CRACKER BARREL OLD COUNTRY STORE, INC 10-Q

ITEM 2. 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 Ò (“Cracker Barrel”) concept. As of November 01, 2024, we operated 658 Cracker Barrel stores in 44 states and 69 Maple Street Biscuit Company (“MSBC”) locations in ten states. 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. 16 Table of Contents MD&A provides information which management believes is relevant to an assessment and understanding of our consolidated results of operations and financial condition. MD&A should be read in conjunction with the (i) condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q and (ii) audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended August 02, 2024 (the “2024 Form 10-K”). Except for specific historical information, many of the matters discussed in this report may express or imply projections of items such as revenues or expenditures, estimated capital expenditures, compliance with debt covenants, plans and objectives for future operations, store economics, inventory shrinkage, growth or initiatives, expected future economic performance or the expected outcome or impact of pending or threatened litigation. These and similar statements regarding events or results which we expect will or may occur in the future are forward-looking statements concerning matters that involve risks, uncertainties and other factors which may cause our actual results and performance to differ materially from those expressed or implied by such statements. All forward-looking information is provided pursuant to the safe harbor established under the Private Securities Litigation Reform Act of 1995 and should be evaluated in the context of these risks, uncertainties and other factors. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “trends,” “assumptions,” “target,” “guidance,” “outlook,” “opportunity,” “future,” “plans,” “goals,” “objectives,” “expectations,” “near-term,” “long-term,” “projection,” “may,” “will,” “would,” “could,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “potential,” “”regular,” “should,” “projects,” “forecasts” or “continue” (or the negative or other derivatives of each of these terms) or similar terminology. We believe the assumptions underlying any forward-looking statements are reasonable; however, any of the assumptions could be inaccurate, and therefore, actual results may differ materially from those projected in or implied by the forward-looking statements. In addition to the risks of ordinary business operations, and those discussed or described in this report or in information incorporated by reference into this report, factors and risks that may result in actual results differing from this forward-looking information include, but are not limited to risks and uncertainties associated with inflationary conditions with respect to the price of commodities, ingredients, transportation, distribution and labor; disruptions to our restaurant or retail supply chain; our ability to manage retail inventory and merchandise mix; our ability to sustain or the effects of plans intended to improve operational or marketing execution and performance, including the Company’s strategic transformation plan; the effects of increased competition at our locations on sales and on labor recruiting, cost, and retention; 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; 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; 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; 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; 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; 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 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. 17 Table of Contents 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. Overview 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 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 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. ● Evolving the store and guest experience : delivering an exceptional guest experience through operational excellence and improved store design and atmosphere. We are in the process of testing remodel prototypes and expect to complete 25-30 remodels in 2025 along with 25-30 store refreshes. ● Winning in digital and off-premise : growing the off-premise business and leveraging technology such as Cracker Barrel Rewards loyalty program. We continue to leverage guest data to better understand consumer behavior and identify ways to drive frequency and engagement. ● Elevating 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 Management uses a number of key performance measures to evaluate our operational and financial performance, including the following: ● 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), which we express as a percentage, we divide the absolute dollar change by the comparable store restaurant sales for the historical 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 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. 18 Table of Contents ● 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. ● 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. Results of Operations The following table highlights our operating results by percentage relationships to total revenue for the specified periods: ​ ​ ​ ​ ​ ​ ​ November 01, ​ October 27, ​ 2024 2023 Total revenue 100.0 % 100.0 % Cost of goods sold (exclusive of depreciation and rent) 30.6 31.0 Labor and other related expenses 36.4 37.0 Other store operating expenses 25.0 24.7 General and administrative expenses 7.1 5.9 Impairment and store closing costs 0.1 — Operating income 0.8 1.4 Interest expense, net 0.7 0.6 Income before income taxes 0.1 0.8 Provision for income taxes (income tax benefit) (0.5) 0.1 Net income 0.6 % 0.7 % 19 Table of Contents ​ The following table sets forth the change in the number of units in operation for the specified periods: ​ ​ ​ ​ ​ ​ ​ ​ Quarter Ended ​ ​ November 01, ​ October 27, ​ ​ 2024 2023 Net change in units: Cracker Barrel — 1 MSBC 3 1 ​ ​ ​ ​ ​ ​ Units in operation at end of the period: Cracker Barrel 658 661 MSBC 69 60 Total units at end of the period 727 721 ​ Total Revenue ​ 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 ​ ​ ​ November 01, ​ October 27, ​ ​ 2024 2023 Revenue in dollars: ​ ​ ​ ​ ​ Restaurant $ 683,271 ​ $ 660,793 ​ Retail ​ 161,818 ​ 163,046 ​ Total revenue $ 845,089 ​ $ 832,389 ​ Total revenue by percentage relationships: ​ ​ ​ Restaurant ​ 80.9 % 80.2 % Retail ​ 19.1 % 19.8 % Average store volumes (1) : ​ ​ ​ ​ ​ ​ ​ Restaurant ​ $ 1,012.8 ​ $ 975.6 ​ Retail ​ ​ 245.6 ​ ​ 246.7 ​ Total revenue ​ $ 1,258.4 ​ $ 1,222.3 ​ Comparable store sales increase (decrease) (2) : ​ ​ ​ Restaurant ​ 2.9 % ​ (0.5) % Retail ​ (1.6) % (8.1) % Restaurant and retail ​ 2.0 % ​ (2.1) % Average check increase ​ 5.8 % 6.6 % Comparable restaurant guest traffic decrease (2) : ​ (2.9) % (7.1) % ​ (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. Comparable store sales and traffic exclude MSBC. 