Cracker Barrel Old Country Store, Inc. Price & Performance (CBRL)

On this call, statements may be made by management, of their beliefs and expectations regarding the company's future operating results, or expected future events. These are known as forward looking statements. Which involve risks and uncertainties that in many cases are beyond management's control and may cause actual results to differ materially from expectations. We caution our listeners and readers in considering forward looking statements and information. Many of the factors that could affect results are summarized in the cautionary description of risk and uncertainties found at the end of the press release and are described in detail in our reports that we file with or furnished to the SEC. Finally, the information shared on this call is valid as of today's date. And the company undertakes no obligation to update it except as may be required under applicable will now turn the call over to Cracker Barrel's President and CEO, Julie, Good morning and thank you for joining us. This morning, we reported second quarter total revenue of $949,400,000 which included comparable store restaurant sales growth of 4.7%. And adjusted EBITDA of $74,600,000 As many of you know, Q2 is an especially important quarter for Cracker Barrel because of seasonally higher volumes.

And I want to thank our teams who did an exceptional job executing during the period. Their operational focus coupled with our actions to support improved profitability especially in our catering and heat and serve channels, helped us deliver EBITDA that exceeded our expectations. This strong Q2 performance coupled with our confidence in our trajectory resulted in us increasing our fiscal twenty twenty five EBITDA guidance. We delivered positive comparable store restaurant sales for the third consecutive quarter, and positive comparable store retail sales for the first time since the second quarter of fiscal 'twenty three. We maintained a favorable trend in the important dinner day part as our dinner traffic trend sequentially improved for the fifth consecutive quarter. As I mentioned, we meaningfully grew the profitability of our seasonal heat and serve and catering channels And finally, we saw notable year over year improvements in key operations Collectively, these highlights provide further evidence of the progress we're making executing our transformation strategy. And we remain confident in each of the five pillars. Let's dig in. The first pillar is refining the brand. Which is about evolving the way we interact with Gettes across all touch points As part of these efforts, we conducted a comprehensive analytical restaurant and retail guest journey mapping and audit.

And these insights are informing the work across our strategic initiatives. Additionally, we finalized our new brand strategy. While there is still work to be done to fully bring this to life in early fiscal twenty twenty six, we're already incorporating elements from our updated positioning. For example, our TV and billboard campaigns will reflect our evolved tone of voice and select visual components. And our spring menu that launched on February 11 also features an evolved look and feel. Our goal, as we've stated, is to evolve the brand while remaining authentically Cracker Barrel and staying rooted in our country hospitality. We will do this in a way that resonates with our current guests while also inviting new guests into the brand. Our second pillar is enhancing the menu. Which revolves around making it more craveable for guests and easier to execute for our team members, while also strengthening our value proposition. Our menu strategy continues to focus on the important dinner day part while protecting our leadership in breakfast. Our current menu promotion features two craveable and delicious shrimp dishes, a Louisiana style shrimp skillet Grit Skillet. Additionally, we've introduced several new pancake offerings as we continue to bolster this platform, both from an innovation and barbell pricing standpoint.

An important part of enhancing the menu is also maintaining a strong value proposition. And as we've discussed, we're doing this in a number of ways. We continue to highlight exceptional and compelling value offerings and continue to focus on strong execution and the guest experience, which is also crucial to the overall value equation. We believe these tactics are working as evidenced by improvements in several metrics For example, compared to the prior year, value scores increased 7% Food and taste scores grew 7%. And menu choice scores improved 8%. Another way we're enhancing the menu is through our back of house optimization initiative to improve quality and profitability, while also making jobs easier and more enjoyable. As a reminder, this is a multi year initiative that will be completed in several phases. This first phase is focused on process [indiscernible] We tested Phase one in a full region in Q2 and recently rolled it out system wide. Importantly, our consumer research shows that the new process result in items that score at parity or better than the existing items. And the test confirmed this is a significant cost savings opportunity. One of our key learnings is that it takes a little longer than we anticipated for team members especially more tenured ones to master these new processes.

However, a consistent theme has been that once they gain proficiency, they love them. And new team members also find the revised processes easier, which reduces the time they need to gain mastery. Based on our learnings, we have updated our assumptions for the timing of the cost savings. And we now anticipate the labor savings benefit of the initiative to be minimal in Q3 before ramping in Q4. Pillar three is evolving the store and guest experience. Which includes operational execution, store design and atmosphere and retail. From an operational execution perspective, we remain focused on the metrics that matter. We're encouraged by our trends across the key metrics most correlated with same store sales growth. In particular, we were pleased that turnover improved by another 19 percentage points This is an especially important metric due to its strong relationship with execution. And therefore the guest experience. And lower turnover also translates to reduced training expense. Additionally, overall experience scores improved 7% and service scores improved 5%. As part of our efforts to drive further enhancements to the guest experience, in Q3, we introduced new guest focused service standards that are better aligned with the customer journey. In terms of our remodel program, we want to remind you that fiscal twenty twenty five is a test and learn year.

