Q4 2019 Earnings Call

Good day and welcome to the Cracker barrel.

Fiscal 2019 fourth quarter fourth quarter earnings conference call, all participants will be in listen only mode. So you need assistance. Please signal conference specialist by pressing the star key followed by zero. After todays presentation, there will be an opportunity to ask questions to ask that question. You May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please note that this event is being recorded I would now like to turn the conference over to Adam Hannan. Please go ahead Sir.

Thank you and good morning, and welcome to Cracker barrel was fourth quarter fiscal 2019 conference call and webcast. This morning, we issued a press release announcing our fourth quarter results and our outlook for the 2020 fiscal year.

This press release and on this call we will refer to non-GAAP financial measures for fiscal 2018 adjusted to exclude the impact of the 50 Threerd week that occurred in our fourth quarter and a onetime noncash revaluation of the company's net deferred tax liability that occurred in our second quarter.

The company believes that excluding these tax effects from its financial results provides information that may be more indicative of the company's ongoing operating performance.

While improving comparability to prior periods. This information is not intended to be considered in isolation or as a substitute for financial information prepared in accordance with GAAP. The last page of the press release includes a reconciliation from the non-GAAP information to the GAAP financials.

On the call with me. This morning are cracker barrels president and CEO , Sandy Cochran Senior Vice President and CFO , Jill Golder, and Vice President and principal accounting Officer, Jeff Wilson.

Sandy will begin with a review of the business and Joe will review the financials and outlook. We will then open up the call for questions for Sandy Jill and Jeff.

On this call statements may be made by management of their beliefs and expectations regarding the company's future operating results or expected future events. These are known as forward looking statements, which involve risks and uncertainties that in many cases are beyond management's control and may cause actual results to differ materially from expectations, we caution our listeners and readers in considering forward looking statements and information.

Many of the factors that could affect results are summarized in the cautionary description of risks and uncertainties found at the end of the press release and are described in detail in our reports that we filed with or furnished to the SEC. Finally, the information shared on this call as valid as of today's date and the company undertakes no obligation to update it except as may be required under applicable law.

Ill now turn the call over to Cracker barrels President and CEO Sandy Cochran Sandy.

Thank you Adam and good morning.

This week marks cracker barrels fiftyth anniversary and we're pleased to celebrate this milestone by sharing some highlights from our fourth quarter and fiscal year.

And now lining some of our plans for fiscal 2020.

As you can see from today's press release, we had a strong fourth quarter as we achieved positive comparable store restaurant sales and traffic growth.

Significantly outperformed the casual dining industry.

And delivered fourth quarter diluted earnings per share of $2.70.

Im pleased with the progress we made in fiscal 2019 as we drove performance through an increased focus on our menu the employee experience and the continued expansion of our off premise business.

I believe our performance. This year also reflects the strength and differentiation of the cracker barrel brand and of our ability to execute our strategic initiatives.

This resulted in us outperforming the casual dining industry for the fiscal year and delivering diluted earnings per share that grew 4.5% over adjusted EPS in the prior fiscal year.

And exceeded our previously stated expectations.

Joe will discuss the financial results from the fourth quarter and our expectations for fiscal 2020, and I'll speak to you about our business priorities for fiscal 2020, but before that I want to discuss some highlights from the fourth quarter.

Our fourth quarter menu promotion featured southern fried chicken, which as a reminder is the initial offering of our signature fried chicken platform.

This offering includes a generous portion of four pieces of hand, breaded bone in chicken with honey for drizzling, two sides and a choice of homemade biscuits or corn bread.

The promotion also featured summer sides, which included corn on the cob.

Bacon baked beans, and banana pudding for dessert.

This promotion was supported by 12 weeks of National TV with the AD emphasizing the handmade preparation an abundance of the offering.

Additionally, a significant portion of our billboards featured fried chicken messaging.

I was very pleased with the menu promotion and marketing campaign, which drove strong traffic and check growth.

We continue to be excited about this offering which has been well received by our guests as well as our operators. It will remain a key feature of our menu and we're looking forward to further leveraging the new signature fried chicken platform.

Moving to off premise, we again saw solid growth in this business.

It was a meaningful contributor to the topline results for the quarter.

In the fourth quarter, we expanded our third party delivery coverage. This service was available in over 450 stores at the end of the fiscal year.

And in conjunction with our southern fried chicken menu promotion. We also featured a family size offering.

Available for both in store pickup and third party delivery that proved to be very popular.

For the full year off premise accounted for 9% of sales an increase of 150 basis points over the prior year and we believe we are on track to retrieve our target of growing it to 10% of sales by fiscal 2020.

I was pleased with our improvement in retail sales versus the third quarter, we achieved positive comparable sales growth across most of our merchandise categories.

Kitchen, dining and home decor, performing particularly well.

Additionally, we once again grew our gross margin rate for the quarter.

I think our retail teams did a great job this year in navigating through an ongoing challenging industry.

To deliver full year growth in both comparable retail sales and gross margin rate.

In the fourth quarter, we remain focused on our employee and guest experience and we continue to implement several initiatives in our efforts to drive higher employee engagement.

We believe leads to a better guest experience.

Improving the employee and guest experience was a priority in fiscal 2019.

And I'm proud of the efforts of our field leadership teams and store employees, especially our power force.

While we still have work to do I believe we took meaningful steps. This year that will help us achieve targeted improvements in the coming year.

Fiscal 2020, we will continue to leverage our long term roadmap to enhance the core expand the footprint and extend the brand.

We believe has helped drive our success and we will continue to drive performance amid challenged industry traffic and inflationary headwinds.

As we enhance the core we will continue to accelerate and investing growth drivers such as off premise from a menu perspective, we plan to drive topline growth.

By introducing craveable signature food and evolving our menu to strengthen our dinner day part.

We're also focused on further enhancing the employee and guest experience and ensuring that we continue to deliver on our brand promise pleasing people.

And in retail our teams are focused on driving growth by providing unique product driving conversion of dine in and off premise guests to retail purchases.

Fiscal 2020.

We will expand our footprint by continuing to open new units, both in core markets and in California.

We've been pleased with the guest response in California, and we continue to work on adjusting our operating procedures to improve profitability in this higher cost environment.

We believe our extend the brand strategy will drive long term value creation through other growth drivers such as Punch Bowl social.

We're very excited about this strategic relationship and we believe our investment is yet another way we can drive shareholder returns.

We continue to work on the Holler and Dash business model and we believe there is great opportunity in the breakfast and lunch focused fast casual segment.

Now I want to speak to some of the highlights of our fiscal 2020 business plans and priorities and I'll start with our plans to enhance the core.

Our Q1 menu promotion features our home style chicken.

This popular offering of two pieces of boneless chicken breast was previously only available on Sundays, but we're now making it available every day this part of our signature fried chicken platform.

Additionally, we introduced a new home style chicken BLT that is also a part of the promotion and features our homestyle chicken with a maple glaze topped with Bacon sweetened Smoky Mayo lettuce and tomato on a bond.

The menu promotion is being supported by National TV.

With the AD continuing our strategy of more explicitly highlighting our food and value.

As we look to build on recent menu successes, such as the rollout of our signature fried chicken platform.

One of our culinary initiatives in fiscal 2020 is the evolution of our menu.

Dinner has been our most challenged daypart and while the planned enhancements impacting both lunch and dinner. This initiative is targeted at strengthening the dinner day part by introducing new signature craveable items, while also simplifying our menu to increased consistency and execution.

And to provide a more optimized menu that better highlights our abundance value and variety.

We'll be taking a phased approach with this initiative, which we believe will support the successful incorporation of the enhance menu into our daily operations.

I'm excited about this initiative and we plan to have this test in a substantial portion of our stores in the second half of the fiscal year.

Our next priority is to accelerate off premise growth through further expansion of third party delivery and improving off premise customer journey.

We've been pleased with the demand for third party delivery and we plan to make this service available in an additional 150 stores by the end of the fiscal year.

Key focus in fiscal 2020 is improving the on premise customer journey to ensure we are executing at a high level as we see continued growth in this business.

And that we are consistently delivering on guest expectations.

Do this we have several initiatives planned that are designed to strengthen our execution and create a better more seamless guest experience.

The heightened focus on our employee and guest experience will remain a priority in fiscal 2020.

We will continue to leverage our power force, who are important leaders in mentor's within our stores and our organization is keenly focused on consistently delivering high levels of hospitality and service.

Which we believe is both a key part of our brand and a differentiator.

Looking ahead for retail our teams remain diligent in their commitment to improving retail sales.

Through unique product offerings and by converting both dine in and off premise guests to a retail purchase.

We plan to improve our conversion rates through a number of tactics such as developing floor sets that quickly capture guess attention by providing additional merchandise offerings that are easy to grab and often priced around the $5 Mark.

Additionally, we will continue to support sales growth through our improved value assortments.

Through retail offerings that provide our guests with products that are both stylish and functional.

Im excited about our Christmas Assortments, which include both traditional and women's apparel merchandise, where guests can find unique offerings at price points that easily fit within any budget.

Lastly, I want to speak to the strategic relationship with Punch Bowl social that we announced in July .

We believe this investment provides another growth be in full by allowing us to enter a new and expanding segment to our non controlling interest in this award winning highly differentiated brand with strong growth potential.

We're excited about the relationship and we believe we can help punch bowl social scale and reach its potential through this partnership.

