Good morning, and welcome to the Cracker Barrel Fiscal 2019 First Quarter Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions]. After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note this event is being recorded.

I would now like to turn the conference over to Adam Hanan, Manager of Investor Relations. Please go ahead..

Thanks, Bill. Good morning, and welcome to Cracker Barrel’s first quarter fiscal 2019 conference call and webcast. This morning, we issued a press release announcing our first quarter results and our outlook for the 2019 fiscal year.

In this press release and on this call, we will refer to non-GAAP financial measures for fiscal 2018 adjusted to exclude the impact of the 53rd week that occurred in our fourth quarter and a one-time non-cash reevaluation of the company’s net deferred tax liability that occurred in our second quarter.

The company believes that excluding these tax effects from its financial results provides information that may be more indicative of the company’s ongoing operating performance while improving comparability to prior periods.

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

On the call with me this morning are Cracker Barrel’s President and CEO, Sandy Cochran; Senior Vice President and CFO, Jill Golder; Senior Vice President of Marketing, Don Hoffman; and Vice President and Principal Accounting Officer, Jeff Wilson. Sandy will begin with a review of the business and Jill will review the financials and outlook.

We will then open up the call for questions for Sandy, Jill, Don and Jeff. On this call, statements may be made by management of their beliefs and expectations regarding the company’s future operating results or expected future events.

These are known as forward-looking statements which involve risks and uncertainties that in many cases are beyond management’s control and may cause actual results to differ materially from expectations. We caution our listeners and readers in considering forward-looking statements and information.

Many of the factors that could affect results are summarized in the cautionary description of risks and uncertainties found at the end of the press release and are described in detail in our reports that we file with or furnished to the SEC.

Finally, the information shared on this call is valid as of today’s date and the company undertakes no obligation to update it, except as maybe required under applicable law. I’ll now turn the call over to Cracker Barrel’s President and CEO, Sandy Cochran.

Sandy?.

Good morning. Thank you, Adam. This morning, we announced positive comparable store restaurant and retail sales and we reported earnings per share of $1.96. Our sales trend reflected an improvement versus the prior quarter and we improved our comparable restaurant sales growth versus the industry.

While we made progress in addressing recent traffic declines, we still have much work remaining as we seek to improve performance through a heightened focus on the guest experience, our menu and everyday value and the continued expansion of our off-premise business.

Jill will review the financial results for the quarter as well as updated full year expectations, but before she does I want to speak to some of the highlights from the quarter. As I discussed on our last call, our plans for improving traffic included increased focus on highlighting our everyday value platforms.

In addition, this quarter we also introduced new news by featuring our Biscuit which is a signature item our guest love and extending them in new ways through offerings such as our Biscuit French Toast with sweet blackberry topping and Biscuit Beignets with butter pecan sauce.

Our new Biscuit offerings reminded guests of what they love while also providing the variety that they seek. During the first quarter, we implemented our messaging strategy of focusing more on unique menu offerings and on placing a greater emphasis on value and price point messaging.

The messaging was centered on our everyday value and our limited time only Biscuit offerings and we aired national TV media to support the quarter.

As part of our integrated marketing campaign, we’ve cross promoted in our retail shop by highlighting Biscuit-related products to further build excitement and increase interest, and I’m pleased with the results from our menu and marketing campaign.

Moving to off-premise, it performed well in the quarter and increased over 100 basis points as a percentage of sales compared to the prior year. We added several catering sales managers to key markets bringing our total to nearly 15, and we continued to expand our catering delivery coverage.

We now have approximately 180 catering vans in over 25 markets. Turning to retail, I’m very pleased with our first quarter comparable store retail sales growth of 4.3% over the prior year, which was above our expectations. Guests responded well to our harvest and Halloween assortments, which were on the floor for much of the quarter.

As a result, we’re seeing much better sell-through and improved inventory levels on seasonal merchandize versus the prior year. Regarding new unit growth, we opened three new stores in the first quarter, including our second store in California.

