Cracker Barrel Old Country Store, Inc Q1 FY2026 Earnings Call

Good day, and welcome to the Cracker Barrel Fiscal 2026 First Quarter Conference Call. Please note, this event is being recorded. I would now like to turn the conference over to Adam Hanan, Director of Investor Relations. Please go ahead.

Thank you. Good afternoon, and welcome to Cracker Barrel's First Quarter Fiscal 2026 Conference Call and Webcast. This afternoon, we issued a press release announcing our first quarter results. In this press release and on this call, we will refer to non-GAAP financial measures such as adjusted EBITDA for the first quarter ended October 31, 2025. Please refer to the footnotes in our press release for further details about these metrics. The company believes these measures provide 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 pages of the press release include reconciliations from the non-GAAP information to the GAAP financials. On the call with me 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 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 afternoon, and thank you for joining us. As you are all aware, the past few months have been difficult for Cracker Barrel and for our 70,000 team members around the country. And while many of our guests are enjoying our improved food and guest experience, we certainly have more work to do to regain the trust and confidence of others who have been slower to return. This will take time, but we are executing a plan and are confident we will get back to the trajectory we saw in fiscal '25. Turning to our Q1 performance. Our unique circumstances during the first quarter were exacerbated by a difficult macro and industry backdrop that saw choppy traffic patterns. Sales were down 5.7% compared to the first quarter of fiscal 2025 with adjusted EBITDA of $7.2 million. Our EBITDA was clearly impacted by our topline performance. But I also want to remind everyone that it included incremental costs related to advertising, marketing and our GM conference, which totaled approximately $14 million. Traffic was down 1% in the first half of August and was down approximately 9% for the remainder of the quarter. We are taking decisive actions to return our performance to a positive trajectory, which can be grouped into 3 areas, the first 2 areas are centered around our focus on our food and the guest experience and include evolving our operations and connecting with our guests through our menu, marketing and value proposition. The third area is pursuing cost savings to improve profitability. Starting with operations. We have 3 main areas of focus and activity. Optimizing our back-of-house initiatives, conducting extensive training and making key leadership changes. As you may know, our back-of-house initiative is a multi-phase program aimed at improving food quality and consistency, while also simplifying operations and contributing to cost savings. Q4 was the first full quarter in which Phase 1 had been rolled out. Although Phase 1 was delivering meaningful savings, it became clear during the quarter that the new processes at scale made consistent execution more challenging for our operators and impacted the consistency of our food. Given the importance of food and experience as well as the heightened scrutiny around our brand, we decided to change course and reinstated our prior processes. Based on these learnings, we're evolving Phase 2 of our back-of-house initiative and our store testing methodologies to better ensure that any changes we introduced will be easily executable across the system and help our operators deliver the consistent quality our guests expect. To the extent we have to sacrifice some planned cost savings to achieve this goal, we will do so, and we're confident we will recoup these savings elsewhere. To ensure that our back-of-house teams are best positioned to deliver consistently outstanding food and experiences, during the month of October, we successfully retrained all of our managers, kitchen production staff and grill cooks on core, classic Cracker Barrel recipes as well as our new holiday offerings. Finally, during the quarter, we also made key operational leadership changes to remove a layer of management, get closer to our guests and drive a relentless focus on food and hospitality. Doug Hisel previously Vice President, Field Operations, was promoted to Senior Vice President, Store Operations. Doug has been with Cracker Barrel for over 18 years and has held a variety of operational roles of increasing responsibility. He has a deep understanding of Cracker Barrel's people, processes and standards. Teams in the field at all levels are responding to his leadership. Since Doug assumed his new role, he has emphasized flawless food, operational precision and shared accountability among leaders and team members, and we've seen encouraging trends in guest metrics as a result. In recent months, our Google star rating, which is strongly correlated with traffic, has been running at its highest level since early 2020. Additionally, we've seen improvements in food taste, service, value and experience, all of which improved between 3% and 4% in October and even more in November versus prior year. These metrics are important leading indicators, and we expect they will translate into improved traffic over time. Turning now to our guests. We continue to work a multipronged plan to ensure we are connecting with them through our menu, our messaging and our loyalty program. This is the second area of focus I referenced earlier. With respect to our menu, we are returning dishes to the menu that our guests have told us they love and miss, like we did with Campfire Meals, Uncle Herschel's breakfast and Chicken n' Rice. We brought back 2 fan-favorite dishes to our holiday menu this year, Country Fried Turkey and Cinnamon Swirl French Toast as well as the highly requested Turkey Sausage. We also introduced a new breakfast burger. This delicious burger is topped with our signature hashbrown casserole and is the ultimate combination of country cooking and a breakfast for dinner entree. Guest feedback on these new and old favorites has been positive. Going forward, we continue to leverage guest feedback and have quality improvement tests planned for signature items in the coming months. We are working to ensure our core menu remains craveable and includes favorites that guests have missed. I already mentioned some of the items we've brought back and next month, our guests will see even more favorites return to the menu, such as Hamburger Steak and Eggs in a Basket. To oversee this effort, I'm pleased to report that Thomas Yun has rejoined Cracker Barrel to lead our culinary teams. Thomas previously served in this role from 2022 to 2024 and was the driving force behind several of our most successful menu introductions, including Pot Roast and Hashbrown Casserole Shepherd's Pie. He also brought back the loved legacy classics like the