What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-12-09 compared with 2025-06-05 · 119 added, 148 removed, 194 unchanged (58% of the section changed)

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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 May 02, 2025, we operated 658 Cracker Barrel stores in 43 states and 70 Maple Street Biscuit Company (“MSBC”) locations in ten states.

As of October 31, 2025, we operated 656 Cracker Barrel stores in 43 states and 54 Maple Street Biscuit Company (“MSBC”) locations in ten states.

All dollar amounts reported or discussed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) are shown in thousands, except per share amounts and certain statistical information (e.g., number of stores).

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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, including the Company’s strategic transformation plan;

our ability to sustain or the effects of plans intended to improve operational or marketing execution and performance, including the Company’s multi-year strategic plan;

the effects of increased competition at our locations on sales and on labor recruiting, cost, and retention;

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the impact of activist shareholders;

our ability to achieve aspirations, goals and projections related to our environmental, social and governance initiatives;

our ability to achieve aspirations, goals and projections related to our sustainability initiatives;

our ability to enter successfully into new geographic markets that may be less familiar to us;

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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 and global trade, 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:

In the first quarter of 2026, we also experienced negative publicity to recent brand initiatives, including the launch of a new logo and modern test store remodels, to which we have responded by returning to our former logo and discontinuing the modern test store remodels.

Despite these challenges, we remain focused on delivering long-term growth and returns for shareholders.

Our multi-year strategic plan is built on the following five pillars of our strategy:

● Refining the brand :

evolving the brand across all touchpoints including refining and strengthening our positioning to best reach existing and new guests.

We have established an updated brand identity anchored on “the goodness of country hospitality”, which has been applied in our marketing, products (food and retail) and physical content and assets.

We have also refined our partnership strategy and expanded our use of additional marketing channels.

● Enhancing the menu :

introducing menu innovation focused on craveability and traffic drivers, streamlining processes to improve execution, and optimizing strategic pricing to protect value and improve profitability.

We have developed a robust product pipeline and introduced new craveable menu items, and we also plan to make targeted upgrades to existing items.

● Evolving the store and guest experience :

delivering an exceptional guest experience through operational excellence and improved store design and atmosphere.

We are in the process of testing remodel prototypes and expect to complete 25-30 remodels in 2025 along with 25-30 store refreshes.

We have improved several operational speed metrics and implemented a new allocation software package to improve retail product management.

● Winning in digital and off-premise :

growing the off-premise business and leveraging technology such as Cracker Barrel Rewards loyalty program.

We continue to leverage guest data to better understand consumer behavior and identify ways to drive frequency and engagement.

We have further leveraged our loyalty program by employing advanced technologies to deliver offers tailored to individual guests and optimized and expanded our off-premise business by updating our holiday and catering programs and improving our third-party sales strategies.

● Elevating the employee experience :

upgrading training and development programs and tools and simplifying job roles and utilizing technology to improve the employee experience.

Trade Policy and Tariffs

We have incurred additional costs on imported retail items as a result of recently imposed tariffs and changes in trade policy.

Approximately one-third of our retail products are sourced directly from vendors in China, and we also have indirect exposure related to our domestically sourced retail products originating from China.

Although trade policies and tariff rates continue to fluctuate, we currently project a net impact of approximately $5,000 to our retail margins in the fourth quarter of 2025.

However, any further changes in tariff levels or trade policy could materially affect our results of operations and financial condition, and the ongoing uncertainty introduces additional volatility and risk to our operations and financial condition and may affect consumer demand in ways that are difficult to predict.

We are taking certain measures to offset the adverse impact of tariffs, which include negotiations with vendors, alternative sourcing and pricing.

Additionally, we have been in the process of updating our retail strategy and we are accelerating initiatives from this update such as rationalizing stock keeping units (“SKUs”).

reducing seasonal themes and adjusting our seasonal promotional strategy to mitigate the impact of tariffs.

However, these measures may not be sufficient to fully offset the impact of tariffs and changing trade policy.

We are leveraging the Employee Value Proposition that we rolled out in 2025, and we believe it will drive better recruiting and retention.

Key Performance Indicators

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Quarter Ended

Nine Months Ended

Total revenue

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Impairment and store closing costs

Goodwill impairment

Operating income (loss)

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Quarter Ended

Nine Months Ended

Net change in units:

Opened during the period:

Cracker Barrel

Closed during the period:

Cracker Barrel

Units in operation at end of the period:

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Total Revenue

Total revenue for the third quarter and first nine months of 2025 increased 0.5% and 1.5%, respectively, as compared to the same periods in the prior year.

Total revenue for the first quarter decreased 5.7% as compared to the same period in the prior year.

The following table highlights the key components of revenue for the specified periods:

Quarter Ended

Nine Months Ended

Revenue in dollars:

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Comparable store sales and traffic exclude MSBC.

For the third quarter and first nine months of 2025, our comparable store restaurant sales increases resulted primarily from the average check increases partially offset by the guest traffic decreases.

For the third quarter and first nine months of 2025, the average check increases included average menu price increases of 4.9% and 5.2%, respectively.

For the first quarter of 2026, our comparable store restaurant sales decrease resulted primarily from the guest traffic decrease partially offset by the average check increase.

For the first quarter of 2026, the average check increase included an average menu price increase of 4.1%.

Our retail sales are made substantially to our restaurant guests.

For the third quarter and first nine months of 2025, our comparable store retail sales decreases resulted primarily from the guest traffic decreases.

The decreases in guest traffic are primarily the result of lower consumer demand arising from multiple macroeconomic factors, including inflationary pressures, higher consumer debt levels and lower savings rates as well as the potential uncertainty associated with the geopolitical environment and global trade.

For the first quarter of 2026, our comparable store retail sales decrease resulted primarily from the guest traffic decrease.

The decrease in guest traffic is primarily the result of negative publicity to recent brand initiatives, including the launch of new logo and modern test store remodels, and lower consumer demand arising from multiple macroeconomic factors, including inflationary pressures, higher consumer debt levels and lower savings rates as well as the potential uncertainty associated with the geopolitical environment and global trade.

Cost of Goods Sold (Exclusive of Depreciation and Rent)

The following table highlights the components of cost of goods sold (exclusive of depreciation and rent) in dollar amounts and as percentages of revenues for the specified periods:

Quarter Ended

Nine Months Ended

Three Months Ended

Cost of Goods Sold in dollars:

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Cost of Goods Sold by percentage of revenue:

The increase in restaurant cost of goods sold as a percentage of restaurant revenue for the third quarter as compared to the same period in the prior year was primarily driven by menu mix and commodity inflation partially offset by menu pricing.

The decrease in restaurant cost of goods sold as a percentage of restaurant revenue for the first nine months of 2025 as compared to the same period in the prior year was primarily the result of our menu pricing and lower food waste.

Lower food waste accounted for a decrease of 0.1% in restaurant cost of goods sold as a percentage of restaurant revenue for the first nine months of 2025 as compared to the same period in the prior year.

Commodity inflation was 2.9% and 2.0%, respectively, in the third quarter and first nine months of 2025.

We presently expect the rate of commodity inflation to be in the mid 2% range in 2025.

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

Third Quarter

(Decrease) Increase

as a Percentage of

Total Retail Revenue

Vendor allowances

Markdowns and discounts

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

First Nine Months

(Decrease) Increase

as a Percentage of

Total Retail Revenue

Vendor allowances

The increase in restaurant cost of goods sold as a percentage of restaurant revenue for the first quarter as compared to the same period in the prior year was primarily driven by higher food waste, increased discounts and commodity inflation partially offset by menu pricing.

Commodity inflation was 2.1% in the first quarter of 2026.

We presently expect the rate of commodity inflation to be 2.5% to 3.5% in 2026.

