Cracker Barrel cooking up growth

by Monica Watrous
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More menu innovation is on the way at Cracker Barrel.

LEBANON, TENN. — Over the next year, Cracker Barrel Old Country Store, Inc. is focused on four initiatives to drive continued growth. Net income for the fiscal year ended Aug. 1 increased 13% to $132,128,000, equal to $5.55 per share on the common stock, which compared with $117,265,000, or $4.95 per share, in the previous year.

Full-year revenue totaled $2,683,677,000, up 1.5% from $2,644,630,000.

Looking ahead

In the year ahead, the casual dining chain’s plans to improve sales and traffic include menu innovation and promotion developed to further broaden its customer base.

“Our product development team is focused on creating entrees using fresh ingredients, bolder flavors and customizable selections, all at a value to our guests,” said Sandra Cochran, president and chief executive officer, during a Sept. 17 call with financial analysts to discuss fiscal earnings. “We continue to improve our guest perceptions of freshness and health of our menu through the growth of our Wholesome Fixin’s category. In F.Y. 15, we anticipate adding several breakfast and lunch/dinner entrees that were offered as limited time only during F.Y. 14 to our core menu, for continued build-out of the Wholesome Fixin’s category.”

To further strengthen its reach in the marketplace, the company is increasing its media spend in select markets and reallocating advertising dollars from radio into digital media and television.

Cracker Barrel’s second objective for the year is to optimize average check by adjusting prices on a regional basis.

“Through market and competitive research, we believe that there are select opportunities to offer geographic pricing tiers without negatively impacting guest check or future visit intent,” Ms. Cochran said. “During this fiscal year, we plan to test our way into market level pricing. And given satisfactory results from our test groups, we anticipate total annual price increases over the next three years between 2% and 3%.”

Third, Cracker Barrel aims to improve store operating margins through new technology and process enhancements.

“We’ve got many projects currently in testing, or in the roll-out phase, that will support an annual reduction in store operating costs of approximately $50 million, to be recognized within the next three years,” Ms. Cochran said.

Projects include a dishware reduction initiative. By decreasing the number of plates, the company expects to reduce dish room labor, chemical usage costs and dish replacement expenses. The program is being tested in one region and is expected to be rolled out by the end of the second quarter.

Additionally, Cracker Barrel is updating the lighting in its restaurants with LED bulbs to lower utility expenses.

Also under way is a new dining room management system to optimize wait list and seating processes.

“And as a result, we’re able to reduce the number of host labor hours without negatively impacting our guest experience,” Ms. Cochran said.
“In addition, we’re able to maximize throughput by converting capacity and reducing the number of walk-offs. This project is currently in the testing phase, and if results remain positive, we anticipate full implementation by the end of the fiscal year.”

Cracker Barrel’s fourth objective expands its geographical footprint with the opening of six to seven new restaurants, one of which features a new fusion prototype design.

“The fusion model allows us to reengineer processes, to reduce initial costs, create a more efficient design for our new stores and evolve the brand, all while protecting its integrity,” Ms. Cochran said. “We have selected Morganton, N.C., as our first site, and are in the final stages of design.”

Looking back

Milestones achieved in the past year led the company to earnings and revenue growth during the fourth quarter and fiscal year. In addition to cost reduction and operational support initiatives, Cracker Barrel launched its better-for-you Wholesome Fixin’s menu and entered the grocery channel with licensed products, including sliced-to-order deli meat and jerky, under the CB Old Country Store brand. The company has partnered with an additional licensee to support entry into more food lines in the near future.

Fourth-quarter net income increased 14% to $39,185,000, or $1.65 per share, from $34,303,000, or $1.44 per share, in the comparable quarter.

Quarterly revenue advanced 2.8% to $692,747,000 from $674,101,000.

Traffic fell 1.9% during the quarter, but average check increased 3.1%, and comparable restaurant sales rose 1.2%.
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