Jessica Hazel - IR Sandy Cochran - President and CEO Larry Hyatt - SVP and CFO Chris Ciavarra - SVP, Marketting.

Imran Ali - Wells Fargo David Carlson - KeyBanc Capital Markets Joe Buckley - Bank of America Steve Anderson - Miller Tabak.

Good day, and welcome to the Cracker Barrel Fiscal 2014 Fourth Quarter Earnings Conference Call. At this time, I would like to turn the call over to Jessica Hazel. Please go ahead..

Thank you, Eric. Good morning, and welcome to Cracker Barrel's fourth quarter fiscal 2014 conference call and webcast. This morning, we issued a press release announcing our fourth quarter and fiscal year results and our outlook for the 2015 fiscal year.

In this press release and on this call, we will refer to non-GAAP financial measures for the current fiscal year, adjusted to exclude charges and tax effects related to proxy contests.

We will also refer to non-GAAP financial measures for the prior year, adjusted to exclude charges and tax effects related to the prior year proxy contest and severance expense as well as retroactive reinstatement of the work opportunity tax credit.

The Company believes that excluding these charges and 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. The press release can be found in the Investors section of our Web site, crackerbarrel.com.

In the press release and during this call, statements may be made by management of their beliefs and expectations of the Company's future operating results or expected future events.

These are what are known as forward-looking statements, which involve risks and uncertainties, and in many cases are beyond management's control and may cause actual results to differ materially from expectations. We urge caution to 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 this morning's press release and are described in detail in our reports that we filed with or furnished to the SEC. We urge you to read this information carefully.

We also remind you that we do not comment on earnings estimates made by other parties.

In addition, any guidance or outlook we provide or statements we make regarding trends speak only as of the date they are given and we do not update or express continuing comfort with our guidance, outlook or trends, except in broadly disseminated disclosures such as this morning's press release, filings with the SEC or as otherwise required by law.

On this call with me this morning are Cracker Barrel's President and CEO, Sandy Cochran; Senior Vice President and CFO, Larry Hyatt; and Senior Vice President of Marketing, Chris Ciavarra. Sandy will begin with a review of the business and Larry will review the financials and outlook.

We will then open the call up for questions for Sandy, Larry and Chris. We ask that you please limit your questions to matters relating to the Company's performance, outlook and plans. With that, I'll now turn the call over to Cracker Barrel's President and CEO, Sandy Cochran.

Sandy?.

Good morning. Thank you for joining us on the call today. This Friday marks Cracker Barrel's 45th anniversary and we are very pleased to celebrate this milestone by reporting positive news. As you can see from today's press release, our fourth quarter and fiscal year were successes on many fronts.

During the fourth quarter, we grew total revenue by 2.8% with comparable store growth in both restaurant and retail sales, outperformed our peers in sales and traffic as measured by the Knapp-Track casual dining index for the 11th consecutive quarter, increased operating income by approximately 10% versus the prior year fourth quarter, grew diluted earnings per share by 14% from $1.43 in the prior year fourth quarter to $1.63 in fiscal 2014 fourth quarter, opened four new Cracker Barrel stores and improved guest survey scores for both overall satisfaction and overall value.

Over the course of the last year, we've remained focused and executed against the business plan that we laid out at the beginning of the fiscal year, and despite the many challenges faced by the restaurant and retail industry, we had many accomplishments during fiscal 2014.

As we close out the fiscal year, I'd like to share a few of the highlights from the year.

We improved our operating profit margins despite continued food commodity pricing pressure; in every quarter of the year we outperformed the Knapp-Track casual dining index; we rolled out several new systems to support operations, reduce costs and enhance the employee experience; we introduced a new menu category, Wholesome Fixin’s, to meet our guest desire for additional better-for-you menu items; we increased diluted earnings per share by approximately 13% for fiscal 2014 compared to fiscal 2013; we received the highest percentage of excellent ratings among 32 large restaurant chains that Technomic Inc.

analyses; we continue to invest in our future through the opening of seven new stores; we increased our quarterly dividend by 33% to $1 per share; and we launched our licensed product line for sales through grocery and other retail channels under our new mark, CB Old Country Store.

