10-Q 1 brhc10034312_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 28, 2022

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.

23,225,842 Shares of Common Stock
Outstanding as of February 16, 2022




CRACKER BARREL OLD COUNTRY STORE, INC.

INDEX

PART I. FINANCIAL INFORMATION
Page
3
 
 
3
 
 
4
 
 
5
 
 
6
 
 
7
 
 
8
 
 
17
 
 
30
 
 
30
 
 
30
 
 
30
   
 30
   
 31
 
 
32
 
 
33

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 28,
2022
   
July 30,
2021*
 
Current Assets:
           
Cash and cash equivalents
 
$
79,709
   
$
144,593
 
Accounts receivable
   
32,112
     
27,372
 
Income taxes receivable
   
12,525
     
21,123
 
Inventories
   
153,883
     
138,320
 
Prepaid expenses and other current assets
   
28,407
     
22,188
 
Total current assets
   
306,636
     
353,596
 
Property and equipment
   
2,255,736
     
2,234,489
 
Less: Accumulated depreciation and amortization
   
1,299,054
     
1,254,639
 
Property and equipment – net
   
956,682
     
979,850
 
Operating lease right-of-use assets, net
   
956,941
     
974,477
 
Goodwill
   
4,690
     
4,690
 
Intangible assets
   
21,248
     
21,285
 
Other assets
   
56,238
     
57,796
 
Total assets
 
$
2,302,435
   
$
2,391,694
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
Current Liabilities:
               
Accounts payable
 
$
123,939
   
$
135,176
 
Dividends payable     30,583
      23,970
 
Deferred revenues
    120,029       93,157  
Other current liabilities
   
204,334
     
212,959
 
Total current liabilities
   
478,885
     
465,262
 
                 
Long-term debt
   
327,358
     
327,253
 
Long-term operating lease liabilities
   
738,715
     
748,305
 
Other long-term obligations
   
153,373
     
187,241
 
                 
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; 23,248,532 shares issued and outstanding at January 28, 2022, and 23,497,166 shares issued and outstanding at July 30, 2021
   
232
     
235
 
Retained earnings
   
603,872
     
663,398
 
Total shareholders’ equity
   
604,104
     
663,633
 
Total liabilities and shareholders’ equity
 
$
2,302,435
   
$
2,391,694
 

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 30, 2021, as filed with the Securities and Exchange Commission in the Company’s Annual Report on Form 10-K for the fiscal year ended July 30, 2021.

3

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

 
Quarter Ended
   
Six Months Ended
 
   
January 28,
2022
   
January 29,
2021
   
January 28,
2022
   
January 29,
2021
 
                         
Total revenue
 
$
862,260
   
$
677,169
   
$
1,647,190
   
$
1,323,623
 
                                 
Cost of goods sold (exclusive of depreciation and rent)
   
283,641
     
225,084
     
526,412
     
424,128
 
Labor and other related expenses
   
296,326
     
236,862
     
570,983
     
464,050
 
Other store operating expenses
   
192,166
     
166,871
     
375,845
     
328,145
 
General and administrative expenses
   
43,463
     
33,957
     
84,373
     
73,521
 
Gain on sale and leaseback transaction
   
     
     
     
(217,722
)
Operating income
   
46,664
     
14,395
     
89,577
     
251,501
 
Interest expense, net
   
2,200
     
10,815
     
4,829
     
21,530
 
Income before income taxes
   
44,464
     
3,580
     
84,748
     
229,971
 
Provision for income taxes (income tax benefit)
   
6,840
     
(10,420
)
   
13,748
     
45,291
 
Net income
 
$
37,624
   
$
14,000
   
$
71,000
   
$
184,680
 
                                 
Net income per share:
                               
Basic
 
$
1.61
   
$
0.59
   
$
3.03
   
$
7.79
 
Diluted
 
$
1.60
   
$
0.59
   
$
3.02
   
$
7.77
 
                                 
Weighted average shares:
                               
Basic
   
23,393,398
     
23,723,395
     
23,450,379
     
23,715,573
 
Diluted
   
23,462,571
     
23,785,374
     
23,528,227
     
23,778,302
 

See Notes to unaudited Condensed Consolidated Financial Statements.

4

CRACKER BARREL OLD COUNTRY STORE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited and in thousands)

 
Quarter Ended
   
Six Months Ended
 
   
January 28,
2022
   
January 29,
2021
   
January 28,
2022
   
January 29,
2021
 
                         
Net income
 
$
37,624
   
$
14,000
   
$
71,000
   
$
184,680
 
                                 
Other comprehensive income before income tax expense:
                               
Change in fair value of interest rate swaps
   
     
1,420
     
     
4,886
 
Income tax expense
   
     
354
     
     
1,219
 
Other comprehensive income, net of tax
   
     
1,066
     
     
3,667
 
Comprehensive income
 
$
37,624
   
$
15,066
   
$
71,000
   
$
188,347
 

See Notes to unaudited Condensed Consolidated Financial Statements.

