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Item 2. Management’s Discussion and Analysis

2024-12-04 compared with 2024-05-30 · 152 added, 391 removed, 127 unchanged (81% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cracker Barrel Old Country Store, Inc., and its subsidiaries (collectively, the “Company,” “our” or “we”) are principally engaged in the operation and development in the United States of the

Cracker Barrel Old Country Store® (“Cracker Barrel”) concept.

As of April 26, 2024, we operated 658 Cracker Barrel stores in 44 states and 63 Maple Street Biscuit Company (“MSBC”) locations in ten states.

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).

As of November 01, 2024, we operated 658 Cracker Barrel stores in 44 states and 69 Maple Street Biscuit Company (“MSBC”) locations in ten states.

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).

References to years in MD&A are to our fiscal year unless otherwise noted.

MD&A provides information which management believes is relevant to an assessment and understanding of our consolidated results of operations and financial condition.

MD&A should be read in

conjunction with the (i) condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q and (ii) audited consolidated financial statements and the notes thereto included in the Company’s Annual Report

on Form 10-K for the fiscal year ended July 28, 2023 (the “2023 Form 10-K”).

Except for specific historical information, many of the matters discussed in this report may express or imply projections of items such as revenues or expenditures,

estimated capital expenditures, compliance with debt covenants, plans and objectives for future operations, store economics, inventory shrinkage, growth or initiatives, expected future economic performance or the expected outcome or impact of

pending or threatened litigation.

These and similar statements regarding events or results which we expect will or may occur in the future are forward-looking statements that, by their nature, involve risks, uncertainties and other factors which

may cause our actual results and performance to differ materially from those expressed or implied by such statements.

All forward-looking information is provided pursuant to the safe harbor established under the Private Securities Litigation

Reform Act of 1995 and should be evaluated in the context of these risks, uncertainties and other factors.

Forward-looking statements generally can be identified by the use of forward-looking terminology such as “trends,” “assumptions,” “target,”

“guidance,” “outlook,” “opportunity,” “future,” “plans,” “goals,” “objectives,” “expectations,” “near-term,” “long-term,” “projection,” “may,” “will,” “would,” “could,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “potential,” “should,”

“projects,” “forecasts” or “continue” (or the negative or other derivatives of each of these terms) or similar terminology.

MD&A should be read in conjunction with the (i) condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q and (ii) audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended August 02, 2024 (the “2024 Form 10-K”).

Except for specific historical information, many of the matters discussed in this report may express or imply projections of items such as revenues or expenditures, estimated capital expenditures, compliance with debt covenants, plans and objectives for future operations, store economics, inventory shrinkage, growth or initiatives, expected future economic performance or the expected outcome or impact of pending or threatened litigation.

These and similar statements regarding events or results which we expect will or may occur in the future are forward-looking statements concerning matters that involve risks, uncertainties and other factors which may cause our actual results and performance to differ materially from those expressed or implied by such statements.

All forward-looking information is provided pursuant to the safe harbor established under the Private Securities Litigation Reform Act of 1995 and should be evaluated in the context of these risks, uncertainties and other factors.

Forward-looking statements generally can be identified by the use of forward-looking terminology such as “trends,” “assumptions,” “target,” “guidance,” “outlook,” “opportunity,” “future,” “plans,” “goals,” “objectives,” “expectations,” “near-term,” “long-term,” “projection,” “may,” “will,” “would,” “could,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “potential,” “”regular,” “should,” “projects,” “forecasts” or “continue” (or the negative or other derivatives of each of these terms) or similar terminology.

We believe the assumptions underlying any forward-looking statements are reasonable;

however, any of the assumptions could

be inaccurate, and therefore, actual results may differ materially from those projected in or implied by the forward-looking statements.

In addition to the risks of ordinary business operations, and those discussed or described in this report or

in information incorporated by reference into this report, factors and risks that may result in actual results differing from this forward-looking information include, but are not limited to risks and uncertainties associated with inflationary

conditions with respect to the price of commodities, transportation, distribution and labor;

however, any of the assumptions could be inaccurate, and therefore, actual results may differ materially from those projected in or implied by the forward-looking statements.

In addition to the risks of ordinary business operations, and those discussed or described in this report or in information incorporated by reference into this report, factors and risks that may result in actual results differing from this forward-looking information include, but are not limited to risks and uncertainties associated with inflationary conditions with respect to the price of commodities, ingredients, transportation, distribution and labor;

disruptions to our restaurant or retail supply chain;

our ability to identify, acquire and sell successful new lines of retail merchandise and new menu

items at our restaurants;

our ability to sustain or the effects of plans intended to improve operational or marketing execution and performance;

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

consumer behavior based on negative publicity or changes in consumer health or dietary trends or safety aspects of our food or products or those of the restaurant industry in general, including concerns about outbreaks of infectious

disease, as well as the possible effects of such events on the price or availability of ingredients used in our restaurants;

the effects of our indebtedness and associated restrictions on our financial and operating flexibility and ability to

execute or pursue our operating plans and objectives;

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;

