Jessica Hazel - Manager, IR Sandra Cochran - President and CEO Larry Hyatt - Senior Vice President and CFO Chris Ciavarra - Senior Vice President, Marketing.

Jeff Farmer - Wells Fargo Alton Stump - Longbow Research Michael Gallo - C.L. King Gregory Francfort - Bank of America Robert Derrington - Telsey Advisory Group.

Please standby, we are about to begin. Good day. And welcome to the Cracker Barrel's Fiscal 2016 First Quarter Earnings Conference Call. Today's conference is being recorded and will be available for replay today from 2 p.m. Eastern through December 8th at 2 p.m. Eastern by dialing (719) 457-0820 and entering passcode of 840841.

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, Lisa. Good morning. And welcome to Cracker Barrel's first quarter fiscal 2016 conference call and webcast. This morning, we issued a press release announcing our first quarter results and our outlook for the 2016 fiscal year.

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 more 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’re 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 the call with me this morning are Cracker Barrel's President and CEO, Sandra 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?.

Good morning, everyone. Thank you for joining us today. As you can see from today’s press release, we significantly increased our operating margins and earnings per share in the first quarter, and believe we are positioned to achieve full year EPS that is within our previously announced expectations.

However, these results were achieved in a period when industry performance was below prior year levels and recent economic signals were mix. We believe the consumer spending was challenged during the quarter, particularly in October and this is reflected in our comparable store traffic and sales.

Additionally, we believe that the industry is reacted with increasingly competitive promotions and aggressive discounting. Before Larry takes you through the first quarter financials, I would like to provide you with an update on the business and the early accomplishments of our 2016 strategic priorities.

We are pleased with the success of our first quarter seasonal menu promotions, which was well-received by our guests. We featured three limited time-only dinner offerings, including salmon patties, which is one of our guest favorite, as well as the French Dip Sandwich Platter in a Mushroom Braised Pot Roast complete with two country sides.

For breakfast, in addition to offering guests and indulgent Apple n' Pecan French Toast meal, we highlighted one of our core menu favorites the old-timers breakfast. These offerings drove positive sales mix versus the prior year quarter, contributing to our overall restaurant sales growth.

Current promotion which began in early November offered the tradition of our Chicken Fried Chicken meal the indulgence of White Chocolate n' Fresh Berry French Toast and the hardiness of the Steak n' Egg Skillet breakfast. Guest reaction to these and our other holiday promotional menu offerings has been positive.

Thanksgiving Day is one of our busiest days of the year with both our in-store guests and those buying family size meals to go and our operations teams are ready to deliver great guest experience this holiday season. Turning to Retail, once again our apparel and accessories category drove year-over-year sales growth.

Our recent women’s wrap offerings resonated with guests and we plan to build upon this success with the addition of women's shawls. Additionally, we successfully expanded our accessories category to include larger assortment of footwear and headwear.

Guest responded well to our harvest and Halloween themes, which were on the floor much of the first quarter and exceeded our sales expectations. As a result, we are seeing better sell-though and reduced markdowns on falls season décor.

Our Christmas themes are off to a good start, we believe we are well-positioned for the holiday season and our stores have stocked with a broad and unique assortment of décor and gift items. However, we are mindful that this could be a challenging consumer environment this holiday season.

On the marketing front, during the first quarter, we ran five weeks of national cable advertising extending our handcrafted by Cracker Barrel Campaign with two new commercials, which highlighted the variety of our menu, our value and the experiential atmosphere at Cracker Barrel.

The second quarter will include a total of six weeks of national cable advertising, mirroring our prior year post media schedule.

In addition to national television advertising, we have identified opportunities to more effectively reach the Hispanic market, during the finally week of the quarter we launched an advertising campaign in the Florida and Southwest markets targeted to this demographic.

The campaign includes seven weeks of local Spanish television advertising, both local and online radio, plus social and digital Spanish language marketing. We are excited about this growth opportunity and plan to continue to focus on this important market segment in coming quarters.

Another unique component of our marketing mix is our music program which affords us the ability to provide diverse offerings across multiple music genres and demographics. The first quarter included an exclusive CD offering from the famed country music band Alabama.

In the second quarter we shifted our mix to artists who are better reach with younger consumers like the GRAMMY Award Winning our cappella group Pentatonix. Our efforts to increase the use of social and digital media to extend the Cracker Barrel experience and reach our guests outside the store gaining momentum through collaborations like this.

