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 January 26, 2024 July 28, 2023* Current Assets: Cash and cash equivalents $ 12,602 $ 25,147 Accounts receivable 41,524 30,446 Inventories 172,702 189,364 Prepaid expenses and other current assets 40,972 37,330 Total current assets 267,800 282,287 Property and equipment 2,412,806 2,380,313 Less: Accumulated depreciation and amortization 1,447,139 1,408,368 Property and equipment – net 965,667 971,945 Operating lease right-of-use assets, net 877,580 889,306 Goodwill 4,690 4,690 Intangible assets 24,498 23,426 Other assets 44,824 46,440 Total assets $ 2,185,059 $ 2,218,094 LIABILITIES AND SHAREHOLDERS’ EQUITY Current Liabilities: Accounts payable $ 136,388 $ 165,484 Taxes withheld and accrued 26,336 38,835 Other current liabilities 296,113 284,647 Total current liabilities 458,837 488,966 Long-term debt 452,278 414,904 Long-term operating lease liabilities 689,499 702,413 Other long-term obligations 122,478 127,986 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; 22,201,086 shares issued and outstanding at January 26, 2024 , and 22,153,625 shares issued and outstanding at July 28, 2023 222 221 Additional paid-in capital 8,541 3,886 Retained earnings 453,204 479,718 Total shareholders’ equity 461,967 483,825 Total liabilities and shareholders’ equity $ 2,185,059 $ 2,218,094 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 28, 2023, as filed with the Securities and Exchange Commission in the Company’s Annual Report on Form 10-K for the fiscal year ended July 28, 2023. 3 Index CRACKER BARREL OLD COUNTRY STORE, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except share data) (Unaudited) Quarter Ended Six Months Ended January 26, January 27, January 26, January 27, 2024 2023 2024 2023 Total revenue $ 935,401 $ 933,868 $ 1,759,240 $ 1,773,387 Cost of goods sold (exclusive of depreciation and rent) 314,851 326,555 570,410 608,095 Labor and other related expenses 323,196 313,967 627,643 605,675 Other store operating expenses 214,056 208,857 417,741 405,561 General and administrative expenses 52,536 45,518 101,271 91,466 Operating income 30,762 38,971 42,175 62,590 Interest expense, net 5,067 4,408 10,005 7,940 Income before income taxes 25,695 34,563 32,170 54,650 Provision for income taxes (income tax benefit) ( 839 ) 4,072 180 7,030 Net income $ 26,534 $ 30,491 $ 31,990 $ 47,620 Net income per share: Basic $ 1.20 $ 1.38 $ 1.44 $ 2.15 Diluted $ 1.19 $ 1.37 $ 1.44 $ 2.14 Weighted average shares: Basic 22,196,758 22,173,280 22,181,305 22,183,527 Diluted 22,295,532 22,251,835 22,279,611 22,272,244 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 28 , 2023 22,153,625 $ 221 $ 3,886 $ 479,718 $ 483,825 Comprehensive Income: Net income — — — 5,456 5,456 Total comprehensive income — — — 5,456 5,456 Cash dividends declared - $ 1.30 per share — — — ( 29,150 ) ( 29,150 ) Share-based compensation — — 1,622 — 1,622 Issuance of share-based compensation awards, net of shares withheld for employee taxes 31,487 1 ( 1,502 ) — ( 1,501 ) Balances at October 27, 2023 22,185,112 $ 222 $ 4,006 $ 456,024 $ 460,252 Comprehensive Income: Net income — — — 26,534 26,534 Total comprehensive income — — — 26,534 26,534 Cash dividends declared - $ 1.30 per share — — — ( 29,354 ) ( 29,354 ) Share-based compensation — — 4,631 — 4,631 Issuance of share-based compensation awards, net of shares withheld for employee taxes 15,974 — ( 96 ) — ( 96 ) Balances at January 26 , 2024 22,201,086 $ 222 $ 8,541 $ 453,204 $ 461,967 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 See Notes to unaudited Condensed Consolidated Financial Statements. 5 Index CRACKER BARREL OLD COUNTRY STORE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Six Months Ended January 26, January 27, 2024 2023 Cash flows from operating activities: Net income $ 31,990 $ 47,620 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 54,428 50,361 Amortization of debt issuance costs 874 862 Loss on disposition of property and equipment 2,898 2,225 Share-based compensation 6,253 5,111 Noncash lease expense 30,162 29,845 Amortization of asset recognized from gain on sale and leaseback transactions 6,368 6,368 Changes in assets and liabilities: Inventories 16,662 25,998 Other current assets ( 14,195 ) ( 12,567 ) Accounts payable ( 29,096 ) ( 34,398 ) Taxes withheld and accrued ( 12,499 ) ( 29,056 ) Other current liabilities 11,407 32,563 Long-term operating lease liabilities ( 37,905 ) ( 