Good day, and welcome to the Cracker Barrel Fiscal 2024 Second Quarter Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Kaleb Johannes, Vice President, Investor Relations and Business Transformation. Please go ahead.

Thank you. Good morning, and welcome to Cracker Barrel's second quarter fiscal 2024 conference call and webcast. This morning, we issued a press release announcing our second quarter results. In the press release and on the call, we'll refer to non-GAAP financial measures for the second quarter ended January 26, 2024. The non-GAAP financial measures are adjusted to exclude the non-cash amortization of the asset recognized from the gains on the sale and leaseback transactions, expenses related to the company's CEO transition, expenses associated with the strategic transformation initiative, a corporate restructuring charge and an employee benefits policy change and related tax impact. The company believes that including these items from the financial results provides investors with an enhanced understanding of the company's financial performance. This information is not intended to be considered in isolation or as a substitute for net income or earnings per share information prepared in accordance with GAAP. The last page of the press release includes reconciliations from the non-GAAP information to the GAAP financials. On the call with me this morning are Cracker Barrel's President and CEO, Julie Masino; and Senior Vice President and CFO, Craig Pommells. Julie and Craig will provide a review of the business, financials and outlook. We will then open up the call for questions. 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 the 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, Julie Masino. Julie?

Good morning and thank you. In the second quarter, we delivered solid sales, which included a meaningful improvement in our traffic trend of 300 basis points in Q2 compared to Q1. Our traffic driving tactics, particularly our efforts to improve the guest experience and the effectiveness of our marketing, are working and supported this improvement. While we were pleased with our sales results, our margins remained pressured. As I will touch on later, improving profitability is a top priority. We are confident we will see improvements as our initiatives gain traction, but we anticipate continued margin pressure in the near term, particularly in Q3 and improved margins in Q4. I'm going to start by covering some highlights from Q2, and then Craig will review our financials and give an update on our outlook. Then I'll come back and wrap up by providing an update on our strategic transformation and some of our plans to drive continued performance improvements. Our second quarter is an especially important quarter for us due to, first, our seasonally higher volume; and second, because of the emotional connection our brand has with guests over the holidays. We have the privilege of having many of them inviting us into their homes or coming into our stores to celebrate the holidays. This is truly special. As I noted on our last call, we had an excellent Thanksgiving from a sales perspective, and the teams carried this momentum through the remainder of the quarter. I want to thank our 70,000-plus employees for their tireless efforts and extraordinary hard work during the quarter to help our guests celebrate this special holiday season. From a culinary and marketing perspective, we leaned into our seasonal guest favorites such as Country Fried Turkey and Cinnamon Roll Pie as well as our off-premise offerings. We continue to see positive results from our marketing investments in refined tactics. In addition to promoting our seasonal offerings, a key focus of our marketing efforts during the quarter was highlighting Cracker Barrel Rewards. For this campaign, we partnered with Dolly Parton to promote Cracker Barrel Rewards and her collaborative album, Rockstar. This campaign was a resounding success and delivered a large number of impressions and high engagement rates, driving additional gains to our already strong levels of enrollment. We remain pleased with the early results of Cracker Barrel Rewards, which, as a reminder, launched in September. In addition to the strong enrollment levels, we are encouraged by the engagement, feedback, and response rates we are seeing. One of the many benefits of the program is how it enhances our ability to directly engage with guests. We continue to test various campaigns and activations and measure their efficacy, and we're excited about learning more about what drives engagement with our members. For example, loyalty members accounted for nearly 50% of our Thanksgiving heat and serve sales, which we believe was partially driven by our direct engagement with them regarding this offering. We continue to believe the program, with its easy-to-use and engaging design and rewarding value, will be a meaningful brand differentiator and traffic driver over the long term. Our retail business remains challenged. We believe this is due, in large part, to the pressures the broader retail industry is facing, particularly in more discretionary categories, which is resulting in a highly promotional environment. While guests responded well to our value-focused holiday assortments, overall sales performance was softer than anticipated. However, the team has done a good job managing inventories and markdowns. Despite the sales softness, we grew margin rate over the prior year, and our inventories, which are below prior year, are well positioned. I will now turn the call over to Craig for a more detailed look at the quarter from a financial perspective and to discuss our financial outlook for the rest of the year. After he finishes, I will then provide an update on our strategic transformation. Craig?

