CRACKER BARREL OLD COUNTRY STORE, INC annual report, FY2021

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Cracker Barrel Old Country Store, Inc. — FY2021 Form 10-K Summary

Reporting period: Fiscal year ended July 30, 2021. The filing is an annual report rather than a standalone quarterly filing; fourth-quarter data is included in the unaudited quarterly table. Dollar amounts are in thousands unless otherwise stated.

Business Context

Cracker Barrel operates a combined full-service restaurant and retail gift-shop concept. As of September 15, 2021, it operated 664 Cracker Barrel stores in 45 states, plus 37 company-owned Maple Street Biscuit Company locations and seven franchised MSBC locations. Restaurant revenue represented 78.9% of FY2021 revenue and retail revenue represented 21.1%.

The business continued to be affected by COVID-19-related capacity restrictions, reduced dine-in demand, labor and supply-chain disruption, and changing consumer behavior. Management emphasized off-premise sales, digital infrastructure, menu and retail initiatives, beer and wine expansion, and integration of MSBC.

Financial Performance and Key Metrics

MetricFY2021FY2020FY2019
Total revenue$2,821,444$2,522,792$3,071,951
Restaurant revenue$2,227,246$2,032,030$2,482,377
Retail revenue$594,198$490,762$589,574
Operating income$366,659$103,611$282,844
Net income (loss)$254,513$(32,475)$223,401
Diluted EPS$10.71$(1.36)$9.27
Operating cash flow$301,903$161,002$362,796
  • Total revenue increased 11.8% from FY2020, but remained below FY2019 by approximately 8.2%.
  • Operating margin was approximately 13.0% in FY2021, compared with 4.1% in FY2020 and 9.2% in FY2019. FY2021 included a $217,722 gain from a sale-and-leaseback transaction.
  • Net margin was approximately 9.0% in FY2021, compared with a negative 1.3% in FY2020 and 7.3% in FY2019.
  • Comparable restaurant sales increased 8.4% and comparable retail sales increased 20.9% versus FY2020. Comparable restaurant guest traffic increased 5.3%, while average check increased 3.1%, including a 2.1% menu-price increase.
  • Restaurant cost of goods sold increased modestly to 25.5% of restaurant revenue from 25.4% in FY2020. Commodity inflation was 2.4% in FY2021.
  • Labor and related expenses declined to 34.8% of revenue from 36.7%, while other store operating expenses declined to 24.0% from 24.4%.
  • Fourth-quarter revenue was $784,405 and fourth-quarter net income was $36,363, or $1.53 diluted EPS. Fourth-quarter results included the ongoing effects of the pandemic but no separately identified major impairment charge.
  • Capital expenditures, net of insurance recoveries, were $70,130, compared with $296,008 in FY2020. Management estimated FY2022 capital expenditures of approximately $120,000.

Cash Flow, Debt and Liquidity

  • Cash and cash equivalents declined to $144,593 at July 30, 2021 from $436,996 a year earlier.
  • Net cash used in financing activities was $672,636, primarily reflecting $924,572 of debt principal repayments, dividends of $31,667, and $35,000 of share repurchases, partially offset by new borrowings and convertible-note proceeds.
  • The revolving credit facility was amended to reduce commitments from $950,000 to $800,000. Outstanding borrowings were $85,000, standby letters of credit were $31,896, and borrowing availability was $683,104 at year-end.
  • The Company issued $300,000 principal amount of 0.625% convertible senior notes due 2026, generating net proceeds of $291,125. The notes had a net carrying value of $241,979 at year-end after debt discount and issuance costs.
  • Total debt reported on the balance sheet was $327,377, consisting of current and long-term debt. The Company was in compliance with its revolving-credit financial covenants at July 30, 2021.
  • Working capital changed from a surplus of $191,956 in FY2020 to a deficit of $111,666 in FY2021, primarily due to lower cash and payment timing.
  • Operating lease liabilities totaled $798,756 on a present-value basis, with undiscounted future operating lease payments of $1,237,088.

Material Changes Versus Prior Period

  • FY2021 reversed the FY2020 loss as dining rooms reopened to varying degrees and restaurant and retail traffic recovered.
  • FY2020 included a $132,878 loss related to the Punch Bowl Social investment and approximately $22,496 of impairment charges; no comparable impairment charge was recorded in FY2021.
  • FY2021 included a $217,722 sale-and-leaseback gain related to 62 Cracker Barrel stores. The transaction also increased rent expense and lease liabilities.
  • Interest expense increased to $56,108 from $22,327, driven by prior-period borrowing, interest-rate swap termination costs, higher average debt and convertible-note amortization.
  • The Company repaid substantially most of its pandemic-related revolving-credit borrowings, resumed its regular dividend program with a $1.00-per-share dividend declared in the fourth quarter, and subsequently declared a $1.30-per-share dividend on September 15, 2021.
  • The Company opened two new Cracker Barrel stores and two new MSBC locations in FY2021 and planned three new Cracker Barrel stores for FY2022.

Guidance, Outlook, Risks and Unusual Items

  • Management expected FY2022 commodity inflation in the mid-to-high single digits, compared with 2.4% in FY2021.
  • Management expected FY2022 interest expense of approximately $9,000 and an effective tax rate of approximately 18%.
  • Management believed available cash, operating cash flow and revolving-credit capacity would fund FY2022 operations, debt service, expansion and working-capital needs, but future liquidity remained dependent on recovery from COVID-19 and compliance with debt covenants.
  • Key risks include renewed COVID-19 restrictions, lower dine-in demand, labor shortages and wage inflation, food and commodity inflation, supply-chain disruption, foreign sourcing of retail merchandise, competition, cybersecurity and privacy incidents, litigation, and interest-rate and LIBOR-transition risk.
  • The Company self-insures significant workers’ compensation and general liability exposures; insurance reserves depend on actuarial estimates and were identified as a critical audit matter.
  • The Company’s shareholder rights plan could be triggered if a person or group acquires 20% or more of the common stock. It was subject to shareholder approval at the 2021 annual meeting and otherwise would expire following that meeting.
  • After year-end, Senior Vice President Michael Hackney entered into a retirement agreement and was scheduled to resign from his executive position effective September 30, 2021, with transitional employment through January 28, 2022.
  • Deloitte & Touche issued unqualified opinions on the financial statements and internal control over financial reporting.

Important Facts for Investors to Verify

  • Whether post-pandemic comparable sales and traffic can be sustained without relying on unusually favorable comparisons to FY2020.
  • The effect of mid-to-high-single-digit commodity inflation, labor-cost inflation and supply-chain constraints on restaurant and retail margins.
  • Actual FY2022 capital expenditures, new-store openings, MSBC performance and cash generation relative to management’s plans.
  • Revolving-credit covenant compliance, remaining borrowing capacity, convertible-note conversion activity and potential warrant dilution.
  • The sustainability and permitted level of dividends and share repurchases under the credit facility’s cash-availability and leverage restrictions.
  • The filing contains a potential share-repurchase presentation inconsistency: the quarterly issuer-purchase table appears to show 252,543 shares in one column, while the narrative and equity statement report 232,543 shares repurchased for $35,000. This figure should be reconciled to the company’s subsequent filings.