CRACKER BARREL OLD COUNTRY STORE INC

Previous wording

Cracker Barrel Old Country Store, Inc., and its subsidiaries (collectively, the “Company,” “our” or “we”) are principally engaged in the operation and development in the United States of the Cracker Barrel Old Country Store® (“Cracker Barrel”) concept. As of April 26, 2024, we operated 658 Cracker Barrel stores in 44 states and 63 Maple Street Biscuit Company (“MSBC”) locations in ten states.

Current wording

Cracker Barrel Old Country Store, Inc., and its subsidiaries (collectively, the “Company,” “our” or “we”) are principally engaged in the operation and development in the United States of the Cracker Barrel Old Country Store Ò (“Cracker Barrel”) concept. As of November 01, 2024, we operated 658 Cracker Barrel stores in 44 states and 69 Maple Street Biscuit Company (“MSBC”) locations in ten states.

Previous wording

MD&A provides information which management believes is relevant to an assessment and understanding of our consolidated results of operations and financial condition. MD&A should be read in conjunction with the (i) condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q and (ii) audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended July 28, 2023 (the “2023 Form 10-K”). Except for specific historical information, many of the matters discussed in this report may express or imply projections of items such as revenues or expenditures, estimated capital expenditures, compliance with debt covenants, plans and objectives for future operations, store economics, inventory shrinkage, growth or initiatives, expected future economic performance or the expected outcome or impact of pending or threatened litigation. These and similar statements regarding events or results which we expect will or may occur in the future are forward-looking statements that, by their nature, involve risks, uncertainties and other factors which may cause our actual results and performance to differ materially from those expressed or implied by such statements. All forward-looking information is provided pursuant to the safe harbor established under the Private Securities Litigation Reform Act of 1995 and should be evaluated in the context of these risks, uncertainties and other factors. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “trends,” “assumptions,” “target,” “guidance,” “outlook,” “opportunity,” “future,” “plans,” “goals,” “objectives,” “expectations,” “near-term,” “long-term,” “projection,” “may,” “will,” “would,” “could,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “potential,” “should,” “projects,” “forecasts” or “continue” (or the negative or other derivatives of each of these terms) or similar terminology. We believe the assumptions underlying any forward-looking statements are reasonable; however, any of the assumptions could be inaccurate, and therefore, actual results may differ materially from those projected in or implied by the forward-looking statements. In addition to the risks of ordinary business operations, and those discussed or described in this report or in information incorporated by reference into this report, factors and risks that may result in actual results differing from this forward-looking information include, but are not limited to risks and uncertainties associated with inflationary conditions with respect to the price of commodities, transportation, distribution and labor; disruptions to our restaurant or retail supply chain; our ability to identify, acquire and sell successful new lines of retail merchandise and new menu items at our restaurants; our ability to sustain or the effects of plans intended to improve operational or marke…

Excerpt shortened here; the source contains the full paragraph.

Current wording

MD&A provides information which management believes is relevant to an assessment and understanding of our consolidated results of operations and financial condition. MD&A should be read in conjunction with the (i) condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q and (ii) audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended August 02, 2024 (the “2024 Form 10-K”). Except for specific historical information, many of the matters discussed in this report may express or imply projections of items such as revenues or expenditures, estimated capital expenditures, compliance with debt covenants, plans and objectives for future operations, store economics, inventory shrinkage, growth or initiatives, expected future economic performance or the expected outcome or impact of pending or threatened litigation. These and similar statements regarding events or results which we expect will or may occur in the future are forward-looking statements concerning matters that involve risks, uncertainties and other factors which may cause our actual results and performance to differ materially from those expressed or implied by such statements. All forward-looking information is provided pursuant to the safe harbor established under the Private Securities Litigation Reform Act of 1995 and should be evaluated in the context of these risks, uncertainties and other factors. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “trends,” “assumptions,” “target,” “guidance,” “outlook,” “opportunity,” “future,” “plans,” “goals,” “objectives,” “expectations,” “near-term,” “long-term,” “projection,” “may,” “will,” “would,” “could,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “potential,” “”regular,” “should,” “projects,” “forecasts” or “continue” (or the negative or other derivatives of each of these terms) or similar terminology. We believe the assumptions underlying any forward-looking statements are reasonable; however, any of the assumptions could be inaccurate, and therefore, actual results may differ materially from those projected in or implied by the forward-looking statements. In addition to the risks of ordinary business operations, and those discussed or described in this report or in information incorporated by reference into this report, factors and risks that may result in actual results differing from this forward-looking information include, but are not limited to risks and uncertainties associated with inflationary conditions with respect to the price of commodities, ingredients, transportation, distribution and labor; disruptions to our restaurant or retail supply chain; our ability to manage retail inventory and merchandise mix; our ability to sustain or the effects of plans intended to improve operational or marketing execution and performance, incl…