23,515 ) Other long-term assets and liabilities ( 5,468 ) ( 595 ) Net cash provided by operating activities 61,879 100,822 Cash flows from investing activities: Purchase of property and equipment ( 51,453 ) ( 48,878 ) Proceeds from insurance recoveries of property and equipment 373 509 Proceeds from sale of property and equipment 91 226 Net cash used in investing activities ( 50,989 ) ( 48,143 ) Cash flows from financing activities: Proceeds from issuance of long-term debt 243,500 90,000 Principal payments under long-term debt ( 207,000 ) ( 60,049 ) Taxes withheld from issuance of share-based compensation awards ( 1,597 ) ( 2,400 ) Purchases and retirement of common stock — ( 17,449 ) Dividends on common stock ( 58,338 ) ( 58,482 ) Net cash used in financing activities ( 23,435 ) ( 48,380 ) Net increase (decrease) in cash and cash equivalents ( 12,545 ) 4,299 Cash and cash equivalents, beginning of period 25,147 45,105 Cash and cash equivalents, end of period $ 12,602 $ 49,404 Supplemental disclosures of cash flow information: Cash paid during the period for: Interest, net of amounts capitalized $ 8,351 $ 5,415 Income taxes $ 5,634 $ 3,855 Supplemental schedule of non-cash investing and financing activities * : Capital expenditures accrued in accounts payable $ 3,563 $ 3,257 Dividends declared but not yet paid $ 30,387 $ 29,842 * See Note 8 for additional supplemental disclosures related to leases. See Notes to unaudited Condensed Consolidated Financial Statements. 6 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 of the Cracker Barrel Old Country Store® (“Cracker Barrel”) concept in the United States. 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 28, 2023 (the “2023 Form 10-K”). The accounting policies used in preparing these condensed consolidated financial statements are the same as described in the 2023 Form 10-K. References to a year in these Notes to Condensed Consolidated Financial Statemen ts are to the Company’s fiscal year unless otherwise noted. Recent Accounting Pronouncements Not Yet Adopted Segment Disclosures In November 2023, the Financial Accounting Standards Boards (“FASB”) issued new reportable segment disclosure requirements which require incremental segment information related to measuring segment performance on an annual and interim basis. These new disclosure requirements are effective for fiscal periods beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. These disclosure requirements should be applied on a retrospective basis. The Company is currently evaluating the effect of adopting these new disclosure requirements on its annual consolidated financial statements and related disclosures in 2025 as well as interim disclosures in the first quarter of 2026. Income Tax Disclosures In December 2023, the FASB issued new income tax disclosure requirements which require disclosure of disaggregated income taxes paid, prescribes standard categories for the components of the effective tax rate reconciliation and modifies other income tax-related disclosures. These new disclosure requirements are effective for annual periods beginning after December 15, 2024 and allow for adoption on a prospective basis, with a retrospective option. The Company is currently evaluating the effect of adopting these new disclosure requirements on its consolidated financial statements and related disclosures in 2026. 2. Fair Value Measurements The Company’s assets measured at fair value on a recurring basis at January 26, 2024 were as follows: Level 1 Level 2 Level 3 Total Fair Value Cash equivalents* $ 1 $ — $ — $ 1 Deferred compensation plan assets** 25,204 Total assets at fair value $ 25,205 7 Index The Company’s assets measured at fair value on a recurring basis at July 28, 2023 were as follows: Level 1 Level 2 Level 3 Total Fair Value Cash equivalents* $ 9,001 $ — $ — $ 9,001 Deferred compensation plan assets** 27,129 Total assets at fair value $ 36,130 * 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. 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 Company did no t have any liabilities measured at fair value on a recurring basis at January 26, 2024 and July 28, 2023. 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 January 26, 2024 and July 28, 2023, respectively. 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 $ 259,704 and $ 259,311 as of January 26, 2024 and July 28, 2023 , respectively. 3. Inventories Inventories were comprised of the following as of the dates indicated: January 26, 2024 July 28, 2023 Retail $ 128,344 $ 145,175 Restaurant 25,285 24,427 Supplies 19,073 19,762 Total $ 172,702 $ 189,364 4. Debt On June 17, 2022, the Company entered into a five-year $ 700,000 revolving credit facility (the “2022 Revolving Credit Facility”). The 2022 Revolving Credit Facility contains an option to increase the revolving credit facility by $ 200,000 . The Company’s outstanding borrowings under the 2022 Revolving Credit Facility were $ 156,500 and $ 120,000 on January 26, 2024 and July 28, 2023, respectively. As of January 26, 2024, the Company had $ 32,466 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 January 26, 2024, the Company had $ 511,034 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 (1) the Term Secured Overnight Financing Rate (SOFR) or (2) a base rate equal to the greater of (i) the prime rate, (ii) a rate that is 0.5 % in excess of the Federal Funds Rate, and (iii) Term SOFR plus 1.0 %, in each case, plus an applicable margin based on the Company’s consolidated total leverage ratio. At January 26, 2024, the weighted average interest rate on the Company’s outstanding borrowings on the 2022 Revolving Credit Facility was 6.96 %. 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 January 26, 2024, the Company was in compliance with all financial covenants under the 2022 Revolving Credit Facility. 8 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 (the “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 January 26, 2024, the conversion rate, as adjusted, was 6.1071 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: January 26, 2024 July 28, 2023 Liability component Principal $ 300,000 $ 300,000 Less: Debt issuance costs (1) 4,297 5,171 Net carrying amount $ 295,703 $ 294,829 (1) Debt issuance costs are amortized to interest expense using the effective interest method over the expected life of the Notes. 9 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 Six Months Ended January 26, 2024 January 27, 2023 January 26, 2024 January 27, 2023 Coupon interest $ 474 $ 474 $ 948 $ 948 Amortization of issuance costs 438 431 874 862 Total interest expense $ 912 $ 905 $ 1,822 $ 1,810 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 the first six months of 2024 or 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 January 26, 2024, 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 January 26, 2024, the strike price, as adjusted, of the Warrant Transactions was $ 229.24 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 in 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. 10 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 Six Months Ended January 26, 2024 January 27, 2023 January 26, 2024 January 27, 2023 Revenue: Restaurant $ 730,669 $ 718,002 $ 1,391,462 $ 1,380,236 Retail 204,732 215,866 367,778 393,151 Total revenue $ 935,401 $ 933,868 $ 1,759,240 $ 1,773,387 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. 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 six months ended January 26, 2024, gift card breakage was $ 5,436 and $ 8,606 , respectively. For the quarter and six months ended January 27, 2023, gift card breakage was $ 2,183 and $ 3,488 , respectively. Deferred revenue related to the Company’s gift cards was $ 105,755 and $ 88,566 , respectively, at January 26, 2024 and July 28, 2023. Revenue recognized in the Condensed Consolidated Statements of Income for the six months ended January 26, 2024 and January 27, 2023, respectively, for the redemption of gift cards which were included in the deferred revenue balance at the beginning of the fiscal year was $ 24,945 and $ 27,507 . 11 Index Loyalty Program During the first quarter of 2024, the Company launched its customer loyalty program, Cracker Barrel Rewards, which allows members to earn points (“pegs”) for each qualifying purchase in store or online. Pegs earned are then converted to rewards upon reaching certain thresholds. These rewards may be redeemed on future restaurant or retail purchases in store or online. The estimation of the standalone selling price of pegs and other rewards issued to customers involves several assumptions, primarily the estimated value of the product for which the reward is expected to be redeemed and the probability that the pegs or reward will expire. These inputs are subject to change over time due to factors such as increased costs or changes in customer behavior. The Company defers a portion of the revenue related to the pegs earned at the time of the original transaction based on the estimated value of the item for which the reward is expected to be redeemed, net of estimated unredeemed pegs. Pegs expire after twelve months . Revenue is recognized for these performance obligations upon redemption of pegs or rewards earned by the customer. As of January 26, 2024, deferred revenue related to the loyalty program was $ 731 and is included in other current liabilities on the Condensed Consolidated Balance Sheet. 