We’ve already opened two additional stores in the second quarter bringing our total store count to 658 across 45 states. For fiscal 2019, we’re prioritizing a focus on the guest and employee experience to improve traffic and sales. We’ve aligned the organization on action steps based around our learnings.

We’ve increased visibility around the guest experience and the driving factors and our operations leadership has developed and begun implementing targeted action plans to drive improvement. Looking ahead as we continue into fiscal 2019, we’ll remain focused on our menu and value, the guest experience and the growth of our off-premise business.

I’m excited about our current holiday promotion which features Country Fried Turkey topped with pan gravy served with Green Bean Casserole and cranberry relish. Similar to the first quarter, we’re leveraging a guest favorite menu offering and extending it in new ways. This menu promotion was supported by national TV media.

The TV spot included new creatives and built on the food focus of our ad in the first quarter while also incorporating elements of our hospitality and brand imagery. We continue to make progress on our signature fried chicken initiative. We’re currently in nearly 200 stores and are on schedule to complete the rollout by the summer.

We remain encouraged by our early results. The second quarter is a key period for our off-premise due to the Heat n’ Serve holiday occasions and this year we made several enhancements to support our stores, grow this business and improve the guest experience.

We were pleased with the Thanksgiving Heat n’ Serve performance and we’re excited about the Christmas occasion. We’ll continue to leverage our catering sales managers and our expanded catering delivery, and in the second quarter we’ll be expanding our third party delivery.

Looking forward to retail, we’ve been encouraged by the initial performance of this year’s Christmas assortments, we’re well positioned for the holiday season and we’re focusing our merchandizing to highlight affordability with strong price points in the retail shop for giftable offerings.

Great Gifts assortment which provides outstanding value with all price points under $20 continues to resonate with our guests and highlights our whimsical approach to this assortment through items such as our top performing, oversized Plush Hedgehog and Llama.

By enhancing in-store assortments with unique décor and gifts for all ages, guests are finding ways to meet all their holiday needs at price points that easily fit within any budget.

In closing, I’m encouraged by the improvement in our sales and traffic performance in Q1 and I remain confident in our plans to build on our brand strengths and execute our business initiatives to drive sales growth.

Our short-term outlook remains cautious as we continue to believe it will take some time to fully implement our plans and reverse the traffic trends. With that, I’ll turn it over to Jill..

Good morning, everyone, and thank you, Sandy. I would like to begin by discussing our financial performance for the first quarter of fiscal 2019, and then our outlook for the 2019 fiscal year.

In this morning’s release, we reported first quarter net income of $47.2 million or $1.96 per diluted share compared to prior year earnings per diluted share of $1.92. For the quarter, we reported total revenue of $733.5 million, an increase of 3.3% when compared to prior year revenue of $710.4 million.

Our restaurant revenue increased 2.2% to $591 million and our retail revenue increased 7.9% to $142.6 million. Our total revenue increase was driven by positive comparable restaurant and retail sales and the opening of 11 new Cracker Barrel locations and one new Holler & Dash location since the prior year first quarter.

Cracker Barrel comparable store restaurant sales in the quarter increased 1.4% as average check increased 3% and traffic decreased 1.6%. The increase in average check reflected menu price increases of approximately 2% and a favorable menu mix impact of 1%.

The first quarter mix favorability was driven primarily by our Crafted Coffee program and our off-premise business. We were pleased with our off-premise business which grew in the high teens compared to the prior year and contributed to our comparable store sales results.

First quarter comparable store retail sales increased 4.3% with increases coming primarily within apparel and accessories. Moving on to expenses. Total cost of goods sold in the quarter was 30.3% of total revenue versus 29.7% in the prior year quarter.

Our restaurant cost of goods sold was 25.2% of restaurant sales, a 30-basis point increase versus the prior year. This increase was driven primarily by the impact of commodity inflation.

On a constant mix basis, our food commodity costs were approximately 4.3% higher in the quarter than in the prior year quarter, driven by increases in eggs, fruits and vegetables and pork. Our retail cost of goods sold was 51.3% of retail sales compared to 50.6% in the prior year quarter. This increase was primarily a result of higher freight costs.

