Cracker Barrel Old Country Store, Inc. — Fiscal 2024 Third-Quarter Form 10-Q
Business context and reporting period
The filing covers the quarter and nine months ended April 26, 2024, compared with April 28, 2023. The company operates 658 Cracker Barrel stores in 44 states and 63 Maple Street Biscuit Company locations in 10 states. Cracker Barrel is managed as one reportable operating segment with restaurant and retail product lines.
Financial performance and condition
| Metric | Q3 2024 | Q3 2023 | 9M 2024 | 9M 2023 |
|---|---|---|---|---|
| Revenue | $817.1 million | $832.7 million | $2.576 billion | $2.606 billion |
| Operating income (loss) | $(19.3) million | $16.8 million | $22.9 million | $79.4 million |
| Net income (loss) | $(9.2) million | $14.0 million | $22.8 million | $61.6 million |
| Diluted EPS | $(0.41) | $0.63 | $1.02 | $2.77 |
| Operating margin | (2.4%) | 2.0% | 0.9% | 3.0% |
| Net margin | (1.1%) | 1.7% | 0.9% | 2.4% |
| Net cash from operations | Not separately provided | Not separately provided | $99.5 million | $151.2 million |
- Q3 restaurant revenue declined 1.5% on a comparable-store basis, while retail comparable sales declined 3.8%. Comparable restaurant traffic fell 4.9%, partly offset by a 3.4% increase in average check, including a 4.0% menu price increase.
- Q3 cost of goods sold declined to 30.0% of revenue from 31.5%, benefiting from lower commodity costs and pricing. Labor costs increased to 37.8% of revenue from 35.8%, and other store operating expenses increased to 24.5% from 23.6%.
- Cash and cash equivalents were $11.9 million at April 26, 2024, down from $25.1 million at July 28, 2023. Total current assets were $279.0 million versus current liabilities of $446.2 million, resulting in negative working capital of $167.2 million.
- Capital expenditures were $80.1 million, net of insurance recoveries, during the first nine months. The company expects fiscal 2024 capital expenditures of approximately $120 million to $125 million.
- The company paid $87.2 million in common-stock dividends during the first nine months and declared $1.30 per share for payment in May 2024. It subsequently reduced the quarterly dividend to $0.25 per share payable in August 2024.
Debt and liquidity
- Borrowings under the $700 million revolving credit facility were $176.0 million at April 26, 2024, with $491.5 million of borrowing availability after $32.5 million of standby letters of credit. The weighted-average borrowing rate was 6.93%.
- The company had $296.1 million of net carrying value on its 0.625% convertible senior notes due June 2026, with $300 million principal outstanding.
- Long-term debt totaled $472.2 million, excluding operating lease liabilities of $681.3 million. Total present-value operating lease liabilities were $733.1 million in the lease disclosures.
- The company was in compliance with its revolving-credit financial covenants and expects to remain compliant. Management believes available cash, operating cash flow and borrowing capacity will fund operations, capital expenditures, dividends, interest, lease obligations and working capital needs over the next twelve months.
Material changes and unusual items
- Q3 operating results included $22.9 million of impairment and store-closing costs, comprising $17.4 million of impairment charges and $5.5 million of closure costs. Six Cracker Barrel and 13 Maple Street Biscuit Company locations were impaired; four Cracker Barrel and two Maple Street Biscuit Company locations were closed.
- The company recorded a $4.7 million impairment of all Maple Street Biscuit Company goodwill.
- The Q3 loss also reflected higher labor, advertising, professional-fee and executive-transition costs. General and administrative expense increased to $54.5 million from $45.0 million.
- Revenue decreased 1.9% in Q3 and 1.1% in the first nine months. Nine-month operating income fell 71% and net income fell 63% versus the prior-year period.
- The company launched the Cracker Barrel Rewards loyalty program during the first quarter. Deferred loyalty-program revenue was $0.7 million at April 26, 2024.
- The Board adopted a replacement shareholder rights plan effective February 27, 2024. Subject to shareholder approval, it expires February 27, 2027; without approval, it expires after certification of the 2024 annual-meeting vote.
Guidance, outlook and risks
- Management expects commodity inflation to be flat and wage inflation to be approximately 5% in fiscal 2024. It expects an effective tax rate of approximately negative 55% to negative 60%, reflecting tax benefits relative to projected income.
- The strategic transformation plan focuses on refining the brand, menu enhancement, store and guest-experience improvements, digital and off-premise growth, and employee-experience initiatives. Management expects 25 to 30 remodels in fiscal 2025.
- Capital expenditures are expected to increase to approximately $600 million to $700 million over fiscal 2025 through 2027 for maintenance, remodels and technology investments.
- Key risks include inflation, wage and commodity costs, consumer traffic and discretionary spending, interest rates and refinancing, debt restrictions, supply-chain concentration, labor availability, technology and data-security incidents, litigation, competition, acquired-business performance, store impairments and activist-shareholder activity.
- Management attributed lower traffic primarily to inflation, higher interest rates, elevated consumer debt and lower savings rates. The filing states that interim results are seasonal and not necessarily indicative of full-year results.
Most important facts for investors to verify
- Whether the strategic transformation reverses declining comparable traffic and retail sales without causing sustained labor, advertising and professional-fee inflation.
- The timing and financial impact of the planned store closures, 25–30 remodels and increased fiscal 2025–2027 capital allocation.
- Liquidity, covenant headroom and refinancing plans as the revolving facility and $300 million convertible notes approach maturity dates.
- The sustainability of dividends after the reduction to $0.25 per quarter and the effect of dividend restrictions under the credit facility.
- Further impairment risk at Cracker Barrel and Maple Street Biscuit Company locations, including the fully impaired Maple Street Biscuit Company goodwill.
- The filing contains a revenue presentation inconsistency: the financial statements report Q3 2023 revenue of $832.689 million, while one MD&A table displays $832.389 million. Investors should verify the correct comparative figure in the filed financial statements or XBRL data.