5

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
   
Accumulated
Other
Comprehensive
   
Retained
   
Total
Shareholders’
 
   
Shares
   
Amount
   
Capital
   
Loss
   
Earnings
   
Equity
 
Balances at July 30, 2021
   
23,497,166
   
$
235
   
$
   
$
   
$
663,398
   
$
663,633
 
Comprehensive Income:
                                               
Net income
   
     
     
     
     
33,376
     
33,376
 
Other comprehensive income, net of tax
   
     
     
     
     
     
 
Total comprehensive income
   
     
     
     
     
33,376
     
33,376
 
Cash dividends declared - $1.30 per share
   
     
     
     
     
(30,838
)
   
(30,838
)
Share-based compensation
   
     
     
2,309
     
     
     
2,309
 
Cumulative-effect of change in accounting principle, net of taxes (see Note 1)
                            (36,956 )     (36,956 )
Issuance of share-based compensation awards, net of shares withheld for employee taxes
   
22,691
     
     
(2,309
)
   
     
     
(2,309
)
Balances at October 29, 2021
   
23,519,857
   
$
235
   
$
   
$
   
$
628,980
   
$
629,215
 
Comprehensive Income:
                                               
Net income
   
     
     
     
     
37,624
     
37,624
 
Other comprehensive income, net of tax
   
     
     
     
     
     
 
Total comprehensive income
   
     
     
     
     
37,624
     
37,624
 
Cash dividends declared - $1.30 per share
   
     
     
     
     
(30,471
)
   
(30,471
)
Share-based compensation
   
     
     
2,203
     
     
     
2,203
 
Issuance of share-based compensation awards, net of shares withheld for employee taxes
   
8,339
     
     
(237
)
   
     
     
(237
)
Purchases and retirement of common stock
    (279,664 )     (3 )     (1,966 )           (32,261 )     (34,230 )
Balances at January 28, 2022
   
23,248,532
   
$
232
   
$
   
$
   
$
603,872
   
$
604,104
 

 
Common Stock
   
Additional
Paid-In
   
Accumulated
Other
Comprehensive
   
Retained
   
Total
Shareholders’
 
   
Shares
   
Amount
   
Capital
   
Income (Loss)
   
Earnings
   
Equity
 
Balances at July 31, 2020
   
23,697,396
   
$
237
   
$
   
$
(20,346
)
 
$
438,498
   
$
418,389
 
Comprehensive Income:
                                               
Net income
   
     
     
     
     
170,680
     
170,680
 
Other comprehensive income, net of tax
   
     
     
     
2,601
     
     
2,601
 
Total comprehensive income
   
     
     
     
2,601
     
170,680
     
173,281
 
Cash dividends previously declared in prior quarters
   
     
     
     
     
(40
)
   
(40
)
Share-based compensation
   
     
     
1,974
     
     
     
1,974
 
Issuance of share-based compensation awards, net of shares withheld for employee taxes
   
22,928
     
     
(1,974
)
   
     
(18
)
   
(1,992
)
Balances at October 30, 2020
   
23,720,324
   
$
237
   
$
   
$
(17,745
)
 
$
609,120
   
$
591,612
 
Comprehensive Income:
   
                                         
Net income
   
     
     
     
     
14,000
     
14,000
 
Other comprehensive income, net of tax
   
     
     
     
1,066
     
     
1,066
 
Total comprehensive income
   
     
     
     
1,066
     
14,000
     
15,066
 
Cash dividends previously declared in prior quarters
   
     
     
     
     
(52
)
   
(52
)
Share-based compensation
   
     
     
1,992
     
     
     
1,992
 
Issuance of share-based compensation awards
   
4,088
     
     
(25
)
   
     
18
     
(7
)
Balances at January 29, 2021
   
23,724,412
   
$
237
   
$
1,967
   
$
(16,679
)
 
$
623,086
   
$
608,611
 

See Notes to unaudited Condensed Consolidated Financial Statements.

6

CRACKER BARREL OLD COUNTRY STORE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and in thousands)

 
Six Months Ended
 
   
January 28,
2022
   
January 29,
2021
 
Cash flows from operating activities:
           
Net income
 
$
71,000
   
$
184,680
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
   
51,362
     
53,770
 
Amortization of debt issuance costs
    911        
Loss on disposition of property and equipment
   
2,737
     
1,933
 
Gain on sale and leaseback transaction
   
     
(217,722
)
Share-based compensation
   
4,512
     
3,966
 
Noncash lease expense
   
28,908
     
27,704
 
Amortization of asset recognized from gain on sale and leaseback transactions
   
6,368
     
6,368
 
Changes in assets and liabilities:
               
Inventories
   
(15,563
)
   
4,323
 
Other current assets
   
(1,375
)
   
(26,178
)
Accounts payable
   
(11,237
)
   
14,804
 
Other current liabilities
   
20,065
     
8,004
 
Deferred income taxes
   
(323
)
   
65,347
 
Long-term operating lease liabilities
    (28,856 )     (32,546 )
Other long-term obligations
    (19,957 )     30,085  
Other long-term assets
   
(759
)
   
(3,222
)
Net cash provided by operating activities
   
107,793
     
121,316
 
Cash flows from investing activities:
               
Purchase of property and equipment
   
(30,438
)
   
(29,470
)
Proceeds from insurance recoveries of property and equipment
   
675
     
246
 
Proceeds from sale of property and equipment
   
33
     
149,877
 
Acquisition of business, net of cash acquired
   
(1,500
)
   
(1,500
)
Net cash provided by (used in) investing activities
   
(31,230
)
   
119,153
 
Cash flows from financing activities:
               
Taxes withheld from issuance of share-based compensation awards
   
(2,546
)
   
(1,999
)
Principal payments under long-term debt     (50,049 )     (75,049 )
Purchases and retirement of common stock
    (34,230 )      
Dividends on common stock
   
(54,622
)
   
(31,578
)
Net cash used in financing activities
   
(141,447
)
   
(108,626
)
                 
Net increase (decrease) in cash and cash equivalents
   
(64,884
)
   
131,843
 
Cash and cash equivalents, beginning of period
   
144,593
     
436,996
 
Cash and cash equivalents, end of period
 
$
79,709
   
$
568,839
 
                 
Supplemental disclosures of cash flow information:
               
Cash paid during the period for:
               
Interest, net of amounts capitalized
 
$
4,704
   
$
20,434
 
Income taxes
 
$
4,156
   
$
1,038
 
                 
Supplemental schedule of non-cash investing and financing activities*:
               
Capital expenditures accrued in accounts payable
 
$
2,352
   
$
2,821
 
Change in fair value of interest rate swaps
 
$
   
$
4,886
 
Change in deferred tax asset for interest rate swaps
 
$
   
$
(1,219
)
Dividends declared but not yet paid
 
$
30,837
   
$
572
 

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

See Notes to unaudited Condensed Consolidated Financial Statements.

7

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 in the United States of the Cracker Barrel Old Country Store® (“Cracker Barrel”) concept.


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 30, 2021 (the “2021 Form 10-K”).  The accounting policies used in preparing these condensed consolidated financial statements are the same as described in the 2021 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.

COVID-19 Impact

The Company continues to recover from the COVID-19 pandemic as all dining rooms were open to some extent during the first six months of 2022. Dining room service was operational to varying degrees, yet certain locations were adversely impacted by the Omicron variant of COVID-19 resulting in a decline in guests’ comfort level for dining indoors and capacity reductions driven by staffing shortages. Following increases in the number of cases of COVID-19 throughout the United States during the second quarter of 2022, some of our restaurants were subject to other COVID-19-related restrictions, including mask and vaccination requirements for employees and guests. It is possible that renewed outbreaks, increases in cases and/or new variants of the disease, either as part of a national trend or on a more localized basis, could result in additional COVID-19-related restrictions including capacity restrictions or otherwise limit our dine-in services, or negatively affect consumer demand.


In response to the COVID-19 pandemic, we instituted operational protocols to comply with applicable regulatory requirements to protect the health and safety of employees and guests, and we implemented and have continually adapted a number of strategies to support the recovery of our business and navigate through the uncertain environment.  We continue to focus on growing our off-premise business and investing in our digital infrastructure to improve the guest experience in the face of these ongoing challenges.

Recent Accounting Pronouncements Adopted


Accounting for Convertible Instruments


In August 2020, the Financial Accounting Standards Board (“FASB”) issued accounting guidance to simplify the accounting and measurement of convertible instruments and the settlement assessment for contracts in an entity’s own equity. For convertible instruments, the Board decided to reduce the number of accounting models for convertible debt instruments and convertible preferred stock. By removing the separation model, a convertible debt instrument will be reported as a single liability instrument with no separate accounting for embedded conversion features. This new standard also removes certain settlement conditions that are required for contracts to qualify for equity classification and simplifies the diluted earnings per share calculations by requiring that an entity use the if-converted method and that the effect of potential share settlement be included in diluted earnings per share calculations. This guidance is effective for public business entities for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. Early adoption is permitted. This guidance should be applied through either a modified retrospective method of transition or a fully retrospective method of transition. The Company elected to early adopt this guidance in the first quarter of 2022 using the modified retrospective method. The impact of this adoption in the first quarter of 2022 on the Condensed Consolidated Balance Sheet resulted in the increase in long-term debt of $49,242, a reduction in deferred income taxes of $12,286 and decrease in equity of $36,956. The decrease in equity is comprised of a decrease in Retained Earnings of $36,956, which is due to the depletion of Additional Paid-In Capital as a result of this adoption. There was no impact to earnings per share in the first quarter of 2022 as a result of the adoption.

