Cracker Barrel Old Country Store, Inc.

Q3 2023 Earnings Conference Call

6/6/2023

spk14: Good morning and welcome to the Cracker Barrel Third Quarter 2023 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 your telephone keypad. 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 Caleb Yohannes, Vice President of Investor Relations. Please go ahead.
spk15: Thank you. Good morning and welcome to Cracker Barrel's third quarter fiscal 2023 conference call and webcast. This morning we issued a press release announcing our third quarter results. In the press release and on the call, we'll refer to non-GAAP financial measures for the third quarter ended April 28, 2023. The non-GAAP financial measures are adjusted to exclude impairment charges, store closure costs, and other non-cash amortization the asset recognized from the gains from our sale and leaseback transaction and related tax implications. 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 the net income or earnings per share information prepared in accordance with GAAP. The last pages of the press release includes reconciliations from the non-GAAP information to the GAAP financials. On the call this morning, we have Cracker Barrel's President and CEO, Sandy Cochran, Senior Vice President and CFO, Greg Pimels, and Senior Vice President and CMO, Jen Tate. Sandy and Craig will provide a review of the business, 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?
spk04: Thank you, and good morning, everyone. This morning, we reported total sales growth of 5.4% and an adjusted operating income margin rate of 4.1%. The quarter started out largely as we had anticipated, continuing our momentum from Q2 through February and most of March. We then experienced a meaningful traffic decline, particularly in April, which negatively impacted our sales and profits, both of which came in a bit below our expectations. This softer trend has continued fourth quarter to date, both for restaurant and retail sales. In our view, this reflects weaker consumer sentiment and economic pressures. Although we are cautiously optimistic that as the summer travel season unfolds, we will see some improvement to trends in June and July. Our experience in April and May largely mirrors what we've seen across the full-service casual dining industry, and despite the unanticipated headwinds, our sales and traffic growth outpaced the black box casual dining index for the fourth consecutive quarter. Our teams remain focused on operational excellence, staffing and retention, and the guest experience. Our everyday value and menu innovation is resonating with guests, and we're making great progress on other key initiatives, including catering, our loyalty program, and our cost savings efforts. Although we expect continued pressures and choppiness in the short term, We feel good about our positioning over the medium and longer term. I'd now like to speak to some highlights from the third quarter. Our menu promotion and advertising campaign showcased our everyday value and variety. Our TV messaging reminded guests that we have 20 meals for under $12, including several hearty signature entrees, and we highlighted newer items such as our cheesy bacon homestyle chicken and homestyle chicken and French toast. We also introduced our $5 take-home meals, which have been popular and are an additional example of how we're leaning into everyday value. For off-premise, we saw high demand for our Easter heat and serve bundled offerings and strong growth in our catering business, which increased over 35% compared to the prior year and remains on track to exceed $100 million this fiscal year. From an operations perspective, we're pleased with the improvements we're seeing in our turnover and retention results. Our new labor system is now in place at over 460 stores, and the rollout will be substantially completed in the coming weeks. We're pleased with the functionality that the system provides and our enhanced ability to optimize labor allocation, and we will continue to fine tune our labor model based on our learnings. Turning to Maple Street, we opened three locations during the quarter and have been pleased with the early performance of each unit, with each location seeing some of the strongest opening week sales in recent years. The team continues to work diligently to optimize the business model and prepare to successfully scale the brand. I'll now turn the call over to Craig for a more detailed look at the quarter from a financial perspective and to discuss our Q4 outlook, after which I'll comment on some of our areas of focus for the remainder of the year.
spk20: Thank you, Sandy, and good morning, everyone. For the third quarter, we reported total revenue of $832.7 million, an increase of 5.4% over the prior quarter. As Sandy noted, the quarter started out in line with our expectations, but towards the end of March, there was a noticeable drop in traffic which intensified and persisted through April, and it negatively impacted our results. Restaurant revenue increased 7.8% to $681.3 million, and retail revenue decreased 4.2% to $151.4 million versus the prior year quarter. Comparable store total sales, including both restaurant and retail, grew by 5%. Our retail sales were impacted by the restaurant traffic deceleration, as well as shifts in consumer discretionary spending. Additionally, we believe some of our more price-conscious guests may be reducing their retail purchases as a way to manage their overall spend when dining with us. Comparable store restaurant sales grew by 7.4% over the prior year, driven by approximately 8.8% total pricing. approximately one quarter of which is a carry forward from fiscal 2022 and three quarters of which is new from fiscal 2023. We continue to closely monitor the impact our pricing has happened on traffic and check and to believe our pricing strategy is effectively balancing margin protection and maintaining our strong value. We believe that the softer restaurant traffic trend and reductions in retail purchases are primarily driven by macroeconomic factors as opposed to our restaurant pricing increases. Our average check also included a favorable menu mix of approximately 1.8%. We've been pleased with the strong mixed favorability we've seen in recent quarters, which is a direct result of our culinary strategy to provide guests with upgrade and add-on options, such as our shareable barrel bites, premium sides, and most recently, our $5 take-homes, as well as our beverage programs. Off-premise sales were approximately 19.1% of restaurant sales. We were pleased with our off-premise performance as we drove strong growth in our catering business, and sales of our Easter bundled offerings were in line with expectations. Comparable store retail sales decreased 4.6% compared to the third quarter of the prior year. We saw declines across most of our categories with our largest decreases in toys and decor, which are among our most discretionary categories. Although sales were softer than we anticipated, we continue to feel good about our inventory levels. Moving on to our third quarter expenses. Total cost of goods sold in the quarter was 31.5% of total revenue versus 31.6% in the prior year quarter. Restaurant cost of goods sold in the third quarter was 27.3% of restaurant sales versus 27.8% in the prior year quarter. This 50 basis point decrease was primarily driven by menu pricing of 8.8%, partially offset by commodity inflation of 4.3%. The primary drivers of Q3 commodity inflation were produce, dairy, and eggs. Third quarter retail cost of goods sold was 50.2% of retail sales versus 46.9% in the prior year quarter, which, as a reminder, was an atypically low COGS rate. This 330 basis point increase was driven by more normalized promotional activity and higher inventory shrink. Increased shrink has been a growing problem for the broader retail industry, and although our teams are working diligently to mitigate this issue, we expect it to remain somewhat elevated for the near term. Our inventories at quarter end were $185 million compared to $192 million in the prior year. With regard to labor costs, our third quarter labor and related expenses were 35.8% of revenue versus 35.9% in the prior year. This 10 basis point decrease was primarily driven by sales leverage partially offset by hourly restaurant wage inflation of approximately 5.5%. Adjusted other operating expenses were 23.3% of revenue versus 23.1% in the prior quarter. This 20 basis point increase was primarily driven by higher advertising and maintenance expenses. Our general and administrative expenses in the third quarter were 5.4% of revenue versus 5.4% in the prior year quarter. This 40 basis point increase primarily resulted from investments to support our growth initiatives and more normalized incentive compensation. Additionally, our GAAP results include impairment charges of $11.7 million, as well as $2.2 million in costs associated with store closures. All of this culminated in GAAP operating income of $16.8 million, adjusted for impairment charges, store closure expenses, and the non-cash amortization of the asset recognized from the gains on the sale and leaseback transactions. Operating income for the quarter was $33.9 million, or 4.1% of revenue. Net interest expense for the quarter was $4.5 million, compared to net interest expense of $2.2 million in the prior quarter. The increase is a result of higher interest rates and a higher level of borrowing. Our GAAP effective tax rate for the quarter was negative 14%, reflecting a true-up based on our year-to-date GAAP earnings before taxes, which includes the impact of the impairment charges and store closure costs. On an adjusted basis, our effective tax rate was 7.8%. Third quarter GAAP earnings per diluted share were 63 cents, and adjusted earnings per diluted share were $1.21. In the third quarter, adjusted EBITDA was $60.3 million, or 7.2% of total revenue. Now, turn to capital allocation and our balance sheet. We remain committed to a balanced approach to capital allocation. Our first priority remains investing in the growth of Cracker Barrel and Maple Street. Beyond that, we plan to return capital to our shareholders while maintaining appropriate flexibility and a strong balance sheet. In the third quarter, we invested $38 million in capital expenditures, and we returned $29 million to shareholders in dividends. Lastly, we ended the quarter with $445 million in total debt. With respect to our fiscal 2023 outlook, I would like to provide some additional color on the guidance in this morning's release and an update on recent trends. Quarter to date, our top line trend has generally been in line with April. Looking ahead, the environment remains uncertain. June and July are two of our highest volume months and are heavily influenced by summer travel patterns. Our base case scenario is that these months experience a modest travel trend improvement compared to April and May, largely due to increased travel and easier comparisons from the prior year. Assuming this improvement in our traffic trend, we currently expect total revenue growth in the fourth quarter of 1% to 3%, which includes pricing of approximately 8.5%. We anticipate the opening of one new Cracker Barrel location and five to seven new Maple Street locations during the quarter. Several Maple Streets are slated to open towards the end of the fiscal year, and our updated expectation reflects the possibility that a couple may slip into early fiscal 2024 due to permitting or equipment delays. In Q4, we anticipate commodity inflation will be approximately flat and hourly wage inflation will be approximately 5%. In addition to the above assumptions for revenue growth, commodity and wage inflation, and cost savings, our operating income margin expectation contemplates the following. First, investment in additional labor hours to ensure we're delivering exceptional service and hospitality during the high traffic summer months. Second, Within G&A, we have investments to support our strategic initiatives, such as our loyalty program and other digital initiatives, as well as an increase in incentive compensation relative to prior year. Third, we have increased our cost savings estimate and now expect to deliver approximately $30 million in cost savings during the fiscal year, with additional gains in fiscal 2024. Taking all of this into account and assuming industry traffic and summer travel patterns play out as we expect, we now expect adjusted operating income margin in the range of 4.5 to 5.5% in Q4. We expect a Q4 GAAP effective tax rate of approximately 0% and an adjusted effective tax rate of approximately 4%. Finally, we anticipate capital expenditures of $30 to $35 million during the quarter. I'll now turn the call back over to Sandy so she may share additional details around our business plans and outlook.