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

the effects of our indebtedness and associated restrictions on our financial and operating flexibility and ability to execute or pursue our operating plans and objectives;

changes in interest rates, increases in borrowed capital or capital market conditions affecting our financing costs and ability to refinance our indebtedness, in whole or in part;

on limited distribution facilities and certain significant vendors;

information technology-related incidents, including data privacy and information security breaches, whether as a result of infrastructure failures, employee or vendor errors, or

actions of third parties;

changes in or implementation of additional governmental or regulatory rules, regulations and interpretations affecting tax, wage and hour matters, health and safety, animal welfare, pensions, insurance or other

undeterminable areas;

the effects of plans intended to promote or protect our brands and products;

the actual results of pending, future or threatened litigation or governmental investigations and the costs and effects of negative publicity or our

ability to manage the impact of social media associated with these activities;

our reliance on a single distribution facility and certain significant vendors, particularly for foreign-sourced retail products;

information technology, disruptions and data privacy and information security breaches, whether as a result of infrastructure failures, employee or vendor errors, or actions of third parties;

our compliance with privacy and data protection laws;

changes in or implementation of additional governmental or regulatory rules, regulations and interpretations affecting tax, health and safety, animal welfare, pensions, insurance or other undeterminable areas;

the actual results of pending, future or threatened litigation or governmental investigations;

our ability to manage the impact of negative social media attention and the costs and effects of negative publicity;

the impact of activist shareholders;

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

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

changes in land, building materials

and construction costs;

changes in land, building materials and construction costs;

the availability and cost of suitable sites for restaurant development and our ability to identify those sites;

our ability to retain key personnel;

the ability of and cost to us to recruit, train, and retain qualified

hourly and management employees;

the ability of and cost to us to recruit, train, and retain qualified hourly and management employees;

uncertain performance of acquired businesses, strategic investments and other initiatives that we may pursue from time to time;

the effects of business trends on the outlook for individual restaurant locations and

the effect on the carrying value of those locations;

the effects of business trends on the outlook for individual restaurant locations and the effect on the carrying value of those locations;

general or regional economic weakness, business and societal conditions and the weather impact on sales and customer travel;

discretionary income or personal expenditure activity of our

economic or psychological effects of natural disasters or other unforeseen events such as terrorist acts, social unrest or war and the military or government responses to such events;

changes in foreign exchange rates affecting our

future retail inventory purchases;

workers’ compensation, group health and utility price changes;

implementation of new or changes in interpretation of existing accounting principles generally accepted in the United States of America (“GAAP”), and

those factors contained in Part I, Item 1A of the 2023 Form 10-K, as well as the factors described under “Critical Accounting Estimates” on pages 29-31 of this report or, from time to time, in our filings with the Securities and Exchange Commission

(“SEC”), press releases and other communications.

discretionary income or personal expenditure activity of our customers;

implementation of new or changes in interpretation of existing accounting principles generally accepted in the United States of America (“GAAP”), and those factors contained in Part I, Item 1A of the 2024 Form 10-K, as well as other factors described from time to time in our filings with the Securities and Exchange Commission (“SEC”), press releases and other communications.

Readers are cautioned not to place undue reliance on forward-looking statements made in this report because the statements speak only as of the report’s date.

Except as may be required by law, we

have no obligation or intention to update or revise any of these forward-looking statements to reflect events or circumstances occurring after the date of this report or to reflect the occurrence of unanticipated events.

Readers are advised,

however, to consult any future public disclosures that we may make on related subjects in reports that we file with or furnish to the SEC or in our other public disclosures.

Management believes that Cracker Barrel’s brand remains one of the strongest and most differentiated brands in the restaurant industry, and we plan to continue to leverage and build on that

strength as a core competitive component of our business strategy.

Except as may be required by law, we have no obligation or intention to update or revise any of these forward-looking statements to reflect events or circumstances occurring after the date of this report or to reflect the occurrence of unanticipated events.

Readers are advised, however, to consult any future public disclosures that we may make on related subjects in reports that we file with or furnish to the SEC or in our other public disclosures.

Management believes that Cracker Barrel’s brand remains one of the strongest and most differentiated brands in the restaurant industry, and we plan to continue to leverage and build on that strength as a core competitive component of our business strategy.

Our long-term strategy is anchored on three overarching business imperatives:

driving relevancy, delivering food and experiences guests love, and growing profitability.

We believe there are significant challenges in the macroeconomic outlook for the coming quarters, including continued inflationary pressures, higher interest rates, higher consumer debt levels and

lower savings rates, as well as the potential uncertainty associated with the geopolitical environment and the U.S.

presidential election, among other factors.

However, despite these challenges, we remain focused on delivering long-term growth and

returns for shareholders.

On May 16, 2024, we announced details of our strategic transformation plan, which was already underway during the third quarter of 2024, is built on the following five pillars of our strategy:

We believe there are significant challenges in the macroeconomic outlook for the coming quarters, including continued volatility of inflation and interest rates, high consumer debt levels and lower savings rates, as well as the potential uncertainty associated with the geopolitical environment, among other factors.

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

Our strategic transformation plan is built on the following five pillars of our strategy:

● Refining the brand :

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

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

● 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.

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

● Evolving the store and guest experience :

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

We are in the process of testing remodel prototypes and expect to complete 25-30 remodels in fiscal 2025.

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.

● Winning in digital and off-premise :

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

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

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

● Elevating the employee experience :

upgrading training and development programs and tools and simplifying job roles and utilizing technology to improve

the employee experience.

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

Key Performance Indicators

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● Comparable store restaurant sales increase/(decrease) :

To calculate comparable store restaurant sales increase/(decrease), we determine total restaurant sales of stores open at least six full quarters before the beginning of the

applicable period, measured on comparable calendar weeks.

We then subtract total comparable store restaurant sales for the current year period from total comparable store restaurant sales for the applicable historical period to calculate

the absolute dollar change.

To calculate comparable store restaurant sales increase/(decrease), we determine total restaurant sales of stores open at least six full quarters before the beginning of the applicable period, measured on comparable calendar weeks.

We then subtract total comparable store restaurant sales for the current year period from total comparable store restaurant sales for the applicable historical period to calculate the absolute dollar change.

