Q2 2025 Cracker Barrel Old Country Store Inc Earnings Call
for the second quarter in January 31st, 2025. Please refer to the footnotes in our press release for further details about these metrics.
The company believes these measures provide investors with an enhanced understanding of the company's financial performance.
This information is not intended to be considered an isolation or as a substitute for net income or earnings per share information prepared in accordance with GAP. The last pages of the press release include
Speaker Change: On the call, it's me this morning, our Cracker Barrel's president and CEO Julie Masino and senior vice president and CFO , Craig Pommells. Julie and Craig will provide a review of the business, financials, and outlook. We will then open up the call for questions.
Speaker Change: 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.
Speaker Change: These are known as Ford Booking Statements which involve risks and uncertainties that in many cases are beyond management's control and may cause actual results to differ materially from expectations.
Speaker Change: We caution our listeners and readers in considering forward-looking statements and information.
Speaker Change: Many of the factors that could affect results are summarized in the cautionary description of risks and uncertainties found at the end of the press release and are described in detail in our reports that we file with or furnish to the SEC.
Speaker Change: Finally, the information shared on this call is valid as of today's date, and the company undertakes no obligation to update it except it may be required under applicable law. I'll now turn the call over to Cracker Barrel's president and see Julie Masino, Julie.
Julie Masino: Good morning, and thank you for joining us. This morning, we reported 2nd quarter total revenue of 949.4 million, which included comparable store restaurants sales growth of 4.7% and adjusted to EBITDA at 74.6 million.
Julie Masino: As many of you know, Q2 is an especially important quarter for Cracker Barrel because of seasonally higher volumes and I want to thank our team who did an exceptional job executing during this period.
Julie Masino: Their operational focus, coupled with our actions to support improved profitability, especially in our catering and heat and served channels, helps us deliver EBITDA that exceeded our expectations.
Julie Masino: This strong Q2 performance coupled with our confidence in our trajectory resulted in us increasing our fiscal 25 EBITDAG guidance.
Let's reduce some highlights from the quarter.
Julie Masino: We delivered positive, comparable store restaurant sales for the third consecutive quarter and positive, comparable store retail sales for the first time since the second quarter of
Julie Masino: We maintain a favorable trend in the important dinner day part as our dinner traffic trend sequentially improved for the fifth consecutive quarter.
Julie Masino: As I mentioned, we meaningfully grew with a profitability of our seasonal heat and serve and catering channels. And finally, we saw notable year-over-year improvements in key operational and guest metrics.
Julie Masino: Collectively, these highlights provide further evidence of the progress we're making, executing our transformation strategy, and we remain confident in each of the five pillars.
Let's dig in.
Julie Masino: The first pillar is refining the brand, which is about evolving the way we interact with guests across all touch points.
Julie Masino: As part of these efforts, we conducted a comprehensive, analytical, restaurant and retail guest journey mapping and audit and these insights are informing the work across our strategic initiative.
Julie Masino: Additionally, we've finalized our new brand strategy. While there is still work to be done to fully bring this to life in early fiscal 26, we're already incorporating elements from our updated positioning.
Julie Masino: For example, our TV and billboard campaigns that debut next week will reflect our evolved tone of voice and select visual components, and our spring menu that launched on February 11th also features an evolved look and feel.
Julie Masino: Our goal, as we've stated, is to evolve the brand while remaining authentically Cracker Barrel and staying rooted in our country hospitality.
Julie Masino: We will do this in a way that resonates with our current guests while also inviting you guests into the brand.
Julie Masino: Our second pillar is enhancing the menu, which revolves around making it more incredible for guests and easier to execute for our team members while also strengthening our value proposition.
Julie Masino: Our menu strategy continues to focus on the important dinner day part while protecting our leadership and breakfast.
Julie Masino: Our current menu promotion features two craveable and delicious shrimp dishes, a Louisiana style shrimp skillet, and a shrimp grit skillet
Julie Masino: Additionally, we've introduced several new pancake offerings as we continue to bolster this platform, both from an innovation and Barbell pricing standpoint.
Julie Masino: An important part of enhancing the menu is also maintaining a strong value proposition. And as we've discussed, we're doing this in a number of ways.
Julie Masino: We continue to highlight exceptional and compelling value offerings and continue to focus on strong execution and the guest experience which is also crucial to the overall value equation.
Julie Masino: We believe these tactics are working as evidence by improvements in several key metrics. For example, compared to the prior year, value scores increased 7%.
Julie Masino: Food and taste scores grew 7%, and menued choice scores improved 8%.
Julie Masino: Another way we're enhancing the menu is through our back-of-house optimization initiative to improve quality and profitability, while also making jobs easier and more enjoyable. As a reminder, this is a multi-year initiative that will be completed in several phases. This first phase is focused on process improvement. [inaudible]
Julie Masino: We tested Phase I in a full region in Q2 and recently rolled it out system-wide.
Julie Masino: Importantly, our consumer research shows that the new processes result in items that score at parity or better than the existing items and the test confirmed this is a significant cost savings opportunity.
Julie Masino: One of our key learnings is that it takes a little longer than we initially anticipated for team members, especially more tenured ones to master these new processes.
Julie Masino: However, a consistent theme has been that once they gain proficiency, they love them. And new team members also find the revised processes easier, which reduces the time they need to gain mastery.
Julie Masino: Based on our learnings, we have updated our assumptions for the timing of the cost savings, and we now anticipate the labor saving benefit of the initiative to be minimal in Q3 before ramping in Q4.
Killer 3 is evolving the store and guest experience.
which includes operational execution, store design and atmosphere and retail.
Julie Masino: From an operational execution perspective, we remain focused on the metrics that matters. We're encouraged by our trends across the key metrics most correlated with same-store sales growth. In particular, we were pleased that turnover improved by another 19 percentage points.
Julie Masino: This is an especially important metric due to a strong relationship with execution and therefore the guest experience.
Julie Masino: and Lower Turner were also translates to reduced training expense. Additionally, overall experience scores improved 7% and service scores improved 5%.
Julie Masino: As part of our efforts to drive further enhancements to the guest experience, in Q3 we introduced new guest-focused service standards that are better aligned with the customer journey.
Julie Masino: In terms of our remodel program, we want to remind you that fiscal 25 is a test and learn year. We remain on track for completing 25 to 30 full remodeled and 25 to 30 refreshes.
Julie Masino: We remain optimistic about the program and plan to provide a deep dive on our Q4 call in September after the full year task has concluded.
Julie Masino: In retail, despite ongoing industry headwinds, we generated positive, comparable store sales for the first time in two years. We saw particular strength in our apparel category, and our Christmas themes performed well, despite a shorter selling season.
Our fourth color is winning in digital and off-premise [inaudible]
Julie Masino: As I mentioned earlier, Q2 is an especially important quarter due to the seasonally high volumes for our catering and occasion channel.
Julie Masino: As we shared on our Q2 earnings call last year, although we set a record for Thanksgiving week sales, we identified opportunities to improve the guest experience, the employee experience, and profitability.
Julie Masino: This was one of the first areas that we tackled as part of our transformation and this year we took several actions based on our learning. For example,
Julie Masino: We prioritize the more profitable dine-in and individual to-go channels, and deep prioritized and throttled our lower profitability channels such as seasonal heat and serve and catering.
Julie Masino: We streamline the offerings to reduce complexity and improve in store execution.
