Good day, and welcome to the Cracker Barrel Fiscal 2019 Fourth Quarter Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Adam Hannon. Please go ahead, sir.

Thank you and good morning, and welcome to Cracker Barrel's Fourth Quarter Fiscal 2019 Conference Call and Webcast. This morning, we issued a press release announcing our fourth quarter results and our outlook for the 2020 fiscal year. In this press release and on this call, we will refer to non-GAAP financial measures for fiscal 2018 adjusted to exclude the impact of the 53rd week that occurred in our fourth quarter and a onetime noncash revaluation of the company's net deferred tax liability that occurred in our second quarter. The company believes that excluding these 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. On the call with me this morning are Cracker Barrel's President and CEO, Sandy Cochran; Senior Vice President and CFO, Jill Golder; and Vice President and Principal Accounting Officer, Jeff Wilson. Sandy will begin with a review of the business, and Jill will review the financials and outlook. We will then open up the call for questions for Sandy, Jill and Jeff. 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 Risks and Uncertainties found at the end of the press release and are described in detail in our reports that we file with or furnish 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 law. I'll now turn the call over to Cracker Barrel's President and CEO, Sandy Cochran. Sandy?

Thank you, Adam, and good morning. This week marks Cracker Barrel's 50th anniversary, and we're pleased to celebrate this milestone by sharing some highlights from our fourth quarter and fiscal year and outlining some of our plans for fiscal 2020. As you can see from today's press release, we had a strong fourth quarter as we achieved positive comparable store restaurant sales and traffic growth, significantly outperformed the casual dining industry and delivered fourth quarter diluted earnings per share of $2.70. I'm pleased with the progress we made in fiscal 2019 as we drove performance through an increased focus on our menu, the employee experience and the continued expansion of our off-premise business. I believe our performance this year also reflects the strength and differentiation of the Cracker Barrel brand and of our ability to execute our strategic initiatives. This resulted in us outperforming the casual dining industry for the fiscal year and delivering diluted earnings per share that grew 4.5% over adjusted EPS in the prior fiscal year and exceeded our previously stated expectations. Jill will discuss the financial results from the fourth quarter and our expectations for fiscal 2020, and I'll speak to you about our business priorities for fiscal 2020. But before that, I want to discuss some highlights from the fourth quarter. Our fourth quarter menu promotion featured Southern Fried Chicken, which, as a reminder, is the initial offering of our Signature Fried Chicken platform. This offering includes a generous portion of 4 pieces of hand-breaded bone and chicken with honey for drizzling, 2 sides and a choice of homemade biscuits or cornbread. The promotion also featured summer sides, which included corn on the cob, bacon baked beans and banana pudding for dessert. This promotion was supported by 12 weeks of national TV, with the ad…

Good morning, everyone, and thank you, Sandy. I would like to begin by discussing our financial performance for the fourth quarter of fiscal 2019 and then our outlook for the 2020 fiscal year. In this morning's release, we reported fourth quarter net income of $65 million or $2.70 per diluted share compared to prior year adjusted earnings per diluted share of $2.19, which excludes the impact of the 53rd week in the prior year quarter. For the full fiscal year, we reported net income of $223.4 million or $9.27 per diluted share, representing a 4.5% increase over the prior year adjusted EPS of $8.87. We reported EBITDA of $390.4 million for the fiscal year compared to $376 million in the prior year adjusted for the extra week. For the full year, we generated nearly $363 million in cash from operations, which allowed us to invest in our business and return capital to shareholders in the form of declared dividends that totaled approximately $195 million in fiscal 2019. For the quarter, we reported total revenue of $787.1 million, an increase of 4.6% when compared to prior year revenue of $752.5 million, adjusted for the 53rd-week impact. On an adjusted basis, our restaurant revenue increased 5.4% to $650.1 million, and our retail revenue increased 1% to $137 million. Our total revenue increase was driven by positive comparable restaurant and retail sales and the net opening of 7 new Cracker Barrel locations. Cracker Barrel comparable store restaurant sales in the quarter increased 3.8% as average check increased 3.6% and traffic increased 0.2%. The increase in average check reflected menu price increases of approximately 2.3% and a favorable menu mix impact of 1.3%. The fourth quarter mix favorability was driven primarily by our Southern Fried Chicken offering and the growth of our off-premise business.…

[Operator Instructions] The first question will come from Alton Stump with Longbow Research.

Congrats on the quarter. I was wondering if you could just give us maybe a bit more color, if you can, how much of an impact that the new fried chicken product had on either mix and/or comps in general and kind of what we should expect or potentially should expect over the course of full year.

Alton, this is Jill. So as I said in my prepared remarks, in the fourth quarter, we had positive check growth. Approximately 2.3% was from pricing and then additional check growth, both from the Southern Fried Chicken and our growth in off-premise. So they were -- those 2 were split approximately evenly about 60 to 70 basis points each in growth. So we would expect some favorable mix into fiscal '20 from both of those drivers but probably not to that level.

And then just real quick follow-up and I'll hop back in the queue. Just as far as your commodity guidance, 2%, 2.5% for the full year, should we expect a sort of major volatility on a quarter-to-quarter basis? Or it should be in that range for the bulk of the year?

That's a great question. So as we look at the quarters for next fiscal year, we've got commodity inflation in the range of 2% to 2.5%. The increases come primarily from 2 areas: higher pork due to the African swine fever primarily driven by bacon; then we also have dairy increases, which is driven by butter and cheese. We do expect some deflation on eggs and that's primarily in the first half of the fiscal year from a favorable locked position that we have on shell eggs. So what I would say is you'll see some slightly lower commodity inflation in the first half of the year versus the back half.

The next question will come from Jake Bartlett with SunTrust.

My first question is about your guidance for same-store sales in 2020. I know your compares get significantly more difficult as '19 progresses. Just trying to gauge your level of confidence. And maybe as part of answering that, if you could help us with the cadence of same-store sales throughout the quarter in the fourth quarter, noting the kind of the differences in marketing spend versus the prior quarter? And then any commentary on current trends would be helpful.

Okay. So as we look at our guidance for fiscal '20 on same-restaurant sales, I want to go back to the fact that what I said in the script is, for the year, we were expecting the industry performance to be similar to last year. But in the near term, we're more cautious, especially given some of the consumer trends that have been published in Knapp-Track through August, where we've seen some softening. And so if you think about some of the impacts that might be impacting the consumers, the tariff impact, the recent oil price impact represents a risk to us. So what I would say as we think about cadence, in the near term, we're more cautious. So -- and then on the current -- the fourth quarter, we're not going to talk about our monthly trends.

Okay. But that commentary about the industry trends, we could reasonably assume that you imply your current trends would follow that sort of trend?

We're just making a comment about the industry, Jake.

Got it, got it. Okay. And then I also had questions about the implications of the Punch Bowl Social investment on your capital allocation strategy, and just you ended the quarter at a much lower cash level than you typically would have. Do you expect to take up your debt levels throughout the year? And then as also part of answering that, any changes or impact it would have on your planned share buybacks? I know that your current authorization's about $50 million. And any plans that -- the impact that could have on your dividend strategy?

I'll start, Jake, and then turn it over to Jill if there's anything additional she wants to add. And I'll start by stepping back and just kind of summarizing the position that the Board -- the long-standing position that the Board has had relative to capital allocation, which is that we first invest in our business and then we look to have a sustainable competitive regular dividend, a share repurchase plan as appropriate. We've just recently been able to do more volume and share repurchases, and then we've announced an expanded share repurchase plan. And then as part of our strategic initiative to extending the brand, we've looked at ways to make investments in the business that we felt would drive long-term shareholder value, which is what you see with the Punch Bowl Social investment. So when you take all of that into play, additionally, our targeted debt levels have been in the 1.5 to 2x for quite some time, and we're currently below that. So I think the investment in Punch Bowl Social was a use of cash, which we are optimistic that it will be a long-term value driver. And so I think that the Board will continue to operate within that framework as it sees opportunities, and we'll continue to navigate through an environment where we're trying to sort of balance all of those different demands on capital. We do talk about it at every Board meeting. So Jill, I don't know if you want to add anything else to that.