Thank you, Julie. And good morning, everyone. For the second quarter, we reported total revenue of $935.4 million. Restaurant revenues increased 1.8% to $730.7 million, and retail revenues decreased 5.2% to $204.7 million versus the prior year quarter. Comparable store restaurant sales increased by 1.2% over the prior year. Pricing was approximately 4.8%. Our quarterly pricing consisted of approximately 3.4% carryforward pricing from fiscal 2023 and 1.4% new pricing from fiscal 2024. Off-premise sales were approximately 23.7% of restaurant sales. As a reminder, the off-premise mix elevated during the second quarter due to the seasonally higher sales for our Heat n' Serve offerings and catering business. Although we were pleased with the sales for these offerings, they have the lowest margins of all of our channels, which pressured our overall margins this quarter. Moving forward, we are focused on improving the profitability of this channel. Comparable store retail sales decreased 5.3% compared to the second quarter of the prior year. We saw declines across most categories, with toys, food, and decor seeing the largest decreases. Although retail sales remain soft, we were pleased with how the team has effectively managed inventory levels, which remain below prior year. Moving on to our second quarter expenses, total cost of goods sold in the quarter was 33.7% of total revenue versus 35% in the prior year quarter. Restaurant cost of goods sold in the second quarter was 28.2% of restaurant sales versus 29.3% in the prior quarter. This 110 basis point decrease was primarily driven by menu pricing, partially offset by a higher mix of off-premise as our Heat n’ Serve and catering offerings have a higher cost of sales than other channels. Commodity inflation was approximately 1.4%, driven principally by higher beef and turkey prices. Second quarter retail cost of goods sold was 53.2% of retail sales versus 54% in the prior year quarter. This 80 basis point decrease was primarily driven by higher initial margin. Our inventories at quarter end were $172.7 million compared to $187.3 million in the prior year. With regard to labor costs, our adjusted second quarter labor and related expenses were 35.1% of revenue, which excludes approximately $5.3 million of favorability related to a change in an employee benefits policy. This compares to labor and related expenses of 33.6% in the prior quarter. This 150 basis point increase was primarily driven by our investments in additional labor hours to support the guest experience and hourly wage inflation of approximately 5.4%, partially offset by pricing. Adjusted other operating expenses were 22.5% of revenue versus 22% in the prior quarter. This 50 basis point increase was primarily driven by our investments in advertising. Adjusted general and administrative expenses in the second quarter were 4.8% of revenue, which was flat to the prior year quarter and excludes the following items: approximately $3.5 million in expenses related to the CEO transition; and approximately $3.8 million in professional fees related to our strategic transformation initiative. All of this culminated in GAAP operating income of $30.8 million. Adjusted operating income for the quarter was $35.9 million or 3.8% of revenue. Net interest expense for the quarter was $5.1 million compared to net interest expense of $4.4 million in the prior year quarter. This increase was primarily the result of higher weighted average interest rates. Our GAAP effective tax rate for the second quarter was negative 3.3%, which reflects favorable state income tax settlements. On an adjusted basis, our effective tax rate for the quarter was 