8


Accounting for Income Taxes


In December 2019, the FASB issued accounting guidance in order to simplify the accounting for income taxes.  This new guidance eliminates certain exceptions to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences.  This guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill.  This accounting guidance is effective for public business entities for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The new guidance was applied on a prospective basis, except for the guidance on franchise taxes that are partially based on income which was applied using a modified retrospective approach. The adoption of the accounting guidance in the first quarter of 2022 did not have a significant impact on the Company’s consolidated financial position or results of operations.

2.
Fair Value Measurements


The Company’s assets measured at fair value on a recurring basis at January 28, 2022 were as follows:

 
Level 1
   
Level 2
   
Level 3
   
Total Fair
Value
 
Cash equivalents*
 
$
15,001
   
$
   
$
   
$
15,001
 
Deferred compensation plan assets**
         
33,108
 
Total assets at fair value
       
$
48,109
 


The Company’s assets measured at fair value on a recurring basis at July 30, 2021 were as follows:

 
Level 1
   
Level 2
   
Level 3
   
Total Fair
Value
 
Cash equivalents*
 
$
35,001
   
$
   
$
   
$
35,001
 
Deferred compensation plan assets**
         
32,527
 
Total assets at fair value
       
$
67,528
 

*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 did not have any liabilities measured at fair value on a recurring basis at January 28, 2022 and July 30, 2021.  The Company’s money market fund investments are measured at fair value using quoted market prices.  The fair values of the Company’s accounts receivable and accounts payable approximate their carrying amounts because of their short duration. 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 28, 2022 and July 30, 2021.


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 $284,586 and $249,233, respectively, as of January 28, 2022 and July 30, 2021.

9

3.
Inventories


Inventories were comprised of the following at:

 
January 28, 2022
   
July 30, 2021
 
Retail
 
$
117,068
   
$
104,143
 
Restaurant
   
23,207
     
21,583
 
Supplies
   
13,608
     
12,594
 
Total
 
$
153,883
   
$
138,320
 

4.
Debt



On September 5, 2018, the Company entered into a five-year $950,000 revolving credit facility (“2019 Revolving Credit Facility”). The 2019 Revolving Credit Facility contains an option to increase the revolving credit facility by $300,000, of which $260,605 remains. In the third quarter of 2021, the Company entered into an amendment to the 2019 Revolving Credit Facility which reduced the commitment amount from $950,000 to $800,000.



The Company’s outstanding borrowings under the 2019 Revolving Credit Facility were $35,000 and $85,000 on January 28, 2022 and July 30, 2021, respectively.


At January 28, 2022, the Company had $31,896 of standby letters of credit, which reduce the Company’s borrowing availability under the 2019 Revolving Credit Facility (see Note 10 for more information on the Company’s standby letters of credit).  At January 28, 2022, the Company had $733,104 in borrowing availability under the 2019 Revolving Credit Facility. During the second quarter of 2022, we repaid $50,000 of borrowings under the 2019 Revolving Credit Facility.


In accordance with the 2019 Revolving Credit Facility, outstanding borrowings bear interest, at the Company’s election, either at the London Inter-Bank Offered Rate (“LIBOR”) or prime plus a percentage point spread based on certain specified financial ratios under the 2019 Revolving Credit Facility.  At January 28, 2022, the weighted average interest rate on $35,000 of the Company’s outstanding borrowings was 2.35%.


The 2019 Revolving Credit Facility contains customary financial covenants, which include maintenance of a maximum consolidated total leverage ratio and a minimum consolidated interest coverage ratio.   At January 28, 2022, the Company was in compliance with all debt covenants under the 2019 Revolving Credit Facility.


The 2019 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 2019 Revolving Credit Facility, provided there is no default existing and the total of the Company’s availability under the 2019 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 leverage ratio is 3.00 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 3.00 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”), which included the exercise in full of the initial purchasers’ option to purchase up to an additional $25,000 principal amount of the Notes. The Notes are governed by the terms of an 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, beginning on December 15, 2021.