Julie Masino: We refined allocation and capacity rules to prioritize stores that are more profitable and that deliver a better guest experience. And finally, we increased pricing.
Julie Masino: These changes were hugely impactful and were the primary driver of our Q2 EBITDA performance exceeding expectations.
Julie Masino: We also delivered improvements to both the guest and employee experience.
Julie Masino: We expect to continue to see the benefits from these tactics in Q2 in future years as well.
Julie Masino: In closing, we were pleased with our Q2 results and the first half of the fiscal year has demonstrated the progress we are making as evidenced by our ability to raise guidance.
Julie Masino: Our transformation remains on track and we are focused on sustaining this momentum in the second half of the year.
Julie Masino: I'll now turn it over to Craig to review our financials and provide our updated outlook.
Craig Pommells: Thank you, Julie, and good morning everyone. As Julie noted, we were pleased with our Q2 results. The actions we took to improve the profitability of our off-premise and catering channels were key drivers in outperforming our expectations for the quarter.
Craig Pommells: Overall, we reported total revenue of $949.4 million, which was up 1.5% from the prior quarter.
Craig Pommells: Restaurant revenue increased 2.7% to $750.5 million and retail revenue decreased 2.8% to $199 million.
Craig Pommells: Comparable Store Restaurant Sales grew 4.7% and Comparable Store retail sales increased 0.2% compared to the second quarter of the prior year.
Craig Pommells: The difference in the comparable store sales growth and the total sales growth is primarily due to a few factors.
Craig Pommells: First, as we discussed previously, Q2 sales and EBITDA were negatively impacted by a timing shift related to gift card breakage of approximately $5 million.
Craig Pommells: The timingshift is accounted for at the corporate level instead of the store level and therefore it unfavorably impacts total sales but not comparable store sales.
Craig Pommells: Second, a calendar shift related to the 53rd week in fiscal 2024 impacts the comparable store sales calculation, but not the total sales calculation.
Moving on to pricing.
Price and for the quarter was approximately 6%.
Craig Pommells: Our quarterly pricing consisted of approximately 2.7% carried forward pricing from fiscal 2024 and 3.3% new pricing from fiscal 2025
Off premise sales were approximately 23.2% of restaurant sales.
Moving on to our second quarter expenses [inaudible]
Craig Pommells: Total cost of goods sold in the quarter was 32.6% of total revenue, versus 33.7% in the prior quarter.
Craig Pommells: This 110 basis point decrease was primarily driven by menu pricing.
Commodity inflation was approximately 1.3%
Craig Pommells: Driven principally by hired dairy, beverages, pork, and beef prices, partially offset by lower poultry, oil, and produce prices.
Craig Pommells: Retail cost of goods sold was 53.4% of retail sales versus 53.2% in the prior quarter. This 20 basis point increase was primarily driven by higher mark downs.
Craig Pommells: Our inventory is at quarter end, we're $173 million, compared to $172.7 million in the prior year.
Craig Pommells: Labor and related expenses were 34.4% of revenue compared to 34.5% in the prior quarter.
Craig Pommells: As a reminder, the prior your quarter results include approximately $5.3 million in favorability related to a change in employee benefits policy.
Craig Pommells: Excluding this favorable impact in the prior year, our current year quarter labor and related expenses improved 70 basis points.
Craig Pommells: Primarily driven by menu pricing and improved productivity, partially offset by wage inflation of approximately 2%.
Other operating expenses were 23.2% of revenue
Craig Pommells: Compared to the prior quarter, other operating expenses increased 30 basis points [inaudible]
Primarily driven by higher depreciation and higher store maintenance.
Adjusted general and administrative expenses were 5.5% of revenue.
Craig Pommells: Compared to the prior quarter, adjusted GNA increased 70 basis points, primarily due to a legal accrual, investments to support our initiatives, and more normalized incentive compensation.
Craig Pommells: As a reminder, our adjusted G&A expenses exclude professional fees related to our strategic transformation initiative and expenses related to our proxy contest.
Craig Pommells: Net interest expense was $5 million compared to net interest expense of $5.1 million in the prior quarter. This decrease was primarily the result of lower average interest rates,
Our gap income taxes were $1.9 million and all of us.
Adjusted income taxes worth $4.6 million and $1.
Craig Pommells: Gap earnings per diluted shear were $0.99 and adjusted earnings per diluted shear increased to $0.99.
Craig Pommells: Adjusted EBITDA was $74.6 million or 7.9% of total revenue compared to $62.4 million or $6.7% of total revenue in the prior year of quarter.
Craig Pommells: We continue to have a strong balance sheet that provides flexibility and allows us to invest in the business to drive profitable growth and long-term value creation.
Craig Pommells: In the second quarter, we invested $38.1 million in capsule expenditures.
We ended the quarter with $471.5 million in total debt.
Craig Pommells: Lastly, as announced in today's press release, the board declared a quarterly dividend of 25 cents per share, payable on May 14, 2025, to share holders of record on April 11, 2025.
Craig Pommells: Before turning to work, this goes 2025 outlook. I want to make a few important points.
Craig Pommells: As a reminder, we continue to view fiscal 2025 as an investment year as many of our initiatives are in the early stages.
Craig Pommells: and we anticipate our financial results will significantly improve by the second half of fiscal 2026 and further accelerate into fiscal 2027.
Craig Pommells: Next, I want to emphasize that the year-over-year increase in Q2 EBITDA was largely driven by the actions we took to improve the profitability of our heat and serve and holiday catering channels during the important holiday weeks. The year-over-year increase in Q2 EBITDA was the year-over-year increase in Q2 EBITDA was largely driven by the
Craig Pommells: The impact of these actions will largely be isolated to Q2, given that even serve and catering sales are significantly higher in this period relative to all the quarters.
Craig Pommells: That said, we fully expect these benefits will be repeatable in Q2 going forward.
Craig Pommells: Lastly, our updated old look reflects several items that I like to call out.
First.
We expect approximately $4 million in incremental aid costs.
Craig Pommells: Although our egg prices are fully contracted for the remainder of fiscal 2025, one of our vendors has lost some capacity due to the avian influenza outbreak, and as a result we've have to purchase some eggs on the open market.
Craig Pommells: Second, we are making incremental, non-work and marketing investments related to our brand and refinement work as we prepare to fully launch the evolved brand in early fiscal 2026.
Craig Pommells: Third, we're also making one-time, non-recurring incremental investments in Q3 to support operations excellence and the successful launch of our Back at House Optimization Initiative.
and the introduction of our new service standards.
Additionally, as Julie noted, [inaudible]
Speaker Change: We've updated our time and expectations for the labor savings related to the Back-up House Optimization Initiative.
Speaker Change: Although we expect minimal savings in Q3, we anticipate the full benefits in Q4.
Speaker Change: Next, our outlook reflects the softer traffic trends that we and the broader industry have experienced
Speaker Change: We believe this softness is largely being proven by poor weather and increased macroeconomic uncertainty.
Speaker Change: That said, we are encouraged by the improvement we've seen over the past two weeks compared to the rest of Q3.
Speaker Change: Lastly, we expect an improvement in our Q4 traffic trend as a result of our initiatives.
Speaker Change: We're excited about our summer menu promotion as well as the continued evolution of our brand work and enhanced marketing.