1.2%. Second quarter GAAP earnings per diluted share were $1.19, and adjusted earnings per diluted share were $1.37. In the second quarter, adjusted EBITDA was $63.7 million, or 6.8% of total revenue. Now turning to capital allocation and our balance sheet, the Board remains committed to a balanced approach to capital allocation. Our first priority remains invested in the profitable growth of Cracker Barrel and Maple Street. Beyond that, we plan to return capital to our shareholders while maintaining appropriate flexibility and a conservative balance sheet. In the second quarter, we invested $26.4 million in capital expenditures and returned $29 million to shareholders in dividends. We ended the quarter with $452.3 million in total debt. Lastly, as we announced in our press release, the Board declared a quarterly dividend of $1.30 payable on May 7, 2024, to shareholders of record on April 12, 2024. With respect to our fiscal 2024 outlook, I would like to provide some additional color on the guidance in this morning's release. Looking ahead, we continue to operate in an uncertain environment. We've been encouraged by the resiliency of the consumer and by the improvement in guest sentiment in recent months. However, the industry continues to face headwinds and we expect industry traffic to remain pressured for the remainder of the fiscal year. Turning to the guidance, we now expect total fiscal 2024 revenue of $3.5 billion to $3.6 billion. The increase in our sales guidance reflects higher sales from increased advertising and our investments in other areas of the business. We now anticipate pricing of approximately 5% for the full year. We continue to anticipate the opening of our two new Cracker Barrel stores, both of which have already opened, and nine to 11 new Maple Street units during the year. We now expect commodity inflation of approximately 0% to 2% and hourly restaurant wage inflation of approximately 5%. As a reminder, and as noted in the reconciliation tables in our press release, our full year outlook contemplates certain excluded expenses in addition to the non-cash amortization of gains from our sale leaseback. These include approximately $10 million in consulting fees related to our strategic transformation, approximately $10 million of one-time CEO transition costs and approximately $2 million in corporate restructuring charges, partially offset by approximately $5 million of favorability from the change to our benefits policy. Our full year outlook also includes the benefit of a 53rd week this fiscal year. Taking all of this into account, we now anticipate full year adjusted operating income of $125 million to $135 million. In addition to our second quarter operating income results, which were below our expectations, our updated range reflects a higher level of advertising investment and the movement of some cost reduction benefits from fiscal 2024 to fiscal 2025 to ensure we are fully focused on retaining and further strengthening our guest experience gains. From a quarterly cadence perspective, we expect our Q3 adjusted operating income to be meaningfully below the prior year, driven by the stated investments in labor and advertising as well as timing of other expenses. However, we expect Q4 adjusted operating income to be above the prior year, primarily due to improved traffic, pricing, menu mix, and the benefit of the 53rd week. We now expect a full year GAAP effective tax rate of 1% to 4% and an adjusted effective tax rate of 5% to 8% and capital expenditures of $120 million to $135 million. I'll now turn the call back over to Julie, so she may share additional details on our business plans and areas of focus.

