Cracker Barrel CEO: 'The consumer is a mystery'

by Monica Watrous
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Cracker Barrel steak and eggs breakfast skillet
Cracker Barrel’s current promotion includes a hearty steak and eggs skillet breakfast.

LEBANON, Tenn. — Higher menu prices helped Cracker Barrel Old Country Store Inc. achieve an increase in restaurant sales in the recent quarter, but the casual dining chain’s traffic declined amid industry softness. 

Sandra Cochran, Cracker Barrel
Sandra Cochran, president and CEO of Cracker Barrel

“We believe that consumer spending was challenged during the quarter, particularly in October, and that is reflected in our comparable store traffic and sales,” said Sandra Cochran, president and CEO, during a Nov. 24 earnings call with financial analysts.

For the first quarter ended Oct. 30, Cracker Barrel had net income of $40,865,000, equal to $1.71 per share on the common stock, up 20 percent from $34,024,000, or $1.43, for the prior-year period. Results were driven by cost reduction initiatives and a 3 percent increase in total revenue to $702,629,000 from year-ago revenue of $683,428,000.

Comparable restaurant sales increased 2.5 percent for the quarter, as a 3.2 percent increase in average check driven by higher menu prices offset a 0.7 percent decline in restaurant traffic.

Contributing to a positive sales mix during the quarter were such seasonal offerings as salmon patties, a French dip sandwich platter and a mushroom-braised pot roast. Cracker Barrel’s current promotion, which began in early November, features a traditional chicken fried chicken meal, white chocolate and fresh berry French toast, and a steak and eggs skillet breakfast.

“Guest reaction to these and our other holiday promotional menu offerings has been positive,” Cochran noted.

Cracker Barrel salmon patties
Contributing to a Cracker Barrel's positive sales mix during the quarter were such seasonal offerings as salmon patties.

Looking ahead, however, the company anticipates a decline in traffic for the second quarter as macroeconomic uncertainty persists.

“We’ve certainly spent a lot of time here trying to understand the consumer and…it’s a bit of a mystery,” Cochran said. “Although some labor headlines in terms of number of jobs added and unemployment rates have been strong, other measures would suggest that we are not back to pre-recession levels, and if you are in certain states and in certain industries, you are probably not feeling as confident about your job or your hours as you were before.

“On the one hand, gas prices have given consumers additional disposable income, but at least for some consumers we believe they are using that to either pay down their own personal debt, or I know there’s a lot of discussion about whether it’s being used to purchase durables, cars and things like that.

“So it’s hard to completely understand what the consumer spending is going to be like as we go into this really important holiday season. The sentiment is also difficult to get a read on…. So I would say that right now the consumer is a mystery.”

Cost-savings initiatives introduced in the prior year are expected to help the company achieve its target of a $10 million reduction in operating expenses for fiscal 2016.

For the full year, management expects to deliver increases in comparable store restaurant sales in the range of 2 percent to 3 percent and total revenue of between $2.9 billion and $2.95 billion, which includes the opening of seven new units during the year.

“While the general environment appears to be more challenged than it was at the end of our prior fiscal year, we believe we have the right menu, marketing and margin initiatives to achieve success in fiscal 2016 and to continue to create value for our shareholders,” Cochran said.

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