Excerpt shortened here; the source contains the full paragraph.

Previous wording

We believe there are significant challenges in the macroeconomic outlook for the coming quarters, including continued inflationary pressures, higher interest rates, higher consumer debt levels and lower savings rates, as well as the potential uncertainty associated with the geopolitical environment and the U.S. presidential election, among other factors. However, despite these challenges, we remain focused on delivering long-term growth and returns for shareholders. On May 16, 2024, we announced details of our strategic transformation plan, which was already underway during the third quarter of 2024, is built on the following five pillars of our strategy:

Current wording

We believe there are significant challenges in the macroeconomic outlook for the coming quarters, including continued volatility of inflation and interest rates, high consumer debt levels and lower savings rates, as well as the potential uncertainty associated with the geopolitical environment, among other factors. However, despite these challenges, we remain focused on delivering long-term growth and returns for shareholders. Our strategic transformation plan is built on the following five pillars of our strategy:

Previous wording

For the third quarter and first nine months of 2024, our comparable store restaurant sales decreases resulted primarily from the guest traffic decreases partially offset by the average check increases as compared to the prior year periods. For the third quarter and first nine months of 2024, the average check increases included average menu price increases of 4.0% and 5.2%, respectively.

Current wording

For the first quarter of 2025, our comparable store restaurant sales increase resulted primarily from the average check increase partially offset by the guest traffic decrease. For the first quarter of 2025, the average check increase included an average menu price increase of 4.7%.

Previous wording

Our retail sales are made substantially to our restaurant guests. For the third quarter and the first nine months of 2024, our comparable store retail sales decreases resulted primarily from the guest traffic decreases during these periods.

Current wording

Our retail sales are made substantially to our restaurant guests. For the first quarter of 2025, our comparable store retail sales decrease resulted primarily from the guest traffic decrease.

Previous wording

The decreases in guest traffic are primarily the result of lower consumer demand arising from multiple macroeconomic factors, including inflationary pressures, higher interest rates, higher consumer debt levels and lower savings rates.

Current wording

The decrease in guest traffic is primarily the result of lower consumer demand arising from multiple macroeconomic factors, including inflationary pressures, higher interest rates, higher consumer debt levels and lower savings rates.

Previous wording

We presently expect the rate of commodity inflation to be flat in 2024.

Current wording

Restaurant cost of goods sold as a percentage of restaurant revenue remained relatively constant in the first quarter of 2025 as compared to the same period in the prior year. Commodity inflation was 1.9% in the first quarter of 2025. We presently expect the rate of commodity inflation to be approximately 2% to 3% in 2025.

Previous wording

The decrease in retail cost of goods sold as a percentage of retail revenue in the first nine months of 2024 as compared to the same period in the prior year resulted primarily from higher initial margin partially offset by higher discounts, higher markdowns and higher freight expense.

Current wording

The decrease in retail cost of goods sold as a percentage of retail revenue in the first quarter of 2025 as compared to the same period in the prior year resulted primarily from higher vendor allowances and higher initial margin partially offset by higher markdowns.

Previous wording

This percentage change for the third quarter of 2024 as compared to the same period in the prior year resulted primarily from the following:

Current wording

This percentage change for the first quarter of 2025 as compared to the same period in the prior year resulted primarily from the following:

Previous wording

The increase in payroll taxes as a percentage of total revenue for the first nine months of 2024 as compared to the same period in the prior year resulted primarily from the increases in store hourly labor and store management compensation as compared to the same period in the prior year.

Current wording

The decreases in store hourly labor and store management compensation as a percentage of total revenue for the first quarter of 2025 as compared to the same period in the prior year resulted primarily from menu price increases being higher than wage inflation. Additionally, store hourly labor benefited from improved productivity.

Previous wording

We presently expect the rate of wage inflation to be approximately 5% in 2024.

Current wording

We presently expect the rate of wage inflation to be approximately 3% to 4% in 2025.

Previous wording

The increases in employee health care expenses as a percentage of total revenue for the third quarter and first nine months of 2024 as compared to the same periods in the prior year resulted primarily from higher claims.

Current wording

The decrease in employee health care expense as a percentage of total revenue for the first quarter of 2025 as compared to the same period in the prior year resulted primarily from favorable medical claim experience and lower enrollment.

Previous wording

During 2024, we revised our employee benefits policy which resulted in a one-time reduction in other wages expense for the first nine months of 2024 as compared to the same period in the prior year.

Current wording

The increase in other wages as a percentage of total revenue for the first quarter of 2025 as compared to the same period in the prior year resulted primarily from a revision in our employee benefits policy that resulted in a reduction in other wages expense in the first quarter of 2024.

Previous wording

This percentage changes for the third quarter and first nine months of 2024 as compared to the same periods in the prior year resulted primarily from the following:

Current wording

This percentage changes for the first quarter of 2025 as compared to the same period in the prior year resulted primarily from the following:

Previous wording

The increases in store occupancy costs as a percentage of total revenue for the third quarter and the first nine months of 2024 as compared to the same periods in the prior year resulted primarily from higher depreciation expense partially offset by lower utilities expense. The increases in depreciation expense for the third quarter and first nine months of 2024 as compared to the prior year periods resulted primarily from higher capital expenditures with accelerated depreciation methods. The decreases in utilities expense for the third quarter and first nine months of 2024 as compared to the prior year periods resulted primarily from general rate deflation for natural gas and lower electricity usage attributable to cost savings initiatives and guest traffic decreases. Additionally, the decrease in utilities expense for the first nine months of 2024 as compared to the prior year period benefited from general rate deflation for electricity.

Current wording

The decrease in store occupancy costs as a percentage of total revenue for the first quarter of 2025 as compared to the same period in the prior year period resulted primarily from lower utilities expense partially offset by higher depreciation. The decrease in utilities expense for the first quarter of 2025 as compared to the prior year period resulted primarily from lower electricity, natural gas and water usage. The increase in depreciation expense for the first quarter of 2025 as compared to the prior year period resulted primarily from higher capital expenditures.

Previous wording

The increases in interest expense for the third quarter and the first nine months of 2024 as compared to the same periods in the prior year resulted primarily from higher average weighted interest rates and higher weighted average debt levels under our 2022 Revolving Credit Facility (as defined below).

Current wording

The increase in interest expense for the first quarter of 2025 as compared to the same period in the prior year resulted primarily from higher weighted average debt levels under our 2022 Revolving Credit Facility (as defined below).

Previous wording

The following table highlights the provision for income taxes as a percentage of income (loss) before income taxes (“effective tax rate”) for the specified periods:

Current wording

The following table highlights the provision for income taxes as a percentage of income before income taxes (“effective tax rate”) for the specified periods:

Previous wording

The increase in the effective tax rate from the third quarter of 2023 to the third quarter of 2024 and the decrease from the first nine months of 2023 to the first nine months of 2024 are primarily due to the disproportionate benefit of employment credits in relation to income (loss) before taxes in the current year periods.

Current wording

The decrease in the effective tax rate from the first quarter of 2024 to the first quarter of 2025 is primarily due to the disproportionate benefit of employment credits in relation to income before taxes in the current year period.

Previous wording

The Company’s quarterly provision (benefit) for income taxes has historically been calculated using the annualized effective tax rate method (“AETR method”) which applies an estimated annual effective tax rate to pre-tax income or loss. However, the Company recorded its interim income tax provision (benefit) using the discrete-period computation method as of April 26, 2024, as allowed under Accounting Standards Codification 740-240, Accounting for Income Taxes – Interim Reporting. Use of the AETR method would have resulted in an unreliable tax rate as small changes in the projected ordinary annual income would have resulted in significant changes in the AETR.