Pentatonix content was featured in our Facebook, Twitter and Periscope channel resulting in positive response from and growth in our social media followers. We’re pleased with the level of engagement generated with users of our five-star rated Cracker Barrel game app which launched at the beginning of the first quarter.

We believe the new app which includes Cracker Barrel brand imagery throughout reinforces our values of wholesome family fun. To keep the visuals fresh and further engage users, we’ll regularly update the games to incorporate seasonal content. Now I’ll talk specifically about our operations initiatives.

We’re pleased with the success of the cost savings initiative we rolled out in the prior year and that further supported our commitment to drive improved operating margin targeted at $10 million reduction in operating expenses in fiscal 2016.

During our biannual manager conference and training event which was held in September, we introduced and trained our field leadership on several 2016 cost savings initiatives including targeted food management program.

This initiative includes back-of-the-house process improvements, additional focus on food reporting and analytics and improved food auditing processes.

Armed with new analytics and increased visibility into food waste, our stores have begun to realize savings in the restaurant cost to decline and we anticipate further savings driven by this initiative. We are excited about this opportunity and we’ll speak further to this and other initiatives throughout the year.

So in conclusion, while the general environment appears to be more challenged than it was at the begin -- at the end of our prior fiscal year, we believe we have the right menu, marketing and margin initiatives to achieve success in fiscal 2016 and to continue to create value for shareholders.

And with that, I’ll turn the call over to Larry to discuss our financials..

Good morning everyone and thank you, Sandy. I would like to begin by discussing our financial performance for the first quarter of fiscal 2016 and then our outlook for the 2016 fiscal year.

For the first quarter of fiscal 2016, we reported net income of $40.9 million or $1.70 per diluted share, a 19.7% increase compared to prior year earnings per diluted share of $1.42. Our revenue in the quarter was $702.6 million, an increase of 2.8% compared to revenue of $683.4 million in the prior year quarter.

Our restaurant revenue increased 2.8% to $562.3 million and our retail revenue increased 2.7% to $140.4 million. Our comparable store restaurant sales in the quarter increased 2.5% as an increase in average check of 3.2% was partially offset by a 0.7% decline in traffic.

The increase in average check reflected menu price increases of approximately 2.8% and a favorable mix impact of 0.4%. Our comparable store retail sales increased 2.4%. Our total cost of goods sold in the quarter was 31.7% of revenue, an 80 basis point improvement from the prior year quarter.

Our restaurant cost of goods was 27.5% of restaurant sales compared to 28.1% in the prior year quarter. This 60 basis point improvement was primarily due to the positive impact of higher menu pricing. On a constant mix basis, our food commodity costs were approximately 40 basis points higher in the quarter than in the prior year quarter.

Our retail cost of goods sold was 48.6% of retail sales compared to 50.4% in the prior year quarter. This 180 basis point improvement was primarily the result of lower mark-downs. As we move into the second quarter, we expect to see some increase in our mark-down spend.

Our retail inventories at the end of the quarter were $145.3 million compared to $136.7 million in the prior year quarter. This 8.6% increase is the result of earlier receipt of holiday merchandise and a temporary change in the entry port for our merchandise.

Our labor and related expenses were $244.3 million or 34.8% of revenue, a reduction of 70 basis points compared to the prior year quarter.

This year-over-year improvement is due primarily to 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 and state unemployment tax favorability.

Our other store operating expenses in the quarter were $135.7 million or 19.3% of revenue compared with other store operating expenses of $130.2 million or 19% of revenue in the prior year quarter.

This year-over-year increase of 30 basis points is due primarily to expenses related to our previously discussed managers’ conference and training event, partially offset by reductions in utility expense.

Store operating income was $99.6 million in the first quarter or 14.2% of revenue compared with store operating income of $88.6 million or 13% of revenue in the prior year quarter, an improvement of 120 basis points.

Our general and administrative expenses in the quarter were $34.3 million or 4.9% of revenue compared to G&A of $33.2 million or 4.9% of revenue in the prior year quarter.

Our operating income was $65.3 million or 9.3% of revenue compared with operating income of $55.4 million or 8.1% of revenue in the prior year quarter, an improvement of 120 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.

This reduction is the result of the expiration of higher price swaps and their replacement with lower price swaps. Our effective tax rate for the first quarter was 33.8%, compared to an effective tax rate of 33.3% in the prior year quarter. Our balance sheet continues to be strong.

We ended the quarter with $127.5 million of cash and equivalents, compared to $105.9 million at the end of the prior year quarter. During the first quarter, we repurchased 100,000 shares of common stock in the open market at an aggregate cost of approximately $15.7 million. Our total debt is $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. With the current challenges in the consumer environment, we are seeing a continuation of the negative traffic trends that we saw in October.

