Cracker Barrel Old Country Store, Inc.

Good morning and welcome to the Cracker Barrel Fiscal 2021 Second Quarter Earnings Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the start key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I'd now like to turn the conference over to Adam Hannon. Please go ahead.

Thank you. Good morning, and welcome to Cracker Barrel's second quarter fiscal 2021 conference call and webcast. This morning, we issued a press release announcing our second quarter results. In this press release and on this call, we will refer to non-GAAP financial measures for the second quarter ended January 29, 2021. The second quarter non-GAAP financial measures are adjusted to exclude the non-cash amortization of the asset recognized from the gains on our sale-leaseback transactions and their related tax impact. 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 Interim CFO, Doug Cuvion, and Vice President of FP&A, Jeff Wilson. Sandy will begin with a review of the business, and Doug will review the financials and outlook. We will then open up the call for questions for Sandy, Doug, 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 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 it 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's continuing to stay safe and healthy. Before I begin, I'd like to take a moment to introduce Doug Cuvion, our Interim Chief Financial Officer. Doug's been with Cracker Barrel for over 20 years and has served in a number of executive positions, including corporate controller and principal accounting officer, and most recently as senior vice president of sourcing and supply chain. Doug has a deep knowledge of both Cracker Barrel and the restaurant industry, and I'm confident that his perspective and leadership will contribute to our success and help drive long-term value creation. Today, I'll begin my prepared remarks by briefly discussing our second quarter performance. Then I'll discuss some of our upcoming plans and provide updates on several initiatives. At the time of our last call, the industry had experienced an increased number of dining room closures and restrictions due to the nationwide resurgence of COVID-19. And this situation continued throughout most of our second quarter. As a reminder, the second quarter is a key period for us due to its special connection with the holidays and our historically higher seasonal volumes, which are driven in part by seasonal travel. As a result of the increased dining room closures and capacity restrictions, as well as the impact of reduced travel, our comparable store sales performance declined compared to the first quarter. Our margins were also pressured by the higher mix of retail and off-premise sales and operational inefficiencies related to the COVID challenges we face. Despite the volatile environment, I'm proud of how our teams provided our customary hospitality and a safe experience for our guests, whether they dined in our stores or enjoyed our scratch-made meals in their homes. We continued to make progress on our key initiatives, and we had a number of highlights during the second quarter, which I'd now like to speak to. First, we saw high demand for heat and serve, including our new, smaller family dinner offering, which proved to be very popular during the holidays. We believe the continued success of heat and serve reflects the trust guests have in Cracker Barrel to provide a delicious homestyle meal for these occasions, and we're pleased to be a part of so many of our guests' holiday celebrations. Second, we continued our menu evolution initiative by further simplifying and streamlining our menu. We believe this initiative, which has eliminated approximately 20% of our menu items since this summer, reduces complexity and increases consistent execution while still preserving the breadth and variety of offerings that our guests seek. Third, our Christmas and gift giving assortments helped us deliver strong retail performance despite the COVID impacted environment as our unique merchandise and compelling price value relationships resonated with guests. Additionally, I'm proud of how our retail teams continue to effectively manage inventory levels and a very dynamic environment, which helped us achieve higher margin rates compared to the prior year quarter. Lastly, Maple Street continued to successfully manage through the pandemic. They had a strong quarter, including several weeks of positive comparable store sales at the end of the quarter when compared to the weeks in the prior year, even when excluding the benefit of being open on Sundays. And their results exceeded our expectations. Looking ahead, we're optimistic about our sales recovery, which we believe will be driven by a decrease in COVID cases, more widespread availability of vaccinations, stimulus spending, and pent-up demand. And I now want to speak to some of the sales drivers we've planned to drive both dine-in and off-premise performance. We remain focused on menu innovation, and I'm excited that we'll be executing the third phase of our menu evolution initiative. This includes introducing new offerings to our core menu in the coming months, such as hand-breaded chicken tenders, which will include both a classic and sweet and smoky offering. We believe these items further extend our strong equity in the signature fried chicken platform that we launched in the back half of fiscal 2019. We continue to make progress on and are pleased with our beer and wine initiative. The beer and wine program is now available in approximately 350 stores. Performance has been in line with our expectations, and we're looking forward to having these offerings in approximately 600 stores. Unfortunately, due to COVID-related delays in the permitting process, we now expect it will take until the first quarter of fiscal 22 to achieve the full rollout. We also continue to be pleased with our new digital platform that provides an integrated and improved user experience. We've seen strong website traffic and conversion, and we believe the digital store contributed to our off-premise performance in the second quarter. Looking ahead, we intend to further leverage its capabilities and introduce additional enhancements to reduce friction and improve convenience for both dine-in and off-premise guests. We believe our digital store will allow us to extend our hospitality in new ways and empower guests by giving them more control over their journey with us. We recently introduced box meals for our catering menu, which include new catering-only meatloaf sliders. We believe these provide convenient and complete homestyle meal solutions and that the individually packaged meals will appeal to guests both during and after the pandemic. We plan to further strengthen our differentiated offerings by featuring hand-breaded chicken tenders and additional planned catering offers such as our Sunday Homestyle Chicken Sandwich. While catering has been pressured during the pandemic due to gathering size restrictions and remote work arrangements, we continue to believe there's growth potential in this category. We're looking forward to the Easter off-premise occasion, and to provide variety, we will be complementing this year's traditional heat and serve hand meal, available both as a feast and a family dinner, with a new prime rib heat and serve family dinner, which serves up to six for $109.99, and which was well-received in various test stores over Christmas. While the Easter occasion is smaller than the Thanksgiving and Christmas occasions, we're optimistic that we will again see strong demand for our heat and serve offerings. In addition to these sales driving initiatives, we're also working to strengthen our margins. I'm pleased with the progress we're making on our cost savings, and we're focused on driving increased efficiency by improving productivity and enhancing off-premise profitability. We believe these initiatives will contribute to our continued recovery on the top line, as well as margin improvements over the remainder of the fiscal year. Turning to Maple Street, the team continues to work on building the new unit pipeline and refining operating processes and systems to support the scaling of the brand. From a development perspective, our focus has been on securing the best sites with appropriate occupancy rates. Fiscal year to date, Maple Street has opened two company-owned units, one of which actually opened today. Although our progress opening new units has been slower than anticipated, we remain highly confident in the brand, their business model, and their growth potential. In closing, our second quarter was challenged due to the resurgences of COVID, which pressured our sales and margin results. Despite this, I'm proud of the work of our teams and we continue to make progress on key initiatives. While we anticipate ongoing challenges stemming from dining room capacity restrictions and the economic impacts of the pandemic, we're optimistic that assuming no resurgences, our sales trend will continue to improve and will help drive sequential quarterly improvements in our operating income margin in the second half of the fiscal year. for diligently working to further strengthen our business and ensure we're prepared to drive strong performance when the industry normalizes. While we don't know when the inflection point will be, we're looking forward to welcoming more of our loyal guests back into our stores and providing the hospitality and scratch-made food we know they're craving. And with that, I'll turn it over to Doug to review our second quarter results.