CRACKER BARREL OLD COUNTRY STORE, INC 10-Q

ITEM 1. Financial Statements (Unaudited) CRACKER BARREL OLD COUNTRY STORE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share data) (Unaudited) ASSETS April 28, 2023 July 29, 2022* Current Assets: Cash and cash equivalents $ 22,452 $ 45,105 Accounts receivable 32,086 32,246 Inventories 184,813 213,249 Prepaid expenses and other current assets 33,681 26,676 Total current assets 273,032 317,276 Property and equipment 2,359,829 2,309,578 Less: Accumulated depreciation and amortization 1,396,264 1,339,969 Property and equipment – net 963,565 969,609 Operating lease right-of-use assets, net 903,435 933,524 Goodwill 4,690 4,690 Intangible assets 22,090 21,210 Other assets 46,657 48,602 Total assets $ 2,213,469 $ 2,294,911 LIABILITIES AND SHAREHOLDERS’ EQUITY Current Liabilities: Accounts payable $ 132,032 $ 169,871 Taxes withheld and accrued 33,588 60,212 Other current liabilities 283,603 272,241 Total current liabilities 449,223 502,324 Long-term debt 444,545 423,249 Long-term operating lease liabilities 711,199 722,159 Other long-term obligations 134,634 135,700 Commitments and Contingencies (Note 10) Shareholders’ Equity: Preferred stock – 100,000,000 shares of $ 0.01 par value authorized; 300,000 shares designated as Series A Junior Participating Preferred Stock; no shares issued — — Common stock – 400,000,000 shares of $ 0.01 par value authorized; 22,152,432 shares issued and outstanding at April 28, 2023 , and 22,281,443 shares issued and outstanding at July 29, 2022 221 223 Additional paid-in capital 2,474 — Retained earnings 471,173 511,256 Total shareholders’ equity 473,868 511,479 Total liabilities and shareholders’ equity $ 2,213,469 $ 2,294,911 See Notes to unaudited Condensed Consolidated Financial Statements. * This Condensed Consolidated Balance Sheet has been derived from the audited Consolidated Balance Sheet as of July 29, 2022, as filed with the Securities and Exchange Commission in the Company’s Annual Report on Form 10-K for the fiscal year ended July 29, 2022. 3 Index CRACKER BARREL OLD COUNTRY STORE, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except share data) (Unaudited) Quarter Ended Nine Months Ended April 28, 2023 April 29, 2022 April 28, 2023 April 29, 2022 Total revenue $ 832,689 $ 790,196 $ 2,606,076 $ 2,437,386 Cost of goods sold (exclusive of depreciation and rent) 262,191 250,048 870,286 776,460 Labor and other related expenses 297,883 283,664 903,558 854,647 Other store operating expenses 196,886 185,870 602,447 561,715 General and administrative expenses 45,049 40,160 136,515 124,533 Impairment and store closing costs 13,890 — 13,890 — Operating income 16,790 30,454 79,380 120,031 Interest expense, net 4,536 2,171 12,476 7,000 Income before income taxes 12,254 28,283 66,904 113,031 Provision for income taxes (income tax benefit) ( 1,714 ) 767 5,316 14,515 Net income $ 13,968 $ 27,516 $ 61,588 $ 98,516 Net income per share: Basic $ 0.63 $ 1.19 $ 2.78 $ 4.22 Diluted $ 0.63 $ 1.19 $ 2.77 $ 4.21 Weighted average shares: Basic 22,152,002 23,089,521 22,173,019 23,330,093 Diluted 22,254,511 23,170,900 22,266,333 23,409,118 See Notes to unaudited Condensed Consolidated Financial Statements. 4 Index CRACKER BARREL OLD COUNTRY STORE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited and in thousands, except share data) Common Stock Additional Paid-In Retained Total Shareholders’ Shares Amount Capital Earnings Equity Balances at July 29, 2022 22,281,443 $ 223 $ — $ 511,256 $ 511,479 Comprehensive Income: Net income — — — 17,129 17,129 Total comprehensive income — — — 17,129 17,129 Cash dividends declared - $ 1.30 per share — — — ( 28,689 ) ( 28,689 ) Share-based compensation — — 2,422 — 2,422 Issuance of share-based compensation awards, net of shares withheld for employee taxes 34,982 — ( 2,380 ) — ( 2,380 ) Purchases and retirement of common stock ( 120,958 ) ( 1 ) ( 42 ) ( 12,405 ) ( 12,448 ) Balances at October 28, 2022 22,195,467 $ 222 $ — $ 487,291 $ 487,513 Comprehensive Income: Net income — — — 30,491 30,491 Total comprehensive income — — — 30,491 30,491 Cash dividends declared - $ 1.30 per share — — — ( 29,179 ) ( 29,179 ) Share-based compensation — — 2,689 — 2,689 Issuance of share-based compensation awards, net of shares withheld for employee taxes 6,167 — ( 20 ) — ( 20 ) Purchases and retirement of common stock ( 50,834 ) ( 1 ) ( 2,669 ) ( 2,331 ) ( 5,001 ) Balances at January 27, 2023 22,150,800 $ 221 $ — $ 486,272 $ 486,493 Comprehensive Income: Net income — — — 13,968 13,968 Total comprehensive income — — — 13,968 13,968 Cash dividends declared - $ 1.30 per share — — — ( 29,067 ) ( 29,067 ) Share-based compensation — — 2,474 — 2,474 Issuance of share-based compensation awards, net of shares withheld for employee taxes 1,632 — — — — Balances at April 28 , 2023 22,152,432 $ 221 $ 2,474 $ 471,173 $ 473,868 See Notes to unaudited Condensed Consolidated Financial Statements. 