On this call, I'd like to review the successful execution and the continued progress on our three-pronged long-term strategy to, one, enhance the core business; two, expand the footprint; and three extend the Cracker Barrel Old Country Store brands. First I'd like to take you through how we enhanced the core business during the fourth quarter.

So let's start with our menu promotions. The quarter began with a spring promotion which featured new entrée options as well as core menu favorites. The spring promotion included two limited time only better-for-you offerings as part of the Wholesome Fixin's caregory that we introduced earlier in the year.

We were really pleased with our Wholesome Fixin’s Southern Trout offering and have plans to add it to our core menu in fiscal 2015. Our summer promotion featured the highly anticipated return of our foil wrapped Campfire Beef and Campfire Chicken meals.

These popular entrées offered a unique flavorful summer dining experience that drove guest excitement. We were pleased with their performance and received positive feedback from both the guest and the field operations team. Our summer promotion was very successful and drove higher sales mix during the fourth quarter versus the prior year.

To support the summer travel season, we ran six weeks of national cable advertising during the fourth quarter. This included two weeks featuring our Campfire entrées and four weeks reinforcing the value in our country dinner plate offerings and we are pleased with the success of both of these advertising campaigns.

On the digital front, we held an online nationwide charity auction that ran for eight weeks during the fourth quarter and benefited the National Military Family Association. The online auction raised more than $90,000 in proceeds to support our servicemen and women and their families.

We also increased the level of digital engagement in connection with our guests. To further enhance our digital market presence during the summer travel season, we followed the charity auction with our Summer Stories Sweepstakes.

The digital stakes allowed our guests to share summer pictures with us, their friends and other Cracker Barrel guests, generating an interactive personalized online experience between our guest and our brand. Within our field operations team, we continued to evolve our systems and processes to improve productivity.

During the fiscal year, we rolled out several new systems to support operations, reduce costs and enhance both the guest and the employee experience. Through of all this, our guest survey scores have remained high and we saw year-over-year improvement in overall satisfaction, overall value, food temperature and speed of service.

On the retail side, our 2014 strategic focus was to drive retail sales with improved quality and depth of merchandise assortment. As you can see in today's release, our comparable store retail sales grew 2.6% versus the prior year fourth quarter and once again our apparel and accessories categories continues to drive year-over-year sales growth.

Guests responded well to our value-driven merchandise like our women's apparel for $19.99 or less and our new footwear offerings are resonating well with our guests. Both our summer sandals and casual footwear were well received and contributed to our sales increase within the category.

As for our second strategy, expanding the footprint, we opened four new Cracker Barrel stores during the fourth quarter and we had two new stores opened during the first quarter of this fiscal year. That brings our total store count to 633.

Finally regarding our strategy to extend the brand outside of the Cracker Barrel Old Country stores, we continue to be pleased with the overall performance of our licensing program under our CB Old Country store mark. We've added sliced-to-order deli meat to our line of products.

Our jerky continues to do well in our retail shops and we partnered with a key grocery retailer to feature our beef jerky in our new summer sausage and large promotional efforts this fall. Additionally, we've joined with a second licensee to support our entry into additional food lines and look forward to formally announcing this partnership.

Looking forward to fiscal 2015, we will continue to focus on enhancing the core business, expand the footprint and extend the brand's strategic plan that we laid in the spring of 2012.

Since that time, our management team has successfully executed a number of initiatives that significantly improved the guest experience, furthered shareholder value and drove financial performance in a very challenging industry environment.

As we outlined in the three year strategic plan that we shared with you in May, we believe that there are many additional opportunities to further drive guest satisfaction, shareholder value and financial performance over the next three years. Let me share with you what we'll be focused on in fiscal 2015.

Our initiatives for fiscal 2015 will include extending the reach of Cracker Barrel brand to drive traffic and sales in both our restaurant and retail businesses, optimizing average guest check through the implementation of geographic pricing tiers, applying technology and process enhancements to drive store operating margins, further growing our store base with the opening of six to seven new stores, one off which will be our new infusion prototype.