Speaker Change: Additionally, we remain bullish on the Cracker Barrel Rewards and Loyalty Program.
Speaker Change: Now, move into our outlook. For fiscal 2025, we expect to follow in.
Total revenue of $3.45 to $3.5 billion $2.00 million dollars.
Pricing of approximately 5%.
Speaker Change: The old man of one to two new Cracker Barrel stores, and four new maple street units.
Speaker Change: A modesty inflation of 2% to 3% and an average inflation of approximately 3%
Speaker Change: As a reminder, we expect our adjusted DNA expenses will be elevated in fiscal 2025.
Speaker Change: Bolton dollars and as a percent of sales. Primarily due to investments related to our strategic transformation initiatives.
as well as more normalized incentive compensation.
Speaker Change: However, we expect that G&A as a percentage of sales will begin to normalize as our financial performance improves in the second half of fiscal 2026 and into fiscal 2027.
Speaker Change: Taken all of this into account, we now anticipate a full-year adjusted EBITDA of approximately $210,000, the $220,000.
Speaker Change: I want to remind everyone that this excludes consultancies related to our strategic transformation and expenses related to our proxy contest.
Speaker Change: Year to date, we've incurred approximately $7.3 million related to the transformation and approximately $8.2 million for the proxy contest.
Speaker Change: and we do not anticipate any additional amounts related to these items over the remainder of the year.
regarding interest expense.
Speaker Change: We continue to expect that we will refinance our $300 million convertible debt this fiscal year.
Speaker Change: As a reminder, given the current rates environment, we expect that the coupon rates on our new debt instrument will be significantly higher than our existing coupon rates of 0.625 percent.
Speaker Change: We expect a bold year gap effective tax rate off, negative 13% to negative 19%.
Speaker Change: and an adjusted effective tax rate of negative 2% to negative 8%.
Speaker Change: Lastly, we anticipate capital expenditures of $160,000,000 to $110,000,000.
Speaker Change: In closing, we're pleased with our strong Q2 results, and our transformation plan remains on track. I'm proud of our teams, and we remain focused on continuing our strategic and operational momentum.
Speaker Change: With that, I'll now turn the call over to the operator for questions
Speaker Change: Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speaker phone, please pick up the handset before pressing the keys. To withdraw your question, you may press star then two. At this time, we will pause momentarily to assemble our roster.
Speaker Change: Through the first half of the year, you did comment on some of the consumer anxiety that's out there, but how should we be thinking about things for sales in the back half of the year all things considered?
Speaker Change: Hi Jeff, I'll start with that one. I would think about it with the context of the guidance obviously. So first two quarters.
Speaker Change: are known, you know, we were able to move up the top end of the sales range, so we're, you know, we're excited about that. So, you know, relative to original expectations.
Speaker Change: We are a bit ahead. Clearly, there is some uncertainty in the month of February in particular. As we think about that, our
Speaker Change: The start of the February was particularly challenged, especially as it relates to weather but also some macroeconomic uncertainty. Having said that, the more recent trends have been meaningfully better the last two weeks.
in February , March, April . .
will be a bit pressured by…
Speaker Change: The challenges that we're seeing with the consumer, but we've factored really all of that into the full year guidance You know, as we look at Q4 we have some things in the world as it relates to innovation pipeline [inaudible]
Speaker Change: that we think will resonate particularly well in our summer travel period. So in short, there is some consumer angst out there, but we have factor that into our thinking and into our expectations.
Okay, and then just one more, a little bit of a-
Speaker Change: A follow-up so it relates to that consumer angst, how is that manifesting itself across income cohort levels or age cohort levels and any color there would be helpful?
Sure, absolutely. Our most recent data is showing
Speaker Change: that we've actually made games over the last three months or so with the over 55-age cohorts, so we're pleased with that.
Speaker Change: and obviously the total pie is what it is, so that means a little bit of softness with the under 55 age.
Speaker Change: cohort. So a little bit of a shift there. We're pleased with the gains that we're making.
Speaker Change: with the over 55 group is one of the areas that we...
Speaker Change: tackled a little bit over a year ago, and we're happy with the performance there.
Speaker Change: In terms of income, we generally look at that between the under 60K and over 60K
Speaker Change: And we're seeing a relatively similar performance between the Honor 60K and the Over 60K. Now that is a bit of a shift.
Speaker Change: You know, if we were to think back to the last couple of quarters, we were seeing some softness with the under 60 K versus the over, and at over most recent data is showing, you know, relatively similar performance between the under 60 and over 60 at this point.
Okay, thank you.
Speaker Change: The thing I might add is, while their consumer confidence has dropped, everybody saw the University of Michigan report last month.
Speaker Change: We continue to feel like we are really resonating with our guests. Cracker Barrel remains incredible value and we deliver value to our guests across several different ways, right? Even if you look at the pricing that we're taking, our value scores continue to improve, our loyalty program continues to exceed our expectations. More people are signing up, they're actually dining with us more often. They are a big level of transactions from that group has grown, quarter over quarter. They are a big level of transactions from that group has grown, our loyalty program continues to exceed our expectations.
Speaker Change: and then I'd also point to our check versus both casual and family dining, right? The Cracker Barrel check at the end of this quarter is $15 dollars.
Speaker Change: At the same time, Brian Cattle dining is $28 and family dining is $18 [inaudible]
Speaker Change: So we remain an extraordinary value for our incredible country hospitality, hand-cooked delicious food, and our guests are recognizing that. So we believe that we're very poised, we're poised well given some of the macro uncertainty out there, but we know that we're playing our game our way, our guests are responding to it, and we remain confident in our guidance for the balance of the year.
All right. Thank you.
Speaker Change: The next question comes from Todd Brooks with the benchmark company. Please go ahead.
Todd Brooks: Hey, good morning to you all and congrats on a really strong holiday quarter.
Wanted to ask, you're welcome. Wanted to ask...
Speaker Change: You pointed out the fact that some of this margin improvement that we saw, EBITI-wise, and...
The January quarter was related to really... [inaudible]
Speaker Change: Extremely solid execution of heat and servant catering across the period on a year-over-year basis.
Speaker Change: If I look, we were kind of flat issue over year in the first quarter, we saw north of a hundred basis points of improvement here.
in the second quarter.
Speaker Change: Without kind of detail on parsing out the contribution from heat and servant catering, we don't really know what to back the expectations for a year or a year, you could have margin improvement down to in the second half. So can we talk to out of that 100 basis point plus improvement, how much was the bitter execution?
of Heathen Serving Cadbury.
Absolute Todd, the O-Out
Speaker Change: I'll talk about the few of those pieces, and so in Q2...
Speaker Change: The operations team really did a great job and delivered on every level and we're really excited about how they brought it all together.
Speaker Change: and the changes to heat and serve enabled some other goals that we had and one of the goals was just to improve the experience for our guests.
as well as...
Speaker Change: or team members. So, as a result of that, we actually saw improving friends in our dining and business as a part of that.
Speaker Change: In terms of the parts of this that really sustained throughout the year, obviously you know what the total pie is because we've shared the overall outlook, we've shared the guidance and the first half of the year is booked so you can kind of back into
Speaker Change: The second half of the year. There are a couple of things that have continued to, we've continued to make gains in. In one area, let's talk about labor.
Speaker Change: Back about a year and a half ago, we talked about the need to invest in labor. And we saw that we made that investment, there was a cost to it, and we've been getting the gains there in terms of to get satisfaction. We've been seeing really big gains in employee retention.
Speaker Change: and this fiscal year, we've been transitioned in that into gains in terms of productivity.
Speaker Change: So you're seeing our employee productivity really improve as we have this now stable workforce with, you know, turned over that we're very, you know, pleased with and continuing.
Speaker Change: to get better. Now as we think about Q3, Q4, a couple of things there. So Q3, we're making some investments, you know, we're making investments in the, we've launched the Back-Up House initiative.
Speaker Change: There is a train in costs to that, so that's actually a cost in Q3. There's a learning curve. We expect that backup house initiative is going to get to its run rate.
Continuous Enhanced Labor, even more than we've been seeing [inaudible]
Speaker Change: in Q4, but Q3, we have those training costs. We also have the training costs as it relates to the service model changes in Q3 as well. So from a labor perspective, we think things will continue to...
Speaker Change: continue to get better much more so in Q4 as the back of house fully comes online let's so as it relates to Q3
Speaker Change: Comodity Guidance, Overall. We feel really great about where we are with our commodities, our supply chain team did an outstanding job as they...
Speaker Change: as we covered this fiscal year and to some degree beyond that. We're in a really good place with eggs. We're really happy with that. However, there is...
Speaker Change: You know, a little bit of an availability problem there, as we share sort of a little bit of hate wind, but all of that is contemplated in or commodity guidance, which is, um,
which is really, really good.
Speaker Change: We think, so labor really good, there's some of this.
Speaker Change: somewhat unique to Q2, but that Q2 benefit will continue into future years and all of that really is embedded into our thinking as it relates to the full year guidance. I think the big takeaway there is we have a couple of things. We have some investments in Q3. We also know that Q3's start and traffic was a bit softer, a little bit better than the last couple
Speaker Change: And in Q4, we have the full benefit of back-of-house, and we have some good things coming, so things that we're all really excited about, that we think even in that challenge and environment, we think will resonate.
Speaker Change: Thanks, Craig. One quick follow-up, and I'll hop back in cue. I believe he said in the commentary, Craig, that...
Speaker Change: The Strategic Transformation Costs and the Proxy Battle Costs are done for the full year. Did I hear that right? So we're not adjusting for that in the Justin Bieber doc for the next two quarters.
Speaker Change: Correct, absolutely. The proxy costs are done and the strategic transformation work.
is
Speaker Change: Completed as it relates to addbacks. We're in the stage now of implementation. There are some costs associated with that. For example, some of those costs are in Q3 but we are not treating those as addbacks or purposes of our adjusted EBITF.
Perfect. Thank you, Bart.
Catherine Griffin: The next question comes from Katherine Griffin with Bank of America. Please go ahead.
Catherine Griffin: Hi, Katherine, it's Craig. I'll start. First of all, let me talk about the restaurant business. We, the vast majority of our purchases on the restaurant side are domestic US base, so that is a big positive as it relates to Paris. [inaudible]
Catherine Griffin: The retail business, the supply chain and the retail business is much more complicated about a third of our purchases for retail are from China. The team has been well ahead of this topic and they have been working on that.
Catherine Griffin: There are a couple of levers there that we pull as it relates to how to navigate tariffs on our China purchases. Number one, and we've had some
Catherine Griffin: The meaningful success here is just negotiating with the vendor so that we're not absorbing 100% of that cost and the team has done a good job there. The second lever is
Catherine Griffin: We're working on alternate sources. If we're not able to have the appropriate success with the vendor, looking at alternate sources, and then obviously the third is pricing. So we're balancing those three things. Obviously it's a dynamic topic.
So we're staying flexible, but we are tracking and adjusting.
Catherine Griffin: on a real time basis. I was really happy with really how far ahead the team was.
Catherine Griffin: on this topic. And keep in mind that all of that is everything, all of the tariffs that have been executed at this point. All of those impacts are contemplated in our guidance.
Speaker Change: Great, thank you. And then I just thought of you clarifying questions on the egg inflation. So, first, can you remind me what percentage of your cogs are eggs? I know in the past you talked about, I think it's like a low double digit number for Gary and eggs, but if you could kind of parse out eggs within that, that would be helpful. And then maybe just to clarify on the purchases you made on the spot market, how much
Speaker Change: is that? And since you're contracted through most of the year, how are you thinking about the impact next year as those prices kind of reset? I asked that within the context of what you spoke to about the fiscal 2026 guidance. I think you said 20 second half to ramp up, but I don't know if that still means that you expect 26 to be above 25 on adjusted EBITDA. And it was a lot in there.
Speaker Change: Thank you. Yeah, absolutely. I'll start and then you may need to remind me a little bit as they go here. The first one is our egg mix relative to our commodity basket. We're in the low single digits.
So low single digit mix
then in terms of our, the impact, that would say it's...
Speaker Change: Our price in is really good, so we lost a little bit of capacity, you know, we're talking about...
You know, single-digit teams in terms of volume [inaudible]
Speaker Change: But the spot market prices are so much higher than our contracted prices. The impact there was that $4 million that I quoted for the second half.
Speaker Change: and then in terms of our egg contract, again the splicing team really did a really good job and we are well positioned in terms of our contracts through fiscal 2026.
Speaker Change: That means that we have to be mindful of the supply issues, so we're contracted, we have good relationships with our suppliers that they honor, but there are clearly cases where due to circumstances beyond any of our control, they're not able to meet.
Speaker Change: The demand, they're not able to supply the demand. So that is an exposure, but in terms of contracts we're very well positioned through 26 at this point of the X.
Speaker Change: Thank you. And if I could just ask one more follow-up, how should I be thinking about pricing in the second half of 2025?
Speaker Change: Yeah, so we were priced in, we were at 6% in Q2, and we were still estimate, we were still at 5%
Speaker Change: on the year. So that would imply, you know, a, you know, meaningfully lower than six in order to get to five on the year. So that's, that's how I think all that will play out.
Thanks, I'll hop back in the queue.
Speaker Change: The next question is from Alton Stump with Loop Capital, please go ahead
Alton Stumpf: Great, thanks for taking my questions. Obviously, it's not like dinner has been a huge
Speaker Change: for you now for the last several quarters. I'm curious, you know, on the lunch and breakfast, you know, trends sort of, you know, if there might be a similar opportunity for you to improve those.
Alton Stumpf: Bay Park as you know, given all of the stress that you've had for the dinner day part.
Julie Masino: Hey, Alton, thanks for the question. It's Julie, I'll start and then I'll look her and jump in if I missed anything.
Julie Masino: We continue to be really pleased with the progress we're making around dinner. Now, we're not to positive traffic yet, but that remains, you know, where we're headed towards, the items that we have launched have resonated so well with our guests.
Julie Masino: You've heard Craig and I talk about hash brown casserole shepherds pie, pot roast in the past. Pot roast is now one of our top five dinner items, so we continue to really fuel that innovation pipeline because we know that that fuels preference. It fuels traffic, it fuels.
Julie Masino: People coming to us for dinner. So lots more coming in the innovation pipeline there. We remain really focused on our execution at dinner. We still have our early dine specials out there for those that are very value conscious, especially given some of the things we talked about earlier with the consumer sentiment.
