Cracker Barrel Old Country Store, Inc.

Good day and welcome to the Cracker Barrel Fiscal 2021 Fourth Quarter Earnings 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 a touch-tone phone. To withdraw your question, please press star then two. Please note this 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 fourth quarter fiscal 2021 conference call and webcast. This morning, we issued a press release announcing our fourth quarter and full year results. In this press release and on this call, we will refer to non-GAAP measures for the fourth quarter and 12 months into July 30, 2021. The fourth quarter non-GAAP financial measures are adjusted to exclude the non-cash amortization of the asset recognized from the gains on our sale and leaseback transactions, interest expense related to the termination of interest rate swaps and the convertible senior notes offering carried out in the fourth quarter, and the related tax impacts. The full fiscal year non-GAAP financial measures are adjusted for the items listed above, as well as the gain on sale of assets from the sell and leaseback transaction that closed in the first quarter, expenses related to the proxy contest in connection with the company's 2020 annual meeting of shareholders, and the related tax impacts of these items. The company believes that excluding these impacts 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 Couvillon, 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 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 Bell's President and CEO, Sandy Cochran. Sandy?

Thank you, Jessica, and good morning, everyone. We accomplished a lot in 2021, and I'm proud of how our teams navigated one of the most difficult years in the history of our company and the industry as a whole. We entered the quarter on an upswing as the country cautiously reemerged from the pandemic, and we were poised to see sales and profitability continue to accelerate across our system through the end of our year. We were pleased that profitability continued to trend positively from the third quarter, but disappointed that the pace of sales recovery slowed below our expectations. As we shared on our previous earnings call, we were encouraged with the pace of sales recovery and our sequential monthly restaurant sales improvements through April. However, May sales were softer than we expected, and unfortunately, this softness persisted through most of the fourth quarter. We were pleased, however, that both retail and Maple Street revenues exceeded our expectations and helped to offset some of the restaurant declines. We believe there were a number of factors that contributed to our softer fourth quarter restaurant sales results, including a summer travel season that did not follow traditional patterns or our own robust expectations, the COVID resurgence, particularly in the areas where our stores are more heavily located, that impacted guest visitation patterns and our employees' ability to consistently work, A general consumer preference coming out of the pandemic for more celebratory higher check occasions than we are known for, as well as industry-wide staffing challenges to fully satisfy guest demand. I'll comment more about staffing shortly. Despite our softer than expected dine-in sales, fourth quarter retail sales once again exceeded our expectations with comparable retail sales 18.2% above fiscal 19. Our merchants and operations teams consistently managed our inventory and produced outstanding results, delivering gross margin greater than 51%. Our assortments continue to resonate with guests, and we saw particular strength from our toys, apparel, and home decor categories during the quarter. Additionally, we've been pleased with the performance of our fall and Halloween seasonal merchandise sales, and while it's still early, our Christmas sales are off to a strong start. The success of our seasonal merchandise, along with the ongoing strength of our everyday assortments, have helped us to continue to drive solid retail sales growth during the first quarter. Also during the fourth quarter, Maple Street again delivered significant sales growth with sequential improvements in average weekly sales for each month. Throughout the fiscal year, Maple Street's business and financial performance further reinforced our confidence in the acquisition and the brand. In the fourth quarter, store AUVs were at an average annualized run rate of over $1.2 million. Additionally, Maple Street achieved a store-level EBITDA margin of approximately 18% for the full fiscal year. We plan to open 15 new Maple Street locations in fiscal 22 and believe new unit development can accelerate meaningfully in the years to come. As everyone listening well knows, the industry continues to face uncertainty with respect to COVID, inflation, which Doug will speak to, and staffing challenges. While staffing remains an important area of focus for us, we've made significant progress since we last spoke, particularly with respect to our back of house staffing. Our primary focus has shifted to hiring more servers, to training the new employees we have hired, to retaining existing employees, and to building our staffing levels in anticipation of our seasonally higher second quarter volumes. This past year was one of the most challenging in our more than 50-year history. For years leading up to the pandemic, Cracker Barrel outperformed the industry by leaning into our core competitive advantages, including our authentic experiential brand, our culture of hospitality, in our home-style food and retail assortments. We remain focused on these core strengths, and we believe they'll continue to drive long-term success and outperformance of our brand. As we head into fiscal 22, we plan to leverage our key competitive brand advantages to drive additional frequency from our core guests and attract new customers through new occasions and revenue sources. and I'll now briefly speak to a few of the initiatives that we expect to help us achieve these goals. We continue to evolve our menu to reinforce our core strength of craveable home-style food. We completed the final phase of our dinner menu evolution in the fourth quarter, and in fiscal 22, our focus will shift to the breakfast menu. Similar to dinner, we found that the structure of our breakfast menu is familiar to our core guests, but may be confusing to new or infrequent users of the brand. Through our two-phase rollout process, the first phase of which is currently in test, we'll streamline our categories of breakfast offerings to alleviate confusion, enable guest customization with a build-your-own homestyle breakfast, and better highlight our value proposition. while also driving efficiencies in our back-of-house processes and adding new, craveable menu items to help drive additional frequency and check growth. With our homestyle food and strong everyday value proposition, we remain confident that we can retain at least 60% of the growth in off-premise sales that we experienced during the pandemic. In fiscal 22, we plan to drive off-premise customer acquisition through awareness-building advertising and partnerships with third-party delivery companies. Additionally, our goal is to further enhance the customer experience through ordering and fulfillment improvements and expanding our guest engagement as part of our evolving digital strategy. Furthermore, we expect to attract new customers and drive sustained growth in our off-premise business through our virtual brand, Chicken and Biscuits, which we rolled out to an additional 100 stores at the end of August. We've been pleased with the early performance of the brand, and we now expect to expand Chicken and Biscuits to around 500 stores in total by the end of the first quarter. We also plan to launch a second breakfast-focused virtual brand called the Pancake Kitchen in approximately 100 stores at the same time. We believe the work we did to enhance our digital systems and launch our digital store was foundational not only to our continued growth in off-premise, but also to improving the frequency of visits from the core users of the brand. This work provides us with the technological infrastructure and rich guest data to drive additional grasp frequency in fiscal 22, including increased personalization and a customization in our digital marketing and the introduction of a loyalty program. We recently selected a loyalty program implementation partner and anticipate developing the program over the coming months with a pilot test planned for the second half of the fiscal year. Finally, to support ongoing growth in retail sales versus pre-pandemic volumes, our learnings from the last year have been applied to our product purchasing and visual merchandising plans for fiscal 22. We found during the pandemic that as we scaled back inventory levels out of necessity, our guests responded positively to our more curated collections and our everyday retail assortments, such as food and toys. We plan to lean into these changes by tightly managing our inventory and evolving our floor space to improve the depth of presentation with fewer units. Confident that these plans will enhance our core competitive advantages, and improve our performance in the current fiscal year and beyond. Before handing the call over to Doug, I'd like to speak briefly about capital allocation. Despite the impact of the pandemic, we generated strong cash flow in fiscal 21 with cash from operations at approximately 85% of our pre-pandemic levels. Reflecting confidence in the strength of our brand and in our future, the Board approved a dividend of $1.30 per share this quarter, which is a 30% increase over our third quarter dividend, and the same amount as the dividend we last declared prior to the onset of the pandemic. Our Board remains committed to a prudent and balanced approach to capital allocation by investing to profitably grow the brand while also returning capital to our shareholders through dividend and share repurchases. Today's announcement of a quarterly dividend at a pre-pandemic level and a modest share repurchase authorization demonstrate that commitment. And with that, I'll hand the call over to Doug. Doug?