Thanks, Craig. I now want to provide an update on our strategic transformation. As a reminder, this program kicked off in late September, and the early months included a diagnostic phase in which we conducted significant guest research both with Cracker Barrel users and non-users. Our research confirms my own observations that I shared with you last quarter. The Cracker Barrel brand is beloved by guests and employees, and we are working with a strong foundation. However, it is also clear to me that we have a lot of work to do in some key areas to take the brand to the next level and improve our performance. This work revolves around three critical imperatives that have come out of our research which are informing our strategy and key work streams. One, driving relevancy; two, delivering food and an experience that guests love; and three, growing profitability. While I'm going to talk about each today, I want to announce we will be holding a standalone investor presentation in May, prior to our Q3 earnings call at which time we will provide a more detailed strategy update. I look forward to sharing more with you then; details will be forthcoming. Turning to the three imperatives, the first is driving relevancy, which means evolving the brand to meet changing consumer tastes and needs. In my view, while we’ve taken some steps in this direction over the past few years, we need to do more. Cracker Barrel is a timeless brand, but even timeless brands must evolve as consumer preferences change, which means evolving our brand positioning, our stores, our menu, and our messaging. We’ve already started this work. In the coming weeks, we will be commencing a brand repositioning initiative, which entails a full review of our brand strategy and identity. Our refined positioning will inform all aspects of the brand from menu and marketing to digital and store experience. We have also begun testing changes to decor, lighting, paint, and fixtures, and our initial work suggests that we can update and brighten our interiors in a way that appeals to both core guests and those newer to the brand. Future changes will be informed by the learnings from this test and others, as well as our brand strategy work, and we are committed to being disciplined and thoughtful before deploying capital and expanding design changes to our stores. With respect to our food and guest experience, it goes without saying that we must provide delicious, craveable food and unique retail products, and we must deliver an improved experience that keeps guests coming back time and time again. Delicious, incredible food is an important part of what we do at Cracker Barrel, and I’m excited to announce today that we are launching Golden Carolina BBQ Chicken Tenders and a Fresh Berry French Toast Bake. Innovation will continue to fuel relevancy in our menu for our guests. We recently launched a core menu revamp test, and while it is only in a few stores, it is a significant test because of the scale of the changes. This test includes approximately 20 new items, several modified items, and over 20 deletions, as we seek to balance our innovation with simplification. We recognize that not all of the menu changes from this test will work and make it to the next phase. However, I believe it’s important that we become more agile and innovative, and I’m pleased with how the teams responded to my challenge to move quickly, to develop and implement these initiatives, and to test and learn in a more agile way. In addition to innovating with menu items, we are also innovating through day-parted offers. Today, we are also debuting an early dinner deals menu. This dine-in only menu includes seven smaller portioned entrees starting at $8.99 that will only be available Monday through Friday from 4:00 to 6:00 p.m. We believe this menu will resonate with our more price-conscious guests and that it will drive incremental traffic during a non-peak period to our most challenged day part. Importantly, we believe it will do this without adding additional operational complexity. Operational excellence and consistent execution are a top priority. After considering over two dozen different key metrics as part of our research, we have honed in on the metrics that are most highly correlated with comparable store sales growth and are focusing against these to drive meaningful improvements to the overall guest experience and create sustainable traffic growth. As part of our focus on what matters most, we are in the process of rolling out enhanced reporting of these metrics to our field leadership, and we believe the improved level of focus will empower our teams to quickly diagnose where they can most impactfully react in real time. The guest experience is not limited to the in-store experience. It is equally important to engage and delight our guests outside of our four walls and to win in digital. As I mentioned, we are proud of the initial success of our Cracker Barrel Rewards, but it is still early. The power of loyalty in digital is realized through the scaled collection of guest data, capitalizing on the behavioral insights through robust test and learn campaigns, and delivering individualized experiences that drive engagement, incremental sales, and increased visitation. With our recent success, I believe we can do more to faster realize these goals. Finally, we must improve profitability. Our margins have compressed in recent years. This is due to a number of reasons, including historically high inflation, particularly on the labor side. However, we believe there’s significant margin recapture opportunity if we drive top line growth and reengineer some aspects of our business model to reduce the amount of fixed labor currently required and simplify our menu and processes. Ultimately, our goal is to deliver compelling shareholder returns, and improving profitability is the biggest lever for achieving this. One of the areas where we are doubling down is building our strategic pricing capabilities, as our research shows that this is one of our biggest near-term opportunities. We have shared with you on previous calls that Cracker Barrel has taken pricing in a thoughtful and careful manner so as to preserve our value. This is true, and the teams have done a good job, as far as they’ve been able. What we need to improve, and what we are working hard on now, is dramatically improving our pricing sophistication. By that, I mean our capabilities to really measure and understand price elasticity at various levels to allow us to move to a more barbell pricing structure, utilizing the menu and messaging to more efficiently drive desired behaviors and getting more granular with our pricing at the market, store, and item level. To be clear, this does not mean simply taking more pricing. Rather, it means improving our internal capabilities to be even more surgical and thoughtful with our pricing across the entire menu and all stores. In the coming weeks, we will be launching the first of many tests using our significantly refined approach, and these learnings will inform our future pricing actions, tests, and strategy. In closing, we're encouraged by our progress, but we have much work to do. Although we anticipate continued margin pressures in the near-term, we firmly believe that our focus on the three imperatives, one, driving relevancy; two, delivering food and an experience that guests love; and three, growing profitability, will build on our momentum and deliver long-term value creation. Obviously, there is a lot of work to do, and it will not be quick or easy, but I am excited and optimistic about the path we are on. I look forward to providing additional details on our strategy and initiatives in May and to keeping you informed as we move ahead. I'll now turn it over to the operator for questions.