10


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 28, 2022, the conversion rate, as adjusted, was 5.4587 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 2026 Notes offering were $291,125, after deducting the initial purchasers’ discounts and commissions and the Company’s offering fees and expenses.


In accounting for the issuance of the Notes as of July 30, 2021, the Company separated the Notes into liability and equity components. The carrying amount of the liability component before the allocation of any issuance costs was calculated by measuring the fair value of a similar liability that does not have an associated exchangeable feature. The carrying amount of the equity component (before the allocation of any issuance costs), representing the conversion option, which did not require separate accounting as a derivative as it met a scope exception for certain contracts involving an entity’s own equity, was determined by deducting the fair value of the liability component from the par value of the Notes. The difference between the principal amount of the Notes and the liability component represented the debt discount, which was recorded as a direct deduction from the related debt liability in the Condensed Consolidated Balance Sheet and accreted over the period from the date of issuance to the contractual maturity date, resulting in the recognition of non-cash interest expense. The equity component of the Notes of $53,004 was included in additional paid-in capital in the consolidated balance sheet as of July 30, 2021 and was not remeasured since it continued to meet the conditions for equity classification. Issuance costs were allocated to the liability and equity components in the same proportion as the allocation of the proceeds. Issuance costs attributable to the liability component were recorded as debt issuance costs in the Condensed Consolidated Balance Sheet and are amortized to interest expense using the effective interest method over the term of the Notes, and issuance costs attributable to the equity component were netted with the equity component in stockholders’ equity.


Due to our adoption of new accounting guidance for convertible instruments on July 31, 2021, the Company no longer bifurcates the Notes into a liability and an equity component in the Company’s Condensed Consolidated Balance Sheets (see Note 1 for additional information regarding the adoption of this new accounting guidance). Upon adoption of this new accounting guidance, 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 equity conversion feature that was recorded to equity, as well as the unamortized debt discount and amortization expense attributable to equity, have been derecognized.


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



   
January 28, 2022
 
Liability component      
Principal
  $ 300,000  
Less: Debt issuance costs (1)
   
7,868
 
    Net carrying amount
 
$
292,132
 
 
(1)
Debt issuance costs are amortized to interest expense using the effective interest method over the expected life of the Notes.

11


The effective rate of the Notes over their expected life is 1.24%. The following is a summary of interest expense for the Notes for the quarter ended and six months ended January 28, 2022:


 
 
Quarter Ended
January 28, 2022
   
Six Months Ended
January 28, 2022
 
Coupon interest
 
$
474
   
$
948
 
Amortization of issuance costs
   
432
     
911
 
Total interest expense
 
$
906
   
$
1,859
 


 During any calendar quarter 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 quarter of 2022. 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 28, 2022, 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 is 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 underlie 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 28, 2022, the strike price, as adjusted, of the Warrant Transactions was $256.47 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 on the Company’s Condensed Consolidated Balance Sheet during 2021.


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

5.
Seasonality


Historically, the net income of the Company has 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. Currently, the Company is not able to predict the impact that the COVID-19 pandemic may have on these historical consumer demand patterns or, as a result, on the seasonality of its business generally.

12

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 28,
2022
   
January 29,
2021
   
January 28,
2022
   
January 29,
2021
 
Revenue:
                       
Restaurant
 
$
656,080
   
$
521,243
   
$
1,271,494
   
$
1,036,467
 
Retail
   
206,180
     
155,926
     
375,696
     
287,156
 
Total revenue
 
$
862,260
   
$
677,169
   
$
1,647,190
   
$
1,323,623
 

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 28, 2022, gift card breakage was $2,164 and $3,269, respectively.  For the quarter and six months ended January 29, 2021, gift card breakage was $1,754 and $2,694, respectively.

13


Deferred revenue related to the Company’s gift cards was $119,996 and $93,098, respectively, at January 28, 2022 and July 30, 2021.  Revenue recognized in the Condensed Consolidated Statements of Income for the six months ended January 28, 2022 and January 29, 2021, respectively, for the redemption of gift cards which were included in the deferred revenue balance at the beginning of the fiscal year was $28,809 and $26,944.

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”). 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 2055. 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 2022 and 2023 with undiscounted future payments of $3,654 and $16,721, 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.