The Punch Bowl social management team continues to operate its business from in Denver headquarters.

We will provide input and strategic advice, but our main focus remains cracker barrel.

Closing I am pleased with the progress we made in fiscal 2019 and in particular with our fourth quarter results.

I believe our fiscal 2020 business priorities, along with the continued strength and differentiation of the 50 year old Cracker barrel brand will continue to drive shareholder returns in the current fiscal year.

Good morning, everyone and thank you Sandy.

I would like to begin by discussing our financial performance for the fourth quarter of fiscal 2019, and then our outlook for the 2020 fiscal year.

In this morning's release, we reported fourth quarter net income of $65 million or $2.70 per diluted share compared to prior year adjusted earnings per diluted share up $2.19.

Which excludes the impact of the 50 Threerd week in the prior year quarter.

For the full fiscal year, we reported net income.

Of $223.4 million or $9.27 per diluted share representing a 40.5% increase over the prior year adjusted EPS of $8.87.

We reported EBITDA of $390.4 million for the fiscal year compared to $376 million in the prior year adjusted for the extra week.

For the full year, we generated nearly $363 million in cash from operations, which allowed us to invest in our business and returning capital to shareholders in the form of declared dividends that totaled approximately $195 million in fiscal 2019.

For the quarter, we reported total revenue of $787.1 million, an increase of 4.6% when compared to prior year revenue of $752.5 million adjusted for the 50 Threerd week impact.

On an adjusted basis, our restaurant revenue increased 5.4% to $650.1 million and our retail revenue increased 1% to $137 million. Our total revenue increase was driven by positive comparable restaurant and retail sales and the net opening of seven new cracker barrel locations.

Cracker barrel comparable store restaurant sales in the quarter increased 3.8% as average check increased 3.6% and traffic increased 2.2%.

The increase in average check reflected menu price increases of approximately 2.3% and a favorable menu mix impact of 1.3%.

The fourth quarter mix favorability was driven primarily by our southern fried chicken offering and the growth of our off premise business.

We were again pleased with our off premise business, which grew over 20% compared to the prior year quarter.

Fourth quarter comparable store retail sales increased 8.4% with increases coming primarily within our decor kitchen and dining categories.

Moving onto expenses.

Total cost of goods sold in the quarter was 28.8% of total revenue versus 30.3% in the prior year quarter.

Our restaurant cost of goods sold was 24.6% of restaurant sales at 140 basis point decrease versus the prior year. This decrease was primarily due to lower levels of commodity inflation and leverage from menu price increases.

On a constant mix basis, our food commodity costs were approximately 8.2% higher in the quarter than in the prior year quarter, driven by increases in pork fruits and vegetables and dairy.

Our retail cost of goods sold was 48.7% of retail sales compared to 50.1% in the prior year quarter.

This decrease was primarily the result of reduced use of markdowns.

Labor and related expenses were $276.2 million or 35.1% of revenue compared to $286.7 million or 35.4% of revenue in the prior year quarter.

This 30 basis point decrease was primarily driven by cost savings initiatives and improved productivity.

Other store operating expenses in the quarter were $164.5 million or 20.9% of revenue compared to other store operating expenses of $160 million or 19.7% of revenue in the prior year quarter.

This 120 basis point increase was primarily the result of planned depreciation increases related to investments in our strategic initiatives.

And our decision to reallocate advertising dollars to the fourth quarter to support our summer menu promotion.

Store operating income was $119.9 million in the fourth quarter or 15.2% of revenue compared to store operating income of $118.2 million or 14.6% of revenue in the prior year quarter.

General and administrative expenses in the quarter were $40.5 million or 5.1% of revenue.

Compared to $35.4 million or 4.4% of revenue in the prior year quarter.

This increase was primarily driven by higher incentive compensation.

Operating income was $79.4 million or 10.1% of revenue.

An increase of 11% over prior year quarter operating income adjusted for the impact of the 50, Threerd week of $71.5 million or nine and a half a percent of sales.

Net interest expense for the quarter was $3.9 million compared to $4.3 million in the prior year quarter.

Our effective tax rate for the fourth quarter was 13.9% compared to an effective tax rate of 21.8% in the prior year quarter.

This decrease was primarily driven by the reduction of the statutory rate from the enactment of prior year tax reform.

Turning to our balance sheet, we ended the fiscal quarter with $36.9 million of cash and equivalents compared to $114.7 million at the prior year quarter end.

This decrease was primarily driven by our investment in punch bowls social.

Our total debt was $400 million at quarter end.

Before providing our fiscal 2020 outlook I would like to speak to our investment in Punch Bowl social.

As we announced in July we will be investing up to $140 million to acquire the initial noncontrolling stake and to provide growth capital for future development for Punch Bowl social.