Julie Masino: We've got the $8.99 early dime available Monday through Friday, 4 to 6 p.m. That's out there for people. We've got our loyalty program which also provides great value. And then back to your question about breakfast and lunch. We have really held up well at breakfast to remain a pillar for us.
A place of strength [inaudible]
Julie Masino: We continue to innovate there as well. If you look at the new menu that we just launched, we have two amazing shrimp dishes. I talked about them and my prepare remarks which are really targeted at dinner.
Julie Masino: We also have some innovation around the Pancake platform so that we can continue to really bolster our strength there, really execute the barbell and also in some innovation in there. So all of those new items are really resonating with guests even though we're only five weeks in to Q3.
Julie Masino: So, we continue to really not take our eye off any of those balls. We've got to win at traffic. We've got to win at dinner and we've got to win at breakfast.
Julie Masino: It's kind of important to note that we did see traffic trend improvement across all day parts, breakfast, lunch and dinner in Q2 versus Q1. So we're really pleased with the progress the teams making and then the great execution by our operations teams in the field.
Speaker Change: Great, thank you for all that color, very helpful, Julie, and then I can just one more follow-up and I'll hop back into you But just I'm a pricing front, you know, it's certainly a question facing, you know, the entire industry right now is, you know, how much pricing power is, you know, is still left. But as I look at Cracker Barrel, you guys are, I think, a great value versus, you know, even some of your lower price peers. So, you know, would I be wrong in thinking that, you know, perhaps Cracker Barrel has a...
Julie Masino: A bit more pressing power than most people might realize as you have a look out over the next 12-20 months.
Alton Stumpf: Yeah, it's a great question, all thanks for that. Look, it's one of the things we really examined as part of the transformation agenda is, you know, how do our guests think about value? How do they think about absolute pricing? How do we stack versus the competition? And then where do we need to be to execute this transformation? And we're about a year into all of that. When you think about the early pricing work that we've shared with you all, we started that kind of March a year ago.
Alton Stumpf: where we should be vis-a-vis the competition, where we should be vis-a-vis our strategy.
Alton Stumpf: That's been working really, really well for us. I'll answer it in a couple of ways.
Alton Stumpf: We've got Craig's favorite take-home meals that start at $5.00. So after you've dined with us at this exceptional value, you can have another meal for only $5.00. Now you have to heat it up yourself. But we make it really easy. You just kind of pop it in the microwave. You can't wait for it.
Alton Stumpf: So, that's a great way to deliver value. Our loyalty program is such a strength of value for us. We know that you can earn pegs on both retail and on restaurant. We run special promotions where, hey, if you come in and you spend $30 with us, you get $10 offer, you get 20% off your entire check. So, our guests are recognizing...
Alton Stumpf: the value that we deliver vis-a-vis loyalty as well. And then I would just again highlight our outstanding check versus the competition. Remember, Cracker Barrel ended the quarter out of $15 check, while casual dining was at $28, and family dining at $18, so...
Alton Stumpf: We believe this really positions us well in this uncertain economic environment, that we can deliver our outstanding hospitality, our great scratch-made food, all for a great value. So we continue to watch it, we think there's opportunity there, but we're also super careful.
Alton Stumpf: Got it. Great. Thanks so much for all of the color, Julie. I'll hop back in here.
Thank all
Speaker Change: The next question is from Andrew Wolf with CL King. Please go ahead.
Thanks. Good morning. I also wanted to ask [inaudible]
It's very similar to what I was just asking about.
Speaker Change: when you analyze how much pricing leverage or gap you have.
Speaker Change: Yeah, Andrew, we look at everybody, right? Because unfortunately we are a little bit of a hybrid, you know, maybe not unfortunately. I think it's one of our strengths, the fact that we have three-day parts.
Speaker Change: We're out there at breakfast lunch and dinner, taking care of our guests and offering them a great value so [inaudible]
Speaker Change: Because of that we have to look at family dining and because of how important dinner is for us, we look at casual dining as well. We want to be relevant, we want to make sure that we are really grabbing market share from all of those folks.
Speaker Change: Even to us are, we look at them as well from a basket standpoint and what guests are paying across those channels.
Speaker Change: We believe it's really important to be relevant from a price perspective as well as from a menu offering perspective and a service and overall experience perspective. You're going to get our great Country Hospitality at those great price points, and frankly remember our guest love us for our abundance.
Speaker Change: from that still keeps coming through when you look at what they're buying from us and the menu items that are doing extraordinarily well. So, we look at all of it. We're pretty special. Don't forget, we also have a retail store. So, we're even more special in a little bit more differentiated than all of those competitors.
Speaker Change: Okay, the other sort of micro-equestion, then I want to ask a macro question is, so that $15 dollar average for Cracker Barrel?
Speaker Change: could sort of disaggregate, I would guess, lower on the family dining type of.
Speaker Change: Occasion and higher on the casual dining. So the gap might be even better against family dining and maybe a bit closer to the casual.
Speaker Change: Yeah, yeah, yeah, no, we haven't done it that way, but I kind of get your, I think I get your point.
If you were to compare your...
Speaker Change: You know, we're a breakfast business against breakfast as an example. I think we're really well.
Speaker Change: are really well positioned in that way, because, for example, at dinner we now have eight.
The steak and shrimp, it's really an amazing dish.
Speaker Change: And yeah, it sounded really well, and I would compare more to a casual dining competitor versus a family dining competitor. So I think we don't exactly look at it that way, we do think about...
Speaker Change: We do think about our gaps in competitors, though, you know, like-
Speaker Change: For like item to like item, where do we want to be on and we have a target there, you know, where do we want to kind of be the best, where do we want to be, you know, in line, that type of thing.
Speaker Change: Region of the Country Versus Competitors, so we're looking at all of that to see...
to see how we start up.
Speaker Change: All right, that sounds very robust, but I'd like to ask at higher level if you will. So there is a big gap and, you know, you got tools to do it and you want to be prudent. But my sense of it is sort of a pay as you go.
Speaker Change: if you will, kind of thing going on with it. As Cracker Barrel is able to improve the experience, whether it's better menu items that are service, better lighting, re-models, all that stuff.
Speaker Change: There is an opportunity, there could be an opportunity to increase that gap, to close the gap.
Speaker Change: It would stand to a reason. I just want to understand if that's part of your philosophy.
Speaker Change: Are you on a date that got both brothers? So as we did the strategic price and work
Speaker Change: We laid it out over this whole transformation window over the three years.
or what you get for what you pay.
Speaker Change: and we are working on what you get parked and we've made a lot of progress there certainly.
Speaker Change: as you can see with our various guest satisfaction metrics. But other things too we've been improving and evolving the offerings. And as you know we've been doing other tests to improve the atmosphere and so on. So I think all of that is to say, I think what you're saying there is.
There is...
A trajectory on the what you get.
Speaker Change: And that gives us some flexibility on the pricing as you think about that over the entire window, so the intent was never up
Speaker Change: can appear as the entire size of what we think is priced in offered strategic price and opportunity is.
Let's take that now. That was never the intent [inaudible]
It's stage over a period of time [inaudible]
Speaker Change: And it's also a stage with the other things that we are invested in in the business to deliver a better experience for our guests and our employees.
Speaker Change: Okay, that's what I was getting at. Thank you and congratulations on the results so far.
Andrew.
John Tower: The next question comes from Jon Tower with City Group. Please go ahead.