return of Chicken n' Rice. His efforts to strengthen the heart of the menu will help us deliver the familiarity, quality and comfort our guests expect from Cracker Barrel. With respect to our messaging, our marketing teams are following a clear framework rooted in food, value, heritage and shared values, while reinforcing traditions. We are reassuring guests that the Cracker Barrel they love hasn't gone anywhere, while also driving shorter-term traffic in a way that is true to the brand and preserves our commitment to everyday value. We are also pleased that we've improved our ability to seek and receive feedback from guests as we leverage our Cracker Barrel Rewards Loyalty Program, which continues to grow at impressive rates. We are deepening our storytelling by showing up in the places and passions that matter most to our guests from NASCAR and College Football to Country Music, we are leaning into the cultural touch points that reflect who we are and who we serve. We are also strengthening our presence at the local level through expanded store marketing efforts designed to connect with new and existing guests directly in their neighborhoods, bringing our heritage, food, hospitality and storytelling to life where they live, gather and celebrate. We recently introduced the Our Country Friends series on social media, showing our commitment to scratch-cooked food made with care. Cracker Barrel suppliers include many of the company has partnered with for decades and we've been so proud to highlight these American businesses and the people behind them. A few that we featured include our sourdough bread maker, Bay's bread, based right here in Lebanon, Tennessee; and our coffee and tea maker, Royal Cup, based out of Birmingham, Alabama. Finally, we are emphasizing and expanding our long-standing commitment to the military community. Our military retail assortment has been a part of Cracker Barrel for decades, and guests have always responded to these assortments because it reflects the pride and patriotism that is core to Cracker Barrel. Our guests, many of them veterans, active service members and military families have asked us to do more and we have responded. Building on the success of last year, on Veterans Day, we offered a complementary Sunrise Pancake Special for military members, and we helped support 30 worthy veterans organizations throughout November. Most significantly, on November 12, we launched an ongoing 10% military discount available all day, every day in both restaurant and retail to show our continued gratitude to those who serve. The new discount is available through our rewards program, ensuring that all active military and veterans can easily receive this benefit with every visit. As you can imagine, these are long-term efforts. But we're also pursuing shorter-term initiatives that are aimed at driving traffic in a way that is authentically Cracker Barrel. We anticipate leaning into these even more heavily over the balance of the year. During Q1, we launched a series of highly promotional short-term offers such as BOGO Sunrise Pancake Special, BOGO Old Timer's Breakfast, Kids Eat Free, All-You-Can-Eat National Pancake Day and Pancake Blocktober. These promotions drove meaningful traffic lifts during the short windows in which they ran. Continuing these efforts this week, we will be leveraging our position as a beloved holiday destination by launching a limited-time promotion of a free toy with the purchase of a kids meal. This offer, which integrates both restaurant and retail is not only a great value, kids get to choose a free toy, up to $5 or receive $5 off a higher-priced toy. And it also taps into the nostalgia and tradition that gets associated so strongly with our brand. We are being very careful to deploy these shorter-term initiatives in a way that preserves our longer-term commitment to everyday value through abundant portions at a fair price and our strong loyalty program. We know these things remain incredibly important to our guests and are key to our business model. Recent guest research shows that our value proposition remains strong. This is particularly encouraging given the macroeconomic backdrop and heightened promotional activity in the industry. Cracker Barrel Rewards is another key vehicle for delivering value to our guests and staying connected to them. Since the last time we spoke, we've added another 1 million members and now have over 10 million members in the program. Members now account for 40% of tracked sales. This program continues to be a powerful tool to directly communicate with guests, whether to drive traffic or receive their input. In September, we launched front porch feedback, a program that gives loyalty members the opportunity to comment directly to our team on aspects of their visit. This feedback, in addition to extensive guest research we conducted during the quarter has been instrumental in guiding our action plan to improve food and experience and to reinforce guest perception of our strong value proposition. Finally, we are leveraging our differentiated retail platform to deliver value to guests. We're leaning into the holidays, and we have a thoughtfully curated collection of seasonal gifts, with many items available only at Cracker Barrel at great value across price points. As we work towards reaccelerating our traffic trajectory through our focus on food and experience, it is critical that we continue to pursue cost savings and adjust our expenses. We are doing both, but we will do so only in ways that protect food quality, the guest experience and our store-level operations. As part of our cost savings efforts, we have previously stated that our goal was to get G&A closer to historical levels as a percentage of sales. We started a corporate restructuring during Q1. We will be accelerating and expanding this initiative through a further restructuring of our corporate support center during the remainder of the second quarter. While this will be understandably difficult for some of our corporate team members, it is necessary to successfully navigate the current headwinds, streamline the focus of our corporate functions, protect our balance sheet and ensure we can invest in the food and guest experience. In summary, we are facing a unique set of challenges, which necessitates a long-term approach to drive improved performance and recover the momentum we had earlier in calendar 2025. Guiding all of this is the overarching priority of serving up delicious food and delivering experiences guests love. We have made key operational changes, we're connecting and reconnecting with our guests through our menu, messaging and continued commitment to value, and we're taking significant steps to improve profitability. These are the things we need to do to return the company to a position of strength and recover the momentum we had been generating. I'll now turn it over to Craig to review our results and discuss our outlook.