spk04: Although we're currently operating under more uncertainty, we remain confident that we have the right strategy in place to navigate these short-term challenges and win market share. In the current environment, our primary focus is driving sales growth, but we will simultaneously continue enhancing our business model. I'd now like to discuss our strategic priorities. First, we're focused on the guest experience. Our teams are highly focused on strong execution and delivering an exceptional guest experience. We've placed a priority on ensuring stores are properly staffed for the high-volume summer months. We continue to believe that hospitality is a key differentiator for us and we will continue to make investments to support this. We're also focused on the training and development of our store employees and believe enhancing these areas will drive further improvements to retention as well as guest satisfaction. Second, we're continuing to emphasize and protect our strong value proposition. Everyday value has always been and will continue to be a key pillar of our strategy and we're continuing to leverage this core equity through our 20 under $12 advertising campaign. We believe our investments to preserve the value sections of our menu and our attractive price points have been and will continue to appeal to our guests and will maintain our value strength even in a more promotional competitive landscape. The sustained strength and growth of our off-premise channels, in particular catering, for both everyday and holiday occasions, demonstrates our value proposition extends beyond dine-in. We are especially excited about the catering business and continue to enhance the menu and service model. Third, we're looking to accelerate frequency among our growth segments. To achieve this, we remain focused on menu innovation and introducing offerings that feature bolder and more complex flavor profiles which especially appeal to this group. For example, we recently introduced our Steak and Egg Hash Brown Casserole and Biscuit Veni, our version of Eggs Benedict, and we've been encouraged by the response. Our loyalty program is a key initiative, and it's another way that we're extending our care and hospitality to our guests as part of our larger digital transformation initiative. While we believe the loyalty program will appeal to all guests, we think it will especially resonate with our growth segments. We've made significant progress in the development of the program, and to support the successful implementation of this large-scale, complex initiative, we're planning for a beta launch in July. I'm excited about the program, which incorporates all of our channels, including retail, and features fun gaming elements. We believe the loyalty program will drive higher frequency, increase brand loyalty and customer lifetime value, and provide robust, actionable guest data. Finally, we're continuing to improve our business model. Our cost savings program has delivered significant savings this year, and we expect to also deliver meaningful savings to fiscal 2024. We're pleased with our investments in technology, including our food and labor systems, and we will continue to leverage these systems and optimize our processes to drive further efficiencies. And although our top focus is protecting the top line and delivering an exceptional guest experience across all channels, our operators are tightly managing the business to control costs in this more challenged environment. In closing, I believe our focus on the guest experience, value, accelerating frequency with our growth segments, and enhancing our business model has us well-positioned to navigate the short-term challenges we're currently facing and sets us up for capturing market share and driving long-term value creation.
spk11: And with that, I'll turn the call over to the operator for your questions. We will now begin the question and answer session.
spk14: To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2.
spk11: At this time, we will pause momentarily to assemble our roster. And our first question will come from Catherine Griffin of Bank of America.
spk14: Please go ahead.
spk35: Oh, hi. Thank you. Craig, I wanted to just get a point of clarification on your comments regarding May trends. I believe you said they're sort of consistent with April, but I just want to understand, does that mean that, you know, traffic is sort of running in the negative low single digits, if we contemplate the positive mix that you noted? Or is it that you're seeing that decelerating traffic trend kind of pick up in April? Just sort of, yeah, just wanted to kind of parse those comments.
spk20: Good morning, Catherine. For me, I think what we're comfortable saying is as we went through the quarter, we had a meaningful reduction in our traffic for us and candidly across the entire industry as we progressed through the quarter. And May is consistent with April. So no change, no significant change one way or another. So not a deceleration, not an acceleration, just a consistent trend. I mean, I think clearly the backdrop is more challenging. It's more dynamic. And I think the good news is we're not seeing things get worse. and we're not seeing things get materially better. Now, having said that, I'll kind of just go ahead and give a little bit more texture on this. As our expectation is that as we continue into the summer, then our expectation is that we will see a modest improvement in our trends. Again, April and May were consistent, and we would expect to see a modest improvement as we get into the summer as a part of the summer travel season. That's what's included in our base case assumptions.
spk35: Okay, great. Thank you. And then I just had a question on CapEx. There's a bit of a step-up in the third quarter, so I wanted to know what the drivers of that were. And then just given the lowered outlook for restaurant development, sort of why maintain the full-year CapEx guidance?
spk20: Actually, I think this is a good story here. For many, many months now, many quarters, there has been a backlog in getting equipment for repairs. And now, finally, we're on the backside of that issue, and we're basically getting caught up on some deferred equipment replacement.
spk09: Great. Okay. Thank you.
spk14: The next question comes from Jeff Farmer of Gordon Haskett. Please go ahead.
spk27: Thank you. A couple questions. I'm just curious what the implied same-store sales and traffic growth expectation is that comes with that 1% to 3% F4Q revenue growth guidance. If you can just sort of give us a little bit of a guidepost there, that would be helpful.
spk20: Good morning. Good morning, Jeff. It's Craig. Yes, on the restaurant side, our expectation in that one to three is that restaurant comp sales will be in the kind of low to mid single-digit range for comp sales, and retail we would expect to be a higher single-digit negative sales comp.
spk27: Okay, that's helpful. And then as it relates to Cracker Barrel specifically and what you're seeing at the concept level, is there a customer demographic or D-part that is seeing greater headwinds in terms of some of the pressures that you alluded to sort of strengthening or getting a little bit more challenging as you got into May? So, again, demo or D-part that's being hit with greater challenges?
spk04: Yeah, Jen, why don't you take that one? Hey, Jeff, it's Jen.
spk03: Yeah, I think the situation that we're seeing this quarter is a pretty different one from what was happening a year ago. Last third quarter, it was really our older guests that were pulling back with concerns about issues like the Ukraine war and the big spike in gas prices, which were really leading them to cut back on spending. This year, it's a different story. We've actually seen a nice rebound in visitation from those older guests. And in fact, now what we're experiencing is some reduced visit frequency from the younger cohorts, which coincides with a sharp downturn in consumer sentiment among those younger cohorts. So it's a bit of a different story with this third quarter. You know, obviously it's bumpy when you're looking at one quarter at a time, so we, of course, like to look at things on a little bit of a longer horizon since most of our initiatives are longer-term strategic initiatives with those younger groups. So if we pull back and look at this more, you know, on like a two-year stack, we still have seen some positive momentum with those younger groups, but third quarter certainly was a trickier one with the younger cohorts.
spk27: Okay, just last one's bookkeeping. You guys shared the pricing in the Q3, but traffic and mix in the quarter, I apologize if I missed it, but did you guys share traffic and mix in the quarter, the Q3 quarter?
spk20: We did not in the prepared remarks, but I'll go ahead and share those now. Traffic for the quarter was negative 3.2%, and in addition to the price, we also had positive menu mix of 1.8%.
spk18: All right. Thank you.
spk14: The next question comes from Dennis Geiger of UBS. Please go ahead.
spk26: Great. Thank you. Could you talk a little more about your expectations for the brand's resiliency maybe over the coming quarters or over the coming year against the more difficult backdrop that you mentioned? I know you called out the compelling value offers. But any other kind of latest thoughts on sort of brand resiliency here, levers that you can pull against this backdrop that you mentioned would be helpful. Thank you.
spk04: Yeah, good morning, Dennis. It's Sandy. I really will kind of focus on the prepared remarks and my last part, which is that, you know, we continue to believe that the brand is highly differentiated. It appeals across a broad range. spectrum of age demographics Income and our focus first and foremost is on ensuring that we're delivering the guest experience We believe our hospitality is one of our key differentiators and in this environment It's particularly important if you're if you're a guest that's managing their frequency you want to be sure you're going to brands that you can trust to deliver and deliver both the experience and the value. And so that really leads to my second priority, which is leaning in and emphasizing and protecting our everyday value. We've been known for that. We're not as focused on promotions and deals, but ensuring that a guest can come in any day part and find on the menu a good value, which is why we're focused on highlighting with our 20 under 12 initiative or promotion right now. It's not a promotion. It's every day. I think I'll let Jen speak to the $5 take-home, which we think is another great way to deliver value to our guests, and we've been encouraged by the reaction to that. Third, though, we're also really focused on innovating to appeal to the growth channels, and I will let Jen speak to that as a way to drive growth in the next few months.