Our retail inventories at quarter end were $136 million compared to $151 million at the prior year quarter end due to strong sales and effective inventory management. Labor and related expenses were $258.2 million or 35.2% of revenue compared with $248.1 million or 34.9% of revenue in the prior year quarter.

This 30-basis point increase was driven primarily by wage inflation and higher bonus expense. Other store operating expenses in the quarter were $152.5 million or 20.8% of revenue compared with other store operating expenses of $143.8 million or 20.2% of revenue in the prior year quarter.

This 60-basis point increase was the result of planned appreciation increases related to higher capital expenditures, asset write-offs and higher advertising expense to support our fall menu promotion.

Store operating income was $100.6 million in the first quarter or 13.7% of revenue compared with store operating income of $107.7 million or 15.2% of revenue in the prior year quarter. General and administrative expenses in the quarter were $38.9 million or 5.3% of revenue compared to $36.9 million or 5.2% of revenue in the prior year quarter.

Operating income was $61.7 million or 8.4% of revenue compared with operating income of $70.8 million or 10% of revenue in the prior year quarter. Net interest expense for the quarter was $4.3 million compared to $3.6 million in the prior year quarter.

Our effective tax rate for the first quarter was 17.7% compared to an effective tax rate of 31% in the prior year quarter. Turning to our balance sheet. We ended the fiscal quarter with $101.6 million of cash and equivalents compared to $120.2 million at the prior year quarter end. Our total debt was $400 million at quarter end.

With respect to our fiscal 2019 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 continue to expect total revenue of approximately $3.04 billion and comparable store restaurant sales growth for the full fiscal year in the range of flat to 1%. We now expect comparable store retail sales growth in the range of 1% to 2%. We continue to expect to open eight new Cracker Barrel stores in fiscal 2019.

We continue to expect increased food commodity costs on a constant mix basis of approximately 2% for the fiscal year with inflation being lower in the back half of the year compared to the first half. We have locked in our pricing on approximately 50% of our commodity requirements for fiscal 2019 compared to 45% at this time last year.

We continue to expect depreciation expense of approximately $110 million to $115 million for the year and net interest expense of approximately $17 million. We presently expect a GAAP effective tax rate for the fiscal year of approximately 17%.

We continue to anticipate that capital expenditures for the year will be approximately $160 million to $170 million. Taking these assumptions into account, we now expect full year operating income margin in the range of 9% to 9.3% of total revenue. We continue to expect to report full year earnings per share of between $8.95 and $9.10.

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

Thank you. We will now begin the question-and-answer session. [Operator Instructions]. The first question comes from Michael Gallow with CL King. Please go ahead..

Hi. Good morning..

Good morning..

Just a couple of questions. Just when I look at – obviously you had really strong average check in the quarter. I know some of that mix from not lapping the coffee program from last year. But when I look at the margin, they still were under considerable pressure in the quarter. I know the commodity headwind was a little bit bigger.

But I guess when I look at your reduction in the operating margin percentage going forward, it would seem that your retail environment has strengthened somewhat, it would seem your retail inventories are in pretty good shape and it would seem your commodity basket outlook hasn’t really changed.

So I just want to sort of square away why the reduction in the annual operating profit guidance on the margin side for the year given it didn’t look like the first quarter came in any differently than expectations? Thanks..

Great. Michael, this is Jill. Thank you so much for your question.

And so as a reminder at the beginning of the year we did guide to approximately 9.3% OI margin rate and that took into account the fact that we expected increased depreciation and a more normalized incentive compensation versus prior year, partially offset by our cost savings initiative of $10 million to $12 million. And so that all remains true.

So then the movement from staying approximately 9.3% in margin range to given a range between 9% and 9.3% is primarily driven by a couple of expectations. One, even though we didn’t update our wage inflation expectation, now we’re expecting to potentially be at the higher end of that range of 3% to 3.5%.

