Cracker Barrel Old Country Store, Inc.

Good morning and welcome to Cracker Barrel Fiscal 2021 First Quarter Earnings Call. All participants will be in listen-only mode. If you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, I'll have an opportunity to ask questions. Please note that this event is being recorded. I'd like to turn the call over to Mr. Adam Hannon, Manager of Investor Relations. Please go ahead.

Thank you. Good morning and welcome to Cracker Barrel's first quarter fiscal 2021 conference call and webcast. This morning, we issued a press release announcing our first quarter results. This press release and on this call, we will refer to non-GAAP financial measures for the first quarter ended October 30, 2020. The first quarter non-GAAP financial measures are adjusted to exclude the gain on sale of assets related to the sale-leaseback transaction that occurred during the first quarter. Non-cash amortization of the asset recognized from the gains on the sale-leaseback transactions, expenses related to the proxy contest initiated by affiliates of SART Arbiglore, and their related tax impacts. The company believes that excluding these items from its financial results provides investors with an enhanced understanding of the company's financial performance. 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 with 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, 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. Any 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 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. Thank you for joining us and I hope everyone is continuing to stay safe and healthy. Today I'm going to begin my prepared remarks by briefly discussing our first quarter performance and then I'll touch on our Q2 plans, provide an update on our initiatives, and comment on our outlook. As you can see from our press release, we delivered first quarter results that significantly improved upon the previous quarter. Comparable store restaurant sales declined 16.4% in the quarter, improving from down 39.2% in the fourth quarter. I believe our results demonstrate that we have the right strategy in place and underscore the strength of our brand and the trust our guests have in us to deliver a great, safe experience. The health and safety of our guests and employees remains a top priority. Our elevated procedures remain in place and we continue to learn and modify our processes based on CDC, state, and local health department guidelines. I'm proud of how our teams continue to adapt to a dynamic situation while delivering hospitality to our guests, whether they're dining in our stores, on our front porch, or picking up in order to go. From a culinary standpoint, this past quarter was the first full quarter in which our new lunch and dinner menu is available in all stores. The updated menu introduced everyday offerings such as our new chicken pot pie, which we featured in Q1, and maple bacon grilled chicken, both of which have been very popular. We believe the redesigned menu reinforces our strong value proposition and underscores our variety, both of which are differentiators for our brand. The demand for off-premise remains strong. During the quarter, we continue to focus on leveraging successful initiatives such as third-party delivery and curbside pickup, enhancing our off-premise operations, and building brand awareness and affinity. Comparable store off-premise sales grew 122% compared to the prior year quarter and represented approximately 25% of total restaurant sales. compared to approximately 9% in the prior year quarter. I was very pleased with our retail performance in the quarter as we again delivered top line retail performance that exceeded our internal expectations. Comparable store retail sales declined 8.1% in the first quarter compared to a decrease of 32.3% in the fourth quarter. Decor, personal care, and furniture were among our top performing categories, and we also saw strength in our Christmas assortments as guests continued to look for affordable ways to celebrate the holidays in their homes during the pandemic. In short, we had a solid first quarter in which we saw improvements in both comparable store sales and in adjusted earnings per share compared to the fourth quarter. Additionally, we generated positive cash flow which strengthened our liquidity position and we ended the first quarter with nearly $600 million in cash. We were hoping the days of significant dining room closures and capacity restrictions were behind us, but unfortunately, in recent weeks we've seen nationwide resurgences and many of our stores have been impacted with closed dining rooms or more restrictions on capacity. It remains a fluid situation that could worsen, but regardless of the headwinds that we may face, I firmly believe that we are well positioned to navigate this environment and I have great confidence in our plans and initiatives. As many of you know, our second quarter is typically one of the busiest quarters and Cracker Barrel has always had a strong connection with the holidays. While this year's holiday season has already been and will continue to be starkly different than in years past, were focused on providing comfort, hospitality, and a safe experience for our guests, whether they're dining in our stores or enjoying our scratch-cooked meals in their homes. The second quarter is a key period