spk03: Yeah, I think, Sandy, starting with value, that's absolutely a critical part of the puzzle for us. In addition to the fact that we've been messaging to consumers that we do have 20 entrees on our menu that are all under 12, and that's across all day parts, we're also featuring new news in that category, which we think will appeal to our growth segments. So more flavorful, more complex flavors that we've tested with those growth segments, so we feel good about that. Five-dollar take-homes has been a nice addition that helps us grow check, but also we see is improving our value scores on checks that have that on it. I think the other thing that we're very excited about is that we are about a month away. Sometime in July, we're going to be beta testing our new loyalty rewards program, which in all of the research we have done is a very, very appealing program. proposition across all of our segments, sustaining segments, growth segments. Everybody is really interested in this new rewards program that will be very differentiated for us because it encompasses all of our channels, including retail, which is a real differentiator for us. Our guests are going to be able to earn points, whether they're in the restaurant or shopping in our retail, and of course, be able to redeem points across both sides of our business. which I think makes it very unique in the restaurant space. So we're very excited about the launch of loyalty and how that will progress our whole digital roadmap forward. So a lot of things coming in the future that we think will maintain that momentum.
spk04: And I'll just add, thank you, Jen, to that list, although I didn't have this in my list in the prepared remarks. To Jen's point, I do think retail is Although it's challenged right now, it is a key differentiator, and it does allow our guests to find, you know, fun, unique, nostalgic items that are of great value, and I think that will continue to be the case over the next both, not just the next quarter, but the next year, few years.
spk26: That's great, Colleen. Thanks for that, guys. Just one more, if I may. Craig, you spoke to capital allocation priorities. So I just want to ask, in thinking about the attractive dividend and thinking about some of the near-term macro pressure that you've spoken about, is there any thoughts to add with respect to the dividend and maybe balance sheet usage if it comes to it, just thinking about different scenarios looking ahead?
spk20: From a capital allocation perspective, I think our board is incredibly focused incredibly thoughtful and, you know, our priorities are investing in Cracker Barrel and Maple Street and then return in cash to shareholders. And our dividend is our primary way that we are currently doing and that we have been doing that. And our current cash flows, you know, support our dividend. Our leverage ratio supports our dividend. So I don't, you know, I certainly don't see anything in the future that would change that at this point.
spk30: That's great. Helpful, guys. Thank you.
spk11: The next question comes from Andrew Wolf of CL King.
spk13: Please go ahead.
spk22: Thanks. Good morning. Good morning. I wanted to ask a follow-up on the traffic in April and May. Do you think any of that might have been related to, you know, the spring being kind of, you know, relatively cool and wet, particularly in the southern part, well, all over the country, but, you know, in the southward, sometimes in April and May it's already hot and people are out on those highways and so on. Do you think that had any impact? Or do you think weather in any other way had any impact? I know some folks don't like to blame the weather, but the weather is what it is, so that's why I'm asking you.
spk04: Well, I guess I'll start. You're right. We don't like to use weather as an excuse to not to have delivered the results that we were expecting. But there's certainly some, you could have some discussion about whether, in fact, it was a cool spring. And we've heard that from a number of companies and how it impacted the business and whether that made people more reluctant to maybe do a trip that they were going to do. Certainly our merchants would say that they felt it impacted the timing of our purchases of our summer clothing. So if it was still cold out, you probably weren't as interested in sundresses and sandals as we later saw. So we don't believe there was a material weather impact for the quarter, but We think it could have had on the margin some impact on the timing with our consumers.
spk22: Okay. Also in the retail stores, I mean, your inventories look pretty clean, right? So it doesn't look like there's a lot of, even with the weather, a lot of markdown risk. Am I, you know, I'm just sort of imputing that from the inventories being down year over year and generally the restaurant inventory is being pretty stable. It seems to be the retail store inventories that swing a lot. If they're down, I would think, to me, it indicates either you've got pretty clean inventories, you don't have a lot of markdown risk, or you're already kind of changing the mix to lower-priced items. Could you just tell us a little about what's going on there?
spk04: Sure. Well, our retail teams, they've done a magnificent job over the past few quarters in delivering – really very impressive retail sales. But in Q3, we did see the guests pull back. And we saw it broadly across the store base. We saw it broadly across categories, particularly in the more discretionary ones. And it kind of was reflected in conversion and UPT. The good news is that our merchants were preparing for this possibility in terms of managing our inventories. And I think they have done a good job of working in this environment to keep the inventories clean. They've been working with the field to be sure we were moving through the most vulnerable categories. They've been working with our vendors on margins. And I think they have, to the point you make, done a good job of managing that risk.
spk20: Andrew, I'll build on that a little bit. Just to say that, as we shared before, we expect the retail part of the business to return to a more normal promotional cadence. If you think about fiscal 22, we had a lower level of promotional activity, and we shared before that in fiscal 23, we expected to return closer to a for lack of a better term, pre-COVID level of promotional activity. So that continues to be the expectation.
spk22: And if I could just ask one last question about pricing at the restaurants. What's baked into the Q4 comp guidance for price? Could you give us a flavor for the price cadence into just price into next fiscal year? For example, if you didn't take any more price, when would price become neutral?
spk20: We have 8.5% in the current guidance for Q4. The approach that we've been using, so a couple of things on price. We've been incredibly thoughtful about this. We continue an approach we've used for a long time with holdout groups, and we continue to monitor sentiment and value scores and competitor prices and so on. So we feel good about the impact that our prices have in on traffic. The approach that we've used is we've been taking more frequent but smaller price increases. And what that means is as we get into fiscal 24, some of the price will carry over certainly into the first half. We're not prepared to share exactly how much at this time, but I think it's a fair assumption that we'll have a fair bit of carry forward certainly into the first half of fiscal 24. And as we go into fiscal 24, the inflation environment is expected to be, you know, much more normal, I would expect, certainly still early. And as a result of that, you know, we would expect our pricing strategy to adjust accordingly. And we'll talk more about that on the next call.
spk10: Okay, thank you.
spk11: The next question comes from Jake Bartlett of Truist Securities. Please go ahead.
spk28: Great. Thank you so much for taking the question. You know, my first was just on your performance versus the industry. You mentioned that you outperformed again for the fourth quarter, you know, versus Black Box and, you know, one of maybe... make sure I understand which part of Black Box you're comparing yourself to. But I'm wondering whether, you know, the cadence within, you know, April and May, whether that outperformance continued. And, you know, if it didn't, you know, I'm wondering, you know, what you think might be some of the drivers of that. I think some of us are curious whether there's pushback on the menu price, but maybe it's, you know, your markets in particular, the competition with grocery, any other kind of, you know, if it is in fact that you're, Your market share gains have reversed any color on what you think might be driving that.
spk20: Hi, Jay. Good morning. I think there's a lot of detail behind that. I think we're comfortable with saying that for four quarters in a row, we've been ahead of black box full service, and we have provided the additional texture that is in line with with April.
spk38: Black Box Casual.
spk20: Black Box Casual, sorry. And, you know, we've talked about our price and kind of how we've gone through that and kind of measured twice and cut once, so to speak. So I think there's a lot, you know, there's a lot there. Certainly appreciate the desire to have, to get more, but I think it's a little, it's still early in the quarter and we'll look forward to sharing more about that on the next call.
spk28: Got it. And I'm not even asking about kind of, you know, current trends or really. I'm just, you know, maybe even in April, you know, it seems, you know, without knowing those exact numbers, that your outperformance might have gone to underperformance. And so, you know, what I'm really trying to figure out, it feels like the message from competitors, you know, in the first quarter earnings season has been that, you know, there wasn't really material shifts in markets. you know, trade down or trade up and, you know, consumer was holding in. What I'm hearing from your results seems very different than that. So I'm kind of trying to gauge whether there's something specific about your marketplaces, your customers that might be making you more, you know, exposed to some of these macro pressures are out there where we haven't seen it on a large scale, you know, at competitors so far.
spk20: Yeah, it's a good question. I think the areas where we might be different from the competitors would be, for example, the summer travel season as an example. I think that would be an area where we could perform differently either to the good or to the bad. But outside of that, I guess I would just reiterate that we're pleased with the market share gains and you know, we obviously, we report those in a slightly different cadence from others. And I don't know that it would be super helpful to get into each individual months beyond that.
spk31: Okay.
spk28: And then a question on COGS. And Craig, this is another quarter where, you know, the math, you know, for your restaurant, you know, COGS, there's another, you know, there's a continued kind of bad guy in there. If you look at you know, 8.8% of menu price and 4.3 of commodity inflation. There's, there's another portion that's I think impacted by mix. Um, I would think you'd, you'd maybe be getting a year of your benefit from freight and things like that, which I think are in that line. But the question is, you know, that kind of bad guy has now been, you know, this is the fifth quarter. So it's lapping, you know, a drag, um, you know, in the third quarter of last year. So, you know, in the fourth quarter, if you could help us out, um, we kind of know flat COGS or flat commodity inflation, 8.5% pricing. What should restaurant level COGS be? If you can maybe be more specific there, is there another bad guy coming or is the math much more simple in the fourth quarter?
