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Cracker Barrel Reports Results for Second Quarter Fiscal 2013

2013-02-26

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Cracker Barrel The Company reported total revenue of $702.7 million for the second quarter of fiscal 2013, representing an increase of 4.4% over the second quarter of the prior year. Comparable store restaurant sales increased 3.3%, including a 3.1% increase in average check.

Cracker Barrel Old Country Store, Inc. (“Cracker Barrel” or the “Company”) (Nasdaq: CBRL) today reported financial results for the second quarter of fiscal 2013 ended February 1, 2013.

“This is the first quarter in more than ten years with positive comparable store traffic against a prior-year quarter with positive comparable store traffic”

Second-Quarter Fiscal 2013 Highlights

Compared to the prior year second quarter, comparable store traffic increased 0.2%, comparable store restaurant sales increased 3.3% and comparable store retail sales increased 3.1%.
Fifth consecutive quarter of positive comparable traffic, restaurant sales and retail sales, and outperformance of the Knapp-Track^TMcasual dining index.
On a GAAP basis, operating income margin was 8.1% of total revenue, compared with 7.0% in the prior year quarter. Adjusted for proxy contest and severance expenses, adjusted operating income margin was 8.4% of total revenue, compared with 7.5% in the prior year quarter. (See non-GAAP reconciliation below.)
On a GAAP basis, earnings per diluted share were $1.47, compared to $1.10 in the prior year quarter. Adjusted for proxy contest and severance expenses, and the prior year benefit from the Work Opportunities Tax Credit (“WOTC”), adjusted earnings per diluted share were $1.43 compared to adjusted earnings per diluted share of $1.20 in the prior year quarter. Second quarter GAAP EPS includes $0.19 per diluted share due to the retroactive reinstatement (effective January 1, 2012) of the WOTC, of which $0.09 per share relates to the prior fiscal year. (See non-GAAP reconciliation below.)

Second-Quarter Fiscal 2013 Results

Revenue

The Company reported total revenue of $702.7 million for the second quarter of fiscal 2013, representing an increase of 4.4% over the second quarter of the prior year. Comparable store restaurant sales increased 3.3%, including a 3.1% increase in average check. The average menu price increase for the quarter was approximately 2.6%. Comparable store retail sales were up 3.1% for the quarter. The Company estimates that inclement weather in the second quarter reduced comparable store traffic, restaurant and retail sales by approximately 0.3%. During the quarter, the Company opened one new Cracker Barrel store, for a total of five new store openings year-to-date.

Comparable store restaurant traffic, average check and 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	0.6	%	-1.9	%	1.6	%	0.2	%
Average check	3.3	%	3.4	%	2.7	%	3.1	%
Comparable restaurant sales	3.9	%	1.5	%	4.3	%	3.3	%
Comparable retail sales	-8.4	%	11.0	%	5.3	%	3.1	%

Fiscal 2012 was a 53-week year. For Fiscal 2013, the Company calculates comparable store traffic, check and sales using the corresponding prior year weeks.

Operating Income

On a GAAP basis, operating income was $57.2 million, or 8.1% of total revenue, in the second quarter of fiscal 2013 compared with $47.3 million, or 7.0% of total revenue, in the second quarter of the prior year. Adjusted for proxy contest and severance expenses, adjusted operating income was $58.9 million, or 8.4% of total revenue, in the second quarter of fiscal 2013, compared with adjusted operating income of $50.6 million, or 7.5% of total revenue, in the prior year quarter. Lower retail cost of goods, restaurant hourly labor expense, and general and administrative expense as a percent of total revenue contributed to most of this operating income margin improvement.

Diluted Earnings Per Share

On a GAAP basis, earnings per diluted share in the second quarter of fiscal 2013 were $1.47, compared with $1.10 in the prior year quarter. During the quarter, Congress retroactively reinstated the WOTC effective to January 1, 2012, which reduced the effective income tax rate in the quarter to 25.0% compared with 29.5% in the prior year quarter, and contributed $0.19 per diluted share to second quarter earnings. Adjusted for proxy contest and severance expenses and the prior-year WOTC benefit of $0.09 per diluted share, adjusted earnings per diluted share were $1.43, an increase of 19.2% over adjusted earnings per diluted share in the prior year quarter.

“This is the first quarter in more than ten years with positive comparable store traffic against a prior-year quarter with positive comparable store traffic,” said Sandra B. Cochran, Cracker Barrel’s President and Chief Executive Officer. “This was also the fifth consecutive quarter of comparable store traffic and sales growth, and of outperforming the Knapp-Track casual dining index. This quarter’s financial results exceeded our expectations and reflect the continued success of our marketing, menu, and operational initiatives. While we remain confident of our ability to execute our strategic plan, we also remain cautious about general economic conditions and consumer spending.”

