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Cracker Barrel Second Quarter Comparable Store Restaurant Sales Up 3.5%

2012-02-21

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Cracker Barrel The Company reported total revenue of $673.2 million for the second quarter of fiscal 2012 representing an increase of 5.1% over the second quarter of fiscal 2011. Comparable store restaurant sales increased 3.5%, including a 2.4% increase in average check. The average menu price increase for the quarter was approximately 2.2%.

Cracker Barrel Old Country Store, Inc. (Nasdaq: CBRL) today reported financial results for the second quarter of fiscal 2012 ended January 27, 2012, and increased its full-year earnings guidance.

“Driven by our strong sales and traffic performance, particularly in January, our financial results for the second quarter exceeded our expectations”

Second-Quarter Fiscal 2012 Highlights

Adjusted earnings per diluted share, which excludes proxy contest expenses, of $1.20 were equal to the prior year quarter (see non-GAAP reconciliation below). On a GAAP basis, earnings per diluted share were $1.10.
Comparable store restaurant and retail sales increased by 3.5% and 3.4%, respectively. Total revenue was $673.2 million, an increase of 5.1% compared to the prior year quarter.
Adjusted operating income margin was 7.5% of total revenue compared with 8.2% in the prior year quarter. On a GAAP basis, operating income margin was 7.0% of total revenue.

Second Quarter Fiscal 2012 Results

Revenue

The Company reported total revenue of $673.2 million for the second quarter of fiscal 2012 representing an increase of 5.1% over the second quarter of fiscal 2011. Comparable store restaurant sales increased 3.5%, including a 2.4% increase in average check. The average menu price increase for the quarter was approximately 2.2%. Comparable store retail sales were up 3.4% for the quarter. During the quarter, the Company opened two new Cracker Barrel stores, and has opened three additional stores since the end of the quarter, for a total of eight new store openings year-to-date.

Comparable store restaurant and retail sales for the fiscal months of November, December and January were as follows:

	November	December	January	Second Quarter
Comparable restaurant traffic	-1.0%	1.8%	2.7%	1.1%
Average check	2.2%	2.5%	2.3%	2.4%
Comparable restaurant sales	1.2%	4.3%	5.0%	3.5%
Comparable retail sales	2.7%	0.6%	10.3%	3.4%

Pro-forma comparable restaurant traffic, shown in the table below, reflects the estimated impact of the shift of Christmas Eve from fiscal December in the prior year to fiscal January this year, and the impact of inclement weather in the prior year quarter.

	November	December	January	Second Quarter
Pro-forma comparable traffic	-1.0%	-1.7%	3.2%	0.2%
Holiday timing	0.0%	2.1%	-1.9%	0.0%
Prior year weather	0.0%	1.4%	1.4%	0.9%
Actual comparable traffic	-1.0%	1.8%	2.7%	1.1%

Operating Income

In the second quarter of fiscal 2012, adjusted operating income was $50.6 million, or 7.5% of total revenue, compared with operating income of $52.5 million, or 8.2% of total revenue, in the second quarter of fiscal 2011. On a GAAP basis, which includes proxy contest expenses, operating income was $47.3 million, or 7.0% of total revenue. The decrease in adjusted operating income was primarily the result of higher food commodity costs and the timing of advertising expenses, partially offset by lower hourly wages, maintenance and utilities expenses. Adjusted general and administrative expenses were 4.9% of total revenue in the second quarter of fiscal 2012 compared with 5.2% in the prior year quarter. On a GAAP basis, general and administrative expenses were 5.4% of total revenue in the second quarter of fiscal 2012.

“Driven by our strong sales and traffic performance, particularly in January, our financial results for the second quarter exceeded our expectations,” said Sandra B. Cochran, President and Chief Executive Officer of Cracker Barrel Old Country Store, Inc. “Comparable store traffic and sales outperformed the Knapp-Track™ Index for the quarter, and we are pleased to report positive traffic for the first time in the past five quarters. We continued to control our expenses, and we are seeing the expected benefits from our cost reduction initiatives. Our diluted earnings per share, adjusted for proxy contest expenses, were in line with the prior year quarter, despite the change in our marketing strategy and resulting change in the timing of our advertising spend, and the expected timing of increases in commodity costs.”

