Cracker Barrel Old Country Store, Inc.

Good day and welcome to the Cracker Barrel Fiscal 2020 Third Quarter Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two. Please note, Today's event is being recorded. I would now like to turn the conference over to Adam Hannon, Manager of Investor Relations. Please go ahead.

Good morning, and welcome to Cracker Barrel's third quarter fiscal 2020 conference call and webcast. This morning, we issued a press release announcing our third quarter results and providing an update regarding the impact of the COVID-19 pandemic on the company's business. This press release and on this call, we will refer to non-GAAP financial measures for the third quarter and nine months ended May 1st, 2020. Adjusted to exclude non-cash asset impairment charges related to store assets, expenses related to COVID-19, impairment charge related to our equity investment in Punchbowl Social, and the related tax impacts of these items. The company believes excluding these items from its financial results provides investors with an enhanced understanding of the company's financial results. This information is not intended to be considered in isolation or as a substitute for net income or earnings per share 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 to me this morning are Cracker Barrel's President and CEO, Sandy Cochran, Senior Vice President and CFO, Jill Golder, and Vice President of FP&A and CFO of Emerging Brands, 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, 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. They are described in detail in our reports that we file with or furnish 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 may be required under applicable law. I'll now turn the call over to Cracker Barrel's president and CEO, Sandy Cochran. Sandy?