We will begin the question-and-answer session. Our first question comes from Katherine Griffin with Bank of America. Please go ahead.

Hi. Thank you very much for the question. I was interested in the figure you provided about the loyalty customer sales mix at Thanksgiving and was wondering if you could talk a little bit more about how you are integrating promotions or value messaging into the loyalty program, just especially as you're starting to get it off the ground and driving enrollment.

Great. Our efforts are ahead of plan, and we continue to test and learn our way through this. As I mentioned in the prepared remarks, over 50% of our heat and serve business came from people in the loyalty program, and we believe this is due to our direct engagement with them. We're continuing to test other different engagements with them and offers, and we'll be able to share more of that as we continue down the journey. But we continue to be optimistic about what we're seeing with this program.

Okay, thank you. And then just in the second quarter, the year-on-year rate of growth in labor costs per store was the lowest it's been in a couple of years. I'm wondering how sustainable that level of growth is. And then maybe how that reflects the investments you're making in labor, assuming that the slower rate of growth isn't just a function of moderating wage inflation more generally.

Hi, Katherine, it's Craig. I'll take that one. There is a bit of both of those in there. We clearly invested significantly in labor in the second quarter, and that has worked out well in a lot of ways; we're seeing the benefits in the guest experience, and we saw the benefits in sales. At the same time, wage inflation is moderating nationally and it's moderating for us. So we have a couple of moving pieces there. The wage rate moderation is a bit of a good situation, but we also invested significantly. So as we look forward to fiscal 2025 and beyond, as Julie talked about, improving profitability is one of the three key imperatives, and the labor component of the business model and continuing to get that right will be a big part of that.

Great. Thank you.

Next question comes from Jeff Farmer with Gordon Haskett. Please go ahead.

Thanks. I believe you guys noted that the upward revision in that 2024 revenue guidance number was at least partially driven by increased advertising. Assuming I heard that right, what is the advertising increase relative to what you guys were thinking last quarter? And when the dust settles, where would you expect advertising spend as a percent of sales in FY2024 to land?

Hi, Jeff, it's Craig. Traditionally, Cracker Barrel’s advertising as a percent of sales or marketing as a percent of sales was somewhere in the mid to high 2% range. Now we are expecting to be in the kind of mid to low 3% range throughout this fiscal year. The approach that we've taken is really a test and learn, data-driven approach. If we go back to Q4 fiscal 2023, we were disappointed in our top line performance. What we observed at that time was while we had pulled back a bit on advertising, others had increased, and our share of voice was quite low. As a result of that, we've done a lot of testing. What we are seeing is, on the margin, it is profitable for us to invest more in advertising. Now, clearly it compresses our overall margins as a company, but the total dollars delivered is favorable. So we’re going to continue to use a test and learn approach as we look at our marketing mix. But for the near term, we do expect it to be higher than what we saw in prior years.

Okay. And then just one more unrelated. I think you said you had done some work on analyzing the fundamental metrics that are most correlated with same-store sales growth. Can you share some of the findings from that? What were some of those metrics?

So it’s interesting there, we’ve looked at a lot of metrics, and I don’t think there is a big revelation; no one knew this X was correlated with Y. A lot of what we’re trying to do with this change is focus because we were really reporting on a wide array of metrics, each of which individually are correlated with good traffic performance. But we believe that was too much. What we want the team to do is to focus on the critical few things that make the biggest difference. So that was the approach that we took. It’s really about intense focus on the critical few important things. So we’re not going to go into the exact metrics because I think everyone would agree with them. It’s more important that we have backed away from some other metrics that we think may have been distracting and instead focus on the ones that matter the most.

And I apologize, just to sneak one more in. What was traffic in the quarter? I might have missed that.

Traffic was negative 4% for the quarter.

The next question comes from Jake Bartlett with Truist Securities. Please go ahead.

Great. Thanks for taking the question. My first, Craig, just to make sure I understand the benefits adjustment, I think $5.3 million in the second quarter in labor. Is that correct? Did I hear that right? And is that something that’s going to continue? So is this a benefits change that’s going to have a full quarter benefit, then we just kind of go from there, or is this a one-time thing?

It’s a non-recurring benefit. So it was a positive benefit to the P&L that related to a benefit change we made at the beginning of the calendar year. In the spirit of noting there are a number of costs that are non-recurring, this is a non-recurring item. It’s a permanent change in our benefits program that created a non-recurring benefit, and as a result of that, we removed it from the second quarter adjusted results.

Okay. So it is backed out of the adjusted results that you published.