To calculate comparable store restaurant sales increase/(decrease), which we express as a percentage, we divide the absolute dollar change by the comparable store restaurant sales for the historical period.

Comparable store average restaurant sales :

To calculate comparable store average restaurant sales, we determine total restaurant sales of stores open at least six full quarters before the beginning of the applicable period,

measured on comparable calendar weeks, and divide by the number of comparable stores for the applicable period.

● Comparable store retail sales increase/(decrease) :

To calculate comparable store retail sales increase/(decrease), we determine total retail sales of stores open at least six full quarters before the beginning of the applicable

period, measured on comparable calendar weeks.

We then subtract total comparable store retail sales for the current year period from total comparable store retail sales for the applicable historical period to calculate the absolute dollar

To calculate comparable store retail sales increase/(decrease), we determine total retail sales of stores open at least six full quarters before the beginning of the applicable period, measured on comparable calendar weeks.

We then subtract total comparable store retail sales for the current year period from total comparable store retail sales for the applicable historical period to calculate the absolute dollar change.

To calculate comparable store retail sales increase/(decrease), which we express as a percentage, we divide the absolute dollar change by the comparable store retail sales for the historical period.

Comparable store retail average weekly sales :

To calculate comparable store average retail sales, we determine total retail sales of stores open at least six full quarters before the beginning of the applicable period, measured on

comparable calendar weeks, and divide by the number of comparable stores for the applicable period.

Comparable restaurant guest traffic increase/(decrease) :

To calculate comparable restaurant guest traffic increase/(decrease), we determine the number of entrees sold in our dine-in and off-premise business from stores open at

least six full quarters at the beginning of the applicable period, measured on comparable calendar weeks.

We then subtract total entrees sold for the current year period from total entrees sold for the applicable historical period to

calculate the absolute numerical change.

To calculate comparable restaurant guest traffic increase/(decrease), which we express as a percentage, we divide the absolute numerical change by the total entrees sold for the historical period.

● Comparable store restaurant and retail sales increase/(decrease) :

To calculate comparable store restaurant and retail sales increase/(decrease), we determine total restaurant and retail sales of stores open at least six full quarters before the beginning of the applicable period, measured on comparable calendar weeks.

We then subtract total comparable store restaurant and retail sales for the current year period from total comparable store restaurant and retail sales for the applicable historical period to calculate the absolute dollar change.

To calculate comparable store restaurant and retail sales increase/(decrease), which we express as a percentage, we divide the absolute dollar change by the comparable store restaurant and retail sales for the historical period.

● Average check increase per guest :

To calculate average check per guest, we determine comparable store restaurant sales, as described above, and divide by comparable guest traffic (as described above).

We then subtract average

check per guest for the current year period from average check per guest for the applicable historical period to calculate the absolute dollar change.

The absolute dollar change is divided by the prior year average check number to

calculate average check increase per guest, which we express as a percentage.

We then subtract average check per guest for the current year period from average check per guest for the applicable historical period to calculate the absolute dollar change.

The absolute dollar change is divided by the prior year average check number to calculate average check increase per guest, which we express as a percentage.

● Comparable restaurant guest traffic increase/(decrease) :

To calculate comparable restaurant guest traffic increase/(decrease), we determine the number of entrees sold in our dine-in and off-premise business from stores open at least six full quarters at the beginning of the applicable period, measured on comparable calendar weeks.

We then subtract total entrees sold for the current year period from total entrees sold for the applicable historical period to calculate the absolute numerical change.

To calculate comparable restaurant guest traffic increase/(decrease), which we express as a percentage, we divide the absolute numerical change by the total entrees sold for the historical period.

These performance indicators exclude the impact of new store openings and sales related to MSBC.

We use comparable store sales metrics as indicators of sales growth to evaluate how our established stores have performed over time.

We use comparable restaurant guest traffic

increase/(decrease) to evaluate how established stores have performed over time, excluding growth achieved through menu price and sales mix change.

Finally, we use average check per guest to identify trends in guest preferences, as well as the

effectiveness of menu changes.

We believe these performance indicators are useful for investors by providing a consistent comparison of sales results and trends across comparable periods within our core, established store base, unaffected by

results of store openings, closings, and other transitional changes.

We use comparable restaurant guest traffic increase/(decrease) to evaluate how established stores have performed over time, excluding growth achieved through menu price and sales mix change.

Finally, we use average check per guest to identify trends in guest preferences, as well as the effectiveness of menu changes.

Results of Operations

The following table highlights our operating results by percentage relationships to total revenue for the specified periods:

Quarter Ended

Nine Months Ended

Total revenue

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Impairment and store closing costs

Goodwill impairment

Operating income (loss)

Operating income

Interest expense, net

Income (loss) before income taxes

Income before income taxes

Provision for income taxes (income tax benefit)

Net income (loss)

The following table sets forth the change in the number of units in operation for the specified periods:

Quarter Ended

Nine Months Ended

Net change in units:

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Total Revenue

Total revenue for the third quarter and the first nine months of 2024 decreased 1.9% and 1.1%, respectively, as compared to the same periods in the prior year.

Total revenue for the first quarter of 2025 increased 2.6% 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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Total revenue by percentage relationships:

Average unit volumes (1):

Average store volumes (1) :

Total revenue

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(1) Average unit volumes include sales of all stores except for MSBC.

(2) Comparable store sales and traffic consist of sales of stores open at least six full quarters at the beginning

of the period and are measured on comparable calendar weeks.

(2) Comparable store sales and traffic consist of sales of stores open at least six full quarters at the beginning of the period and are measured on comparable calendar weeks.

