Good day and welcome to the Cracker Barrel’s Fiscal 2015 Third Quarter Earnings Conference Call. Today’s conference is being recorded and will be available for replay today from 2 PM Eastern through June 17 at 2 PM Eastern by dialing 888-203-1112 and entering passcode 8752723. At this time, for opening remarks and introductions, I would like to turn the call over to Jessica Hazel. Please go ahead, ma’am.

Thank you, Christy. Good morning and welcome to Cracker Barrel’s third quarter fiscal 2015 conference call and webcast. This morning, we issued a press release announcing our third quarter results and our updated guidance for the 2015 fiscal year. In this press release and on this call, we will refer to non-GAAP financial measures for the current quarter, adjusted to exclude the impact of accrued liability and tax effects related to the settlement of the Fair Labor Standards Act Litigation. We will also refer to non-GAAP financial measures for the prior fiscal year adjusted to exclude charges and tax effects associated with the special meeting of Cracker Barrel’s shareholders. The company believes that excluding these charges and tax effects from its financial results provides information that may be more indicative of the company’s ongoing operating performance, while improving comparability to prior periods. This information is not intended to be considered in isolation or as a substitute for financial information prepared in accordance with GAAP. The last page of the press release includes a reconciliation from the non-GAAP information to the GAAP financials. The press release can be found in the Investors section of our website, crackerbarrel.com. In that press release and during this call, statements may be made by management of their beliefs and expectations of the company’s future operating results or expected future events. These are what are known as forward-looking statements, which involve risks and uncertainties, and in many cases are beyond management’s control and may cause actual results to differ materially from expectations. We urge caution to 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 risks and uncertainties found at the end of this morning’s press release and are described in detail in our reports that we file with or furnish to the SEC. We urge you to read this information carefully. We also remind you that we do not comment on earnings estimates made by other parties. In addition, any guidance or outlook we provide or statements we make regarding trends speak only as of the date they are given, and we do not update or express continuing comfort with our guidance, outlook, or trends except in broadly disseminated disclosures, such as this morning’s press release, filings with SEC or as otherwise required by law. On the call with me this morning are Cracker Barrel’s President and CEO, Sandy Cochran; Senior Vice President and CFO, Larry Hyatt; and Senior Vice President of Marketing, Chris Ciavarra. Sandy will begin with a review of the business, and Larry will review the financials and outlook. We will then open up the call for questions for Sandy, Larry, and Chris. We ask that you please limit your questions to matters relating to the company’s performance, outlook and plans. With that, I’ll now turn the call over to Cracker Barrel’s President and CEO, Sandy Cochran. Sandy?

Thanks, Jessica. Good morning, everyone. I’m pleased to report positive results for the third quarter. Our store traffic and our restaurant and retail sales were strong. We once again outpaced the Knapp-Track casual dining index, making this the 14th consecutive quarter of outperformance. We also posted improvements in our operating income and profit margins, which resulted in a 21% increase in earnings per share from last year on an adjusted basis. Our performance exceeded both our previously stated expectations and consensus estimates for the third quarter. We believe our strong sales performance in the quarter was the result of general increases in consumer spending, our strong value positioning and the continuing success of your marketing initiatives. Margin improvement in the quarter reflects the ongoing implementation of our cost savings initiatives and the leverage of higher sales. This morning, we announced a 10% increase in our regular quarterly dividend to $1.10 per share. Over the past four years, we’ve increased our dividend six times or 400%. And also this morning, for the first time in our company's history, we announced a special dividend of $3 per share. The increase in our regular dividend and declaration of a special dividend reflects our commitment to a balanced approach to capital allocation and to returning capital to our shareholders after we have appropriately reinvested in our business. These decisions reflect our Board’s ongoing evaluation of our financial performance, capital investment and liquidity needs and our ability to deliver total shareholder return. Over the course of the year, we’ve remained focused on the execution of our business priorities to drive traffic and sales, optimize average guest check, improve margins and further grow our store base. Larry is going to provide the details of the financial results in the quarter and discuss our updated fiscal year…

Good morning, everyone, and thank you Sandy. I would like to begin by discussing our financial performance for the third quarter of fiscal 2015 and then our outlook for the 2015 fiscal year. For the third quarter of fiscal 2015, we reported GAAP net income of $35.3 million or $1.47 per diluted share and adjusted net income of $35.8 million or $1.49 per diluted share, a 21% increase over adjusted earnings per diluted share of $1.23 in the prior year quarter. In the prior year quarter, GAAP net income was adjusted for the expenses and tax effects related to the special meeting of shareholders. In the current year quarter, GAAP net income is adjusted to reflect an accrual of $0.8 million for the settlement of the previously disclosed Fair Labor Standards Act Litigation. Our revenue in the quarter was $683.7 million, a 6.3% increase over the $643.3 million in the prior year third quarter. Our restaurant revenues were $557.1 million and retail revenues were $126.6 million. Our comparable store restaurant sales increased 5.2% as average check increased 3.4% and traffic increased 1.8%. The increase in average check reflects approximately 2.5% higher menu prices for the quarter and a 90 basis point favorable mix impact. Our comparable store retail sales increased 4.5% for the quarter. Our total cost of goods sold in the quarter was 31.6% of revenue, a 30 basis point increase over the prior year quarter. Our restaurant cost of goods was 27.5% of restaurant sales compared to 27.1% in the prior year quarter. This 40 basis point increase was primarily a result of increases in food commodity costs partially offset by increases in menu prices. On a constant mix basis, our commodity costs were up approximately 4% in the quarter compared to the prior year quarter, due primarily…

[Operator Instructions] And we’ll take our first question from Jeff Farmer with Wells Fargo.

Larry, you did touch on it, but how do you normally contract for eggs and what can you do to help offset some of the expected pressure as you get into FY 2016 in terms of other promotional shifts or some pretty targeted menu pricing?

Jeff, we contract for shell eggs, liquid eggs and for hard-boiled eggs under multi-year requirement contracts, which require our suppliers to meet all of the requirements that we have. Those contracts and to feature rolling quarterly pricing locks that are based on the prior year quarter’s market prices. And so our prices on shell and liquid eggs are currently locked through fiscal year end. So as we go into the 2016 fiscal year as compared to what some restaurant companies have publicly said about supply availability, we are very confident in our ability to obtain supply. Our pricing will of course be significantly higher than pricing we have paid in the 2015 fiscal year. And as to whether that drives changes in menu or changes in specific item menu pricing, I think it's a little premature at this point to say.

And one unrelated question, so while one of your larger casual dining peers recently had some decent success in pursuing sale lease backs with some cap rates that were sub-6%. So what is your latest thinking on the pros and cons of monetizing your own real estate?

Jeff, as we have repeatedly said, sale lease backs are just a form of secured financing. They are a form of secured financing that historically has had a cosmetic accounting advantage and that both the liability and the corresponding collateral just materialistically vanishes off of the company’s balance sheet, but the financial obligation is identical to a secured borrowing. We currently have $325 million unused capacity under our revolver that we can borrow at 125 basis points over LIBOR. We have been very successful in the interest rate swap market fixing LIBOR for 10 years in some instances and we can still borrow right now at a rate that’s about 250 basis points lower than the [indiscernible] cap rate of that particular casual dining peer.

So no sale lease backs in the future it sounds like.

So let me be clear. These things work in cycles and I am not saying, we are not saying never. We’re saying in the current conditions of the capital market, a sale lease back as a form of borrowing would deserve our share, but capital markets exchange as they go through cycles.

And we’ll take our next question from Michael Gallow with CL King.

Just a couple of questions, first just a follow-up. Larry, I know you mentioned there was some reduction in employee benefits due to claims. Can you tease out how much that was? It sounds like that would be the variety that was unexpected and you wouldn’t expect to recur?

Michael, I don’t think I would characterize that as not being expected, because that was reflected at the time that we offered our guidance at the end of the first quarter and the end of the second quarter. Specifically, our employee benefits cost as compared to the same quarter of 2015 was down in the range of about 80 basis points.

In terms of – and then I just wondered if you can give us an update on the tiered pricing test, how that’s going, whether you’re seeing any resistance to adjustments in prices in various markets or whether you think that’s something we will see rolled out full system next year?

Michael, we to a very large extent have rolled out full system now. We have a relatively small group of what we refer to as the [indiscernible] doors which basically are serving as a controlled group for the first pricing tier than the first pricing tier service as the control group for second pricing tier and basically et cetera. But the thing to understand is that the menu pricing gap between the various tiers will grow gradually over time, not be a one-time jump. [indiscernible] we do our menu price increases once in the spring and once in the fall. So we intend to continue to do our menu price increases once in the spring, once in the fall and certain of the menu price tiers will get slightly higher menu price increases so that the gap will grow over time, not as a discrete jump.

And we’ll take our next question from Joe Buckley with Bank of America Merrill Lynch.

Couple of questions as well. First just on your description of the way your eggs are priced on your contract, I think you mentioned it’s on the prior year pricing, so...

It’s on the prior quarter, Joe.

Prior quarter, okay. And that’s like rolling 90-day lock, is that how it works?

Yes, it does. Yes.

And then couple other questions on things that were touched on already as well. You saw in the regional pricing like 2% to 3% target, it doesn’t sound materially different than what you’ve been realizing most recently, of course, but maybe even over the past couple of years, is that correct or should the pricing skew-up a little bit stronger on a year over year basis as this is implemented?

Joe, Cracker Barrel is going to always want to be positioned in the market as a compelling value for our guests. And the thought is that as we continue with tiered pricing and become more confident in the ability to tiered prices that there may be an opportunity to go from the 2% which has been the historical average over the past few years to something which is closer to the higher end of the range. But we don’t intend to use tiered pricing which is a multi-year program as a way to take us away from our value positioning.

And then on the food inflation, I guess you want to hold off on fiscal 2016 for the fourth quarter call, but is it encouraging as a potential offset or partial offset to the egg issue that the fourth quarter food inflation is expected to be flat year over year, do you see other things sort of leveling off that may continue to be flat or favorable into the new fiscal year?

Again without getting into the specific details about the 2016 fiscal year, we expect to see some moderation in year over year increases in beef, but the risk going into 2016 in addition to the avian flu in the eggs is that pork bellies which are the commodity for baking, which is a very important item for us, are now at a historical and likely a non-sustainable low. And so, there is some likelihood that there will be some recovery in pork belly prices as we go into fiscal 2016, again though, I prefer not to talk about our commodity outlook in any detail for fiscal 2016 until our fourth quarter call.

I’m going to add one point to that, Joe, although Larry outlined for you what eggs are as a percentage of our buy, of course, you realize that eggs are an ingredient in quite a few of the other items on our menu. So it’s in meat loafs, it’s in of course all of our biscuit mix and corn breakfast. So it’s going to affect us, we just don’t know how broadly in other ways.

And then just one more, if I can. Sandy, I didn’t understand the mention of supplemental retail inventories and then the retail inventory number was actually down quite a bit year over year. So I want to make sure where you’re going with the comments on the supplemental buys?

The retail team has done an excellent job of providing the shops with an assortment that I think is compelling to the guest. I think the styling, the value, the price point and the way they’re broadening the reach has been very good. The good news is that we have sold a lot more lot quicker than we thought of our inventory and quite a bit of our inventory is unique to Cracker Barrel and we source overseas. So the downside of that is you find yourself having to find additional inventory to fill back in when you sold through faster than you thought. So as we go into our busy travel season, our inventories are very clean and they are lower than last year, probably a little lower than I would have actually liked and that Laura would have liked, so the buying team has been working on adding more volume in some areas where we can and supplementing inventory in some categories that we are seeing a lot of enthusiasm with. So that’s difficult to do given our lead time and it’s just pointing out as a potential issue for us in the fourth quarter.

We’ll go next to Matthew DiFrisco with Guggenheim.

I wondered if you could talk a little bit about the long term growth projection or at least the third year of your three-year plan where you’re a little presumably cautious or conservative in not expecting a similar type of growth going forward. I was just curious is there any factoring in of some of the kitchen initiatives you’ve discussed in the past and some of the opportunities there that you have early stage identified as some kitchen savings and where do we stand in that roll out or timetable of testing that?

I’m going to turn it over, Matt, to Larry to sort of maybe add additional color on the numbers, but when we laid out our three-year plan last May of 2014, we identified at that time a number of initiatives that we thought would drive improvement in our productivity and sustainable improvements in our labor model and energy savings as a variety of things. So I’m really pleased with what we’ve been able to deliver this year, the key initiatives, plate ware reduction which we rolled out in Q1, we had improvements in our retail labor, we had a big energy savings, lighting initiatives that I’m pleased with. As I mentioned, we’re in the process of rolling out our dining room management, that’s another big initiative which I think drives a variety of things, including labor savings. So we have initiatives both planned in 2016 continuation and then also in 2017 that we’re excited about. So it’s not that we aren’t continuing to factor them in or now don’t believe that they will drive, it’s just some of them this year works, I think a lot came together for this year and some of the improvements came faster than we had anticipated. So Larry, why don’t you add the numbers color to that?

Yes. To refresh everyone’s memories on the numbers that something we share at analyst and investor meeting last May 1 and if there’s anyone who is interested in looking at that presentation, it still is available on our Investor Relations portion of our webpage. We anticipated that over a three-year period, from year end 2014 to our 2017 fiscal year that we would have annual sales growth in the 4% range, we would have 100 basis points of margin improvement coming from annual cost reductions to be achieved by 2017 of $50 million, which would be partially offset by additional advertising as a percent of sales and what we anticipated as additional wage and benefit pressure will be partially offset and the net of all that would be approximately 100 basis points of margin improvement over three years. And as a result, our operating income, we expected over that three years a compound annual growth rate in the 7% to 8% range and EPS growth rate in the 7% to 8% range. The 2015 fiscal year is the first year of that three-year plan. We anticipate that we will probably have an analyst and investor meeting sometime in our 2016 fiscal year, we will probably update and expand our strategic plan. But we’ve achieved significantly above that 7% to 8% operating income growth and 7% to 8% earnings per share growth in 2015 and that’s from a number of things. We anticipate that we will have achieved 40% of this three-year $50 million annualized savings in the 2015 fiscal year. But we also had very strong sales as a result of many of our marketing and operating initiatives, but as a result also of a somewhat more benign consumer environment than we had anticipated at the time that we presented last May.

We’ll take our next question from Alton Stump with Longbow Research.

I guess I just had a question on the balance sheet, just looking at special dividend and as you mentioned it doesn’t require you to take out any debt or use your revolver at all. You’ve got a very lean balance sheet, obviously you’ve had already given back a lot of cash to shareholders over the last couple of years in particular. What’s your appetite to potentially use debt to either – if you raise your dividend even further and/or start to buy back shares which you haven’t done a whole lot of over the last couple of years, how you’re thinking now after this special dividend as to where you see cash returns going from here?

We have said that we anticipate going forward that our regular quarterly dividend which currently has a payout ratio in the low [16%] range would be growing roughly in line with the long-term growth of our earnings per share. Concerned about raising our regular dividend much further is that there tends to come a point where your dividend payout ratio gets, it’s difficult to convince the market that it’s sustainable. And we are mindful of not getting to that point. As far as the opportunity to repurchase shares, as long as we have a 19.9% shareholder and we have a shareholder rights plan with a 20% threshold, and I’ll remind everyone that our shareholders overwhelmingly approved a shareholder rights plan with a 20% threshold, the view that we have is that we need to find alternatives to share repurchases to return capital to shareholders, which is the reason for our first special dividend that we announced this morning.

We’ll take our next question from Steve Anderson with Miller Tabak.

A couple of quick questions. I may have missed the first one. With regard to the 170 basis point drop in labor cost, can you break it down in terms of the percentage for claims, how many basis points was tied to claims, trying to – you said you’ve modeled this at least for the last few quarters and I’m thinking about 2016 model, is that something you would consider going forward?

Stephen, it’s difficult to comment at this stage about what our actuarial experience may be as we move forward. We had until the end of the 2014 calendar year and it’s important to emphasize here that it’s a calendar year which is relevant for our benefits plans, not our fiscal year. Through the 2014 year, we had an employee healthcare plan that was insured by a major insurance company, but that had a retroactive adjustment feature. We have gotten the benefit of the positive claims experience in the 2014 calendar year in the form of those retroactive adjustments, some of which occurred in the 2014 fiscal year, most of which are occurring in the 2015 fiscal year. As we go forward, we have now in compliance with the Affordable Care Act, have a self-insured plan that tends to have higher deductable than the 2014 plan did. So it is still relatively early to assess what the likely claim experience is going to be and the implication that that might have on next year’s plan.

And we’ll go next to Robert Derrington with Wunderlich Securities.

Sandy or Larry, I’m not sure who to direct this to, as we look at the 170 basis point improvement in labor cost, can you give us any kind of color on what the dining room management program is contributing to that?

The dining room management is not contributing at all to that yet. So we’re in the process of rolling it out, I think, there is about half the chain maybe in the process of installing it. We should be largely done by the end of the fiscal year and then they will have to understand how to use it. I do anticipate future labor savings tied to that initiative.

All right. I just wasn’t sure of whether we should assume that there is any contribution from that yet or not. On the inflation guidance, Larry, that you typically talk to us about, you mentioned that’s relative on a constant mix basis, I think, but typically I thought some of the LTOs that the company traditionally uses you’re trying to find promotional mix of product that could also provide you some benefit. So the flat inflation you’re expecting in Q4, year over year you won’t necessarily have a constant mix sales basis, is that correct?

Bob, a couple of things there. We have historically used our five menu promotions a year for the purpose of providing something new for our core customers and something different from our occasional customers. But from a financial standpoint, we have always targeted our promotions to be at gross margin neutral on a dollar basis not a percentage basis. Now, since the promotional items tend to have a higher menu price, at a constant dollar margin it means that they tend to have a lower percentage margin, which is the reason why we have reported for at least each of the quarters of 2015 a relatively high mix benefit in our comp store sales, but you’ve not necessarily seen that in our restaurant food margin as a percentage.

Last year in the fourth quarter, I think you ran campfire meals and if I remember correctly I think it added roughly 70 basis points or pushed COGS up for the restaurants on the food side up versus prior year, I’m just trying to think about this year’s promotion which is ribs which you haven’t done at least I believe in a while, right?

The ribs at a $10.99 price point are a compelling value as compared to what some full-service restaurant companies are offering ribs for. Again, we expect it to be gross margin dollar neutral which means it may from a percentage standpoint, from a margin standpoint be slightly negative.

Just out of curiosity, is that actually a half of a slab?

It’s Chris Ciavarra, yeah, it’s half a slab St. Louis-style.

Terrific. Sounds like a great lunch.

And we’ll go next to Steve Anderson with Miller Tabak.

Just a follow-up, I wanted to discuss the fusion prototype and I wanted to ask if you’ve made any progress on – I think if I remember correctly, at least one of the units were in the new fusion prototype for fiscal 2015 and if you have thought about any type of reacceleration of unit growth?

So the store is nearing completion of construction in Morganton, North Carolina and we expect to open on June 22. I’m pleased with the way the construction progress is going and we’re really excited about the learnings that are going to come from the new design. That will give us an opportunity to improve new stores going forward, but it will also allow us to begin to understand better potential retrofit opportunities.

That concludes today’s question-and-answer session. At this time, I'll turn the conference back to Ms. Sandy Cochran for any additional or closing remarks.

Well, thank you all for joining us today. As we head into the final quarter of the year, I’m pleased with the sustained progress we’re making on our strategic priorities and with the momentum we’re carrying. We remain well positioned with the strong brand, talented management team and more than 70,000 engaged employees committed to providing a great guest experience. We appreciate your interest and support. Thank you.