Therefore, we are reducing our comparable store sales guidance for the year and now anticipate increases in comparable store restaurants and retail sales in the range of 2% to 3%. We expect the profit impact from our reduced sales outlook to be largely offset by an expected moderation in commodity cost increases.

Therefore, we are reaffirming our previous earnings guidance and 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.

We expect to open seven new Cracker Barrel stores, all of which will likely open in the second half of the year. We now expect increases in food commodity costs on a constant mix basis in the range of 2.5% to 3% for the fiscal year.

This reduction in our commodity inflation expectation is due primarily to the reduction in beef prices and some moderation of the anticipated increase in the pricing of liquid eggs.

We have locked in our pricing on approximately 50% of our commodity requirements for the balance of fiscal 2016, which is approximately flat with a loss percentage at this time last year. We expect our operating income margins for the year to be in the range of 9% to 9.5% 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 $76 million and $77 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 approximately $110 million. For the second quarter of fiscal 2016, we expect to report earnings per diluted share of between $1.70 and $1.80.

Our second quarter guidance reflects the leveraging impact of anticipated declines in classic and the anticipated timing of advertising spending. And before I turn the call over to the operator, I just have to note that our anticipated earnings for the second quarter, is a range of $1.80 to $1.90. I apologize for misspeaking.

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

Thank you, sir. [Operator Instructions] And we will take our first question from Jeff Farmer from Wells Fargo..

Thanks.

Larry, you touched on it for the full year but given what we saw in October and the challenging same-store sales compressions that you are currently facing, does that $1.80 to $1.90 guidance range for the second quarter reflect a potential same-store sales decline in the quarter?.

Jeff, we had a very strong second quarter of 2015 fiscal year, with traffic was a positive 4.7% and our comparable restaurant sales were a positive 7.9%. We are currently anticipating in the second quarter that we are going to have a negative comp store traffic but would be offset by menu pricing.

And we anticipate a moderately positive comp store sales in the second quarter. I'm going to -- and I will note that that basically assumes no extreme weather events in the second quarter. And since the second quarter includes both December and January, of course cold weather is often a factor and is very difficult to factor in.

I’m going to turn it over to Chris Ciavarra who is going to address some of the specific marketing plans that we have in place to help drive sales in Q2, Chris..

Thank you, Larry. So let me talk little bit about Q2 and then the balance of the year. As Sandy noted, we started our holiday promotion a couple of weeks ago, which included limited time offers for breakfast, lunch and dinner.

I think you all know we have a very successful Thanksgiving week this week with both in-store and off-premise with a large party off-premise offer. We look to extend that in the select markets this coming Christmas to drive some incrementality. Our spotlight music program is continuing to generate news and appeal.

We have three different things in market right now with the Pentatonix, Kimberly Schlapman of Little Big Town and a tour sponsorship with Michael W. Smith.

And then last from a media perspective, we’re running 10 of the weeks this prior year, but we do believe our buy has improved on a year-over-year basis in terms of number of weeks programming and added value.

Thinking about the balance of the year, we’re really mindful that we need to be bringing into market really sharp price points and unique news into the marketplace. So from a price point perspective, we will bring a value-oriented offer to market, focusing on dinner with some specific news tied to it.

And then on a unique basis, we’ve got a very popular guest favorite promotion we run in the past that we’re excited to bring back a little bit early to our guest in the course of the year. We’ll support both of those with promotional and advertising support.

On a media basis, I want to take a minute and just talk about what the balance of the year looks like. For the first time, we will be running media this coming spring. We’ll take a minute and talk about that despite linear other similar TV plays.

It will be four weeks instead of typical six, but similar in terms of scheduling, programming and general weight level. We’ll continue our media slate in the summer. And like a holiday buy, expected to have improvements around programming and added value.

And then last, our music calendar is set for the balance of the year and we have more news coming tied to up and coming artists like the Pentatonix, as well as more stable large releases. Thank you, Jeff..

So, Sandra, just one quick follow-up. You did call out the challenged consumer spending during the quarter. I think, October you mentioned was even more challenged.

So the question becomes, do you expect consumer expenditure remain challenged as you move forward? Is there really any reason to believe that the dynamics going to change in the near-term?.

We certainly spend a lot of time here trying to understand the consumer and they really are right now, it’s a bit of a mystery. The variances to some degree depend on which consumer you’re focused on, as it appears to us to be a really mixed macro environment.