Correct, already backed out of the adjusted published results, yes, and also out of the annual guidance.

Okay. And then just building on Jeff’s question about advertising and maybe others, like the investments in hours, I’m wondering at the midpoint of guidance, there’s about 70 basis points of margin compression in 2024. What factors are compressing margins? What are not recurring going forward? I guess, do you expect for advertising to remain in the kind of 3% plus range long-term? Is there any kind of outsized investment in hours that might not recur next year? How should we think about the margins in 2024 and how reflective they are of the margins going forward?

Yes. As Julie shared, improvement in profitability is one of our three key imperatives. Refining the business model inclusive of the labor model will be a big part of that. Now, having said that we've spent significant time and money investing in labor to improve the guest experience, so we’re not going to unwind that in a risky way. What we are doing is working on removing the amount of fixed labor that we have in the business. So we can flex up and down more appropriately with labor; that work is underway and probably serves as a mid-term solution. In terms of advertising, we’re going to continue looking at that using a test and learn approach, utilizing a media mix analysis-type approach. If it proves to be meaningfully more profitable over time to maintain somewhat higher than traditional levels of advertising, then we’ll make that decision. If at some point it’s not, then we’re going to make whatever decision is most profitable for the company over time. A positive note as we think about the loyalty program and how that benefits us over time is that today, we’re spending a lot in mass market advertising. We are doing some targeted digital ads, but it’s still a version of mass marketing. As the loyalty program continues to scale, we’ll be able to better communicate with guests in a more targeted, one-to-one way. There are some efficiencies that come with that as the program scales over the long term.

Okay. And last question. Julie, on the last call, you mentioned a focus on value; that competitors were getting a little more intense with value, you’re focusing on your 20 under $12, your breakfast $8.99 price point. My question is how that went. Was that a contributor to the results in the second quarter? And then going forward, you haven't mentioned value in this call very much. Is that still something that you think you need to lean into? Are you still seeing some competitive pressures from competitors getting very focused on value? Any kind of commentary around that aspect would be helpful.

Sure. Look, value is important, and it has been important at the Cracker Barrel brand for probably forever. It is something that guests are constantly calculating. Its how much food did I get? What do I pay for it? How is my experience? What was the whole thing like? Value is this complex guest equation that people are applying a lot of judgment to. We are constantly looking at both value scores, which we perform very well on, by the way. Value is something that we have protected historically here at Cracker Barrel. When I talked about pricing in my prepared remarks, value will continue to be an important part of how we evaluate our pricing architecture and strategy going forward, recognizing that every time a guest interacts with us, they’re making a value judgment about the entire equation. Additionally, some guests are very value price point focused, so we’ll take both aspects into account. We’re protecting some great price points; for example, if you visit a Cracker Barrel, you can get Momma’s Pancake Breakfast for $8.99, which includes three pancakes, two eggs, and your choice of meat; that’s an incredible value. We recognize that we need to consider the different value perceptions among our guests. Another key way we're promoting value, especially for our price-oriented guests is with our new spring menu, the early dinner deals launched today. These deals are only available Monday through Friday from 4 p.m. to 6 p.m., and we offer seven entree choices starting at $8.99, all under $10. It's an incredible value speaking to our guests who are price-focused. To put it bluntly, value remains a critical part of our strategy at Cracker Barrel. It always has been, and it will be moving forward.

Great. I appreciated it. Thank you.

The next question comes from Dennis Geiger with UBS. Please go ahead.

Great. Thank you. And Julie, thanks for the commentary and the detail on the transformation and some of the key learnings and those three imperatives. Looking forward to the event in May, and I’m sure you’ll touch on more of the details then. Just curious at a high level, you guys could sort of talk at all about maybe the investment potential around some of those imperatives, the transformation opportunity, and what that might mean from a capital allocation priority perspective. Anything at a high level to share there, if anything shifts? I know you touched on some of this earlier, Craig, but any commentary there that you’re able to touch on today by chance?

