Cracker Barrel's three strategies to strengthen its core

by Erica Shaffer
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 Cracker
CEO Sandy Cochran outlines plans to broaden relevance across generations and improve its business model.
 

LEBANON, Tenn. – Cracker Barrel Old Country Store finished fiscal 2016 on a strong note, but more will be done to strengthen the restaurant chain’s core business, CEO Sandy Cochran said during a quarterly earnings call with analysts.

Sandra
Sandy Cochran, CEO of Cracker Barrel 

“Our most important priority in fiscal 2017 will be enhancing our core business by broadening our relevance, to grow frequency of use across demographic groups and generations and by improving our business model to reduce operating costs and further drive margins,” Cochran said.

Cracker Barrel plans to broaden relevance through enhanced marketing messaging, menu innovation and new retail merchandise. A fully integrated marketing campaign will focus on demographic groups and generations that historically have been “light” users of Cracker Barrel, Cochran added.

“Second, we are using a dual messaging strategy that focuses on breakfast all day as well as choice and variety through our country dinner plates menu category,” she said. “Third, we are continuing to broaden our target demographic to include millennials in the multicultural communities through our spotlight music program, grassroots community programs and targeted advertising campaigns.”

Lastly, Cracker Barrel plans to enhance its off-premise business which includes the Heat n’ Serve holiday meal program that the company plans to implement system wide.

“Our strong equity and real homestyle foods and history as a destination for holiday occasions position us well for large party off-premise solutions,” Cochran noted.

With more consumers choosing to eat at home, Cochran said she expects the holiday retail period to be challenging and competitive. Cracker Barrel is preparing for a heavily promotional retail environment by adjusting merchandising plans to include more aggressive mark downs, an assortment of home decor and apparel; a greater breadth of gifts assortment and updated Christmas merchandise offerings.

Cochran said the company’s focus on enhancing its core business will result in business model improvements. Headwinds for fiscal 2017 include operating margin pressure in fiscal 2017 from continued and increasing wage inflation.

“We believe, we can mitigate this margin pressure and further leverage our margins through realizing an additional $15 million to $20 million in cost savings by the end of the fiscal year,” Cochran noted. “These will be partially offset by our planned 20 basis point increase in advertising spend as a percent of revenue to support our fiscal year marketing efforts and I’ll be sharing more specifics on these opportunities throughout the fiscal year.”

Fiscal 2017 also will see Cracker Barrel expand its footprint with seven to eight new store openings during the fiscal year. The company’s Holler & Dash fast-casual concept will further drive growth with the addition of four or five new locations in markets including Orlando, Florida and Nashville, Tennessee.

For the fourth quarter and fiscal year ended July 29 2016, Cracker Barrel reported fourth quarter net income of $51 million, or $2.12 per diluted share, up 7.6 percent over prior year earnings per diluted share of $1.97.

Revenue advanced 3.7 percent to $745.6 million, compared to revenue of $719.2 million reported a year ago.

Jill Golder, CFO, attributed revenue gains to positive comparable store sales growth and the net opening of two new stores. Comparable restaurant sales climbed 3.2 percent, Golder said. An increase in average check of 4.4 percent offset a 1.2 percent decline in traffic. The increase in average check reflected menu price increases of approximately 2.4 percent and the favorable menu mix driven primarily by summer menu features such as the Campfire Chicken, Beef and Mixed grill entrees in addition to core menu item Fried Shrimp Platter, which was highlighted during the period, Golder explained.

“As we believe the gap between food at home and food away from home prices has continue to rise and that the consumer will still look for value propositions in fiscal 2017, we have planned a deceleration in menu price increases from our previous two-year run rate and anticipate our fiscal 2017 menu pricing to be in the range of 1 percent to 2 percent.”

For the full year, GAAP net income was $189.3 million, or $7.86 per diluted share, compared to $163.9 million or $6.82 per diluted share a year ago. Adjusted net income was $181.7 million, or $7.55 per diluted share, compared to adjusted net income of $164.0 million, or $6.82 per diluted share in the prior year, representing a year-over-year increase in adjusted EPS of 10.7 percent. Revenues for the fiscal year were $2.91 billion, an increase of 2.5 percent over the prior year.

Comparable store restaurant sales increased 2.2 percent, while average check climbed 3.5 higher. The higher average check was partially offset by a 1.3 percent decline in store traffic.

Cracker Barrel ended fiscal 2016 with 639 Cracker Barrel stores and two Holler and Dash stores.

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