Comparable store sales and traffic exclude MSBC.

For the third quarter and first nine months of 2024, our comparable store restaurant sales decreases resulted primarily from the guest traffic decreases partially offset by the average check

increases as compared to the prior year periods.

For the third quarter and first nine months of 2024, the average check increases included average menu price increases of 4.0% and 5.2%, respectively.

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

For the first quarter of 2025, the average check increase included an average menu price increase of 4.7%.

Our retail sales are made substantially to our restaurant guests.

For the third quarter and the first nine months of 2024, our comparable store retail sales decreases resulted primarily from the

guest traffic decreases during these periods.

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

consumer debt levels and lower savings rates.

For the first quarter of 2025, our comparable store retail sales decrease resulted primarily from the guest traffic decrease.

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

Total revenue in the first quarter of 2025 also increased as a result of an increase in gift card breakage as compared to the prior year period.

See Note 7 to the Condensed Consolidated Financial Statements for additional information regarding gift card breakage.

Cost of Goods Sold (Exclusive of Depreciation and Rent)

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Quarter Ended

Nine Months Ended

Cost of Goods Sold in dollars:

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Cost of Goods Sold by percentage of revenue:

The decreases in restaurant cost of goods sold as a percentage of restaurant revenue in the third quarter and first nine months of 2024 as compared to the same periods in the prior year were

primarily the result of lower commodity inflation and our menu price increases referenced above.

Commodity deflation was 0.6% and 0.5% in the third quarter and first nine months of 2024, respectively, as compared to significant commodity inflation

of 4.3% and 11.0% in the third quarter and first nine months of 2023, respectively.

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

The decrease in retail cost of goods sold as a percentage of retail revenue in the third quarter of 2024 as compared to the same period in the prior year resulted primarily from higher initial

margin partially offset by higher discounts, the change in the provision for obsolete inventory and higher inventory shrinkage.

Third Quarter

Restaurant cost of goods sold as a percentage of restaurant revenue remained relatively constant in the first quarter of 2025 as compared to the same period in the prior year.

Commodity inflation was 1.9% in the first quarter of 2025.

We presently expect the rate of commodity inflation to be approximately 2% to 3% in 2025.

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

First Quarter

(Decrease) Increase

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Total Retail Revenue

Higher initial margin

Provision for obsolete inventory

Inventory shrinkage

The decrease in retail cost of goods sold as a percentage of retail revenue in the first nine months of 2024 as compared to the same period in the prior year resulted primarily from higher initial

margin partially offset by higher discounts, higher markdowns and higher freight expense.

First Nine Months

(Decrease) Increase

as a Percentage

of Total Revenue

Vendor allowances

Higher initial margin

Freight expense

Labor and Related Expenses

Labor and related expenses include all direct and indirect labor and related costs incurred in store operations.

The following table highlights labor and related expenses as a percentage of

total revenue for the specified periods:

The following table highlights labor and related expenses as a percentage of total revenue for the specified periods:

Quarter Ended

Nine Months Ended

Labor and related expenses

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

Third Quarter Increase

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

First Quarter

(Decrease) Increase

as a Percentage of

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Employee health care expense

This percentage change for the first nine months of 2024 as compared to the same period in the prior year resulted from the following:

First Nine Months

Increase (Decrease)

as a Percentage

of Total Revenue

Store hourly labor

Store management compensation

Payroll taxes

Employee health care expense

The increases in store hourly labor and store management compensation as a percentage of total revenue for the third quarter and first nine months of 2024 as compared to the same periods in the

prior year resulted primarily from higher staffing levels and the investment of additional labor hours to improve the guest experience as well as wage inflation partially offset by higher average check.

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

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

primarily from higher claims.

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

hourly labor and store management compensation as compared to the same period in the prior year.

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

Workers' compensation expense

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

Additionally, store hourly labor benefited from improved productivity.

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

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

The increase in workers’ compensation expense as a percentage of total revenue for the first quarter of 2025 as compared to the same period in the prior year resulted primarily from unfavorable claim development due to the increasing cost of claims.

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

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, operating supplies, advertising, third-party delivery fees, credit and gift card fees, real and personal property taxes and general insurance.

Occupancy costs include maintenance, utilities, depreciation and rent.

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Quarter Ended

Nine Months Ended

Other store operating expenses

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

Third Quarter

Increase as a Percentage

of Total Revenue

First Nine Months

Increase as a Percentage

This percentage changes for the first quarter of 2025 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

Advertising expense

Other store expenses

General insurance expense

Store occupancy costs

The increases in advertising expense as a percentage of total revenue for the third quarter and first nine months of 2024 as compared to the same periods in the prior year resulted primarily from

higher media spending and costs associated with our new customer loyalty program, Cracker Barrel Rewards.

The increases in store occupancy costs as a percentage of total revenue for the third quarter and the first nine months of 2024 as compared to the same periods in the prior year resulted primarily

from higher depreciation expense partially offset by lower utilities expense.

The increases in depreciation expense for the third quarter and first nine months of 2024 as compared to the prior year periods resulted primarily from higher capital

expenditures with accelerated depreciation methods.

The decreases in utilities expense for the third quarter and first nine months of 2024 as compared to the prior year periods resulted primarily from general rate deflation for natural gas and

lower electricity usage attributable to cost savings initiatives and guest traffic decreases.

Additionally, the decrease in utilities expense for the first nine months of 2024 as compared to the prior year period benefited from general rate

deflation for electricity.

The increase in other store operating expense as a percentage of total revenue for the first quarter of 2025 as compared to the same period in the prior year resulted primarily from 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 general insurance expense as a percentage of total revenue for the first quarter of 2025 as compared to the same period in the prior year resulted primarily from unfavorable claim development.