Thank you, Julie, and good afternoon, everyone. For Q1, we reported total revenue of $797.2 million, which was down 5.7% from the prior year quarter. Restaurant revenue decreased 4.8% to $650.6 million. Comparable store restaurant sales decreased by 4.7%, which included a traffic decline of 7.3%. Pricing was 4.1%, and menu mix was negative 1.2%. And the negative menu mix was driven by the value promotions we paused during the quarter to support traffic as well as lower dinner traffic. Off-premise sales were 18.1% of restaurant sales. Total retail revenue decreased 9.4% to $146.6 million and comparable store retail sales decreased by 8.5%. This decrease was primarily driven by the decline in traffic as well as lower retail attachment rates and unfavorable retail mix. Moving on to our quarterly expenses. Total cost of goods sold in the quarter was 31.2% of total revenue versus 30.6% in the prior year. Restaurant cost of goods sold was 26.6% of restaurant sales versus 26.1% in the prior year. This 50 basis point increase was driven by higher waste related to product and process changes, increased discounts and commodity inflation, partially offset by menu pricing. Commodity inflation was approximately 2.1%, driven principally by higher pork, beef and egg prices, partially offset by lower poultry and produce prices. Retail cost of goods sold was 51.4% of retail sales versus 49.7% in the prior year. This 170 basis point increase was primarily driven by tariffs and higher discounts, partially offset by pricing. Quarter-end inventories were $209.1 million compared to $201.9 million in the prior year. Labor and related expenses were 37.8% of revenue compared to 36.4% in the prior year. This 140 basis point increase was primarily driven by sales deleverage and lower productivity, which was partially due to actions to support the guest experience. Wage inflation was approximately 1.5%. Other operating expenses were 28.7% of revenue compared to 25% in the prior year. This 370 basis point increase is primarily composed of the following: first, approximately 110 basis points from higher advertising expenses due to planned increases in marketing and sales deleverage; second, approximately 80 basis points due to planned expenses related to our General Managers Conference, which typically occurs every other year; and third, approximately 200 basis points related to store occupancy costs, driven by sales deleverage and higher maintenance expenses. The increase in maintenance is due to an updated accrual process associated with the implementation of a new tool, which is one-time in nature, as well as increased spending. The increases were partially offset by higher vendor credits. Adjusted general and administrative expenses were 5.1% of revenue and exclude $1.4 million in expenses related to the proxy contest and a $6.2 million corporate restructuring charge that includes professional fees related to business model improvement work and severance related to the organizational and leadership structure changes. Compared to the prior year, adjusted general and administrative expenses improved 120 basis points, primarily driven by lower incentive compensation. Our GAAP financial results include approximately $3.1 million in expenses related to lease terminations associated with the Maple Street units that were closed during the quarter. Net interest expense was $3.7 million compared to net interest expense of $5.8 million in the prior year. This decrease was primarily the result of a lower revolver balance and a higher convertible debt balance. Our GAAP income taxes were an $11.9 million credit, adjusted income taxes were a $9.4 million credit. GAAP earnings per diluted share were negative $1.10 and adjusted earnings per diluted share were negative $0.74. Adjusted EBITDA was $7.2 million or 0.9% of total revenue compared to $45.8 million or 5.4% of total revenue in the prior year. Now turning to capital allocation and our balance sheet. We continue to have a strong balance sheet and ample liquidity, which gives us confidence that we can successfully navigate through the current headwinds. We ended the