the menu the way we think.
Julie Massino: So the team has done a great job in the past holding back stores, really trying to understand the impact of pricing and consumer response to it. But we can be even more strategic and data-driven across the way we structure the menu, the way we think about value, as I talked about earlier, and then the way that we achieve that through tiers, zones, stores, menu items, menu deletions, how we think about items on a plate and how they're priced. So there's a lot of opportunity to look at it differently from a data-driven approach and test and learn our way into some of these opportunities.
Speaker Change: About value as I talked about earlier and then the way that we achieve that through tears zones stores menu items menu deletions. However.
Speaker Change: How do we think about items on our plate and how they're priced so there's a lot of opportunity to just look at it differently from a data driven approach and test and learn our way into some of these opportunities we want to make sure that we have a pricing roadmap into the future and that's really the goal for the team to build that road maps or a test.
Julie Massino: We want to make sure that we have a pricing roadmap for the future, and that's really the goal for the team, to build that roadmap through a test and learn mentality so that we can understand how pricing can help us and really be a lever in our P&L going forward. Thank you. This concludes the question and answer session. I would like to turn the conference back over to Julie.
Speaker Change: And learn mentality.
Speaker Change: So that we can understand how pricing can you can help us and really be a lever in our P&L going forward.
Speaker Change: Thank you.
Speaker Change: This concludes the question and answer session I would like to turn the conference back over to Julie.
Julie Massino: Thank you to CINO for any closing remarks. Thank you all for joining us. Today, we've given you a glimpse of our imperatives and initiatives, and we look forward to sharing more with you in May on our robust strategic framework and the various initiatives that ladder up to it. Lastly, I want to thank our team, both in the home office and in all of our stores, for their continued dedication to the guest experience and their commitment to the brand. I greatly appreciate all of their hard work, day in and day out, as well as the transformation, and I'm looking forward to continuing our journey on the strategic transformation together. The conference has now concluded. Thank you for attending today's presentation.
Julie Massena: <unk> for any closing remarks.
Julie Massena: Thank you all for joining US today, we've given you a glimpse of our imperatives and initiatives and we look forward to sharing more with you in may on a robust strategic framework and the various initiatives that ladder up to it.
Julie Massena: Lastly, I want to thank our teams both in the home office and in all of our stores for their continued dedication to the guest experience and a commitment to the brand.
Julie Massena: Greatly appreciate all of their hard work day in and day out as well as on the transformation and I'm looking forward to continuing our journey on the strategic transformation together.
Julie Massena: Yeah.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: Yeah.