Cracker Barrel Old Country Store, Inc.

Good day and welcome to the Cracker Barrel Fiscal Year 2021 Third Quarter Earnings Conference Call. All participants will be in 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 a touch-tone 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 Jessica Hazel, Senior Director, Investor Relations. Please go ahead.

Thank you. Good morning, and welcome to Cracker Barrel's third quarter fiscal 2021 conference call and webcast. This morning, we issued a press release announcing our third quarter results. In this press release and on this call, we will refer to non-GAAP financial measures for the third quarter ended April 30, 2021. The third quarter non-GAAP financial measures are adjusted to exclude the non-cash amortization of the asset recognized from the gains on our sell-leaseback transactions and the 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 pages of the press release include reconciliations 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 Senior Vice President and CMO, Jen Tate. 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 Jen. 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 as may be required under applicable law. I'll now turn the call over to Cracker Barrel's President and CEO, Sandy Cochran. Sandy?

Thank you and good morning, everyone. I appreciate you joining us for today's call. We delivered strong third quarter results which exceeded our expectations. Our operators did an excellent job this quarter managing a significant step up in dine-in traffic, continuing to support elevated off-premise sales, and driving double-digit retail sales growth compared to 2019. It was largely due to our progress on sales recovery that we delivered operating income margin that improved by 530 basis points over the second quarter. This strong financial performance, combined with the actions we took during the pandemic to strengthen our balance sheet and the progress we made in the third quarter on paying down our debt, enabled us to declare quarterly dividend of $1 per share. Our board has been committed to reestablishing a quarterly dividend as part of our overall capital allocation strategy, and I'm glad that we delivered results that allowed them to start down this path this quarter. Going forward, as we have consistently done, we will continue to evaluate our alternatives to prudently structure and allocate capital in ways that create value for all of our shareholders. During the quarter, we delivered sequential monthly improvements in our restaurant sales performance when compared to the fiscal 2019 third quarter. Our average restaurant sales volumes grew from approximately $56,000 per week during fiscal January to approximately $70,000 per week in April. We believe this growth was driven by a number of factors. First, the progress of vaccinations and the relaxation of capacity restrictions. Second, our sales initiatives and strong retention of off-premise sales, which remained above 20% of restaurant sales, even with increased dine-in traffic. And lastly, for at least some of the quarter, the favorable impact of the stimulus package and its impact on the consumer. I'll expand a little further on some of these factors. Regarding capacity restrictions, on average our locations were operating at approximately 75% effective capacity during the third quarter. Our weekday sales trends showed larger improvement than weekend during the quarter, which we attribute in part to the fact that we're less likely to bump up against those capacity constraints during the week. As we move through the balance of the year, we look forward to further recovery as people return to their pre-COVID weekday routines and resume more normal summer travel and family vacation schedules. This is an evolving situation that we continue to monitor as the recovery progresses. Key sales initiatives like the beer and wine program, digital investments, and our menu evolution initiative, all of which I've spoken to on previous calls, contributed to our third quarter traffic and sales performance. We anticipate continued favorable sales contributions from each of these initiatives, as well as from our new fully integrated branding campaign, which launched in April. The campaign, which was developed with our new advertising agency, Dentsu, highlights the concept of care as our secret ingredient. It emphasizes the care we take making our homestyle food, curating our retail offerings, welcoming our guests like family, and taking care of our employees. This launch is being supported with national and streaming TV advertising, which runs for six weeks, digital and social media support, and a refresh of our more than 1,500 billboards. As dine-in sales grew, our off-premise volume remained strong and increased 144% over the more normalized fiscal 2019 third quarter. In fact, April off-premise sales volumes outperformed the prior year when dining room operations were closed and our stores were operating in an off-premise only model. We continue to be pleased with the growth in all of our off-premise channels, which include individual to-go, third-party delivery, and catering. Individual-to-go, which includes either pickup in-store or curbside, remains by far our largest channel, accounting for roughly 55% of