Current wording

The Company’s quarterly provision (benefit) for income taxes has historically been calculated using the annualized effective tax rate method (“AETR method”) which applies an estimated annual effective tax rate to pre-tax income or loss. However, the Company recorded its interim income tax provision (benefit) using the discrete-period computation method as of November 01, 2024, as allowed under Accounting Standards Codification 740-240,*Accounting for Income Taxes – Interim Reporting.*Use of the AETR method would have resulted in an unreliable tax rate as small changes in the projected ordinary annual income would have resulted in significant changes in the annualized effective tax rate.

Previous wording

We presently expect our effective tax rate for 2024 to be approximately (55%) to (60%).

Current wording

We presently expect our effective tax rate for 2025 to be approximately (7%) to (11%).

Previous wording

Our primary sources of liquidity are cash generated from our operations and our borrowing capacity under our 2022 Revolving Credit Facility. Our internally generated cash, along with cash on hand at July 28, 2023 and borrowings under our revolving credit facility, were sufficient to finance all of our growth, dividend payments, working capital needs, interest payments under our revolving credit facility and other cash payment obligations in the first nine months of 2024. We believe that cash on hand at April 26, 2024, along with cash expected to be generated from our operating activities and the borrowing capacity under our revolving credit facility, will be sufficient to finance our continuing operations, our continuing expansion plans and working capital needs over the next twelve months. We believe that cash expected to be generated from our operating activities and the borrowing capacity under our revolving credit facility will be sufficient to finance our continuing operations, dividend payments, capital expenditures, interest expense on long-term debt obligations, operating lease obligations, continuing expansion plans and working capital needs beyond the next twelve months. Our ability to draw on our 2022 Revolving Credit Facility is subject to the satisfaction of the provisions of the credit facility, as amended, and we believe we will be able to refinance our 2022 Revolving Credit Facility and other debt instruments prior to their maturity.

Current wording

Our primary sources of liquidity are cash generated from our operations and our borrowing capacity under our 2022 Revolving Credit Facility. Cash generated from operations, together with our borrowing capacity under the 2022 Revolving Credit Facility, were sufficient to finance all of our growth, dividend payments, working capital needs, interest payments on long-term debt obligations and other cash payment obligations in the first three months of 2025. We believe that cash on hand at November 01, 2024, along with cash expected to be generated from our operating activities and the borrowing capacity under our revolving credit facility, will be sufficient to finance our continuing operations, our strategic transformation initiative and continuing expansion plans, debt service, dividend payments, capital expenditures and working capital needs for the next twelve months and thereafter. Our ability to draw on our 2022 Revolving Credit Facility is subject to the satisfaction of the provisions of the credit facility, as amended, and we believe we will be able to refinance our 2022 Revolving Credit Facility and other debt instruments prior to maturity.

Previous wording

Our operating activities provided net cash of $99,456 for the first nine months of 2024 as compared to $151,236 net cash provided during the first nine months of 2023. This decrease resulted primarily from lower net income and lower decrease in retail inventory levels partially offset by the timing of payments for accounts payable and higher bonus payments made in the first quarter of 2024 as a result of the prior year’s performance.

Current wording

Our operating activities used net cash of $4,395 for the first three months of 2025 as compared to $15,797 net cash used during the first three months of 2024. This change resulted primarily from the timing of payments for accounts payable and certain taxes partially offset by higher bonus payments made in the first quarter of 2025 as a result of the prior year’s performance.