The decrease in store occupancy costs as a percentage of total revenue for the first quarter of 2025 as compared to the same period in the prior year period resulted primarily from lower utilities expense partially offset by higher depreciation.

The decrease in utilities expense for the first quarter of 2025 as compared to the prior year period resulted primarily from lower electricity, natural gas and water usage.

The increase in depreciation expense for the first quarter of 2025 as compared to the prior year period resulted primarily from higher capital expenditures.

General and Administrative Expenses

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Quarter Ended

Nine Months Ended

General and administrative expenses

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

Third Quarter

Increase as a Percentage

of Total Revenue

Professional fees

Incentive compensation expense

Payroll and related expense

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

First Nine Months

Increase as a Percentage

of Total Revenue

Professional fees

Payroll and related expense

Incentive compensation expense

The increases in professional fees as a percentage of total revenue in the third quarter and first nine months of 2024 as compared to the same periods in the prior year resulted primarily from

costs associated with the Company’s strategic transformation plan.

The increases in incentive compensation as a percentage of total revenue in the third quarter and first nine months of 2024 as compared to the same periods in the prior year resulted primarily from

Chief Executive Officer transition costs incurred in 2024.

The increases in payroll and related expense as a percentage of total revenue in the first nine months of 2024 as compared to the same periods in the prior year resulted primarily from severance

costs related to corporate restructuring and Chief Executive Officer transition costs incurred in 2024.

This percentage change for the first quarter of 2025 as compared to the same period in the prior year resulted primarily from higher professional fees.

The increase in professional fees as a percentage of total revenue in the first quarter of 2025 as compared to the prior year period resulted primarily from an approximate $3,300 charge in connection with our settlement of a series of wage and hour arbitrations, $2,958 in costs related to a proxy contest in connection with the Company’s 2024 annual shareholders meeting held on November 21, 2024 and $3,298 in costs associated with the Company’s strategic transformation plan.

Impairment and Store Closing Costs

During the third quarter of 2024, we recorded impairment charges of $17,448 due to the deterioration in operating performance of six Cracker Barrel and thirteen MSBC locations.

Additionally,

during the third quarter 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.

During the third quarter of 2023, we recorded impairment charges of $11,692 due to the deterioration in operating performance of six Cracker Barrel locations.

Additionally, during the third

quarter of 2023, we incurred costs of $2,198 in connection with the closure of four Cracker Barrel and three MSBC locations because of poor operating performance.

Goodwill Impairment

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

and inflationary pressures.

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

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

No impairment was recorded in the first quarter of 2024.

No stores were closed in the first quarter of 2025 or in the first quarter of 2024.

Interest Expense, Net

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Quarter Ended

Nine Months Ended

Interest expense, net

The increases in interest expense for the third quarter and the first nine months of 2024 as compared to the same periods in the prior year resulted primarily from higher average weighted interest

rates and higher weighted average debt levels under our 2022 Revolving Credit Facility (as defined below).

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

Provision for Income Taxes (Income Tax Benefit)

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

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

Quarter Ended

Nine Months Ended

Effective tax rate

The increase in the effective tax rate from the third quarter of 2023 to the third quarter of 2024 and the decrease from the first nine months of 2023 to the first nine months of 2024 are primarily

due to the disproportionate benefit of employment credits in relation to income (loss) before taxes in the current year periods.

The Company’s quarterly provision (benefit) for income taxes has historically been calculated using the annualized effective tax rate method (“AETR method”) which applies an estimated annual

effective tax rate to pre-tax income or loss.

However, the Company recorded its interim income tax provision (benefit) using the discrete-period computation method as of April 26, 2024, as allowed under Accounting Standards Codification 740-240, Accounting for Income Taxes – Interim Reporting.

Use of the AETR method would have resulted in an unreliable tax rate as small changes in the projected ordinary annual

income would have resulted in significant changes in the AETR.

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

The Company’s quarterly provision (benefit) for income taxes has historically been calculated using the annualized effective tax rate method (“AETR method”) which applies an estimated annual effective tax rate to pre-tax income or loss.

However, the Company recorded its interim income tax provision (benefit) using the discrete-period computation method as of November 01, 2024, as allowed under Accounting Standards Codification 740-240, Accounting for Income Taxes – Interim Reporting.

Use of the AETR method would have resulted in an unreliable tax rate as small changes in the projected ordinary annual income would have resulted in significant changes in the annualized effective tax rate.

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

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Our primary sources of liquidity are cash generated from our operations and our borrowing capacity under our 2022 Revolving Credit Facility.

Our internally generated cash, along with cash on hand

at July 28, 2023 and borrowings under our revolving credit facility, were sufficient to finance all of our growth, dividend payments, working capital needs, interest payments under our revolving credit facility and other cash payment obligations in

the first nine months of 2024.

We believe that cash on hand at April 26, 2024, along with cash expected to be generated from our operating activities and the borrowing capacity under our revolving credit facility, will be sufficient to finance our

continuing operations, our continuing expansion plans and working capital needs over the next twelve months.

We believe that cash expected to be generated from our operating activities and the borrowing capacity under our revolving credit facility

will be sufficient to finance our continuing operations, dividend payments, capital expenditures, interest expense on long-term debt obligations, operating lease obligations, continuing expansion plans and working capital needs beyond the next

twelve months.

Our ability to draw on our 2022 Revolving Credit Facility is subject to the satisfaction of the provisions of the credit facility, as amended, and we believe we will be able to refinance our 2022 Revolving Credit Facility and other

debt instruments prior to their maturity.