We’d also have some incremental bonus payouts compared to our original assumption. And then we’re continuing to invest in key areas. We have some training that we’re going to invest in, in order to focus on both the guest experience and employee experience and there maybe some other areas of investment to support some initiatives.

So those are baked into that number..

Great. Thank you..

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

Hi. This is actually JonMichael on for Greg. Another follow on to Michael’s question. I know last quarter, you have mentioned that you were taking a look at the employee experience and you mentioned some slipping in the guest satisfaction metrics.

So just wondering what you’ve done so far on addressing the employee experience and if that’s flowed through to any guest satisfaction metrics and what sort of training you have planned going forward to address those?.

JonMichael, let me take that. First of all, I want to emphasize that these are longer term issues that we’re addressing, so although we are trying to do certainly some short-term things, we also are approaching for us the employee experience which we believe drives the guest experience will be a little longer too.

To point to maybe some things that we particularly were able to address in the first quarter through year-to-date; on the employee side I would say that one of the key areas that our field leadership has done is get staffed.

I think they’ve done a better job this year of staffing the restaurants which set them up to handle the volume that we’ve seen and to complete the training as we head into the holiday period. So I feel good about the work they’ve done there.

Where we’ve got a number of plans to improve our training, which was already a strength for us, but we’re looking at our manager training, our district manager training as well as our hourly training and how to better incorporate technology we will be rolling that out sort of later in the year after we get through the holidays.

How we can do an even better job of leveraging our most senior hourly employees, our PAR IVs. So those are sort of the areas we’re focused on in the employee experience.

On the guest experience side, we really started by aligning the organization around the issue and trying to give our field leadership in particular some better reporting and some actionable insight about what was happening. As you might recall, one of the things I’ve pointed to was the inconsistency that we were seeing in our numbers.

So you might not have the same great experience as you were expecting each time you visited in every store on every shift. So we’ve started by focusing on our host. That was an area that we had seen some deterioration. Potentially some of that was the emphasis on our off-prem and the pressure that the off-premise business puts on the host position.

We focus there and we’re seeing improvements there. We shifted towards focusing on the attentiveness of our servers. That’s certainly an area that’s important and really almost particularly important in the holiday season when you’re coming to celebrate maybe with your family.

So our field leadership teams are understanding the problem better, they are working through the guest journey to understand and we’ll just have to continue to keep you updated as we move along. But I am optimistic with the plans and the progress that I think we’re making..

Thank you, Sandy..

The next question comes from Jake Bartlett with SunTrust Robinson Humphrey. Please go ahead..

Thanks for taking the question. This is Kevin Robinson on for Jake. Things seem like they are improving in the quarter, and if you could elaborate a little bit more on the key drivers? And also when did you launch the Daily Delights and what has been your experience with it? That’s my first question..

Well, I’ll start and then I’ll ask Don Hoffman to give you the flavor on Daily Delights.

I think that as I’ve said in the prepared remarks, a lot of the quarter just reflected the – we had a solid plan on the culinary side I think by emphasizing Biscuits and the extensions to Biscuits, the focus on reminding people about everyday value through the Daily Delights. I think the marketing plan to support that worked.

I was happy with the performance of the TV spot, for example. Certainly the retail performance would say that our buyers were successful in choosing a lot of things that people wanted to buy.

I think our field teams did a really good job of executing both in the dining room and as I mentioned we had better than expected growth in our off-premise business, pleased with where we are on the Crafted Coffee. We haven’t completely cycled that yet, but we’re seeing nice growth there.

We had a Pumpkin Pie Latte which was incredibly popular in the quarter. So there were a lot of elements that just came together I think to deliver it. Don, you want to speak to Daily Delights and --.

Sure. Kevin, we actually introduced the Daily Delights program last fiscal year in a limited number of markets. I believe we started in eight markets during one televised flight. We then progressed to become 10 and 11 markets over two more flights.