The increase in retail cost of goods sold as a percentage of retail revenue in the first quarter of 2026 as compared to the same period in the prior year resulted primarily from higher discounts, the change in the provision for obsolete inventory and lower initial margin which was driven primarily from tariffs.

Additional changes in tariff rates or trade policy could materially affect our operating results and financial condition, and this ongoing uncertainty introduces additional volatility and risk to our operations and financial condition and may affect consumer demand in ways that are difficult to predict.

First Quarter

Increase as Percentage

of Total Retail Revenue

Provision for obsolete inventory

Lower initial margin

Labor and Related Expenses

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Quarter Ended

Nine Months Ended

Labor and related expenses

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

Third Quarter

(Decrease) Increase

This percentage change for the first quarter of 2026 as compared to the same period in the prior year resulted primarily from the following:

First Quarter

Increase (Decrease)

as a Percentage of

Total Revenue

Store hourly labor

Store management compensation

Employee health care expense

First Nine Months

(Decrease) Increase

as a Percentage of

Total Revenue

Store hourly labor

Store management compensation

Employee health care expense

Store bonus expense

The decreases in store hourly labor and store management compensation as a percentage of total revenue for the third quarter and first nine months of 2025 as compared to the same periods in the prior year resulted primarily from menu price increases exceeding wage inflation.

Additionally, store hourly labor benefited from improved productivity, driven by our back-of-the-house optimization initiatives.

We presently expect the rate of wage inflation to be in the mid 2% range in 2025.

The increase in employee health care expense as a percentage of total revenue for the third quarter of 2025 as compared to the same period in the prior year resulted primarily from unfavorable claim experience as well as an increase in medical claim reserves driven by higher enrollment.

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

The increase in store bonus expense as a percentage of total revenue for the first nine months of 2025 as compared to the same period in the prior year resulted from better performance against financial objectives in 2025 as compared to the prior year.

The increases in store hourly labor and store management compensation as a percentage of total revenue for the first quarter of 2026 as compared to the same periods in the prior year resulted primarily from the deleverage associated with the decrease in total revenue in the first quarter of 2026 as compared to the prior year quarter.

Additionally, the Company continued to invest in staffing levels to enhance the guest experience, resulting in lower productivity in the first quarter of 2026.

We presently expect the rate of wage inflation to be 3.0% to 4.0% in 2026.

The increase in employee health care expense as a percentage of total revenue for the first quarter of 2026 as compared to the same period in the prior year resulted primarily from unfavorable claim experience.

The decrease in store bonus expense as a percentage of total revenue for the first quarter of 2026 as compared to the same period in the prior year resulted from lower performance against financial objectives in 2026 as compared to the prior year.

Other Store Operating Expenses

Other store operating expenses include all store-level operating costs, the major components of which are occupancy costs, operating supplies, advertising, third-party delivery fees, credit and gift card fees, real and personal property taxes and general insurance.

Other store operating expenses include all store-level operating costs, the major components of which are occupancy costs, advertising, operating supplies, third-party delivery fees, credit and gift card fees, real and personal property taxes, general insurance and manager conference expenses.

Occupancy costs include maintenance, utilities, depreciation and rent.

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Quarter Ended

Nine Months Ended

Other store operating expenses

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

Third Quarter

Increase as a Percentage

of Total Revenue

Store occupancy costs

The increase in store occupancy costs as a percentage of total revenue for the third quarter of 2025 as compared to the same period in the prior year resulted primarily from higher depreciation expense due to higher capital expenditures.

The increase in advertising expense as a percentage of total revenue for the third quarter of 2025 as compared to the same period in the prior year period resulted primarily from higher media spending and costs associated with our customer loyalty program, Cracker Barrel Rewards

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

First Nine Months

This percentage change for the first quarter of 2026 as compared to the same period in the prior year resulted primarily from the following:

First Quarter

Increase as a Percentage

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Other store expenses

The increase in store occupancy costs as a percentage of total revenue for the first nine months of 2025 as compared to the same period in the prior year period resulted primarily from higher depreciation expense due to higher capital expenditures.