quarter with $550.3 million in debt compared to $527 million in the prior year. At quarter end, our total available liquidity was $485 million, and our consolidated total debt to adjusted EBITDA leverage ratio was 2.8x. In the first quarter, we invested $34.2 million in capital expenditures. Additionally, as announced in today's press release, the Board declared a quarterly dividend of $0.25 per share payable on February 11, 2026 to shareholders of record on January 16, 2026. Before providing our outlook, I want to touch on our recent trends. Quarter-to-date, traffic has declined approximately 11%. The traffic appears to have stabilized as weekly traffic has been relatively consistent in Q2, including the Thanksgiving week. Although Thanksgiving week, the traffic comps were in line with the rest of the month, we were still pleased that millions of guests chose to dine with us that week, and we delivered notable improvements in guest experience metrics, while doing nearly $110 million in sales. Turning to our fiscal '26 outlook. Our outlook reflects our best estimate as of today. The rate and level of our traffic recovery as well as the level of investment required remain key drivers of our fiscal '26 EBITDA performance. As outlined in our press release, we anticipate the following for fiscal 2026. Total revenue of $3.2 billion to $3.3 billion. This reflects a slower recovery than we previously expected as well as a more challenged macro and industry backdrop compared to our prior outlook. Pricing of 3.5% to 4.5% versus 4% to 5% in our prior guidance. Additionally, we expect lower menu mix resulting from higher discounts and lower dinner traffic. Commodity inflation of 2.5% to 3.5% and hourly wage inflation of 3% to 4%, both of which are consistent with our prior guidance. We are implementing a number of cost savings actions, some of which were previously planned and some of which are new. These actions will bolster our financial performance and increase our operating leverage when traffic improves and are focused on non-guest-facing areas. They include the following. First, as Julie stated, we executed a restructuring for the corporate support center in Q1 and there will be a further restructuring of the corporate support center in Q2. We expect these combined actions will result in annualized G&A savings of approximately $20 million to $25 million. Second, we are reducing our planned advertising spend over the balance of the year and expect that our aggregate advertising expense in Q2 through Q4 will be approximately $12 million to $16 million lower compared to the same period in the prior year. Additionally, we continue to execute our ongoing cost savings program. However, we expect that the benefits from this program will be reinvested in the business, particularly in the menu as well as being offset by traffic deleverage, but we anticipate the G&A and the advertising savings I mentioned will flow through to the bottom line. Taking all of the above into account, we now anticipate full year adjusted EBITDA of approximately $70 million to $110 million. The low end of the range reflects lower traffic that is more consistent with recent performance, elevated discounts and lower retail attachment. The higher end of the range reflects gradually improving traffic in the second half of the fiscal year as well as more moderate discount levels and retail attachments. Finally, we are now planning for lower capital expenditures of $110 million to $125 million. This reduction is part of our comprehensive efforts to manage our cash flow and is in line with our baseline capital expenditures in years prior to the transformation. The largest category is for maintenance capital expenditures. And while we have reduced this area, we're being careful to maintain an appropriate level of spend here given our continued efforts to catch up on deferred maintenance. Additionally, this amount includes important strategic initiatives, such as replacing our point-of-sale system, which will be unsupported in approximately 1 year. With that, I'll now turn the call back over to Julie for her closing remarks.

