Cracker Barrel Reports Results for Third Quarter Fiscal 2014

2014-05-28
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  • Cracker Barrel Adjusted EPS increased 20.6% over EPS in prior year quarter

    Cracker Barrel Old Country Store, Inc. (Nasdaq:CBRL) today reported financial results for the third quarter of fiscal 2014 ended May 2, 2014.

    Third-Quarter Fiscal 2014 Highlights

    • Tenth consecutive quarter of outperformance of the Knapp-TrackTM casual dining index
    • Compared to the prior-year third quarter, total sales increased 0.5%, comparable store restaurant sales decreased 0.6% and comparable store retail sales increased 0.9%.
    • On a GAAP basis, operating income margin was 7.0% of total revenue, or 7.2% when adjusted for expenses associated with the Special Meeting of Cracker Barrel Shareholders, compared with 6.9% in the prior year quarter. (See non-GAAP reconciliation below.)
    • On a GAAP basis, earnings per diluted share were $1.20, or $1.23 when adjusted for special meeting expenses, a 20.6% increase over earnings per diluted share of $1.02 in the prior year quarter.
    • As previously disclosed, the Board approved a quarterly dividend increase of 33% to $1.00 per share.

    Commenting on the third-quarter results, Cracker Barrel President and Chief Executive Officer Sandra B. Cochran said, “Like many in our industry, Cracker Barrel continued to face headwinds during the quarter from severe winter weather, a challenging consumer environment and an increasingly promotional competitive landscape. Nevertheless, we continued to outperform our peers in the Knapp-Track casual dining index for the tenth consecutive quarter, while our field teams focused on controlling costs and preserving our operating margins.”

    Third-Quarter Fiscal 2014 Results

    Revenue

    The Company reported total revenue of $643.3 million for the third quarter of fiscal 2014, representing an increase of 0.5% over the third quarter of the prior year. Comparable store restaurant sales decreased 0.6%, as a 2.9% decline in customer traffic was partially offset by a 2.3% increase in average check. The average menu price increase for the quarter was approximately 1.8%. Comparable store retail sales increased 0.9% for the quarter. The Company opened two stores during the third quarter, for a total of three new store openings year-to-date.

    Comparable store restaurant traffic, average check, and comparable store restaurant and retail sales for the fiscal months of February, March and April and for the third quarter were as follows:

     
         

    February

       

    March

       

    April

       

    Third

    Quarter

    Comparable restaurant traffic     -4.9%     -4.0%     -0.4%     -2.9%
    Average check 2.2% 2.0% 2.6% 2.3%
    Comparable restaurant sales -2.7% -2.0% 2.2% -0.6%
    Comparable retail sales -5.8% -5.0% 11.0% 0.9%
     

    Operating Income

    GAAP operating income in the third quarter was $45.2 million, or 7.0% of total revenue. Adjusted for special meeting expenses, adjusted operating income was $46.3 million, or 7.2% of total revenue, compared with operating income of $44.2 million, or 6.9% of total revenue, in the prior year quarter. Reductions in cost of goods sold and general and administrative expenses as a percent of total revenue were partially offset by an increase in other store operating expenses.

    Diluted Earnings per Share

    On a GAAP basis, earnings per diluted share in the second quarter of fiscal 2014 were $1.20. Adjusted for special meeting expenses, adjusted earnings per diluted share were $1.23, representing a 20.6% increase compared with earnings per diluted share of $1.02 in the prior year quarter.

    Fiscal 2014 Outlook

    Based upon year-to-date financial performance, the Company expects to report earnings per diluted share for the 2014 fiscal year of between $5.50 and $5.60, which implies adjusted EPS for the fourth quarter of between $1.50 and $1.60. The Company now expects total revenue for the year of approximately $2.7 billion and an operating income margin between 7.7% and 7.9% of total revenue. The revenue projection for fiscal 2014 reflects the expected opening of seven new Cracker Barrel stores, projected increases in comparable store restaurant sales of approximately 0.5%, and approximately flat comparable store retail sales. The Company’s projections are based upon expected food commodity inflation of approximately 2% for the year, and 2.5% for the fourth quarter. The Company expects annual depreciation expense between $68 million and $70 million; net interest expense between $17 million and $18 million; and an effective tax rate of between 31% and 32%. The Company expects capital expenditures for fiscal 2014 to be between $90 million and $100 million.

    The Company notes that its annual earnings guidance does not include expenses related to the proxy contest at its annual shareholders meeting held on November 13, 2013 or expenses associated with the special shareholders meeting held on April 23, 2014. The Company reminds investors that its outlook for fiscal 2014 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 627 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)

     
         

    Third Quarter Ended

       

    Nine Months Ended

    5/2/14

       

    5/3/13

       

    Percentage

    Change

    5/2/14

       

    5/3/13

       

    Percentage

    Change

    Total revenue $ 643,298 $ 640,407 1% $ 1,990,930 $ 1,970,529 1%
    Cost of goods sold   201,507     201,982   0   650,451     644,027   1
    Gross profit 441,791 438,425 1 1,340,479 1,326,502 1
    Labor and other related expenses 242,977 241,864 1 718,466 719,474 0
    Other store operating expenses   121,060     116,408   4   374,501     354,859   6
    Store operating income 77,754 80,153 (3) 247,512 252,169 (2)
    General and administrative expenses   32,541     35,981   (10)   99,356     105,492   (6)
    Operating income 45,213 44,172 2 148,156 146,677 1
    Interest expense   4,327     10,194   (58)   13,205     31,199   (58)
    Pretax income 40,886 33,978 20 134,951 115,478 17
    Provision for income taxes   12,158     9,376   30   42,008     32,516   29
    Net income $ 28,728   $ 24,602   17 $ 92,943   $ 82,962   12
     
    Earnings per share – Basic: $ 1.21   $ 1.04   16 $ 3.90   $ 3.50   11
    Earnings per share – Diluted: $ 1.20   $ 1.02   18 $ 3.88   $ 3.47   12
     
    Weighted average shares:
    Basic 23,820,309 23,760,589 0 23,816,841 23,683,133 1
    Diluted 23,978,474 24,006,821 0 23,958,058 23,913,226 0
     

    Ratio Analysis

    Total revenue:
    Restaurant 81.4 % 81.6 % 79.1 % 78.9 %
    Retail   18.6     18.4     20.9     21.1  
    Total revenue 100.0 100.0 100.0 100.0
    Cost of goods sold   31.3     31.5     32.7     32.7  
    Gross profit 68.7 68.5 67.3 67.3
    Labor and other related expenses 37.8 37.8 36.1 36.5
    Other store operating expenses   18.8     18.2     18.8     18.0  
    Store operating income 12.1 12.5 12.4 12.8
    General and administrative expenses   5.1     5.6     5.0     5.4  
    Operating income 7.0 6.9 7.4 7.4
    Interest expense   0.6     1.6     0.6     1.5  
    Pretax income 6.4 5.3 6.8 5.9
    Provision for income taxes   1.9     1.5     2.1     1.7  
    Net income   4.5 %   3.8 %   4.7 %   4.2 %
     
     

    CRACKER BARREL OLD COUNTRY STORE, INC.

    CONDENSED CONSOLIDATED BALANCE SHEETS

    (Unaudited and in thousands, except share amounts)

     
          5/2/14     5/3/13
    Assets
    Cash and cash equivalents $ 88,239 $ 58,457
    Property held for sale 0 884
    Accounts receivable 16,402 14,406
    Income tax receivable 3,570 1,435
    Inventory 147,378 134,131
    Prepaid expenses 13,148 16,016
    Deferred income taxes 4,339 7,407
    Property and equipment, net 1,034,834 1,016,811
    Other long-term assets 60,625 60,126
    Total assets $1,368,535 $1,309,673
     
    Liabilities and Shareholders’ Equity
    Accounts payable $ 71,971 $ 72,732
    Other current liabilities 240,024 183,127
    Long-term debt 381,250 400,000
    Interest rate swap liability 7,908 16,888
    Other long-term obligations 122,223 119,855
    Deferred income taxes 57,956 61,739
    Shareholders’ equity, net 487,203 455,332
    Total liabilities and shareholders’ equity $1,368,535 $1,309,673
     
    Common shares issued and outstanding 23,820,500 23,757,956
     
     

    CRACKER BARREL OLD COUNTRY STORE, INC.

    CONDENSED CONSOLIDATED CASH FLOW STATEMENT

    (Unaudited and in thousands)

     
          Nine Months Ended
    5/2/14     5/3/13
    Cash flows from operating activities:
    Net income $ 92,943 $ 82,962
    Depreciation and amortization 50,601

     

    49,000
    Loss on disposition of property and equipment 3,159 2,324
    Share-based compensation, net of excess tax benefit 5,520 9,035
    (Decrease) increase in inventories (691 ) 9,136
    (Decrease) in accounts payable (38,666 ) (28,539 )
    Net changes in other assets and liabilities   (11,669 )   (17,219 )
    Net cash provided by operating activities   101,197     106,699  
    Cash flows from investing activities:
    Purchase of property and equipment, net of insurance recoveries (62,337 ) (45,738 )
    Proceeds from sale of property and equipment   1,572     550  
    Net cash used in investing activities   (60,765 )   (45,188 )
    Cash flows from financing activities:
    Net payments for credit facilities and other long-term obligations (1 ) (125,087 )
    (Taxes withheld) and proceeds from exercise of share-based compensation awards, net