Thanks, Adam. Good morning, everyone, and thank you for joining us. I hope you and your families are staying safe and healthy during these trying times. I want to begin by extending a heartfelt thank you to our employees, both in the field and at the home office, who throughout this difficult period have done an incredible job responding and adapting to the rapid and significant changes to our industry and our business. In particular, I want to say thank you to our operators who've been tirelessly working to support our employees, our business, and our mission of pleasing people. I've been inspired by their extraordinary work and resilience during this most difficult time What I've witnessed from our employees gives me confidence that we will not only succeed through this, we will come out of this in an even stronger position. We started the third quarter pleased with the momentum we had coming out of the second quarter. However, in mid-March, we quickly pivoted to address the unprecedented challenges presented by COVID-19 and to bolster liquidity. Fortunately, I believe our existing business priorities such as accelerating off-premise and menu innovation are just as relevant in the current and future environment as they were prior to the pandemic. As our stores began closing their dining rooms in mid-March, we took numerous actions over the following weeks to ensure the health and safety of our guests, to support our employees, and to adapt to the new business realities. worked closely with health authorities and we implemented elevated health and safety measures and in many cases we were taking precautions that go above and beyond jurisdictional requirements. Measures that we've implemented include providing face masks for employees and hand sanitizers for employees and guests, wellness screening for employees including taking their temperatures, Sealing packaging for off-premise orders, frequently cleaning high touchpoint areas, including thoroughly cleaning tables and chairs in between sittings, and implementing social distancing measures throughout the entire guest journey. From a menu standpoint, we implemented a limited menu while our dining rooms were closed to reduce the amount of required labor and to reduce food waste, while also introducing new off-premise offerings proved to be popular, such as family meal baskets and a smaller heat and serve offering. We also implemented curbside delivery, accelerated the rollout of a new third-party delivery provider, and we pivoted our marketing messaging to focus on off-premise. To support our employees during this difficult period, we provided short-term pay to our hourly store employees as their hours were reduced due to dining room closures, and we offered Daily Free Meals to Employees. We also continued benefits eligibility for those who previously qualified based on hours and extended the payment windows for benefit premium payments. Additionally, we partnered with other large employers to provide our employees supplemental employment opportunities. We also provided one-on-one assistance for employees applying for unemployment benefits. Not only do we believe these actions align with our people promise, We believe these are worthwhile business investments that will help maintain strong retention and employee engagement. While all of our stores have remained open during the pandemic, from late March until late April, all stores were limited to off-premise only. In addition to the closed dining rooms, we believe our sales challenges have been further exacerbated by the fact that the breakfast and lunch day parts, which account for a significant portion of our sales, were especially impacted. Additionally, travel occasions, which also represent a meaningful part of our business, have been greatly reduced in recent months. Despite the sales challenges, I'm pleased with the progress we've made on business priorities, such as accelerating on-premise and introducing menu innovation. As part of our focus on cash conservation, we took a number of actions, as we outlined in our 8Ks and which Jill will also speak to. Some of the actions are temporary in nature, such as an employee furlough and the suspension of capital expenditures, and we look forward to welcoming back the furloughed employees and resuming postponed initiatives. Other actions, such as our organizational realignment of the field and home office, strengthened our business model, both in the short term and the long term. We believe these sustainable business model improvements will result in annualized ongoing savings of approximately $50 million. As we've reopened dining rooms, we have transitioned stores to menus that include greater variety compared to the limited menu of our off-premise only stores. We are appropriately balancing menu breadth with labor productivity and food waste amid the still depressed traffic levels. Staffing our stores with experienced employees has also been a priority during the reopening phase. I believe the employee support actions I referenced earlier, combined with our strong culture and our efforts to stay in touch with employees, have facilitated the effective restaffing of our stores as traffic has improved. I'm pleased that the stores where dining rooms are open, approximately 70% of our Par 4 employees have returned to work. I believe our ability to restaff with experienced employees will provide an advantage and we're looking forward to welcoming back many more of our employees. I've been encouraged by the recent sales trends as we've reopened dining rooms and welcomed back guests into our stores. We've seen steady improvement in our weekly comparable store restaurant sales trends. We've reopened dining rooms and I'm optimistic that we will sustain this positive momentum. Looking ahead, we'll continue to focus on business priorities such as driving top-line growth by introducing signature craveable food and accelerating our off-premise business, and we'll continue to enhance the employee and guest experience. We'll remain focused on conserving cash in the near term, but we'll balance this approach by making select investments to support our business. Prior to the pandemic, we were in the process of rolling a major menu evolution initiative that included simplification as well as the introduction of new offerings. As we've reopened dining rooms, we've been migrating stores to the new menu, and we plan for all stores to transition to it in the coming months. In addition to introducing offerings such as a new chicken pot pie and Saturday fried pork chops, We believe the new menu results in increased consistency and execution and that it better highlights our signature offerings in abundance, value, and variety. I've been pleased with the results so far, and both guests and operators have responded positively. Another exciting initiative is the addition of a beer and wine table-side beverage program. We conducted extensive research and determined guests had a strong interest in beer and wine options to provide additional variety to make their visits and occasions more enjoyable. Additionally, the findings also indicated this was a way to reduce the veto vote, especially during weekend dinner. As part of the limited beer and wine selection, we're also featuring orange and strawberry mimosas, which have been quite popular. The test is currently in approximately 20 stores. We've been pleased with the guest response and look forward to expanding the test. We expect that off-premise demand will remain elevated for the foreseeable future and that we'll continue to see strong growth in this business. We continue to leverage successful off-premise initiatives such as curbside delivery, third-party delivery, and family meal baskets. and we will be working to optimize and enhance our off-premise operations. We continue to invest in technology initiatives that enhance the guest experience and serve as enablers for sales drivers and business model improvements. We believe the pandemic and the growth in off-premise has accelerated the adoption and acceptance of digital usage and has further emphasized the importance of convenience. We've been applying recent learnings to our digital strategy and are accelerating our work in this area. For example, we're in the process of rolling out Pay-in-App, which allows guests the option of convenient contactless payment via their mobile device. In the coming months, we're also preparing to launch what we refer to as the Digital Store, which is a new digital property that provides an integrated and enhanced user experience for guests ordering food and retail. We believe investments such as these provide increased convenience and allow us to extend our hospitality in new ways. Our marketing messaging will focus on driving awareness of our reopened dining rooms, as well as our curbside and third-party delivery, while also reinforcing our everyday value. We've increased our use of our social and digital channels, which are more flexible and efficient and have proven effective in recent months. continue to believe that billboards and TV are also effective ways to drive awareness and frequency, and our fourth quarter marketing plans include some national TV. Additionally, we'll be updating our creative on our billboards in the coming months. We remain excited about the future of Maple Street Biscuit Company. We believe they experience less severe declines than Cracker Barrel due to their higher off-premise mix and the fact that fast casual segment was less impacted than casual dining. Despite the challenges presented by the pandemic, the integration has progressed well and I've been impressed with how they've managed through the crisis. Several of the former Holler and Dash locations have been converted to Maple Streets and while early, I'm pleased with the performance of the converted stores and will be completing the remaining conversions in the coming weeks. The resilience they've demonstrated in recent months has reinforced the attractiveness of their brand and their business model, and we look forward to accelerating their growth. Unfortunately, the Eatertainment segment and Punchable Social were hit especially hard by the pandemic and the immense challenges it presented, which resulted in the closure of all their locations. After extended discussions, and in keeping with our disciplined approach to capital allocation, and our strategy to focus our resources on the core brands during the pandemic, we made the difficult decision to not provide additional funding. While there continues to be significant uncertainty and we expect our industry will be challenged in the coming months, we're very confident in the future of our company and in our ability to drive long-term value creation. Cracker Barrel remains one of the most differentiated brands and I believe our scratch-made food, everyday value, genuine hospitality and the trust guests have in us to deliver on their expectations will continue to make us a preferred dining destination. Additionally, I firmly believe we have the resources and strategies in place to successfully navigate through this environment, strengthen our business and drive shareholder returns. Before turning it over to Jill, I want to once again express my gratitude to our employees. I know this has been a difficult time. There are many challenges remaining, but we will get through this and we will come out of this even stronger than before. And with that, I'll turn it over to Jill.