Thanks, Craig. Before we go to Q&A, I want to thank all of our team members around the country for their ongoing dedication as well as their efforts in making sure our guests had a wonderful Thanksgiving. I speak for all of them when I say we're energized to deliver for our guests and drive results, both now and well into the future. Guests come to us for craveable, comforting dishes and warm, genuine hospitality. And we are focusing our energy there by further elevating food quality, executing consistently and doubling down on the country hospitality and service that makes people feel cared for. Now more than ever, Cracker Barrel remains a special and differentiated American brand, and we are focused on delivering that unique connection with our guests. Cracker Barrel is more than a restaurant or a retail store. It is the front porch of America, and the deep emotional connection guests feel is our greatest strength as we move ahead. We are confident that we can return to growth over time and create long-term value for all stakeholders.

The first question will come from Todd Brooks with The Benchmark Company.

A couple of questions here. First, I wanted to ask Julie about the cut in the advertising spend for the year, that kind of pulled back in ad dollars. Is that more reflective of Q2 spend during this peak holiday period and it's kind of reflective of just needing to stabilize first, before getting a little bit more aggressive with advertising dollars to draw customers back to the brand?

Thank you for your question, Todd. Let me address it from a different angle. Our marketing spend in Q1 was somewhat high at 4.2% of sales. We had intended to increase spending alongside the brand relaunch, but that did not go as planned, and the budget was already committed. Therefore, we had limited flexibility in that area. We are now examining our advertising expenditure for the latter half of Q2 through Q4 to align it better with our current traffic levels and focus on reducing costs that aren't directly related to customer engagement. As a result, our overall spend will be approximately $12 million to $16 million less than the previous year between Q2 and Q4.

Yes, I would like to add that we also have the loyalty program, and now over 40% of our sales come from that program. This enables us to communicate directly with those customers in a more cost-effective manner. We see this as an opportunity, and we continuously evaluate the effectiveness of our spending. If the program is performing exceptionally well, we can increase our efforts. However, given the current traffic levels, we decided to take a more conservative approach regarding the support of the loyalty program.

Okay. Great. And then my second question, and I'll jump back in queue. If you look at the trends, and you talked about kind of a consistent trend traffic-wise, even through Thanksgiving week, Julie. This November, December window is obviously kind of your most important seasonal period during the year. Is there much incremental that you're trying to do? I mean you talked about the LTO with the $5 toy. Other incremental plans for that December window or kind of is the die cast for holiday and the performance will fall where it may and then we'll see where we go going forward from that standpoint. I'm just trying to get a sense of, are we looking for any sign of inflection here kind of back half of fiscal Q2? Or is it more kind of if we see inflection, we're expecting that in the second half of the year?

Yes. Let me try to answer that again in a different way. This team is fully dedicated to returning to a positive direction and regaining the traffic momentum we previously had. Every day, our focus is on driving traffic, one guest at a time, by providing excellent in-store experiences, delicious food, welcoming hospitality, and attentive service. Our main goal is to rebuild trust in our brand and take advantage of sales opportunities while doing so. The marketing team is actively working on branding messages that connect emotionally with our legacy and heritage, reminding people that we are the brand they have loved over the years. That's why our holiday messaging focuses on promoting familiar limited-time offerings like Country Fried Turkey and Cinnamon Swirl French Toast. We're also examining how to attract more traffic so that guests can experience the value we offer. We're excited about the toy promotion, which is distinctively Cracker Barrel and supports both aspects of our business. Unlike some limited-time offers that are very rigid, this one allows customers to choose their toy with different pricing options. It gives them the freedom to shop in a way that emphasizes the importance of value during this time, while also fostering an emotional connection with our restaurant and retail store.

I would like to add that our sales guidance range indicates that while the upper end presumes improvements, the lower end reflects our current situation. We have several initiatives planned to enhance our momentum. Some actions focus on long-term strategies related to our work on food and the guest experience, which we are pleased to see progress in, although those will take time. Additionally, we are implementing shorter-term strategies as well, though they are not fully tested, meaning we cannot be completely certain of their outcomes. However, these actions are intended to support an increase in traffic, and our guidance range takes that into account. The lower end represents a steady state, while the upper end reflects the potential success of these initiatives as they gain traction.

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

I'll use that last question as a bit of a segue. So I think when we last heard from you, the 2026 traffic guidance was down 7% to down 4%. So correct me if I'm wrong on that. But the question is what are you thinking about as it relates to an updated guidance range for traffic for the year?

Yes, that's correct. The guidance range we provided before was negative 4% to negative 7%, which is included in the $3.2 billion to $3.3 billion in sales that factors in traffic of about negative 8% to negative 10%. Additionally, the low end of the range takes into account a higher level of discounting, a negative menu mix, and a lower level of attachment with retail. All these elements contribute to the lower end of that range. Therefore, traffic is expected to be negative 8% to negative 10%. The higher end of the range assumes some recovery in traffic during the second half of the year, along with less discounting and a moderation in attachment rates in retail.

Okay. That's helpful. Just 2 other quick ones. You pointed to a more challenged macro and industry backdrop, obviously, so maybe your peers have called this out as well. But anything specific to say there as it relates to what you're seeing in the macro backdrop?

I think we're probably all seeing the same thing, which is relative to September, consumer sentiment has softened, the labor numbers are not as strong as they used to be. Again, nothing alarming or anything, but they are softer than they were. And we've seen the overall industry traffic ticked down a bit relative to the summer over the last couple of months. In terms of our consumers, one thing that's encouraging, our under $60,000 group underperforming a little bit, but relatively close to the over $60,000 or over $80,000 groups. So we're not seeing dramatic differences across those income cohorts. We're also not seeing dramatic differences across the age cohorts. We're seeing a little bit better performance with the over 55 and over 65 than the under 55, but within a fairly narrow range.

Thank you for the information. One last question, and I appreciate your patience. You mentioned some challenges with the rollout of Phase 1 of your operations initiative, which surprised me. Have those challenges had a significant impact on same-store sales or traffic in the quarter you just reported?

Thank you for the question, Jeff. It's Julie. Let me start. The fourth quarter was really our first full quarter after implementing Phase 1. We discussed it in several previous calls. While we introduced it in the third quarter, it wasn’t fully deployed then. We found that the teams faced challenges with its complexity at scale. Everything needed to be perfected, which we realized during the rollout. In our industry, this is difficult to manage. Given the scrutiny on the brand and the feedback we received regarding food, even though it worked really well when executed properly, we decided to pause the initiative. We opted to revert to the previous processes and retrained the team accordingly. I’m optimistic about our ability to enhance the business model and identify efficiencies. We gained valuable insights from this rollout and are reevaluating Phase 2, which is still being tested in a few districts. We’ve adjusted our in-store testing methods, incorporating all the lessons learned from this phase. We must remain committed to exceptional food, excellent hospitality, and a great guest experience. Anything that might jeopardize that is not acceptable, which is why we decided to roll back.

The next question will come from Jake Bartlett with Truist Securities.

I'm curious if you can break down the impact of macroeconomic pressures on sales compared to the effects of the rebranding. There's been a decline in the second quarter so far, shifting from negative 9% to negative 11%. Would you say that this change is solely due to macro pressures, or could it be that some of these pressures are more severe than previously thought, while also seeing some positive sentiment as a result of the rebranding? I’m trying to gauge how these two factors are influencing your sales moving forward.

Jake, it's Craig. I'll start by discussing the change for Cracker Barrel in the second quarter compared to the first. Our traffic has remained consistent, declining between 10% and 11% over the past few months. In the first quarter, the results were somewhat better, and the recent deceleration appears to be due to the gradual drop-off in traffic over several weeks rather than an immediate decline. Additionally, some initiatives we implemented, like the Buy One, Get One and especially the All-You-Can-Eat Pancake promotion, provided significant but temporary boosts. However, these promotions were not sustainable over the long term. While it’s difficult to separate our performance from the industry as a whole, the overall industry results indicate that, compared to the summer, the sector has seen a downturn.

Got it. Okay. As we consider the future and how to rebuild sales, you've mentioned significantly reducing advertising expenses, which typically would go against the grain. However, there's a balance with increased local marketing and enhancements to the loyalty program. I want to better understand the positive initiatives you're implementing to shift the current trend. Specifically, what new items can we expect on the menu? Over the past year, there's been notable menu innovation that has received good feedback. How confident are you in the upcoming menu developments in the next 6 to 9 months? Are there any additional strategies you believe could effectively alter the trajectory?