The increase in other store operating expense as a percentage of total revenue for the first nine months of 2025 as compared to the same period in the prior year resulted primarily from higher conference expense due to a biennial district manager conference held in the first quarter of 2025, costs associated with our off-premise business and hurricane-related expenses incurred in the first quarter of 2025.

The increase in store occupancy costs as a percentage of total revenue for the first quarter of 2026 as compared to the same period in the prior year resulted primarily from higher maintenance expenses and the decrease in total revenue in the first quarter of 2026 as compared to the prior year quarter.

The increase in advertising expense as a percentage of total revenue for the first quarter of 2026 as compared to the same period in the prior year period resulted primarily from higher media spending, investments related to our multi-year strategic plan and the decrease in total revenue in the first quarter of 2026 as compared to the prior year quarter.

The increase in other store operating expense as a percentage of total revenue for the first quarter of 2026 as compared to the same period in the prior year resulted primarily from costs associated with our biennial general manager conference held in the first quarter of 2026.

We did not hold a general manager conference in 2025.

General and Administrative Expenses

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General and administrative expenses

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

Third Quarter

Decrease as a Percentage

This percentage change for the first quarter of 2026 as compared to the same period in the prior year resulted primarily from the following:

First Quarter

(Decrease) Increase

as a Percentage

of Total Revenue

Professional fees

Incentive compensation expense

The decrease in professional fees as a percentage of total revenue in the third quarter of 2025 as compared to the same period in the prior year resulted primarily from lower costs related to the Company’s strategic transformation plan.

The decrease in incentive compensation expense as a percentage of total revenue in the third quarter of 2025 as compared to the same period in the prior year resulted primarily from Chief Executive Officer transition costs incurred in 2024.

The percentage change in general and administrative expenses as a percentage of total revenue in the first nine months of 2025 as compared to the same period in the prior year was attributable to professional fees.

The Company incurred proxy contest expenses of $8,220 in the first nine months of 2025 related to a proxy contest in connection with the Company’s 2024 annual shareholders meeting held on November 21, 2024.

Higher legal fees for the first nine months of 2025 included an approximate $3,300 charge in connection with our settlement of a series of wage and hour arbitrations.

These fees were partially offset by lower costs associated with the Company’s strategic transformation plan for the first nine months of 2025 as compared to the same period in the prior year.

Professional fees

Payroll and related expense

The decrease in incentive compensation expense as a percentage of total revenue in the first quarter of 2026 as compared to the same period in the prior year resulted primarily from lower performance against financial objectives in 2026 as compared to the prior year period.

The decrease in professional fees as a percentage of total revenue in the first quarter of 2026 as compared to the same period in the prior year resulted primarily from lower legal fees and lower proxy contest expenses.

In the first quarter of 2026, we incurred $1,439 in costs related to a proxy contest in connection with the Company’s 2025 annual shareholders meeting held on November 20, 2025.

In the first quarter of 2025, we incurred $2,958 in costs related to a proxy contest in connection with the Company’s 2024 annual shareholders meeting held on November 21, 2024, as well as approximately $3,300 in connection with our settlement of wage-related disputes.

The increase in payroll and related expense as a percentage of total revenue in the first quarter of 2026 as compared to the same period in the prior year resulted primarily from severance costs related to a corporate restructuring.

Impairment and Store Closing Costs

During the third quarter of 2025, we recorded impairment charges of $718 as a result of the deterioration in operating performance in two MSBC locations.

During the first nine months of 2025, we recorded impairment charges of $3,581 as a result of the deterioration in operating performance in five MSBC locations and two Cracker Barrel locations.

One Cracker Barrel store was closed in the first nine months of 2025 resulting in closing costs of $288.

