Good day and welcome to the Cracker Barrel's Fiscal 2015 Fourth Quarter Earnings Conference Call. Today's conference is being recorded and will be available for replay today from 2 PM Eastern through September 30 at 2 PM Eastern by dialing 719-457-0820 and entering passcode 7357830.

At this time, for opening remarks and introductions, I would like to turn the call over to Jessica Hazel. Please go ahead, ma'am..

Thank you, Lauren. Good morning and welcome to Cracker Barrel's fourth quarter fiscal 2015 conference call and webcast. This morning, we issued a press release announcing our fourth quarter and fiscal year results and our outlook for the 2016 fiscal year.

In this press release and on this call, we will refer to non-GAAP measures for the current year and quarter, adjusted to exclude the impact of the retroactive reinstatement of the work opportunity tax credit and the accrued liability and tax effects related to the settlement of the Fair Labor Standards Act Litigation.

We will also refer to non-GAAP financial measures for the prior fiscal year adjusted to exclude proxy contest charges and tax effects. The company believes that excluding these 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 website, crackerbarrel.com.

In that 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 file with or furnish 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 SEC or as otherwise required by law.

On the 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 up the call 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?.

Thanks, Jessica. Good morning, everyone. As you can see from today's press release our fourth quarter and fiscal year was successful on many fronts. We exceeded our previously stated earnings expectations for the fourth quarter, which concluded a strong year for Cracker Barrel and our shareholders.

I'm very pleased with our strong fiscal 2015 performance, which reflects the strength of the differentiated Cracker Barrel brand and our ability to execute against our strategic initiatives to drive a 4.8% increase in comparable store sales and a 120 basis point improvement in operating income.

There are many accomplishments during the fourth quarter and fiscal 2015, I'd like to share few highlights. We grew our fiscal 2015 adjusted operating income to 9.1%, compared with 7.9% in the prior year. Adjusted earnings per share increased 21% over the prior fiscal year.

We generated $334 million in cash from operations, which allowed us to increase our quarterly dividend and declare a special dividend. And finally our total shareholder return is measured by the increase in our stock price and dividends paid in fiscal 2015 was 56%.

Over the course of the last year, we remained focused and executed remarkably well in the four business priorities laid out at this time last year. On this call I'll define our fiscal 2016 priorities, but first I’d like to briefly review the continued progress on our 2015 priorities during the fourth quarter.

Our first 2015 priority was centered on driving traffic and sales in our restaurant and retail business. We ended the year with a 4.8% comparable store total sales growth and during the fourth quarter we increased our comparable store restaurant sales at 3.8% and our comparable store retail sales by 0.6%.

Our summer menu promotion exceeded our expectation supporting our fourth quarter restaurant sales growth. This was driven primarily by the success of our breakfast offerings, which included our limited time only Strawberries and Cream French Toast meal and our traditional favorite Sunrise Sampler breakfast.

Our retail sales results for the fourth quarter were again driven by strong performances in the core categories of women's apparel, candles, and our tabletop theme offerings. As you may recall we had very strong retail sales in the second and third quarter and started the fourth quarter with our inventory a little wider than expected.

I'm pleased with our retails team ability to secure supplemental buying opportunities to maintain positive sales, while improving our cost of goods sold as a percentage of revenue. So let me talk specifically now about advertising.

We once again ran a fourth quarter national table advertising campaign, which aired for the same number of weeks as during the prior year quarter. The campaign creative highlighted the value and variety of offerings on our breakfast menu. We once more pulsed our schedule and saw an increase in gross rating points.

We remain focused on engaging our guests and expanding our reach to new guests through social media. During the fourth quarter we ran continuous paid social and search through multiple channels. Regarding our second priority, the implementation of geographic pricing tiers we continue to optimize our average guest check through our pricing structure.

We saw approximately 2.7% higher average menu prices than in the prior year, which contributed to our fourth quarter restaurant sales growth. Overall, we’re pleased with the results from the new markets specific tiers and believe we have the foundation to achieve our long term goal.

We plan to further build out the structure with additional tiers in greater variants between pricing levels. Our third 2015 priority was to drive store operating margins. While much of the Operators focus during the fourth quarter was on delivering the Cracker Barrel experience, our guests have come to expect during our busy summer travel season.

We also completed the roll out of the dining room management system. We plan to leverage the new system to further drive productivity improvements in the new fiscal year. Lead by our 2015 initiatives like plateware reduction, our new LED lighting technology and a system wide update to our retail labor scheduling.

We made significant headway toward our three year goal of reducing store operating cost and anticipate further progress in fiscal 2016. Finally regarding our strategy to grow our store base, we opened three new stores in the fourth quarter which brought the total new store open in fiscal 2015 to six. This brings our overall store count to 637.

Our businesses generate strong cash flow and we're committed to a balanced approach for capital allocation which means reinvesting to profitably grow the brand and returning capitals through share buybacks to offset dilutions and regular increases to our quarterly dividend.

As previously disclosed, during the fourth quarter we declared a 10% increase in our regular quarterly dividend to a $1.10 per share. This represents a 400% increase in our dividend over the past four years. We additionally announced a $3 special dividend which was paid out at the beginning of fiscal 2016.

We view the steps of the continuation of our commitment to enhancing total shareholder returns. So turning to our 2016 priorities, some important initiatives we have underway.

Our business priorities for fiscal 2016 include the following; first, we are focused on driving traffic and sales through advertising, menu strategies and targeted marketing programs. Second, we plan to apply technology and process improvements to enhance the overall guest experience.

Third, we will implement cost savings initiatives to further drive operating margins. And finally our fourth priority will be to invest in long-term growth through new unit expansion and the development of the fast casual concept. So let me describe each one in more detail.

To drive traffic and sales, we will continue to use our seasonal menu promotions as a way to drive frequency of providing our guests with variety through offerings that appeal to our most frequent guests and our like users.

In our current seasonal promotion, we brought back some of our most popular limited time only offerings like salmon patties and our mushroom brace pot roast.

We will further expand our retail offerings to appeal to a larger segment of the population and we're seeking to reach new markets through offerings that have greater appeal to a broader demographic audience.

For example, we currently have a Realtree Camouflage theme in the stores that include some products like camel leather wallet and an overnight duffel bag. We additionally plan to increase our advertising spend in 2016 while improving our overall buying power.

As part of this we will increase our number of on air weeks, sustain the successful use of our pulsing strategy and broaden our media mix with greater digital spend. The first quarter includes five total weeks of National television advertising, three of which occurred in August and two occurring in October.

Our next priority will be to enhance the overall guest experience. To address consumer's need for added convenience and their everyday dining experience, fiscal 2016 will include integration of a new digital technology as a way to add convenience and enhance the guest experience.

One example of this is our plan to test online weightless capabilities through our new dining room management system. We are also excited about the recent launch of our Cracker Barrel Gaming App, which was exceeding the industry average for per download usage.

We believe the new app which includes Cracker Barrel brand imagery throughout reinforces our values for wholesome family fun. This App also includes an enhanced store locator allowing users to identify store location seamlessly. Our third priority is the continuation from fiscal 2015 to drive improved operating margins.

We are working on a number of important initiatives and process enhancements including several that will be completed during fiscal 2016 to remove cost from our base business. We are targeting reductions in food costs, utilities and restaurant and retail labor and anticipate implementation of several initiatives to support this.

For example, targeted food management, one of our larger 2016 initiatives will include back of the house process improvements, including additional focus on food reporting and analytics and a new food ordering process. We are excited about this opportunity and we will speak further to this and other initiatives throughout the year.

Our final priority includes two fronts, the first is new unit expansion, specifically expanding the Cracker Barrel footprint, a 7 to 8 new store openings many of which will be outside our core market. And the second is the development of a fast casual concept which will have more information on in upcoming calls.

Regarding our new unit expansion, we believe we can gradually increase the annual pace of our new store openings over the next few years, as we are carefully considering learning from fusion and how the new prototype will help us attain our long term growth goal. In summary, I'm optimistic about the new fiscal year.

I am pleased with the 2015 accomplishments and with the momentum carrying us into the New Year. And I look forward to building on this success and fully executing our long term strategic plan in 2016. And with that, I am going to hand the call over to Larry Hyatt for more details on the quarter and the financial outlook for the fiscal year.

Larry?.

Good morning everyone, and thank you Sandy. I would like to begin by discussing our financial performance for the fourth quarter and fiscal 2015 and the full fiscal year and then our outlook for the 2016 fiscal year. As I discuss our full year financial results, I will refer to adjusted financial information for both the 2015 and 2014 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 2015 fiscal year, we made two adjustments to GAAP net income.

First the accrued liability and tax effects associated with the settlement of the previously disclosed Fair Labor Standards Act Litigation. Second, in December the Federal Government retroactively reinstated the Work Opportunity Tax Credit or WOTC for the period of January 1 to December 31 of 2014. It expired again at the end of 2014 calendar year.

While the full benefit of the WOTC reinstatement on our second quarter GAAP earnings was $0.13 per diluted share, the $0.10 per diluted share relating to the prior fiscal year is excluded from our adjusted EPS for fiscal 2015.

The last page of this morning's press release contains a reconciliation from our GAAP financial results to the non-GAAP adjusted information. In this morning's release we reported fourth quarter net income of $47.4 million or $1.98 per diluted share representing a 20.9% increase over prior year earnings per diluted share of $1.63.

For the full fiscal year, we reported adjusted net income of $164 million or $6.82 per diluted share representing a 21.1% increase over the prior year's adjusted EPS of $5.63. Our revenue in the quarter was $719.2 million, an increase of 3.8% compared to revenue of $692.7 million in the prior year quarter.

Our restaurant revenue increased 4.4% to $588.2 million and our retail revenue increased 1.3% to $130.9 million. Our comparable store restaurant sales in the quarter increased 3.8%, as average check increased 3% and traffic increased 0.8%.

The increase in average check reflected menu price increases of approximately 2.7% and a favorable mix impact of 0.3%. Our comparable store retail sales increased 0.6%. Our total cost of goods sold in the quarter was 31.1% of revenue, a 100 basis point improvement from the prior year quarter.

Our restaurant cost of goods was 27.2% of restaurant sales compared to 27.8% in the prior year quarter, an improvement of 60 basis points. On a constant mix basis, our food commodity costs were approximately 70 basis points lower in the quarter than in the prior year quarter driven primarily by pork.

Our retail cost of goods sold was 48.6% of retail sales compared to 50.8% in the prior year quarter. This 220 basis point improvement was primarily the result of stronger sell through resulting in lower mark downs and reduced inventory write-offs. Our retail inventories at year end were $115.8 million compared to $128.2 million at the prior year end.

Our labor and related expenses were $251.6 million, or 35% of revenue. A reduction of 80 basis points compared to the prior year quarter. This year-over-year improvement is due to a number of factors including improvements in store labor productivity driven by the continued successful implementation of our cost savings initiatives.

A reduction in employee benefits expense due to favorable claims experience in the current and prior fiscal years and the leverage of sales increases. These items were partially offset by increased store manager incentive compensation due to our strong performance.

Our other store operating expenses in the quarter were $132.7 million, or 18.4% of revenue compared with other store operating expenses of $132 million, or 19.1% of revenue in the prior year quarter. This year-over-year reduction of 70 basis points is due primarily to decreases in utilities, maintenance, and supply expenses.

Store operating income was $111.3 million in the fourth quarter or 15.5% of revenue compared with store operating income of $90.3 million or 13% of revenue in the prior year quarter. Our general and administrative expenses in the quarter were $38.6 million or 5.4% of revenue compared to G&A of $30 million or 4.3% of revenue in the prior quarter.

This 110 basis point increase was primarily driven by increases in incentive compensation due to our performance. Our operating income was $72.7 million or 10.1% of revenue compared with operating income of $60.3 million or 8.7% of revenue in the prior year quarter, an improvement of 140 basis points.

Our interest expense for the quarter was $3.5 million compared to an interest expense of $4.4 million in the prior year quarter. Our effective tax rate for the fourth quarter was 31.5% compared to an effective rate of 29.9% in the prior year quarter.

For the full fiscal year, our adjusted tax rate was 32.2% compared to a tax rate of 30.8% in fiscal 2014. Our balance sheet continues to be strong. We ended the fiscal year with $265.5 million of cash and equivalents compared to $119.4 million at the prior fiscal year end.