Thank you, Jake. I'll begin and then Craig can chime in. I want to emphasize that our primary focus is on food and enhancing the guest experience. We are committed to ensuring that every visitor enjoys a wonderful experience, with their food prepared to their liking and served hot by attentive staff with excellent hospitality. This is the core of how we operate. We are also concentrating on attracting more customers to our stores to engage with this experience. As we consider the overall functioning, the marketing aspect is a bit more intricate. In response to Todd’s question, we are addressing an issue with our brand reputation, which involves rebuilding trust with each guest, and this will take time. That’s why we are concentrating on operations to ensure that everyone who visits has a great experience, which will help create positive momentum. The toy promotion is an excellent example of highlighting our value and uniqueness, encouraging guests to experience the brand. We also launched a Veterans Day promotion for a complimentary Sunrise Pancake, which we did for the first time last year and saw an even larger turnout this year. This success led us to introduce an ongoing military discount, which we have been requested to implement over the years, and we aimed to execute it in a sustainable, measurable way that is easy to market. We incorporated it into our loyalty program to track our guests and understand their purchasing behavior, allowing us to communicate effectively and use the discount to drive future traffic. This is why those two promotions were recently launched. Additionally, we are excited about our meals for two program, which offers excellent value. It allows guests to choose two full entrees and either a starter or dessert for $19.99, further enhanced by the option to use loyalty points or military discounts. We are committed to providing remarkable value through these experiences at Cracker Barrel. The rewards program continues to leverage AI to attract guests, particularly during this crucial holiday season. We are focused on driving traffic and ensuring enjoyable experiences for our guests while reinforcing our legacy messaging around being the brand they know and love. Recently, we introduced a platform called Our Country Friends, which spotlights our suppliers, employees, and our processes, such as our holiday item designs and sourcing from long-time suppliers. This initiative is designed to reinforce the rich traditions at Cracker Barrel and how they translate to our guests’ dining experiences. Craig, would you like to add anything?

I think Julie covered a lot, but there's actually quite a bit happening that we didn't discuss externally in Q1. We introduced the Breakfast Burger, and we also brought back a couple of items, as Julie mentioned. There are some promotions planned for early spring that we aren't discussing much right now, but there is more news. Additionally, we are really excited about the significant improvements we are seeing across several service metrics, which picked up during the quarter and have continued into the second quarter. This gives us confidence for both the midterm and long term, as these improvements often take time to realize.

Let me jump back in. I apologize, Jake, for not answering your menu question earlier. We have several new offerings that we are excited and passionate about. Specifically, we've received a lot of feedback through various channels regarding menu items that guests would like to see return. I mentioned that Eggs in the Basket and Hamburger Steak will be back on the menu in January. Uncle Herschel's was reintroduced this October and has been a great addition. We also brought back Turkey sausage due to popular demand, which took some time to find a producer for. We are committed to bringing back fan favorites and highlighting them for our guests. With the success we experienced with Campfire in Q4, we believe in continuing this strategy. Additionally, we have innovative new items coming, such as the breakfast burger, which has been very well received. It features a burger with cheese, bacon, Hashbrown Casserole on top, and an egg—it's a decadent dish that embodies our brand well. We aim to introduce more innovative offerings in the spring that remain true to the Cracker Barrel experience, similar to what we've done with Pot Roast and Hashbrown Casserole or Shepherd's Pie, but they will also provide something fresh for our guests. One of the items coming back in spring is a past menu item that our guests have requested. We are focused on gathering feedback and continuing to enhance our menu to meet what our guests crave.

The next question will come from Brian Mullan with Piper Sandler.

Just a question on the retail business. Just any thoughts you could offer about the upcoming holiday season? How do you feel about the assortment, the team's ability to execute. And then maybe anything you could offer in terms of what we might be able to expect to see on retail gross margins here in fiscal 2Q? Just any puts and takes that you could call out?