So Jake, I think what I would add is around the color with Punch Bowl Social, just to kind of walk you through the investment that has already been made and then kind of how that $140 million that we talked about in our July press release and then we reiterated on the call. So as a reminder, of the $140 million investment commitment that we talked about, $89 million was for our initial noncontrolling stake, which was made in fiscal '19, then that remains -- there's $51 million is for growth capital. And of that, we've provided approximately $15 million in '19. So that leaves approximately $36 million remaining on that.

The next question will come from Gregory Francfort with Bank of America.

I just had a couple. On the -- the first, maybe going back to the capital allocation, I think your CapEx is coming down a little bit next year. Can you talk about the POS system and the rollout of that and how you're thinking about timing? And I think there's an opportunity to, I may be wrong, but to consolidate more of the operations across restaurant and retail when that gets done. And so I guess I'm just curious of the current timing plans on that.

Sure -- oh, why don't you go, Jill?

Okay. Well, I'll start, and then Sandy can add. So currently, we have 110 restaurants have our new POS system. In fiscal '20, we plan to roll approximately 50 more out to the system. We continue to be pleased with the new POS system. It's easier for our team members to use, it's easier to train them on. We believe that this technology will enhance both the employee experience as well as the guest experience, given the other enablers like tablets. So for example, what we've been doing, as we've looked at the rollout of our POS, is we've been trying to pace it appropriately with other initiatives. I know we talked about that in fiscal '19, where we purposely slowed it down with the chicken initiative. And so as we look to fiscal '20, we're trying to appropriately pace it.

Got it. That makes sense. And then maybe just on Punch Bowl, I guess you're just under 50%. And in your guidance with the $0.50, does that assume it stays as an unconsolidated affiliate? Or as you provide growth capital, that pushes you over 50% and then it consolidates on your books, and you're assuming you kind of fully bear the costs? I guess I'm trying to figure out like how you're thinking about that impact. And then just, I guess, as a follow-up to that. I would imagine that the preopening on some of these boxes is high. I think normally preopening comes in a little bit south of $1 million. Should we think of it in the kind of $1 million to $2 million range? Is that kind of a rough approximate range to think about preopening per store?

So Greg, this is Jill. I mean I think there's kind of 2 questions in there. Let me start with the accounting treatment. So we are accounting for Punch Bowl Social using the equity method. So the way you will see that on our P&L is we'll have an -- it will be aggregated on a net income line, which will say income or loss from unconsolidated investments. You didn't see this in fiscal '19 given the fact that we closed on the deal right at the end of the fiscal year, so there was really no material impact on the P&L there. And that is our expectation of how it will be reported in fiscal '20. So as we look at our guidance for fiscal '20, and we were trying to provide clarity for you all, in '20, we expect Cracker Barrel to report EPS of $9.30 to $9.45. That excludes the estimated impact or investment of Punch Bowl Social of approximately $0.50. So then when you combine Punch Bowl Social, you -- the implied EPS -- the GAAP EPS then would be in the range of $8.80 to $8.95. To your point on Punch Bowl's opening, given the fact that it's a growth brand, that adds preopening expense. It also adds some uncertainty around the timing of preopening. There can be shifts that impact it. So given those uncertainties, as we look to guidance, we recommended that -- we recommend that investors really focus on the EPS guidance for our core brand of $9.30 to $9.45.

The next question will come from Jeff Farmer with Gordon Haskett.