5 Index CRACKER BARREL OLD COUNTRY STORE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited and in thousands, except share data) Common Stock Additional Paid-In Retained Total Shareholders’ Shares Amount Capital Earnings Equity Balances at July 30, 2021 23,497,166 $ 235 $ — $ 663,398 $ 663,633 Comprehensive Income: Net income — — — 33,376 33,376 Total comprehensive income — — — 33,376 33,376 Cash dividends declared - $ 1.30 per share — — — ( 30,838 ) ( 30,838 ) Share-based compensation — — 2,309 — 2,309 Cumulative-effect of change in accounting principle, net of taxes — — — ( 36,956 ) ( 36,956 ) Issuance of share-based compensation awards, net of shares withheld for employee taxes 22,691 — ( 2,309 ) — ( 2,309 ) Balances at October 29, 2021 23,519,857 $ 235 $ — $ 628,980 $ 629,215 Comprehensive Income: Net income — — — 37,624 37,624 Total comprehensive income — — — 37,624 37,624 Cash dividends declared - $ 1.30 per share — — — ( 30,471 ) ( 30,471 ) Share-based compensation — — 2,203 — 2,203 Issuance of share-based compensation awards, net of shares withheld for employee taxes 8,339 — ( 237 ) — ( 237 ) Purchases and retirement of common stock ( 279,664 ) ( 3 ) ( 1,966 ) ( 32,261 ) ( 34,230 ) Balances at January 28, 2022 23,248,532 $ 232 $ — $ 603,872 $ 604,104 Comprehensive Income: Net income — — — 27,516 27,516 Total comprehensive income — — — 27,516 27,516 Cash dividends declared - $ 1.30 per share — — — ( 30,110 ) ( 30,110 ) Share-based compensation — — 1,906 — 1,906 Purchases and retirement of common stock ( 336,212 ) ( 3 ) ( 1,906 ) ( 37,278 ) ( 39,187 ) Balances at April 29 , 2022 22,912,320 $ 229 $ — $ 564,000 $ 564,229 See Notes to unaudited Condensed Consolidated Financial Statements. 6 Index CRACKER BARREL OLD COUNTRY STORE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended April 28, 2023 April 29, 2022 Cash flows from operating activities: Net income $ 61,588 $ 98,516 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 76,805 77,288 Amortization of debt issuance costs 1,296 1,326 Loss on disposition of property and equipment 4,793 4,140 Impairment 11,692 — Share-based compensation 7,585 6,418 Noncash lease expense 44,727 43,646 Amortization of asset recognized from gain on sale and leaseback transactions 9,551 9,551 Changes in assets and liabilities: Inventories 28,436 ( 54,040 ) Other current assets ( 5,490 ) ( 5,073 ) Accounts payable ( 37,839 ) ( 9,740 ) Taxes withheld and accrued ( 26,624 ) 7,794 Other current liabilities 11,981 ( 2,104 ) Long-term operating lease liabilities ( 36,508 ) ( 44,495 ) Other long-term assets and liabilities ( 757 ) ( 26,871 ) Net cash provided by operating activities 151,236 106,356 Cash flows from investing activities: Purchase of property and equipment ( 87,623 ) ( 59,982 ) Proceeds from insurance recoveries of property and equipment 725 1,175 Proceeds from sale of property and equipment 250 44 Acquisition of business, net of cash acquired — ( 1,500 ) Net cash used in investing activities ( 86,648 ) ( 60,263 ) Cash flows from financing activities: Proceeds from issuance of long-term debt 120,000 45,000 Taxes withheld from issuance of share-based compensation awards ( 2,400 ) ( 2,546 ) Principal payments under long-term debt ( 100,049 ) ( 50,049 ) Purchases and retirement of common stock ( 17,449 ) ( 73,417 ) Dividends on common stock ( 87,343 ) ( 84,901 ) Net cash used in financing activities ( 87,241 ) ( 165,913 ) Net decrease in cash and cash equivalents ( 22,653 ) ( 119,820 ) Cash and cash equivalents, beginning of period 45,105 144,593 Cash and cash equivalents, end of period $ 22,452 $ 24,773 Supplemental disclosures of cash flow information: Cash paid during the period for: Interest, net of amounts capitalized $ 9,323 $ 5,399 Income taxes $ 4,798 $ 20,261 Supplemental schedule of non-cash investing and financing activities * : Capital expenditures accrued in accounts payable $ 3,867 $ 4,006 Dividends declared but not yet paid $ 30,048 $ 30,668 * See Note 8 for additional supplemental disclosures related to leases. See Notes to unaudited Condensed Consolidated Financial Statements. 7 Index CRACKER BARREL OLD COUNTRY STORE, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except percentages, share and per share data) (Unaudited) 1. Condensed Consolidated Financial Statements Cracker Barrel Old Country Store, Inc., and its affiliates (collectively, in these Notes to Condensed Consolidated Financial Statements, the “Company”) are principally engaged in the operation and development in the United States of the Cracker Barrel Old Country Store® (“Cracker Barrel”) concept. The accompanying condensed consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) without audit. In the opinion of management, all adjustments (consisting of normal and recurring items) necessary for a fair presentation of such condensed consolidated financial statements have been made. The results of operations for any interim period are not necessarily indicative of results for a full year. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended July 29, 2022 (the “2022 Form 10-K”). The accounting policies used in preparing these condensed consolidated financial statements are the same as described in the 2022 Form 10-K. References to a year in these Notes to Condensed Consolidated Financial Statements are to the Company’s fiscal year unless otherwise noted. COVID-19 Impact While all of our dining rooms are currently operating without COVID-19-related restrictions, it is possible that renewed outbreaks or increases in cases and/or new variants of the disease, either as part of a national trend or on a more localized basis, could result in COVID-19-related restrictions including capacity restrictions, otherwise limit our dine-in services, or negatively affect consumer demand. In response to the COVID-19 pandemic, the Company instituted operational protocols to comply with applicable regulatory requirements to protect the health and safety of employees and guests, and the Company implemented and continually adapted a number of strategies to support the recovery of our business and navigate through the uncertain environment. The Company continues to focus on growing its off-premise business and investing in its digital infrastructure to improve the guest experience in the face of these ongoing challenges. 2. Fair Value Measurements The Company’s assets measured at fair value on a recurring basis at April 28, 2023 were as follows: Level 1 Level 2 Level 3 Total Fair Value Cash equivalents* $ 1 $ — $ — $ 1 Deferred compensation plan assets** 26,386 Total assets at fair value $ 26,387 The Company’s assets measured at fair value on a recurring basis at July 29, 2022 were as follows: Level 1 Level 2 Level 3 Total Fair Value Cash equivalents* $ 18,001 $ — $ — $ 18,001 Deferred compensation plan assets** 27,843 Total assets at fair value $ 45,844 * Consists of money market fund investments. ** Represents plan assets invested in mutual funds established under a rabbi trust for the Company’s non-qualified savings plan and is included in the Condensed Consolidated Balance Sheets as other assets. 8 Index The Company did no t have any liabilities measured at fair value on a recurring basis at April 28, 2023 and July 29, 2022. The Company’s money market fund investments are measured at fair value using quoted market prices. The Company’s deferred compensation plan assets are measured based on net asset value per share as a practical expedient to estimate fair value. The fair values of the Company’s accounts receivable and accounts payable approximate their carrying amounts because of their short duration. The fair value of the Company’s variable rate debt, based on quoted market prices, which are considered Level 1 inputs, approximates its carrying amount at April 28, 2023 and July 29, 2022. The Company’s financial instruments that are not remeasured at fair value include the 0.625 % convertible Senior Notes (see Note 4). The Company estimates the fair value of the Notes through consideration of quoted market prices of similar instruments, classified as Level 2. The estimated fair value of the Notes was $ 264,606 and $ 255,894 , respectively, as of April 28, 2023 and July 29, 2022 . Assets Measured at Fair Value on a Nonrecurring Basis During the third quarter of 2023, six Cracker Barrel locations were determined to be impaired because of declining operational performance. Fair value of these locations was determined by sales prices of comparable assets or estimates of discounted future cash flows considering their highest and best use. Assumptions used in the cash flow model included projected annual revenue growth rates and projected cash flows, which can be affected by economic conditions and management’s expectations. Additionally, changes in the local and national economies and markets for real estate and other assets can impact the sales prices of the assets. The Company has determined that the majority of the inputs used to value its long-lived assets held and used are unobservable inputs, and thus, are considered Level 3 inputs. Based on its analysis, the Company recorded an impairment charge of $ 11,692 , which is included in the impairment and store closing costs line on the Condensed Consolidated Statement of Income. 3. Inventories Inventories were comprised of the following at: April 28, 2023 July 29, 2022 Retail $ 140,716 $ 170,846 Restaurant 25,483 25,284 Supplies 18,614 17,119 Total $ 184,813 $ 213,249 4. Debt On June 17, 2022, the Company entered into a five-year $ 700,000 revolving credit facility (the “2022 Revolving Credit Facility”) with substantially the same terms and financial covenants as our previous amended $ 800,000 revolving credit facility, which it replaced. The 2022 Revolving Credit Facility also contains an option to increase the revolving credit facility by $ 200,000 . The Company’s outstanding borrowings under the 2022 Revolving Credit Facility were $ 150,000 and $ 130,000 on April 28, 2023 and July 29, 2022, respectively. As of April 28, 2023, the Company