spk20: Yeah, I think the mixed component, not I think, the mixed component that's impacting Q3 COGS and prior quarters as well really relates to the work that we've been doing to give guests more options to make their experience a more holistic experience, including things like our barrel bites, which are our shareables, and flavor drinks, and so on. So the example there might be, well, this is a real example. You have iced tea, which has a very low COGS percent, and you someone trades out of unflavored iced tea to flavored iced tea, and you have a mid-teens level TOGS percent, but it's still higher. So that drives that tea mix that you're seeing. And the reason I give the elaborate answer is because the mix component is going to depend on the attachment of those add-ons. So to the degree that those add-ons continue to to drive the positive mix that we've seen unchecked, which was 1.8% in this quarter, to the degree that we outperform there, we'll see a higher impact to restaurant pods, and to the degree that there is some softness there, then we won't see that level of mix impact. So it's really going to depend on the restaurant mix. We've been happy with that. That is a way for us to drive some top line and deliver cash increased cash profits, and it's completely up to the guests who can opt in or not. And it also helps us as it relates to some of our growth segments and the things that they find appealing. So, you know, I get the P-MIX impact that you're referring to, but I think it's strategic in the way that we're utilizing it.
spk28: Great. And then last question, you know, on stores, there's been a number of closures, so I think I think six, Cracker Barrel, I think there was one in May. So maybe we're expecting kind of no net openings in the fourth quarter for Cracker Barrel. But then also I think there's three closures of Maple Street in the third quarter. So you opened three and there was net flat. So if you can give us some color on whether we should expect more, whether we should model in continued closures on either brand, that would be helpful.
spk20: Our approach to restaurant closures is largely that we're in a business of operating restaurants and closing restaurants. So across the portfolio of 600 plus of anything, you're going to have high performers, medium performers, and low performers. And with the low performers, you work to make them be better. And in this case, as we came out of COVID, we had a handful of low performers that we have been working on. and working on their recovery. And then at some point throughout the year, we came to the conclusion that we would not be able to operate those stores profitably and made the decision to exit some of those stores and some of those markets. So that's what's led to this position. So as you noted, we had one in Cracker Barrel in Q1, we had four in Q3, and then we had one in early Q4. So it's not a strategic shift. It's more a function of timing coming out of COVID and working to improve these stores and then coming to the conclusion that we are not going to be able to operate them profitably. As it relates to Maple Street, as we've continued to refine that business model, we had a handful of stores that were under a type of franchise agreement that was not a part of the near-term business model. It may be a part of the long-term business model, but we would do it differently. So we decided to purchase those stores, all of them, and then some of them were particularly challenged, and we decided to exit in that case. So it's a part of getting that business set up to ultimately scale. So two of those three were a part of that, and then one of them was a bit of a one-off location that was a test location that didn't – that we didn't see a path forward with. So not a strategic shift, more of a, for lack of a better term, we're just coming to a decision to kind of move forward on some restores that we've been working on for a period of time.
spk29: Great. Thank you so much. I appreciate it.
spk14: The next question comes from Todd Brooks of the Benchmark Company. Please go ahead.
spk24: Hey, thanks for taking my questions. One's just a follow-up on kind of that concept of unit growth going forward. Can you talk about the difficult construction environment, but also the cost to build units and how that may play into how we should think about the unit growth rate, especially for Maple Street as we go into 24 when we were maybe looking to accelerate growth of the brand as far as cost to build and what type of retrenchment a construction cost you'd like to see to really accelerate brand growth going forward?
spk20: I think you hit on all of the major points there, Todd. Our long-term view on unit growth really has not shifted. In the mid-term, I think as we're all aware, construction costs have escalated. And construction costs have escalated when the economy is slowing down. and interest rates are higher. So there is a bit of a disconnect in some ways between the cost to build and what's happening in the macro environment. So the long-term strategy is still the same. We are working to ensure that we're delivering an adequate return to our shareholders with each of the new units. And that means that in the near term, we're passing on more opportunities than we might have even a year ago. Now, we do anticipate that as the environment normalizes and the real estate world comes into adjust for the current environment, that we'll be able to resume. In addition to that, we're also, as every business is, you're also always working to optimize your your real estate model in the form of cost, and we're going through that. That's going to take some more work. And there have been a lot of shifts over the last few years in a whole host of ways. So we're actually going through and updating our site opportunity model where we think we can have size and how is that shifted. So our long-term view is the same, and we're really updating our approach to that, and we're also – monitoring for some cooling in the environment as well.
spk24: That's great, Craig. Thanks. A second follow-up, just talking about the April pullback that was cited. You gave us mixed data for the full quarter. I was just curious if you start to look at April and where the consumer may be settling out. Can you share how either the mix changed or maybe attach rates? If you're seeing any check management on the part of the consumer and then Jen, I know you do detailed testing around future pricing actions. Has there been a change in how the consumer is responding to the thought of future price increases from the current levels?
spk03: Yeah. In terms of mix, it's been pretty consistent. We didn't see much change, if any, in April. When we look at attachment on key things like... On the restaurant side. On the restaurant side, yeah, to be specific. When we look at beverages or barrel bites or premium sides or $5 take-homes, all the things that guests can opt into, we've really seen no material change in that. And certainly... With regards to pricing, Craig talked about all of the internal and external ways that we look at that because we tend to take small increases more frequently and just monitor very carefully versus our holdout group and, of course, look at all these different ways that we measure value. We still have not seen... any type of significant pushback from the guests on our pricing, which of course each time we take an increase we carefully monitor all of that for any kind of impact there. The one area where I think pricing throughout the industry may have impacted would be frequency, especially with guests that are particularly impacted by You know, economic insecurity, we believe they're cutting back not on check, but rather on the number of visits, you know, that they opt to spend on our category. So that seems to be where they're pulling back.
spk24: Okay, and then one final one for me. I know you upped the cost savings guidance to $30 million from $25 prior. I guess where did we find the incremental increase? 5 million in cost saves. Where should we be flowing that through the income statement? You seem excited about further cost save opportunities into 24. I didn't know if you could preview anything that you've latched onto there. Thanks.
spk20: Todd, we are literally looking at every single line item, and as with every other company, we're constantly looking in the food area, and we've made quite a few changes where the cost goes down and our guest satisfaction or guest research shows an improvement in their perceptions. So there are a lot of those, and that continues on. There are other indirects. It's really a long list of things, banking fees, supplies, different components of labor that are a little bit more indirect in nature, but this is really an enterprise initiative where every single function, you know, we're looking at, you know, internet costs, where every single area, we're looking at utilities in every single area of the company. We're looking for ways to improve our efficiency where it's not a takeaway from our guests and in cases where we do make a change, it's an improvement from a guest perspective. So the point is, there's not one big little thing. One big thing, there are a lot of little things that add up to that $30 million, and it gives us confidence in the FY24 benefit that we'll continue to see from this initiative.
spk25: That's great. Thank you all.
spk14: The next question is a follow-up from Jeff Farmer of Gordon Haskett. Please go ahead.
spk27: Thank you. You did touch on it, but how should we be thinking about G&A dollars in the Q4 and heading into fiscal 24?
spk20: I think the best way to think about G&A dollars is to look at the Q2 and Q3 G&A dollar amounts and forecast that forward. One of the challenges with GNA is the incentive comp is in there and as things move up or down that number, you end up with big, big crew ups. So it's much better to look at the more recent quarters than it is to look at a comparison to the prior year.
spk27: Okay, I can work with that. And then in terms of thinking about just, again on that topic, In terms of incremental investments that might need to be made at the corporate or enterprise level as you get into 24, would you think that there's something significant there as you look out to the next 12 months?
spk20: We'll talk more about 24 on the next quarter. I think we've been – so I'll double down a bit on what we've said for this year. which is the investments in our digital capabilities to better appeal to our growth segments, in particular the loyalty program. That's been a big investment. And then Sandy talked about labor as well. And in an environment where consumers are cutting back on frequency, and so the times that they do go out, It's really important that they get a wonderful experience, and that's what our business is all about. So we're making some additional investments there.
spk27: Okay. And final question for me. You guys did share some commentary that some of the recent Maple Street openings had shown some strength. But just looking at my model, which is not perfect in terms of operating weeks, I don't think you guys disclosed that for Maple Street. It does appear that Maple Street's average weekly sales volumes are down in roughly the mid-single-digit range over the last several quarters. Assuming that math is in the ballpark and you are seeing declines in average weekly sales, what's driving that decline as you more aggressively pursue openings for Maple Street?
spk20: There are a couple of things there. Once we exited those franchise type arrangements that we spoke about earlier, those stores had lower AUVs. So when we brought those into the system, that brought the AUV down. That's one. Additionally, Maple Street has also, like Cracker Barrel has, certainly in the last couple of months, been impacted by traffic that's lower than expectations. Now, I will say... that, again, the new stores have opened very, very strongly. We continue to be pleased with, for example, the weekend business has held up better there, and we're continuing to make some refinements there to grow the weekday business to a greater degree.
spk18: All right. I appreciate that. Thank you.
spk14: This concludes our question and answer session. I would like to turn the conference back over to Sandy Cochran for any closing remarks.
spk04: All right. Well, thank you for joining us today. And although we're facing heightened uncertainty and these headwinds, I'm confident that our strategic priorities on the guest experience, everyday value, On accelerating frequency with our growth segments and on improving our business model, they'll help us successfully navigate these near-term challenges and that we are well-positioned to drive long-term value creation. We appreciate your interest and support.