Year-to-date Fiscal 2012 Results

Year-to-date through the end of the second quarter, total revenue was $1.3 billion, an increase of 2.6% compared to the prior year period. Comparable store restaurant sales increased 1.0%, including a 2.3% higher check, and comparable store retail sales increased 1.4%.

Year-to-date, the Company reported adjusted net income of $53.1 million or $2.29 per diluted share, compared with net income of $52.5 million, or $2.21 per diluted share in the prior year period. On a GAAP basis, year-to-date net income was $49.4 million or $2.13 per diluted share. Year-to-date net cash flow provided by operating activities was $114.0 million, compared with $57.3 million in the prior year period, due to timing differences in accounts payable payments, estimated income taxes and changes in other assets and liabilities. The Company did not repurchase any shares during the second quarter of fiscal 2012.

A reconciliation of the Company’s financial results determined in accordance with GAAP to certain non-GAAP financial measures used in this release has been provided in the financial statement tables included in this release to supplement its unaudited financial statements presented on a GAAP basis.

Fiscal 2012 Outlook Update

The Company commented that its outlook for fiscal 2012 reflects many assumptions, the accuracy of which is not yet known. Based upon year-to-date financial performance, recent trends and current estimates, the Company has raised its full-year earnings guidance for fiscal 2012. The Company expects total revenue for fiscal 2012 of between $2.55 billion and $2.6 billion, reflecting anticipated increases in comparable store restaurant and retail sales in a range of 1.0% and 2.0%. Due to delayed construction starts on two stores previously scheduled to open late this year, the Company expects to open 13 new Cracker Barrel stores in the current fiscal year rather than the 15 originally planned. The Company now expects to report adjusted earnings per diluted share for the fiscal year of between $4.20 and $4.35, excluding proxy contest expenses of $0.16 per diluted share. On a GAAP basis, the Company expects to report earnings per diluted share for the fiscal year between $4.04 and $4.19. Food commodity costs are expected to increase 5.5% to 6.5% from the prior year, and adjusted operating income margins are expected to range between 7.2% and 7.4% of total revenues.

The Company expects depreciation expense of between $64 million and $66 million; net interest expense of approximately $45 million; an effective tax rate of between 29% and 30%; and capital expenditures of between $85 million and $95 million. The Company reminds investors that its 2012 fiscal year is a 53-week year and that the impact of the 53^rd week, which is included in its guidance, is expected to be additional revenue of approximately $50 million and approximately $0.25 of additional earnings per diluted share.

In order to provide additional visibility into its expectations for future performance, the Company provided quarterly earnings guidance for the current quarter. For the third quarter of fiscal 2012, the Company expects to report earnings per diluted share of between $0.70 and $0.75.

Commenting on the outlook, Ms. Cochran said, “While we continue to remain cautious about the outlook for consumer spending, gasoline prices and commodity costs, we are encouraged by our improving sales trends. We believe that the six strategic initiatives to drive restaurant traffic, grow retail sales and control costs continue to gain traction. We expect to build on this success in the second half of the year.”

About Cracker Barrel

Cracker Barrel Old Country Store^® restaurants provide a friendly home-away-from-home in its old country stores and restaurants. Guests are cared for like family while relaxing and enjoying real home-style food and shopping that’s surprisingly unique, genuinely fun and reminiscent of America’s country heritage…all at a fair price. The restaurants serve up delicious, home-style country food such as meatloaf and homemade chicken n’ dumplins as well as the Company’s signature biscuits using an old family recipe. The authentic old country retail store is fun to shop and offers unique gifts and self-indulgences.

Cracker Barrel Old Country Store, Inc. (Nasdaq: CBRL) was established in 1969 in Lebanon, Tenn. and operates 611 company-owned locations in 42 states. Every Cracker Barrel unit is open seven days a week with hours Sunday through Thursday, 6 a.m. – 10 p.m., and Friday and Saturday, 6 a.m. - 11 p.m.

