10-Q 1 ef20016433_10q.htm 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarterly Period Ended January 26, 2024

OR

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from___________ to ___________

Commission file number: 001-25225


Cracker Barrel Old Country Store, Inc.
(Exact name of registrant as specified in its charter)

Tennessee
(State or other jurisdiction of incorporation or organization)
 
62-0812904
(I.R.S. Employer Identification Number)
     
305 Hartmann Drive, Lebanon, Tennessee
(Address of principal executive offices)
 
37087-4779
(Zip code)

Registrant’s telephone number, including area code: (615) 444-5533

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock (Par Value $0.01)
Rights to Purchase Series A Junior Participating
Preferred Stock (Par Value $0.01)
CBRL
The Nasdaq Stock Market LLC
(Nasdaq Global Select Market)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Yes     No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes     No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer 
Accelerated filer 
Non-accelerated filer 
Smaller reporting company 
Emerging growth company 
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes     No

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

22,201,086 Shares of Common Stock
Outstanding as of February 20, 2024



2

PART I – FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)

CRACKER BARREL OLD COUNTRY STORE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)

ASSETS
 
January 26,
2024
   
July 28,
2023*
 
Current Assets:
           
Cash and cash equivalents
 
$
12,602
   
$
25,147
 
Accounts receivable
   
41,524
     
30,446
 
Inventories
   
172,702
     
189,364
 
Prepaid expenses and other current assets
   
40,972
     
37,330
 
Total current assets
   
267,800
     
282,287
 
Property and equipment
   
2,412,806
     
2,380,313
 
Less: Accumulated depreciation and amortization
   
1,447,139
     
1,408,368
 
Property and equipment – net
   
965,667
     
971,945
 
Operating lease right-of-use assets, net
   
877,580
     
889,306
 
Goodwill
   
4,690
     
4,690
 
Intangible assets
   
24,498
     
23,426
 
Other assets
   
44,824
     
46,440
 
Total assets
 
$
2,185,059
   
$
2,218,094
 

               
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
Current Liabilities:
               
Accounts payable
 
$
136,388
   
$
165,484
 
Taxes withheld and accrued
    26,336       38,835  
Other current liabilities
   
296,113
     
284,647
 
Total current liabilities
   
458,837
     
488,966
 

               
Long-term debt
   
452,278
     
414,904
 
Long-term operating lease liabilities
   
689,499
     
702,413
 
Other long-term obligations
   
122,478
     
127,986
 

               
Commitments and Contingencies (Note 10)
           

               
Shareholders’ Equity:
               
Preferred stock – 100,000,000 shares of $0.01 par value authorized; 300,000 shares designated as Series A Junior Participating Preferred Stock; no shares issued
   
     
 
Common stock – 400,000,000 shares of $0.01 par value authorized; 22,201,086 shares issued and outstanding at January 26, 2024, and 22,153,625 shares issued and outstanding at July 28, 2023
   
222
     
221
 
Additional paid-in capital
    8,541       3,886  
Retained earnings
   
453,204
     
479,718
 
Total shareholders’ equity
   
461,967
     
483,825
 
Total liabilities and shareholders’ equity
 
$
2,185,059
   
$
2,218,094
 

See Notes to unaudited Condensed Consolidated Financial Statements.

* This Condensed Consolidated Balance Sheet has been derived from the audited Consolidated Balance Sheet as of July 28, 2023, as filed with the Securities and Exchange Commission in the Company’s Annual Report on Form 10-K for the fiscal year ended July 28, 2023.

3

CRACKER BARREL OLD COUNTRY STORE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share data)
(Unaudited)

 
Quarter Ended
   
Six Months Ended
 
    January 26,     January 27,     January 26,     January 27,  
 
2024
   
2023
   
2024
   
2023
 

                       
Total revenue
 
$
935,401
   
$
933,868
   
$
1,759,240
   
$
1,773,387
 
Cost of goods sold (exclusive of depreciation and rent)
   
314,851
     
326,555
     
570,410
     
608,095
 
Labor and other related expenses
   
323,196
     
313,967
     
627,643
     
605,675
 
Other store operating expenses
   
214,056
     
208,857
     
417,741
     
405,561
 
General and administrative expenses
   
52,536
     
45,518
     
101,271
     
91,466
 
Operating income
   
30,762
     
38,971
     
42,175
     
62,590
 
Interest expense, net
   
5,067
     
4,408
     
10,005
     
7,940
 
Income before income taxes
   
25,695
     
34,563
     
32,170
     
54,650
 
Provision for income taxes (income tax benefit)
   
(839
)
   
4,072
     
180
     
7,030
 
Net income
 
$
26,534
   
$
30,491
   
$
31,990
   
$
47,620
 

                               
Net income per share:
                               
Basic
 
$
1.20
   
$
1.38
   
$
1.44
   
$
2.15
 
Diluted
 
$
1.19
   
$
1.37
   
$
1.44
   
$
2.14
 

                               
Weighted average shares:
                               
Basic
   
22,196,758
     
22,173,280
     
22,181,305
     
22,183,527
 
Diluted
   
22,295,532
     
22,251,835
     
22,279,611
     
22,272,244
 

See Notes to unaudited Condensed Consolidated Financial Statements.

4

CRACKER BARREL OLD COUNTRY STORE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited and in thousands, except share data)

 
Common Stock
   
Additional
Paid-In
   
Retained
   
Total
Shareholders’
 
   
Shares
   
Amount
   
Capital
   
Earnings
   
Equity
 
Balances at July 28, 2023
   
22,153,625
   
$
221
   
$
3,886
   
$
479,718
   
$
483,825
 
Comprehensive Income:
                                       
Net income
   
     
     
     
5,456
     
5,456
 
Total comprehensive income
   
     
     
     
5,456
     
5,456
 
Cash dividends declared - $1.30 per share
   
     
     
     
(29,150
)
   
(29,150
)
Share-based compensation
   
     
     
1,622
     
     
1,622
 
Issuance of share-based compensation awards, net of shares withheld for employee taxes
   
31,487
     
1
     
(1,502
)
   
     
(1,501
)
Balances at October 27, 2023
   
22,185,112
   
$
222
   
$
4,006
   
$
456,024
   
$
460,252
 
Comprehensive Income:
                                       
Net income
   
     
     
     
26,534
     
26,534
 
Total comprehensive income
   
     
     