Shortly after the end of the fiscal year, the company paid its special and regular quarterly dividend which reduced our cash balances by approximately $98 million. Our total debt was $400 million at year end.

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 earnings per diluted share for the 2016 fiscal year of between $7.15 and $7.30.

This earnings estimate assumes total revenue of between $2.9 billion and $2.95 billion reflecting anticipated increases in comparable store restaurant sales in the range of 2.5% to 3.5% and comparable store retail sales in the range of 2$ to 3%.

We expect to open seven or eight new Cracker Barrel stores all of which will likely open in the second half of the year. We expect increases in food commodity costs on a constant mix basis in the range of 3% to 3.5% for the fiscal year which equates to an increase of approximately $20 million.

Although eggs constituted between 3% and 4% of our commodity spend, in 2015 we expect eggs to account for 95% of this anticipated dollar increase in commodity costs in 2016 due to the avian flu epidemic. We anticipate that the greatest impact on egg prices will occur in the second quarter.

We have locked in our pricing on approximately 45% of our commodity requirements for fiscal 2016 compared to 50% at this time last year. We expect our operating income margin for the year to be approximately 9% of revenue.

This guidance includes a target of $10 million in reduced operating expenses from the anticipated successful implementation of our cost savings initiatives. We expect depreciation expense of between $78 million and $79 million for the year and net interest expense of between $14 million and $15 million.

We expect an effective tax rate for the year of between 32% and 33%.

We anticipate that capital expenditures for the year will be in the range of $110 million to $120 million including new store investments of between $30 million and $35 million, strategic initiatives investments of between $20 million and $25 million and maintenance CapEx in the range of $50 million to $55 million.

For the first quarter of fiscal 2016 we expect to report earnings per diluted share of between $1.50 and $1.60. Our first quarter guidance reflects higher commodity costs driven primarily by egg prices and the cost of our by annual manager's conference and training event in September.

As noted in this morning’s release, I plan to retire from the company at the end of the current fiscal year.

I plan to participate in the search for my successor and to assist in the transition process with a strong and highly differentiated brand and outstanding chief executive officer and our industry beating performance, I believe that this is the best CFO job in the restaurant industry.

Therefore, I anticipate that we will have many attractive candidates for our CFO position. However we will be thoughtful and deliberate in our search. In other words, I expect to be speaking with you on future earnings conference calls.

When I do retire, I will leave Cracker Barrel confident that the best years for this iconic 46 year old brand lie ahead. And with that, I will now turn the call over to Lauren so that we can take your questions. Thank you very much..

[Operator Instructions] Our first question comes from Joseph Buckley with Bank of America..

This is Greg Francfort on for Joe. One Larry, we're excited for you after retirement, but we're definitely going to miss you and happy we're going to have you for the next couple of calls, so - but thank you. And also just on the questions, I think one thing people are focused on is the cadence of the comps through the quarter.

Can you guys talk about was there any promotions or any reason to maybe the check fell off against lapse or something that would cause July to have been a little bit light?.

Well, Greg, this is Sandy. I'll kick that off. So let me start by commenting that we outperformed the Knapp-Track traffic in sales numbers in July as we did in May and June. But based on the Knapp-Track numbers, it would suggest that July was tougher for the industry in total for those – for that month.

The Knapp-Track numbers do suggest though that we had some modest deceleration in our out-performance in July versus May and June and we think there could be a couple of factors that contributed to it.

One as I noted in my remarks, our advertising this summer focused on breakfast and our breakfast all day offer and that did - although it drove breakfast it did not drive lunch and dinner.

And secondly, our rib offering which was very popular with our guests and performed as expected, but it was not quite as compelling as last year's campfire offering..

Okay. That’s helpful. And then just another question on, as you guys think about eggs, are you guys locking in egg costs, I knew you've been contracted for the back part of fiscal 2015. And I’m just wondering how you’re approaching it going forward.

And then also given the commodity environment, how you think about pricing for next year in any of the regional pricing rolling out but should we expect maybe a little bit of - you have taken that 2.5% check historically commodity and inflation are coming a little bit higher than that, but how are you thinking about the pricing line?.