During the third quarter and first nine months of 2024, we recorded impairment charges of $17,448 as a result of the deterioration in operating performance of six Cracker Barrel and thirteen MSBC locations.

Additionally, during the third quarter and first nine months of 2024, we incurred costs of $5,494 in connection with the closure of four Cracker Barrel and two MSBC locations because of poor operating performance.

Goodwill Impairment

In the third quarter of 2024, we recorded a goodwill impairment charge of $4,690 related to MSBC because of declining financial trends and changes in the macroeconomic environment, including interest rate and inflationary pressures.

The amount is recorded in the goodwill impairment line on the Condensed Consolidated Statement of Income (Loss).

During the first quarter of 2026, we did not incur any impairment charges.

During the first quarter of 2026, one Cracker Barrel store and fourteen MSBC locations were closed because of poor operating performance, resulting in closing costs of $3,473 which included lease termination costs.

During the first quarter of 2025, we recorded impairment charges of $700 as a result of the deterioration in operating performance of two MSBC locations.

No stores were closed in the first quarter of 2025.

Operating Income (Loss)

Operating income (loss) consisted of the following for the specified periods:

Quarter Ended

Operating income (loss)

In the first quarter of 2026, the decrease in operating income (loss) from the same period in the prior year was primarily attributable to the decrease in total revenue, higher advertising expenses, higher maintenance expenses and the costs associated with the biennial general managers conference partially offset by lower incentive compensation and lower professional fees.

Interest Expense, Net

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Nine Months Ended

Interest expense, net

Interest expense for the third quarter of 2025 as compared to the same period in the prior year resulted primarily from lower average interest rates partially offset by higher weighted average debt levels under our 2022 Revolving Credit Facility (as defined below).

The increase in interest expense for the first nine months 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 partially offset by lower average interest rates.

The decrease in interest expense for the first quarter of 2026 as compared to the same period in the prior year resulted primarily from lower weighted average debt levels under our revolving credit facility partially offset by the interest related to the 2030 Notes.

Income Tax Benefit

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Nine Months Ended

Effective tax rate

The decrease in the effective tax rate in the third quarter of 2025 as compared to the same period in the prior year and the increase in the effective tax rate in the first nine months of 2025 as compared to the same period in the prior year are primarily due to the higher proportion of employment credits in relation to income (loss) before taxes in the prior year periods.

The Company records its interim income tax benefit using the discrete-period computation method, as of May 02, 2025 and April 26, 2024, as allowed under Accounting Standards Codification 740-240, Accounting for Income Taxes – Interim Reporting.

Use of the annualized effective tax rate 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.

We presently expect our effective tax rate for 2025 to be approximately (11%) to (17%).

The increase in the effective tax rate in the first quarter of 2026 as compared to the same period in the prior year is primarily due to the disproportionate benefit of employment credits in relation to income (loss) before taxes in the prior year period.

1., also known as the One Big Beautiful Bill Act (the “OBBBA”), was enacted on July 4, 2025, with effective dates in 2025 through 2027.

The legislation includes provisions that impact the timing and magnitude of certain tax deductions.

Key provisions include the permanent extension of several business tax benefits originally introduced under the 2017 Tax Cuts and Jobs Act.

The provisions effective for the first three months of 2026 did not have a significant impact on our financial position.

We will continue to assess the potential impacts on our financial position as additional guidance related to the OBBBA is released.

The Company records its interim income tax benefit using the discrete-period computation method, as of October 31, 2025 and November 01, 2024, as allowed under Accounting Standards Codification 740-240, Accounting for Income Taxes – Interim Reporting.

Use of the annualized effective tax rate (“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.

Net Income (Loss)

Net income (loss) consisted of the following for the specified periods:

Quarter Ended

Net income (loss)

The Company incurred a net loss in the first quarter of 2026 as compared to net income in the same period in the prior year primarily due to the decrease in operating income (loss) discussed above partially offset by a higher income tax benefit in the first quarter of 2026 as compared to the same period in the prior year as discussed above.