had $ 31,896 of standby letters of credit, which reduce the Company’s borrowing availability under the 2022 Revolving Credit Facility (see Note 10 for more information on the Company’s standby letters of credit). As of April 28, 2023, the Company had $ 518,104 in borrowing availability under the 2022 Revolving Credit Facility. In accordance with the 2022 Revolving Credit Facility, outstanding borrowings bear interest, at the Company’s election, either at Term Secured Overnight Financing Rate (SOFR) or prime plus or a rate of 0.5 % in excess of the Federal Funds Rate plus an applicable margin based on certain specified financial ratios. At April 28, 2023, the weighted average interest rate on the Company’s outstanding borrowings was 6.49 %. The 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. At April 28, 2023, the Company was in compliance with all financial covenants under the 2022 Revolving Credit Facility. 9 Index The 2022 Revolving Credit Facility also imposes restrictions on the amount of dividends the Company is permitted to pay and the amount of shares the Company is permitted to repurchase. Under the 2022 Revolving Credit Facility, provided there is no default existing and the total of the Company’s availability under the 2022 Revolving Credit Facility plus the Company’s cash and cash equivalents on hand is at least $ 100,000 (the “Cash Availability”), the Company may declare and pay cash dividends on shares of its common stock and repurchase shares of its common stock (1) in an unlimited amount if, at the time such dividend or repurchase is made, the Company’s 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 the Company’s consolidated total leverage ratio is greater than 2.75 to 1.00 at the time the dividend or repurchase is made; 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 , the Company may declare and pay cash dividends on shares of its 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 . Convertible Senior Notes On June 18, 2021, the Company completed a $ 300,000 principal aggregate amount private offering of 0.625 % convertible Senior Notes due in 2026 (the “Notes”). The Notes are governed by the terms of an indenture between the Company and U.S. Bank National Association as the Trustee. The Notes will mature on June 15, 2026 , unless earlier converted, repurchased or redeemed. The Notes bear cash interest at an annual rate of 0.625 %, payable semi-annually in arrears on June 15 and December 15 of each year. The Notes are unsecured obligations and do not contain any financial or operating covenants or restrictions on the payments of dividends, the incurrence of indebtedness or the issuance or repurchase of securities by the Company or any of its subsidiaries. In an event of default, the principal amount of, and all accrued and unpaid interest on, all of the notes then outstanding will immediately become due and payable. However, notwithstanding the foregoing, the Company may elect, at its option, that the sole remedy for an event of default relating to certain failures by the Company to comply with certain reporting covenants in the Indenture will consist exclusively of the right of the noteholders to receive special interest on the Notes for up to 180 calendar days during which such event of default has occurred and is continuing, at a specified rate for the first 90 days of 0.25 % per annum, and thereafter at a rate of 0.50 % per annum, on the principal amount of the Notes. The initial conversion rate applicable to the Notes was 5.3153 shares of the Company’s common stock per $ 1,000 principal amount of Notes, which represented an initial conversion price of approximately $ 188.14 per share of the Company’s common stock, a premium of 25.0 % over the last reported sale price of $ 150.51 per share on June 15, 2021, the date on which the Notes were priced. The conversion rate is subject to customary adjustments upon the occurrence of certain events, including the payment of dividends to holders of the Company’s common stock. As of April 28, 2023, the conversion rate, as adjusted, was 5.8108 shares of the Company’s common stock per $ 1,000 principal amount of Notes. In addition, if certain corporate events that constitute a “Make-Whole Fundamental Change” occur, then the conversion rate will, in certain circumstances, be increased for a specified period of time. Net proceeds from the Notes offering were $ 291,125 , after deducting the initial purchasers’ discounts and commissions and the Company’s offering fees and expenses. The Notes are accounted for entirely as a liability, and the issuance costs of the Notes are accounted for wholly as debt issuance costs. The following table includes the outstanding principal amount and carrying value of the Notes as of the dates indicated: April 28, 2023 July 29, 2022 Liability component Principal $ 300,000 $ 300,000 Less: Debt issuance costs (1) 5,605 6,901 Net carrying amount $ 294,395 $ 293,099 (1) Debt issuance costs are amortized to interest expense using the effective interest method over the expected life of the Notes. 