So let me describe each one of those in more detail. Regarding the first, we plan to drive sales and traffic by increasing our relevance with today's consumer. During the fiscal year, we'll continue our development of innovative promotional menu offerings as well as core menu additions that broaden our reach and further activate our guest space.

Our product development team is focused on creating entrees using fresh ingredients, bolder flavors and customizable selections all at a value to our guest. For example, our holiday menu promotion will include a triple berry french toast, stuffed with cream cheese blueberries, blackberries and raspberries and served with warm raspberry syrup.

We continue to improve our guest perceptions of freshness and health of our menu through the goals of our Wholesome Fixin's category. In fiscal 2015, we anticipate adding several breakfast and lunch dinner entrees that were offered as limited time only during fiscal 2014 to our core menu for continued build-out of Wholesome Fixin category.

To further strengthen our reach in the marketplace, we plan to test our way into moderately higher media spend that sees additional spend to our national cable buys and in selected markets throughout the year.

We are reallocating our advertising spend from radio into both digital media and television and we believe that a more consistent digital presence will further expand the level of social engagement that occurs with our guest.

Additionally, we're expanding our retail offerings to ensure appeal of our merchandise across a larger segment of the population. We're seeking to reach new markets through offerings that have a greater appeal to a broader demographic audience.

For example we plan to add more fashion forward apparel designs such as in infinity scarves and tunic designs that resonate with millennials. Next in 2015, we plan to optimize average guest check through the implementation of geographic pricing tiers.

Through market and competitive research, we believe that there are select opportunities to offer geographic pricing tiers without negatively impacting guest check or future visit intent.

During this fiscal year, we plan to test our way in the market level pricing and given satisfactory results from our test groups, we anticipate total annual price increases over the next three years between 2% and 3%.

The first strategic initiative I would like to cover is the application of new technology and process enhancements to improve store operating margins.

With that many projects currently in testing or in the rollout phase, that will support an annual reduction in store operating costs of approximately $50 million to be recognized within the next three years. I'll provide you with an overview of three of those projects. The first is our plate-ware reduction initiative.

Currently, we have nearly 1 billion employee touches to dishes each year. We have identified an ability to simplify and consolidate our use of plates by just over 20%. Reducing the dish count directly translates into driving dish productivity. The initiative is expected to reduce dish room labor, chemical usage cost and dish replacement expenses.

Currently, we have this program in one of our regions and have received positive feedback from both our operators and our our guests and implementation is expected to be complete by the end of the second quarter. Second is our dining room management project. So on average each store serves almost 1,000 guests per day.

This level of volume can result in long wait times and a need for additional host employees during our peak periods throughout the week. The dining room management system allows us to optimize our wait list and seeding processes and as a result we are able to reduce the number of host labor hours without negatively impacting our guest experience.

In addition, we're able to maximize throughput by converting capacity and reducing the number of walk-offs. This project is currently in the testing phase and if results remain positive, we anticipate full implementation by the end of the fiscal year. Another 2015 enhancement to improve operating margin is our lighting initiatives.

With advances in lighting technology and the improved economics of installing LED bulbs, we plan to update our interior lighting system to reduce our utility expense, while maintaining the overall guest experience. We expect to see benefits from this beginning in the second quarter. Finally.

We'll further expand our footprint through the opening of six to seven new Cracker Barrel stores, one of these stores will be designed around our new fusion prototype. The fusion model allows us to re-engineer processes to reduce initial costs, create a more efficient design for our new stores and evolve the brand all while protecting its integrity.

We've selected Morganton, North Carolina as our first site and are in the final stages of design. In summary, I am incredibly proud of our leadership, home office team and most importantly our employees in the field for successfully executing on our business initiatives in fiscal 2014. I look forward to building on this success in fiscal 2015.

And with that, I will hand the call over to Larry Hyatt, our CFO for more details on the quarter.

Larry?.

Good morning everyone, and thank you Sandy. I would like to begin by discussing our financial performance for the fourth quarter of fiscal 2014 and the full fiscal year and then our outlook for the 2015 fiscal year. As I discuss our full year financial results, I will refer to adjusted financial information for both the 2014 and the 2013 fiscal years.

For the 2014 fiscal year, we made adjustments to GAAP operating and net income to exclude the impact of proxy contest expenses and their related tax effects. For the 2013 fiscal year, we made adjustments to GAAP operating and net income to exclude the impact of proxy contest and severance expenses and their related tax effects.

Additionally, we adjusted for the retroactive reinstatement of the work opportunity tax credit in the second quarter of fiscal 2013. The last page of this morning's press release contains a reconciliation from our GAAP financial results to this non-GAAP adjusted information.

In this morning's release, we reported fourth quarter net income of $39.2 million or $1.63 per diluted share, representing a 14% increase over prior year earnings per diluted share of $1.43.

For the full fiscal year, we reported adjusted net income of $135.1 million or $5.63 per diluted share, representing a 13.3% increase over the prior year's adjusted EPS of $4.97. Our revenue in the quarter was $692.7 million, an increase of 2.8%, compared to revenue of $674.1 million in the prior year quarter.

Our restaurant revenues increased 2.5% to $563.5 million and our retail revenues increased 3.9% to $129.2 million. Our comparable store restaurant sales in the quarter increased 1.2% as average check increased 3.1% and traffic declined 1.9%.

The increase in average check reflected menu price increases of approximately 2.2% and a favorable mix impact of 0.9%, which was driven primarily by the popularity of our seasonal Campfire offering. Our comparable store retail sales increased 2.6%.

Our total cost of goods sold in the quarter was 32.1% of revenue, an 80 basis point increase over the prior year quarter. Our restaurant cost of goods was 27.8% of restaurant sales, compared to 27.1% in the prior year quarter. This 70 basis point increase was due primarily to the mix impact of the higher priced Campfire meals.

On a constant mix basis, our food commodity costs were approximately 2% higher in this quarter than in the prior year quarter due to increases in pork, seafood and beef prices. Our retail cost of goods was 50.8% of retail sales, compared to 49.8% in the prior year quarter.

This 100 basis point increase was primarily the result of increased mark-downs due to clearance events in July, partially offset by favorable initial mark-ups. Our retail inventories at year end were $125.4 million, compared to $110.1 million in the prior year quarter.

This increase was primarily due to the early receipt of holiday and other merchandise driven by concerns about a possible West Coast pork strike, lower than anticipated sales in several categories, including food and toys and increased inventory positions to support sales of apparel, accessories and quilts.

Our labor and related expenses were $248.1 million or 35.8% of revenues, a decrease of 30 basis points compared to the prior year quarter. This year-over-year improvement as a percent of revenue was primarily the result of lower store bonus expenses and favorable hourly labor expense.

Our other store operating expenses in the quarter were $132 million or 19.1% of revenue, compared with other store operating expenses of $127.7 million or 18.9% of revenues in the prior year quarter. This 20 basis point increase was due to a number of factors.

Advertising and insurance expenses were lower than the prior year quarter as a percent of sales while utilities, supplies and pre-opening expenses were higher. Store operating income was $90.3 million in the fourth quarter or 13% of revenue, compared with store operating income of $92.6 million or 13.7% of revenue in the prior year quarter.

Our general and administrative expenses in the quarter were $30 million or 4.3% of revenue, compared to G&A of $37.8 million or 5.6% of revenue in the prior year quarter. This 130 basis point reduction was primarily a result of lower incentive compensation.

Our operating income was $60.3 million or 8.7% of revenue, compared with operating income of $54.8 million or 8.1% of revenue in the prior quarter, an improvement of 60 basis points. Our interest expense for the quarter was $4.4 million, compared to an interest expense of $4.5 million in the prior year quarter.

Our effective tax rate for the fourth quarter was 29.9%, compared to an effective tax rate of 31.8% in the prior year quarter. For the full fiscal year, our adjusted tax rate was 30.8% compared to an adjusted tax rate of 30.5% in fiscal 2013. Our balance sheet continues to be strong.

We ended the fiscal year with $119.4 million of cash and equivalents, compared to $121.7 million at the prior fiscal year end. Our total debt was approximately $400 million.

With respect to our 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.

We expect to report total revenue for fiscal 2015 of between $2.75 million and $2.8 billion, reflecting anticipated increases in comparable store restaurant and retail sales in the range of 2% to 3% and the expected opening of six or seven new Cracker Barrel stores.

Our comparable stores sales guidance for the year assumes normal winter weather patterns and the initiative implementation of our tiered pricing strategy. We expect increases in food commodity costs on a constant mix basis in the range of 4% to 5% for the fiscal year.

We have locked in our pricing on approximately 50% of our commodity requirements for fiscal 2015, compared to 56% at this time last year. We expect our operating income margin for the year to be approximately 8% of revenues.

We expect depreciation expense of between $71 million and $73 million for the year and net interest expense of between $17 million and $18 million. We expect an effective tax rate for the year of between 32% and 33%. This tax rate estimate assumes that the work opportunity tax credit which expired on December 31, 2013 is not renewed.

We estimate that renewal of the WOTC would reduce our tax expense by between $5 and $6 million or between and between $0.20 and $0.25 per diluted share.

We anticipate that capital expenditures for the year will be in the range of $100 million to $110 million including new store investments of between $30 million to $35 million and maintenance CapEx in the range of $45 million to $50 million. For the fiscal year of 2015, we expect to report earnings per diluted share of between $5.80 and $5.95.

For the first quarter of fiscal 2015, we expect to report earnings per diluted share of between $1.20 and $1.30. And with that, I will now turn the call over to the operator. Sandy, Chris and I can take your questions. Thank you very much..

(Operator Instructions). And we'll take our first question from Imran Ali of Wells Fargo..

Hi good morning. Thanks for taking my questions. It just looks like casual dining industry trends have improved over the last five or six weeks. I was wondering, are there any broader consumer factors that you’d point to as potential drivers. .

Well Imran we're not going to comment on the factors since the end of the fourth quarter, so I don't want to speak to that, but I can say that during the fourth quarter that we think we're pleased with the way our concept performed in what we believe was actually a challenging environment in terms of the impact that the winter weather had on travel and the disruption with school schedules and things on that but -- and the challenged consumer just economically, but we do believe that the Cracker Barrel concept being so highly differentiated, did a good job of performing in that and will continue to be able to provide value and an extraordinarily good guest experience going forward.

.

Okay. Fair enough, and separately, you talked about this earlier, but regarding the $50 million in annual cost savings over the next three years, how should we think about the pace in which you'd expect to deliver these efficiencies? Will it be fairly evenly spread across three years or frontloaded, back loaded? Any color would be great. .

Yes, the way that we explained that at our annual analyst and investor day meeting is that we said that we anticipated that by our 2017 fiscal year, that we will achieve the full $50 million in cost savings, but that in the 2015 and 2016 fiscal year that cost savings may not necessarily be ratable.

We actually have built in to our 2015 cost numbers about $20 million of the anticipated cost savings, but those cost savings are unfortunately being partially offset largely by commodity costs which we now expect to be higher than our expectations even back in May. .

And our next question is from David Carlson of KeyBanc Capital Markets..

Larry, quick question for you. When you exclude the changes in working capital during fiscal '14 and it seems that the dollar dividend, the quarterly dividend was paid for the full year. It appears the payout ratio as a percentage of free cash flow is around 80%.

I was hoping you could discuss maybe the sensitivity of cash flows to changes in same store sales and if the economy were to weaken, where your CapEx priorities are, what discretionary items do you think you could pull back on?.

Lots to that question, David. And first of all, I'll make the observation that Cracker Barrel has very stable cash flows, has a very strong balance sheet, has a lot of financial flexibility under our existing credit arrangement. So we don’t anticipate that we would necessarily have a need.

If the economy were to go into say a normal recession of necessarily having to pull back on our maintenance CapEx, our new store development or on the funding of our various initiatives, nor do we think that our dividend would be at any meaningful risk..

And our next question is from Joe Buckley with Bank of America..

A couple of questions. Can you talk about the sequence of the retail same store sales numbers in the quarter? Seems [throughout] [ph] the quarter pretty strongly. You mentioned doing some clearing sales I guess type thing in July. So just talk about it.

The overall comp number was pretty good but just talk about sequencing?.

Well I think Joe, we had a variety of things going on. One thing that it's the way the travel sort of evolves through the quarter, we did see some shift from the travel side of our business in this quarter.

I think that the delay of schools getting out, and then people had pressures on their own personal balance sheet made them in some cases, either abbreviate their travels or avoid them and that did have an impact. I think our retail sales would have even been better than they were.

But I think our buyers did a good job on the assortment and as it came in through the quarter, that's really more about what was happening. The clearance activity at the end of the quarter is not unexpected. It was planned and we typically do that.

At the end of the summers we're trying to take advantage of the travel and the additional traffic we are getting. Overall I'm really pleased with the progress that our retail team has made on improving both the quality and the breadth of the assortment.

They are trying very hard to keep the floor fresh, changing it often to improve the way we're marketing and promoting our retail offering and I'm looking forward to even more progress as we move through the next fiscal year..

A question on the pricing assumptions in this year’s same store sales guidance for fiscal '15, guidance.

Given that you just started the regional pricing, what do you think you'll realize in terms of pricing this year and will that be a little bit more backend loaded, dependent on the rollout of the regional pricing?.

Yes, Joe, the test of the regional pricing started last week so we don’t have much of a preliminary read yet. We have baked into our guidance the expectation that the test is successful, that we implement it gradually over the course of 2015 fiscal year. So the impact is likely to be felt in the back half of the year more than in the front half.

As we said, our same store sales guidance is in the 2% to 3% range most of that is expected to come from average check..

We will go next to Steve Anderson with Miller Tabak..

Sandy, I just remember a few months ago at the Analyst Day, you mentioned bringing out a few -- a range of mid-tier menu items I think for lunch and dinner. Are these items being tested and if so, have you noticed any shift away from the higher end or the lower end of the menu range and I have a follow up..

Steve, it’s Chris. So yes, we did certainly talk about that item being part of the three year strategic outlook and are calling for that in next year's operating plan, specifically. When we look right now at how the guest is behaving, we're not necessarily seeing a lot of trading behavior up or down. The mix is relatively stable.

We did enjoy within the Q higher check driven out of our promotional offerings. We have seen that in the past couple of Qs. So we're pleased with that performance. So we'll look for midline to kind of be part of the conversation in upcoming calls..

Okay. What percentage of the average ticket has been these promotional items? I know they have been running around 9%-10%.

Are you still seeing about that?.

Yes, actually I believe we're even a little bit north of that right now in terms of mix for the promotions..

Okay. And the follow-up question regards the potential West Coast port closures. If I remember correctly, you are starting to ship some items out to the East Coast port, more specifically Savannah.

And I just want to see what percentage of your items are still coming from the West Coast?.

Yes, the percentage of the items coming from the West Coast is very small. But the reason why that was a factor Steve, and -- is because although it's two separate longshoreman unions, the longshoreman's union in Savannah had indicated that in the event of a West Coast longshoreman strike, that they would go out in sympathy.

And so that although the dispute is on the West Coast, our concern was its potential impact on Savannah and other East Coast ports..

It appears there are no further questions at this time. Ms. Cochran, I'd like to turn the conference back to you for any additional or closing remarks..

Great. Thank you. Well, thank you again for joining us today and as we move through the first quarter of the fiscal year, I'm pleased with the progress we made on our strategic priorities in 2014 and I'm excited about what we have in the pipeline to support our 2015 priorities.

I remain confident that we have the right strategy and the right leadership in place to move the brand forward and to drive shareholder value. We appreciate your interest and support. Thank you..

This concludes today's call. Thank you for your participation..