Brian, it's Julie. I'll start and then I'll let Craig jump in on the margin side of things. The team continues to execute the transformation of the retail business. We're looking at the assortment. We're looking at the shopping experience, making sure that people can get through. It could be a little tight in our stores, sometimes, especially when we're busy. So they continue to work those pieces of the plan. We're pleased with our ability to execute this holiday. If you think back, this has been a really tumultuous year for retail with the tariff stuff at the beginning of the year and then the way that, that's manifested and the back and forth as the year has come to bear. I think the team has done a really nice job of absorbing the impact of tariffs, but also using that to make the assortment stronger. We specifically held putting our Christmas on the floor until a little bit later than we did the prior year. The impact of that is that we actually have, I think, a better assortment right now on the floor. That's not as old, that's not a shopworn. And so we actually comparatively to kind of some of our competition, we have goods on the floor, which I think is a really nice place for us to be right now. We are in business with items at a great value price point. The team continues to do a nice job of making sure that we're bringing that value forward. And then where we need to when we're watching items, like, for example, our Ornament business right now is on markdown because we were a little heavy on that side of things and also just getting to the price point that the guests really requires on that right now. But team has done a nice job responding. I think the assortment looks really good. Guests are responding to the assortment. Inventory is a little bit heavier than where we were last year, but some of that is also the way that we brought in the goods given the tariff situation earlier in the year.

Brian, margins are primarily being affected by tariffs. Our initial plan for tariffs was to address the dollar impact during the first year. We anticipated a decline in percentage margins and focused on reducing the dollar impact, which we believe we managed well. Additionally, there is a shift in customer behavior where consumers are opting for lower-priced items in retail. This is part of a broader trend in retail, leading to fewer add-ons and resulting in more markdowns. Even before our recent adjustments, we expected lower margins this year, although we believed we would be neutral in terms of margin dollars.

Okay. And then just a follow-up, a clarification on G&A. Can you give a sense of what you're assuming for either adjusted G&A dollars for the full year now? Or if not that, maybe just a good quarterly run rate to think about starting in fiscal 3Q after you're fully done with the restructuring actions?

I don’t want to give too much detail on that. What I can share is that we have an annualized range of $20 million to $25 million, and we anticipate that most of it will be executed by the end of Q2. This will lead to an impact in Q3 and Q4. We have already started some of this work, which benefited us in Q1 and will continue to do so in Q2. However, the majority will be realized by the end of Q2.

The next question will come from Sara Senatore with Bank of America.

Isiah Austin on for Sarah. Just after everything that's been covered. Just a quick question. You guys noted earlier that your Google star rating is correlated with your traffic. Any idea of how far ahead you guys lead that or how to think about, I guess, the spread on that?

It's Craig. I'll start. We have made significant progress on the Google star rating, and we are pleased with the improvements we are seeing. Our analysis approach is more extended, as our typical assessment occurs twice a year, and we evaluate this over about a year. It's a gradual process, not an immediate change, but it’s important to consider how often our guests visit.

Yes. When we launched the metrics that matter about 2 years ago at this point in time, we looked at the things that were most highly correlated with same-store sales growth and Google star was at the top of that. So we've recently checked that correlation, given everything that's going on, and I can tell you that it is still valid. So we haven't given sort of your question of like what's the tail there and how much time for recovery. Know that it is still correlated and we are still looking at it and it's one reason why we're driving it so hard. I'm really pleased with the improvements that Doug has made since stepping into his role 45 days ago.

Very helpful. As a follow-up question regarding corporate restructuring to address the current situation, do you have any thoughts on whether that might raise concerns about long-term performance? I'm curious about what specific areas you are considering cutting in that restructuring.

Yes, I'll start with that one, Isiah. What we're doing here is driving incredible focus. Our highest priority is guest experience, and we have elevated that even more. There are some other work streams that create value over a longer period that we have pulled back on for now. In terms of regaining our momentum from where we are, we believe we'll have the resources to do that, and we can make other decisions regarding G&A in the future. Additionally, we had previously committed to returning to our historical G&A run rate, and in some ways, we're accelerating some of those decisions.

The next question will come from Jon Tower with Citi.

Just a quick one for me. Craig, I was just wondering if you could remind us what the plans are for the debt that's coming due later this year?

Our plans for the convertible that matures in June of 2026 are to pay it around the time it matures by utilizing the revolver. We repaid about half of that when we refinanced a few months ago, so we currently have about half of the original convertible outstanding, and we can use the revolver to cover that.

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

Thank you so much for joining us today. Although, we are facing headwinds, we are confident that the plan we are executing will drive improved performance and that we will regain our momentum. Finally, I want to express my sincere appreciation to our team members for their hard work and dedication. Thank you, and happy holidays.

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