Just following up on Punch Bowl, and I appreciate what you just said about potentially how to model this moving forward. But -- so concept is expected to see that $0.50 per share headwind. I think that's roughly $12 million in net income in '20. So the question is based on the pace of Punch Bowl unit development and theoretically, increasing preopening as you get to '21, '22 and beyond, could that dilution number get bigger as you move past 2020 or -- I'm sorry, FY '20? Or is there some other offset that could show up to reduce that $0.50 headwind?

Yes. So as we said in our comments, Punch Bowl Social is a high-growth brand, and so we would expect to see preopening expense for some coming years. But beyond what we provided for fiscal '20, we're not going to disclose anything else beyond '20.

Okay. And then I heard you mention the D&A dollars, you guided to the D&A dollars, but G&A, I might have missed it. Looks like G&A dollars were up 5% to 6% in '19. I think that was materially higher than the revenue growth rate for the year. As you think about G&A growth in FY '20, is there any color you can provide there?

So G&A in the fourth quarter was primarily from incentive comp. And so we expect it in FY '20 to be approximately flat as a percent of sales.

Okay. And then last one, again, I apologize if you touched on this, but fairly large in the fiscal fourth quarter in support of the fried chicken. As you moved into the fiscal first quarter in terms of media weight, TV weeks, however you want to provide the information, what can we expect in the fiscal first quarter versus what you just saw in the fiscal fourth quarter?

So in the first quarter for marketing spending, we've added a couple of media weeks versus prior year but nothing significant.

The next question will come from Bob Derrington with Telsey.

Sandy have highlighted -- we're probably spending too much time on Punch Bowl given so much we don't know about it. But I'm just curious, the fact sheet you all originally provided us around the brand basically called for -- I think it expected new openings, 11 by the end of calendar 2020. The company's guidance I think is now for 6 new units in the fiscal year. So how do we reconcile the 2? Does that mean there's 4 more or 5 more planned for between the end of July and the end of the calendar year next year?

Yes. That's -- yes.

Yes, it's the difference between our fiscal years.

Okay. All right. And I'm curious, are you comfortable with the unit economics of the brand? And the reason I asked that question is the -- I guess for the 17 units that are opened currently, I think that if the fact sheet calls for an average about 23,000 square feet, which I guess at the estimated sales per store, that implies only a sales per foot of roughly about $330 per foot compared to Cracker Barrel, which is well over $500. So I'm just curious, your perspective on this.

So hey, Bob, this is Jill. So as we look at the Punch Bowl, we believe they have solid unit economics. They are targeting AUVs of $7 million to $8 million. They have -- some stores will certainly exceed that. Their targeted store-level EBITDA is 17% or north of that. There also we just opened -- and they just opened their first 10,000 square-foot box or their smaller box that they're testing. So we like the unit economics.

Can you give us some perspective on the capitalized cost per new store?

No. We're just -- we're not going to get into a lot more detail that will -- we'll leave that to some future discussions, maybe we'll get into it at an Analyst Day. But we also -- I think to add to Jill's point that there are some opportunities to improve the economics, first of all, with the learnings that we're having about the geographic differences in the models, how to improve the efficiency of models. So in their current portfolio, we are pleased that the newest boxes are performing as strongly as they are, and we believe we can add value in terms of purchasing and some other cost structures to even further improve the business model going forward. And as we understand more and as we get further into this investment, we will update you all and give you a lot more detail about the company and its economics.

Got you. And if I could follow up real quickly on the -- Jill, your comment about the near-term outlook based on things like Knapp-Track, et cetera, was there any impact in any way from the hurricane that recently went up the Eastern Seaboard, either through loss of power or store closures, customers transitioning? Any kind of commentary there? Was that a drag on the business?

Yes, Bob. Thanks for your question. We felt very fortunate that damage to our stores and our employees' homes was minimal from the hurricane. The impact was mostly to sales, and we believe that was immaterial. But all of that is contemplated in our guidance.

I think what makes an event like that difficult for us is that if you look at how many stores were closed and for how long, it's one thing. But what we can't quantify, but we know we were impacted by, are the people who changed their travel plans and then didn't make the trip down to Orlando, for example. So we didn't get the opportunity to have a meet with us along the route. And so I do think that the storm, it went on for quite a long period of -- a couple of weeks, and it was over Labor Day. It didn't help the trends in the industry.

[Operator Instructions] The next question will come from Jon Tower with Wells Fargo.

I just have a few, if I may. First, when thinking about the marketing cadence for the year, I know Jeff had asked something earlier on the first quarter, but given the fact that last year was so fourth quarter heavy with respect to marketing spend, how should we think about it rolling out through the balance -- or for the full year of '20? Should it be evenly split? Or will there be certain quarters where there might be much higher weightings?

Well, we always tend to put higher weightings in the second and fourth quarter because those are just so much more important to us from a traffic standpoint, supporting the holiday period and then the summer travel period. Relative to those comparisons to prior year, I guess, in general, in FY '20, we expect our advertising expense to be relatively flat with prior year. One of the things we do, do is as the year progresses, we do kind of think about shifting some of the dollars around.

Okay. And then just going back to dinner, it's been a sore spot for the business over time. And it sounds like you're attacking this with some new products in 2020 and then in the back of the year, some menu simplification. But I think you've also said in the past that, at least in previous calls, that greater competitive discounting has also been an issue for some of your dinner traffic. So when thinking about either product evolution or how this menu is going to be framed in the latter half of '20, should we expect these products to kind of address that value category more aggressively? And same thing with either the menu featuring value or advertising perhaps supporting value more so than in the past?

You are absolutely right, Jon, that the amount of discounting historically in the industry has certainly been a pressure. And for our competitors, they're only operating in the dinner daypart, so that's where we probably feel it the most. Our work on the dinner menu is that we're attempting to do a variety of things. First, we plan to add new, craveable, signature items. The Signature Fried Chicken platform is the first and maybe the best example of the kind of thing we're trying to do there. We're planning to delete some items so that we're not adding additional complexity to the menu and to allow our operators to improve and continue this consistency in the execution of the menu. But as we've redesigned it, we want to highlight the value that is on our menu every day. So there, we're looking at a new category called $8.99 Home Cooked Classics. It will, we believe, deliver a lot of value to our guests, and it will be available every day. We will highlight some of our Cracker Barrel Favorites section in a way that we believe is easier for our guests to understand, and to be honest, easier for our teams to deliver on the brill side and on the server side. And then we're looking at things like we're going to go ahead and we'll put the breakfast -- a component of our breakfast menu on the dinner menu to reinforce our breakfast-all-day category. Some people, because it's 2 different menus, don't necessarily understand that breakfast all day and it's a little bit complicated for our hosts to provide 2 menus. So we're trying to accomplish a lot in the dinner refresh, but absolutely have in mind that we reinforce and highlight the value that we believe is so important to the brand and to our guests.

Great. And the last piece I have is more of a clarification. The growth capital that you're providing for Punch Bowl Social, is that included in the CapEx guidance for the year of 110 to -- sorry, $115 million to $125 million?

No, it is not.

The next question is a follow-up from Gregory Francfort with Bank of America.

I just had 2 quick other ones. The first is just on the retail business and margins, can you maybe frame up what the magnitude is of the tariff impact you're assuming? And then I think you talked about retail margins being roughly flat next year, kind of where the offsets are and what are the key initiatives that are driving that as an offset?

We won't quantify the specific tariff impact, but I can tell you that the teams have been working hard to identify ways to mitigate the impact of the tariffs. And when I say mitigation, firstly, we are evaluating whether we could source from different countries. We are working with vendors to identify ways to reduce the cost. In some cases, we are working to, in some cases, no longer stock a particular item if we think that the price increase necessary would make it not sort of interesting to our guests. And then lastly, we are looking at where and how to increase prices on the floor. So there's a lot of work being going on. I think the broader concern about tariffs is whether in general, costs across the board go up for our guests, and it results in them having less discretionary income, which could affect the frequency and the way they think about eating out.

Yes, got it. That makes sense. The other last question I have was just on the To-Go business. You've had a couple of years of an added push on To-Go. Can you give any thoughts or extra clarification on how that consumer's using the brand differently than your in-store consumer? Either frequency of that visit per year or quarter or month, however you want to describe it, and drink attached or any other sort of ways that they're using the brand, differences or similarities that you're seeing, would be helpful to just give us a broader picture.

Well, that's a good question. I'm trying to -- I don't think we yet understand how the frequency changes. I'll make a couple of comments, and Jill, you can add to it. Individual To-Go continues to be the biggest component of our off-premise business. And within that, third-party delivery has been a surprising -- a surprisingly big part of that business, and we do believe that, that is largely incremental. We've been pleased with the growth that we're having in the catering, in the celebration meals. We've made a big investment in that with our catering vans and our catering service managers. And we hope that in fiscal '20, we can continue to build on that. I know our retail team is working hard to try to find ways that we can get retail attachment with off-prem when they come in and because we don't see right now the same level of retail attachment. And I know the off-premise team is working hard to try to drive things like beverage or a dessert or upselling and adding size and how we can do that through either the digital app to do a better job of recommending or through the scripting on the phone when we're taking the call. I would say in general, we don't see the beverage attachment with a To-Go sale that we do with dine-in just in general. Jill, do you want to add anything to it?

No. I think you covered it, Sandy. Thank you.

The next question is a follow-up from Bob Derrington with Telsey.

Just a quick accounting one, Jill. As we're looking at depreciation, that line, I guess, last year in fiscal '19 was up almost 15% at about $107.5 million. Fiscal '20 guidance is for only about a -- I guess the range you're providing implies a 2% to 7% growth on D&A. What's going on within that line? Are you running off some things? Is there much in the way not coming on? I would have thought some of the technology initiatives would be -- in the POS would be adding to that.

No, it's a great question, Bob. So -- and as you know, our depreciation had been stepping up as our capital stepped up from our planned investments to support our growth initiatives like the platforms for the chicken as well as the coffee makers, some of the POS, so a number of areas where we've been investing. You can see that our guidance for overall capital steps down next fiscal year versus this fiscal year. So some of the slower rate in growth and depreciation is due to the fact that we plan to spend less in capital.

Got you. And Sandy, as it relates to the dinner refresh, are those things -- some of the changes within the -- alterations within the menu, designed to use some of the equipment that you invested in this past year supporting the rollout of your chicken platform?

Oh, absolutely with the chicken platform, just to the question you just asked. The investment last year in equipment and installation of the fryers, the breading stations, the hot holes, that was significant. And it was always intended to be a platform that we, over a period of time, multiple years, added to. So we started with the Southern Fried Chicken, the bone-in. We've just gone to homes [ pay ] every day and this chicken BLT sandwich, which is awesome. We'll be doing fried turkey again this holiday, which was very successful last year. And our new platform, I think, will allow us to do it even at higher volume and with more consistency and easier on the back of the house. Then we plan, in probably actually the next fiscal year, to be adding hand batter breaded tenders, which we can use in themselves and on salads. So we have a variety of initiatives planned by the culinary team over a period of time to leverage the investments that we made in the whole system of fried chicken.

Can you fry an entire turkey in one of those?

No, we can't. Not unless we want it, and people do that.

No, it's the turkey breast that we offered last year over the holidays. Absolutely delicious.

Down in the south, that's a pretty popular item.

Well, thank you all for joining us today. As we look forward to 2020, we plan to build on our brand strength and execute our business initiatives to drive sales and long-term value creation. We appreciate your interest and support, and we thank you for your time this morning.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.