Cracker Barrel Old Country Store, Inc.

Good afternoon and welcome to Cracker Barrel's first quarter fiscal 2026 conference call and webcast. This afternoon, we issued a press release announcing our first quarter results. In this press release and on this call, we will refer to non-GAAP financial measures such as adjusted EBITDA for the first quarter ended October 31st, 2025. 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 to meet Cracker Barrel's President and CEO, Julie Messino, 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 as may be required under applicable law. I'll now turn the call over to Cracker Barrel's President and CEO, Julie Messino. Julie?

Good afternoon, and thank you for joining us. As you are all aware, the past few months have been difficult for Cracker Barrel and for our 70,000 team members around the country. And while many of our guests are enjoying our improved food and guest experience, we certainly have more work to do to regain the trust and confidence of others who have been slower to return. This will take time, but we are executing a plan and are confident we will get back to the trajectory we saw in fiscal 25. Turning to our Q1 performance. Our unique circumstances during the first quarter were exacerbated by a difficult macro and industry backdrop that saw choppy traffic patterns. Sales were down 5.7% compared to the first quarter of fiscal 2025, with adjusted EBITDA of $7.2 million. Our EBITDA was clearly impacted by our top-line performance, but I also want to remind everyone that it included incremental costs related to advertising, marketing, and our GM conference. which totaled approximately $14 million. Traffic was down 1% in the first half of August and was down approximately 9% for the remainder of the quarter. We are taking decisive actions to return our performance to a positive trajectory, which can be grouped into three areas. The first two areas are centered around our focus on our food and the guest experience and include evolving our operations and connecting with our guests through our menu, marketing, and value proposition. The third area is pursuing cost savings to improve profitability. Starting with operations, we have three main areas of focus and activity. Optimizing our back of house initiatives, conducting extensive training, and making key leadership changes. As you may know, our back of house initiative is a multi-phase program aimed at improving food quality and consistency while also simplifying operations and contributing to cost savings. Q4 was the first full quarter in which phase one had been rolled out. Although phase one was delivering meaningful savings, it became clear during the quarter that the new processes at scale made consistent execution more challenging for our operators and impacted the consistency of our food. Given the importance of food and experience, as well as the heightened scrutiny around our brand, we decided to change course and reinstated our prior processes. Based on these learnings, we're evolving phase two of our back of house initiative and our store testing methodologies to better ensure that any changes we introduce will be easily executable across the system and help our operators deliver the consistent quality our guests expect. To the extent we have we have to sacrifice some planned cost savings to achieve this goal, we will do so, and we're confident we will recoup these savings elsewhere. To ensure that our back of house teams are best positioned to deliver consistently outstanding food and experiences, during the month of October, we successfully retrained all of our managers, kitchen production staff, and grill cooks on core classic Cracker Barrel recipes, as well as our new holiday offerings. Finally, during the quarter, we also made key operational leadership changes to remove a layer of management, get closer to our guests, and drive a relentless focus on food and hospitality. Doug Heisel, previously Vice President, Field Operations, was promoted to Senior Vice President, Store Operations. Doug has been with Cracker Barrel for over 18 years and has held a variety of operational roles of increasing responsibility. He has a deep understanding of Cracker Barrel's people, processes, and standards. Teams in the field at all levels are responding to his leadership. Since Doug assumed his new role, he has emphasized flawless food, operational precision, and shared accountability among leaders and team members. And we've seen encouraging trends in guest metrics as a result. In recent months, our Google Star rating, which is strongly correlated with traffic, has been running at its highest level since early 2020. Additionally, we've seen improvements in food taste, service, value, and experience, all of which improved between 3% and 4% in October and even more in November versus prior year. These metrics are important, leading indicators, and we expect they will translate into improved traffic over time. Turning now to our guests. We continue to work a multi-pronged plan to ensure we are connecting with them through our menu, our messaging, and our loyalty program. This is the second area of focus I referenced earlier. With respect to our menu, we are returning dishes to the menu that our guests have told us they love and miss, like we did with campfire meals, Uncle Hershel's breakfast, and chicken and rice. We brought back two fan-favorite dishes to our holiday menu this year, country fried turkey and cinnamon swirl French toast, as well as the highly requested turkey sausage. We also introduced a new breakfast burger. This delicious burger is topped with our signature hash brown casserole and is the ultimate combination of country cooking and a breakfast-for-dinner entree. Guest feedback on these new and old favorites has been positive. Going forward, we continue to leverage guest feedback and have quality improvement tests planned for signature items in the coming months. We are working to ensure our core menu remains craveable and includes favorites that guests have missed. I already mentioned some of the items we've brought back, and next month, our guests will see even more favorites returned to the menu, such as hamburger steak and eggs in a basket. To oversee this effort, I'm pleased to report that Thomas Yun has rejoined Cracker Barrel to lead our culinary teams. Thomas previously served in this role from 2022 to 2024, and was the driving force behind several of our most successful menu introductions, including pot roast and hash brown casserole shepherd's pie. He also brought back beloved legacy classics like the return of chicken and rice. His efforts to strengthen the heart of the menu will help us deliver the familiarity, quality, and comfort our guests expect from Cracker Barrel. With respect to our messaging, our marketing teams are following a clear framework rooted in food, value, heritage, and shared values while reinforcing traditions. We are reassuring guests that the Cracker Barrel they love hasn't gone anywhere, while also driving shorter-term traffic in a way that is true to the brand and preserves our commitment to everyday value. We are also pleased that we've improved our ability to seek and receive feedback from guests as we leverage our Cracker Barrel Rewards Loyalty Program. which continues to grow at impressive rates. We are deepening our storytelling by showing up in the places and passions that matter most to our guests. From NASCAR and college football to country music, we are leaning into the cultural touch points that reflect who we are and who we serve. We are also strengthening our presence at the local level through expanded store marketing efforts designed to connect with new and existing guests directly in their neighborhoods. bringing our heritage, food, hospitality, and storytelling to life where they live, gather, and celebrate. We recently introduced the Our Country Friends series on social media, showing our commitment to scratch-cooked food made with care. Cracker Barrel's suppliers include many the company has partnered with for decades, and we've been so proud to highlight these American businesses and the people behind them. A few that we've featured include our sourdough bread maker, Bay's Bread, based right here in Lebanon, Tennessee, and our coffee and tea maker, Royal Cup, based out of Birmingham, Alabama. Finally, we are emphasizing and expanding our longstanding commitment to the military community. Our military retail assortment has been a part of Cracker Barrel for decades, and guests have always responded to these assortments because it reflects the pride and patriotism that is core to Cracker Barrel. Our guests, many of them veterans, active service members, and military families, have asked us to do more, and we have responded. Building on the success of last year on Veterans Day, we offered a complimentary sunrise pancake special for military members, and we helped support 30 worthy veterans organizations throughout November. Most significantly, on November 12th, we launched an ongoing 10% military discount available all day, every day, in both restaurant and retail, to show our continued gratitude to those who serve. The new discount is available through our rewards program, ensuring that all active military and veterans can easily receive this benefit with every visit. As you can imagine, these are long-term efforts, but we're also pursuing shorter-term initiatives that are aimed at driving traffic in a way that is authentically Cracker Barrel. We anticipate leaning into these even more heavily over the balance of the year. During Q1, we launched a series of highly promotional, short-term offers such as BOGO Sunrise Pancake Specials, BOGO Old Timers Breakfast, Kids Eat Free, All You Can Eat National Pancake Day, and Pancake Blocktober. These promotions drove meaningful traffic lifts during the short windows in which they ran. Continuing these efforts, this week we will be leveraging our position as a beloved holiday destination by launching a limited time promotion of a free toy with the purchase of a kid's meal. This offer, which integrates both restaurant and retail, is not only a great value, kids get to choose a free toy up to $5 or receive $5 off a higher priced toy. And it also taps into the nostalgia and tradition that guests associate so strongly with our brand. We are being very careful to deploy these shorter-term initiatives in a way that preserves our longer-term commitment to everyday value through abundant portions at a fair price and our strong loyalty program. We know these things remain incredibly important to our guests and are key to our business model. Recent guest research shows that our value proposition remains strong. This is particularly encouraging given the macroeconomic backdrop and heightened promotional activity in the industry. Cracker Barrel Rewards is another key vehicle for