CRACKER BARREL OLD COUNTRY STORE, INC.
CONDENSED CONSOLIDATED INCOME STATEMENT
(Unaudited)
(In thousands, except share and per share amounts, percentages and ratios)

	Second Quarter Ended					Six Months Ended
		1/27/12		1/28/11	Percentage Change		1/27/12		1/28/11	Percentage Change
Total revenue	$	673,234	$	640,277	5%	$	1,271,671	$	1,238,968	3%
Cost of goods sold		235,391		219,390	7		421,698		399,143	6
Gross profit		437,843		420,887	4		849,973		839,825	1
Labor and other related expenses		234,933		223,182	5		455,901		447,786	2
Other store operating expenses		119,136		112,164	6		228,180		224,123	2
Store operating income		83,774		85,541	(2)		165,892		167,916	(1)
General and administrative expenses		36,437		33,068	10		73,931		69,944	6
Impairment and store dispositions, net		--		1	(100)		--		84	(100)
Operating income		47,337		52,472	(10)		91,961		97,888	(6)
Interest expense		11,025		11,830	(7)		22,160		23,544	(6)
Pretax income		36,312		40,642	(11)		69,801		74,344	(6)
Provision for income taxes		10,703		11,865	(10)		20,390		21,833	(7)
Net income	$	25,609	$	28,777	(11)	$	49,411	$	52,511	(6)

Earnings per share – Basic:	$	1.11	$	1.24	(11)	$	2.16	$	2.28	(5)
Earnings per share – Diluted:	$	1.10	$	1.20	(8)	$	2.13	$	2.21	(4)

Weighted average shares:
Basic		22,968,002		23,237,493	(1)		22,919,451		23,034,943	(1)
Diluted		23,306,177		23,919,251	(3)		23,225,963		23,756,567	(2)

Ratio Analysis
Total revenue:
Restaurant		74.8%		74.8%			77.5%		77.5%
Retail		25.2		25.2			22.5		22.5
Total revenue		100.0		100.0			100.0		100.0
Cost of goods sold		35.0		34.3			33.2		32.2
Gross profit		65.0		65.7			66.8		67.8
Labor and other related expenses		34.9		34.8			35.9		36.2
Other store operating expenses		17.7		17.5			17.9		18.1
Store operating income		12.4		13.4			13.0		13.5
General and administrative expenses		5.4		5.2			5.8		5.6
Impairment and store dispositions, net		0.0		0.0			0.0		0.0
Operating income		7.0		8.2			7.2		7.9
Interest expense		1.6		1.9			1.7		1.9
Pretax income		5.4		6.3			5.5		6.0
Provision for income taxes		1.6		1.8			1.6		1.8
Net income		3.8%		4.5%			3.9%		4.2%

CRACKER BARREL OLD COUNTRY STORE, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited and in thousands, except share amounts)

		1/27/12		7/29/11
Assets
Cash and cash equivalents	$	119,385	$	52,274
Inventory		127,176		141,547
Other current assets		54,076		52,094
Property and equipment, net		1,015,234		1,009,164
Other long-lived assets		54,458		55,805
Total assets	$	1,370,329	$	1,310,884

Liabilities and Shareholders’ Equity
Accounts payable	$	93,592	$	99,679
Current maturities		9,490		123
Other current liabilities		192,602		167,301
Long-term debt		540,715		550,143
Other long-term obligations		213,535		225,604
Shareholders’ equity		320,395		268,034
Total liabilities and shareholders’ equity	$	1,370,329	$	1,310,884

Common shares outstanding		22,992,183		22,840,974

CRACKER BARREL OLD COUNTRY STORE, INC.
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
(Unaudited and in thousands)