     
26,534
     
26,534
 
Cash dividends declared - $1.30 per share
   
     
     
     
(29,354
)
   
(29,354
)
Share-based compensation
   
     
     
4,631
     
     
4,631
 
Issuance of share-based compensation awards, net of shares withheld for employee taxes
   
15,974
     
     
(96
)
   
     
(96
)
Balances at January 26, 2024
   
22,201,086
   
$
222
   
$
8,541
   
$
453,204
   
$
461,967
 

 
Common Stock
   
Additional
Paid-In
   
Retained
   
Total
Shareholders’
 
   
Shares
   
Amount
   
Capital
   
Earnings
   
Equity
 
Balances at July 29, 2022
   
22,281,443
   
$
223
   
$
   
$
511,256
   
$
511,479
 
Comprehensive Income:
                                       
Net income
   
     
     
     
17,129
     
17,129
 
Total comprehensive income
   
     
     
     
17,129
     
17,129
 
Cash dividends declared - $1.30 per share
   
     
     
     
(28,689
)
   
(28,689
)
Share-based compensation
   
     
     
2,422
     
     
2,422
 
Issuance of share-based compensation awards, net of shares withheld for employee taxes
   
34,982
     
     
(2,380
)
   
     
(2,380
)
Purchases and retirement of common stock
    (120,958 )     (1 )     (42 )     (12,405 )     (12,448 )
Balances at October 28, 2022
   
22,195,467
   
$
222
   
$
   
$
487,291
   
$
487,513
 
Comprehensive Income:
                                       
Net income
   
     
     
     
30,491
     
30,491
 
Total comprehensive income
   
     
     
     
30,491
     
30,491
 
Cash dividends declared - $1.30 per share
   
     
     
     
(29,179
)
   
(29,179
)
Share-based compensation
   
     
     
2,689
     
     
2,689
 
Issuance of share-based compensation awards, net of shares withheld for employee taxes
   
6,167
     
     
(20
)
   
     
(20
)
Purchases and retirement of common stock
    (50,834 )     (1 )     (2,669 )     (2,331 )     (5,001 )
Balances at January 27, 2023
   
22,150,800
   
$
221
   
$
   
$
486,272
   
$
486,493
 

See Notes to unaudited Condensed Consolidated Financial Statements.

5

CRACKER BARREL OLD COUNTRY STORE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 
Six Months Ended
 
    January 26,     January 27,  
 
2024
   
2023
 
Cash flows from operating activities:
 
   
 
Net income
 
$
31,990
   
$
47,620
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
   
54,428
     
50,361
 
Amortization of debt issuance costs
    874       862  
Loss on disposition of property and equipment
   
2,898
     
2,225
 
Share-based compensation
   
6,253
     
5,111
 
Noncash lease expense
   
30,162
     
29,845
 
Amortization of asset recognized from gain on sale and leaseback transactions
   
6,368
     
6,368
 
Changes in assets and liabilities:
               
Inventories
   
16,662
     
25,998
 
Other current assets
   
(14,195
)
   
(12,567
)
Accounts payable
   
(29,096
)
   
(34,398
)
Taxes withheld and accrued
    (12,499 )     (29,056 )
Other current liabilities
   
11,407
     
32,563
 
Long-term operating lease liabilities
    (37,905 )     (23,515 )
Other long-term assets and liabilities
   
(5,468
)
   
(595
)
Net cash provided by operating activities
   
61,879
     
100,822
 

               
Cash flows from investing activities:
               
Purchase of property and equipment
   
(51,453
)
   
(48,878
)
Proceeds from insurance recoveries of property and equipment
   
373
     
509
 
Proceeds from sale of property and equipment
   
91
     
226
 
Net cash used in investing activities    
(50,989
)
   
(48,143
)

               
Cash flows from financing activities:
               
Proceeds from issuance of long-term debt
    243,500       90,000  
Principal payments under long-term debt
    (207,000 )     (60,049 )
Taxes withheld from issuance of share-based compensation awards
   
(1,597
)
   
(2,400
)
Purchases and retirement of common stock
          (17,449 )
Dividends on common stock
   
(58,338
)
   
(58,482
)
Net cash used in financing activities    
(23,435
)
   
(48,380
)

               
Net increase (decrease) in cash and cash equivalents
   
(12,545
)
   
4,299
 
Cash and cash equivalents, beginning of period
   
25,147
     
45,105
 
Cash and cash equivalents, end of period
 
$
12,602
   
$
49,404
 

               
Supplemental disclosures of cash flow information:
               
Cash paid during the period for:
               
Interest, net of amounts capitalized
 
$
8,351
   
$
5,415
 
Income taxes
 
$
5,634
   
$
3,855
 

               
Supplemental schedule of non-cash investing and financing activities*:
               
Capital expenditures accrued in accounts payable
 
$
3,563
   
$
3,257
 
Dividends declared but not yet paid
 
$
30,387
   
$
29,842
 

*See Note 8 for additional supplemental disclosures related to leases.

See Notes to unaudited Condensed Consolidated Financial Statements.

6

CRACKER BARREL OLD COUNTRY STORE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except percentages, share and per share data)
(Unaudited)

1.
Condensed Consolidated Financial Statements


Cracker Barrel Old Country Store, Inc., and its affiliates (collectively, in these Notes to Condensed Consolidated Financial Statements, the “Company”) are principally engaged in the operation and development of the Cracker Barrel Old Country Store® (“Cracker Barrel”) concept in the United States.

 

The accompanying condensed consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) without audit.  In the opinion of management, all adjustments (consisting of normal and recurring items) necessary for a fair presentation of such condensed consolidated financial statements have been made.  The results of operations for any interim period are not necessarily indicative of results for a full year.



These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended July 28, 2023 (the “2023 Form 10-K”).  The accounting policies used in preparing these condensed consolidated financial statements are the same as described in the 2023 Form 10-K.  References to a year in these Notes to Condensed Consolidated Financial Statements are to the Company’s fiscal year unless otherwise noted.


Recent Accounting Pronouncements Not Yet Adopted


Segment Disclosures


In November 2023, the Financial Accounting Standards Boards (“FASB”) issued new reportable segment disclosure requirements which require incremental segment information related to measuring segment performance on an annual and interim basis.  These new disclosure requirements are effective for fiscal periods beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024.  These disclosure requirements should be applied on a retrospective basis.  The Company is currently evaluating the effect of adopting these new disclosure requirements on its annual consolidated financial statements and related disclosures in 2025 as well as interim disclosures in the first quarter of 2026.