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 first quarter of 2025, our comparable store retail sales decrease resulted primarily from the guest traffic decrease. 20 Table of Contents 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) The following table highlights the components of cost of goods sold (exclusive of depreciation and rent) in dollar amounts and as percentages of revenues for the specified periods: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Quarter Ended ​ ​ ​ November 01, ​ October 27, ​ ​ 2024 2023 Cost of Goods Sold in dollars: ​ ​ ​ ​ ​ Restaurant ​ $ 178,407 ​ $ 173,441 ​ Retail ​ 80,494 ​ 82,118 ​ Total Cost of Goods Sold ​ $ 258,901 ​ $ 255,559 ​ ​ ​ ​ ​ ​ ​ ​ ​ Cost of Goods Sold by percentage of revenue: ​ ​ ​ ​ ​ ​ ​ Restaurant ​ ​ 26.1 % ​ 26.2 % Retail ​ ​ 49.7 % ​ 50.4 % ​ 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 ​ ​ ​ ​ as a Percentage of ​ ​ ​ ​ Total Retail Revenue ​ ​ Vendor allowances ​ (0.5) % ​ Higher initial margin ​ (0.4) % ​ Markdowns ​ 0.3 % ​ ​ 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: ​ ​ ​ ​ ​ ​ ​ ​ Quarter Ended ​ ​ ​ November 01, ​ October 27, ​ ​ 2024 2023 Labor and related expenses 36.4 % 37.0 % ​ 21 Table of Contents 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 ​ ​ Total Revenue Store hourly labor ​ (0.6) % Store management compensation ​ (0.5) % Employee health care expense ​ (0.1) % Other wages 0.4 % Workers' compensation expense 0.3 % ​ 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. Occupancy costs include maintenance, utilities, depreciation and rent. The following table highlights other store operating expenses as a percentage of total revenue for the specified periods: ​ ​ ​ ​ ​ ​ ​ ​ Quarter Ended ​ ​ ​ November 01, ​ October 27, ​ 2024 2023 Other store operating expenses 25.0 % 24.7 % ​ ​ 22 Table of Contents 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 Other store expenses ​ 0.4 % General insurance expense ​ 0.2 % Store occupancy costs ​ (0.2) % ​ 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 The following table highlights general and administrative expenses as a percentage of total revenue for the specified periods: ​ ​ ​ ​ ​ ​ ​ ​ Quarter Ended ​ ​ ​ November 01, ​ October 27, ​ 2024 2023 General and administrative expenses 7.1 % 5.9 % ​ 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 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. 23 Table of Contents Interest Expense, Net The following table highlights interest expense in dollars for the specified periods: ​ ​ ​ ​ ​ ​ ​ ​ ​ Quarter Ended ​ ​ November 01, ​ October 27, ​ 2024 2023 Interest expense, net ​ $ 5,822 ​ $ 4,938 ​ 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 before income taxes (“effective tax rate”) for the specified periods: ​ ​ ​ ​ ​ ​ ​ ​ Quarter Ended ​ ​ ​ November 01, ​ October 27, ​ 2024 2023 Effective tax rate ​ (287.8) % 15.7 % ​ 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%). Liquidity and Capital Resources Our primary sources of liquidity are cash generated from our operations and our borrowing capacity under our 2022 Revolving Credit Facility. Cash generated from operations, together with our borrowing capacity under the 2022 Revolving Credit Facility, were sufficient to finance all of our growth, dividend payments, working capital needs, interest payments on long-term debt obligations and other cash payment obligations in the first three months of 2025. We believe that cash on hand at November 01, 2024, along with cash expected to be generated from our operating activities and the borrowing capacity under our revolving credit facility, will be sufficient to finance our continuing operations, our strategic transformation initiative and continuing expansion plans, debt service, dividend payments, capital expenditures and working capital needs for the next twelve months and thereafter. Our ability to draw on our 2022 Revolving Credit Facility is subject to the satisfaction of the provisions of the credit facility, as amended, and we believe we will be able to refinance our 2022 Revolving Credit Facility and other debt instruments prior to maturity. 24 Table of Contents 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 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. 25 Table of Contents 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 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 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. 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 We have no material off-balance sheet arrangements. Material Commitments There have been no material changes in our material commitments other than in the ordinary course of business since the end of 2024. Refer to the section entitled “Liquidity and Capital Resources” presented in the MD&A of our 2024 Form 10-K for additional information regarding our material commitments. 26 Table of Contents 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. 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 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: ● management believes are most important to the accurate portrayal of both our financial condition and operating results, and ● require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. We consider the following accounting estimates to be most critical in understanding the judgments that are involved in preparing our Consolidated Financial Statements: ● Impairment of Long-Lived Assets ● Insurance Reserves ● Retail Inventory Valuation ● Lease Accounting Management has reviewed these critical accounting estimates and related disclosures with the Audit Committee of our Board of Directors. There have been no material changes in our critical accounting estimates from those described in the 2024 Form 10-K.