Liquidity and Capital Resources

Our primary sources of liquidity are cash generated from our operations and our borrowing capacity under our 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 nine months of 2025.

On May 16, 2025, we entered into a five-year $800,000 credit facility (the “2025 Credit Facility”).

The 2025 Credit Facility consists of a $550,000 revolving credit facility (the “2025 Revolving Credit Facility”), which includes a $25,000 swingline subfacility and a $75,000 letter of credit subfacility, and a $250,000 delayed draw term loan facility.

The 2025 Credit Facility also contains an option for the Company to increase the credit facility by $200,000.

We believe that cash on hand at May 02, 2025, along with cash expected to be generated from our operating activities and the borrowing capacity under our 2025 Credit Facility, will be sufficient to finance our continuing operations, our strategic transformation plan 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 2025 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 2025 Credit Facility and other debt instruments prior to maturity.

See Note 11 to our Condensed Consolidated Financial Statements for further information on our 2025 Credit Facility.

Cash Generated From Operations

Our operating activities provided net cash of $116,677 for the first nine months of 2025 as compared to $99,456 net cash provided during the first nine months of 2024.

This increase resulted primarily from the timing of cash receipts for accounts receivable and timing of payments for accounts payable and certain taxes.

Our primary sources of liquidity are cash generated from our operations and our borrowing capacity under the 2025 Revolving Credit Facility.

Cash generated from operations, together with our borrowing capacity under the 2025 Revolving Credit Facility, were sufficient to finance all of our dividend payments, working capital needs, interest payments on long-term debt obligations and other cash payment obligations in the first three months of 2026.

We believe that cash on hand at October 31, 2025, along with cash expected to be generated from our operating activities and the borrowing capacity under our 2025 Revolving Credit Facility, will be sufficient to finance our continuing operations, our multi-year strategic plan, debt service, dividend payments, capital expenditures and working capital needs for the next twelve months and thereafter.

Our ability to draw on our 2025 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 2025 Revolving Credit Facility and other debt instruments prior to maturity.

Cash Used In Operations

Our operating activities used net cash of $53,430 for the first three months of 2026 as compared to $4,395 net cash used during the same period in the prior year.

This change was primarily driven by the operating loss in the first quarter of 2026 as well as the timing of payments for accounts payable and certain taxes and higher retail inventory.

Capital Expenditures

Capital expenditures (purchase of property and equipment) net of proceeds from insurance recoveries were $113,214 for the first nine months of 2025 as compared to $80,081 for the same period in the prior year.

Capital expenditures (purchase of property and equipment) net of proceeds from insurance recoveries were $34,165 for the first three months of 2026 as compared to $38,887 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 increase in capital expenditures in the first nine months of 2025 as compared to the first nine months of 2024 resulted primarily from our maintenance and remodel initiatives as part of our strategic transformation plan.

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 $170,000 in 2025.

This increase in capital expenditures 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 2025 Credit Facility, as necessary.

The decrease in capital expenditures in the first quarter of 2026 compared to the same period in the prior year resulted primarily from lower capital investments in existing stores.

We currently expect capital expenditures to be approximately $110,000 to $125,000 in 2026.

This estimate includes our maintenance and technology initiatives as well as the acquisition of sites and construction costs of new locations that we plan to open during 2026.

We intend to fund our capital expenditures with cash generated by operations and borrowings under our 2025 Revolving Credit Facility, as necessary.

Borrowing Capacity, Debt Covenants and Notes

On June 17, 2022, we entered into a five-year $700,000 revolving credit facility (the “2022 Revolving Credit Facility”).

The 2022 Revolving Credit Facility contains an option for the Company to increase the revolving credit facility by $200,000.

On May 16, 2025, the Company entered into a five-year $800,000 credit facility (the “2025 Credit Facility”).

The 2025 Credit Facility consists of a $550,000 revolving credit facility, which includes a $25,000 swingline subfacility and a $75,000 letter of credit subfacility, and a $250,000 delayed draw term loan facility.