We remain on track for completing 25 to thirty full remodels and 25 to 30 refreshes. We remain optimistic about the program and plan to provide a deep dive on our Q4 call in September after the full year test has concluded. In retail, despite ongoing industry headwinds, we generated positive comparable store sales for the first time in two years. We saw particular strength in our apparel category and our Christmas themes performed well despite a shorter selling season. Our fourth pillar is winning in digital and off premise. As I mentioned earlier, Q2 is an especially important quarter due to the seasonally high volumes for our catering and occasion channel. As we shared on our Q2 earnings call last year, although we set a record for Thanksgiving week sales, we identified opportunities to improve the guest experience the employee experience and profitability. This was one of the first areas that we tackled as part of our transformation. And this year, we took several actions based on our learnings. For example, We prioritize the more profitable dine in and individual to go channels and deprioritized and throttle our lower profitability channels such as seasonal heat and serve and [indiscernible] We streamlined the offerings to reduce complex and improve in store execution.

We refined allocation and capacity rules to prioritize stores that are more profitable and that deliver a better guest experience. And finally, we increased pricing. These changes were hugely impactful and were the primary driver of our Q2 EBITDA performance exceeding expectations. We also delivered improvements to both the guest and employee experience. We expect to continue to see the benefits from these tactics in Q2 in future years as well. In closing, we were pleased with our Q2 results and the first half of the fiscal year has demonstrated the progress we are making. As evidenced by our ability to raise guidance. Our transformation remains on track and we are focused on sustaining this momentum in the second half of the year. I'll now turn it over to Craig to review our financials and provide our updated outlook.

Thank you, Julie, and good morning, everyone. As Julie noted, we were pleased with our Q2 results. The actions we took to improve the profitability of our off premise and catering channels were key drivers in outperforming our expectations for the quarter. Overall, we reported total revenue of $949,400,000.0 which was up 1.5% from the prior year quarter. Restaurant revenue increased 2.7% to $750,500,000 and retail revenue decreased 2.8 percent $199,000,000 Comparable store restaurant sales grew 4.7%. And comparable store retail sales increased 0.2% compared to the second quarter of the prior year. The difference in the comparable store sales growth and the total sales growth is primarily due to a few factors. First, as we discussed previously, Q2 sales and EBITDA were negatively impacted by a timing shift related to gift card breakage of approximately $5,000,000 timing shift is accounted for at the corporate level instead of the store level. And therefore it unfavorably impacts total sales Second, a calendar shift related to the fifty third week in fiscal twenty twenty four, impacts the comparable store sales calculation but not the total sales calculation. [indiscernible] finally, we had five fewer Cracker Barrel stores this quarter than in the prior year.

Moving on to pricing. Pricing for the quarter was approximately 6%. Our quarterly pricing consisted of approximately 2.7% carry forward pricing for fiscal twenty twenty four and three point three percent new pricing for fiscal twenty twenty five.

Off premise sales were approximately 23.2% of restaurant sales. Moving on to our second quarter expenses. Total cost of goods sold in the quarter was 32.6% of total revenue, versus 33.7% in the prior year quarter. Restaurant cost of goods sold in the second quarter was 27.1% of restaurant sales, versus 28.2% in the prior year quarter. This 110 basis point decrease was primarily driven by menu pricing. Commodity inflation was approximately 1.3% driven principally by higher dairy beverages, pork and beef prices partially offset by lower poultry oil and produce prices. Retail cost of goods sold was 53.4% of retail sales versus 53.2% in the prior year quarter. This 20 basis point increase was primarily driven by higher markdowns. Our inventories at quarter end were $173,000,000 compared to $172,700,000 in the prior year. Labor and related expenses were 34.4% of revenue, compared to 34.5% in the prior year quarter. As a reminder, the prior year quarter results include approximately $5,300,000 in favorability related to a change in employee benefits policy Excluding this favorable impact in the prior year, our current year quarter labor and related expenses improved 70 basis points primarily driven by menu pricing, and improved productivity partially offset by wage inflation of approximately 2%.

Other operating expenses were 23.2% of revenue, Compared to the prior quarter, other operating expenses increased 30 basis points primarily driven by higher depreciation and higher store maintenance. Adjusted general and administrative expenses were 5.5% of revenue. Compared to the prior quarter, adjusted G and A increased 70 basis points primarily due to a legal accrual investments to support our initiatives and more normalized incentive compensation. As a reminder, our adjusted G and A expenses [indiscernible] professional fees related to our strategic transformation initiative and expenses related to our proxy contest. Net interest expense was $5,000,000 compared to net interest expense of $5,100,000 in the prior quarter. This decrease was primarily the result of lower average interest rates. Partially offset by higher debt levels. Our GAAP income taxes were $1,900,000 Adjusted income taxes were $4,600,000 GAAP earnings per diluted share were $0.99 and adjusted earnings per diluted share increased 9.5% to $1.38 Adjusted EBITDA was $74,600,000 or 7.9% of total revenue. Compared to $62,400,000 or 6.7% of total revenue in the prior year quarter. [indiscernible] turning to capital allocation and our balance sheet. We continue to have a strong balance sheet that provides flexibility and allows us to invest in the business to drive profitable growth and long term value creation.

In the second quarter, we invested $38,100,000 in capital expenditures. We ended the quarter with $71,500,000 in total debt. Lastly, as announced in today's press release, the Board declared a quarterly dividend of $0.25 per share payable on 05/14/2025 to shareholders of record on April 11, 2025. Before turning to our fiscal twenty twenty five outlook, I want to make a few important points. As a reminder, we continue to view fiscal twenty twenty five as an investment year as many of our initiatives are in the early stages. And we anticipate our financial results will significantly improve by the second half of fiscal twenty twenty six and further accelerate into fiscal twenty twenty seven. Next, I want to emphasize that the year over year increase in Q2 EBITDA was largely driven by the actions we took to improve the profitability of our heat and serve and holiday catering channels during the important holiday weeks. The impact of these actions will largely be isolated to Q2 Given that Heat and Serve and Catered sales are significantly higher in this period relative to other quarters. That said, we fully expect these benefits will be repeatable in Q2 going forward. Lastly, our updated outlook reflects several items that I'd like to follow-up.

First, we expect approximately $4,000,000 in incremental egg costs. Although our egg prices are fully one of our vendors has lost some capacity due to the avian influenza outbreak. And as a result, we've had to purchase some eggs on the open market. Second, we are making incremental non working marketing investments related to our brand refinement work as we prepare to fully launch the Evolved brand in early fiscal twenty twenty six. Third, we are also making one time non recurring incremental investments in Q3 to support operations excellence and the successful launch of our back of house optimization initiative and the introduction of our new service standards. Additionally, as Julie noted, we've updated our timing expectations for the labor savings related to the back of house optimization initiative. Although we expect minimal savings in Q3, we anticipate the full benefit in Q4. Next, our outlook reflects the softer traffic trends that we and the broader industry have experienced quarter to date We believe this softness is largely being driven by poor weather, and increased macroeconomic uncertainty. That said, we are encouraged by the improvement we've seen over the past two weeks compared to the rest of Q3. Lastly, we expect an improvement in our Q4 traffic trend as a result of our initiatives.

We're excited about our summer menu promotion as well as the continued evolution of our brand work and enhanced marketing. Additionally, on the Cracker Barrel rewards and loyalty program. Now moving to our outlook. For fiscal twenty twenty five, we expect the following: Total revenue of $3,450,000,000 to $3,500,000,000 Pricing of approximately 5%. The opening of one to two new Cracker Barrel stores and four new Maple Street units Commodity inflation of 2% to 3% and hourly wage inflation of approximately 3%. As a reminder, we expect our adjusted G and A expenses will be elevated in fiscal twenty twenty five both in dollars and as a percent of sales. Primarily due to investments related to our strategic transformation initiatives as well as more normalized incentive compensation. However, we expect that G and A as a percentage of sales will begin to normalize as our financial performance improves in the second half of fiscal twenty twenty six, and into fiscal twenty twenty seven. Taking all of this into account, we now anticipate full year adjusted EBITDA of approximately $210,000,000 to $220,000,000 I want to remind everyone that this excludes consulting fees, related to our strategic transformation, and expenses related to our proxy contest.

Year to date, we've incurred approximately $7,300,000 related to the transformation and approximately $8,200,000 for the proxy contest. And we do not anticipate any additional amounts related to these items over the remainder of the year. Regarding interest expense, we continue to expect that we will refinance our $300,000,000 convertible debt this fiscal year As a reminder, given the current rate environment, will be meaningfully higher than our existing coupon rates of 0.625%. We expect a full year GAAP effective tax rate of negative 13% to negative 19%. And an adjusted effective tax rate of negative 2% to negative 8%. Lastly, we anticipate capital expenditures of 100,000,000 to $180,000,000 In closing, we're pleased with our strong Q2 results. And our transformation plan remains on track. I'm proud of our teams and we remain focused on continuing our strategic and operational momentum With that, I'll now turn the call over to the operator for questions.

Thank you. We will now begin the question and answer Today's first question comes from Jeff Farmer with Gordon Haskett. Please go ahead.

Thanks and good morning. Just a couple for you guys. So you did touch on it, but you delivered that roughly 4% restaurant comp number. Through the first half of the year, you did comment on some of the consumer anxiety that's out there. But how should we be thinking about same store sales in the back half of the year, all things considered? Hi, Jeff. I'll start with that one.

I would think about it as within the context guidance obviously. So first February are known. We were able to move up the top end of the sales range. So we are we're excited about that. So relative to our original expectations, we are a bit ahead. Clearly, there is some uncertainty in the month of February in particular As we think about that, our The February was particularly challenged, especially as it relates to weather also some macroeconomic uncertainty Having said that, the more recent trends have been meaningfully better. The last two weeks. But we do anticipate that our third quarter, which is February, March, April, will be a bit pressured by the challenges that we're seeing with the consumer but we've factored really all of that into the full year guidance. As we look at Q4, we have some things in the works as it relates to our innovation pipeline. That we think will resonate particularly well in our summer summer travel period. So in short, there are some consumer angst out there, but we have factored that into what we're thinking and into our expectations.

Okay. And then just one more, a little bit of a follow-up. So as it relates to that consumer angst, how is that manifesting itself across income cohort levels or age cohort levels Any color there would be Sure, absolutely. Our most recent data is showing that we've actually made gains over the last three months or so with the over 55 age cohort. So we're pleased with that.

And obviously, the total pie is is what it is. So that means a little bit of softness with the under fifty five age cohort, so a little bit of a shift there. We're pleased with the gains that we're making with the over 55 group is one of the areas that we tackled a little bit over a year ago and we're happy with the performance there. In terms of income, we generally look at that between the under sixty thousand dollars and over $60,000 and we're seeing relatively similar performance between the Honor 60 ks [indiscernible] ks. Now that is a bit of a shift If we were to think back to the last couple of quarters, we were seeing some softness with the under $60,000 versus the over and our most recent data is showing relatively similar performance between the 160 and over 60 at this point. That's the thing I might The thing I might add is while they're consumer confidence has dropped, everybody saw the University of Michigan report last month. We continue to feel like we are really resonating with our guests. Cracker Barrel remains an incredible value and we deliver value to our guests across several [indiscernible] Our loyalty program continues to exceed our expectations.

More people are signing up They're actually dining with us more often. They are a big the level of transactions from that group has grown quarter over quarter. And then I'd also point to Archheck versus both casual and family dining, right? The Cracker Barrel check at the end of this quarter is $15 At the same time frame, casual dining is $28 and family dining is $8 So we remain an extraordinary value for our incredible country hospitality, hand cooked delicious food and our guests are recognizing that. So we believe that we're very poised. We're poised well, given some of the macro uncertainty out there, but we know that we're playing our game our way, our guests are responding to it and we remain confident in our guidance for the balance of the year.

All right. Thank you.

The next question comes from Todd Brooks with the Benchmark company good morning to you all and congrats on a really strong holiday quarter.

I wanted to ask you're welcome. Wanted to ask you pointed out the fact that some of this margin improvement that we saw EBITDA wise the January quarter was related to really extremely solid execution of heat and serve and catering across the period on a year over year basis.

If I look, we were kind of flattish year over year in the first quarter. We saw North hundred basis points of improvement here in the second quarter.

Without kind of detail on parsing out the contribution from Heat and Serve and Catering, we don't really know what to back the expectations for year over year EBITDA margin improvement down to in the second half. So can we talk to out of that 100 basis point plus improvement, how much was the bidder execution?

Of Heat and Serve and Catering, Absolutely, Todd. I'll I'll talk about a few of those pieces. And so in Q2, [indiscernible] operations team really did a great job and delivered on every level and we're really excited about how they brought it all together. And the changes to heat and serve enabled some other other goals that we had. And one of the goals was just improve the experience where guests as well as our team members So as a result of that, we actually saw improving trends in our dine in business as a part of that. In terms of the parts of this that really sustain throughout the year, obviously, the total pie is because we've shared the overall outlook, we've shared the guidance and the first half of the year is booked, so you can kind of back into the second half of the year. There are a couple of things that have continued to we've continued to make gains in. In one area, let's talk about labor. Backed about a year and a half ago, we talked about the need to invest in labor and we saw that we made that investment, there was a cost to it, and we've been getting the gains there in terms of to get satisfaction, we've been seeing really big gains in employee retention and this fiscal year we've been transitioning that into gains in terms of productivity.

So you're seeing our employee productivity, really improve as we have this now stable workforce with turnover that we're very pleased with and continuing to get better. Now as we think about Q3 Q4, a couple of things there. So Q3 making some investments. We're making investments in the We've launched the backup house initiative. There is a training cost to that. So that's actually a cost in Q3. There is a learning curve We expect that back of house initiative is going to get to its run rate and continue to enhance labor even more than we've been seeing in Q4 But Q3, we have those training costs. We also have the training costs as it relates to the service model changes in Q3 as as well. So from a labor perspective, we think [indiscernible] continue to get better much more so in Q4. The back of house fully comes online less so as it relates to Q3. Commodity guidance overall we feel really great about where we are with our commodity Our supply chain team did an outstanding job as they as we covered this fiscal year and to some degree beyond that we're in a really good place with eggs.

We're really happy with that. However, there is a little bit of an availability problem there as we shared. So there's a little bit of headwind, but all of that is contemplated in commodity guidance, which is which is really, really good. We think. So labor really good, There's some of this. That is somewhat unique to Q2. But that Q2 benefit will continue into future years and all of that really is embedded into our thinking as it relates to the full year guidance. I think the big takeaway there is we have a couple of things. We have some investments in Q3, We also know that a Q3 start in traffic was a bit softer little bit better than the last couple of weeks. And then in Q4, we have the full benefit of back of house and we have some good things coming, so things that we're all really excited about that we think even in a challenging environment, think will resonate.

Thanks, Craig. One quick follow-up and I'll hop back in queue. I believe you said in the commentary, Craig, that The strategic transformation costs and the proxy battle costs are done for the full year. Did I hear that right? So we're not adjusting for in adjusted EBITDA? For the next two quarters.

Correct. Yes, absolutely. The proxy costs are done and the strategic transformation work is completed as it relates to add back We're in the stage now of implementation There are some costs associated with that. For example, some of those costs are in Q3. But we are not treating those as add backs or purposes of our adjusted EBITDA. Perfect. Thank you, both. The next question comes from Catherine Griffin with Bank of America.

Please go ahead. Hi, thanks for the question. First, I had a question on the REIT [indiscernible] from China? And how are you if so, how are you positioning the business and kind of what are your expectations on how tariffs could impact your business overall?

Hi, Catherine, it's Craig. I'll start.

Well, first, let me talk about the restaurant business. We the vast majority of our repurchases on the restaurant side are domestic U. S. Based. So that is a a big positive as it relates to tariffs. The retail business, the supply chain and the retail business is much more complicated. About a third of our purchases for retail are from China. The team has been well ahead of this topic and they have been working on that. There are a couple of levers there that we pull as it relates to how to navigate tariffs on our China purchases. Number one, and we've had some meaningful success here is just negotiating with the vendor so that we're not absorbing 100% of that cost. And the team has done a good job there The second lever is working on alternate sources. If we're not able to have the appropriate success with the vendor, looking at alternate sourcing. And then obviously the third is pricing. So we're balancing those three things. Obviously, it's a dynamic topic. So we're staying flexible but we are tracking and adjusting on a real time basis. I was really happy with really how far ahead the team was on this topic.

And keep in mind that all of that is everything all of the tariffs that have been executed at this point all of those impacts are contemplated in our guidance.

Great. Thank you. And then I just had a few clarifying questions on the egg inflation. So, first, can you remind me what percentage of your COGS are eggs? I know in the past you've talked about I think it's like a low double digit number for dairy and eggs, but if you could kind of parse out eggs with within that, that would be helpful. And then maybe just to clarify on the purchases you made on the spot market, how much of your egg purchase is that? And since your contract through most of the year, how are you thinking about the impact next year as those prices kind of reset? I ask that within the context of, what you spoke to about the fiscal twenty twenty six guidance. I think you said twenty second half to ramp up, but I don't know if that still means that you expect 26% to be above 25% on adjusted EBITDA. I know there's a lot in there, but thank you. Yes, absolutely, Catherine.

I'll start and then you may need to remind me a little bit as I go here. The first one is our egg mix relative to our commodity basket. We're in the low single digits, so low single digit mix. Then in terms of our the impact, I would say it's our pricing is really good. So we lost a little bit of capacity. We're talking about single digit teens in terms of volume but the spot market prices are so much better higher than our than our contracted prices. The impact there was that $4,000,000 I quoted for for the second half. And then in terms of our egg contract, again, the supply chain team really did a really good job and we are well positioned in terms of our contracts through fiscal twenty twenty six. That being said, we have to be mindful of the supply issue. So we're Cracker. We have good relationships with our suppliers that they honor. But there are clearly cases where due to circumstances beyond any of our control, they're not able to meet the demand, they're not able to supply the demand. So that is an exposure. But in terms of contracts, we're very well positioned through 26 at this point with eggs.

Thank you. And if I could just ask one more follow-up. How should I be thinking about pricing in the second half of 2025?

Yes. So we our pricing, we were at 6% in Q2 and we're still estimating we're still at 5% on the year. So that would imply meaningfully lower than six in order to get to five on the year. So that's how I think all of that will play out.

Thanks. I'll hop back in the queue.

The next question is from Alton Stump with Loop Capital. Please go ahead.

Great. Thanks for taking my questions. Obviously, sounds like dinner has been a huge outperformer for you now for the last several quarters. I'm curious, on the lunch and breakfast trends sort of if there might be a similar opportunity for you to improve those dayparts as given all of the success that you've had for the dinner daypart.

Hey, Alton. Thanks for the question. It's Julie. I'll start and then I'll let Craig jump in if I miss anything.

We continue to be really pleased with the progress we're making around dinner. Now we're not to positive traffic yet, but that remains where we're headed towards. Items that we have launched have resonated so well with our guests You've heard Craig and I talk about hash brown casserole shepherd's pie, pot roast in the we continue to really fuel that innovation pipeline because we know that that fuels preference. It fuels traffic. It fuels people coming to us for dinner. So lots more coming in the innovation pipeline there. We remain really focused on our execution at dinner. Still have our early dine specials out there for those that are very value conscious, especially given some of the things we talked about earlier with the consumer sentiment. We've got the $8.99 early dine m. That's out there for people. We've got our loyalty program, which also provides great value. And then back to your question about breakfast and lunch, we have really held up well at breakfast. It remains pillar for us.

A place of strength. We continue to innovate there as well. If you look at the new menu that we just launched, well, we have two amazing shrimp dishes. I so that we can continue to really bolster our strength there, really execute the barbell and also in some innovation in there. So all of those new items are really resonating with guests even though we're only five weeks into Q3. We continue to really not take our eye off any of those balls. We've got to win at traffic. We've got to sorry, we've got to win at dinner and we've got to win at breakfast. It's kind of important to note that we did see traffic trend improvement across all day parks, breakfast, lunch and dinner in Q2 versus Q1. So we're really pleased with the progress the team is making and then the great execution by our operations teams in the field.

Great. Thank you for all that color, bringing up both Julie. And then I guess just one more follow-up, But just on the pricing front, it's certainly a question faced facing the entire industry right now of how much pricing power it's is still left. But as I look at Cracker Barrel, you guys are I think at great value versus even some of your lower priced peers. So would I be wrong in thinking that perhaps Crackle Barrel has a bit more pricing power than kind of most people might realize as you kind of look out over next twelve, eighteen months? Yes, it's a great question, Alton.

Thanks for that. Look, it's one of the things we really examined as part of the transformation agenda is how do our guests think about value? How do they think about absolute pricing? How do we stack versus the competition and then where do we need to be to execute this [indiscernible] think about the early pricing work that we've shared with you all, we started that kind of March a year ago.

So we've got a real test and learn mentality around pricing to [indiscernible] [indiscernible] where we should be vis a vis our strategy. That's been working really, really well for us. I'll answer it in a couple of ways. One, we believe we still have room from a pricing standpoint, but that's not the only lever out there for us, right? We are about value. We know that our guests count on us to be a great value and we execute that in so many ways. I talked about it a little bit earlier when I answered Jeff's question. But remember, we've got early dine, we've got the Sunrise Pancake special that's available all day, every day at $7.99 It's an extraordinary value. We've got Craig's favorite take home meals that start at $5 So after you dine with us at this exceptional value, you can have another meal for only $5 Now you have to heat it up yourself, but it's we make it really easy. You just kind of pop it in the microwave So that's a great way to deliver value. Our loyalty program is such a strength of value for us. We know that you can earn PEGs on both retail and on restaurant.

We run special promotions where hey, if you come in and you spend $30 with us, you get $10 off or you get 20% off your entire check. So our guests are recognized the value that we deliver vis a vis loyal as well. And then I would just again highlight our Barrel ended the quarter at a $15 check, while casual dining was at $28 and family dining is at $18 So we believe this really positions us well in this uncertain economic environment that we can deliver our outstanding hospitality, our great scratch made food all for a great value.

So So we continue to watch it and we think there's opportunity there, but we're also super careful. Got it. Great. Thanks so much for all of color, Julia. I'll hop back in the queue. Thanks, Colton.

The next question is from Andrew Wolf with CL King.

Please go ahead.

Thanks. Good morning. I also wanted to ask very similar to what Alta was just asking about, So first of all, just on the price gaps to casual is pretty big and to family dining is not as big. How do you consider Cracker Barrel? I mean, is it a hybrid or is it one or the other? When you analyze how much pricing leverage or gap you have?

Yes. Andrew, we look at everybody right, because unfortunately, we are a little bit of a hybrid, maybe not unfortunately. I say I think it's one of our strengths. The fact that we have three dayparts we're out there at breakfast, lunch and dinner taking care of our guests. And offering them a great value.

So because of that, we have to look at family dining and because of important dinner is for us, we look at casual dining as well. We want to be relevant. We want to make sure that we are really grabbing market share from all of those folks. Even QSR, we look at them as well from a basket standpoint and what guests are paying across those channels. We believe it's really important to be relevant from a price per perspective as well as from a menu offering perspective and a service and overall experience perspective. You're going to get our Great Country House hospitality at those great price points. And frankly, remember, our guests love us for our abundance. And that still keeps coming through. When you look at what they're buying from us and the menu items that are doing extraordinarily well. So we look at all of it. We're pretty special. Don't forget, we also have a retail store. So we're even more special and a little bit more differentiated than all of those competitors.

Okay. The other sort of micro e question, then I want to ask a macro question. So that $15 average for Cracker barrel could sort of disaggregate, I would guess, lower on the family dining type of occasion and higher on the casual dining. So the gap might be even better against family dining and maybe a bit closer to casual Yes. Yes. No, we haven't done it that way, but I kind of get your I think I get your point. If you were to compare our breakfast business against breakfast as as an example, I think we're really well really well positioned in that way because for example, at dinner, we now have a steak and shrimp. It's really an amazing dish And yes, it's selling really well and I would compare more to a a casual dine in competitor versus a family dining competitor. So I think that's we don't exactly look at it that way. We do think about we do think about our gaps to competitors though, like for like item to like item, where do we want to be And we have a target there, where do we want to kind of be the best where do we want to be in line, that type of thing.

And our new pricing capability enables us to do that by store, by like region of the country versus competitors. So we're looking at all of that to see see how we stack up.

That sounds very robust, but I'd like to ask it higher level, if you will. So there is a big gap and you got tools to do it and you want to be prudent [indiscernible] my sense of it is sort of a pay as you go if you will. Kind of thing going on where as Cracker Barrel is able to improve the experience, whether it's better menu items that are service better lighting, remodels, All that stuff. There is an opportunity there could be an opportunity to increase close the gap. It would stand to reason. I just want to understand if that's part of your philosophy. Or do you want to maintain that gap? [indiscernible] as we did the strategic pricing work, we laid it out over this whole transformation window over the three years. Recognizing that it's the what you pay for what you get. Or what you get for what you pay. And we are working on the what you get part. And we've made a lot of progress there certainly as you can see with our various guest satisfaction metrics Other things too, we've been improving and evolving the offerings And as you know, we've been doing other tests to improve the atmosphere and so on.

I think all of that is to I think what you're saying there is there is a trajectory on the what you get and that gives us some flexibility on on the pricing as you think about that over the entire window. So the intent was never kind of here is the entire size of what we think the strategic pricing opportunity is let's take that now. That was never the intent. It's staged over a period of time and it's also staged with the other things that we're invested in the business to deliver a better experience for our guests and our employees.

Okay. That's what I was getting at. Thank you and congratulations on the results so far.

Andrew.

The next question comes from John Tower with Citigroup.

Great. Thanks. Maybe Craig, I was wondering if you could dig into the mix and traffic in the quarter. And specifically, you had mentioned about the benefits from an EBITDA standpoint on the catering and heat and serve during the second quarter. Is there a way you can quantify that for us?

Well, here's what I tell you, John.

Here's what I [indiscernible] a whole lot of detail there. We as Zubi talked about, we started down this path a year of actually over a year ago when Julie really this objective for us to improve this holiday window in terms of the [indiscernible] off the profitability. And as a part of that, what we've done is prioritized our dine in business and ensuring that we're delivering a really great experience and driving that a bit more so than even the catering and heat and serve business in this window and that worked out really well. So We actually gave up some traffic here as it relates [indiscernible] cater in and heat and serve. The traffic that we kept was [indiscernible] but it also enabled us to deliver better dine in traffic as well. Now, so if you kind of break apart the 4.7% comp as an that's what you're getting at there, 4.7% of total sales check up 7.4 price up six, mix of 1.4 which reinforces this idea that a strategic pricing is working because we're still getting that positive mix and traffic of a negative 2.7%. What I would say though is embedded in that traffic of a negative 2.7 are some We did not pursue as aggressively some of that business as it relates to the heat and serve [indiscernible] Kichurant.

So that's embedded in that traffic performance. And we saw an improvement in our dining Got it. Thank you. And then you also mentioned I think in the prepared remarks there was a calendar shift in the period Can you quantify that as well?

Yes. So we talked about really three things that drove the differential between total restaurant sales versus the comp sales. And they're similar. Not exactly a third, a third, a third but that differential is about a third, a third, a third as it relates to the gift card discount and the impact of that. And then the impact of this the fifty third week calendar shift that's The comp calculation really keeps the weeks apples to apples. So that's that difference. And then the five stores So all of those are in very rough terms, a third, a third, a third.

Okay.

And let me going back you'd mentioned earlier the idea that the service model is changing and there's some elevated training costs coming in the third quarter. Can you just speak to exactly what's happening with the service model? And maybe if over the longer term, are you guys anticipating that labor hours at the store level will maybe start working lower?

So a couple of things going on there, John. One, we have really been trying to put the guess at the center of everything that we do, really focusing on ensuring ensuring that we're delighting them, taking great care of them, thinking about them with the way we think about the menu innovation, the pricing, all of those things. And what we've done is really just evolve our service model to do exactly that. So we rolled out some new standards that literally have the guest at the center of everything and are really just reinforcing that through a lot of our service standards. That's sort of the one thing. And that works for all of the roles from back of the house to front of the house, It's really just a new way for us to kind of talk about that and just reinforce and bring our country hospitality to life through all of our initiatives and all of our labor and positions. The second piece is that back of house initiative and that really we rolled those training together so that people could sort of understand them and that they work together to make jobs easier, to get people focused on the right things, and to really improve quality and service and all that we do.

So we put those together, rolling them out this quarter and super excited. The feedback has been really great from the teams. They're loving it. They love the simplified steps in the back of house. They love the focus on the guest in the front of house and in all of the roles.

I'll build on that, John, just to say that improving labor productivity is a key part of that growing the overall profitability for the company over the three three year window here. We have two quarters into that. We are already seeing better labor as a percent of sales than we had in the prior year. We're seeing those gains in productivity We expect that in Q4, we will start to see even more of that with the back of house initiative as that goes alive. We had one initiative that went live [indiscernible] Q1 of fiscal 'twenty five and that's been helping in terms of our overall labor costs and productivity. This other back of house initiative goes live in Q3, but we expect the benefit in Q4. And then we have additional phases that are still very, very early as it relates to the overall labor productivity initiative. So that is a multiyear endeavor. We're still early. But it is a big part of the overall profit story as we go through the three years. And it's not just about [indiscernible] It is about making the jobs easier for employees making it more enjoyable and improving the consistency with which our products come out at at great quality.

And by doing that, it also reduces the amount of labor that's required.

Got it. Thank you. And then just the last one for me. In terms of I know Julie you'd mentioned earlier in the prepared remarks not providing too much more insight on the remodels and the refreshes, but any color you can provide around the lifts that you're seeing at the store, even consumer feedback in the markets? I think Indianapolis is one of the earlier ones. In terms of guest satisfaction scores or anything like that?

Yes. John, it's funny. We were joking in our prep on Mike. Somebody is going to ask about remodels even though I have it in the prepared remarks. It wouldn't be an earnings call if somebody didn't ask.

But we are we are it's awesome. No, it's gosh, it's such an important program. It's not the most important thing that we're working on, but there's so many pieces in it. And so that's really why we said we'll come back as part of our September call and really do a deep dive on it. We've been spending so much time really trying to get the algorithm right and get the levers right and understand from our guests and from our team members what are the things that drive the most lift in traffic, the most lift in sat and how do they come together? And is it lighting? Is it floors? Is it paint? Is it service model? All of those things we're looking at. And so we really want to make sure that we're dissecting it correctly, applying it correctly and understanding it correctly. And we're testing we keep changing the things that we're testing, right? We keep learning something and then trying something new. For example, we've got a whole new store that we're building near here right now, not building, but remodeling based on some of the learnings that we're building along the way. So this truly is an investment year.

It's a test and learn year.

We want to get this right for our investors. We take our capital allocation very, very [indiscernible] trying to be very targeted, get it right, and we need a little bit of space to do that. I know you guys watch it all through Placer AI and all of that. You're seeing some of the the gains in, Indie lately and some of those other things Right now, all we said publicly is the four stores from '24 We continue to be very pleased with those. We've got a lift in traffic, lift in sales there. And we'll come back at the end of the year and talk more about it.

Great.

Thanks for taking the questions.

The next question Somebody had to ask it John.

The next question comes from Larsen Reiss with Truist. Please go ahead. Hey, guys. This is Larsen just on for Jake.

Just wanted I know we touched on the ag commodity quite a bit already, but given the $4,000,000 incremental pricing and keeping the guidance reiterated there, I'm just wondering if there's anything you want to call out on some of the offsets that you might be seeing to offset that?

Thank you.

In terms of how [indiscernible] I think this kind of came up earlier, but the thing about the entire equation We raised our guidance a bit on the year, but our Q2 was pretty strong. So there are a number of puts and takes in terms of how we're solving some of this There are some spend in that we had you got into projection that we're going to defer, there are all the puts and takes in order order to fund that. But a part of it is we are raising the guidance less than what would be in theory imply just based on Q2 only. So all of that is baked in there.

Great. Thanks so much. You're welcome.

This concludes our question and answer session. I would now like to turn the call back over to Julie Massino for closing remarks.

Thank you. I want to thank everyone for joining us today. Our transformation is on track as demonstrated by our strong first half results. Fiscal twenty twenty five remains an investment year we're pleased that we were able to raise our EBITDA guidance. We believe we have a strong plan to drive continued performance in the back half particularly in Q4, and we are confident in our ability to deliver our commitments and set us up well for a very important 2026. Finally, I want to close by saying thank you and giving a huge shout out to our 70,000 plus team members for their amazing work bringing the brand to life every single day and especially during the important Q2. We're making terrific progress and I'm excited about our future. Thank you.

The conference has now concluded.