Previous wording

Capital expenditures (purchase of property and equipment) net of proceeds from insurance recoveries were $80,081 for the first nine months of 2024 as compared to $86,898 for the same period in the prior year. Our capital expenditures consisted primarily of capital investments for existing stores, new store locations and capital expenditures for strategic initiatives. The decrease in capital expenditures in the first nine months of 2024 as compared to the first nine months of 2023 resulted primarily from the timing of capital expenditures for new store openings as compared to the prior year. We estimate that our capital expenditures during 2024 will be approximately $120,000 to $125,000. This estimate includes the acquisition of sites and construction costs of new Cracker Barrel and MSBC locations that have opened or that we expect to open during 2024, as well as for acquisition and construction costs for new Cracker Barrel and MSBC locations that we plan to open in 2025. As part of our strategic transformation plan, we are modifying our capital allocation policy and currently expect to increase our capital expenditures over the three-year period from 2025 to 2027 to approximately $600,000 to $700,000. This increase includes the expansion of our maintenance and remodel initiatives as well as additional technology investments. We intend to fund our capital expenditures with cash generated by operations and borrowings under our 2022 Revolving Credit Facility, as necessary.

Current wording

As part of our strategic transformation plan, we have modified our capital allocation policy and currently expect to increase our capital expenditures over the three-year period from 2025 to 2027 to approximately $600,000 to $700,000, of which we expect to expend $160,000 to $180,000 in 2025. This increase includes expansion of our maintenance and remodel initiatives as well as additional technology improvements. This increase also includes the acquisition of sites and construction costs of new Cracker Barrel and MSBC locations that have opened or that we expect to open during 2025. We intend to fund our capital expenditures with cash generated by operations and borrowings under our 2022 Revolving Credit Facility, as necessary.

Previous wording

At April 26, 2024, we had $176,000 of outstanding borrowings under the 2022 Revolving Credit Facility and $32,466 of standby letters of credit related to securing reserved claims under our workers’ compensation insurance and certain sale and leaseback transactions, which reduce our borrowing availability under the 2022 Revolving Credit Facility. At April 26, 2024, we had $491,534 in borrowing availability under our 2022 Revolving Credit Facility. During the first nine months of 2024, we borrowed $326,500 and repaid $270,500 under the 2022 Revolving Credit Facility. See Note 4 to our Condensed Consolidated Financial Statements for further information on our long-term debt.

Current wording

At November 01, 2024, we had $230,000 of outstanding borrowings under the 2022 Revolving Credit Facility and $34,004 of standby letters of credit related to securing reserved claims under our workers’ compensation insurance and certain sale and leaseback transactions, which reduce our borrowing availability under the 2022 Revolving Credit Facility. At November 01, 2024, we had $435,996 in borrowing availability under our 2022 Revolving Credit Facility. During the first three months of 2025, we borrowed $136,500 and repaid $86,500 under the 2022 Revolving Credit Facility.

Previous wording

On June 18, 2021, the Company entered into an issuance and sale of $300,000 aggregate principal amount of 0.625% Convertible Senior Notes due 2026. The Notes are senior, unsecured obligations of the Company and bear cash interest at a rate of 0.625% per annum, payable semi-annually in arrears on June 15 and December 15 of each year, which initiated on December 15, 2021. The Notes mature on June 15, 2026, unless earlier converted, repurchased or redeemed.

Current wording

Our $300,000 aggregate principal amount of 0.625% Convertible Senior Notes (the “Notes”) mature on June 15, 2026, unless earlier converted, repurchased or redeemed. The Notes are senior, unsecured obligations of the Company and bear cash interest at a rate of 0.625% per annum, payable semi-annually in arrears on June 15 and December 15 of each year.

Previous wording

Dividends, Share Repurchases and Share-Based Compensation Awards

Current wording

Dividends and Share-Based Compensation Awards

Previous wording

During the first nine months of 2024, we paid a regular dividend of $3.90 per share and declared a dividend of $1.30 per share that was subsequently paid on May 7, 2024, to shareholders of record on April 12, 2024. In conjunction with our strategic transformation program, we are modifying our capital allocation policy to support increased investments in our business to drive organic growth. As part of this shift to increase investment in our business, we are reducing our quarterly dividend. During the fourth quarter of 2024, our Board of Directors approved a regular dividend payable on August 6, 2024 to the shareholders of recorded as of July 19, 2024 of $0.25 per share.

Current wording

During the first three months of 2025, we paid a regular dividend of $0.25 per share and declared a dividend of $0.25 per share that was subsequently paid on November 13, 2024, to shareholders of record on October 18, 2024. In addition, in the second quarter of 2025, our Board of Directors approved a regular dividend payable on February 12, 2025 to shareholders of record as of January 17, 2025 of $0.25 per share.