The Delayed Draw Term Facility was terminated on June 13, 2025 in connection with the Company’s issuance and sale of the 2030 Notes.

The 2025 Credit Facility also contains an option for the Company to increase the 2025 Credit Facility by $200,000.

At May 02, 2025, we had $191,500 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 May 02, 2025, we had $474,496 in borrowing availability under our 2022 Revolving Credit Facility.

During the first nine months of 2025, we borrowed $308,500 and repaid $297,000 under the 2022 Revolving Credit Facility.

Our 2022 Revolving Credit Facility contains customary financial covenants, which include maintenance of a maximum consolidated total senior secured leverage ratio and a minimum consolidated interest coverage ratio.

We were in compliance with the 2022 Revolving Credit Facility’s financial covenants at May 02, 2025.

Our 2025 Credit Facility also contains customary financial covenants, which include maintenance of a maximum consolidated total leverage ratio and a minimum consolidated interest coverage ratio.

At October 31, 2025, we had $65,000 of outstanding borrowings under the 2025 Revolving Credit Facility and $8,703 of standby letters of credit related to securing reserved claims under our workers’ compensation insurance, which reduce our borrowing availability under the 2025 Revolving Credit Facility.

At October 31, 2025, we had $476,297 in borrowing availability under our 2025 Revolving Credit Facility.

During the first three months of 2026, we borrowed $142,500 and repaid $77,500 under the 2025 Revolving Credit Facility.

Our 2025 Revolving Credit Facility contains customary financial covenants, which include maintenance of a maximum consolidated total leverage ratio and a minimum consolidated interest coverage ratio.

We were in compliance with the 2025 Revolving Credit Facility’s financial covenants at October 31, 2025.

We expect to be in compliance with the 2025 Credit Facility’s financial covenants for the term of the facility.

See Note 11 to our Condensed Consolidated Financial Statements for further information on our 2025 Credit Facility.

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.

On June 13, 2025, we issued the 2030 Notes.

The 2030 Notes are senior, unsecured obligations of the Company and bear cash interest at a rate of 1.75% per annum, payable semi-annually in arrears on March 15 and September 15 of each year, beginning on March 15, 2026.

The 2030 Notes mature on September 15, 2030, unless earlier converted, repurchased or redeemed.

Net proceeds from the 2030 Notes were approximately $335,000, after deducting the initial purchasers’ discounts and commissions and the Company’s offering fees and expenses.

Additionally, on June 13, 2025, we used approximately $145,900 of the net proceeds from the 2030 Notes for the repurchase of $150,000 aggregate principal amount of the 2026 Notes.

The remaining $150,000 aggregate principal amount of the 2026 Notes matures on June 15, 2026, unless earlier converted, repurchased or redeemed.

The 2026 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.

See Note 4 to our Condensed Consolidated Financial Statements for further information on our long-term debt.

Dividends and Share-Based Compensation Awards

For additional information regarding our 2025 Revolving Credit Facility, the 2026 Notes and the 2030 Notes, see Note 4 to the Condensed Consolidated Financial Statements.

Dividends, Share Repurchases and Share-Based Compensation Awards

Our 2025 Revolving Credit Facility imposes restrictions on the amount of dividends we are permitted to pay and the amount of shares we are permitted to repurchase.

Under the 2022 Revolving Credit Facility, provided there is no default existing and the total of our availability under the 2022 Revolving Credit Facility plus our cash and cash equivalents on hand is at least $100,000 (the “Cash Availability”), we may declare and pay cash dividends on shares of our common stock and repurchase shares of our common stock (1) in an unlimited amount if at the time the dividend or the repurchase is made our consolidated total senior secured leverage ratio is 2.75 to 1.00 or less and (2) in an aggregate amount not to exceed $100,000 in any fiscal year if our consolidated total leverage ratio is greater than 2.75 to 1.00 at the time the dividend or repurchase is made;