Thanks, Dennis. The Board’s approach to capital allocation has been very consistent and thoughtful. They review it every quarter and prioritize the profitable growth of both Cracker Barrel and Maple Street. Beyond that, it’s about returning capital to shareholders, mainly through the quarterly dividend. I almost didn’t mention the store refresh test we have in progress because I was concerned people would immediately focus on capital spending and allocation. I wanted to illustrate my management philosophy around agile testing and learning, indicating we are advancing our strategy focused on the three key imperatives: driving relevancy, delivering food and an experience guests love, and improving profitability. The Board will continue to assess capital allocation, but understand that we are fully dedicated to those three strategic imperatives as we move forward with our strategy.

Very helpful. Appreciate that. And then maybe just one more. You kind of touched on it some, but anything else notable on your customer behavior changes that you saw in the quarter, either across the restaurant or the retail business? I don’t know if breaking anything down by income cohort could be helpful. Any changes there? Or has it generally been largely consistent? Thank you.

I think we’ll both comment on this. I’ll start by saying the one thing I’m most optimistic about is that we’ve seen some nice growth in the 25 to 44 cohort as well as the 65-plus cohort. Traffic was in a better place for us in Q2. Therefore, we felt we really improved our guest experience scores, but we’re optimistic about that cohort growth.

Yes, I’ll build on that point, especially regarding the 65-plus cohort. In Q4 of 2023 and into Q1 of 2024, that age segment was the softest. However, with our second quarter results, we observed a significant improvement. We're still down a bit, but the improvement versus where we were at the end of fiscal 2023 and into early fiscal 2024 is meaningful. In terms of the income cohort, if we classify it into two groups, under $60k and over $60k, they are consistent without any notable story. The bigger narrative is in the age cohorts and the improvement we've seen in the 65-plus group.

Next question comes from Brian Mullan with Piper Sandler. Please go ahead.

Thank you. Just a question on Maple Street. Julie, I would love to get your perspective on this business as you think about all the things you need to tackle with the core Cracker Barrel brand. Where does Maple Street fit into that? Is that a real growth opportunity, or is it potentially something you'd look to part ways with over time? Just any thoughts on your assessment?

Thanks, Brian. Myself and the management team are currently focused on Cracker Barrel. We are working extremely hard on the strategic transformation and getting this business back to growth. The three imperatives I mentioned earlier—driving relevancy, delivering food, creating an experience that our guests love, and enhancing profitability—are our primary focus. We will share more on Maple Street in the future. There’s a lot to love about Maple Street. It offers great food and a successful weekend business. However, our current priority is on growing Cracker Barrel and restoring its strength.

Okay. Thank you for that. Just as a follow-up, just a good segue. Regarding the core Cracker Barrel store portfolio, do you think store closures could be part of the strategic process? Are there any stores you see that might benefit from closure? I’d love to get your insight.

Hi, Brian. It's Craig. We regularly assess the store portfolio. Generally, there are not many stores that are not cash flow positive. However, it is something we continuously evaluate as part of our regular process. We will also take a deeper look as we formulate a broader strategy update. At the moment, not many stores fall into the cash flow negative category.

The next question comes from Todd Brooks from The Benchmark Company. Please go ahead.

Hey, thanks for taking a couple of questions here. The first is a bigger-picture question for Julie or Craig. I know we'll hear more about this at the May event, but part of the challenge with Cracker Barrel is understanding what sort of margin you're looking to return to over time. So this was a business with an operating margin north of 9% in 2019. You have incremental pressures on all three of the key restaurant-level lines, some inflation-based, while others are structural. Is there anything you can share today about where you think the margin potential is for the Cracker Barrel business if you're successful with the three pillars?

As Julie shared, improving profitability is one of our three key imperatives. You asked where the potential lies. We have highlighted two critical areas: strategic pricing and labor model reengineering. We are actively engaging in margin optimization initiatives throughout our business. The potential for meaningful upside exists in overall profitability. Of course, as Julie mentioned, that will take time, and we’re being cautious. Our priority is ensuring guest relevance and having a robust top line. Over time, we expect to see significant improvements, though we cannot specify exact targets at this time.

So do you think a recovery is possible, or is there just something structurally different about the business now, where recovering back towards 7% operational margins and having people focused on that is more complex than returning towards prior levels?