Cash Provided By Operations

Our operating activities provided net cash of $99,456 for the first nine months of 2024 as compared to $151,236 net cash provided during the first nine months of 2023.

This decrease resulted

primarily from lower net income and lower decrease in retail inventory levels partially offset by the timing of payments for accounts payable and higher bonus payments made in the first quarter of 2024 as a result of the prior year’s performance.

Cash generated from operations, together with our borrowing capacity under the 2022 Revolving Credit Facility, were sufficient to finance all of our growth, dividend payments, working capital needs, interest payments on long-term debt obligations and other cash payment obligations in the first three months of 2025.

We believe that cash on hand at November 01, 2024, along with cash expected to be generated from our operating activities and the borrowing capacity under our revolving credit facility, will be sufficient to finance our continuing operations, our strategic transformation initiative and continuing expansion plans, debt service, dividend payments, capital expenditures and working capital needs for the next twelve months and thereafter.

Cash Used in Operations

Our operating activities used net cash of $4,395 for the first three months of 2025 as compared to $15,797 net cash used during the first three months of 2024.

This change resulted primarily from the timing of payments for accounts payable and certain taxes partially offset by higher bonus payments made in the first quarter of 2025 as a result of the prior year’s performance.

Capital Expenditures and Proceeds from Sale of Property and Equipment

Capital expenditures (purchase of property and equipment) net of proceeds from insurance recoveries were $38,887 for the first three months of 2025 as compared to $24,637 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 three months of 2025 as compared to the first three months of 2024 resulted primarily from our maintenance and remodel initiatives, including 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 $180,000 in 2025.

This increase includes expansion of our maintenance and remodel initiatives as well as additional technology improvements.

This increase also includes the acquisition of sites and construction costs of new Cracker Barrel and MSBC locations that have opened or that we expect to open during 2025.

We intend to fund our capital expenditures with cash generated by operations and borrowings under our 2022 Revolving Credit Facility, as necessary.

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.

At April 26, 2024, we had $176,000 of outstanding borrowings under the 2022 Revolving Credit Facility and $32,466 of standby letters of credit related to securing reserved claims under our workers’

compensation insurance and certain sale and leaseback transactions, which reduce our borrowing availability under the 2022 Revolving Credit Facility.

At April 26, 2024, we had $491,534 in borrowing availability under our 2022 Revolving Credit

During the first nine months of 2024, we borrowed $326,500 and repaid $270,500 under 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.

At November 01, 2024, we had $230,000 of outstanding borrowings under the 2022 Revolving Credit Facility and $34,004 of standby letters of credit related to securing reserved claims under our workers’ compensation insurance and certain sale and leaseback transactions, which reduce our borrowing availability under the 2022 Revolving Credit Facility.

At November 01, 2024, we had $435,996 in borrowing availability under our 2022 Revolving Credit Facility.

During the first three months of 2025, we borrowed $136,500 and repaid $86,500 under the 2022 Revolving Credit Facility.

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 November 01, 2024, and we expect to be in compliance with the 2022 Revolving Credit Facility’s financial covenants for the remaining term of the 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.

The Notes are senior, unsecured obligations of the Company and bear cash interest at a rate of 0.625% per annum, payable semi-annually in arrears on June 15 and December 15 of each year.

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

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 April 26, 2024, and we expect to be in compliance with the 2022 Revolving Credit Facility’s financial covenants for the remaining term

of the facility.

On June 18, 2021, the Company entered into an issuance and sale of $300,000 aggregate principal amount of 0.625% Convertible Senior Notes due 2026.

The Notes are senior, unsecured obligations of

the Company and bear cash interest at a rate of 0.625% per annum, payable semi-annually in arrears on June 15 and December 15 of each year, which initiated on December 15, 2021.

The Notes mature on June 15, 2026, unless earlier converted,

repurchased or redeemed.

Capital Expenditures and Proceeds from Sale of Property and Equipment

Capital expenditures (purchase of property and equipment) net of proceeds from insurance recoveries were $80,081 for the first nine months of 2024 as compared to $86,898 for the same period in the

Our capital expenditures consisted primarily of capital investments for existing stores, new store locations and capital expenditures for strategic initiatives.

The decrease in capital expenditures in the first nine months of 2024 as

compared to the first nine months of 2023 resulted primarily from the timing of capital expenditures for new store openings as compared to the prior year.

We estimate that our capital expenditures during 2024 will be approximately $120,000 to

This estimate includes the acquisition of sites and construction costs of new Cracker Barrel and MSBC locations that have opened or that we expect to open during 2024, as well as for acquisition and construction costs for new Cracker

Barrel and MSBC locations that we plan to open in 2025.

As part of our strategic transformation plan, we are modifying our capital allocation policy and currently expect to increase our capital expenditures over the three-year period from 2025 to

2027 to approximately $600,000 to $700,000.

This increase includes the expansion of our maintenance and remodel initiatives as well as additional technology investments.

We intend to fund our capital expenditures with cash generated by operations

and borrowings under our 2022 Revolving Credit Facility, as necessary.

Dividends, Share Repurchases and Share-Based Compensation Awards

Dividends and Share-Based Compensation Awards

Our 2022 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;

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.

During the first nine months of 2024, we paid a regular dividend of $3.90 per share and declared a dividend of $1.30 per share that was subsequently paid on May 7, 2024, to shareholders of record

on April 12, 2024.

In conjunction with our strategic transformation program, we are modifying our capital allocation policy to support increased investments in our business to drive organic growth.

As part of this shift to increase investment in

our business, we are reducing our quarterly dividend.

During the fourth quarter of 2024, our Board of Directors approved a regular dividend payable on August 6, 2024 to the shareholders of recorded as of July 19, 2024 of $0.25 per share.

On June 2, 2023, our Board of Directors renewed our authorization to repurchase shares of the Company’s outstanding common stock at management’s discretion up to a total value of $200,000, of which

approximately $138,000 is remaining.

We did not repurchase any shares of our common stock in the first nine months of 2024.

During the first nine months of 2024, we issued 48,671 shares of our common stock resulting from the vesting of share-based compensation awards.

Related tax withholding payments on these

share-based compensation awards resulted in a net use of cash of $1,597.

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;

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.

During the first three months of 2025, we paid a regular dividend of $0.25 per share and declared a dividend of $0.25 per share that was subsequently paid on November 13, 2024, to shareholders of record on October 18, 2024.

In addition, in the second quarter of 2025, our Board of Directors approved a regular dividend payable on February 12, 2025 to shareholders of record as of January 17, 2025 of $0.25 per share.

During the first three months of 2025, we issued 39,185 shares of our common stock resulting from the vesting of share-based compensation awards.

Related tax withholding payments on these share-based compensation awards resulted in a net use of cash of $1,239.

Working Capital

In the restaurant industry, substantially all payments received on sales are made by credit card, debit card or cash.

Restaurant inventories purchased through our principal food distributor are

on terms of net zero days, while restaurant inventories purchased locally are generally financed from normal trade credit.

Because of our retail gift shops, which have a lower product turnover than the restaurant business, we carry larger

inventories than many other companies in the restaurant industry.

Retail inventories purchased domestically are generally financed from normal trade credit, while imported retail inventories are generally purchased through wire transfers.

various trade terms are aided by the rapid turnover of the restaurant inventory.

Employees generally are paid on weekly or semi-monthly schedules in arrears for hours worked except for bonuses that are paid either quarterly or annually in

Restaurant inventories purchased through our principal food distributor are on terms of net zero days, while restaurant inventories purchased locally are generally financed from normal trade credit.

Because of our retail gift shops, which have a lower product turnover than the restaurants, we carry larger inventories than many other companies in the restaurant industry.

Retail inventories are generally financed through trade credit.

These various trade terms are aided by the rapid turnover of the restaurant inventory.

Employees generally are paid once every week or every two weeks except for bonuses that are paid either quarterly or annually in arrears.

Many other operating expenses have normal trade terms and certain expenses, such as certain taxes and some benefits, are deferred for longer periods of time.

We had negative working capital of $167,204 at April 26, 2024 as compared to negative working capital of $206,679 at July 28, 2023.

The change in working capital at April 26, 2024 as compared to

July 28, 2023 primarily resulted from the timing of payments for accounts payable and certain taxes partially offset by the decrease in retail inventory levels.

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

We had negative working capital of $137,737 at November 01, 2024 as compared to negative working capital of $175,993 at August 02, 2024.

The change in working capital at November 01, 2024 as compared to August 02, 2024 primarily resulted from higher inventory levels which reflect our normal seasonal build to support our expected holiday sales and lower incentive compensations accruals due to the payment of annual and long-term incentive bonuses and the timing of payments for payroll.

Off-Balance Sheet Arrangements

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There have been no material changes in our material commitments other than in the ordinary course of business since the end of 2024.

Refer to the sub-section entitled “Material Commitments” under

the section entitled “Liquidity and Capital Resources” presented in the MD&A of our 2023 Form 10-K for additional information regarding our material commitments.

Refer to the section entitled “Liquidity and Capital Resources” presented in the MD&A of our 2024 Form 10-K for additional information regarding our material commitments.

Recent Accounting Pronouncements Not Yet Adopted

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 the accounting guidance.

Critical Accounting Estimates

We prepare our Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States.

The preparation of these financial statements requires us to make

estimates and assumptions about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures.

We base our estimates and judgments on historical experience, current trends,

outside advice from parties believed to be experts in such matters, and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of

assets and liabilities that are not readily apparent from other sources.

However, because future events and their effects cannot be determined with certainty, actual results could differ from those assumptions and estimates, and such differences

could be material.

Our significant accounting policies are discussed in Note 1 to the Consolidated Financial Statements contained in the 2023 Form 10-K.

Judgments and uncertainties affecting the application of those

policies may result in materially different amounts being reported under different conditions or using different assumptions.

The preparation of these financial statements requires us to make estimates and assumptions about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures.

We base our estimates and judgments on historical experience, current trends, outside advice from parties believed to be experts in such matters, and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.

However, because future events and their effects cannot be determined with certainty, actual results could differ from those assumptions and estimates, and such differences could be material.

Our critical accounting estimates are described under the heading “Critical Accounting Estimates” in Part II, Item 7 of the 2024 Form 10-K.

Judgments and uncertainties affecting the application of those policies may result in materially different amounts being reported under different conditions or using different assumptions.

Critical accounting estimates are those that:

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

Impairment of Long-Lived Assets

We assess the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.

Recoverability of assets is measured

by comparing the carrying value of the asset to the undiscounted future cash flows expected to be generated by the asset.

If the total expected future cash flows are less than the carrying amount of the asset, the carrying value is written down,

for an asset to be held and used, to the estimated fair value or, for an asset to be disposed of, to the fair value, net of estimated costs of disposal.

Any loss resulting from impairment is recognized by a charge to income.

Judgments and

estimates that we make related to the expected useful lives of long-lived assets and future cash flows are affected by factors such as changes in economic conditions and changes in operating performance.