Under the 2025 Revolving Credit Facility, provided there is no default existing and the total of our availability under the 2025 Revolving Credit Facility plus our cash and cash equivalents on hand is at least $100,000 (the “Cash Availability”), we may declare and pay cash dividends on shares of our common stock and repurchase shares of our common stock (1) in an unlimited amount if at the time the dividend or the repurchase is made our consolidated total leverage ratio is 3.50 to 1.00 or less and (2) in an aggregate amount not to exceed $100,000 in any fiscal year if, at the time such dividend or repurchase is made, our consolidated total leverage ratio is greater than 3.50 to 1.00;

notwithstanding (1) and (2), so long as immediately after giving effect to the payment of any such dividends, Cash Availability is at least $100,000, we may declare and pay cash dividends on shares of our common stock in an aggregate amount not to exceed in any fiscal year the product of the aggregate amount of dividends declared in the fourth quarter of the immediately preceding fiscal year multiplied by four.

See Note 11 to our Condensed Consolidated Financial Statements for information on restrictions on the amount of dividends we are permitted to pay and the amount of shares we are permitted to repurchase under the 2025 Credit Facility.

During the first nine months of 2025, we paid a regular dividend of $0.75 per share and declared a dividend of $0.25 per share that was subsequently paid on May 14, 2025, to shareholders of record on April 11, 2025.

In addition, in the fourth quarter of 2025, our Board of Directors approved a regular dividend payable on August 13, 2025 to shareholders of record as of July 18, 2025 of $0.25 per share.

During the first nine months of 2025, we issued 63,908 shares of our common stock resulting from the vesting of share-based compensation awards.

During the first three months of 2026, 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 12, 2025, to shareholders of record on October 17, 2025.

In addition, in the second quarter of 2026, our Board of Directors approved a regular dividend payable on February 11, 2026 to shareholders of record as of January 16, 2026 of $0.25 per share.

Our criteria for share repurchases are that they be accretive to expected net income per share and are within the limits imposed by our debt commitments.

In the first quarter of 2026, our Board of Directors approved a share repurchase authorization to repurchase shares of the Company’s outstanding common stock at management’s discretion up to a total value of $100,000.

We did not repurchase any shares of our common stock in the first quarter of 2026.

During the first three months of 2026, we issued 58,842 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 $1,903.

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Like many other restaurant companies, we are able to, and often do, operate with negative working capital.

We had negative working capital of $146,208 at May 02, 2025 as compared to negative working capital of $175,993 at August 02, 2024.

The change in working capital at May 02, 2025 as compared to August 02, 2024 primarily resulted from the timing of certain payments partially offset by the decrease in retail inventory levels.

We had negative working capital of $288,285 at October 31, 2025 as compared to negative working capital of $312,491 at August 01, 2025.

The change in working capital at October 31, 2025 as compared to August 01, 2025 primarily resulted from lower incentive compensation accruals due to lower performance in the first quarter of 2026 and the payment of annual and long-term incentive bonuses, higher inventory levels which reflect our normal seasonal build to support our expected holiday sales and the timing of certain payments partially offset by the decrease in cash.

Off-Balance Sheet Arrangements

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Material Commitments

Except for entry into the 2025 Credit Facility, there have been no material changes in our material commitments other than in the ordinary course of business since the end of 2024.

See Note 11 to our Condensed Consolidated Financial Statements for information on the 2025 Credit Facility.

There have been no material changes in our material commitments other than in the ordinary course of business since the end of 2025.

Refer to the section entitled “Liquidity and Capital Resources” presented in the MD&A of our 2025 Form 10-K for additional information regarding our material commitments.

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See Note 1 to the accompanying Condensed Consolidated Financial Statements for a discussion of recent accounting guidance not yet adopted.

We are currently evaluating the impact of adopting the accounting guidance.

We are currently evaluating the impact of adopting this accounting guidance.

Critical Accounting Estimates

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis