Cracker Barrel Old Country Store, Inc. — FY2015 Form 10-K Summary
Business context and reporting period
The filing covers the fiscal year ended July 31, 2015; references to 2014 mean the fiscal year ended August 1, 2014. Cracker Barrel operates an integrated restaurant and retail concept, with approximately 80% of revenue from restaurants and 20% from gift shops. The company operated 637 company-owned stores in 42 states at September 21, 2015, and had approximately 72,000 employees at July 31, 2015.
Financial performance and key metrics
| Metric | FY2015 | FY2014 | Change or margin |
|---|---|---|---|
| Total revenue | $2,842.3 million | $2,683.7 million | Up 5.9% |
| Restaurant revenue | $2,269.6 million | $2,137.4 million | Up 6.2% |
| Retail revenue | $572.7 million | $546.3 million | Up 4.8% |
| Store operating income | $402.4 million | $337.8 million | 14.2% vs. 12.6% of revenue |
| Operating income | $254.9 million | $208.4 million | 9.0% vs. 7.8% of revenue |
| Net income | $163.9 million | $132.1 million | 5.8% vs. 4.9% of revenue |
| Diluted EPS | $6.82 | $5.51 | Up 23.8% |
| Operating cash flow | $334.1 million | $177.6 million | Up $156.4 million |
| Capital expenditures | $90.5 million | $90.6 million | Relatively flat |
| Long-term debt | $400.0 million | $375.0 million | Debt remained $400.0 million including current maturities |
| Cash and equivalents | $265.5 million | $119.4 million | Up $146.1 million |
Restaurant comparable-store sales increased 5.1% and retail comparable-store sales increased 3.6% across 621 comparable stores. Restaurant comparable sales benefited from a 3.0% increase in average check and a 2.1% increase in guest traffic. The average check per guest was $10.23, up 2.9%.
Cost of goods sold was 32.5% of revenue, unchanged from 2014. Labor and related expenses improved to 34.9% from 36.0%, while other store operating expenses improved to 18.4% from 18.9%. General and administrative expense increased to 5.2% of revenue from 4.8%, principally because of higher incentive compensation and a $3.5 million FLSA litigation provision.
Fourth-quarter results
Fourth-quarter revenue was $719.2 million, compared with $692.7 million in the prior-year quarter. Net income was $47.4 million, compared with $39.2 million, and diluted EPS was $1.97, compared with $1.63. The fourth quarter also included a declared $1.10 regular dividend and a $3.00 special dividend per share, both payable August 5, 2015.
Material changes versus the prior comparable period
- Revenue growth accelerated substantially, with total revenue increasing 5.9% versus 1.5% in FY2014.
- Comparable restaurant and retail sales growth improved to 4.8% combined from 0.6% in FY2014.
- Store operating margin expanded by 160 basis points, supported by pricing, productivity initiatives, lower health-care costs, lower utilities and maintenance costs, and improved retail markdown and freight performance.
- Operating margin expanded by 120 basis points and diluted EPS increased 24%.
- Operating cash flow increased significantly, aided by higher earnings, lower retail inventories, the timing of accounts-payable payments and lower prior-year incentive payments.
- The company refinanced its prior debt with a new five-year $750 million revolving credit facility in January 2015. Outstanding borrowings were $400 million at year-end, with $338.5 million of availability after standby letters of credit.
- The company opened six stores in FY2015, compared with seven in FY2014, and did not repurchase common stock in FY2015.
- Dividends declared increased to $7.10 per share from $3.25, reflecting regular dividend increases and the special dividend.
Guidance, outlook, risks and unusual items
- Management planned to open seven or eight new stores in FY2016 and estimated FY2016 capital expenditures of $110 million to $120 million.
- Management expected FY2016 commodity inflation of approximately 3% to 4%, partially offset by menu price increases, supply contracts and cost-reduction initiatives.
- Expected FY2016 interest expense was approximately $14 million to $15 million, and the expected effective tax rate was 32% to 33%. Renewal of the Work Opportunity Tax Credit could reduce 2016 taxes by approximately $3.5 million to $6.5 million.
- Management expected to fund operations, expansion and dividends through operating cash flow, cash on hand and revolver capacity, and expected continued compliance with debt covenants.
- Key risks include discretionary consumer spending, intense restaurant and retail competition, food and commodity inflation, labor availability and wage regulation, food safety, extreme weather, supply-chain disruption, cybersecurity and privacy breaches, inventory markdowns, litigation, and execution of new stores and strategic initiatives.
- The company relies on a single primary retail distribution center in Lebanon, Tennessee and centralized corporate systems, creating concentration and business-continuity risks.
- The FLSA litigation settlement concerning associate-manager classifications was approved on July 31, 2015, and the company recorded an approximately $3.5 million provision. Other ordinary-course legal matters were not expected by management to materially affect results.
- Chief Financial Officer Lawrence E. Hyatt announced his retirement, with the transition expected to conclude no later than August 5, 2016, depending on the timing of his successor’s appointment.
- Biglari Holdings and affiliates beneficially owned approximately 19.9% of the common stock. The company also adopted a shareholder rights plan with a 20% triggering threshold, subject to shareholder approval and related expiration provisions.
Most important facts for investors to verify
- Whether comparable-store traffic and sales growth remain positive after the FY2015 benefit from pricing and improved consumer demand.
- Whether the company can offset projected 3% to 4% commodity inflation without weakening traffic or margins.
- Compliance with the revolving credit facility’s leverage and interest-coverage covenants, including refinancing needs before its January 2020 maturity.
- The sustainability of elevated dividends and the special-dividend strategy relative to operating cash flow, capital expenditures and debt.
- Execution of the planned seven or eight FY2016 openings and the performance of new prototypes, new markets and the proposed fast-casual concept.
- Resolution and potential additional cost of wage-and-hour claims, tax uncertainties, self-insured liabilities and other litigation.
- The filing’s audited financial statements and internal-control report, both of which received unqualified opinions from Deloitte & Touche LLP.