of our off-premise business, and we believe the strong demand for our heat and serve offerings reflects the trust guests have in Cracker Barrel to provide a delicious homestyle meal during these special holiday occasions. In anticipation of families celebrating holidays differently this year, we introduced new offerings for those who are hosting smaller groups of friends and family. In addition to our traditional heat and serve feast that serves up to 10 for $139.99, we introduced a new, smaller heat and serve family dinner offering that serves up to six guests for $69.99. Additionally, our Country Fried Turkey, which is currently being featured in our seasonal menu promotion, is also available as a family meal basket for $39.99. We were pleased with the Thanksgiving week sales of those off-premise offerings and we're excited about our holiday ham heat and serve offerings that are available in December. In retail, we're focused on our core holiday themes, and on providing unique merchandise at compelling price points with an emphasis on value gift giving and seasonal decor. And we're pleased with the response that guests have had to our assortments. We are managing our inventories very closely. For stores with closed dining rooms and more severe capacity restrictions, our teams are really focused on sell-through of our merchandise And for stores with open dining rooms, we're focused on supplementing our assortments to ensure appropriate inventory levels, particularly given our strong first quarter retail sales and our conservative buys. It's an unusual dynamic, and I believe the team is doing a good job managing through this situation. I've already touched on our dinner menu and off-premise initiatives, and now I want to give you an update on several of our other initiatives, beer and wine, digital store, and Maple Street. We remain excited about our beer and wine initiative. Approximately 250 stores currently have beer and wine. For the stores with these offerings, beer and wine sales were approximately 1% of dine-in restaurant sales during the first quarter, which we achieved with limited merchandising, and we believe beer and wine sales have been highly incremental. We've been pleased with the early results of this initiative. and we believe that over the next 12 months, we can more than double the percent of beer and wine sales as a percentage of dine-in restaurant sales. We look forward to completing the rollout and we expect that by the end of the fiscal year, nearly 600 stores will have beer and wine offerings. At this time, we don't anticipate introducing beer and wine beyond those 600 stores, mainly due to the substantially higher cost of licenses in the remaining markets. Another key initiative is our digital store, which we launched in the first quarter. As a reminder, this is a new digital platform that provides an integrated and improved user experience, and it's foundational for future planned initiatives that we believe will further enhance the guest experience. We're encouraged by the initial results and looking forward to leveraging its capabilities going forward. We believe the digital store and other planned technology initiatives allow us to extend our hospitality in new ways, increase convenience, and empower guests by giving them more control over their journey. I now want to provide an update on Maple Street. I remain pleased with their performance and how they've navigated through the pandemic, which has reinforced our confidence in the brand and its business model. We remain optimistic that we will achieve targeted AUVs of over $1 million. Similarly to Cracker Barrel, Maple Street saw a strong improvement in their first quarter comparable store sales, which grew by approximately 20% compared to the prior year quarter. These results include the benefit of being open on Sunday in the current year. Their performance has been in line with our expectations and we're looking forward to introducing this exciting brand to many new guests and we remain confident that Maple Street will make a meaningful contribution to our results over the long term. In closing, I'm pleased with the strong improvement we saw in the first quarter results and with the progress we're making on key initiatives. We are, however, anticipating significant headwinds in the coming months and our outlook remains cautious due to the recent nationwide resurgences in COVID-19 and the resulting increased restrictions that have been imposed in many of our communities, as well as the related impacts to the economy and consumer spending. While we expect greater headwinds through at least the remainder of the second quarter, I'm highly confident in our ability to navigate through this uncertain environment for several reasons. First, we have a strong balance sheet and ample liquidity. Second, we've already demonstrated we can successfully adapt and manage through an environment with significant dining room closures, and now we have the benefit of our learnings and experience from earlier in the year. Third, our initiatives remain relevant, even in a more challenged environment, and while the recent resurgences may slow down some of our initiatives, we will continue to make prudent investments to drive long-term value creation. And lastly, and most importantly, we're a trusted, differentiated brand with loyal guests. And with that, I'll turn it over to Jill.