And then we rolled the program nationally this first quarter of our fiscal year with nationally advertised television support as well as adding it as a permanent feature on our core menus, including the introduction of a $4.99 sunrise breakfast specials..

Thank you.

My final question was just can you help us get a better sense of the impact from the hurricanes on your results?.

Sure. This is Jill, Kevin. From the hurricanes Florence and Michael were approximately 20 basis points negative impact in same restaurant sales on the first quarter. That is similar to last year’s hurricane within the quarter..

Okay. Thank you..

The next question comes from Alton Stump with Longbow Research. Please go ahead..

Good morning..

Good morning..

First, congrats on the quarter. Just wanted to ask about the competitive environment. I know a couple of your major casual dining peers have been pretty aggressive from a price discounting standpoint.

Did that continue over the course of first quarter? And if that does continue heading into holiday season, what your plans are which you talked about focusing more messaging force behind value during the first quarter, but just more color on kind of what your plan is if we do see the category stay what appears to be overly competitive at the moment?.

Well, we certainly – I guess maybe I haven’t noticed any reduction in the level of discounting in the environment. Our competitors are doing a very aggressive job of trying to both in some cases introduce value, in some cases remind people by bringing back old favorites and doing it with a lot of TV.

So we are continuing to operate in an environment that we think is focused on value and highly competitive. In terms of our own emphasis, we pivot in the second quarter away from using the TV to emphasize the everyday value. Our current spot, as I mentioned, is on the Country Fried Turkey.

This quarter tends to be one where our guests maybe spend a little more to, a little more indulgent in terms of what they choose to eat and what we see them mix in the menus. So I’ll let Don speak to how he’s going to continue in other ways to remind our guests about the value that is on the menu with the Daily Delights three categories..

Sure. As we’ve talked about in our last call, reinforcing everyday value is a significant part of our messaging strategy both outside and inside of our restaurants. So the Daily Delights program specifically is part of a broader program that provides price certainty to our guests during all dining occasions.

So we’re going to continue to communicate everyday value through in-store marketing support, our outlook program, emails, social as well as periodic television advertising. And we’re also going to be continuing to support or evaluate optimal price point offerings to stay competitive within the category and deliver a fair value to the guests.

So as an example that we’ve mentioned in the past, we’re going to be introducing a new fried chicken platform later this fiscal year and that fried chicken platform based on the rollout and testing we’ve been doing now has very strong value scores and great guest feedback on the bounce [ph] of proportions in the price offering..

That’s helpful. Thank you, Sandy and Don. And then I guess one quick follow up.

I think I haven’t talked about this a whole lot over the last couple – last conference calls, but how the stores doing out on the West Coast, of course you’re in California now, into Vegas or back in Northwest, just any update on how many stores you have out there now and kind of what you’re experiencing so far?.

Well, we’ve got two in California and I think our Oregon count now is five or six. But I’m certainly pleased with the California stores. When I say that I was – one of our California stores may have hit the top three or four of volume for Thanksgiving week.

So that certainly says there’s a lot of people out there who know the brand and are interested in using it. And we continue to have plans to open additional stores out there..

Great. Thank you..

Okay. [Operator Instructions]. The next question comes from Bob Derrington with Telsey Advisory. Please go ahead..

Yes. Thank you.

Sandy, what are you learning about your customer as you introduce some of these new products that are priced a little bit higher than your check average, for example? I think your signature fried chicken is priced above your check average overall and I think your – the new Country Fried Turkey which seems to be very well received also is priced above your overall check average.

Are you finding more consumer interest in more unique foods that they don’t mind paying a little bit more? Any kind of color would help?.

All right. So first of all, I think one of the strengths of the brand is the breadth of the menu and the ability for you to sort of experience the brand at all different price points. And we want to continue to emphasize that in our things like our Daily Delights and in fact it’s on the core menu.

We have introduced the southern fried chicken which is going to be inside the signature fried chicken platform at a price point that’s higher, and as Don mentioned we are monitoring the value scores and are very happy with how the guests perceive the value of the offering. It is very abundant and I think that we recognize that.