Fiscal 2013 Outlook

Based upon year-to-date financial performance, continued food commodity pressures, inclement weather in February, the reinstatement of WOTC, and remaining uncertainty in the economic environment, the Company adjusted its previous full year earnings guidance. For fiscal 2013, the Company expects total revenue of between $2.6 billion and $2.65 billion and adjusted earnings per diluted share of between $4.60 and $4.80. The revenue projection for fiscal 2013 reflects the expected opening of eight new Cracker Barrel stores and projected increases in comparable store restaurant and retail sales in a range of 2.0% to 3.0%. The Company projects an adjusted operating income margin of between 7.3% and 7.5% of total revenue for fiscal 2013.

The Company expects to report earnings per diluted share for the third quarter of fiscal 2013 of between $0.90 and $0.95. The Company reminds investors that its outlook for fiscal 2013 reflects a number of assumptions, many of which are outside the Company’s control.

About Cracker Barrel

Cracker Barrel Old Country Store provides 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 our 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 621 company-owned locations in 42 states. Every Cracker Barrel store 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
							Percentage								Percentage
		2/1/13			1/27/12		Change			2/1/13			1/27/12		Change
Total revenue	$	702,671		$	673,234		4	%	$	1,330,122		$	1,271,671		5	%
Cost of goods sold		244,187			235,391		4			442,045			421,698		5
Gross profit		458,484			437,843		4			888,077			849,973		5
Labor and other related expenses		244,871			234,933		4			477,610			455,901		5
Other store operating expenses		122,586			119,136		3			238,451			228,180		5
Store operating income		91,027			83,774		9			172,016			165,892		4
General and administrative expenses		33,830			36,437		(7	)		69,511			73,931		(6	)
Operating income		57,197			47,337		21			102,505			91,961		12
Interest expense		10,293			11,025		(7	)		21,005			22,160		(5	)
Pretax income		46,904			36,312		29			81,500			69,801		17
Provision for income taxes		11,736			10,703		10			23,140			20,390		14
Net income	$	35,168		$	25,609		37		$	58,360		$	49,411		18

Earnings per share – Basic:	$	1.48		$	1.11		33		$	2.47		$	2.16		14
Earnings per share – Diluted:	$	1.47		$	1.10		34		$	2.45		$	2.13		15

Weighted average shares:
Basic		23,711,235			22,968,002		3			23,644,405			22,919,451		3
Diluted		23,945,236			23,306,177		3			23,866,431			23,225,963		3

Ratio Analysis
Total revenue:
Restaurant		75.2	%		74.8	%				77.6	%		77.5	%
Retail		24.8			25.2					22.4			22.5
Total revenue		100.0			100.0					100.0			100.0
Cost of goods sold		34.8			35.0					33.2			33.2
Gross profit		65.2			65.0					66.8			66.8
Labor and other related expenses		34.8			34.9					35.9			35.9
Other store operating expenses		17.4			17.7					18.0			17.9
Store operating income		13.0			12.4					12.9			13.0
General and administrative expenses		4.9			5.4					5.2			5.8
Operating income		8.1			7.0					7.7			7.2
Interest expense		1.4			1.6					1.6			1.7
Pretax income		6.7			5.4					6.1			5.5
Provision for income taxes		1.7			1.6					1.7			1.6
Net income		5.0	%		3.8	%				4.4	%		3.9	%


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

	2/1/13			8/3/12
Assets
Cash and cash equivalents	$	186,148	$	151,962
Property held for sale		882		884
Accounts receivable		13,338		14,609
Inventory		139,567		143,267
Prepaid expenses		19,229		11,405
Deferred income taxes		9,206		15,181
Property and equipment, net		1,017,930		1,022,370
Other long-term assets		59,301		59,314
Total assets	$	1,445,601	$	1,418,992

Liabilities and Shareholders’ Equity
Accounts payable	$	85,109	$	101,271
Other current liabilities		220,585		217,788
Long-term debt		512,500		525,036
Interest rate swap liability		14,911		14,166
Other long-term obligations		116,660		114,897
Deferred income taxes		61,543		63,159
Shareholders’ equity, net		434,293		382,675
Total liabilities and shareholders’ equity	$	1,445,601	$	1,418,992

Common shares issued and outstanding		23,728,808		23,473,024


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

	Six Months Ended
		2/1/13			1/27/12
Cash flows from operating activities:
Net income	$	58,360		$	49,411
Depreciation and amortization		32,357			31,339
Loss on disposition of property and equipment		1,465			1,258
Share-based compensation, net of excess tax benefit		4,120			5,791
Increase in inventories		3,700			14,371
(Decrease) in accounts payable		(16,162	)		(6,087	)
Net changes in other assets and liabilities		(2,860	)		17,876
Net cash provided by operating activities		80,980			113,959
Cash flows from investing activities:
Purchase of property and equipment, net of insurance recoveries		(29,329	)		(38,719	)
Proceeds from sale of property and equipment		333			477
Net cash used in investing activities		(28,996	)		(38,242	)
Cash flows from financing activities:
Net payments for credit facilities and other long-term obligations		(58	)		(76	)
Proceeds from exercise of share-based compensation awards		2,622			2,137
Excess tax benefit from share-based compensation		1,289			155
Dividends on common stock		(21,651	)		(10,822	)
Net cash used in financing activities		(17,798	)		(8,606	)