The following table summarizes the components of lease cost for operating leases for the quarter ended and six months ended January 28, 2022 as compared to the same periods in the prior year:

   
Quarter Ended
   
Six Months Ended
 

 
January 28,
2022
   
January 29,
2021
   
January 28,
2022
   
January 29,
2021
 
Operating lease cost
 
$
27,150
   
$
26,413
   
$
54,142
   
$
52,885
 
Short term lease cost
   
2,058
     
1,741
     
2,225
     
2,064
 
Variable lease cost
   
642
     
667
     
1,230
     
1,194
 
Total lease cost
 
$
29,850
   
$
28,821
   
$
57,597
   
$
56,143
 

14


The following table summarizes supplemental cash flow information and non-cash activity related to the Company’s operating leases for the quarter ended and six months ended January 28, 2022 as compared to the same periods in the prior year:

   
Quarter Ended
   
Six Months Ended
 

 
January 28,
2022
   
January 29,
2021
   
January 28,
2022
   
January 29,
2021
 
Operating cash flow information:
                       
Gain on sale and leaseback transaction
 
$
   
$
   
$
   
$
217,722
 
Operating cash flow information:
                               
Cash paid for amounts included in the measurement of lease liabilities
   
23,068
     
22,415
     
45,861
     
44,681
 
Noncash information:
                               
Right-of-use assets obtained in exchange for new operating lease liabilities
   
4,969
     
3,556
     
11,657
     
315,189
 
Lease modifications or reassessments increasing or decreasing right-of-use assets
   
3,039
     
1,787
     
6,416
     
25,044
 
Lease modifications removing right-of-use assets
   
(174
)
   
(89
)
   
(336
)
   
(348
)


The following table summarizes the weighted-average remaining lease term and the weighted-average discount rate for operating leases as of January 28, 2022 and January 29, 2021:


 
January 28, 2022
   
January 29, 2021
 
Weighted-average remaining lease term
 
17.80 Years
   
18.40 Years
 
Weighted-average discount rate
   
4.87
%
   
4.82
%


The following table summarizes the maturities of undiscounted cash flows reconciled to the total operating lease liability as of January 28, 2022:

Year
 
Total
 
Remainder of 2022
 
$
45,502
 
2023
   
83,781
 
2024
   
66,788
 
2025
   
63,428
 
2026
   
63,340
 
Thereafter
   
896,716
 
Total future minimum lease payments
   
1,219,555
 
Less imputed remaining interest
   
(428,528
)
Total present value of operating lease liabilities
 
$
791,027
 

Sale and Leaseback Transactions


In 2009, the Company completed sale-leaseback transactions involving 15 of its owned 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.


On July 29, 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 for an aggregate purchase price, net of closing costs, of $198,083. The Company purchased the remaining property for approximately $3,200. 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. The aggregate initial annual rent payment for the properties is approximately $14,379 and includes 1% annual rent increases over the initial lease terms. All the properties qualified for sale and leaseback and operating lease accounting classification and the Company recorded a gain on the sale and leaseback transaction of $69,954 in the fourth quarter of 2020. The Company recorded operating lease right-of-use assets, including a non-cash asset recognized as a part of accounting for the transaction of $79,049, and corresponding operating lease liabilities of $261,698 and $182,649, respectively.

15


On August 4, 2020, the Company completed a subsequent sale and leaseback transaction involving 62 of its owned Cracker Barrel stores for an aggregate purchase price, net of closing costs, of $146,357. 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. The aggregate initial annual rent payment for the properties is approximately $10,393 and includes 1% annual rent increases over the initial lease terms. All of the properties qualified for sale and leaseback and operating lease accounting classification, and the Company recorded a gain of $217,722 which is recorded in the gain on sale and leaseback transaction line in the Condensed Consolidated Statement of Income in the first quarter of 2021. The Company also recorded operating lease right-of-use assets, including a non-cash asset recognized as part of accounting for the transaction of $175,960, and corresponding operating lease liabilities of $309,624 and $133,663, respectively.

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.  The convertible senior notes have been excluded from the computation of diluted earnings per share since the conversion price of the convertible senior notes exceeded the average market price of the Company’s common stock.  Warrants were excluded from the computation of diluted earnings per share since the warrants’ strike price 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:

 
Quarter Ended
   
Six Months Ended
 
   
January 28,
2022
   
January 29,
2021
   
January 28,
2022
   
January 29,
2021
 
Net income per share numerator
 
$
37,624
   
$
14,000
 
$
71,000
   
$
184,680
                                 
Net income per share denominator:
                               
Weighted average shares
   
23,393,398
     
23,723,395
     
23,450,379
     
23,715,573
 
Add potential dilution:
                               
Nonvested stock awards and units
   
69,173
     
61,979
     
77,848
     
62,729
 
Diluted weighted average shares
   
23,462,571
     
23,785,374
     
23,528,227
     
23,778,302
 

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 28, 2022, the Company had $31,896 of standby letters of credit related to securing reserved claims under workers’ compensation insurance and the July 29, 2020 and August 4, 2020 sale and leaseback transactions.  All standby letters of credit are renewable annually and reduce the Company’s borrowing availability under its 2019 Revolving Credit Facility (see Note 4).