Income Tax Disclosures


In December 2023, the FASB issued new income tax disclosure requirements which require disclosure of disaggregated income taxes paid, prescribes standard categories for the components of the effective tax rate reconciliation and modifies other income tax-related disclosures.  These new disclosure requirements are effective for annual periods beginning after December 15, 2024 and allow for adoption on a prospective basis, with a retrospective option.  The Company is currently evaluating the effect of adopting these new disclosure requirements on its consolidated financial statements and related disclosures in 2026.

2.
Fair Value Measurements


The Company’s assets measured at fair value on a recurring basis at January 26, 2024 were as follows:

 
Level 1
   
Level 2
   
Level 3
   
Total Fair
Value
 
Cash equivalents*
 
$
1
   
$
   
$
   
$
1
 
Deferred compensation plan assets**
 
     
25,204
 
Total assets at fair value
 
   
$
25,205
 

7


The Company’s assets measured at fair value on a recurring basis at July 28, 2023 were as follows:

 
Level 1
   
Level 2
   
Level 3
   
Total Fair
Value
 
Cash equivalents*
 
$
9,001
   
$
   
$
   
$
9,001
 
Deferred compensation plan assets**
 
     
27,129
 
Total assets at fair value
 
   
$
36,130
 

*
Consists of money market fund investments.
**
Represents plan assets invested in mutual funds established under a rabbi trust for the Company’s non-qualified savings plan and is included in the Condensed Consolidated Balance Sheets as other assets.


The Company’s money market fund investments are measured at fair value using quoted market prices.  The Company’s deferred compensation plan assets are measured based on net asset value per share as a practical expedient to estimate fair value. The fair values of the Company’s accounts receivable and accounts payable approximate their carrying amounts because of their short duration. The Company did not have any liabilities measured at fair value on a recurring basis at January 26, 2024 and July 28, 2023. The fair value of the Company’s variable rate debt, based on quoted market prices, which are considered Level 1 inputs, approximates its carrying amount at January 26, 2024 and July 28, 2023, respectively.


The Company’s financial instruments that are not remeasured at fair value include the 0.625% convertible Senior Notes (see Note 4). The Company estimates the fair value of the Notes through consideration of quoted market prices of similar instruments, classified as Level 2. The estimated fair value of the Notes was $259,704 and $259,311 as of January 26, 2024 and July 28, 2023, respectively.

3.
Inventories


Inventories were comprised of the following as of the dates indicated:

 
January 26, 2024
   
July 28, 2023
 
Retail
 
$
128,344
   
$
145,175
 
Restaurant
   
25,285
     
24,427
 
Supplies
   
19,073
     
19,762
 
Total
 
$
172,702
   
$
189,364
 

4.
Debt



On June 17, 2022, the Company entered into a five-year $700,000 revolving credit facility (the “2022 Revolving Credit Facility”).  The 2022 Revolving Credit Facility contains an option to increase the revolving credit facility by $200,000.  The Company’s outstanding borrowings under the 2022 Revolving Credit Facility were $156,500 and $120,000 on January 26, 2024 and July 28, 2023, respectively.


As of January 26, 2024, the Company had $32,466 of standby letters of credit, which reduce the Company’s borrowing availability under the 2022 Revolving Credit Facility (see Note 10 for more information on the Company’s standby letters of credit).  As of January 26, 2024, the Company had $511,034 in borrowing availability under the 2022 Revolving Credit Facility.


In accordance with the 2022 Revolving Credit Facility, outstanding borrowings bear interest, at the Company’s election, either at (1) the Term Secured Overnight Financing Rate (SOFR) or (2) a base rate equal to the greater of (i) the prime rate, (ii) a rate that is 0.5% in excess of the Federal Funds Rate, and (iii) Term SOFR plus 1.0%, in each case, plus an applicable margin based on the Company’s consolidated total leverage ratio. At January 26, 2024, the weighted average interest rate on the Company’s outstanding borrowings on the 2022 Revolving Credit Facility was 6.96%.


The 2022 Revolving Credit Facility contains customary financial covenants, which include maintenance of a maximum consolidated total senior secured leverage ratio and a minimum consolidated interest coverage ratio.  At January 26, 2024, the Company was in compliance with all financial covenants under the 2022 Revolving Credit Facility.

8


The 2022 Revolving Credit Facility also imposes restrictions on the amount of dividends the Company is permitted to pay and the amount of shares the Company is permitted to repurchase. Under the 2022 Revolving Credit Facility, provided there is no default existing and the total of the Company’s availability under the 2022 Revolving Credit Facility plus the Company’s cash and cash equivalents on hand is at least $100,000 (the “Cash Availability”), the Company may declare and pay cash dividends on shares of its common stock and repurchase shares of its common stock (1) in an unlimited amount if, at the time such dividend or repurchase is made, the Company’s consolidated total senior secured leverage ratio is 2.75 to 1.00 or less and (2) in an aggregate amount not to exceed $100,000 in any fiscal year if the Company’s consolidated total leverage ratio is greater than 2.75 to 1.00 at the time the dividend or repurchase is made; notwithstanding (1) and (2), so long as immediately after giving effect to the payment of any such dividends, Cash Availability is at least $100,000, the Company may declare and pay cash dividends on shares of its common stock in an aggregate amount not to exceed in any fiscal year the product of the aggregate amount of dividends declared in the fourth quarter of the immediately preceding fiscal year multiplied by four.

Convertible Senior Notes


On June 18, 2021, the Company completed a $300,000 principal aggregate amount private offering of 0.625% convertible Senior Notes due in 2026 (the “Notes”). The Notes are governed by the terms of an indenture (the “Indenture”) between the Company and U.S. Bank National Association as the Trustee. The Notes will mature on June 15, 2026, unless earlier converted, repurchased or redeemed. The Notes bear cash interest at an annual rate of 0.625%, payable semi-annually in arrears on June 15 and December 15 of each year.


The Notes are unsecured obligations and do not contain any financial or operating covenants or restrictions on the payments of dividends, the incurrence of indebtedness or the issuance or repurchase of securities by the Company or any of its subsidiaries. In an event of default, the principal amount of, and all accrued and unpaid interest on, all of the notes then outstanding will immediately become due and payable. However, notwithstanding the foregoing, the Company may elect, at its option, that the sole remedy for an event of default relating to certain failures by the Company to comply with certain reporting covenants in the Indenture will consist exclusively of the right of the noteholders to receive special interest on the Notes for up to 180 calendar days during which such event of default has occurred and is continuing, at a specified rate for the first 90 days of 0.25% per annum, and thereafter at a rate of 0.50% per annum, on the principal amount of the Notes.


The initial conversion rate applicable to the Notes was 5.3153 shares of the Company’s common stock per $1,000 principal amount of Notes, which represented an initial conversion price of approximately $188.14 per share of the Company’s common stock, a premium of 25.0% over the last reported sale price of $150.51 per share on June 15, 2021, the date on which the Notes were priced. The conversion rate is subject to customary adjustments upon the occurrence of certain events, including the payment of dividends to holders of the Company’s common stock. As of January 26, 2024, the conversion rate, as adjusted, was 6.1071 shares of the Company’s common stock per $1,000 principal amount of Notes. In addition, if certain corporate events that constitute a “Make-Whole Fundamental Change” occur, then the conversion rate will, in certain circumstances, be increased for a specified period of time.


Net proceeds from the Notes offering were $291,125, after deducting the initial purchasers’ discounts and commissions and the Company’s offering fees and expenses.


The Notes are accounted for entirely as a liability, and the issuance costs of the Notes are accounted for wholly as debt issuance costs.


The following table includes the outstanding principal amount and carrying value of the Notes as of the dates indicated:

   
January 26, 2024
    July 28, 2023  
Liability component
      Principal
 
$
300,000
    $ 300,000  
Less: Debt issuance costs (1)
   
4,297
      5,171  
    Net carrying amount
 
$
295,703
    $
294,829  

(1)
Debt issuance costs are amortized to interest expense using the effective interest method over the expected life of the Notes.

9


The effective rate of the Notes over their expected life is 1.23%. The following is a summary of interest expense for the Notes for specified periods:


    Quarter Ended    
Six Months Ended
 

 
January 26,
2024
   
January 27,
2023
   
January 26,
2024
   
January 27,
2023
 
Coupon interest
  $ 474     $ 474    
$
948
   
$
948
 
Amortization of issuance costs
    438       431      
874
     
862
 
Total interest expense
  $
912     $
905    
$
1,822
   
$
1,810
 


 During any calendar quarter commencing after September 30, 2021, in which the closing price of the Company’s common stock exceeds 130% of the applicable conversion price of the Notes on at least 20 of the last 30 consecutive trading days of the quarter, holders may in the quarter immediately following, convert all or a portion of their Notes. The holders of the Notes were not eligible to convert their Notes during the first six months of 2024 or during 2023, 2022 or 2021. When a conversion notice is received, the Company has the option to pay or deliver the conversion amount entirely in cash or a combination of cash and shares of the Company’s common stock. Accordingly, as of January 26, 2024, the Company could not be required to settle the Notes and, therefore, the Notes are classified as long-term debt.


Convertible Note Hedge and Warrant Transactions


 In connection with the offering of the Notes, the Company entered into convertible note hedge transactions (the “Convertible Note Hedge Transactions”) with certain of the initial purchasers of the Notes and/or their respective affiliates and other financial institutions (in this capacity, the “Hedge Counterparties”). Concurrently with the Company’s entry into the Convertible Note Hedge Transactions, the Company also entered into separate, warrant transactions with the Hedge Counterparties collectively relating to the same number of shares of the Company’s common stock, which initially was approximately 1,600,000 shares, subject to customary anti-dilution adjustments, and for which the Company received proceeds that partially offset the cost of entering into the Convertible Note Hedge Transactions (the “Warrant Transactions”).


The Convertible Note Hedge Transactions cover, subject to customary anti-dilution adjustments, the number of shares of the Company’s common stock that initially underlay the Notes and are expected generally to reduce the potential equity dilution, and/or offset any cash payments in excess of the principal amount due, as the case may be, upon conversion of the Notes. The Warrant Transactions could have a dilutive effect on the Company’s common stock to the extent that the price of its common stock exceeds the strike price of the Warrant Transactions. The strike price was initially $263.39 per share and is subject to certain adjustments under the terms of the Warrant Transactions. As of January 26, 2024, the strike price, as adjusted, of the Warrant Transactions was $229.24 per share as a result of dividends declared since the Notes were issued.


 The portion of the net proceeds to the Company from the offering of the Notes that was used to pay the premium on the Convertible Note Hedge Transactions, net of the proceeds to the Company from the Warrant Transactions, was approximately $30,310. The net costs incurred in connection with the Convertible Note Hedge Transactions and Warrant Transactions were recorded as a reduction to additional paid-in capital in 2021.


Because these transactions meet certain accounting criteria, the Convertible Note Hedge Transactions and Warrant Transactions were recorded in shareholders’ equity, not accounted for as derivatives and are not remeasured each reporting period.

5.
Seasonality


Historically, the revenue and net income of the Company have been lower in the first and third quarters and higher in the second and fourth quarters.  Management attributes these variations to the holiday shopping season and the summer vacation and travel season.  The Company’s retail sales, which are made substantially to the Company’s restaurant customers, historically have been highest in the Company’s second quarter, which includes the holiday shopping season.  Historically, interstate tourist traffic and the propensity to dine out have been higher during the summer months, thereby contributing to higher profits in the Company’s fourth quarter.  The Company generally opens additional new locations throughout the year.  Therefore, the results of operations for any interim period cannot be considered indicative of the operating results for an entire year.

10

6.
Segment Information


Cracker Barrel stores represent a single, integrated operation with two related and substantially integrated product lines.  The operating expenses of the restaurant and retail product lines of a Cracker Barrel store are shared and are indistinguishable in many respects.  Accordingly, the Company currently manages its business on the basis of one reportable operating segment.  All of the Company’s operations are located within the United States.

7.
Revenue Recognition


Revenue consists primarily of sales from restaurant and retail operations. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a restaurant guest, retail customer or other customer.  The Company’s policy is to present sales in the Condensed Consolidated Statements of Income on a net presentation basis after deducting sales tax.

Disaggregation of revenue


Total revenue was comprised of the following for the specified periods:

 
Quarter Ended
   
Six Months Ended
 
   
January 26,
2024
   
January 27,
2023
   
January 26,
2024
   
January 27,
2023
 
Revenue:
                       
Restaurant
 
$
730,669
   
$
718,002
   
$
1,391,462
   
$
1,380,236
 
Retail
   
204,732
     
215,866
     
367,778
     
393,151
 
Total revenue
 
$
935,401
   
$
933,868
   
$
1,759,240
   
$
1,773,387
 

Restaurant Revenue


The Company recognizes revenues from restaurant sales when payment is tendered at the point of sale, as the Company’s performance obligation to provide food and beverages is satisfied.

Retail Revenue


The Company recognizes revenues from retail sales when payment is tendered at the point of sale, as the Company’s performance obligation to provide merchandise is satisfied.  Ecommerce sales, including shipping revenue, are recorded upon delivery to the customer. Additionally, estimated sales returns are calculated based on return history and sales levels.

Gift Card Breakage


Included in restaurant and retail revenue is gift card breakage.  Customer purchases of gift cards, to be utilized at the Company’s stores, are not recognized as sales until the card is redeemed and the customer purchases food and/or merchandise.   Gift cards do not carry an expiration date; therefore, customers can redeem their gift cards indefinitely. A certain number of gift cards will not be fully redeemed. Management estimates unredeemed balances and recognizes gift card breakage revenue for these amounts in the Company’s Condensed Consolidated Statements of Income over the expected redemption period.  Gift card breakage is recognized when the likelihood of a gift card being redeemed by the customer is remote, and the Company determines that there is not a legal obligation to remit the unredeemed gift card balance to the relevant jurisdiction.


The determination of the gift card breakage rate is based upon the Company’s specific historical redemption patterns. The Company recognizes gift card breakage by applying its estimate of the rate of gift card breakage over the period of estimated redemption.  For the quarter and six months ended January 26, 2024, gift card breakage was $5,436 and $8,606, respectively.  For the quarter and six months ended January 27, 2023, gift card breakage was $2,183 and $3,488, respectively.



Deferred revenue related to the Company’s gift cards was $105,755 and $88,566, respectively, at January 26, 2024 and July 28, 2023.  Revenue recognized in the Condensed Consolidated Statements of Income for the six months ended January 26, 2024 and January 27, 2023, respectively, for the redemption of gift cards which were included in the deferred revenue balance at the beginning of the fiscal year was $24,945 and $27,507.

11


Loyalty Program

During the first quarter of 2024, the Company launched its customer loyalty program, Cracker Barrel Rewards, which allows members to earn points (“pegs”) for each qualifying purchase in store or online. Pegs earned are then converted to rewards upon reaching certain thresholds.  These rewards may be redeemed on future restaurant or retail purchases in store or online.
 

The estimation of the standalone selling price of pegs and other rewards issued to customers involves several assumptions, primarily the estimated value of the product for which the reward is expected to be redeemed and the probability that the pegs or reward will expire. These inputs are subject to change over time due to factors such as increased costs or changes in customer behavior.
 

The Company defers a portion of the revenue related to the pegs earned at the time of the original transaction based on the estimated value of the item for which the reward is expected to be redeemed, net of estimated unredeemed pegs. Pegs expire after twelve months. Revenue is recognized for these performance obligations upon redemption of pegs or rewards earned by the customer. As of January 26, 2024, deferred revenue related to the loyalty program was $731 and is included in other current liabilities on the Condensed Consolidated Balance Sheet.

8.
Leases


The Company has ground leases for its leased stores and office space leases that are recorded as operating leases under various non-cancellable operating leases.  The Company also leases advertising billboards, vehicle fleets, and certain equipment under various non-cancellable operating leases.  Additionally, the Company completed sale-leaseback transactions in 2009, 2020 and 2021 (see section below entitled “Sale and Leaseback Transactions”); all the properties qualified for sale and leaseback and operating lease accounting classification.  To determine whether a contract is or contains a lease, the Company determines at contract inception whether it contains the right to control the use of an identified asset for a period of time in exchange for consideration.  If the contract has the right to obtain substantially all of the economic benefit from use of the identified asset and the right to direct the use of the identified asset, the Company recognizes a right-of-use asset and lease liability.


The Company’s leases all have varying terms and expire at various dates through 2058. Restaurant leases typically have base terms of ten years with four to five optional renewal periods of five years each.  The Company uses a lease life that generally begins on the commencement date, including the rent holiday periods, and generally extends through certain renewal periods that can be exercised at the Company’s option.  During rent holiday periods, which include the pre-opening period during construction, the Company has possession of and access to the property, but is not obligated to, and normally does not, make rent payments.  The Company has included lease renewal options in the lease term for calculations of the right-of-use asset and liability for which at the commencement of the lease it is reasonably certain that the Company will exercise those renewal options.  Additionally, some of the leases have contingent rent provisions and others require adjustments for inflation or index.   Contingent rent is determined as a percentage of gross sales in excess of specified levels.  The Company records a contingent rent liability and corresponding rent expense when it is probable sales have been achieved in amounts in excess of the specified levels.  The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.


The Company has entered into agreements for real estate leases that are not recorded as right-of-use assets or lease liabilities as we have not yet taken possession.  These leases are expected to commence in 2024, 2025 and 2026 with undiscounted future payments of $5,988, $11,163 and $8,887, respectively.



The Company has elected not to separate lease and non-lease components. Additionally, the Company has elected to apply the short term lease exemption to all asset classes and the short term lease expense for the period reasonably reflects the short term lease commitments. As the Company’s leases do not provide an implicit rate, the Company uses the incremental borrowing rate based on the information available at the time of commencement or modification date in determining the present value of lease payments. For operating leases that commenced prior to the date of adoption of the new lease accounting guidance, the Company used the incremental borrowing rate as of the adoption date. Assumptions used in determining the Company’s incremental borrowing rate include the Company’s implied credit rating and an estimate of secured borrowing rates based on comparable market data.

12


The following table summarizes the components of lease cost for operating leases for the specified periods:

   
Quarter Ended
   
Six Months Ended
 

 
January 26,
2024
   
January 27,
2023
   
January 26,
2024
   
January 27,
2023
 
Operating lease cost
 
$
27,644
   
$
27,363
   
$
55,412
   
$
54,889
 
Short term lease cost
   
2,881
     
2,270
     
3,075
     
2,497
 
Variable lease cost
   
846
     
844
     
1,683
     
1,954
 
Total lease cost
 
$
31,371
   
$
30,477
   
$
60,170
   
$
59,340
 


The following table summarizes supplemental cash flow information and non-cash activity related to the Company’s operating leases for the specified periods:

   
Quarter Ended
   
Six Months Ended
 

 
January 26,
2024
   
January 27,
2023
   
January 26,
2024
   
January 27,
2023
 
Operating cash flow information:
                               
Cash paid for amounts included in the measurement of lease liabilities
 
$
24,274
   
$
23,761
   
$
48,621
   
$
47,507
 
Noncash information:
                               
Right-of-use assets obtained in exchange for new operating lease liabilities
   
2,139
     
5,474
     
5,790
     
9,465
 
Lease modifications or reassessments increasing right-of-use assets
   
3,521
     
4,214
     
20,438
     
3,698
 
Lease modifications removing right-of-use assets
   
(1,270
)
   
(214
)
   
(1,414
)
   
(291
)


The following table summarizes the weighted-average remaining lease term and the weighted-average discount rate for operating leases as of dates indicated:


 
January 26, 2024
   
January 27, 2023
 
Weighted-average remaining lease term
 
16.12 Years
   
17.22 Years
 
Weighted-average discount rate
   
5.17
%
   
5.04
%


The following table summarizes the maturities of undiscounted cash flows reconciled to the total operating lease liability as of January 26, 2024:

Year
 
Total
 
Remainder of 2024
 
$
47,885
 
2025
   
80,076
 
2026
   
72,223
 
2027
   
68,583
 
2028
   
67,441
 
Thereafter
   
784,395
 
Total future minimum lease payments
   
1,120,603
 
Less imputed remaining interest
   
(376,619
)
Total present value of operating lease liabilities
 
$
743,984
 

Sale and Leaseback Transactions


In 2009, the Company completed sale-leaseback transactions involving 15 of its owned Cracker Barrel stores and its retail distribution center. Under the transactions, the land, buildings and improvements at the locations were sold and leased back for terms of 20 and 15 years, respectively. Equipment was not included. The leases include specified renewal options for up to 20 additional years.



In 2020, the Company entered into an agreement with the original lessor and a third party financier to obtain ownership of 64 of the 65 Cracker Barrel properties previously covered in the original sale and leaseback arrangement and simultaneously entered into a sale and leaseback transaction with the financier. The Company purchased the remaining property. In connection with this sale and leaseback transaction, the Company entered into lease agreements for each of the properties for initial terms of 20 years and renewal options up to 50 years.

13


In 2021, the Company completed a sale and leaseback transaction involving 62 of its owned Cracker Barrel stores. Under the transaction, the land, buildings and building improvements at the locations were sold and leased back for initial terms of 20 years and renewal options up to 50 years.

9.
Net Income Per Share and Weighted Average Shares


Basic consolidated net income per share is computed by dividing consolidated net income available to common shareholders by the weighted average number of shares of common stock outstanding for the reporting period. Diluted consolidated net income per share reflects the potential dilution that could occur if securities, options or other contracts to issue shares of common stock were exercised or converted into shares of common stock and is based upon the weighted average number of shares of common stock and common equivalent shares outstanding during the reporting period. Common equivalent shares related to nonvested stock awards and units issued by the Company are calculated using the treasury stock method. The outstanding nonvested stock awards and units issued by the Company represent the only dilutive effects on diluted consolidated net income per share. The Company’s convertible senior notes and related warrants are calculated using the net share settlement option under the if converted method. Because the principal amount of the convertible senior notes will be settled in cash with any excess conversion value settled in cash or shares of common stock, the convertible senior notes have been excluded from the computation of diluted earnings per share because the average market price of the Company’s common stock during the reporting period did not exceed the conversion price of $163.74 as of January 26, 2024. Warrants were excluded from the computation of diluted earnings per share since the warrants’ strike price of $229.24 was greater than the average market price of the Company’s common stock during the period. See Note 4 for additional information regarding the Company’s convertible senior notes.


The following table reconciles the components of diluted earnings per share computations for the specified periods:

 
Quarter Ended
   
Six Months Ended
 
   
January 26,
2024
   
January 27,
2023
   
January 26,
2024
   
January 27,
2023
 
Net income per share numerator
 
$
26,534
   
$
30,491
   
$
31,990
   
$
47,620
 
                                 
Net income per share denominator:
                               
Weighted average shares
   
22,196,758
     
22,173,280
     
22,181,305
     
22,183,527
 
Add potential dilution:
                               
Nonvested stock awards and units
   
98,774
     
78,555
     
98,306
     
88,717
 
Diluted weighted average shares
   
22,295,532
     
22,251,835
     
22,279,611
     
22,272,244
 

10.
Commitments and Contingencies


The Company and its subsidiaries are party to various legal and regulatory proceedings and claims incidental to their business in the ordinary course.  In the opinion of management, based upon information currently available, the ultimate liability with respect to these contingencies will not materially affect the Company’s financial statements.



Related to its insurance coverage, the Company is contingently liable pursuant to standby letters of credit as credit guarantees to certain insurers.  As of January 26, 2024, the Company had $32,466 of standby letters of credit related to securing reserved claims under workers’ compensation insurance and certain sale and leaseback transactions.  All standby letters of credit are renewable annually and reduce the Company’s borrowing availability under its 2022 Revolving Credit Facility.  See Note 4 for additional information regarding the Company’s 2022 Revolving Credit Facility.


The Company enters into certain indemnification agreements in favor of third parties in the ordinary course of business.  The Company believes that the probability of incurring an actual liability under such indemnification agreements is sufficiently remote that no such liability has been recorded in the Condensed Consolidated Balance Sheet as of January 26, 2024.

14

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® (“Cracker Barrel”) concept.  As of January 26, 2024, we operated 662 Cracker Barrel stores in 45 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).  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.  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; 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 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, 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; 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 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; the impact of activist shareholders; 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; 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 24-26 of this report or, from time to time, in our filings with the Securities and Exchange Commission (“SEC”), press releases and other communications.

15

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 remains centered on driving sustainable sales growth, continued business model improvements, building profitable Cracker Barrel and MSBC stores, and driving shareholder returns.

During the second quarter of 2024, we continued to make progress in key areas of the business, such as store-level operational excellence, improving the guest experience, enhancing our menu and marketing, maintaining a strong value proposition, growing our off-premise business, leveraging our Cracker Barrel Rewards loyalty program, providing unique retail merchandise and thoughtfully expanding MSBC.  Additionally, we continued to make progress on the strategic transformation initiative that began during the first quarter of 2024.  This data-driven initiative includes a comprehensive review of the business and a wide-ranging assessment of near-term and long-term opportunities and strategic objectives.

We believe there is significant uncertainty surrounding the macroeconomic outlook for the coming quarters, but we remain focused on delivering long-term growth and returns for shareholders.

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 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.
 
16


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.
 

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.
 

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.
 
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:

   
Quarter Ended
   
    Six Months Ended
 
   
January 26,
   
January 27,
   
January 26,
   
January 27,
 
   
2024
   
2023
   
2024
   
2023
 
Total revenue
   
100.0
%
   
100.0
%
   
100.0
%
   
100.0
%
Cost of goods sold (exclusive of depreciation and rent)
   
33.7
     
35.0
     
32.4
     
34.3
 
Labor and other related expenses
   
34.5
     
33.6
     
35.7
     
34.1
 
Other store operating expenses
   
22.9
     
22.4
     
23.7
     
22.9
 
General and administrative expenses
   
5.6
     
4.8
     
5.8
     
5.2
 
Operating income
   
3.3
     
4.2
     
2.4
     
3.5
 
Interest expense, net
   
0.6
     
0.5
     
0.6
     
0.4
 
Income before income taxes
   
2.7
     
3.7
     
1.8
     
3.1
 
Provision for income taxes (income tax benefit)
   
(0.1
)
   
0.4
     
     
0.4
 
Net income
   
2.8
%
   
3.3
%
   
1.8
%
   
2.7
%

17

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

   
Quarter Ended
   
Six Months Ended
 
   
January 26,
   
January 27,
   
January 26,
   
January 27,
 
   
2024
   
2023
   
2024
   
2023
 
Net change in units:
                       
Cracker Barrel
   
1
     
1
     
2
     
1
 
MSBC
   
3
     
2
     
4
     
5
 
                                 
Units in operation at end of the period:
                               
Cracker Barrel
   
662
     
665
     
662
     
665
 
MSBC
   
63
     
56
     
63
     
56
 
Total units at end of the period
   
725
     
721
     
725
     
721
 

Total Revenue

Total revenue for the second quarter and the first six months of 2024 increased 0.2% and decreased 0.8%, 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
 
   
January 26,
2024
   
January 27,
2023
   
January 26,
2024
   
January 27,
2023
 
Revenue in dollars:
                       
Restaurant
 
$
730,669
   
$
718,002
   
$
1,391,462
   
$
1,380,236
 
Retail
   
204,732
     
215,866
     
367,778
     
393,151
 
Total revenue
 
$
935,401
   
$
933,868
   
$
1,759,240
   
$
1,773,387
 
Total revenue by percentage relationships:
                               
Restaurant
   
78.1
%
   
76.9
%
   
79.1
%
   
77.8
%
Retail
   
21.9
%
   
23.1
%
   
20.9
%
   
22.2
%
Average unit volumes(1):
                               
Restaurant
 
$
1,079.0
   
$
1,057.3
   
$
2,054.7
   
$
2,032.2
 
Retail
   
309.0
     
324.6
     
555.7
     
591.5
 
Total revenue
 
$
1,388.0
   
$
1,381.9
   
$
2,610.4
   
$
2,623.7
 
Comparable store sales increase (decrease) (2):
                               
Restaurant
   
1.2
%
   
8.4
%
   
0.4
%
   
7.7
%
Retail
   
(5.3
%)
   
4.1
%
   
(6.6
%)
   
4.2
%
Restaurant and retail
   
(0.3
%)
   
7.4
%
   
(1.2
%)
   
6.9
%
Average check increase
   
5.2
%
   
10.1
%
   
5.9
%
   
9.5
%
Comparable restaurant guest traffic (decrease)(2):
   
(4.0
%)
   
(1.7
%)
   
(5.5
%)
   
(1.8
%)

(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 second quarter and first six months of 2024, our comparable store restaurant sales increases resulted from the average check increases partially offset by the guest traffic decreases as compared to the prior year periods.  For the second quarter and first six months of 2024, the average check increases included average menu price increases of 4.8% and 5.8%, respectively.

Our retail sales are made substantially to our restaurant guests.  For the second quarter and the first six 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 due to the impact of macroeconomic factors, including inflationary pressures, higher interest rates, higher consumer debt levels, lower savings rates and the risk of recession.

18

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
   
Six Months Ended
 
   
January 26,
2024
   
January 27,
2023
   
January 26,
2024
   
January 27,
2023
 
Cost of Goods Sold in dollars:
                       
Restaurant
 
$
205,870
   
$
210,070
   
$
379,311
   
$
402,586
 
Retail
   
108,981
     
116,485
     
191,099
     
205,509
 
Total Cost of Goods Sold
 
$
314,851
   
$
326,555
   
$
570,410
   
$
608,095
 
Cost of Goods Sold by percentage of revenue:
                               
Restaurant
   
28.2
%
   
29.3
%
   
27.3
%
   
29.2
%
Retail
   
53.2
%
   
54.0
%
   
52.0
%
   
52.3
%

The decreases in restaurant cost of goods sold as a percentage of restaurant revenue in the second quarter and first six 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 inflation was 1.4% in the second quarter of 2024 and commodity deflation was 0.4% in first six months of 2024 as compared to significant commodity inflation of 12.5% and 14.5% in the second quarter and first six months of 2023, respectively.

We presently expect the rate of commodity inflation to be flat to 2% in 2024.

The decrease in retail cost of goods sold as a percentage of retail revenue in the second quarter of 2024 as compared to the same period in the prior year resulted primarily from higher initial margin partially offset by higher markdowns.

   
Second Quarter
(Decrease) Increase
as a Percentage of
Total Retail Revenue
 
Higher initial margin
   
(1.3
%)
Markdowns
   
0.6
%

The decrease in retail cost of goods sold as a percentage of retail revenue in the first six 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, higher inventory shrinkage and higher freight expense.

   
First Six Months
(Decrease) Increase
as a Percentage
of Total Revenue
 
Higher initial margin
   
(1.5
%)
Discounts
   
0.3
%
Markdowns
   
0.3
%
Inventory shrinkage
   
0.3
%
Freight expense
   
0.2
%

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:

19

   
Quarter Ended
   
Six Months Ended
 
   
January 26,
2024
   
January 27,
2023
   
January 26,
2024
   
January 27,
2023
 
Labor and related expenses
   
34.5
%
   
33.6
%
   
35.7
%
   
34.1
%

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

   
Second Quarter
Increase (Decrease)
as a Percentage
of Total Revenue
 
Store hourly labor
   
1.3
%
Store management compensation
   
0.2
%
Other wages
   
(0.6
%)

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

   
First Six Months
Increase (Decrease)
as a Percentage
of Total Revenue
 
Store hourly labor
   
1.3
%
Store management compensation
   
0.3
%
Payroll taxes
   
0.1
%
Employee health care expense
   
0.1
%
Other wages
   
(0.3
%)

The increases in store hourly labor and store management compensation as a percentage of total revenue for the second quarter and first six months of 2024 as compared to the same periods in the prior year resulted primarily from wage inflation, higher staffing levels and the investment of additional labor hours to improve the guest experience.

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

During 2024, we revised our employee benefits policy which resulted in a one-time reduction in other wages expense for the second quarter and first six months of 2024 as compared to the same periods in the prior year.

The increase in payroll taxes as a percentage of total revenue for the first six 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.

The increase in employee health care expenses as a percentage of total revenue for the first six months of 2024 as compared to the same period in the prior year resulted primarily from higher claims.

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.

20

The following table highlights other store operating expenses as a percentage of total revenue for the specified periods:

   
Quarter Ended
   
Six Months Ended
 
   
January 26,
2024
   
January 27,
2023
   
January 26,
2024
   
January 27,
2023
 
Other store operating expenses
   
22.9
%
   
22.4
%
   
23.7
%
   
22.9
%

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

   
Second Quarter
Increase (Decrease)
as a Percentage
of Total Revenue
 
Advertising expense
   
0.9
%
Store occupancy costs
   
(0.3
%)

The percentage change for the first six months of 2024 as compared to the same period in the prior year resulted primarily from an increase in advertising expense.

The increases in advertising expense as a percentage of total revenue for the second quarter and first six 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 decrease in store occupancy costs as a percentage of total revenue for the second quarter of 2024 as compared to the same period in the prior year resulted primarily from a decrease in utilities expense due to general rate deflation for natural gas and electricity.

General and Administrative Expenses
 
The following table highlights general and administrative expenses as a percentage of total revenue for the specified periods:
                   
   
Quarter Ended
   
Six Months Ended
 
   
January 26,
2024
   
January 27,
2023
   
January 26,
2024
   
January 27,
2023
 
General and administrative expenses
   
5.6
%
   
4.8
%
   
5.8
%
   
5.2
%

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

   
Second Quarter
Increase as a Percentage
of Total Revenue
 
Professional fees
   
0.5
%
Incentive compensation expense
   
0.2
%

This percentage change for the first six months of 2024 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
 
Professional fees
   
0.3
%
Payroll and related expense
   
0.2
%

The increases in professional fees as a percentage of total revenue in the second quarter and first six months of 2024 as compared to the same periods in the prior year resulted primarily from costs associated with the Company’s strategic transformation initiative.

21

The increase in incentive compensation as a percentage of total revenue in the second quarter of 2024 as compared to the same period in the prior year resulted primarily from Chief Executive Officer transition costs incurred in 2024.

The increase in payroll and related expense as a percentage of total revenue in the first six months of 2024 as compared to the same period in the prior year resulted primarily from severance costs related to corporate restructuring.

Interest Expense, Net

The following table highlights interest expense in dollars for the specified periods:

   
Quarter Ended
   
Six Months Ended
 
   
January 26,
2024
   
January 27,
2023
   
January 26,
2024
   
January 27,
2023
 
Interest expense, net
 
$
5,067
   
$
4,408
   
$
10,005
   
$
7,940
 

The increases in interest expense for the second quarter and the first six months of 2024 as compared to the same periods in the prior year resulted primarily from higher average weighted interest rates under our 2022 Revolving Credit Facility (as defined below).
 
Provision for Income Taxes

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
   
Six Months Ended
 
   
January 26,
2024
   
January 27,
2023
   
January 26,
2024
   
January 27,
2023
 
Effective tax rate
   
(3.3
%)
   
11.8
%
   
0.6
%
   
12.9
%

The decreases in the effective tax rate in the second quarter and first six months of 2024 as compared to the same periods in the prior year were primarily due to state audit settlements and the disproportionate benefit of employment credits in relation to income before taxes in the current year periods.

We presently expect our effective tax rate for 2024 to be approximately 1% to 4%.

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.  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 six months of 2024.  We believe that cash on hand at January 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 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 $61,879 for the first six months of 2024 as compared to $100,822 net cash provided during the first six months of 2023.  This decrease resulted primarily from lower net income, lower decrease in retail inventory levels and higher bonus payments made in the first quarter of 2024 as a result of the prior year’s performance.

22

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 January 26, 2024, we had $156,500 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 January 26, 2024, we had $511,034 in borrowing availability under our 2022 Revolving Credit Facility.  During the first six months of 2024, we borrowed $243,500 and repaid $207,000 under the 2022 Revolving Credit Facility.  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 January 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 $51,080 for the first six months of 2024 as compared to $48,369 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 six months of 2024 as compared to the first six months of 2023 resulted primarily from increased capital expenditures for existing stores.  We estimate that our capital expenditures during 2024 will be approximately $120,000 to $135,000.  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.  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

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 six months of 2024, we paid a regular dividend of $2.60 per share and declared a dividend of $1.30 per share that was subsequently paid on February 13, 2024, to shareholders of record on January 19, 2024.  In addition, during the third quarter of 2024, our Board of Directors approved a regular dividend payable on May 7, 2024 to shareholders of record as of April 12, 2024 of $1.30 per share.
 
23

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 until June 2, 2024.  We did not repurchase any shares of our common stock in the first six months of 2024.

During the first six months of 2024, we issued 47,461 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.

Working Capital

In the restaurant industry, virtually all sales are either for third-party credit or 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.  These 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 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 $191,037 at January 26, 2024 as compared to negative working capital of $206,679 at July 28, 2023.  The change in working capital at January 26, 2024 as compared to July 28, 2023 primarily resulted from the timing of payments for accounts payable partially offset by the decrease in retail inventory levels.

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 2023.  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.

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.

Critical accounting estimates are those that:


management believes are most important to the accurate portrayal of both our financial condition and operating results, and

24


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.
 
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 six 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.

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.  We 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 six 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.

25

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 ret