delivering value to our guests and staying connected to them. Since the last time we spoke, we've added another million members and now have over 10 million members in the program. Members now account for 40% of tracked sales. This program continues to be a powerful tool to directly communicate with guests, whether to drive traffic or receive their input. In September, we launched Front Porch Feedback, a program that gives loyalty members the opportunity to comment directly to our team on aspects of their visit. This feedback, in addition to extensive guest research we conducted during the quarter, has been instrumental in guiding our action plan to improve food and experience and to reinforce guest perception of our strong value proposition. Finally, we are leveraging our differentiated retail platform to deliver value to guests. We're leaning into the holidays, and we have a thoughtfully curated collection of seasonal gifts, with many items available only at Cracker Barrel at great value across price points. As we work towards re-accelerating our traffic trajectory through our focus on food and experience, it is critical that we continue to pursue cost savings and adjust our expenses. We are doing both, but we will do so only in ways that protect food quality, the guest experience, and our store level operations. As part of our cost savings efforts, we have previously stated that our goal was to get G&A closer to historical levels as a percentage of sales. We started a corporate restructuring during Q1. We will be accelerating and expanding this initiative through a further restructuring of our corporate support center during the remainder of the second quarter. While this will be understandably difficult for some of our corporate team members it is necessary to successfully navigate the current headwinds, streamline the focus of our corporate functions, protect our balance sheet, and ensure we can invest in the food and guest experience. In summary, we are facing a unique set of challenges, which necessitates a long-term approach to drive improved performance and recover the momentum we had earlier in calendar 2025. Guiding all of this is the overarching priority of serving up delicious food and delivering experiences guests love. We have made key operational changes. We're connecting and reconnecting with our guests through our menu, messaging, and continued commitment to value. And we're taking significant steps to improve profitability. These are the things we need to do to return the company to a position of strength and recover the momentum we have been generating. I'll now turn it over to Craig to review our results and discuss our outlook.

Thank you, Julie, and good afternoon, everyone. For Q1, we reported total revenue of $797.2 million, which was down 5.7% from the prior year quarter. Restaurant revenue decreased 4.8% to $650.6 million. Comparable store restaurant sales decreased by 4.7%, which included a traffic decline of 7.3%. Pricing was 4.1% and menu mix was negative 1.2%. The negative menu mix was driven by the value promotions we pulse during the quarter to support traffic as well as lower dinner traffic. Off-premise sales were 18.1% of restaurant sales. Total retail revenue decreased 9.4% to $146.6 million, and comparable store retail sales decreased by 8.5%. This decrease was primarily driven by the decline in traffic, as well as lower retail attachment rates and unfavorable retail mix. Moving on to our quarterly expenses. Total cost of goods sold in the quarter was 31.2% of total revenue versus 30.6% in the prior year. Restaurant cost of goods sold was 26.6% of restaurant sales versus 26.1% in the prior year. This 50 basis point increase was driven by higher waste related to product and process changes increased discounts, and commodity inflation, partially offset by menu pricing. Commodity inflation was approximately 2.1%, driven principally by higher pork, beef, and egg prices, partially offset by lower poultry and produce prices. Retail cost of goods sold was 51.4% of retail sales versus 49.7% in the prior year. This 170 basis point increase was primarily driven by tariffs and higher discounts, partially offset by pricing. Quarter-end inventories were $209.1 million compared to $201.9 million in the prior year. Labor and related expenses were 37.8% of revenue, compared to 36.4% in the prior year. This 140 basis point increase was primarily driven by sales deleverage and lower productivity, which was partially due to actions to support the guest experience. Wage inflation was approximately 1.5%. Other operating expenses were 28.7% of revenue compared to 25% in the prior year. This 370 basis point increase is primarily composed of the following. First, approximately 110 basis points from higher advertising expenses due to planned increases in marketing and sales deleverage. Second, approximately 80 basis points due to planned expenses related to our General Manager's Conference, which typically occurs every other year. And third, approximately 200 basis points related to store occupancy costs driven by salesy leverage and higher maintenance expenses. The increase in maintenance is due to an updated accrual process associated with the implementation of a new tool. which is one time in nature, as well as increased spending. The increases were partially offset by higher vendor credits. Adjusted general and administrative expenses were 5.1% of revenue and exclude $1.4 million