Cracker Barrel Old Country Store, Inc.

After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on a touch-tone phone. To withdraw your question, please press star then 2. Please note that this event is being recorded. I would now like to turn the conference over to Jessica Hazel, Head of Investor Relations. Please go ahead.

Thank you. Good morning and welcome to Cracker Barrel's second quarter fiscal 2022 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 28, 2022. 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 and 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 CFO, Craig Palmels, and Senior Vice President and CMO, Jen Tate. Sandy will begin with a review of the business, and Craig will review the financials and outlook. We will then open up the call for questions for Sandy, Craig, 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, Jessica, and good morning, everyone. This morning we announced total revenue growth of 6.2% compared to the second quarter of fiscal 2019. Comparable store restaurant sales versus the same period grew by 1.9%, and comparable store retail sales grew by 13.7%. I'm pleased with the work of our teams to deliver strong sales growth over pre-COVID levels. I want to start by highlighting what we did to drive our sales recovery in November and early December. Cracker Barrel has always had a strong connection to the holiday season, and this quarter we reinforced that connection through our culinary, off-premise, retail, and marketing efforts. On the culinary front, our second quarter menu promotion featured our new limited-time offering, cinnamon roll pie, and our seasonal favorite, country fried turkey, which significantly outperformed our seasonal LTOs from last year. Our off-premise business maintained approximately flat sales to the prior year's second quarter, when nearly 20% of our stores were operating off-premise only for at least a portion of the quarter. Our Thanksgiving and Christmas heat and serve offerings delivered modest year-over-year sales growth on a combined basis, and our catering offerings significantly outperformed our expectations. Our retail business delivered its fourth consecutive quarter of double-digit comparable sales growth versus fiscal 2019. We saw strength in our Christmas themes as well as in everyday categories such as candy and toys. We also drove growth in some categories that we expanded during the pandemic such as our collegiate assortment which we now sell year round, and in men's apparel, a category that we continue to expand. Our retail performance was particularly encouraging in light of the challenging supply environment, and our retail teams did a great job navigating shipping challenges, minimizing delays, and driving sales during the quarter. We're optimistic that the steps we've taken will mitigate any material impact from the supply chain environment during the second half of the year. During the quarter, we reinforced brand equity through various marketing initiatives, including our ongoing music programs, such as our Macy's Thanksgiving Day Parade float, which featured a performance from Grammy nominee Torrin Wells, and our Sounds of the Season music program with Grammy award-winning artists Mickey Guyton and Pentatonix. For those of you who saw Ms. Guyton's performance of the national anthem during the Super Bowl, you can understand why we are so happy to be connected to such a talented artist. Lastly, Maple Street delivered another strong quarter with over 45% comparable sales growth versus pre-COVID levels and sequential improvement in average weekly sales versus the first quarter. We remain pleased with the performance of Maple Street and look forward to accelerating unit growth for the brand in the second half of this year. Now, turning to the impact of the COVID resurgence and our plans for the remainder of the fiscal year. Prior to the emergence of Omicron in late December, our comparable restaurant sales versus 2019 were running in the mid single digits and our comparable retail sales were running in the mid to high teens. Once Omicron hit, we saw traffic declines in late December throughout January as guests became more cautious about dining indoors and staff called out at historically high levels, which limited our capacity in certain locations. Several unanticipated weather events in January also negatively impacted our traffic results. As the headwinds from COVID cases have receded, we're seeing more guests return to our stores and I'm confident that we have the staffing in place to meet the anticipated traffic recovery in the third quarter and that we will be well positioned in this regard as we head into our busy fourth quarter. Our near-term operations priority for the third quarter is on store-level execution. Over the past two years, our managers have done an outstanding job of handling disruptions from COVID restrictions, staffing shortages, and supply chain challenges, in both restaurant and retail. As these disruptions continue to moderate, we should be better able to focus on and reinforce key Cracker Barrel operational fundamentals and offer our guests the consistently outstanding experience that they expect. To achieve these results, we are enhancing our training systems, implementing additional guest recovery behaviors, and further emphasizing our culture of caring and hospitality. I'm optimistic that our focus on operational excellence will drive improvements to employee retention and the guest experience. We also plan to support operational improvement efforts through our third quarter culinary promotion, which highlights several of our core menu favorites, such as chicken and dumplings and our signature pancakes, and will enable operators to continue to focus on basics and recovery. It also allows us to emphasize our everyday value proposition across all marketing channels, which is a key point of differentiation in this highly inflationary environment. In addition to focusing on execution, we're making progress on key strategic initiatives to drive additional frequency and attract new guests as we emerge from the volatile pandemic environment. For example, we continue to shift more of our marketing spending from traditional TV and into more targeted digital video channels. This shift drives improvement in our marketing OI and it also helps our marketing to be more flexible so that we're better able to respond to more sudden shifts in guest behavior like we saw during the recent Omicron surge. I'm also pleased with the progress on our beer and wine platform, which is now in roughly 550 stores. Our beer and wine mix has improved in recent weeks, and we expect to make further progress with additional focus on beer and wine in our in-store merchandising materials and additions to our lineup, including a new seasonal Jack Daniel's Lynchburg Lemonade. Regarding off-premise, we continue to focus on improving our guest experience to ensure we retain these sales as dine-in traffic recovers. This includes enhancing our curbside pickup process, improving the integration between our off-premise applications and processes with our back-of-house technology, and generally streamlining our processes for a more seamless guest experience. As I mentioned earlier, catering sales increased during the quarter, and we believe we have room to drive further growth in that channel. We're now looking at ways to further support the growth of this business, including better leveraging our van fleet and introducing more personalization to our marketing. Lastly, on off-premise, we're looking forward to the Easter off-premise season, where we expect to see strong demand overall and in particular for our prime rib heat and serve that we introduced last year. Turning to our business model and managing costs, we're focused on initiatives to drive operational efficiency. We expect to have our new point of sale system in all stores this quarter, which will support the continued rollout of our new food cost management system to all of our stores by the end of April. I've been encouraged by the initial savings from this system in the approximately 400 stores where it's currently installed and anticipate the completion of the rollout will drive additional savings in the fourth quarter. The POS also supports a new labor management system that we're planning to roll out in fiscal 2023. Our food and labor management systems are part of a broader strategy to improve our business model to allow us to eventually move toward pre-pandemic levels of profitability despite the high inflationary environment in which we find ourselves. While commodity pricing is historically variable, wage rates are unlikely to recede. And for this reason, in addition to the cost-saving projects on which we're always working, such as supply diversification and G&A management, we're also tackling larger and longer-term initiatives to simplify our operational environment, including reimagining how we approach and incentivize retail and restaurant responsibilities, as well as leveraging technology to improve operational efficiencies and consistency of execution. While these initiatives are important, improving traffic is even more so. which is why we are so focused on making sure our guest experience in both dine-in and off-premise meets our guest's expectations and that our employees are supported with great training and systems to deliver it. Now more than ever, we have to leverage and enhance our core competitive advantages, which include an authentic experiential brand, a culture of caring and hospitality, and our homestyle food and retail assortment. These core competitive advantages, our focus on operational excellence, and the progress we've made on our strategic initiatives puts us in a strong position to continue our traffic recovery and improve our business model as we emerge from the unprecedented challenges we're currently facing. And with that, I'll turn the call over to Craig.