During 2020, the Company received notice regarding non-performance by the primary obligor under lease arrangements for two properties occupied by a third party. At January 28, 2022, the Company has recorded an accrual of $344 in the Condensed Consolidated Balance Sheet for amounts to be paid as of result of non-performance by the primary obligor.


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 28, 2022.

16

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.  At January 28, 2022, we operated 664 Cracker Barrel stores in 45 states and 38 Maple Street Biscuit Company (“MSBC”) company-owned locations in eight states.  At January 28, 2022, MSBC had seven franchised locations.

 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 30, 2021 (the “2021 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, 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 the novel coronavirus (“COVID-19”) pandemic, including the duration of the COVID-19 pandemic and its ultimate impact on our business, levels of consumer confidence in the safety of dine-in restaurants, restrictions (including occupancy restrictions) imposed by governmental authorities, the effectiveness of cost saving measures undertaken throughout our operations, disruptions to our operations as a result of the spread of COVID-19 in our workforce, 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; 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; 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; uncertain performance of acquired businesses, strategic investments and other initiatives that we may pursue from time to time; changes in or implementation of additional governmental or regulatory rules, regulations and interpretations affecting tax, wage and hour matters, health and safety, insurance or other undeterminable areas; the effects of plans intended to promote or protect our brands and products; commodity price increases; the ability of and cost to us to recruit, train, and retain qualified hourly and management employees; the effects of increased competition at our locations on sales and on labor recruiting, cost, and retention; workers’ compensation, group health and utility price changes; 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 all or portions of our indebtedness; the effects of business trends on the outlook for individual restaurant locations and the effect on the carrying value of those locations; our ability to retain key personnel; the availability and cost of suitable sites for restaurant development and our ability to identify those sites; 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 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; 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; disruptions to our restaurant or retail supply chain, including as a result of COVID-19; changes in foreign exchange rates affecting our future retail inventory purchases; the impact of activist shareholders; our reliance on limited distribution facilities and certain significant vendors;  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 2021 Form 10-K, as well as the factors described under “Critical Accounting Estimates” on pages 27-29 of this report or, from time to time, in our filings with the Securities and Exchange Commission (“SEC”), press releases and other communications.

17

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 the Cracker Barrel’s core competitive advantages include our authentic experiential brand, our culture of hospitality, and our homestyle food and retail assortments. We remain focused on these core strengths, and we believe they will continue to drive the long-term success and outperformance of our brand. We plan to leverage these core strengths in 2022 to drive additional frequency from our core guests, attract new customers, and strengthen our operating and business model.

During the second quarter, we focused our efforts on operational execution during the seasonally higher volumes associated with the holiday season. We also continued the rollout of beer and wine to our stores and continued to invest in our digital and off-premise capabilities.

For the full fiscal year, we currently anticipate adding two new Cracker Barrel locations and 10 to 12 new Maple Street Biscuit Company locations, one of which opened in the first six months of 2022.

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.

18

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 quarter ended and first six months ended January 28, 2022 as compared to the same periods in the prior year:

   
Quarter Ended
   
Six Months Ended
 
   
January 28,
2022
   
January 29,
2021
   
January 28,
2022
   
January 29,
2021
 
Total revenue
   
100.0
%
   
100.0
%
   
100.0
%
   
100.0
%
Cost of goods sold (exclusive of depreciation and rent)
   
32.9
     
33.2
     
32.0
     
32.0
 
Labor and other related expenses
   
34.4
     
35.0
     
34.7
     
35.1
 
Other store operating expenses
   
22.3
     
24.7
     
22.8
     
24.8
 
General and administrative expenses
   
5.0
     
5.0
     
5.1
     
5.6
 
Gain on sale and leaseback transaction
   
     
     
     
(16.5
)
Operating income
   
5.4
     
2.1
     
5.4
     
19.0
 
Interest expense, net
   
0.2
     
1.6
     
0.3
     
1.6
 
Income before income taxes
   
5.2
     
0.5
     
5.1
     
17.4
 
Provision for income taxes (income tax benefit)
   
0.8
     
(1.6
)
   
0.8
     
3.4
 
Net income
   
4.4
%
   
2.1
%
   
4.3
%
   
14.0
%

19

The following table sets forth the change in the number of Company-owned and franchised units in operation during the quarters and first six months ended January 28, 2022 and January 29, 2021 as well as the number of Company-owned and franchised units at the end of the quarters and first six months ended January 28, 2022 and January 29, 2021:

   
Quarter Ended
   
Six Months Ended
 
   
January 28,
2022
   
January 29,
2021
   
January 28,
2022
   
January 29,
2021
 
Net change in units:
                       
Company-owned – Cracker Barrel
   
     
     
     
 
Company-owned – MSBC
   
1
     
     
1
     
1
 
Franchise - MSBC
   
     
1
     
     
1
 
Units in operation at end of the period:
                               
Company-owned – Cracker Barrel
   
664
     
663
     
664
     
663
 
Company-owned – MSBC
   
38
     
36
     
38
     
36
 
Total Company-owned units at end of the period
   
702
     
699
     
702
     
699
 
Franchise – MSBC
   
7
     
7
     
7
     
7
 

Total Revenue

Total revenue for the second quarter and first six months of 2022 increased 27.3% and 24.4%, respectively, as compared to the same periods in the prior year. The Company continues to recover from the COVID-19 pandemic as all dining rooms were open to some extent during the first six months of 2022. Dining room service was operational to varying degrees, yet certain locations were adversely impacted by the Omicron variant of COVID-19 resulting in a decline in guests' comfort level for dining indoors and capacity reductions driven by staffing shortages. Following increases in the numbers of cases of COVID-19 throughout the United States during the second quarter of 2022, some of our restaurants were subject to other COVID-19-related restrictions, including mask and vaccination requirements for employees and guests. It is possible that renewed outbreaks, increases in cases and/or new variants of the disease, either as part of a national trend or on a more localized basis, could result in additional COVID-19-related restrictions including capacity restrictions or otherwise limit our dine-in services, or negatively affect consumer demand. Off-premise sales for the second quarter of 2022 represented approximately 24% of restaurant sales volumes compared to approximately 30% in the second quarter of 2021 when a large number of our restaurants were operating with limitations on or full prohibitions of dine-in services.

20

The following table highlights the key components of revenue for the quarter and six months ended January 28, 2022 as compared to the same periods in the prior year:

   
Quarter Ended
   
Six Months Ended
 
   
January 28,
2022
   
January 29,
2021
   
January 28,
2022
   
January 29,
2021
 
Revenue in dollars:
                       
Restaurant
 
$
656,080
   
$
521,243
   
$
1,271,494
   
$
1,036,467
 
Retail
   
206,180
     
155,926
     
375,696
     
287,156
 
Total revenue
 
$
862,260
   
$
677,169
   
$
1,647,190
   
$
1,323,623
 
Total revenue by percentage relationships:
                               
Restaurant
   
76.1
%
   
77.0
%
   
77.2
%
   
78.3
%
Retail
   
23.9
%
   
23.0
%
   
22.8
%
   
21.7
%
Average unit volumes(1):
                               
Restaurant
 
$
970.7
   
$
772.6
   
$
1,880.8
   
$
1,537.6
 
Retail
   
310.3
     
235.2
     
565.4
     
433.1
 
Total revenue
 
$
1,281.0
   
$
1,007.8
   
$
2,446.2
   
$
1,970.7
 
Comparable store sales increase (decrease) (2):
                               
Restaurant
   
25.9
%
   
(21.9
%)
   
22.5
%
   
(19.3
%)
Retail
   
32.5
%
   
(15.3
%)
   
30.9
%
   
(12.1
%)
Restaurant and retail
   
27.5
%
   
(20.5
%)
   
24.3
%
   
(17.8
%)
Average check increase
   
7.1
%
   
2.3
%
   
7.0
%
   
2.0
%
Comparable restaurant guest traffic increase (decrease)(2):
   
18.8
%
   
(24.2
%)
   
15.5
%
   
(21.3
%)

(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 of 2022, our comparable store restaurant sales increased as a result of a 18.8% guest traffic increase and a 7.1% average check increase (including a 5.3% average menu price increase) as compared to the prior year period.

For the first six months of 2022, our comparable store restaurant sales increased as a result of a 15.5% guest traffic increase and a 7.0% average check increase (including a 5.4% average menu price increase) as compared to the prior year period.

Our retail sales are made substantially to our restaurant guests.  For the second quarter of 2022, our comparable store retail sales increase resulted primarily from the guest traffic increase and strong performance in the toys, décor merchandise, food and convenience, apparel and accessories, licensed, and bed and bath merchandise categories. For the first six months of 2022, our comparable retail sales increase resulted primarily from the guest traffic increase and strong performance in the toys, food and convenience, décor merchandise, apparel and accessories, licensed, media and bed and bath merchandise categories.

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 second quarter and first six months of 2022 as compared to the same periods in the prior year:
 
   
Quarter Ended
   
Six Months Ended
 
   
January 28,
2022
   
January 29,
2021
   
January 28,
2022
   
January 29,
2021
 
Cost of Goods Sold in dollars:
                       
Restaurant
 
$
179,667
   
$
140,469
   
$
339,968
&