Previous wording

During the first nine months of 2024, we issued 48,671 shares of our common stock resulting from the vesting of share-based compensation awards. Related tax withholding payments on these share-based compensation awards resulted in a net use of cash of $1,597.

Current wording

During the first three months of 2025, we issued 39,185 shares of our common stock resulting from the vesting of share-based compensation awards. Related tax withholding payments on these share-based compensation awards resulted in a net use of cash of $1,239.

Previous wording

In the restaurant industry, substantially all payments received on sales are made by credit card, debit card or cash. Restaurant inventories purchased through our principal food distributor are on terms of net zero days, while restaurant inventories purchased locally are generally financed from normal trade credit. Because of our retail gift shops, which have a lower product turnover than the restaurant business, we carry larger inventories than many other companies in the restaurant industry. Retail inventories purchased domestically are generally financed from normal trade credit, while imported retail inventories are generally purchased through wire transfers. These various trade terms are aided by the rapid turnover of the restaurant inventory. Employees generally are paid on weekly or semi-monthly schedules in arrears for hours worked except for bonuses that are paid either quarterly or annually in arrears. Many other operating expenses have normal trade terms and certain expenses, such as certain taxes and some benefits, are deferred for longer periods of time.

Current wording

In the restaurant industry, substantially all payments received on sales are made by credit card, debit card or cash. Restaurant inventories purchased through our principal food distributor are on terms of net zero days, while restaurant inventories purchased locally are generally financed from normal trade credit. Because of our retail gift shops, which have a lower product turnover than the restaurants, we carry larger inventories than many other companies in the restaurant industry. Retail inventories are generally financed through trade credit. These various trade terms are aided by the rapid turnover of the restaurant inventory. Employees generally are paid once every week or every two weeks except for bonuses that are paid either quarterly or annually in arrears. Many other operating expenses have normal trade terms and certain expenses, such as certain taxes and some benefits, are deferred for longer periods of time.

Previous wording

We had negative working capital of $167,204 at April 26, 2024 as compared to negative working capital of $206,679 at July 28, 2023. The change in working capital at April 26, 2024 as compared to July 28, 2023 primarily resulted from the timing of payments for accounts payable and certain taxes partially offset by the decrease in retail inventory levels.

Current wording

Like many other restaurant companies, we are able to, and often do, operate with negative working capital. We had negative working capital of $137,737 at November 01, 2024 as compared to negative working capital of $175,993 at August 02, 2024. The change in working capital at November 01, 2024 as compared to August 02, 2024 primarily resulted from higher inventory levels which reflect our normal seasonal build to support our expected holiday sales and lower incentive compensations accruals due to the payment of annual and long-term incentive bonuses and the timing of payments for payroll.

Previous wording

There have been no material changes in our material commitments other than in the ordinary course of business since the end of 2023. Refer to the sub-section entitled “Material Commitments” under the section entitled “Liquidity and Capital Resources” presented in the MD&A of our 2023 Form 10-K for additional information regarding our material commitments.

Current wording

There have been no material changes in our material commitments other than in the ordinary course of business since the end of 2024. Refer to the section entitled “Liquidity and Capital Resources” presented in the MD&A of our 2024 Form 10-K for additional information regarding our material commitments.

Previous wording

Our significant accounting policies are discussed in Note 1 to the Consolidated Financial Statements contained in the 2023 Form 10-K. Judgments and uncertainties affecting the application of those policies may result in materially different amounts being reported under different conditions or using different assumptions.

Current wording

Our critical accounting estimates are described under the heading “Critical Accounting Estimates” in Part II, Item 7 of the 2024 Form 10-K. Judgments and uncertainties affecting the application of those policies may result in materially different amounts being reported under different conditions or using different assumptions.

Previous wording

Management has reviewed these critical accounting estimates and related disclosures with the Audit Committee of our Board of Directors.

Current wording

Management has reviewed these critical accounting estimates and related disclosures with the Audit Committee of our Board of Directors. There have been no material changes in our critical accounting estimates from those described in the 2024 Form 10-K.