In terms of our holiday promotion, we find the second quarter to be a place where consumers are willing to spend a little more. Our Country Fried Turkey offering is higher and we are watching to ensure that we don’t slip in terms of value scores overall.

Although with both our Crafted Coffee and offerings like this and then some of our Biscuit offerings, to your point what we see is when we offer something unique, differentiated, delicious, craveable, our guests are willing to increase their check to get it..

That’s really helpful. As it relates to your Thanksgiving Day business, typically it’s a great launch into the holidays for the Old Country Store.

What piece of the business around Thanksgiving were you most pleased with? Was it the dine-in business, the execution? Was it the catering? Was it the heated meals to-go? What part of that was most satisfying from your view?.

Well, first of all, we haven’t had very much time to analyze everything about Thanksgiving. We’ll have a lot more maybe to talk about that in our next call. I can say I think our operators did an amazing job of managing the volume that we always have during this time of year through all the various channels.

So our dine-in, we don’t want to ever sacrifice the experience of the guests that come to eat with us in the dining room, but our Heat n' Serve business has been growing. It continued to grow this year. We did do some enhancements to try to make it easier to execute. A lot of stores had the ability to take payment at the back door.

We’ve expanded the use of Polar King, so the refrigeration to give the stores the ability to manage more volume. We improved our technology surrounding our ordering and a variety of things. So I’m very pleased with the results from that.

We also focused this year on catering through to maybe a business that wanted to do a holiday meal for its employees.

And catering service managers and our vans got used an awful lot for that kind of business which I think fits with the Cracker Barrel brand, it fits with the season, it fits with the type of meal that people – very comfort, hot party meal for their employees. So I’m pleased with how they were able to execute at that.

It really is a testament to our field teams that they were able to do so much in so many different areas. And we have plans to continue that through the holiday season – actually through the rest of the year as we grow this off-premise business..

One last question, if I may. On the signature fried chicken rollout, one thing that it sounds – we’ve heard is that the signature fried chicken is available through catering and it seems to be popular from what we’ve heard.

Can you kind of color around that in your perspective?.

Other than we agree. One of the – I think there’s a reason lots of people like things like that in a bucket and whole chains have been built on the idea that bone-in fried chicken is a terrific protein for to-go.

So in addition to the offering and the popularity that it’s having with our dine-in guests, we anticipate it also being a very popular offering on the off-premise side and are looking at how to design offers and containers to carry the fried chicken and highlight it. So it’s one of the reasons that we’re excited about the platform in the future..

That’s terrific. Thank you, Sandy..

The next question comes from Stephen Anderson with Maxim Group. Please go ahead..

Yes. Good morning. Just wanted to ask – this is really a follow up. You guys answered most of my questions but I do have a follow up on a comment that you made last quarter about higher gasoline prices are hurting the consumer. Now we’re seeing the opposite impact.

Just want to ask if you’ve to-date noticed anything about the consumer, maybe if they’re starting to come back now that many of your markets gasoline’s approaching maybe the low $2 range, just wanted to ask you to comment about that?.

Great. Thanks, Stephen. As we’re looking at the consumer, we saw it from an industry standpoint as well as our trends that the consumer was stronger in our first quarter. And some of that might have been benefitted from the effective gas prices, so that would have an impact on discretionary income.

We’ve talked about the fact that there has been lower unemployment and higher wages which could make the consumer happy. So these are all things that we think has contributed to that. So as we look out, we’re not sure how much of that will continue, because then there’s some minuses that add a little bit of uncertainty from a consumer seat on the bus.

Potentially increased interest rates could have an impact and then potentially tariffs that’s added a little bit of uncertainty out there with the consumer as well..

All right. Thank you..

This concludes our question-and-answer session. I would like to turn the conference back over to Sandy Cochran for any closing remarks..

Thank you all for joining us today. I’m encouraged by our start to the year and remain confident in our plans to continue to drive performance. We appreciate your interest and wish you all a safe and happy holiday season..

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