What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-03-06 compared with 2024-12-04 · 83 added, 57 removed, 222 unchanged (39% of the section changed)

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

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

As of January 31, 2025, we operated 657 Cracker Barrel stores in 43 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).

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● 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).

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

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.

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

Quarter Ended

Six Months Ended

Total revenue

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Quarter Ended

Six Months Ended

Net change in units:

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Total Revenue

Total revenue for the first quarter of 2025 increased 2.6% as compared to the same period in the prior year.

Total revenue for the second quarter and first six months of 2025 increased 1.5% and 2.0%, respectively, as compared to the same periods in the prior year.

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

Quarter Ended

Six Months Ended

Revenue in dollars:

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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%.

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

For the second quarter and first six months of 2025, the average check increases included average menu price increases of 6.0% and 5.4%, respectively.

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.

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.

For the second quarter of 2025, our comparable store retail sales increase resulted primarily from strong performance in the apparel merchandise category partially offset by the guest traffic decrease.

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

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

Cost of Goods Sold (Exclusive of Depreciation and Rent)

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Six Months Ended

Cost of Goods Sold in dollars:

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Cost of Goods Sold by percentage of revenue:

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.

The decreases in restaurant cost of goods sold as a percentage of restaurant revenue for the second quarter and first six months of 2025 as compared to the same periods in the prior year were primarily the result of our menu price increases and a shift to lower cost menu items.

Commodity inflation was 1.3% and 1.6%, respectively, in the second quarter and first six months 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

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

Second Quarter

Increase (Decrease)

as a Percentage of

Total Retail Revenue

Vendor allowances

Higher initial margin

The decrease in retail cost of goods sold as a percentage of retail revenue in the first six months 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 Six Months

(Decrease) Increase

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Six Months Ended

Labor and related expenses

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

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

Second Quarter

First Six Months

(Decrease) Increase

as a Percentage of

Total Revenue

Store hourly labor

Store management compensation

Employee health care expense

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.

Store bonus expense

The decreases in store hourly labor and store management compensation as a percentage of total revenue for the second quarter and first six months of 2025 as compared to the same periods 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.

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

The increases in other wages as a percentage of total revenue for the second quarter and first six months of 2025 as compared to the same periods in the prior year resulted primarily from revisions in our employee benefits policy that resulted in a reduction in other wages expense in the second quarter and first six months of 2024.

The increases in store bonus expense as a percentage of total revenue for the second quarter and first six months of 2025 as compared to the same periods in the prior year resulted from better performance against financial objectives in 2025 as compared to the prior year.

Other Store Operating Expenses

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Other store operating expenses

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

This percentage change for the second quarter of 2025 as compared to the same period in the prior year resulted primarily from higher store occupancy costs.

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

The increase in depreciation expense resulted primarily from higher capital expenditures.

The increase in maintenance expense resulted primarily from increased spending related to strategic initiatives and preventative maintenance services.

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

First Six Months

Increase as a Percentage

of Total Revenue

Other store expenses

General insurance expense

Store occupancy costs

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.

Other store expenses

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

The increase in depreciation expense resulted primarily from higher capital expenditures.

The increase in maintenance expenses resulted primarily from increased spending related to strategic initiatives and preventative maintenance services.

The decrease in utilities expense resulted primarily from lower electricity usage.

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

General and Administrative Expenses

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Six Months Ended

General and administrative expenses

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.

This percentage change for the second quarter and first six months of 2025 as compared to the same periods in the prior year resulted primarily from higher professional fees related to legal fees and proxy contest expenses.

Additionally, the Company incurred higher costs of approximately $2,300 associated with the Company’s strategic transformation plan for the first six months of 2025 as compared to the same period in the prior year.

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

The Company incurred proxy contest expenses of $5,263 and $8,220, respectively, in the second quarter and first six months of 2025 related to a proxy contest in connection with the Company’s 2024 annual shareholders meeting held on November 21, 2024.

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.

During the second quarter and first six months of 2025, we recorded impairment charges of $2,163 and $2,863, respectively, as a result of the deterioration in operating performance in three MSBC locations and two Cracker Barrel locations.

No impairment was recorded in the second quarter and first six months of 2024.

One Cracker Barrel store was closed in the second quarter and first six months of 2025 resulting in closing costs of $288.

No stores were closed in the second quarter or first six months of 2024.

Interest Expense, Net

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Six Months Ended

Interest expense, net

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).

Interest expense for the second quarter of 2025 as compared to the same period in the prior year remained relatively constant.

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

Provision for Income Taxes (Income Tax Benefit)

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Six Months Ended

Effective tax rate

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 increase in the effective tax rate in the second quarter of 2025 as compared to the prior year period is primarily due to favorable state audit settlements obtained in the second quarter of 2024.

The decrease in the effective tax rate in the first six months of 2025 as compared to the prior year period is primarily due to an increase in the impact of employment credits from the use of the discrete-period computation method.

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.

Beginning in the third quarter of 2024, the Company records its interim income tax provision (benefit) using the discrete-period computation method, as allowed under Accounting Standards Codification 740-240, Accounting for Income Taxes – Interim Reporting.

The Company recorded its interim income tax provision (benefit) using the discrete-period computation method as of January 31, 2025.

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.

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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.

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.

We believe that cash on hand at January 31, 2025, 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 plan and continuing expansion plans, debt service, dividend payments, capital expenditures and working capital needs for the next twelve months and thereafter.

Our ability to draw on our 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.

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.

Cash Generated From Operations

Our operating activities provided net cash of $93,693 for the first six months of 2025 as compared to $61,879 net cash provided during the first six months of 2024.

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

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.

Capital expenditures (purchase of property and equipment) net of proceeds from insurance recoveries were $76,986 for the first six months of 2025 as compared to $51,080 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.

The increase in capital expenditures in the first six months of 2025 as compared to the first six 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.

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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.

At January 31, 2025, we had $174,000 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 January 31, 2025, we had $491,996 in borrowing availability under our 2022 Revolving Credit Facility.

During the first six months of 2025, we borrowed $199,500 and repaid $205,500 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.

We were in compliance with the 2022 Revolving Credit Facility’s financial covenants at January 31, 2025, 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.

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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.

During the first six months of 2025, we paid a regular dividend of $0.50 per share and declared a dividend of $0.25 per share that was subsequently paid on February 12, 2025, to shareholders of record on January 17, 2025.

In addition, in the third quarter of 2025, our Board of Directors approved a regular dividend payable on May 14, 2025 to shareholders of record as of April 11, 2025 of $0.25 per share.

During the first six months of 2025, we issued 60,438 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 $1,379.

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

We had negative working capital of $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.

We had negative working capital of $173,982 at January 31, 2025 as compared to negative working capital of $175,993 at August 02, 2024.

The change in working capital at January 31, 2025 as compared to August 02, 2024 primarily resulted from the timing of certain payments partially offset by the decrease in retail inventory levels and an increase in sales of our gift cards during the holiday shopping season.

Off-Balance Sheet Arrangements

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis