Business Context and Reporting Period
Cracker Barrel Old Country Store, Inc. operates restaurant and retail stores in the United States. The unaudited Form 10-Q covers the quarter and nine months ended April 30, 2021, compared primarily with the periods ended May 1, 2020.
- At April 30, 2021, the Company operated 664 Cracker Barrel stores, 37 company-owned Maple Street Biscuit Company locations, and seven franchised MSBC locations.
- COVID-19 continued to affect customer traffic, dining-room capacity, consumer behavior, travel, and in-person dining demand, although all dining rooms were open to some extent during the quarter.
Financial Results and Key Metrics
| Metric | Quarter Ended April 30, 2021 | Nine Months Ended April 30, 2021 | Prior Comparable Period |
|---|---|---|---|
| Total revenue | $713.4 million | $2.037 billion | $432.5 million and $2.028 billion |
| Operating income | $52.5 million | $304.0 million | $(79.0) million and $63.5 million |
| Net income | $33.5 million | $218.2 million | $(161.9) million and $(57.5) million |
| Diluted EPS | $1.41 | $9.17 | $(6.81) and $(2.41) |
| Operating cash flow | Not separately provided | $212.5 million | $87.2 million |
- Quarterly revenue increased 64.9%; nine-month revenue increased 0.5%.
- Quarterly operating margin was 7.4% versus negative 18.3% in the prior-year quarter. Nine-month operating margin was 14.9% versus 3.1%.
- Quarterly net margin was 4.7%; nine-month net margin was 10.7%.
- Quarterly restaurant revenue was $569.4 million and retail revenue was $144.0 million. Nine-month restaurant revenue declined to $1.606 billion, while retail revenue increased to $431.2 million.
- Third-quarter comparable restaurant and retail sales increased 64.2%, including a 50.8% increase in comparable restaurant traffic and a 5.7% increase in average check. Nine-month comparable restaurant and retail sales declined 0.4%, with restaurant traffic down 5.4%.
- Management reported expected 2021 commodity inflation of approximately 2.4%; actual first-nine-month restaurant commodity inflation was 1.7%.
Cash Flow, Liquidity, Debt and Capital Structure
- Cash and cash equivalents were $384.6 million at April 30, 2021, down from $437.0 million at July 31, 2020.
- Net cash provided by operating activities was $212.5 million. Capital expenditures were $45.1 million, or $44.1 million net of insurance recoveries.
- Investing activities provided $104.3 million, primarily reflecting $149.9 million of proceeds from property sales associated with sale-and-leaseback transactions.
- Financing activities used $369.2 million, including $395.0 million of debt repayments, $60.0 million of new borrowings, and $31.6 million of dividend payments.
- Outstanding revolving-credit borrowings were $614.4 million, compared with $949.4 million at July 31, 2020. The credit facility commitment was reduced from $950.0 million to $800.0 million during the quarter.
- Borrowing availability was $193.4 million after $31.6 million of standby letters of credit. Liquidity for covenant purposes, consisting of availability plus unrestricted cash, was substantially above the required $140.0 million minimum at quarter-end.
- $400.0 million of borrowings were covered by interest-rate swaps at a weighted average fixed rate of 5.86%; the remaining $214.4 million carried a weighted average rate of 3.69%.
- Operating lease liabilities totaled $803.9 million on a present-value basis, with undiscounted future minimum payments of $1.246 billion.
Material Changes Versus the Prior Comparable Period
- Results improved substantially as dining rooms reopened, traffic recovered from the severe COVID-19 disruption in the prior-year quarter, and retail sales strengthened.
- The prior-year quarter included an $18.3 million impairment charge and a $132.9 million loss related to the unconsolidated Punch Bowl Social investment; neither item recurred in the current quarter.
- The nine-month current period included a $217.7 million gain from the August 2020 sale and leaseback of 62 Cracker Barrel properties. The transaction also increased operating lease assets and liabilities and future rent expense.
- Interest expense increased to $31.1 million for the nine months from $12.4 million, primarily because of higher debt levels, higher weighted average rates, and the loss of interest income from written-off Punch Bowl Social notes.
- Labor and other related expenses declined to 35.1% of revenue for the nine months from 36.4%, while rent expense increased as a percentage of revenue because of the sale-and-leaseback transaction.
- Shareholders’ equity increased to $648.1 million from $418.4 million, primarily reflecting current-period net income and the sale-and-leaseback gain, partially offset by dividends and other equity activity.
Guidance, Outlook, Commentary and Risks
- Management expects 2021 capital expenditures of approximately $70.0 million and plans to fund them with operating cash flow, cash on hand, and borrowings as necessary.
- Management expects an effective tax rate of approximately 18% to 19% for 2021.
- The Company expected to add two Cracker Barrel stores during 2021; both had opened during the first nine months. Management also continued to pursue growth through MSBC.
- Dividend payments were restricted under the amended credit agreement, and share repurchases were suspended. The filing states that cash dividends could not be declared or paid during the third quarter of 2021 and could be declared but not paid during the fourth quarter. The filing text also refers to a later $1.00-per-share dividend, which should be verified against subsequent filings because its timing is inconsistent with the reporting period.
- Debt-covenant waivers covered the third and fourth quarters of 2021, subject to minimum liquidity of $140.0 million and a $70.0 million aggregate cap on capital-expenditure cash payments during the extended relief period. Capital-expenditure cash payments were $12.7 million as of April 30, 2021.
- Principal risks include the duration and effects of COVID-19, dining restrictions and consumer demand, labor availability and wage inflation, commodity costs, supply-chain disruptions, interest rates and refinancing, leverage and covenant restrictions, impairment of long-lived assets, information-security incidents, competition, litigation, and execution of new concepts and strategic initiatives.
- The Company had $31.6 million of standby letters of credit and ordinary-course legal and regulatory contingencies. Management did not expect these contingencies to materially affect the financial statements.
- The Board adopted a shareholder rights plan on April 9, 2021. Rights become exercisable after a person or group acquires 20% or more of the common stock, subject to the agreement’s terms, and the plan requires shareholder approval at the 2021 annual meeting to remain effective.
Important Facts for Investors to Verify
- Whether the post-quarter recovery in comparable restaurant traffic and dining-room sales continued after April 30, 2021.
- The sustainability of reported profitability excluding the $217.7 million sale-and-leaseback gain and the unusually favorable comparison with the COVID-affected prior-year period.
- Compliance with the amended credit facility’s liquidity, capital-expenditure, dividend, and repurchase restrictions after the covenant-relief period.
- Future rent obligations and the effect of additional sale-and-leaseback activity on leverage, fixed costs, and financial flexibility.
- Commodity inflation, wage inflation, staffing levels, and supply-chain costs relative to management’s 2021 assumptions.
- The status and shareholder approval of the April 2021 rights plan and the timing and authorization of the dividend described in the filing.
- Potential additional impairments if COVID-19 or other factors weaken store-level cash flows.