in expenses related to the proxy contest and a $6.2 million corporate restructuring charge that includes professional fees related to business model improvement work and severance related to the organizational and leadership structure changes. Compared to the prior year, adjusted general and administrative expenses improved 120 basis points, primarily driven by lower incentive compensation. Our GAAP financial results include approximately $3.1 million in expenses related to lease terminations associated with the Maple Street units that were closed during the quarter. Net interest expense was $3.7 million compared to net interest expense of $5.8 million in the prior year. This decrease was primarily the result of a lower revolver balance and a higher convertible debt balance. Our GAAP income taxes were an $11.9 million credit. Adjusted income taxes were a $9.4 million credit. GAAP earnings per diluted share were negative $1.10 and adjusted earnings per diluted share were negative $0.74. Adjusted EBITDA was $7.2 million or 0.9% of total revenue compared to $45.8 million or 5.4% of total revenue in the prior year. Now, turning to capital allocation and our balance sheet. We continue to have a strong balance sheet and ample liquidity, which gives us confidence that we can successfully navigate through the current headwinds. We ended the quarter with $550.3 million in debt, compared to $527 million in the prior year. At quarter end, our total available liquidity was $485 million. and our consolidated total debt to adjusted EBITDA leverage ratio was 2.8 times. In the first quarter, we invested $34.2 million in capital expenditures. Additionally, as announced in today's press release, the Board declared a quarterly dividend of 25 cents per share payable on February 11, 2026, to shareholders of record on January 16, 2026. Before providing our outlook, I want to touch on our recent trends. Quarter to date, traffic has declined approximately 11%. The traffic appears to have stabilized, as weekly traffic has been relatively consistent in Q2, including the Thanksgiving week. Although Thanksgiving week traffic comps were in line with the rest of the month, we were still pleased that millions of guests chose to dine with us that week. and we delivered notable improvements in guest experience metrics, while doing nearly $110 million in sales. Turning to our fiscal 26 outlook. Our outlook reflects our best estimate as of today. The rate and level of our traffic recovery, as well as the level of investment required, remain key drivers of our fiscal 26 EBITDA performance. As outlined in our press release, we anticipate the following for fiscal 2026. Total revenue of $3.2 to $3.3 billion. This reflects a slower recovery than we previously expected, as well as a more challenged macro and industry backdrop compared to our prior outlook. Pricing of 3.5% to 4.5% versus 4% to 5% in our prior guidance. Additionally, we expect lower menu mix resulting from higher discounts and lower dinner traffic, commodity inflation of 2.5% to 3.5%, and hourly wage inflation of 3% to 4%, both of which are consistent with our prior guidance. We are implementing a number of cost savings actions, some of which were previously planned and some of which are new. These actions will bolster our financial performance and increase our operating leverage when traffic improves and are focused on non-guest facing areas. They include the following. First, as Julie stated, we executed a restructuring for the corporate support center in Q1 and there will be a further restructuring of the corporate support center in Q2. We expect these combined actions will result in annualized G&A savings of approximately $20 million to $25 million. Second, we are reducing our planned advertising spend over the balance of the year and expect that our aggregate advertising expense in Q2 through Q4 will be approximately $12 million to $16 million lower compared to the same period in the prior year. Additionally, we continue to execute our ongoing cost savings program. We expect that the benefits from this program will be reinvested in the business, particularly in the menu, as well as being offset by traffic deleverage. But we anticipate the G&A and advertising savings I mentioned will flow through to the bottom line. Taking all of the above into account, we now anticipate full-year adjusted EBITDA of approximately $70 million to $110 million. The low end of the range reflects lower traffic that is more consistent with recent performance, elevated discounts, and lower retail attachments. The higher end of the range reflects gradually improving traffic in the second half of the fiscal year, as well as more moderate discount levels and retail attachments. Finally, we are now planning for lower capital expenditures of $110 to $125 million. This reduction is part of our comprehensive efforts to manage our cash flow and is in line with our baseline capital expenditures in years prior to the transformation. The largest category is for maintenance capital expenditures. And while we have reduced this area, we're being careful to maintain an appropriate level of spend here, given our continued efforts to catch up on deferred maintenance. Additionally, this amount includes important strategic initiatives, such as replacing our point of sale system, which will be unsupported in approximately one year. With that, I'll now turn the call back over to Julie for closing remarks.