The accuracy of such provisions can vary

materially from original estimates and management regularly monitors the adequacy of the provisions until final disposition occurs.

We have not made any material changes in our methodology for assessing impairments during the first nine months of 2024, and we do not believe that there is a reasonable likelihood that there will

be a material change in the estimates or assumptions used by us in the future to assess impairment of long-lived assets.

However, if actual results are not consistent with our estimates and assumptions used in estimating future cash flows and fair

values of long-lived assets, we may be exposed to losses that could be material.

In the third quarter of 2024, we recorded impairment charges of $15,616 for long-lived assets due to the deterioration in operating performance of certain Cracker

Barrel and MSBC locations.

This amount is included in the Impairment and store closing costs line item on the Condensed Consolidated Statement of Income (Loss).

See the Lease Accounting section below for information related to an impairment

charge related to a right-of-use asset recorded in the third quarter of 2024.

Insurance Reserves

We self-insure a significant portion of our expected workers’ compensation and general liability insurance programs.

We purchase insurance for individual workers’ compensation claims that exceed

$750 or $1,000 depending on the state in which the claim originated.

We purchase insurance for individual general liability claims that exceed $500.

We record a reserve for workers’ compensation and general liability for all unresolved claims and

for an estimate of incurred but not reported (“IBNR”) claims.

These reserves and estimates of IBNR claims are based upon a full scope actuarial study which is performed annually at the end of our first quarter and is adjusted by the actuarially

determined losses and actual claims payments for the fourth quarter.

Additionally, we perform limited scope actuarial studies on a quarterly basis to verify and/or modify our reserves.

The reserves and losses in the actuarial study represent a

range of possible outcomes within which no given estimate is more likely than any other estimate.

As such, we record the losses in the lower half of that range and discount them to present value using a risk-free interest rate based on projected

timing of payments.

We also monitor actual claims development, including incurrence or settlement of individual large claims during the interim periods between actuarial studies as another means of estimating the adequacy of our reserves.

Our group health plans combine the use of self-insured and fully-insured programs.

Benefits for any individual (employee or dependents) in the self-insured group health program are limited.

record a liability for the self-insured portion of our group health program for all unpaid claims based upon a loss development analysis derived from actual group health claims payment experience.

Additionally, we record a liability for unpaid

prescription drug claims based on historical experience.

Our accounting policies regarding insurance reserves include certain actuarial assumptions and management judgments regarding economic conditions, the frequency and severity of claims and claim

development history and settlement practices.

We have not made any material changes in the methodology used to establish our insurance reserves during the first nine months of 2024 and do not believe there is a reasonable likelihood that there

will be a material change in the estimates or assumptions used to calculate the insurance reserves.

However, changes in these actuarial assumptions, management judgments or claims experience in the future may produce materially different amounts

of expense that would be reported under these insurance programs.

Retail Inventory Valuation

Cost of goods sold includes the cost of retail merchandise sold at our stores utilizing the retail inventory method (“RIM”).

Under RIM, the valuation of our retail inventories is determined by

applying a cost-to-retail ratio to the retail value of our inventories.

Inherent in the RIM calculation are certain inputs, including initial markons, markups, markdowns and shrinkage, which may significantly impact the gross margin calculation as

well as the ending inventory valuation.

Inventory valuation provisions are included for retail inventory obsolescence and retail inventory shrinkage.

Retail inventory is reviewed on a quarterly basis for obsolescence and adjusted as

appropriate based on assumptions made by management and judgment regarding inventory aging and future promotional activities.

Retail inventory also includes an estimate of shrinkage that is adjusted upon physical inventory counts.

Annual physical

inventory counts are conducted based upon a cyclical inventory schedule.

An estimate of shrinkage is recorded for the time period between physical inventory counts by using a two-year average of the physical inventories’ results on a

store-by-store basis.

We have not made any material changes in the methodologies, estimates or assumptions related to our merchandise inventories during the first nine months of 2024 and do not believe there is a

reasonable likelihood that there will be a material change in the estimates or assumptions in the future.

However, actual obsolescence or shrinkage recorded may produce materially different amounts than we have estimated.

Lease Accounting

We have ground leases for our leased stores and office space leases that are recorded as operating leases under various non-cancellable operating leases.

Additionally, we lease our retail distribution center, advertising billboards, vehicle fleets, and certain equipment under various non-cancellable operating lea ses.

We evaluate our leases at contract inception to determine whether we have the right to control use of the identified asset for a period of time in exchange for consideration.

If we determine that

we have 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, we recognize a right-of-use asset and lease liability.

Also, at contract inception, we

evaluate our leases to estimate their expected term which includes renewal options that we are reasonably assured that we will exercise, and the classification of the lease as either an operating lease or a finance lease.

Additionally, as our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the time of commencement or modification date in determining the present value of lease payments.

Assumptions used in determining our incremental borrowing rate include our implied credit rating and an estimate of secured borrowing rates based on comparable market data.

We assess the impairment of the right-of-use asset whenever

events or changes in circumstances indicate that the carrying value of the asset may not be recoverable.

Changes in these assumptions and management judgments may produce materially different amounts in the recognition of the right-of-use assets and lease liabilities.

Additionally, any loss resulting

from an impairment of the right-of-use assets is recognized by a charge to income, which could be material.

In the third quarter of 2024, we recorded an impairment charge of $1,832 related to a right-of-use asset for a Cracker Barrel location.

This amount is included in the impairment and store closing costs line item on the Condensed Consolidated Statement of Income (Loss).

There have been no material changes in our critical accounting estimates from those described in the 2024 Form 10-K.

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What changed 10-Q

Item 2. Management’s Discussion and Analysis