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”); all the properties qualified for sale and leaseback and operating lease accounting classification. 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 2058. 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 2024, 2025 and 2026 with undiscounted future payments of $ 5,988 , $ 11,163 and $ 8,887 , 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. 12 Index The following table summarizes the components of lease cost for operating leases for the specified periods: Quarter Ended Six Months Ended January 26, 2024 January 27, 2023 January 26, 2024 January 27, 2023 Operating lease cost $ 27,644 $ 27,363 $ 55,412 $ 54,889 Short term lease cost 2,881 2,270 3,075 2,497 Variable lease cost 846 844 1,683 1,954 Total lease cost $ 31,371 $ 30,477 $ 60,170 $ 59,340 The following table summarizes supplemental cash flow information and non-cash activity related to the Company’s operating leases for the specified periods: Quarter Ended Six Months Ended January 26, 2024 January 27 , 2023 January 26 , 2024 January 27 , 2023 Operating cash flow information: Cash paid for amounts included in the measurement of lease liabilities $ 24,274 $ 23,761 $ 48,621 $ 47,507 Noncash information: Right-of-use assets obtained in exchange for new operating lease liabilities 2,139 5,474 5,790 9,465 Lease modifications or reassessments increasing right-of-use assets 3,521 4,214 20,438 3,698 Lease modifications removing right-of-use assets ( 1,270 ) ( 214 ) ( 1,414 ) ( 291 ) The following table summarizes the weighted-average remaining lease term and the weighted-average discount rate for operating leases as of dates indicated: January 26 , 2024 January 27 , 2023 Weighted-average remaining lease term 16.12 Years 17.22 Years Weighted-average discount rate 5.17 % 5.04 % The following table summarizes the maturities of undiscounted cash flows reconciled to the total operating lease liability as of January 26, 2024: Year Total Remainder of 2024 $ 47,885 2025 80,076 2026 72,223 2027 68,583 2028 67,441 Thereafter 784,395 Total future minimum lease payments 1,120,603 Less imputed remaining interest ( 376,619 ) Total present value of operating lease liabilities $ 743,984 Sale and Leaseback Transactions In 2009, the Company completed sale-leaseback transactions involving 15 of its owned Cracker Barrel 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. In 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. The Company purchased the remaining property. 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. 13 Index In 2021, the Company completed a sale and leaseback transaction involving 62 of its owned Cracker Barrel stores. 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. 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 $ 163.74 as of January 26, 2024. Warrants were excluded from the computation of diluted earnings per share since the warrants’ strike price of $ 229.24 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 for the specified periods: Quarter Ended Six Months Ended January 26, 2024 January 27, 2023 January 26, 2024 January 27, 2023 Net income per share numerator $ 26,534 $ 30,491 $ 31,990 $ 47,620 Net income per share denominator: Weighted average shares 22,196,758 22,173,280 22,181,305 22,183,527 Add potential dilution: Nonvested stock awards and units 98,774 78,555 98,306 88,717 Diluted weighted average shares 22,295,532 22,251,835 22,279,611 22,272,244 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 January 26, 2024 , the Company had $ 32,466 of standby letters of credit related to securing reserved claims under workers’ compensation insurance and certain 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 for additional information regarding the Company’s 2022 Revolving Credit Facility. 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 January 26, 2024 . 14 Index