John Tower: Great, thanks. Craig, I was wondering if you could dig into the mix and traffic in the quarter. And specifically, you mentioned about the benefits from an evid out standpoint on the catering and heat and serve during the second quarter. Is there way you can quantify that for us?
Speaker Change: Well, here's what I can say with a kind of, you know, get him into a whole lot of detail there.
Julie Masino: We, you know, Julie talked about, you know, we started down this past, you know, a year of actually over a year ago when Julie really set this objective for us to improve this holiday window in terms of the experience and in terms of the profitability. And as a part of that,
What we've done is prioritize our dining business.
Julie Masino: and ensuring that we're delivering a really great experience and driving that.
Julie Masino: We actually gave up some traffic here as it relates to catering and heat and serve.
Julie Masino: The traffic that we kept was more profitable, but it also enabled us to deliver better, more dining traffic.
Julie Masino: as well. Now, if you can break a power at a 4.7% comp as an example, if that's what you're getting at there, 4.7% total sales, check up 7.4, price up 6.
Speaker Change: Makes up 1.4, which reinforces this idea that a strategic price is working because we're still getting that positive mix and traffic of a negative to 7. What I would say, though, was embedded in that traffic of a negative to 7.
Speaker Change: are some, you know, we did not pursue as aggressively some of that business as it relates to the heat and serve and catering. So that's embedded in that traffic performance and we saw it improvement in our dining.
Speaker Change: Got it. Thank you. And then you also mentioned that they can prepare remarks. There was a calendar shift in the period. Can you quantify that as well?
Speaker Change: Yes, you know, so we talk about really three things that drove the differential between the total restaurant sales versus
Speaker Change: The Comp Sales, and they're similar, you know, it's not exactly a third, a third, a third, a third, but that differential is about a third, a third, a third as it relates to the gift card discount and the impact of that.
Speaker Change: and then the impact of the 53rd week calendarship that the contactination really keeps the week's apples to apples. So that's that difference and then the five stores. So all of those are in very rough terms, the 3rd to 3rd to 3rd.
Speaker Change: Okay, and let me go back, you know, you mentioned earlier the idea that the service model is changing and there's some elevated training costs coming in the third quarter. Can you just speak to exactly what's happening with the service model and maybe if over the longer term are you guys anticipating that labor hours at the store level will maybe start working lower?
Speaker Change: So, a couple of things going on there, Jon, one, we have really been trying to put the guests at the center of everything that we do, you know, really focusing on ensuring that we're delighting them, taking great care of them, thinking about them when the way we think about the menu innovation, the pricing, all of those things. And what we've done is really just evolved our service model to do exactly that. So, we rolled out some new standards that literally have the guests at the center of everything and are really just reinforcing that through [inaudible]
a lot of our service standards.
Speaker Change: All the right things and you really improve quality and service and all that we do. So we put those together, rolling them out this quarter and super excited. The feedbacks been really great from the team. They're loving it. They love the simplified steps in the back of house. They love to focus on the guests in the front of house and in all the roles. And I hope building that, Jon, just to say that the...
You know, improve in labor productivity.
Speaker Change: is a key part of that growing overall profitability for the company over the three-year window here, with two quarters into that.
Speaker Change: We are already seeing better labor as a percent of sales than we had in the prior year. We're seeing those gains in productivity.
We expect that in Q4
Speaker Change: We will start to see even more of that with the back-of-house initiative as that goes alive, you know, we had one initiative that went live in...
Q1 of this goal, 25, and that's been helping.
Speaker Change: in terms of our overall labor costs and productivity. This other back-of-house initiative goes sliding to three but we expect the benefit.
Speaker Change: in Q4, and then we have two additional phases that are still very, very early as it relates to the overall labor productivity initiative. So that is a...
Speaker Change: The job's easier for employees, making it more enjoyable and improving the consistency with which our products come out at great quality and by doing that it also reduces them more labor. That's required.
Speaker Change: Got it. Thank you. And then just the last one for me. In terms of, I know, Julie, you've mentioned earlier in prepare remarks, not providing too much more insight on the remodels and the refreshes, but any color you can provide around the lifts that you're seeing at the store, even consumer feedback in the markets. I think Indianapolis is one of the earlier ones in terms of guest satisfaction scores or anything like that.
Speaker Change: Yeah, John is funny. We were joking in our prep. I'm like, somebody's gonna ask about remodels even though I haven't him to prepare who it would be a wouldn't be an Erie's call. Somebody didn't ask, but we are we it's awesome. No, it's it's such a it's such an important program. I mean, it's not the most important thing that we're working on, but there's so many pieces in it. And so that's really why we said we'll come back as part of our September call and really do a deep dive on it. We've been spending so much time
Speaker Change: really trying to get the algorithm right and get the levers right and understand from our guests and from our team members, what are the things that drive the most lift and traffic, the most lift and satisfaction?
Speaker Change: And how do they come together? And is it lighting? Is it floors? Is it paint? Is it service model? You know, all of those things we're looking at. And so we really want to make sure that we're dissecting it correctly, applying it correctly and understanding it correctly. And we're testing, we keep changing the things that we're testing, right? We keep learning something and then trying something new. For example, we've got a whole new...
Speaker Change: a store that we're building near here right now, you know, not building, but remodeling based on some of the learnings that we're building along the way. So this truly is an investment year. It's a test and learn year. We want to get this right for our investors. We take our capital allocation very, very seriously. We take the return on that capital very, very seriously. And we're just trying to be very targeted, get it right, and we need a little bit of space to do that. We're just trying to get this right for our investors.
Speaker Change: I know you guys watch it all through Placer AI and all of that. You're seeing some of the gains and indelately and some of those other things. Right now, all we've said publicly is the four stores from 24. We continue to be very pleased with those. We've got a lift and traffic, lift and sales there, and we'll come back at the end of the year and talk more about it.
Great. Thanks for taking the questions.
Speaker Change: The next question comes from Larsen Reiss with Truist. Please go ahead.
Larson Royce: Hey, guys, this is Larsen, just on for Jake. Just wanted to...
Speaker Change: You know, I know we touched on the egg commodity quite a bit already, but you know, given the 4 million incremental pricing and keeping the, you know, guidance reiterated there just wondering if there's anything you want to call out on some of the offsets that you might be seeing, you know, it's offset that. Thank you.
Hi,
Speaker Change: In terms of how we funded that, and I think that came up earlier, but as you think about the entire equation, we raised our guidance a bit on the year, but our Q2 was pretty strong. So there are a number of puts and takes in terms of how we're solving some of this. There are some spending that we had.
Speaker Change: We've got to end the projection that we're going to further. All the puts and takes in order to fund that. What a part of it is...
You know, we are raising the guidance [inaudible]
less than, you know, what would be...
Speaker Change: In theory, implied just based on Q2 only, so all of that is baked in there.
Great, thanks so much.
You're welcome.
Speaker Change: This concludes our question and answer session. I would now like to turn the call back over to Julie Masino for closing remarks.
Speaker Change: Thank you. I want to thank everyone for joining us today. Our transformation is on track as demonstrated by our strong first half results. Fiscal 25 remains an investment year, but we're pleased that we were able to raise our EBITDA guidance.
Speaker Change: We believe we have a strong plan to drive continued performance in the back half, particularly in Q4, and we are confident in our ability to deliver our commitment and set us up well for a very important 26.