spk11: The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect. Thank you. Thank you. you Thank you.
spk00: Thank you. Bye.
spk14: Good morning and welcome to the Cracker Barrel Third Quarter 2023 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 your telephone keypad. 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 Caleb Yohannes, Vice President of Investor Relations. Please go ahead.
spk15: Thank you. Good morning and welcome to Cracker Barrel's third quarter fiscal 2023 conference call and webcast. This morning we issued a press release announcing our third quarter results. In the press release and on the call, we'll refer to non-GAAP financial measures for the third quarter ended April 28, 2023. The non-GAAP financial measures are adjusted to exclude impairment charges, store closure costs, and other non-cash amortization the asset recognized from the gains from our sale and leaseback transaction and related tax implications. 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 the net income or earnings per share information prepared in accordance with GAAP. The last pages of the press release includes reconciliations from the non-GAAP information to the GAAP financials. On the call this morning, we have Cracker Barrel's President and CEO, Sandy Cochran, Senior Vice President and CFO, Greg Pimels, and Senior Vice President and CMO, Jen Tate. Sandy and Craig will provide a review of the business, 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?
spk04: Thank you, and good morning, everyone. This morning, we reported total sales growth of 5.4% and an adjusted operating income margin rate of 4.1%. The quarter started out largely as we had anticipated, continuing our momentum from Q2 through February and most of March. We then experienced a meaningful traffic decline, particularly in April, which negatively impacted our sales and profits, both of which came in a bit below our expectations. This softer trend has continued fourth quarter to date, both for restaurant and retail sales. In our view, this reflects weaker consumer sentiment and economic pressures. although we are cautiously optimistic that as the summer travel season unfolds, we will see some improvement to trends in June and July. Our experience in April and May largely mirrors what we've seen across the full-service casual dining industry, and despite the unanticipated headwinds, our sales and traffic growth outpaced the black box casual dining index for the fourth consecutive quarter. Our teams remain focused on operational excellence staffing and retention, and the guest experience. Our everyday value and menu innovation is resonating with guests, and we're making great progress on other key initiatives, including catering, our loyalty program, and our cost savings efforts. Although we expect continued pressures and choppiness in the short term, we feel good about our positioning over the medium and longer term. I'd now like to speak to some highlights from the third quarter. Our menu promotion and advertising campaign showcased our everyday value and variety. Our TV messaging reminded guests that we have 20 meals for under $12 including several hearty signature entrees and we highlighted newer items such as our cheesy bacon homestyle chicken and homestyle chicken and French toast. We also introduced our $5 take home meals which have been popular and are an additional example of how we're leaning into everyday value. For off-premise, we saw high demand for our Easter heat and serve bundled offerings and strong growth in our catering business, which increased over 35% compared to the prior year and remains on track to exceed $100 million this fiscal year. From an operations perspective, we're pleased with the improvements we're seeing in our turnover and retention results. Our new labor system is now in place at over 460 stores, and the rollout will be substantially completed in the coming weeks. We're pleased with the functionality that the system provides and our enhanced ability to optimize labor allocation, and we will continue to fine tune our labor model based on our learnings. Turning to Maple Street, we opened three locations during the quarter and have been pleased with the early performance of each unit. with each location seeing some of the strongest opening week sales in recent years. The team continues to work diligently to optimize the business model and prepare to successfully scale the brand. I'll now turn the call over to Craig for a more detailed look at the quarter from a financial perspective and to discuss our Q4 outlook, after which I'll comment on some of our areas of focus for the remainder of the year.
spk20: Thank you, Sandy, and good morning, everyone. For the third quarter, we reported total revenue of $832.7 million, an increase of 5.4% over the prior quarter. As Sandy noted, the quarter started out in line with our expectations, but towards the end of March, there was a noticeable drop in traffic, which intensified and persisted through April, and it negatively impacted our results. Restaurant revenue increased 7.8% to $681.3 million, and retail revenue decreased 4.2% to $151.4 million versus the prior year quarter. Comparable store total sales, including both restaurant and retail, grew by 5%. Our retail sales were impacted by the restaurant traffic deceleration, as well as shifts in consumer discretionary spending. Additionally, we believe some of our more price conscious guests may be reducing their retail purchases as a way to manage their overall spend when dining with us. Comparable store restaurant sales grew by 7.4% over the prior year, driven by approximately 8.8% total pricing, approximately one quarter of which is a carry forward from fiscal 2022 and three quarters of which is new from fiscal 2023. We continue to closely monitor the impact our pricing has had on traffic and check and believe our pricing strategy is effectively balancing margin protection and maintaining our strong value. We believe that the softer restaurant traffic trend and reductions in retail purchases are primarily driven by macroeconomic factors as opposed to our restaurant pricing increases. Our average check also included a favorable menu mix of approximately 1.8%. We've been pleased with the strong mixed favorability we've seen in recent quarters, which is a direct result of our culinary strategy to provide guests with upgrade and add-on options, such as our shareable barrel bites, premium sides, and most recently, our $5 take-homes, as well as our beverage program. Off-premise sales were approximately 19.1% of restaurant sales. We were pleased with our off-premise performance as we drove strong growth in our catering business, and sales of our Easter bundled offerings were in line with expectations. Comparable store retail sales decreased 4.6% compared to the third quarter of the prior year. We saw declines across most of our categories with our largest decreases in toys and decor, which are among our most discretionary categories. Although sales were softer than we anticipated, we continue to feel good about our inventory levels. Moving on to our third quarter expenses. Total cost of goods sold in the quarter was 31.5% of total revenue versus 31.6% in the prior year quarter. Restaurant cost of goods sold in the third quarter was 27.3% of restaurant sales versus 27.8% in the prior year quarter. This 50 basis point decrease was primarily driven by menu pricing of 8.8%, partially offset by commodity inflation of 4.3%. The primary drivers of Q3 commodity inflation were produce, dairy, and eggs. Third quarter retail cost of goods sold was 50.2% of retail sales versus 46.9% in the prior quarter, which, as a reminder, was an atypically low COGS rate. This 330 basis point increase was driven by more normalized promotional activity and higher inventory shrink. Increased shrink has been a growing problem for the broader retail industry And although our teams are working diligently to mitigate this issue, we expect it to remain somewhat elevated for the near term. Our inventories at quarter end were $185 million compared to $192 million in the prior year. With regard to labor costs, our third quarter labor and related expenses were 35.8% of revenue versus 35.9% in the prior year. This 10 basis point decrease was primarily driven by sales leverage partially offset by hourly restaurant wage inflation of approximately 5.5%. Adjusted other operating expenses were 23.3% of revenue versus 23.1% in the prior quarter. This 20 basis point increase was primarily driven by higher advertising and maintenance expenses. Our general and administrative expenses in the third quarter were 5.4% of revenue versus 5.4% in the prior year quarter. This 40 basis points increase primarily resulted from investments to support our growth initiatives and a more normalized incentive compensation. Additionally, our GAAP results include impairment charges of $11.7 million, as well as $2.2 million in costs associated with store closures. All of this culminated in GAAP operating income of $16.8 million, adjusted for impairment charges, store closure expenses, and the non-cash amortization of the asset recognized from the gains on the sale and leaseback transactions. Operating income for the quarter was $33.9 million, or 4.1% of revenue. Net interest expense for the quarter was $4.5 million, compared to net interest expense of $2.2 million in the prior quarter. The increase is a result of higher interest rates and a higher level of borrowing. Our GAAP effective tax rate for the quarter was negative 14%. reflecting a true-up based on our year-to-date GAAP earnings before taxes, which includes the impact of the impairment charges and store closure costs. On an adjusted basis, our effective tax rate was 7.8%. Third quarter, GAAP earnings per diluted share were $0.63, and adjusted earnings per diluted share were $1.21. In the third quarter, adjusted EBITDA was $60.3 million, or 7.2% of total revenues. Now, turn to capital allocation and our balance sheet. We remain committed to a balanced approach to capital allocation. Our first priority remains investing in the growth of Cracker Barrel and Maple Street. Beyond that, we plan to return capital to our shareholders while maintaining appropriate flexibility and a strong balance sheet. In the third quarter, we invested $38 million in capital expenditures and we returned $29 million to shareholders in dividends. Lastly, we ended the quarter with $445 million in total debt. With respect to our fiscal 2023 outlook, I would like to provide some additional color on the guidance in this morning's release and an update on recent trends. According to date, our top-line trend has generally been in line with April. Looking ahead, the environment remains uncertain. June and July are two of our highest volume months and are heavily influenced by summer travel patterns. Our base case scenario is that these months experience a modest travel trend improvement compared to April and May, largely due to increased travel and easier comparisons from the prior year. Assuming this improvement in our traffic trend, we currently expect total revenue growth in the fourth quarter of 1% to 3%, which includes pricing of approximately 8.5%. We anticipate the opening of one new Cracker Barrel location and five to seven new Maple Street locations during the quarter. Several Maple Streets are slated to open towards the end of the fiscal year, and our updated expectation reflects the possibility that a couple may slip into early fiscal 2024 due to permitting or equipment delays. In Q4, we anticipate commodity inflation will be approximately flat and hourly wage inflation will be approximately 5%. In addition to the above assumptions for revenue growth, commodity and wage inflation, and cost savings, our operating income margin expectation contemplates the following. First, investment in additional labor hours to ensure we're delivering exceptional service and hospitality during the high traffic summer months. Second, within G&A, we have investments to support our strategic initiatives, such as our loyalty program and other digital initiatives, as well as an increase in incentive compensation relative to prior year. Third, we have increased our cost savings estimate and now expect to deliver approximately $30 million in cost savings during the fiscal year with additional gains in fiscal 2024. Taking all of this into account and assuming industry traffic and summer travel patterns play out as we expect, we now expect adjusted operating income margin in the range of 4.5 to 5.5% in Q4. We expect a Q4 GAAP effective tax rate of approximately 0% and an adjusted effective tax rate of approximately 4%. Finally, we anticipate capital expenditures of 30 to $35 million during the quarter. I'll now turn the call back over to Sandy so she may share additional details around our business plans and outlook.
spk04: Although we're currently operating under more uncertainty, we remain confident that we have the right strategy in place to navigate these short-term challenges and win market share. In the current environment, our primary focus is driving sales growth, but we will simultaneously continue enhancing our business model. I'd now like to discuss our strategic priorities. First, we're focused on the guest experience. teams are highly focused on strong execution and delivering an exceptional guest experience. We've placed a priority on ensuring stores are properly staffed for the high-volume summer months. We continue to believe that hospitality is a key differentiator for us, and we will continue to make investments to support this. We're also focused on the training and development of our store employees and believe enhancing these areas will drive further improvements to retention as well as guest satisfaction. Second, we're continuing to emphasize and protect our strong value proposition. Everyday value has always been and will continue to be a key pillar of our strategy, and we're continuing to leverage this core equity through our 20 under $12 advertising campaign. We believe our investments to preserve the value sections of our menu And our attractive price points have been and will continue to appeal to our guests and will maintain our value strength even in a more promotional competitive landscape. The sustained strength and growth of our off-premise channels, in particular catering, for both everyday and holiday occasions, demonstrates our value proposition extends beyond diamonds. We are especially excited about the catering business and continue to enhance the menu and service model. Third, we're looking to accelerate frequency among our growth segments. To achieve this, we remain focused on menu innovation and introducing offerings that feature bolder and more complex flavor profiles, which especially appeal to this group. For example, we recently introduced our steak and egg hash brown casserole and biscuit benny, our version of Eggs Benedict, and we've been encouraged by the response. Our loyalty program is a key initiative, and it's another way that we're extending our care and hospitality to our guests as part of our larger digital transformation initiative. While we believe the loyalty program will appeal to all guests, We think it will especially resonate with our growth segments. We've made significant progress in the development of the program, and to support the successful implementation of this large-scale, complex initiative, we're planning for a beta launch in July. I'm excited about the program, which incorporates all of our channels, including retail, and features fun gaming elements. We believe the loyalty program will drive higher frequency, increase brand loyalty and customer lifetime value, and provide robust, actionable guest data. Finally, we're continuing to improve our business model. Our cost savings program has delivered significant savings this year, and we expect to also deliver meaningful savings to fiscal 2024. We're pleased with our investments in technology, including our food and labor systems, and we will continue to leverage these systems and optimize our processes to drive further efficiencies. And although our top focus is protecting the top line and delivering an exceptional guest experience across all channels, our operators are tightly managing the business to control costs in this more challenged environment. In closing, I believe our focus on the guest experience, value, accelerating frequency with our growth segments, and enhancing our business model has us well-positioned to navigate the short-term challenges we're currently facing and sets us up for capturing market share and driving long-term value creation.
spk11: And with that, I'll turn the call over to the operator for your questions. We will now begin the question and answer session.
spk14: To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster.
spk11: And our first question will come from Catherine Griffin of Bank of America.
spk14: Please go ahead.
spk35: Oh, hi. Thank you. Craig, I wanted to just get a point of clarification on your comments regarding May trends. I believe you said they're sort of consistent with April, but I just want to understand, does that mean that, you know, traffic is sort of running in the negative low single digits, if we contemplate the positive mix that you noted? Or is it that you're seeing that decelerating traffic trend kind of pick up in April? Just sort of, yeah, just wanted to kind of parse those comments.
spk20: Good morning, Catherine. For me, I think what we're comfortable saying is as we went through the quarter, we had a meaningful reduction in our traffic for us and candidly across the entire industry as we progressed through the quarter. And May is consistent with April. So no change, no significant change one way or another. So not a deceleration, not an acceleration, just a consistent trend. I mean, I think clearly the backdrop is more challenging. It's more dynamic. And I think the good news is we're not seeing things get worse. and we're not seeing things get materially better. Now, having said that, I'll kind of just go ahead and give a little bit more texture on this. As our expectation is that as we continue into the summer, then our expectation is that we will see a modest improvement in our trends. Again, April and May were consistent, and we would expect to see a modest improvement as we get into the summer as a part of the summer travel season. That's what's included in our base case assumptions.
spk35: Okay, great. Thank you. And then I just had a question on CapEx. There's a bit of a step-up in the third quarter, so I wanted to know what the drivers of that were. And then just given the lowered outlook for restaurant development, sort of why maintain the full-year CapEx guidance?
spk20: Actually, I think this is a good story here. For many, many months now, many quarters, there has been a backlog in getting equipment for repairs. And now, finally, we're on the backside of that issue, and we're basically getting caught up on some deferred equipment replacement.
spk09: Great. Okay. Thank you.
spk14: The next question comes from Jeff Farmer of Gordon Haskett. Please go ahead.
spk27: Thank you. A couple questions. I'm just curious what the implied same-store sales and traffic growth expectation is that comes with that 1% to 3% F4Q revenue growth guidance. If you can just sort of give us a little bit of a guidepost there, that would be helpful.
spk20: Good morning. Good morning, Jeff. It's Craig. Yes, on the restaurant side, our expectation in that one to three is that restaurant comp sales will be in the kind of low to mid single-digit range for comp sales, and retail we would expect to be a higher single-digit negative sales comp.
spk27: Okay, that's helpful. And then as it relates to Cracker Barrel specifically and what you're seeing at the concept level, is there a customer demographic or D part that is seeing greater headwinds in terms of some of the pressures that you alluded to sort of strengthening or getting a little bit more challenging as you got into May? So, again, demo or D part that's being hit with greater challenges?
spk04: Yeah, Jen, why don't you take that one? Hey Jeff, it's Jen.
spk03: Yeah, I think the situation that we're seeing this quarter is a pretty different one from what was happening a year ago. You know, last third quarter, it was really our older guests that were pulling back with concerns about issues like the Ukraine war and the big spike in gas prices, which were really leading them to cut back on spending. This year, it's a different story. We've actually seen a nice rebound in visitation from those older guests. In fact, now what we're experiencing is some reduced visit frequency from the younger cohorts, which coincides with a sharp downturn in consumer sentiment among those younger cohorts. It's a bit of a different story with this third quarter. You know, obviously it's bumpy when you're looking at one quarter at a time, so we, of course, like to look at things on a little bit of a longer horizon since most of our initiatives are longer-term strategic initiatives with those younger groups. So if we pull back and look at this more, you know, on like a two-year stack, we still have seen some positive momentum with those younger groups, but third quarter certainly was a trickier one with the younger cohorts.
spk27: Okay, just last one's bookkeeping. You guys shared the pricing in the Q3, but traffic and mix in the quarter, I apologize if I missed it, but did you guys share traffic and mix in the quarter, the Q3 quarter?
spk20: We did not in the prepared remarks, but I'll go ahead and share those now. Traffic for the quarter was negative 3.2%, and in addition to the we also had positive menu mix of 1.8%.
spk18: All right. Thank you.
spk14: Our next question comes from Dennis Geiger of UBS. Please go ahead.
spk26: Great. Thank you. Could you talk a little more about your expectations for the brand's resiliency maybe over the coming quarters or over the coming year against the more difficult backdrop that you mentioned? I know you called out the compelling value offers. But any other kind of latest thoughts on sort of brand resiliency here, levers that you can pull against this backdrop that you mentioned would be helpful. Thank you.
spk04: Yeah, good morning, Dennis. It's Sandy. I really will kind of focus on the prepared remarks and my last part, which is that, you know, we continue to believe that the brand is highly differentiated. It appeals across a broad range. spectrum of age, demographics, income, and our focus first and foremost is on ensuring that we're delivering the guest experience. We believe our hospitality is one of our key differentiators and in this environment it's particularly important if you're a guest that's managing their frequency, you want to be sure you're going to brands that you can trust to deliver and deliver both the experience and the value. And so that really leads to my second priority, which is leaning in and emphasizing and protecting our everyday value. We've been known for that. We're not as focused on promotions and deals, but ensuring that a guest can come in any day part and find on the menu a good value, which is why we're focused on highlighting with our 20 under 12 initiative or promotion right now. It's not a promotion. It's every day. I think I'll let Jen speak to the $5 take home, which we think is another great way to deliver value to our guests, and we've been encouraged by the reaction to that. Third, though, we're also really focused on innovating to appeal to the growth channels, and I will let Jen speak to that as a way to drive growth in the next few months.