We’re uncertain about the exact percentage level for now. However, we strongly believe there is considerable room for increasing the overall profitability of the company. While we haven’t set specific OI percentage targets, the potential for significant dollar gains exists.

Okay, great. Thanks. My second question is regarding the restaurant same-store sales performance in the quarter. Any details about the cadence of same-store sales, particularly how they were running through January and whether things have normalized as we distance ourselves from those headwinds?

As we break that apart, the weather impact on our quarter has been a concern; November, December, and January encompass our quarter. We had some drawbacks from weather, but we also had positives from the catering and heat n' serve business that benefited in November and December. Overall, we are pleased with the quarter; many factors are at play. We believe advertising investments positively influenced performance and we are encouraged by guest experience enhancements. However, we remain cautious of ongoing industry headwinds.

The next question comes from Jon Tower with Citi. Please go ahead.

Great. Thanks for taking the question; a few if I may. Going back to the early dinner deals, could you share the testing results or consumer response?

Yes. Thanks, Jon. We actually did not test this; however, after evaluating its pros and cons, we believe it will be well-received by our guests. It’s operationally straightforward for us, focusing on a daypart where we have challenges. We felt confident moving forward with this launch across the entire system. They are some of our best-loved items at a great price point, available from 4 to 6 p.m. Monday through Friday. We’re optimistic that our guests will respond positively.

Yes, maybe just drpuntning into that, could you provide an update on daypart performance for the quarter? It seems like dinner is still challenged, but I’d appreciate color on that versus other dayparts?

Sure. Breakfast remains a core strength for us. Many people know and love our breakfast offerings. Throughout this quarter and within the previous 12 months, breakfast has been a strong point for us. Lunch has also performed well, largely due to brunch overlap. Dinner, however, remains our most challenging day part, which is where we'll focus our innovation and growth-driven efforts as we aim for relevance and competitiveness.

Okay. In terms of labor improvements, is it true you're potentially structuring labor differently in the back of the house? Are there plans to pull some of the prep work out of the stores?

Yes. It's not a definite decision yet, but we are considering it. Our aim is to maintain great food, keep it relevant, and ensure a good employee experience. We are analyzing what needs to be made from scratch in-store versus what can be moved to a value-added approach. It’s an early stage of consideration, and we’ll base our final decision on comprehensive testing and results.

Great. Just two more if I may. Could you elaborate on the loyalty platform in terms of specifics around sign-ups? I understand it's early days, but perhaps any indications of frequency? Is the platform, overall, profiting yet?

I'll start, and then Craig can touch on profitability. We are pleased with the enrollment levels; we won’t disclose numbers at this point. Nonetheless, we are ahead of plan, which is exciting. Our partnership with Dolly Parton brought in even more enrollments, amplifying what we were seeing. We anticipate continued incremental traffic in the second half, which is integrated into our projections. Moreover, we're experiencing strong engagement, which is thrilling. This program is unique, allowing guests to earn on the restaurant and retail sides while redeeming on both, which seems to resonate well with our guests and employees.

Regarding profitability, this year is more of an investment year for us. The costs associated with scaling such a program, inclusive of both restaurant and retail elements, are significant. Participants can engage through cash registers and our app, which adds to the program's scale. These ramp-up costs include sign-up and point liability costs, meaning it will be an investment year. However, as we begin to compare against these costs in FY 2025, we anticipate a more meaningful contribution to profits.

Got it. Thank you. Lastly, regarding the cadence of ad spend for the remainder of the year, should we anticipate fourth quarter weighting, or am I misinterpreting?

Yes, I think it would be appropriate to conclude that expectations of advertising spending will remain in the low to mid-3% range as a percentage for both the third and fourth quarters.

This concludes the question-and-answer session. I would like to turn the conference back over to Julie Masino for any closing remarks.

Thank you all for joining us. Today, we’ve provided insight into our imperatives and initiatives, and we look forward to sharing more in May about our robust strategic framework and various initiatives supporting it. I'd like to express my appreciation to our teams, both in the home office and all our stores, for their ongoing dedication to the guest experience and commitment to the brand. I greatly appreciate all of their hard work day in and day out, as well as toward the transformation. I’m excited about continuing our journey of strategic transformation together.

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