	Six Months Ended
	1/27/12			1/28/11
Cash flows from operating activities:
Net income	$	49,411		$	52,511
Depreciation and amortization		31,339			30,454
Loss on disposition of property and equipment		1,258			1,693
Share-based compensation, net of excess tax benefit		5,791			2,625
Decrease in inventories		14,371			13,555
(Decrease) in accounts payable		(6,087	)		(27,794	)
Net changes in other assets and liabilities		17,876			(15,739	)
Net cash provided by operating activities		113,959			57,305
Cash flows from investing activities:
Purchase of property and equipment, net of insurance recoveries		(38,719	)		(40,475	)
Proceeds from sale of property and equipment		477			265
Net cash used in investing activities		(38,242	)		(40,210	)
Cash flows from financing activities:
Net payments for credit facilities and other long-term obligations		(76	)		(3,488	)
Proceeds from exercise of share-based compensation awards		2,137			20,343
Excess tax benefit from share-based compensation		155			2,294
Purchase and retirement of common stock		--			(10,997	)
Dividends on common stock		(10,822	)		(9,698	)
Net cash used in financing activities		(8,606	)		(1,546	)

Net increase in cash and cash equivalents		67,111			15,549
Cash and cash equivalents, beginning of period		52,274			47,700
Cash and cash equivalents, end of period	$	119,385		$	63,249

CRACKER BARREL OLD COUNTRY STORE, INC.
Supplemental Information
(Unaudited)

	Second Quarter Ended				Six Months Ended
		1/27/12		1/28/11		1/27/12		1/28/11

Units in operation:
Open at beginning of period		606		596		603		593
Opened during period		2		1		5		4
Open at end of period		608		597		608		597

Total revenue: (In thousands)
Restaurant	$	503,531	$	478,614	$	985,040	$	960,429
Retail		169,703		161,663		286,631		278,539
Total revenue	$	673,234	$	640,277	$	1,271,671	$	1,238,968

Cost of goods sold: (In thousands)
Restaurant	$	138,456	$	127,201	$	266,152	$	249,582
Retail		96,935		92,189		155,546		149,561
Total cost of goods sold	$	235,391	$	219,390	$	421,698	$	399,143

Average unit volume: (In thousands)
Restaurant	$	828.3	$	801.7	$	1,625.5	$	1,612.2
Retail		279.1		270.8		473.0		467.5
Total	$	1,107.4	$	1,072.5	$	2,098.5	$	2,079.7

Operating weeks:		7,903		7,761		15,756		15,489

	Q2 2012 vs. Q2 2011	6 mo. 2012 vs. 6 mo. 2011

Comparable store sales period to period increase:
Restaurant	3.5%	1.0%
Retail	3.4%	1.4%

Number of locations in comparable store base	592	591

CRACKER BARREL OLD COUNTRY STORE, INC.
Reconciliation of As Reported GAAP basis operating
results to As Adjusted non-GAAP operating results
(Unaudited and in thousands)

Non-GAAP operating income and earnings per share information adjusted to exclude charges and tax effects of the proxy contest concluded at the Company’s recent annual meeting of shareholders are as summarized in the table below. The Company believes that excluding these charges and tax effects from its financial results reflects operating results that are more indicative of the Company's ongoing operating performance while improving comparability to prior periods, and, as such, may provide investors with an enhanced overall understanding of the Company’s past financial performance and prospects for the future. This information is not intended to be considered in isolation or as a substitute for operating income or earnings per share information prepared in accordance with GAAP.

	Second Quarter Ended January 27, 2012						Six Months Ended January 27, 2012
	As Reported		Adjustments ⁽¹⁾		As Adjusted		As Reported		Adjustments ⁽¹⁾		As Adjusted


Store operating income	$	83,774		--	$	83,774	$	165,892		--	$	165,892
General and administrative expenses		36,437		(3,249)		33,188		73,931		(5,203)		68,728
Impairment and store dispositions, net		--		--		--		--		--		--
Operating income		47,337		3,249		50,586		91,961		5,203		97,164
Interest Expense		11,025		--		11,025		22,160		--		22,160
Pretax income		36,312		3,249		39,561		69,801		5,203		75,004
Provision for income taxes		10,703		958		11,661		20,390		1,520 958		21,910
Net income		25,609		2,291		27,900		49,411		3,683		53,094

Earnings per share – Basic:	$	1.11	$	0.10	$	1.21	$	2.16	$	0.16	$	2.32
Earnings per share – Diluted:	$	1.10	$	0.10	$	1.20	$	2.13	$	0.16	$	2.29

(1) Charges and tax effects of the proxy contest concluded at the Company’s recent annual meeting of shareholders.