spk03: Yeah, I think, Sandy, starting with value, that's absolutely a critical part of the puzzle for us. In addition to the fact that we've been messaging to consumers that we do have 20 entrees on our menu that are all under 12, and that's across all day parts, we're also featuring new news in that category, which we think will appeal to our growth segments. So more flavorful, more complex flavors that we've tested with those growth segments, so we feel good about that. $5 take-homes has been a nice addition that helps us grow check, but also we see is improving our value scores on checks that have that on it. I think the other thing that we're very excited about is that we are about a month away. Sometime in July, we're going to be beta testing our new loyalty rewards program, which in all of the research we have done is a very, very appealing tool proposition across all of our segments, sustaining segments, growth segments. Everybody is really interested in this new rewards program that will be very differentiated for us because it encompasses all of our channels, including retail, which is a real differentiator for us. Our guests are going to be able to earn points, whether they're in the restaurant or shopping in our retail, and of course, be able to redeem points across both sides of our business. which I think makes it very unique in the restaurant space. So we're very excited about the launch of loyalty and how that will progress our whole digital roadmap forward. So a lot of things coming in the future that we think will maintain that momentum.
spk04: And I'll just add, thank you, Jen, to that list, although I didn't have this in my list in the prepared remarks. To Jen's point, I do think retail is Although it's challenged right now, it is a key differentiator, and it does allow our guests to find, you know, fun, unique, nostalgic items that are of great value, and I think that will continue to be the case over the next both, not just the next quarter, but the next year, few years.
spk26: That's great, Colleen. Thanks for that, guys. Just one more, if I may. Craig, you spoke to capital allocation priorities. So I just want to ask, in thinking about the attractive dividend and thinking about some of the near-term macro pressure that you've spoken about, is there any thoughts to add with respect to the dividend and maybe balance sheet usage if it comes to it, just thinking about different scenarios looking ahead?
spk20: From a capital allocation perspective, I think our board is incredibly focused incredibly thoughtful and, you know, our priorities are investing in Cracker Barrel and Maple Street and then return in cash to shareholders. And our dividend is our primary way that we are currently doing and that we have been doing that. And our current cash flows, you know, support our dividend. Our leverage ratio supports our dividend. So I don't, you know, I certainly don't see anything in the future that would change that at this point.
spk30: That's great. Helpful, guys. Thank you.
spk11: The next question comes from Andrew Wolf of CL King.
spk13: Please go ahead.
spk22: Thanks. Good morning. Good morning. I wanted to ask a follow-up on the traffic in April and May. Do you think any of that might have been related to the spring being relatively cool and wet, particularly in the southern part, well, all over the country, but in the southward, sometimes in April and May it's already hot and people are out on those highways and so on. Do you think that had any impact? Or do you think weather in any other way had any impact? I know some folks don't like to blame the weather, but the weather is what it is, so that's why I'm asking you.
spk04: Well, I guess I'll start. And you're right. We don't like to use weather as an excuse to not to have delivered the results that we were expecting. But there's certainly some, you could have some discussion about whether, in fact, it was a cool spring. And we've heard that from a number of companies and how it impacted the business and whether that made people more reluctant to maybe do a trip that they were going to do. Certainly our merchants would say that they felt it impacted the timing of our purchases of our summer clothing. So if it was still cold out, you probably weren't as interested in sundresses and sandals as we later saw. So we don't believe there was a material weather impact for the quarter, but We think it could have had on the margins some impact on the timing with our consumers.
spk22: Okay. Also in the retail stores, I mean, your inventories look pretty clean, right? So it doesn't look like there's a lot of, even with the weather, a lot of markdown risk. Am I, you know, I'm just sort of imputing that from the inventories being down year over year and generally the restaurant inventory is being pretty stable. It seems to be the retail store inventories that swing a lot. And if they're down, I would think, to me, it indicates either you've got pretty clean inventories, you don't have a lot of markdown risk, or you're already kind of changing the mix to lower-priced items. Could you just tell us a little about what's going on there?
spk04: Sure. Well, our retail teams, they've done a magnificent job over the past few quarters in delivering – really very impressive retail sales. But in Q3, we did see the guests pull back. And we saw it broadly across the store base. We saw it broadly across categories, particularly in the more discretionary ones. And it kind of was reflected in conversion and UPT. The good news is that our merchants were preparing for this possibility in terms of managing our inventories. And I think they have done a good job of working in this environment to keep the inventories clean. They've been working with the field to be sure we were moving through the most vulnerable categories. They've been working with our vendors on margins. And I think they have, to the point you make, done a good job of managing that risk.
spk20: And, Andrew, I'll build on that a little bit just to say that, as we shared before, we expect the retail part of the business to return to a more normal promotional cadence. So if you think about fiscal 22, we had a lower level of promotional activity, and we shared before that in fiscal 23, we expected to return closer to it for lack of a better term, pre-COVID level of promotional activity. So that continues to be the expectation.
spk22: And if I could just ask one last question about pricing at the restaurants. What's baked into the Q4 comp guidance for price? Could you give us a flavor for the price cadence into just price into next fiscal year? For example, if you didn't take any more price, when would price become neutral?
spk20: We have 8.5% in the current guidance for Q4. The approach that we've been using, so a couple of things on price. We've been incredibly thoughtful about this. We continue an approach we've used for a long time with holdout groups, and we continue to monitor sentiment and value scores and competitor prices and so on. So we feel good about the impact that our prices have in on traffic. The approach that we've used is we've been taking more frequent but smaller price increases. And what that means is as we get into fiscal 24, some of the price will carry over certainly into the first half. We're not prepared to share exactly how much at this time, but I think it's a fair assumption that we'll have a fair bit of carry forward certainly into the first half of fiscal 24. And as we go into fiscal 24, the inflation environment is expected to be, you know, much more normal, I would expect, certainly still early. And as a result of that, you know, we would expect our pricing strategy to adjust accordingly. And we'll talk more about that on the next call.
spk10: Okay, thank you.
spk11: The next question comes from Jake Bartlett of Truist Securities. Please go ahead.
spk28: Great. Thank you so much for taking the question. You know, my first was just on your performance versus the industry. You mentioned that you outperformed again for the fourth quarter, you know, versus Black Box and, you know, one of maybe... make sure I understand which part of Black Box you're comparing yourself to. But I'm wondering whether, you know, the cadence within, you know, April and May, whether that outperformance continued. And, you know, if it didn't, you know, I'm wondering, you know, what you think might be some of the drivers of that. I think some of us are curious whether there's pushback on the menu price, but maybe it's, you know, your markets in particular, the competition with grocery, any other kind of, you know, if it is in fact that you're, your market share gains have reversed, you know, any color on what you think might be driving that.
spk20: Hi, Jay. Good morning. You know, I think there's a lot of detail behind that. I think we're comfortable with saying that for, you know, four quarters in a row, we've been, you know, ahead of black box full service, and we have provided the additional texture that, you know, May is in line with, with April.
spk38: Black Box Casual.
spk20: Black Box Casual, sorry. And, you know, we've talked about our pricing and kind of how we've gone through that and kind of measured twice and cut once, so to speak. So I think there's a lot, you know, there's a lot there. Certainly appreciate the desire to have, to get more, but I think it's a little, it's still early in the quarter and we'll look forward to sharing more about that on the next call.
spk28: Got it. You know, and I'm not even asking about kind of, you know, current trends or really, I'm just, you know, maybe, maybe even in April, you know, it seems, you know, without knowing those exact numbers that your outperformance might've gone to underperformance. And so, you know, what I'm really trying to figure out, it feels like the message from competitors, you know, in the first quarter earning season has been that, you know, there wasn't really material shifts in, in, you know, trade down or trade up and, you know, consumer was holding in. What I'm hearing from your results seems very different than that. So I'm kind of trying to gauge whether there's something specific about your marketplaces, your customers that might be making you more, you know, exposed to some of these macro pressures are out there where we haven't seen it on a large scale, you know, at competitors so far.
spk20: Yeah, it's a good question. I think the areas where we might be different from the competitors would be, for example, the summer travel season as an example. I think that would be an area where we could perform differently either to the good or to the bad. But outside of that, I guess I would just reiterate that we're pleased with the market share gains and you know, we obviously, we report those in a slightly different cadence from others, and I don't know that it would be super helpful to get into each individual months beyond that.
spk28: Okay, and then a question on COGS, and Craig, this is another quarter where, you know, the math, you know, for your restaurant, you know, COGS, there's another, you know, there's a continued kind of bad guy in there if you look at you know, 8.8% of menu price and 4.3 of commodity inflation. There's, there's another portion that's I think impacted by mix. Um, I would think you'd, you'd maybe be getting a year of your benefit from freight and things like that, which I think are in that line. But the question is, you know, that kind of bad guy has now been, you know, this is the fifth quarter. So it's lapping, you know, a drag, um, you know, in the third quarter of last year. So, you know, in the fourth quarter, if you could help us out, um, We kind of know flat COGS or flat commodity inflation, 8.5% pricing. What should restaurant-level COGS be? If you can maybe be more specific there, is there another bad guy coming or is the math much more simple in the fourth quarter?