Yes, first as far as the question about commodity cost and about eggs in particular, we have long-term contracts both for liquid, eggs, and for shell or eggs and the way that prices on those contracts are set is based upon the reference pricing for liquid and shell eggs for the prior three months meaning that basically in the fourth quarter of the 2015 fiscal year, which was the May, June, and the July quarter.

We were paying what was the market price for the February, March, April quarters. So there’s a three months lag. So what basically is going to happen to us in the first quarter of the 2016 fiscal year is that we are going to experience what was last quarter's pricing spike..

Okay, that's really helpful.

And just my last question, can you give a little color on what you guys have may be seen with the rollout of the geographic pricing tiers, I guess how customers have responded if they shifted their patterns on what they might be purchasing on the menu or any takeaways would be helpful?.

Yes, we have tested this and have measured those tests extensively and exhaustively and while we've seen some very minor shifting, our conclusion is that by and large our customers have allowed us to shift. And it’s important to point out here to shift in a gradual way to a geographically based tier pricing structure.

At the Analyst and Investor Day their meeting back in April of 2004, I guess May 1 of 2014, we said that we anticipated that the combination of our normal price increases and the additional price increases that we anticipated from our new tier pricing structure would allows us to increase pricing on a compound annual basis over three years in a 2 to 3 percentage point range.

Our guidance for the 2016 fiscal year anticipates our pricing will remain in that range..

Okay. Very helpful. Thank you, guys..

Thanks Greg..

Our next question comes from Michael Gallow with CL King. Your line is open Mr. Gallow. We'll go next to Matthew DiFrisco with Guggenheim Securities..

Hello this is [Matt Kushner] [ph] on for Matt DiFrisco.

I just had a question around the new fusion prototype if you could just talk about that little more?.

Sure. So the fusion kitchen or the fusion prototype is a new store. It's a kitchen of the future. We rolled out the concept with a video at our Analyst Day in '14, which may still be available online and we opened our first and only store with that in North Carolina about two months ago.

The objective of the concept was to reduce our operating expenses required to deliver the current menu and it was - we were achieving that through labor savings through different cooking platforms, as well as energy savings and so there were variety of other initiatives largely in the back of the house.

We also made some changes to the front of the house, modest changes just to see if we - what kind of reaction we got to some changes to our design. So we are - I am pleased with the way it came out of the ground. We're working through the issues.

We're aggressively tweaking what we're learning there and are looking forward to taking the learnings that we find out at that store and applying them both to our new store prototypes and to retrofit opportunities in the current store base..

Great. That's very insightful. Thank you..

We'll go next to Michael Gallow with CL King..

Two questions, just to follow-up on the retrofit question, the fusion prototype, have you started to test the fusion prototype yet on a limited number of stores yet or is that still later to come in fiscal '16 as a retrofit?.

Well there is - so the fusion kitchen is - will be - the elements of it will be in the new stores going forward. So there will be new stores in fiscal 2016 that also have the fusion kitchen.

Separately, we've identified a number of projects that we're currently working on that involve retrofitting elements of the kitchen into our existing store base and yes, those are currently in test. We will be presenting several of them at our Manager Conference next week and we'll look forward to telling you about them as we go through the year.

Those that we have confidence in, we have factored into the guidance for our year..

Okay, great. Question on the market, I think you know the advertising expense was going to be up in fiscal '16.

How many more weeks on air do you expect in '16 versus '15?.

Hey Michael, it's Chris. We do have - for this coming year, we've planned to add more weeks in. This time I don’t think we disclosed out how many weeks we're going to be adding, but we do look for an increase in the coming year.

I think you can expect those weeks to that approach to follow what we've been doing to date in terms of the type of buy, the pulsing, all those types of things..

Okay. Great..

And that will be coming in the second half of the year..

Okay.

And then final question for Larry, how much you expect the impact year-over-year from the Bi-Annual Managers Conference to be in Q1?.

We expect that to be on an order of magnitude in the $2.5 million to $3 million range Michael..

Okay. Thank you..

Thank you..

At this time, I would like to turn the conference back to Sandy Cochran for any closing or additional remarks..

Thank you. Well, thank you for joining us today. We're pleased with our fiscal 2015 financial performance and I remain confident that our strategic focus in fiscal 2016 will move the brand forward and drive shareholder value. We appreciate your interest and support..

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