Speaker Change: Finally, I want to close by saying thank you and giving a huge shout out to our 70,000 plus team members for their amazing work bringing the brand to life every single day and especially during the important Q2. We're making terrific progress and I'm excited about our future. Thank you.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
[music]
Speaker Change: Formerly known as California Bureau Ans to Shriver In 1989, more than 120 Wall Street Jews reduced to disability in a line at Wahua Memorial complex. Today, the Republican Union of Independent Communities is the only ministry that sisterly commands independent communities in the complex. Users of the proceeds from the movimento with not a single house have any authority to impose their will on the community. Since October 2014, they've installed an MRPD system to secure operational assistance for Wallestown Public Workers. This works specifically for veterans and is beneficial to health care providers and other ways to contribute to the nation's security and correlation of potential veterans. If you think you could gain inspiration from some other members of Republican Union at the same time that this is happening,
Speaker Change: who are the founding members of the International Cancer Society. For more information, please visit www.cancersociety.org or call 1066-433-7237. For more information, please visit www.cancersociety.org or call 1066-433-7237. For more information, please visit www.cancersociety.org
St. John's
Thank you for watching!
Speaker Change: Good morning and welcome to the Cracker Barrel 2nd quarter fiscal 2025 results 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 opportunity to ask questions.
Speaker Change: To ask a question, you may press star, then one. Please note, this event is being recorded. I would now like to turn the conference over to Adam Hanan, Director of Investor Relations. Please go ahead.
Speaker Change: Thank you. Good morning and welcome to Cracker Barrel's second quarter fiscal 2025 conference call and webcast.
Speaker Change: This morning, we issued a press release announcing our second quarter results. In this press release and on this call, we will refer to non-GAAP financial measures such as adjusted EBITDA for the second quarter in January 31st, 2025.
Speaker Change: The company believes these measures provide investors with an enhanced understanding of the company's financial performance.
Speaker Change: This information is not intended to be considered an isolation or as a substitute for net income or earnings per share information prepared in accordance with gap. The last pages of the press release include reconciliations from the non-GAAP information to the GAAP financial s.
Speaker Change: On the call to meet this morning, our Cracker Barrel's president and CEO , Julie Masino, and Senior Vice President and CFO , Craig Pommells. Julie and Craig will provide a review of the business, financials, and outlook. We will then open up the call for questions.
Speaker Change: 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.
Speaker Change: These are now in its forward-looking statements, which involve risks and uncertainties that in many cases are beyond management's control and may cause actual results to differ materially from expectations.
Speaker Change: We caution our listeners and readers in considering forward-looking statements and information.
Speaker Change: Many of the factors that could affect results are summarized in the cautionary description of risks and uncertainties found at the end of the press release and are described in detail in our reports that we file weather furnished to the SEC.
Speaker Change: Finally, the information shared on this call is valid as of today's date and the company undertakes no obligation to update it except it may be required under applicable law. I'll now turn the call over to Cracker Barrel's president and see Julie Masino, Julie.
Speaker Change: Good morning and thank you for joining us. This morning we reported second quarter total revenue of 949.4 million, which included comparable store restaurants sales growth of 4.7% and adjusted the EBITDA of 74.6 million.
Speaker Change: As many of you know, Q2 is an especially important quarter for Cracker Barrel because of seasonally higher volumes And I want to thank our team who did an exceptional job executing during this period
Speaker Change: Their operational focus, coupled with our actions to support improved profitability, especially in our catering and heat and served channels, helped us deliver EBITDA that exceeded our expectations.
Speaker Change: This strong Q2 performance coupled with our confidence in our trajectory resulted in us increasing our fiscal 25 EBITDAG guidance.
Let's reduce some highlights from the quarter.
Speaker Change: We delivered positive, comparable store restaurant sales for the third consecutive quarter and positive, comparable store retail sales for the first time since the second quarter of
Speaker Change: We maintain a favorable trend in the important dinner day part as our dinner traffic trend sequentially improved for the fifth consecutive quarter.
Speaker Change: As I mentioned, we meaningfully grew with a profitability of our seasonal heat and serve and catering channels. And finally, we saw notable year-over-year improvements in key operational and guest metrics.
Speaker Change: Collectively, these highlights provide further evidence of the progress we're making executing our transformation strategy, and we remain confident in each of the five pillars.
Let's dig in.
Speaker Change: The first pillar is refining the brand, which is about evolving the way we interact with guests across all touch points. As part of these efforts, we conducted a comprehensive, analytical restaurant and retail guest journey mapping and audit, and these insights are informing the work across our strategic initiative.
Additionally, we've finalized our new brand strategy.
Speaker Change: While there is still work to be done to fully bring this to life in early fiscal 26, we're already incorporating elements from our updated positioning.
Speaker Change: For example, our TV and billboard campaigns that debut next week will reflect our evolved tone of voice and select visual components, and our spring menu that launched on February 11th also features an evolved look and feel
Speaker Change: Our goal, as we've stated, is to evolve the brand while remaining authentically Cracker Barrel and staying rooted in our country hospitality.
Speaker Change: We will do this in a way that resonates with our current guests while also inviting you guests into the brand.
Speaker Change: Our second pillar is enhancing the menu, which revolves around making it more incredible for guests and easier to execute for our team members while also strengthening our value proposition.
Speaker Change: Our menu strategy continues to focus on the important dinner day part while protecting our leadership in breakfast.
Speaker Change: Our current menu promotion features two craveable and delicious shrimp dishes, a Louisiana style shrimp skillet, and a shrimp grit skillet
Speaker Change: Additionally, we've introduced several new pancake offerings as we continue to bolster this platform, both from an innovation and Barbell pricing standpoint.
Speaker Change: An important part of enhancing the menu is also maintaining a strong value proposition, and as we've discussed we're doing this in a number of ways. We continue to highlight exceptional and compelling value offerings and continue to focus on strong execution and the guest experience, which is also crucial to the overall value equation.
Speaker Change: We believe these tactics are working as evidence by improvements in several key metrics. For example, compared to the prior year, value scores increased 7%.
Speaker Change: Food and taste scores grew 7%, and menued choice scores improved 8%.
Speaker Change: Another way we're enhancing the menu is through our back-of-house optimization initiative to improve quality and profitability while also making jobs easier and more enjoyable. As a reminder, this is a multi-year initiative that will be completed in several phases. This first phase is focused on process improvement. [inaudible]
Speaker Change: We tested Phase 1 in a full region in Q2 and recently rolled it out system-wide.
Speaker Change: Importantly, our consumer research shows that the new processes result in items that score at parity or better than the existing items. And the test confirmed this is a significant cost savings opportunity.
Speaker Change: One of our key learnings is that it takes a little longer than we initially anticipated for team members, especially more tenured ones to master these new processes.
Speaker Change: However, a consistent theme has been that once they gain proficiency, they love them. And new team members also find the revised processes easier which reduces the time they need to gain mastery.
Speaker Change: Based on our learnings, we have updated our assumptions for the timing of the cost savings, and we now anticipate the labor saving benefit of the initiative to be minimal in Q3 before ramping in Q4.
Killer 3 is evolving the store and guest experience.
which includes operational execution, store design and atmosphere, and retail.
Speaker Change: From an operational execution perspective, we remain focused on the metrics that matter.
Speaker Change: We're encouraged by our trends across the key metrics most correlated with same-store sales growth In particular, we were pleased that turnover improved by another 19 percentage points
Speaker Change: This is an especially important metric due to its strong relationship with execution and therefore the guest experience. And lower turnover also translates to reduced training expense. Additionally, overall experience scores improved 7% and service scores improved 5%.
Speaker Change: As part of our efforts to drive further enhancements to the guest experience, in Q3 we introduced new guest focused service standards that are better aligned with the customer journey.
Speaker Change: In terms of our remodel program, we want to remind you that fiscal 25 is a test and learn year We remain on track for completing 25 to 30 full remodeled and 25 to 30 refreshes
Speaker Change: We remain optimistic about the program and plan to provide a deep dive on our Q4 call in September after the full year task has concluded.
Speaker Change: In retail, despite ongoing industry headwinds, we generated positive comparable store sales for the first time in two years. We saw particular strength in our apparel category and our Christmas Beams performed well despite a shorter selling season.
Our fourth pillar is winning in digital and off-premise [inaudible]
Speaker Change: As I mentioned earlier, Q2 is an especially important quarter due to the seasonally high volumes for our catering and occasion channel.
Speaker Change: As we shared on our Q2 earnings call last year, although we set a record for Thanksgiving week sales, we identified opportunities to improve the guest experience, the employee experience and profitability.
Speaker Change: This was one of the first areas that we tackled as part of our transformation. And this year we took several actions based on our learning. For example,
Speaker Change: We prioritize the more profitable dinin' and individual-to-go channels, and de-prioritize in throttled, our lower profitability channels such as seasonal heat and serve and catering.
Speaker Change: We streamline the offerings to reduce complexity and improve in store execution.
Speaker Change: We refine the allocation and capacity rules to prioritize stores that are more possible and that deliver a better guest experience. And finally, we increase pricing.
Speaker Change: These changes were hugely impactful and were the primary driver of our Q2 EBITDA performance exceeding expectations.
Speaker Change: We also delivered improvements to both the guest and employee experience.
Speaker Change: We expect to continue to see the benefits from these tactics in Q2 in future years as well.
Speaker Change: In closing, we were pleased with our Q2 results, and the first half of the fiscal year has demonstrated the progress we are making, as evidenced by our ability to raise guidance.
Speaker Change: Our transformation remains on track, and we are focused on sustaining this momentum in the second half of the year.
Speaker Change: I'll now turn it over to Craig to review our financials and provide our updated outlook.
Craig Pommells: Thank you, Julie, and good morning, everyone. As Julie noted, we were pleased with our Q2 results.
Craig Pommells: The actions we took to improve the profitability of our off-premise and catering channels were key drivers in outperforming our expectations for the quarter.
Craig Pommells: Overall, we reported total revenue of $949.4 million, which was up 1.5% from the prior quarter.
Craig Pommells: Restaurant revenue increased 2.7% to $750.5 million and retail revenue decreased 2.8% to $199 million.
Craig Pommells: Comparable Store Restaurant Sales grew 4.7%, and Comparable Store retail sales increased 0.2% compared to the second quarter of the prior year.
Craig Pommells: The difference in the comparable store sales growth and the total sales growth is primarily due to a few factors.
Craig Pommells: First, as we discussed previously, Q2 sales and EBITDA were negatively impacted by a timing shift related to gift card breakage of approximately $5 million.
Craig Pommells: The timing shift is accounted for at the corporate level instead of the store level, and therefore it unfavorably impacts total sales but not comparable store sales.
Craig Pommells: Second, a calendar shift related to the 53rd week in fiscal 2024 impacts the comparable store sales calculation, but not the total sales calculation.
Moving on to Tyson Tyson.
Price and for the quarter was approximately 6%.
Craig Pommells: Our quarterly pricing consisted of approximately 2.7% carried forward pricing from fiscal 2024 and 3.3% new pricing from fiscal 2025.
Off-premise sales were approximately 23.2% of restaurant sales.
Moving on to our second quarter expenses [inaudible]
Craig Pommells: Total cost of goods sold in the quarter was 32.6% of total revenue, versus 33.7% in the prior quarter.
Craig Pommells: The restaurant cost of goods sold in the second quarter was 27.1% of restaurant sales, versus 28.2% in the prior quarter.
Craig Pommells: This 110 basis point decrease was primarily driven by menu pricing.
Commodity inflation was approximately 1.3%
Craig Pommells: Driven principally by hired dairy, beverages, pork and beef prices, partially offset by lower poultry, oil and produce prices.
Craig Pommells: Retail cost of goods sold was 53.4% of retail sales, versus 53.2% in the prior quarter. This 20 basis point increase was primarily driven by higher mark downs.
Craig Pommells: Our inventory is at quarter end, we're $173 million, compared to $172.7 million in the prior year.
Labor and related expenses were 34.4% of revenue.
Craig Pommells: Compared to 34.5% in the prior quarter. As a reminder, the prior quarter results include approximately $5.3 million in favorability related to a change in employee benefits policy.
Craig Pommells: Excluding this favorable impact in the prior year, our current year of quarter labor and related expenses improved 70 basis points.
Other operation expenses were 23.2% of revenue
Craig Pommells: Compared to the prior quarter, other operating expenses increased 30 basis points.
Primarily driven by higher depreciation and higher store maintenance.
Adjusted General and Administrative Expenses were 5.5% of revenue.
Craig Pommells: Compared to the prior quarter, adjusted GNA increased 70 basis points, primarily due to a legal accrual, investments to support our initiatives, and more normalized incentive compensation.
Craig Pommells: As a reminder, our adjusted G&A expenses exclude professional fees related to our strategic transformation initiative and expenses related to our proxy contest
Craig Pommells: Net interest expense was $5 million compared to net interest expense of $5.1 million in the prior quarter. This decrease was primarily the result of lower average interest rates, particularly offset by higher debt levels.
Our gap income taxes were 1.9 million dollars.
Adjusted income taxes were $4.6 million and dollars.
Craig Pommells: Gap earnings per diluted shear were $0.99 and adjusted earnings per diluted shear increased to 9.5% to $1.38.
Craig Pommells: Adjusted EBITDA was $74.6 million or 7.9% of total revenue compared to $62.4 million or $6.7% of total revenue in the prior year quarter.
Now, turn it to Castle allocation and Roballot sheet
Craig Pommells: We continue to have a strong balance sheet that provides flexibility and allows us to invest in the business to drive profitable growth and long-term value creation.
Craig Pommells: In the second quarter, we invested $38.1 million in capsule expenditures.
We ended the quarter with $471.5 million in total debt.
Craig Pommells: Lastly, as announced in today's press release, the board declared a quarterly dividend of 25 cents per share, payable on May 14, 2025, to shareholders of record on April 11, 2025.
Craig Pommells: Before turning to work, this goes 2025 Outlook. I want to make a few important points.
Craig Pommells: As a reminder, we continue to view fiscal 2025 as an investment year, as many of our initiatives are in the early stages, and we anticipate our financial results will significantly improve by the second half of the fiscal 2026.
and further accelerate into fiscal 2027.
Craig Pommells: Next, I want to emphasize that the year over year increase in Q2 EBITDA was largely driven by the actions we took to improve the profitability of our heat and serve and holiday catering channels during the important holiday weeks.
Craig Pommells: The impact of these actions will largely be isolated to cue two, given that he even serve and catering sales are significantly higher in this period relative to all the quarters.