Cracker Barrel Old Country Store, Inc. — Form 10-Q Summary
Business context and reporting period
The filing covers the fiscal quarter ended October 29, 2021, representing the first quarter of fiscal 2022. Cracker Barrel operated 664 company-owned Cracker Barrel stores in 45 states, 37 company-owned Maple Street Biscuit Company locations, and seven franchised Maple Street Biscuit Company locations. The company reports one operating segment and operates exclusively in the United States.
All dining rooms were open to some extent during the quarter, although certain locations remained subject to COVID-19 capacity restrictions and social-distancing requirements. Management continued expanding off-premise sales and digital capabilities.
Financial performance and key metrics
| Metric | Q1 FY2022 | Q1 FY2021 | Change |
|---|---|---|---|
| Total revenue | $784.9 million | $646.5 million | 21.4% increase |
| Restaurant revenue | $615.4 million | $515.2 million | 19.4% increase |
| Retail revenue | $169.5 million | $131.2 million | 29.2% increase |
| Operating income | $42.9 million | $237.1 million | Decrease |
| Operating margin | 5.5% | 36.7% | Down 31.2 percentage points |
| Net income | $33.4 million | $170.7 million | Decrease |
| Net margin | 4.3% | 26.4% | Down 22.1 percentage points |
| Diluted EPS | $1.41 | $7.18 | Decrease |
| Effective tax rate | 17.1% | 24.6% | Down 7.5 percentage points |
Prior-year results included a $217.7 million gain from a sale-leaseback transaction. Excluding the unusually large prior-year gain, current-quarter operating performance was more comparable, but the filing does not provide a non-GAAP adjusted operating income or adjusted net income reconciliation.
Comparable restaurant sales increased 19.0%, driven by a 12.1% increase in guest traffic and a 6.9% increase in average check, including a 5.5% menu price increase. Comparable retail sales increased 29.1%. Off-premise sales represented approximately 20% of restaurant sales versus approximately 25% in the prior-year quarter.
Cost of goods sold was 30.9% of revenue versus 30.8% in the prior-year quarter. Restaurant food costs reflected 7.3% commodity inflation and higher food waste. Labor and related costs were 35.0% of revenue versus 35.1%, while other store operating expenses declined to 23.4% from 25.0%. General and administrative expenses declined to 5.2% of revenue from 6.1%, primarily because the prior-year period included proxy-contest expenses.
Cash flow, balance sheet, debt and liquidity
| Balance sheet or cash flow item | October 29, 2021 | Prior comparable date or period |
|---|---|---|
| Cash and cash equivalents | $125.9 million | $144.6 million at July 30, 2021 |
| Total assets | $2.37 billion | $2.39 billion at July 30, 2021 |
| Long-term debt | $377.0 million | $327.3 million at July 30, 2021 |
| Operating lease liabilities | $744.2 million long term | $748.3 million at July 30, 2021 |
| Shareholders’ equity | $629.2 million | $663.6 million at July 30, 2021 |
| Cash provided by operating activities | $23.0 million | $57.0 million in Q1 FY2021 |
| Capital expenditures | $14.1 million | $11.4 million in Q1 FY2021 |
| Dividends paid | $23.9 million | $31.5 million in Q1 FY2021 |
The company had $85.0 million outstanding under its $800.0 million revolving credit facility, $31.9 million of standby letters of credit, and $683.1 million of remaining borrowing availability. The weighted-average interest rate on revolver borrowings was 2.33%, and the company was in compliance with its debt covenants.
The company issued $300.0 million of 0.625% convertible senior notes due 2026 in June 2021, with net proceeds of $291.1 million. After adopting new convertible-instrument accounting guidance, the notes were recorded entirely as debt with a net carrying amount of $291.7 million at quarter-end. Convertible note hedges are intended to reduce potential dilution, while related warrants could dilute shares if the stock price exceeds the adjusted $259.06 strike price.
Working capital was negative $92.4 million at October 29, 2021, compared with negative $111.7 million at July 30, 2021. Management stated that available cash, operating cash flow and revolver capacity should be sufficient for continuing operations, expansion plans and working-capital needs over the next twelve months.
Material changes versus the prior comparable period
- Revenue increased 21.4% as dining-room operations recovered from pandemic-related restrictions and comparable traffic improved.
- Net income and reported margins declined sharply because the prior-year quarter included a $217.7 million sale-leaseback gain.
- Operating cash flow declined by $34.0 million, primarily due to payment timing for accounts payable.
- Interest expense declined from $10.7 million to $2.6 million, primarily because of lower debt levels and lower average interest rates.
- Debt increased because the company adopted new convertible-instrument accounting guidance, which increased reported long-term debt by $49.2 million and reduced equity by $37.0 million; there was no earnings-per-share impact.
- Inventory increased to $159.6 million from $138.3 million, primarily reflecting higher retail inventory.
- The company paid a regular dividend of $1.00 per share and declared an additional $1.30 per-share dividend. No common shares were repurchased.
Guidance, outlook, risks and unusual items
- Management expects to add three new Cracker Barrel locations and 15 new Maple Street Biscuit Company locations during fiscal 2022.
- Fiscal 2022 capital expenditures are estimated at approximately $120.0 million.
- Management expects commodity inflation and wage inflation to be in the high single digits in 2022 and expects an effective tax rate of approximately 17%.
- Strategic initiatives include beer and wine expansion, digital investments, the Chicken ’n Biscuits virtual brand in 500 stores, The Pancake Kitchen virtual brand, and Cracker Barrel Kitchen, a ghost kitchen launched in Los Angeles.
- Key risks include renewed COVID-19 outbreaks and operating restrictions, labor availability and wage inflation, commodity and supply-chain costs, consumer demand, information-security incidents, competition, lease obligations, interest-rate exposure, indebtedness and covenant restrictions, and potential impairment of long-lived or right-of-use assets.
- The company self-insures significant portions of workers’ compensation and general liability programs. Management stated that outstanding legal and regulatory matters are not expected to materially affect the financial statements. A $0.3 million accrual relates to non-performance by the primary obligor under two third-party property leases.
- Operating lease commitments had a present value of $795.5 million, with undiscounted future payments of $1.23 billion. The filing also disclosed approximately $7.1 million of future payments for leases expected to commence in 2022.
- The company stated that there were no material changes in previously disclosed risk factors, market risks, material commitments or off-balance-sheet arrangements.
Important facts for investors to verify
- Reconcile year-over-year profitability using the prior-year $217.7 million sale-leaseback gain and distinguish recurring operating performance from unusual items.
- Monitor whether commodity inflation, wage inflation and labor productivity pressure offset menu pricing and traffic gains.
- Verify the sustainability of comparable traffic growth as pandemic-related comparisons become less favorable and off-premise mix normalizes.
- Assess liquidity after approximately $120.0 million of planned fiscal-year capital expenditures, dividends and lease payments.
- Review the terms, potential conversion dilution and warrant dilution associated with the 2026 convertible notes.
- Evaluate the company’s substantial operating lease obligations and exposure to impairment, supply-chain disruption, COVID-19 developments and self-insured claims.