Cracker Barrel Old Country Store, Inc.

Good day, and welcome to the Crack a Barrel Fiscal 2024 Fourth Quarter Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Adam Hannon, Director of Investor Relations. Please go ahead.

Thank you. Good morning and welcome to Cracker Barrel's fourth quarter fiscal 2024 conference call and webcast. This morning, we issued a press release announcing our fourth quarter results. In this press release and on this call, we will refer to non-GAAP financial measures such as adjusted EBITDA, for the fourth quarter ended August 2, 2024. Please refer to the footnotes in our press release for further details about these metrics. The company believes these measures provide investors with an enhanced understanding of the company's financial performance. This information is not intended to be considered in isolation or as a substitute for net income or earnings per share information prepared in accordance with GAAP. The last pages of the press release include reconciliations from the non-GAAP information to the GAAP financials. On the call with me this morning are Cracker Barrel's President and CEO, Julie Messina, and Senior Vice President and CFO, Craig Pimels. Julie and Craig will provide a review of the business, financials, and outlook. We will then open up the call for questions. On this call, statements may be made by management of their beliefs and expectations regarding the company's future operating results or expected future events. These are known as forward-looking statements, which involve risks and uncertainties that in many cases are beyond management's control and may cause actual results to differ materially from expectations. We caution our listeners and readers in considering forward-looking statements and information. Many of the factors that could affect results are summarized in the cautionary description of risks and uncertainties found at the end of the press release and are described in detail in our reports that we file with or furnish to the SEC. Finally, the information shared on this call is valid as of today's date and the company undertakes no obligation to update it except it may be required under applicable law. I'll now turn the call over to Cracker Barrel's President and CEO, Julie Messina. Julie?

Good morning and thank you for joining us. Today marks Cracker Barrel's 55th birthday. This incredible milestone is one that few concepts have achieved and is a testament to the enduring appeal of our brand and the hard work by so many since Danny Evans founded Cracker Barrel in 1969. Their efforts laid the foundation for the investments we are making for our future, and we are grateful for the opportunity to build upon and continue this legacy. This morning, we were pleased to report total revenue and adjusted EBITDA consistent with our guidance. We remain focused on operational excellence day in and day out. Our multi-year strategic transformation journey is off to a great start. I'll touch more on each of these in a moment, but there's a lot to be excited about. We've hired a new dynamic CMO and are making progress on refining the brand. Our new menu items are resonating with guests. Our optimized pricing initiative is delivering strong flow through and strong value perception scores. We're seeing a lift in traffic and sales in our remodeled pilot stores. Our loyalty program has 6 million users after just one year and is delivering incremental sales and traffic. And our teams are highly engaged and executing at a high level, which is reflected in key improvements in employee and guest metrics. All of these are highlights from our five strategic pillars. Refining the brand, enhancing the menu, evolving the store and guest experience, winning in digital and off-premise, and elevating the employee experience. I'll now dig into each one of these. Our first pillar is focused on evolving the brand and reflecting this in all the ways we interact with guests. We've partnered with a top-tier agency and have conducted extensive qualitative and quantitative research that is informing our upcoming brand refinements. Our findings reiterated our numerous brand strengths, and identified opportunities to increase brand love and ultimately drive increased consideration and traffic. I'm thrilled that Sarah Moore has joined our team as Chief Marketing Officer, and she is leading this work. Sarah brings nearly 20 years of hospitality experience, most recently as SVP of Marketing at MGM Resorts International. where she spearheaded marketing initiatives for a portfolio of world-class hospitality brands such as Bellagio, Aria, and MGM Brands. Her expertise in digital marketing, loyalty programs, and crafting innovative approaches that honor brand heritage while driving strong business results, coupled with her hospitality-focused leadership and love for the brand, make her an ideal fit. As I mentioned earlier, Cracker Barrel was founded 55 years ago today. And we're marking this milestone birthday in several ways. First, we're excited to be partnering with legendary athlete and Cracker Barrel super fan, Dion Sanders. And Coach Prime will be featured in our digital messaging. Additionally, to commemorate our birthday and show appreciation to all Cracker Barrel Rewards members, including both guests and employees, we're offering complimentary servings of our double fudge Coca-Cola cake, coffee, and iced tea today through Sunday. Our second pillar is to enhance the menu and make it more craveable for guests and easier to execute for our teams. This also includes optimizing our pricing while maintaining our strong value proposition. We're leaning into innovation and have introduced several new offerings in recent months. These included LTOs such as our sweet and spicy bee sting chicken tenders and sandwich featured in Q4, and our new fan-favorite hash brown casserole shepherd's pie and fried apple French toast bake that are currently featured. We've also added several new offerings to our core menu. We introduced a new sunrise pancake special for $7.99. It's an incredible value. It includes two fluffy, delicious buttermilk pancakes, two eggs, and your choice of bacon or sausage. We also added several premium offerings featuring a New York strip, which is a quality upgrade from our previous steak. Additionally, we've augmented our daily dish menu by adding several daily specials, such as our sweet and tangy southern barbecue ribs, creamy and savory chicken and rice, and delicious, unctuous, slow-braised pot roast. We've been pleased with the performance of these new offerings, and we're building an exciting innovation pipeline. Our menu enhancements go beyond the offerings themselves and also include how items are presented on the menu. We're very focused on strengthening our already strong value proposition, and one of the ways we're doing this is by implementing a barbell pricing strategy. As I mentioned earlier, we've already introduced new items at both the low and high end of the spectrum, and we'll be adding more. Additionally, we're continuing to highlight our early dinner deals. These offerings are an exceptional value, and the platform allows us to message compelling price points, which is especially important given the high level of promotions and discounting in the current environment. Another way we are enhancing our menu is by driving efficiencies to improve profitability by reducing fixed labor and making back of house jobs easier and more enjoyable. We're working with an industrial engineering firm and we just completed the first phase of analysis and are now moving into the initial testing phase. As part of this, we're rethinking back-of-house roles and responsibilities to improve production efficiencies and reduce waste. We believe this work will yield significant cost savings, both in FY25 and beyond, while also improving the quality of our scratch-made food. In the coming weeks, We will be launching an approximately 20 store test to validate key assumptions, and we plan to launch system-wide in Q3. The final aspect of menu enhancement is our work on price optimization and bolstering our strong value positioning. Our brand has always been synonymous with delivering great value to our guests, and we know this is particularly important right now. We are being much smarter and more sophisticated with our approach in improving the way we price, so that each store hits the sweet spot based on consumer willingness to pay, competitor pricing, and store operating costs. In most cases, this means increasing the pricing in stores, but in some cases, it means lowering it. For example, in Q1, approximately 150 stores moved to a higher pricing tier, while approximately 70 stores moved to a lower tier. We've been pleased with our results to date. Our analysis indicates we are effectively passing through our price increases. In addition to the strong flow through, we have actually seen an improvement in our value scores following our August price increases. We will continue to monitor this closely and are prepared to adjust as necessary. But the data suggests this is a large opportunity and will be a key driver of improving our profitability. Our third pillar is focused on the guest experience. And this encompasses operational execution, store design and atmosphere, and retail. Operational excellence and consistent execution are a top priority. We remain hyper-focused on the metrics that are most highly correlated with same-store sales growth. Throughout fiscal 24, we invested in labor hours to support these objectives, and we continue to make improvements in these important leading indicators. Although we may not share this detail every quarter, I do want to provide some examples. Compared to the prior year quarter, hourly turnover improved by 13 percentage points. Speed to eat times, a key speed metric, improved by 7%. Average skill level for the key positions of cook and server increased by 1.5%. Google star rating increased from 4.1 to 4.2. And our internal net sentiment scores hit their highest levels since we relaunched the program last fall. And finally, off-premise missing item scores improved by 13%. I want to give a huge shout out and thank you to our retail and restaurant teams for achieving these results. This is a testament to their vigilant focus on our guests and executing the day-to-day business. I believe we will sustain this momentum and this will translate to increased visits over time. As I've mentioned before, Store design and atmosphere are critical to the guest experience and to position us to win in the near and long term. That is why we're investing in more maintenance capital to ensure our stores meet our brand standards, that they compare well to the competition, and that they are desirable places to work. Our incremental investments are focused on areas we think are the most impactful to the guest and employee experience, things like exterior paint, parking lots, flooring, and restrooms. To give a sense of the progress we're making here, in Q4 and Q1 to date, we've redone approximately 35 parking lots, updated 30 back of house and 30 front of house floors, and repainted the exterior on another 30 stores. This work is part of our defensive capital spending that is crucial to our success. Another important initiative of this pillar is our remodel program. In FY25, a key objective is to understand which remodel packages resonate the most with guests and drive the strongest return on investment because this will inform our plans in subsequent years. In addition to the high, medium, low options we've previously spoken about, through our testing, we've also