Although, some labor headlines, terms of number of job added and unemployment rates have been strong, other measures would suggest that we’re now back to pre-recession levels and if you're in certain states and in certain industries, you're probably not feeling as confident about your job or your hours as you were before.

On the one hand, gas prices have given consumers additional disposable income. But at least, for some consumers, we believe they’re using that to either pay down their own personal debt or I know there’s a lot of discussion about whether it’s being used to purchase durable cars and things like that.

So it’s hard to completely understand what the consumer spending is going to be like as we go into this really important holiday season. The sentiment is also difficult to get a bead on. It appears as though lot many consumers are angry.

They all seem to be not necessarily at the same thing, lots of concern about global issues, concern about layoff and so on. So I would say that right now, the consumer is a mystery..

Okay. Thank you..

And we’ll take our next question from Alton Stump with Longbow Research..

Yeah. Thank you and good morning..

Good morning, Alton..

Yeah. Just two questions, Sandy, as your comments about discounting picking up and obviously that make sense after a challenged October and it sounds like to date in the current month for industry of restaurant and then casual players.

Just as far as your sense, is that something that you think will continue over the course of the fiscal 2Q, overall discounted being higher than average?.

Alton, I don’t have any reason to believe it is going to abate. In the environment that we’re in and we believe the industry with a very challenged consumer, we’re certainly all fighting for market share.

We believe that in times like these what consumers are looking for are brands they trust, which we believe we all want and experiences that they can have confidence in, which is another thing that we think we do extremely well, which is delivering the guest experience.

But I think it's a very tough environment out there and that many competitors are responding to it by offering deals and by supporting those with a lot of media..

Thanks, Jess. And I understand -- a quick follow-on to that -- and maybe this is a question for Chris. But if you do assume that we are in fact, going to see higher discounting over the course of 2Q, obviously Cracker Barrel has always had a strong position as offering good value versus most of it, if not all of peers.

So given that, how much do you expect or would you plan to respond to that overall competitive discounting as it pertains to the overall price point at your own concept?.

Yeah. So, I think, in Cracker Barrel overtime to your point has enjoyed a very strong value perception in the marketplace. We have destinations on the menu that specifically allow us to focus on our affordability, so I’m thinking of categories like our Weekday Lunch Specials and Country Dinner Plates.

And so we’ve leveraged those overtime and intend to candidly go back to them and utilize assets like our Billboard programs to really highlight the affordability of those things. So we’ve done on the path of success. We can drive more news and energy into those categories of limited time offers.

So I think that’s the type of thing you should be expecting from us..

Got you. Make sense. That’s all I have. Thank you..

We’ll now take a question from Michael Gallo from C.L. King..

Hi. Good morning.

Just a couple of questions and I know that obviously the environments gotten a little bit softer? But I was wondering to what degree you are seeing just a shift or down shift back down to some of the bigger players and QSR like McDonald that have been obviously aggressive around all-day breakfast? To what degree you feel the pricing you have taken has hurt you from a price value standpoint and with the commodity basket coming down, whether ultimately you think that the price increases that you have in the menu might be too aggressive for what the current consumer environment is?.

Thanks..

I’ll speak to the pricing and I’ll ask Chris to speak to maybe specifically what we believe to be going on with, certainly, McDonald’s all-day breakfast. We have a very rigorous approach to our pricing strategy and our increases and that approach includes testing.

And I when I say testing each price increase, we have a group of whole back stores that don't get that increase that we believe will being analog to the price increase in the group and we use that to measure the consumer behavior both traffic and sales to see whether we are in fact pulling through pricing and what affects that its having.

And we continue to become a very thoughtful about where and how we do the pricing, how we -- what on the menu changes and we are comfortable that we are continuing to pull through our pricing. I’m going to turn it over to Chris and let him speak to the QSR and McDonald specifically..

Thanks, Sandy. Lets me talk a little bit about McDonald, and specifically the breakfast all-day lunch and kind of our perspective on that as we brought that to market, I think you all know, Cracker Barrel enjoyed to offer breakfast all-day as part of our core since we opened.

It is something that we regularly message on candidly on our Billboard, television and social properties. So when McDonald did launch breakfast all-day, they actually tested it at one of the test market right here in Nashville which we observed pretty closely and do not believe during that that we saw an impact on our sales.

Clearly, it is a big initiative for McDonald that putting a lot behind it. So we are continuing to monitor it and if we think candidly has an impact on us then we will adjust our marketing mix accordingly..