10 Index The effective rate of the Notes over their expected life is 1.23 %. The following is a summary of interest expense for the Notes for specified periods: Quarter Ended Nine Months Ended April 28, 2023 April 29, 2022 April 28, 2023 April 29, 2022 Coupon interest $ 474 $ 474 $ 1,422 $ 1,422 Amortization of issuance costs 434 415 1,296 1,326 Total interest expense $ 908 $ 889 $ 2,718 $ 2,748 During any calendar quarter commencing after September 30, 2021, in which the closing price of the Company’s common stock exceeds 130 % of the applicable conversion price of the Notes on at least 20 of the last 30 consecutive trading days of the quarter, holders may in the quarter immediately following, convert all or a portion of their Notes. The holders of the Notes were not eligible to convert their Notes during 2023, 2022 or 2021. When a conversion notice is received, the Company has the option to pay or deliver the conversion amount entirely in cash or a combination of cash and shares of the Company’s common stock. Accordingly, as of April 28, 2023, the Company could not be required to settle the Notes and, therefore, the Notes are classified as long-term debt. Convertible Note Hedge and Warrant Transactions In connection with the offering of the Notes, the Company entered into convertible note hedge transactions (the “Convertible Note Hedge Transactions”) with certain of the initial purchasers of the Notes and/or their respective affiliates and other financial institutions (in this capacity, the “Hedge Counterparties”). Concurrently with the Company’s entry into the Convertible Note Hedge Transactions, the Company also entered into separate, warrant transactions with the Hedge Counterparties collectively relating to the same number of shares of the Company’s common stock, which initially was approximately 1,600,000 shares, subject to customary anti-dilution adjustments, and for which the Company received proceeds that partially offset the cost of entering into the Convertible Note Hedge Transactions (the “Warrant Transactions”). The Convertible Note Hedge Transactions cover, subject to customary anti-dilution adjustments, the number of shares of the Company’s common stock that initially underlay the Notes and are expected generally to reduce the potential equity dilution, and/or offset any cash payments in excess of the principal amount due, as the case may be, upon conversion of the Notes. The Warrant Transactions could have a dilutive effect on the Company’s common stock to the extent that the price of its common stock exceeds the strike price of the Warrant Transactions. The strike price was initially $ 263.39 per share and is subject to certain adjustments under the terms of the Warrant Transactions. As of April 28, 2023, the strike price, as adjusted, of the Warrant Transactions was $ 240.93 per share as a result of dividends declared since the Notes were issued. The portion of the net proceeds to the Company from the offering of the Notes that was used to pay the premium on the Convertible Note Hedge Transactions, net of the proceeds to the Company from the Warrant Transactions, was approximately $ 30,310 . The net costs incurred in connection with the Convertible Note Hedge Transactions and Warrant Transactions were recorded as a reduction to additional paid-in capital on the Company’s Condensed Consolidated Balance Sheet during 2021. Because these transactions meet certain accounting criteria, the Convertible Note Hedge Transactions and Warrant Transactions were recorded in shareholders’ equity, not accounted for as derivatives and are not remeasured each reporting period. 5. Seasonality Historically, the revenue and net income of the Company have been lower in the first and third quarters and higher in the second and fourth quarters. Management attributes these variations to the holiday shopping season and the summer vacation and travel season. The Company’s retail sales, which are made substantially to the Company’s restaurant customers, historically have been highest in the Company’s second quarter, which includes the holiday shopping season. Historically, interstate tourist traffic and the propensity to dine out have been higher during the summer months, thereby contributing to higher profits in the Company’s fourth quarter. The Company generally opens additional new locations throughout the year. Therefore, the results of operations for any interim period cannot be considered indicative of the operating results for an entire year. Currently, the Company is not able to predict the impact that future variants of COVID-19 may have on these historical consumer demand patterns or, as a result, on the seasonality of its business generally. 11 Index 6. Segment Information Cracker Barrel stores represent a single, integrated operation with two related and substantially integrated product lines. The operating expenses of the restaurant and retail product lines of a Cracker Barrel store are shared and are indistinguishable in many respects. Accordingly, the Company currently manages its business on the basis of one reportable operating segment. All of the Company’s operations are located within the United States. 7. Revenue Recognition Revenue consists primarily of sales from restaurant and retail operations. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a restaurant guest, retail customer or other customer. The Company’s policy is to present sales in the Condensed Consolidated Statements of Income on a net presentation basis after deducting sales tax. Disaggregation of revenue Total revenue was comprised of the following for the specified periods: Quarter Ended Nine Months Ended April 28, 2023 April 29, 2022 April 28, 2023 April 29, 2022 Revenue: Restaurant $ 681,315 $ 632,210 $ 2,061,551 $ 1,903,704 Retail 151,374 157,986 544,525 533,682 Total revenue $ 832,689 $ 790,196 $ 2,606,076 $ 2,437,386 Restaurant Revenue The Company recognizes revenues from restaurant sales when payment is tendered at the point of sale, as the Company’s performance obligation to provide food and beverages is satisfied. Retail Revenue The Company recognizes revenues from retail sales when payment is tendered at the point of sale, as the Company’s performance obligation to provide merchandise is satisfied. Ecommerce sales, including shipping revenue, are recorded upon delivery to the customer. Additionally, estimated sales returns are calculated based on return history and sales levels. Gift Card Breakage Included in restaurant and retail revenue is gift card breakage. Customer purchases of gift cards, to be utilized at the Company’s stores, are not recognized as sales until the card is redeemed and the customer purchases food and/or merchandise. Gift cards do not carry an expiration date; therefore, customers can redeem their gift cards indefinitely. A certain number of gift cards will not be fully redeemed. Management estimates unredeemed balances and recognizes gift card breakage revenue for these amounts in the Company’s Condensed Consolidated Statements of Income over the expected redemption period. Gift card breakage is recognized when the likelihood of a gift card being redeemed by the customer is remote, and the Company determines that there is not a legal obligation to remit the unredeemed gift card balance to the relevant jurisdiction. 12 Index The determination of the gift card breakage rate is based upon the Company’s specific historical redemption patterns. The Company recognizes gift card breakage by applying its estimate of the rate of gift card breakage over the period of estimated redemption. For the quarter and nine months ended April 28, 2023, gift card breakage was $ 1,595 and $ 5,083 , respectively. For the quarter and nine months ended April 29, 2022, gift card breakage was $ 1,514 and $ 4,783 , respectively. Deferred revenue related to the Company’s gift cards was $ 97,777 and $ 93,569 , respectively, at April 28, 2023 and July 29, 2022. Revenue recognized in the Condensed Consolidated Statements of Income for the nine months ended April 28, 2023 and April 29, 2022, respectively, for the redemption of gift cards which were included in the deferred revenue balance at the beginning of the fiscal year was $ 34,689 and $ 36,420 . 8. Leases The Company has ground leases for its leased stores and office space leases that are recorded as operating leases under various non-cancellable operating leases. The Company also leases advertising billboards, vehicle fleets, and certain equipment under various non-cancellable operating leases. Additionally, the Company completed sale-leaseback transactions in 2009, 2020 and 2021 (see section below entitled “Sale and Leaseback Transactions”). To determine whether a contract is or contains a lease, the Company determines at contract inception whether it contains the right to control the use of an identified asset for a period of time in exchange for consideration. If the contract has the right to obtain substantially all of the economic benefit from use of the identified asset and the right to direct the use of the identified asset, the Company recognizes a right-of-use asset and lease liability. The Company’s leases all have varying terms and expire at various dates through 2055. Restaurant leases typically have base terms of ten years with four to five optional renewal periods of five years each. The Company uses a lease life that generally begins on the commencement date, including the rent holiday periods, and generally extends through certain renewal periods that can be exercised at the Company’s option. During rent holiday periods, which include the pre-opening period during construction, the Company has possession of and access to the property, but is not obligated to, and normally does not, make rent payments . The Company has included lease renewal options in the lease term for calculations of the right-of-use asset and liability for which at the commencement of the lease it is reasonably certain that the Company will exercise those renewal options. Additionally, some of the leases have contingent rent provisions and others require adjustments for inflation or index. Contingent rent is determined as a percentage of gross sales in excess of specified levels. The Company records a contingent rent liability and corresponding rent expense when it is probable sales have been achieved in amounts in excess of the specified levels. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. The Company has entered into agreements for real estate leases that are not recorded as right-of-use assets or lease liabilities as we have not yet taken possession. These leases are expected to commence in 2023, 2024 and 2025 with undiscounted future payments of $ 2,620 , $ 14,855 and $ 20,400 , respectively. The Company has elected not to separate lease and non-lease components. Additionally, the Company has elected to apply the short term lease exemption to all asset classes and the short term lease expense for the period reasonably reflects the short term lease commitments. As the Company’s leases do not provide an implicit rate, the Company uses the incremental borrowing rate based on the information available at the time of commencement or modification date in determining the present value of lease payments. For operating leases that commenced prior to the date of adoption of the new lease accounting guidance, the Company used the incremental borrowing rate as of the adoption date. Assumptions used in determining the Company’s incremental borrowing rate include the Company’s implied credit rating and an estimate of secured borrowing rates based on comparable market data. The following table summarizes the components of lease cost for operating leases for the quarters and nine months ended April 28, 2023 and April 29, 2022: Quarter Ended Nine Months Ended April 28, 2023 April 29, 2022 April 28, 2023 April 29, 2022 Operating lease cost $ 27,456 $ 27,266 $ 82,345 $ 81,408 Short term lease cost 234 99 2,731 2,324 Variable lease cost 909 622 2,863 1,852 Total lease cost $ 28,599 $ 27,987 $ 87,939 $ 85,584 13 Index The following table summarizes supplemental cash flow information and non-cash activity related to the Company’s operating leases for the quarters and nine months ended April 28, 2023 as compared to the same periods in the prior year: Quarter Ended Nine Months Ended April 28, 2023 April 29 , 2022 April 28 , 2023 April 29 , 2022 Operating cash flow information: Cash paid for amounts included in the measurement of lease liabilities $ 23,745 $ 23,219 $ 71,252 $ 69,080 Noncash information: Right-of-use assets obtained in exchange for new operating lease liabilities 5,990 2,893 15,455 14,550 Lease modifications or reassessments increasing or decreasing right-of-use assets 5,417 4,993 9,115 11,409 Lease modifications removing right-of-use assets ( 80 ) ( 90 ) ( 371 ) ( 426 ) The following table summarizes the weighted-average remaining lease term and the weighted-average discount rate for operating leases as of April 28, 2023 and April 29, 2022: April 28 , 2023 April 29 , 2022 Weighted-average remaining lease term 17.00 Years 17.61 Years Weighted-average discount rate 5.07 % 4.87 % The following table summarizes the maturities of undiscounted cash flows reconciled to the total operating lease liability as of April 28, 2023: Year Total Remainder of 2023 $ 23,957 2024 78,782 2025 70,750 2026 67,645 2027 65,783 Thereafter 853,602 Total future minimum lease payments 1,160,519 Less imputed remaining interest ( 401,439 ) Total present value of operating lease liabilities $ 759,080 Sale and Leaseback Transactions In 2009, the Company completed sale-leaseback transactions involving 15 of its owned stores and its retail distribution center. Under the transactions, the land, buildings and improvements at the locations were sold and leased back for terms of 20 and 15 years, respectively. Equipment was not included. The leases include specified renewal options for up to 20 additional years. On July 29, 2020, the Company entered into an agreement with the original lessor and a third party financier to obtain ownership of 64 of the 65 Cracker Barrel properties previously covered in the original sale and leaseback arrangement and simultaneously entered into a sale and leaseback transaction with the financier for an aggregate purchase price, net of closing costs, of $ 198,083 . The Company purchased the remaining property for approximately $ 3,200 . In connection with this sale and leaseback transaction, the Company entered into lease agreements for each of the properties for initial terms of 20 years and renewal options up to 50 years. The aggregate initial annual rent payment for the properties is approximately $ 14,379 and includes 1 % annual rent increases over the initial lease terms. All the properties qualified for sale and leaseback and operating lease accounting classification and the Company recorded a gain on the sale and leaseback transaction of $ 69,954 in the fourth quarter of 2020. The Company recorded operating lease right-of-use assets, including a non-cash asset recognized as a part of accounting for the transaction of $ 79,049 , and corresponding operating lease liabilities of $ 261,698 and $ 182,649 , respectively. 