off-premise sales over the past 12 months. During the quarter, we made enhancements to our curbside process to better streamline and enhance the guest experience. We anticipate solid long-term retention of the increase we've experienced in our individual-to-go sales volumes. but we do expect some guests who during the pandemic felt more comfortable picking up an order and dining at home will return to joining us in our dining rooms. Third-party delivery at approximately 25% of off-premise sales over the same period has grown rapidly since the start of the pandemic as we launched additional vendors and guest demand increased. We believe this channel has introduced us to new customers and new occasions and we're pleased with how third-party sales volumes held during the third quarter as dining rooms reopened. Catering sales, which includes special occasion heat and serve, accounts for the remainder of our off-premise business. Catering landscape has been challenging at times during COVID, but our catering teams have done a great job adapting with new offerings such as our individually packaged box meals, which we believe have a strong value proposition, and per person affordability. We believe our catering sales have further room for growth and will help with overall off-premise retention as other channels may start to decline in a more normalized environment. Lastly, on off-premise, while it remains early, we've been encouraged by the learnings we've achieved from the single location test of our virtual brand, Chicken and Biscuits. We're extending the test to 19 additional locations this week and will provide you with further updates over the coming quarters. Retail sales once again exceeded our expectations while delivering improved gross margin. The retail shop has always been a differentiator for our brand with unique merchandise and strong value price points. During the pandemic, and as our guests have returned to indoor dining, we've seen them respond quite positively to the convenience of dining and shopping in one location. The merchandising and operations teams have continued to deliver strong sales performance on lower inventory levels, and we've been encouraged by the response to the look and feel of a more curated collection of merchandise. Teams have been nimble in applying recent learnings back into our purchasing strategies and we're seeing positive results. For example, we saw sales growth in our men's merchandise early in the pandemic and believe this was being driven by strong attachment rates from customers picking up off-premise orders. We quickly sourced new and unique men's assortments and have seen continued growth in this category. As we look to the fourth quarter, we're optimistic that retail sales will continue above fiscal 2019 levels. However, we believe there could be some moderation in our retail sales and margin performance versus the third quarter due to the potential for inventory issues related to ongoing industry supply chain challenges. Maple Street sales throughout the pandemic and during the recent recovery months have been very impressive. Sales volumes remained well above fiscal 2019 levels during the quarter, and on an annualized basis, their third quarter performance would result in AUVs of over a million dollars. In addition, we've been pleased with their recent store economics and their ability to manage controllable expenses in support of a solid business model. During the quarter, we opened a location in Tennessee, been very pleased with the store's performance, and are preparing for future store openings. After the past year, guests are craving community and connection and we believe that Maple Street, with its focus on community, is uniquely situated to meet this demand. We're pleased with the growth in sales volumes our Cracker Barrel and Maple Street stores achieved during the quarter. Our operators at both brands did an excellent job executing in a difficult environment. We had a number of locations that encountered staffing challenges, which in some locations continue today. Our field leaders and home office staff have implemented several strategies to quickly recruit, hire, and train employees, and we've seen positive results already. Additionally, we face supply chain disruptions, both tight ingredient availability and distribution delays. Through strong leadership, our operators are mitigating the guest impact from these ongoing sourcing and supply chain challenges as we work with our product suppliers. We remain diligent across the company in ensuring that our operators are fully supported in both of these areas and that our guests and employees feel cared for like family when they walk through our front doors. Before I hand it over to Doug, I'd like to recognize the addition of Chip Wade to our already accomplished and diverse board. Chip's a 40-year veteran of the restaurant industry and will bring valuable perspective and meaningful insight to both our board and our management team. He's the third director we've added over the past 12 months as part of our thoughtful board succession planning and refreshment program, and our shareholders, employees, and guests will benefit from his talents. And with that, I'll ask Doug to provide you with further financial details on the quarter. Doug?