Thank you..

And we will now take a question from Gregory Francfort from Bank of America..

Hey, guys.

Can you talk, I guess, one, just, what was wage inflation during the quarter? And then as you look across your different markets on wages, are you seeing certain wage pressures by different markets hitting it at different levels, just any color on that would be helpful?.

Yeah. As compared to the prior year’s quarter, we saw wage inflation in the 2% range Greg. And we are seeing some regional variations on that which appear to be driven a lot more by conditions in local labor market than it does by changes in that state or local minimum wage loss..

Okay. That’s helpful.

And then, just, I think, you talked about certain states and certain industries seeing a weaker environment and is Texas with the oil market and the oil exposure and I guess some of the other markets that have heavy oil and energy exposure? Are they weaker for you guys? I think the industry we have seen somewhat of a weakest there and I don’t know if, are they negative or are they weaker than your overall comps?.

Yeah. We have seen some very minor differences in the Texas market as compared to the concept and that -- that prior to -- but it just -- and a general rule our sales performance in the oil patch has been remarkably similar to everywhere else..

Okay. That’s good to hear.

And then, just, can you talk about, I guess, the strength of the Retail business in October and maybe what drove that improvement in trends? And then also the dynamic of e-commerce and how it fits into your business and maybe how that fits into the outlook for the second quarter, it seems like we have been hearing pretty choppy trends from a lot of the retailers? I am just wondering what you guys see on that front?.

Yeah. Greg, I will start and then let Larry maybe add to this, I was pleased with the Retail performance in the second. I think our merchants did a really good job on the assortments in the stores.

We have very strong sales and two important things for us, which is what we call harvest, Thanksgiving seasonal related products, as well as our Halloween assortments, both of those this year, I think, were both strong and pull that -- much more full price. Our concept has some built in traffic.

So our merchants have the opportunity to offer the -- offer to our guests as they come in to eat with us and I think they have done a good job of a variety of products that are unique, fun, nostalgic, the price point is very affordable, you don’t have to give yourself a lot of permission in order to buy it.

So I feel good about what we were able to do in the first quarter and I am pleased with products in the stores currently and we will see whether the consumers are there to buy the Christmas gifts.

Larry?.

Yeah. As noted, as we look forward to the second quarter, we anticipate that we will have somewhat higher margin spend than we had in the first quarter of 2016 fiscal year which we think is likely to help to support retail sales but maybe at some cost in terms of our retail margins.

I want to note additionally, I believe I said in my remarks that our anticipated tax rate for the full fiscal year is in the range of 32% to 33%. Our actual expectations as we noted on this morning’s press release is in the range of 31% to 32%..

Okay. Got it. Thank you..

I will now take a question from Robert Derrington from Telsey Advisory Group..

Yeah. Thank you. Chris, could you run through with us for a second one more time the spending-buying in the plan as we look at the third quarter and fourth quarter. I think you mentioned that there would be a more value-priced product promotion.

Is that in the third quarter that it’s planned and is that -- during that quarter, I thought there was an extra four-week period of advertising? Could you make sure and clarify that for me?.

Sure. So let me start with the offering specifically. So moving basically into the middle of -- around February, we will begin to bring the market category that is -- focus on a category that’s much of a price focus for us and attach news to it and that should run for few months for us.

We will support that with national media that was part of our plan. That will be a four-week buy specifically.

And then as we move into summer, we will bring news with a very popular item that we brought in the past and that will contain and support or have media tied to it as well, similar to what we’ve historically done, same number of weeks, similar ways, better programming, more added value, some other component like Sandy talked about with Hispanic, things like that..

Okay. So I thought I heard in maybe prior conference call that the third quarter was going to have an extra period of advertising.

Is that -- did I misunderstand that?.

No. This is that. So if I’m not being clear, I apologize. This is the addition of that flight into Q3..

Okay. All right. I got you. Okay.

And then thinking along that line, should we anticipate that value offering will have a -- instead of a positive effect on the average check potentially negative effect year-over-year?.

Yeah. So two things just -- I think you know this but just as a reminder, so that’s new --that’s new advertising for us on a year-over-year basis on Q3. So we look to that to be a pick up. From a check standpoint, when we’ve done this in past, the way we’ve often done is that we include some core menu items that we call margin drivers.

We try to offset any erosion on topline and bottomline. So that’s net neutral…..

Okay..

…on a check basis..

And ladies and gentlemen, this does conclude today’s conference. We do thank you for your participation. Have a wonderful rest of your day..