    (8,430

    )

    5,195

    Excess tax benefit from share-based compensation 612 1,961
    Purchases and retirement of common stock (12,473 ) (3,570 )
    Dividends on common stock   (53,619 )   (33,515 )

    Net cash used in financing activities

      (73,911 )   (155,016 )
     
    Net (decrease) in cash and cash equivalents (33,479 ) (93,505 )
    Cash and cash equivalents, beginning of period   121,718     151,962  
    Cash and cash equivalents, end of period $ 88,239   $ 58,457  
     
     

    CRACKER BARREL OLD COUNTRY STORE, INC.

    Supplemental Information

    (Unaudited)

     
         

    Third Quarter Ended

             

    Nine Months Ended

    5/2/14

       

    5/3/13

    5/2/14

       

    5/3/13

     
    Units in operation:
    Open at beginning of period 625 621 624 616
    Opened during period 2 1 3 6
    Open at end of period 627 622 627 622
     
    Total revenue: (In thousands)
    Restaurant $523,557 $522,642 $1,573,895 $1,555,111
    Retail 119,741 117,765 417,035 415,418
    Total revenue $643,298 $640,407 $1,990,930 $1,970,529
     
    Cost of goods sold: (In thousands)
    Restaurant $141,757 $141,617 $432,735 $423,138
    Retail 59,750 60,365 217,716 220,889
    Total cost of goods sold $201,507 $201,982 $650,451 $644,027

    Average unit volume: (In thousands)

    Restaurant $836.5 $840.8 $2,517.9 $2,506.5
    Retail 191.3 189.4 667.2 669.6
    Total $ 1,027.8 $ 1,030.2 $3,185.1 $3,176.1
     

    Operating weeks:

    8,137

    8,081

    24,378

    24,197

     
     
       

    Q3 2014 vs. Q3 2013

       

    9 mo. 2014 vs. 9 mo. 2013

     
    Comparable store sales period to period (decrease) increase:
    Restaurant -0.6% 0.5%

    -0.2%

    Retail 0.9%
     
    Number of locations in comparable store base

    616

    609

     

    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, special meeting 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.

          Third Quarter ended May 2, 2014     Third Quarter ended May 3, 2013
    As Reported     Adjust     As Adjusted As Reported     Adjust     As Adjusted
    (1)
     
    Store operating income $ 77,754 - $ 77,754 $ 80,153 - $ 80,153
    General and administrative expenses 32,541     (1,113)     31,428 35,981           35,981
    Operating income 45,213 1,113 46,326 44,172 - 44,172
    Interest Expense 4,327     -     4,327 10,194     -     10,194
    Pretax income 40,886 1,113 41,999 33,978 - 33,978
    Provision for income taxes 12,158     346     12,504 9,376           9,376
    Net income $ 28,728     $ 767     $ 29,495 $ 24,602     $ -     $ 24,602
     
    Earning per share - Basic $ 1.21 $ 0.03 $ 1.24 $ 1.04 $ - $ 1.04
    Earning per share - Diluted $ 1.20 $ 0.03 $ 1.23 $ 1.02 $ - $ 1.02
     
     
    Nine months ended May 2, 2014 Nine months ended May 3, 2013
    As Reported Adjust As Adjusted As Reported Adjust As Adjusted
    (1) (1) (2) (3)
     
    Store operating income $ 247,512 - $ 247,512 $ 252,169 - $ 252,169
    General and administrative expenses 99,356     (4,313)     95,043 105,492     (5,634)     99,858
    Operating income 148,156 4,313 152,469 146,677 5,634 152,311
    Interest Expense 13,205     -     13,205 31,199     -     31,199
    Pretax income 134,951 4,313 139,264 115,478 5,634 121,112
    Provision for income taxes 42,008     1,343     43,351 32,516     3,847     36,363
    Net income $ 92,943     $ 2,970     $ 95,913 $ 82,962     $ 1,787     $ 84,749
     
    Earning per share - Basic $ 3.90 $ 0.12 $ 4.02 $ 3.50 $ 0.08 $ 3.58
    Earning per share - Diluted $ 3.88 $ 0.12 $ 4.00 $ 3.47 $ 0.07 $ 3.54
     



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