Net increase in cash and cash equivalents		34,186			67,111
Cash and cash equivalents, beginning of period		151,962			52,274
Cash and cash equivalents, end of period	$	186,148		$	119,385


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

	Second Quarter Ended				Six Months Ended
		2/1/13		1/27/12		2/1/13		1/27/12

Units in operation:
Open at beginning of period		620		606		616		603
Opened during period		1		2		5		5
Open at end of period		621		608		621		608

Total revenue: (In thousands)
Restaurant	$	528,155	$	503,531	$	1,032,469	$	985,040
Retail		174,516		169,703		297,653		286,631
Total revenue	$	702,671	$	673,234	$	1,330,122	$	1,271,671

Cost of goods sold: (In thousands)
Restaurant	$	146,338	$	138,456	$	281,521	$	266,152
Retail		97,849		96,935		160,524		155,546
Total cost of goods sold	$	244,187	$	235,391	$	442,045	$	421,698
Average unit volume: (In thousands)
Restaurant	$	850.5	$	828.3	$	1,665.7	$	1,625.5
Retail		281.0		279.1		480.2		473.0
Total	$	1,131.5	$	1,107.4	$	2,145.9	$	2,098.5

Operating weeks:	8,073		7,903		16,116		15,756

	Q2 2013 vs. Q2 2012		6 mo. 2013 vs. 6 mo. 2012

Comparable store sales period to period increase:
Restaurant	3.3	%	3.3	%
Retail	3.1	%	2.5	%

Number of locations in comparable store base	600		596

CRACKER BARREL OLD COUNTRY STORE, INC.

Reconciliation of GAAP basis operating

results to adjusted non-GAAP operating results

(Unaudited and in thousands)

The Company makes reference in this release to “adjusted store operating income,” “adjusted operating income,” “adjusted net income,” “adjusted earnings per diluted share,” and “adjusted general and administrative expenses,” excluding the impact of severance and proxy contest expenses and the retroactive restatement of the work opportunities tax credit. The Company believes that excluding these items and their related 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 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, net income, or earnings per share or expense information prepared in accordance with GAAP.


	Second Quarter ended February 1, 2013							Second Quarter ended January 27, 2012
	As Reported		Adjust			As Adjusted		As Reported		Adjust			As Adjusted
				(1) (2) (3)						(1)

Store operating income	$	91,027	$	-		$	91,027	$	83,774	$	-		$	83,774
General and administrative expenses		33,830		(1,726	)		32,104		36,437		(3,249	)		33,188
Operating income		57,197		1,726			58,923		47,337		3,249			50,586
Interest Expense		10,293		-			10,293		11,025		-			11,025
Pretax income		46,904		1,726			48,630		36,312		3,249			39,561
Provision for income taxes		11,736		2,637			14,373		10,703		958			11,661
Net income	$	35,168	$	(911	)	$	34,257	$	25,609	$	2,291		$	27,900

Earning per share - Basic	$	1.48		(0.04	)	$	1.44	$	1.11	$	0.10		$	1.21
Earning per share - Diluted	$	1.47		(0.04	)	$	1.43	$	1.10	$	0.10		$	1.20

	Six months ended February 1, 2013							Six months ended January 27, 2012
	As Reported		Adjust			As Adjusted		As Reported		Adjust			As Adjusted
				(1) (2) (3)						(1)

Store operating income	$	172,016	$	-		$	172,016	$	165,892	$	-		$	165,892
General and administrative expenses		69,511		(5,634	)		63,877		73,931		(5,203	)		68,728
Operating income		102,505		5,634			108,139		91,961		5,203			97,164
Interest Expense		21,005		-			21,005		22,160		-			22,160
Pretax income		81,500		5,634			87,134		69,801		5,203			75,004
Provision for income taxes		23,140		3,847			26,987		20,390		1,520			21,910
Net income	$	58,360	$	1,787		$	60,147	$	49,411	$	3,683		$	53,094

Earning per share - Basic	$	2.47	$	0.07		$	2.54	$	2.16	$	0.16		$	2.32
Earning per share - Diluted	$	2.45	$	0.07		$	2.52	$	2.13	$	0.16		$	2.29
(1) Charges and tax effects of the proxy contest concluded at the Company's annual meeting of shareholders.
(2) Severance, other charges and tax effects related to organizational changes.
(3) Provision for taxes adjusted to exclude the $2.1 million prior year favorable effect of the retroactive reinstatement of the work opportunity tax credit.