14 Index On August 4, 2020, the Company completed a subsequent sale and leaseback transaction involving 62 of its owned Cracker Barrel stores for an aggregate purchase price, net of closing costs, of $ 146,357 . Under the transaction, the land, buildings and building improvements at the locations were sold and leased back for initial terms of 20 years and renewal options up to 50 years. The aggregate initial annual rent payment for the properties is approximately $ 10,393 and includes 1 % annual rent increases over the initial lease terms. All of the properties qualified for sale and leaseback and operating lease accounting classification, and the Company recorded a gain of $ 217,722 which is recorded in the gain on sale and leaseback transaction line in the Condensed Consolidated Statement of Income in the first quarter of 2021. The Company also recorded operating lease right-of-use assets, including a non-cash asset recognized as part of accounting for the transaction of $ 175,960 , and corresponding operating lease liabilities of $ 309,624 and $ 133,663 , respectively. 9. Net Income Per Share and Weighted Average Shares B asic consolidated net income per share is computed by dividing consolidated net income available to common shareholders by the weighted average number of shares of common stock outstanding for the reporting period. Diluted consolidated net income per share reflects the potential dilution that could occur if securities, options or other contracts to issue shares of common stock were exercised or converted into shares of common stock and is based upon the weighted average number of shares of common stock and common equivalent shares outstanding during the reporting period. Common equivalent shares related to nonvested stock awards and units issued by the Company are calculated using the treasury stock method. The outstanding nonvested stock awards and units issued by the Company represent the only dilutive effects on diluted consolidated net income per shar e. The Company’s convertible senior notes and related warrants are calculated using the net share settlement option under the if converted method. Because the principal amount of the convertible senior notes will be settled in cash with any excess conversion value settled in cash or shares of common stock, the convertible senior notes have been excluded from the computation of diluted earnings per share because the average market price of the Company’s common stock during the reporting period did not exceed the conversion price of $ 172.09 as of April 28, 2023. Warrants were excluded from the computation of diluted earnings per share since the warrants’ strike price of $ 240.93 was greater than the average market price of the Company’s common stock during the period. See Note 4 for additional information regarding the Company’s convertible senior notes. The following table reconciles the components of diluted earnings per share computations: Quarter Ended Nine Months Ended April 28, 2023 April 29, 2022 April 28, 2023 April 29, 2022 Net income per share numerator $ 13,968 $ 27,516 $ 61,588 $ 98,516 Net income per share denominator: Weighted average shares 22,152,002 23,089,521 22,173,019 23,330,093 Add potential dilution: Nonvested stock awards and units 102,509 81,379 93,314 79,025 Diluted weighted average shares 22,254,511 23,170,900 22,266,333 23,409,118 10. Commitments and Contingencies The Company and its subsidiaries are party to various legal and regulatory proceedings and claims incidental to their business in the ordinary course. In the opinion of management, based upon information currently available, the ultimate liability with respect to these contingencies will not materially affect the Company’s financial statements. Related to its insurance coverage, the Company is contingently liable pursuant to standby letters of credit as credit guarantees to certain insurers. As of April 28, 2023, the Company had $ 31,896 of standby letters of credit related to securing reserved claims under workers’ compensation insurance and the July 29, 2020 and August 4, 2020 sale and leaseback transactions . All standby letters of credit are renewable annually and reduce the Company’s borrowing availability under its 2022 Revolving Credit Facility (see Note 4). The Company enters into certain indemnification agreements in favor of third parties in the ordinary course of business. The Company believes that the probability of incurring an actual liability under such indemnification agreements is sufficiently remote that no such liability has been recorded in the Condensed Consolidated Balance Sheet as of April 28, 2023. 15 Index