spk20: Yeah, I think the mixed component, not I think, the mixed component that's impacting Q3 COGS and prior quarters as well really relates to the work that we've been doing to give guests more options to make their experience a more holistic experience, including things like our barrel bites, which are our shareables, and flavored drinks, and so on. So the example there might be, well, this is a real example. You have iced tea, which has a very low COGS percent, and you someone trades out of unflavored iced tea to flavored iced tea, and you have a mid-teens level TOGS percent, but it's still higher. So that drives that tea mix that you're seeing. And the reason I give the elaborate answer is because the mix component is going to depend on the attachment of those add-ons. So to the degree that those add-ons continue to to drive the positive mix that we've seen in check, which was 1.8% in this quarter. To the degree that we outperform there, we'll see a higher impact to restaurant POGs, and to the degree that there is some softness there, then we won't see that level of mixed impact. So it's really going to depend on the restaurant mix. We've been happy with that. That is a way for us to drive some top line, deliver cash, increased cash profits, and it's completely up to the guests who can opt in or not. And it also helps us as it relates to some of our growth segments and the things that they find appealing. So, you know, I get the P-MIX impact that you're referring to, but I think it's strategic in the way that we're utilizing it.
spk28: Great. And then last question, you know, on stores, there's been a number of closures, so I think I think six, Cracker Barrel, I think there was one in May. So maybe we're expecting kind of no net openings in the fourth quarter for Cracker Barrel. But then also I think there's three closures of Maple Street in the third quarter. So you opened three and there was net flat. So if you can give us some color on whether we should expect more, whether we should model in continued closures on either brand, that would be helpful.
spk20: Our approach to restaurant closures is largely that we're in a business of operating restaurants and closing restaurants. So across the portfolio of 600 plus of anything, you're going to have high performers, medium performers, and low performers. And with the low performers, you work to make them be better. And in this case, as we came out of COVID, we had a handful of low performers that we have been working on. and working on their recovery. And then at some point throughout the year, we came to the conclusion that we would not be able to operate those stores profitably and made the decision to exit some of those stores and some of those markets. So that's what's led to this position. So as you noted, we had one in Cracker Barrel in Q1, we had four in Q3, and then we had one in early Q4. So it's not a strategic shift. It's more a function of timing coming out of COVID and working to improve these stores and then coming to the conclusion that we are not going to be able to operate them profitably. As it relates to Maple Street, as we've continued to refine that business model, we had a handful of stores that were under a type of franchise agreement that was not a part of the near-term business model. It may be a part of the long-term business model, but we would do it differently. So we decided to purchase those stores, all of them, and then some of them were particularly challenged, and we decided to exit in that case. So it's a part of getting that business set up to ultimately scale. So two of those three were a part of that, and then one of them was a bit of a one-off location that was a test location that didn't – that we didn't see a path forward with. So not a strategic shift, more of a, for lack of a better term, we're just coming to a decision to kind of move forward on some restores that we've been working on for a period of time.
spk29: Great. Thank you so much. I appreciate it.
spk14: The next question comes from Todd Brooks of the Benchmark Company. Please go ahead.
spk24: Hey, thanks for taking my questions. One's just a follow-up on kind of that concept of unit growth going forward. Can you talk about the difficult construction environment, but also the cost to build units and how that may play into how we should think about the unit growth rate, especially for Maple Street as we go into 24 when we were maybe looking to accelerate growth of the brand as far as cost to build and what type of retrenchment a construction cost you'd like to see to really accelerate brand growth going forward?
spk20: I think you hit on all of the major points there, Todd. Our long-term view on unit growth really has not shifted. In the mid-term, I think as we're all aware, construction costs have escalated. And construction costs have escalated when the economy is slowing down. and interest rates are higher. So there is a bit of a disconnect in some ways between the cost to build and what's happening in the macro environment. So the long-term strategy is still the same. We are working to ensure that we're delivering an adequate return to our shareholders with each of the new units. And that means that in the near term, we're passing on more opportunities than we might have even a year ago. Now, we do anticipate that as the environment normalizes and the real estate world comes into adjust for the current environment, that we'll be able to resume. In addition to that, we're also, as every business is, you're also always working to optimize your your real estate model in the form of cost and we're going through that. That's going to take some more work. And there have been a lot of shifts over the last few years in a whole host of ways. So we're actually going through and updating our site opportunity model where we think we can have size and how is that shifted. So our long-term view is the same and we're really updating our approach to that and we're also monitoring for some cooling in the environment as well.
spk24: That's great, Craig. Thanks. A second follow-up, just talking about the April pullback that was cited. You gave us mixed data for the full quarter. I was just curious if you start to look at April and where the consumer may be settling out. Can you share how either the mix changed or maybe attach rates? If you're seeing any check management on the part of the consumer and then Jen, I know you do detailed testing around future pricing actions. Has there been a change in how the consumer is responding to the thought of future price increases from the current levels?
spk03: Yeah. In terms of mix, it's been pretty consistent. We didn't see much change, if any, in April. When we look at attachment on key things like... On the restaurant side. On the restaurant side, yeah, to be specific. When we look at beverages or barrel bites or premium sides or $5 take-homes, all the things that guests can opt into, we've really seen no material change in that. And certainly... With regards to pricing, Craig talked about all of the internal and external ways that we look at that because we tend to take small increases more frequently and just monitor very carefully versus our holdout group and of course look at all these different ways that we measure value. We still have not seen any type of significant pushback from the guests on our pricing, which of course each time we take an increase we carefully monitor all of that for any kind of impact there. The one area where I think pricing throughout the industry may have impacted would be frequency, especially with guests that are particularly impacted by you know, economic insecurity. We believe they're cutting back not on check, but rather on the number of visits, you know, that they opt to spend on our category. So, that seems to be where they're pulling back.
spk24: Okay. And then one final one for me. I know you upped the cost savings guidance to $30 million from $25 prior. I guess, where did we find the incremental 5 million in cost saves. Where should we be flowing that through the income statement? You seem excited about further cost save opportunities into 24. I didn't know if you could preview anything that you've latched onto there. Thanks.
spk20: Todd, we are literally looking at every single line item, and as with every other company, we're constantly looking in the food area, and we've made quite a few changes where the cost goes down and our guest satisfaction or guest research shows an improvement in their perceptions. So there are a lot of those, and that continues on. There are other indirects. It's really a long list of things, you know, banking fees, supplies, different components of labor that are a little bit more indirect in nature, but this is really an enterprise initiative where every single function, you know, we're looking at, you know, internet costs, where every single area, we're looking at utilities in every single area of the company. We're looking for ways to improve our efficiency where it's not a takeaway from our guests and in cases where we do make a change, it's an improvement from a guest perspective. So the point is, there's not one big little thing. One big thing, there are a lot of little things that add up to that $30 million, and it gives us confidence in the FY24 benefit that we'll continue to see from this initiative.
spk25: That's great. Thank you all.
spk14: The next question is a follow-up from Jeff Farmer of Gordon Haskett. Please go ahead.
spk27: Thank you. You did touch on it, but how should we be thinking about G&A dollars in the Q4 and heading into fiscal 24?
spk20: I think the best way to think about G&A dollars is to look at the Q2 and Q3 G&A dollar amounts and forecast that forward. One of the challenges with G&A is the incentive comp is in there and as things move up or down that number, you end up with big, big crew ups. So it's much better to look at the more recent quarters than it is to look at a comparison to the prior year.
spk27: Okay, I can work with that. And then in terms of thinking about just, again on that topic, In terms of incremental investments that might need to be made at the corporate or enterprise level as you get into 24, would you think that there's something significant there as you look out to the next 12 months?
spk20: We'll talk more about 24 on the next quarter. I think we've been – so I'll double down a bit on what we've said for this year. which is the investments in our digital capabilities to better appeal to our growth segments, in particular the loyalty program. That's been a big investment. And then Sandy talked about labor as well. And in an environment where consumers are cutting back on frequency, and so the times that they do go out, It's really important that they get a wonderful experience, and that's what our business is all about. So we're making some additional investments there.
spk27: Okay. And final question for me. You guys did share some commentary that some of the recent Maple Street openings had shown some strength. But just looking at my model, which is not perfect in terms of operating weeks, I don't think you guys disclosed that for Maple Street. It does appear that Maple Street's average weekly sales volumes are down in roughly the mid-single-digit range over the last several quarters. Assuming that math is in the ballpark and you are seeing declines in average weekly sales, what's driving that decline as you more aggressively pursue openings for Maple Street?
spk20: There are a couple of things there. Once we exited those franchise type arrangements that we spoke about earlier, those stores had lower AUVs. So when we brought those into the system, that brought the AUV down. That's one. Additionally, Maple Street has also, Black Cracker Barrel has, certainly in the last couple of months, been impacted by traffic that's lower than expectations. Now, I will say, that, again, the new stores have opened very, very strongly. We continue to be pleased with, for example, the weekend business has held up better there, and we're continuing to make some refinements there to grow the weekday business to a greater degree.
spk18: All right. I appreciate that. Thank you.
spk14: This concludes our question and answer session. I would like to turn the conference back over to Sandy Cochran for any closing remarks.
spk04: All right. Well, thank you for joining us today. And although we're facing heightened uncertainty and these headwinds, I'm confident that our strategic priorities on the guest experience, everyday value, on accelerating frequency with our growth segments, and on improving our business model They'll help us successfully navigate these near-term challenges and that we are well-positioned to drive long-term value creation.
spk11: We appreciate your interest and support. The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.
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