Huntsville, social is a highly differentiated brand with strong growth potential.

It's units have targeted ASV at $7 million to $8 million and targeted new unit store level EBITDA, excluding pre opening up 17% or higher.

It currently has 18 units open and expects to open an additional six units by the end of fiscal 2020.

While punch, both social expects to have positive store level and company level EBITDA before preopening expenses in fiscal 2020, we anticipate their operating income will be negative in the near term data pre opening expenses.

Under the terms of the deal we purchased approximately 58.6% of the economic interest and approximately 49.7% of the voting interest of the company.

Our initial controlling stake was purchased for approximately $89 million.

The remaining portion of the investment is to provide growth capital in the form of an interest bearing loans.

In addition to the third party financing that Punch Bowl is arranging we've agreed to provide capital of up to $140 million inclusive of the $89 million for the initial.

Non controlling stake.

We are excited about this investment as we believe these unit economics combined with the potential for over 100 domestic units are highly attractive and we believe this investment is another way, we can drive long term value creation.

We look forward to partnering with petrol social to help at scale and achieve its potential.

With that being said with a growth brands such as this there can be business impacts and timing shifts that lead to variations in near term financial performance.

With respect to our fiscal 2020 outlook, everyone should be mindful of the risks and uncertainties associated with this outlook as described in today's earnings release and in our reports filed with the SEC.

For fiscal 2020, we expect to report earnings per share, excluding any impact from punch Bowl social between $9.30 to $9.45.

We anticipate that our investment and Punch Bowl social will have an unfavorable impact of approximately 50 cents driven primarily by Preopening expenses.

Taking these impacts into account, we expect to report earnings per share between $8.80 an $8.95.

Although our guidance for cracker barrel as same industry performance for the full year similar to what we saw in fiscal 2019, our near term outlook is cautious due to the softening trend in the industry traffic and comparable sales in recent months.

Our earnings estimate assumes total revenue of approximately $3.15 billion to $3.2 billion, reflecting anticipated comparable store restaurant sales growth in the range of 2% to 3% and comparable store retail sales growth of approximately 1%.

We expect to opened six new cracker barrel stores in fiscal 2020.

We anticipate our fiscal 2020 menu pricing will be approximately 2%.

We expect increased food commodity costs on a constant mix basis in the range of 2% to 2.5% for the fiscal year driven by on favorability in the dairy import categories.

We have locked in our pricing on approximately 45% of our commodity requirements for fiscal 2020 compared to approximately 50% at this time last year.

Our retail teams are working diligently to mitigate the impact of tariffs and while we expect the tariffs to be a headwind, we anticipate that our retail margins as a percent of sales for the full fiscal year will be approximately flat compared to the prior year.

We anticipate fiscal 2020 wage inflation on a constant mix basis of approximately 4%.

We anticipate net interest expense of approximately $14 million. This decrease compared to the prior year is driven by the benefit of interest income, resulting from our lending to punch Bowl social.

We expect an effective tax rate for the fiscal year of approximately 17%, which assumes the renewal of the work opportunity tax credit.

Taking these assumptions into account, we expect full year operating income margin of approximately 9% of total revenue.

This guidance includes a target of $11 million to $13 million in business model improvements, resulting from sustainable cost savings.

We anticipate that capital expenditures for the full year will be approximately $115 million to $125 million and that depreciation will be approximately $110 million to $115 million.

Our guidance implies an increase in fiscal 2020, EBITDA of approximately 1% to 3% compared to the prior year.

And with that I will turn the call over to the operator, so that we can take your questions. Thank you very much.

We will now begin the question and answer session.

You asked a question you May press Star then one on your Touchtone phone. If you are using a speaker phone. Please the handset before pressing the keys to withdraw your question. Please press Star then two at this time, we'll pause momentarily to assemble our roster.

The first question will come from Alton Stump with Longbow Research. Please go ahead Sir.

Thank you and good morning.

Good morning.

Okay. So on a quarter you know I was wondering if you could just give us maybe a bit more color. If you can how much of an impact you know at the new fried chicken product had on you know either mix indoor comps in general and you know kind of what we should expect or you know potentially should expect over the course of full year.

So good morning, all 10. This is Joe I'm. So as I said in my prepared remarks in the fourth quarter, you know we had positive check growth.

Approximately 2.3% was from pricing and then additional check growth both from the southern fried chicken and our growth in off premise. So they were those two were split approximately evenly about 60 to 70 basis points each and growth.

So we would expect some favorable mix into fiscal 20 from both of those drivers, but probably not to that level.

Great and then just one quick follow up and I'll hop back into queue I'm, just as far as your commodity guidance to 2.5% for the full year you know should we expect.

You know I sort of major volatility on a quarter to quarter basis or should be in that range for the bulk of the year.

Oh, that's a great question. So as we look at the corridors for next fiscal year, we've got commodity inflation in the range of 2% to 2.5% the increases come primarily from two areas higher poor due to the African swine fever project, primarily driven by Bacon. Then we also have Jerry increases, which is driven by butter and cheese, we do expect some deflation on eggs and that's primarily in the first half of the fiscal year from a favorable locked position that we have on shell eggs. So what I would say is you will see some slightly slightly lower commodity inflation in the first half of the year versus the back half.

Great. That's very helpful. Thank you Joe.

You're welcome.

The next question will come from Jake Bartlett with Suntrust. Please go ahead.

Great. Thanks for taking the question. My first question is about your guidance for same store sales in 2020, <unk> I know your compares get get significantly more difficult as 19 progress is I'm just trying to gauge your level of confidence in and maybe as part of answering that if you could help us with the cadence of same store sales throughout the quarter in the fourth quarter, noting that kind of the differences in marketing spend versus the prior quarter and then any commentary on current trends would be helpful.

Right. Okay. So as we look at our guidance for fiscal 20 on same restaurant sales yeah, I want to go back to the fact that.

What I said in the script is for the year, we were expecting they the industry performance to be similar to last year, but in the near term, we're more cautious, especially given some of the consumer trends that have been published in Knapp track through August where we've seen some softening and so you know if you think about some of the impacts that might be impacting the consumers. The tariff impact. The recent oil price impact represents a risk to us. So I would say is as we think about cadence in the near term we're more cautious.

Okay and then.

And then on the the current the fourth quarter were not going to talk about our monthly trends.

Okay, but that that commentary about the the industry trends, we could we assume that that you imply your current trends would follow that that sort of trend.

We're just making a comment about the industry Jay got it got it Okay and then I also had questions about the implications of the of the Punch Bowl social in investment on your capital allocation strategy and you. Just you ended the quarter at a at a much lower cash level than you typically would have did you expect to take up your your debt levels throughout the year in in in you know it is also part of answering that any any changes or impact. It would have on your planned share buybacks I know that your your your current authorizations about $50 million in any plans on the data that the impact that could have on your on your dividend strategy.

[noise] I'll start God, Jake and then turn it over to Joel if there's anything additional she wants to add I'll start by stepping back and just kind of summarizing the the.

Position that the board the longstanding position that the board has had relative to capital allocation, which is that we first invest in our business and then we look to have a sustainable competitive regular gym, a dividend a share repurchase plan as appropriate.

We just recently been able to.

To do Oh, more volume and share repurchases have and we've announced a expanded share repurchase plan and then as part of our strategic initiative to extending the brand we've looked at ways to make investments in the business that we thought would drive long term shareholder value, which is what you see with the punch Bowl social investment. So when you take all of that into clay. Additionally, our liver targeted debt levels have been in the one and a half to two times for quite some time and we're currently below that so I think the investment and punch will social was a use of cash which we are optimistic that it will be a long term value driver.

And so I think that the board will continue to operate within that framework as it sees opportunities.

And we'll continue to navigate through an environment, where we're trying to sort of balance all of all of those different demands on capital. We do talk about it at every board meeting so Joel I don't know if you want to add anything else to that so Jake I think what I would add is around the color was punch Bowl social just kind of walk you through the investment that has already been made and then kind of how that hundred and $40 million that we talked about in our July press release, and then we reiterated on the call. So as a reminder of the 140 million dollar investment commitment that we talked about 89 million was for our initial non controlling stake which was made in fiscal 19.

Then that remains there's $51 million is for growth capital and of that we provided approximately $15 million in 19, so that leaves approximately 36.

Million dollars remaining on that.

Got it at that thank you very much.

Okay. Thank you appreciate.

The next question will come from Gregory Francfort with Bank of America. Please go ahead.

Hey, guys. Thanks for the question I just had a couple of the first maybe going back to the capital allocation I think Eric your Capex is coming down a little bit next year can you talk about the Pos system.

And the rollout of that and how you're thinking about timing and I think there's an opportunity to am I, maybe wrong, but to consolidate more of the operations across restaurant and retail when that gets done as I guess I'm just curious with the current timing plans on that thank you.

Sure. So he wasn't sure Joe I'll start and then Sandy I'm can add so currently we have 110 restaurants have our new Pos system.

In fiscal 20, we plan to roll approximately 50 more out to the system. You know we continue to be pleased with the new Pos system, it's easier for our team members to use its easier to train them on we believe that this technology will enhance both the employee experience as well as the guest experience given the other enablers like tablets.

So for example.

Well, we've been doing as we've looked at the rollout of our POS is we've been trying to pay said appropriately with other initiatives I know, we talked about that in fiscal 19, where we purposely slowed it down with the chicken initiatives and so as we look to fiscal 20, we're trying to appropriately pay for it.

Got it that makes sense and then maybe just just on bond Punch Bowl.

I guess, you're just under 50% and in your guidance are you with the 50 cents is that assume it stays as an unconsolidated affiliate or as you provide growth capital that pushes you over 50% and then and then it consolidates on your books and you're assuming you kind of.

Fully bear the costs I guess I'm trying to figure out how you're thinking about.

That impact and then and then just I guess as a follow up to that I would imagine the preopening on some of these boxes high I think normally preopening comes in a little bit south of $1 million is should we think of it in the kind of 1 million to $2 million range is that kind of a rough approximately interesting about preopening per store.

So Greg this is Joe I mean, I think theres kind of two questions in there let me start with the accounting treatment.

So we're accounting for Punch Bowl social using the equity method. So the way you will see that on our piano is we'll have and.

It'll be aggregated on net income line, which will say income or loss from unconsolidated investments you didn't see this in fiscal 19, given the fact that we closed on the deal right at the end of the fiscal year. So there was really no material impact on the TNL there and that is our expectation of how it will be reported in fiscal 20. So as we look at our guidance for fiscal 20, and we were trying to provide clarity for you. All in 20, we expect cracker barrel to report EPS of $9.30 to $9.45.

That excludes the estimated impact or investment of Punch Bowl social of approximately 50 cents.

So then when you combine punch Bowl social.

You know the implied EPS the GAAP EPS, then would be in the range of $8.80 to $80.95.

To your point on punch bowls openings, given the fact that it's a growth brand that adds I'm preopening expense. It also adds some on certainty around the timing of Preopening there can be shifts.

That impacted so.

Given those uncertainties as we look at guidance, we recommended that we recommend that investors really focus on the EPS guidance for our core brand of $9.30 to $9.45.

But I'll jump back in the queue. Thank you for the thoughts appreciate it.

[noise].

The next question will come from Jeff Farmer with Gordon Haskett. Please go ahead.

Great just following up on pleasurable and appreciate what you just said about potentially how to model. This moving forward, but so concept is expected to see that 50 cents per share headwind I think thats roughly $12 million in net income and 20. So the question is based on the pace of plunged full unit development and theoretically and increasing Preopening as you get to 20 122 and beyond could that dilution number get bigger as you move past 2020, or I'm, sorry, 520 or is there. Some other offset that that could could show up to to reduce that 50 cent headwind.

Yes, so as we said in our comments you know Patrick also show is a high growth brands and so we would expect to see pre opening expense yeah first on coming years, but beyond what we provided for fiscal 20, I'm, we're not going to disclose anything else beyond 20.

Okay, and then I heard you mentioned that the the DNA dollars you guided to the DNA dollars, but DNA I might have missed it looks like Genie dollars were up 5% to 6% 19, I think that was.

Materially higher than the than the revenue growth rate for the year.

I was just thinking about GNS growth enough why 20 is or any color you can provide there.

So DNA in the fourth quarter was primarily from incentive comp and so we expect it and ask why 20 to be approximately flat as a percent of sales.

Okay, and then last one again I apologize if you touched on this but media weights was fairly large in the fiscal fourth quarter and support or the fried chicken as you moved into the fiscal first quarter.

In terms of media weight TV weeks. However, you want to provide the information what can we expect in the fiscal fourth first quarter versus what you just saw in the fiscal fourth quarter.

So in the first quarter for marketing spending we've added a couple of media weeks versus prior year, but nothing significant.

Okay. Thank you.

The next question will come from Bob Derrington with Telsey. Please go ahead.

Yeah. Thank you Sandy and you know.

I, probably we're probably spending too much time on punch Bowl given so much we don't know about it but I'm I'm just curious the the fact sheet you. All originally provided us around the brand basically called for a ticket expected new openings 11 by the end of calendar 2020, the company's guidance I think is now far six new units in the fiscal year. So you know how do we reconcile the two does that mean, there's four or more five more planned for between the end of July at the end of the calendar year next year.

Yes, it does that yeah. They yeah, it's the difference between our our fiscal years.

Okay all right.

You know I'm curious are you comfortable with the unit economics of the brand and the reason I asked that question is the.

You know I guess for the 17 units that are opened currently.

I think you're the patchy calls for an average about 23000 square feet, which I guess at the estimated sales per store that implies only a a sales per foot of roughly about $330 per foot relative.

Compared to cracker barrel, which is well over $500. So I'm I'm just curious.

Your perspective on this.

Yeah, Hey, Bob This is Jeff so as we look at the potential we believe this solid unit economics. They are targeting a movies of seven to 8 million. They have some stores will certainly exceed that their targeted store level EBITDA is 17% or north of that.

There also we just opened or they just opened their first 10000 square foot box or they're smaller box other testing. So we like the unit economics.

Can you give us some perspective on the capitalized cost per new store.

No. We're just we're not going to get into a lot more detail that will we'll leave that to.

Some future discussions maybe we'll get into it in an analyst day, but we also the thing to add to Joe's point, there are some opportunities to improve the economics first of all with the learnings that we're having about this HM.

The geographic differences in the models how to improve the efficiency of models. So in their current portfolio, where we are pleased that the newest boxes are performing as strongly as they are and we believe we can add value in terms of purchasing and some other cost structures to even further improve the business model going forward.

And as we understand more and as we get further into this investment we will update you all in and give you a lot more detail about the company and its economics.

Got you and if I could follow up real quickly on the.

Jill your comments about the near term outlook based on things like Knapp track et cetera.

Was there any impact in any way from the.

The hurricane that recently went up the eastern seaboard, either through loss of power or store closures customers.

You know.

Transitioning any kind of commentary there was that addresses.

Yeah, Bob Thanks for your question, Yeah, we feel very fortunate that damage to our stores and our employees homes was minimal from the hurricane the impact was mostly to sales and we believe that was immaterial, but all of that is contemplated in our guidance.

Got it but I think what makes of an event like that difficult for US is that if you look at how many stores were closed and for how long is one thing, but what we can't quantify.

Yeah, but we know we were impacted by our the people who changed their travel plans and then didn't make the trip down to Orlando for example, so we didnt get the opportunity to you know have a meet with US along the route and so I do think that the storm. It went on for quite a long period of time, you know a couple of weeks and it was over labor day. It if it didnt help the trends in the industry.

Great. That's helpful. Thank you.

[noise] again, if you have a question. Please press Star then one the next question will come from John Tower with Wells Fargo. Please go ahead.

Great I just have a few if I may 1st when thinking about the marketing cadence for the year on to Jeff had asked something earlier on the first quarter, but given the fact that last year was so fourth quarter heavy.

With respect to marketing spend how should we think about it rolling out through the balance or for the full year of 20 should it be evenly split.

Or will there be certain quarters, where there might be much higher weightings.

Well, we always tend to foot higher weightings in the second and fourth quarter. Because those are just so much more important to us from a traffic standpoint, you know supporting the holiday period, and then some more summer travel period.

Relative to if those comparisons to prior year I guess in general in F. Y 20, we expect our advertising expense to be relatively flat with.

Prior year <unk> one of the things we do do is as the year progresses, we do kind of.

Think about shifting some of the dollars around.

Okay, and then just going back to dinner, it's been a sore spot for the business.

Overtime and it sounds like you're attacking this with some new products in 2020 and in the back half of the year some menu simplification.

And but I think you've also said in the past that at least in previous calls that greater competitive discounting has also been an issue for some of your dinner traffic. So when thinking about either product evolution or how this menu is going to be framed.

In the latter half of 22, we expect these products to kind of address that value category more aggressively and same thing with.

Either the menu featuring value.

Or advertising, perhaps supporting value more so than than in the past.

You are absolutely right John that the amount of.

Discounting historically in the industry has certainly been a a pressure.

And for our competitors.

They're they're only operating in the dinner day parts, So that's where we probably feel it the most.

Our work on the dinner menu is is that we're attempting to do a variety of things first we plan to add new craveable signature items. The the signature fried chicken platform is the first and maybe the best example of the kind of thing we're trying to do there, but blended to delete some items. So that we're not adding additional complexity to the menu and to allow our operators to improve and continue this consistency in the execution of the menu, but as weve redesigned that we want to.

We want to highlight the value that is on our menu every day. So there we're looking at a new category called 899 home cooked classics.

It will we believe deliver a lot of value to our guests and it'll be available every day.

We will highlight some of Arden cracker barrel favorite section in a way that we believe is easier for our guests to understand and to be honest easier for.

Our teams to deliver on the grill side and on the server side.

And then we're looking at things like we're going to go ahead and were put the breakfast a component of our breakfast menu on the dinner menu to reinforce our breakfast all day category. Some people because it's two different menus don't necessarily understand that breakfast all day and its little bit complicated for our hosts to provide two menu. So we're we're trying to accomplish a lot in the gen or refresh, but absolutely have in mind that we reinforce and highlight the value that we believe is so important to the brand and to our guests.

Great. Thank thank you for the color just and the last piece I have is more on the clarification the the growth capital that youre.

Providing for Punch Bowl social is that included in the Capex guidance for the year of.

110 to a 100, I'm, sorry, as $150 million to $125 million.

No it is not.

Okay. Thank you.

[noise].

The next question is a follow up from Gregory Francfort with Bank of America. Please go ahead.

Hey, guys I just had two quick other ones. The first is just on the retail business and margins can you maybe frame up.

What the magnitude is of the tariff impact you're assuming and then I think you talked about retail margins being roughly flat next year kind of where the offsets are and what are the key initiatives that are driving that as an offset thank you.

We won't quantify the specific tariff impact I can tell you that the teams have done.

Working hard to.

Identify ways to mitigate the impact of the tariffs and when I say mitigation first you were evaluating whether we could source.

From different countries were working with vendors to identify ways to reduce the cost in some cases, we are working.

Two.

In some cases no longer stock a particular item if we think that the price increase necessary would make it not sort of interesting to our guests and then lastly.

We're looking at where and how to increase prices on the floor. So there's a lot of work being going on I think the broader concern about tariffs is whether in general costs.

Across the board go up for our guests and that results in them, having less discretionary income.

Which could affect you know the frequency and the way they think about eating out.

Yes got it that makes sense.

Then the other the other last question I had was just just on the to go business. You've had a couple of years have been added push on to go can you give any any thoughts or extra clarification on how that consumers using the brand differently than your in store consumer either frequency of that of that visit per year quarter month wherever you want to describe it and drink attach any any other sort of ways that they are using the brand differences or similarities that you're seeing would be helpful to just give us a broader picture. Thank you.

Well that's a good question I'm trying to I don't think weve, yet understand how the frequency changes I'll make a couple of comments from Joe you can add to it.

Individual to go continues to be.

The biggest component of our off premise business and within that third party delivery has been a surprising.

Surprisingly big part of that business and we do believe that that is largely incremental.

We've been pleased with the growth that we're having in the catering and the celebration meals Weve made a big investment now with our catering vans and our catering service managers and we hope that in fiscal 20, we can continue to build on that.

I know our retail team is working hard to try to find ways that we can get retail attachment with off Prem.

When they come in and because we don't see right now the same level of retail attachment and I know the off premise team is working hard to try to drive things like beverage or dessert or upselling and adding size and how we can do that through.

Either digital App to do a better job of recommending or through the scripting on the phone when we're taking the call.

I would say in general we don't see the beverage attachment with in to go sales that we do with dynamic just in general.

Joe do you want to add anything to it no I think you've covered it sandy thank you.

Thank you guys for the thoughts appreciate it.

The next question.

As a follow up from Bob Derrington with Telsey. Please go ahead.

Yes, Hi, just a quick accounting one Jill as we're looking at.

Depreciation that line.

I guess last year in fiscal 19 was up almost 15% at about 100.

107.5 million fiscal Twentys guidance is for only about a I guess the range, you're providing implies a 2% to 7% growth on DNA.

What's going on within that line are you running off some things is there much in the way not coming on I would've thought some of the technology initiatives you know would be.

And the Pos would be adding to that <unk> no. It's a great question, Bob So and you know as you know our depreciation had been stepping up as our capital stepped up from our planned investments to support our growth initiatives like the platform for the chicken as well as the coffee makers some of the Pos So a number of areas, where we've been investing you can see that our guidance for overall capital steps down next fiscal year versus this fiscal year I'm. So some of the slower rate in growth in depreciation is due to the fact that we plan to spend less in capital.

Got you and sandy as it relates to the dinner refresh or those things you know some of the changes within the <unk>.

Alterations within the menu design to use some of the equipment that you invested in this past year supporting the roll out of your chicken platform.

Oh, I'm, absolutely with the chicken and.

Platform you know just to the question you just asked the investment last year in equipment and installation.

They cry or is the branding stations the hot holding up okay that was significant and it was always intended to be a platform.

That way over a period of time multiple years add into so we started with us the southern fried chicken the phone and we've just gone to home see every day and this chicken BLT sandwich, which is.

Awesome and well be doing fried, Turkey again, this holiday, which was very successful last year and our new platform I think will allow us to do it even at higher volume and with more consistency and easier on the on the back of the house than we planned and probably actually the next fiscal year to be adding hand batter breaded tenders, which we can use in themselves in on salads. So we have a variety of initiatives planned by the commentary team over a period of time to leverage the investments that we made in the and the whole system a fried chicken.

In you Friant entire Turkey in one are those.

[laughter] not in what we bought I know people do that no envy huh.

It's the Turkey breast that we offered last year over the holidays absolutely delicious.

Down in the South that's pretty popular item. Thanks Sandy.

Thank you Bob.

Wow.

This concludes thank you all for joining us today as we look forward to 2020, we plan to build on our brand strength and execute our business initiatives to drive sales and long term value creation. We appreciate your interest and support and we thank you for your time this morning.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.