developed a fourth, even lower cost option that we're calling a refresh. We are excited about the refresh option because it's provided a strong return in the initial pilot store and allows us to quickly address more stores at a lower cost. In addition to the 25 to 30 full remodels planned in fiscal 25, we also anticipate completing 25 to 30 refreshes. Although I want to emphasize that it is still early, we are encouraged by the results of our remodel pilot stores. We have consistently seen traffic and sales growth across the four stores that were updated in fiscal 24. Guests have noted that the updated stores feel brighter and more open, but most importantly, remain authentically Cracker Barrel. We've also received positive feedback from our employees, and a common theme is that they feel energized by the investment and that the updates are improving their experience. We will continue to be thoughtful and disciplined with our remodel program. This is one of the biggest areas of planned investment in the coming years, and we are working diligently to ensure we get the investment algorithm right for our shareholders. We are taking the learning from our four pilot stores and applying to our first market test in Indianapolis, Indiana. For this 12-store test, we are bringing together elements from the remodel program along with new menu items and service standard enhancements to further refine our hypotheses around the remodel program and algorithm. It's going to take a few months to get a read, but we are excited about this test and look forward to sharing updates in the future. Another aspect of this third pillar is our retail business. And here we're focused on optimizing our assortments, improving the shopping experience, and driving profitability. We're continuing to lean into our seasonal themes, which have been a relative strength. We're encouraged by the guest's response to our Halloween and harvest collections, and we're seeing positive momentum in our everyday businesses. Additionally, this year we're focused on supporting margins by enhancing our allocation, replenishment, and inventory management capabilities. Our fourth pillar is to win in digital and off-premise. Today, my comments will focus on digital. Before providing some additional detail, I want to note that we are committed to regularly updating you on our progress for the loyalty program. However, for some of the metrics I will be referencing, we intend to only provide updates on an annual basis. Cracker Barrel Rewards launched one year ago, and this is another way we are reinforcing our strong value proposition. We continue to see proof points that it is one of the most engaging and differentiated loyalty programs in full-service dining, and we're excited about it for several reasons. First, we're pleased with guest adoption. We currently have 6 million members which has exceeded our initial expectations and is a testament to the appeal of the program. Second, our members are very valuable. They visit us 50% more often and their average check is 10% higher than non-members. They also have a strong proclivity for retail as their average retail basket spend is about 40% higher than non-members. Third, we've demonstrated an ability to influence guest behavior and drive traffic, as evidenced by the increase in visit frequency of members pre and post enrollment. Finally, we're excited about the robust guest data and insights this program provides. Over the past year, we've markedly improved our analytics capabilities. We are excited about the opportunity to unlock new insights and to directly communicate with our members to further drive sales and traffic. We're continuing to test and learn to understand what resonates most. To give some examples, we've recently tested member exclusive campaigns such as our endless summer sweepstakes and other limited time promotional offers such as PEG accelerators and Kids Eat Free. The results of these tests affirm the potential of the program and the power of directly communicating with this valuable guest segment. We remain so optimistic about this program. We believe it will be a long-term traffic driver and brand differentiator, and we will leverage its uniqueness and insights to drive profitable growth in the business. Our final pillar is to enhance the employee experience. We're in the hospitality business, and people, both employees and guests, are the heart of our business. To deliver an excellent employee experience, we'll continue to focus on staffing and retention, to get and keep the right people. As I alluded to earlier, we continue to make great progress on turnover and are focused on further improvement. In Q4, hourly turnover was approximately 100% compared to 113% in the prior year quarter. And manager turnover was approximately 22% compared to 27% in the prior quarter. We're also focused on making jobs easier through simplification and upgrading our tools and training. In Q4, we launched a new human capital management system, and this system provides a modern foundation to support an improved employee experience. Additionally, it will improve our positioning as an employer of choice, and it will also deliver efficiencies that contribute to cost savings. Managers are especially critical to our success, so we're working diligently to improve their experience and streamline their job so they can focus on what's most impactful, which is directing and coaching their team and supporting an exceptional guest experience every shift, every day. Before handing it over to Craig, I want to reiterate that we were pleased to deliver results that were in line with our guidance and that we're focused on executing our day-to-day business while making significant progress on our future. I'll now turn it over to Craig to review our financials and provide our outlook.