Earnings Call Transcript - CBRL Q3 2023

Operator, Operator

Good morning and welcome to the Cracker Barrel Third Quarter 2023 Earnings Conference Call. Please note, this event is being recorded. I would now like to turn the conference over to Kaleb Johannes, Vice President of Investor Relations. Please go ahead.

Kaleb Johannes, Vice President of Investor Relations

Thank you. Good morning and welcome to Cracker Barrel's third quarter fiscal 2023 conference call and webcast. This morning, we issued a press release announcing our third quarter results. In the press release and on the call, we'll refer to non-GAAP financial measures for the third quarter ended April 28, 2023. The non-GAAP financial measures are adjusted to exclude impairment charges, store closure costs and other noncash amortization, the asset recognized from the gains from our sale and leaseback transaction and related tax implications. The company believes that including these items from its 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 the 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 this morning, we have Cracker Barrel's President and CEO, Sandy Cochran; Senior Vice President and CFO, Craig Pommells; and Senior Vice President and CMO, Jen Tate. Sandy and Craig will provide a review of the business, financials and outlook. We will then open up the call for questions for Sandy, Craig and Jen. 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, Sandy Cochran. Sandy?

Sandy Cochran, President and CEO

Thank you and good morning, everyone. This morning, we reported total sales growth of 5.4% and an adjusted operating income margin rate of 4.1%. The quarter started out largely as we had anticipated, continuing our momentum from Q2 through February and most of March. We then experienced a meaningful traffic decline, particularly in April, which negatively impacted our sales and profits, both of which came in a bit below our expectations. This softer trend has continued fourth quarter to date both for restaurant and retail sales. In our view, this reflects weaker consumer sentiment and economic pressures. Although we are cautiously optimistic that as the summer travel season unfolds, we will see some improvement to trends in June and July. Our experience in April and May largely mirrors what we've seen across the full-service casual dining industry. And despite the unanticipated headwinds, our sales and traffic growth outpaced the Black Box casual dining index for the fourth consecutive quarter. Our teams remain focused on operational excellence staffing and retention and the guest experience. Our everyday value and menu innovation is resonating with guests, and we're making great progress on other key initiatives, including catering, our loyalty program and our cost-savings efforts. Although we expect continued pressures and choppiness in the short term, we feel good about our positioning over the medium and longer term. I'd now like to speak to some highlights from the third quarter. Our menu promotion and advertising campaign showcased our everyday value and variety. Our TV messaging reminded guests that we have 20 meals for under $12, including several Hearty Signature entrees, and we highlighted newer items, such as our Cheesy Bacon Home Stock Chicken and Home Stock Chicken and French Toast. We also introduced our $5 take-home meals, which have been popular and are an additional example of how we're leaning into everyday value. For off-premise, we saw high demand for our Easter heat-and-serve bundled offerings and strong growth in our catering business, which increased over 35% compared to the prior year and remains on track to exceed $100 million this fiscal year. From an operations perspective, we're pleased with the improvements we're seeing in our turnover and retention results. Our new labor system is now in place at over 460 stores, and the rollout will be substantially completed in the coming weeks. We're pleased with the functionality that the system provides and our enhanced ability to optimize labor allocation, and we will continue to fine-tune our labor model based on our learnings. Turning to Maple Street. We opened 3 locations during the quarter and have been pleased with the early performance of each unit with each location seeing some of the strongest opening week sales in recent years. The team continues to work diligently to optimize the business model and prepare to successfully scale the brand. I'll now turn the call over to Craig for a more detailed look at the quarter from a financial perspective and to discuss our Q4 outlook, after which I'll comment on some of our areas of focus for the remainder of the year.

Craig Pommells, Senior Vice President and CFO

Thank you, Sandy, and good morning, everyone. For the third quarter, we reported total revenue of $832.7 million, an increase of 5.4% over the prior year quarter. As Sandy noted, the quarter started out in line with our expectations. But towards the end of March, there was a noticeable drop in traffic, which intensified and persisted through April and has negatively impacted our results. Restaurant revenue increased 7.8% to $681.3 million, and retail revenue decreased 4.2% to $151.4 million versus the prior year quarter. Comparable store total sales, including both restaurant and retail, grew by 5%. Our retail sales were impacted by the restaurant traffic deceleration as well as shifts in consumer discretionary spending. Additionally, we believe some of our more price-conscious guests may be reducing their retail purchases as a way to manage their overall spend when dining with us. Comparable store restaurant sales grew by 7.4% over the prior year driven by approximately 8.8% total pricing, approximately 1/4 of which is a carryforward from fiscal 2022 and 3/4 of which is new from fiscal 2023. We continue to closely monitor the impact our pricing is having on traffic and check, and we believe our pricing strategy is effectively balancing margin protection and maintaining our strong value. We believe that the softer restaurant traffic trend and reductions in retail purchases are primarily driven by macroeconomic factors as opposed to our restaurant pricing increases. Our average check also included a favorable menu mix of approximately 1.8%. We've been pleased with the strong mix favorability we've seen in recent quarters, which is a direct result of our culinary strategy to provide guests with upgrade and add-on options, such as our shareable Barrel Bites Premium Size and most recently, our $5 take-homes as well as our beverage program. Off-premise sales were approximately 19.1% of restaurant sales. We were pleased with our off-premise performance as we drove strong growth in our catering business, and sales of our Easter bundled offerings were in line with expectations. Comparable store retail sales decreased 4.6% compared to the third quarter of the prior year. We saw declines across most of our categories with our largest decreases in toys and decor, which are among our most discretionary categories. Although sales were softer than we anticipated, we continue to feel good about our inventory levels. Moving on to our third quarter expenses. Total cost of goods sold in the quarter was 31.5% of total revenue versus 31.6% in the prior year quarter. Restaurant cost of goods sold in the third quarter was 27.3% of restaurant sales versus 27.8% in the prior year quarter. This 50 basis point decrease was primarily driven by menu pricing of 8.8%, partially offset by commodity inflation of 4.3%. The primary drivers of Q3 commodity inflation were produce, dairy and eggs. Third quarter retail cost of goods sold was 50.2% of retail sales versus 46.9% in the prior year quarter, which, as a reminder, was an atypically low COGS rate. This 330 basis point increase was driven by more normalized promotional activity and higher inventory shrink. Increased shrink has been a growing problem for the broader retail industry. And although our teams are working diligently to mitigate this issue, we expect it to remain somewhat elevated for the near term. Our inventories at quarter end were $185 million compared to $192 million in the prior year. With regard to labor costs, our third quarter labor and related expenses were 35.8% of revenue versus 35.9% in the prior year. This 10 basis point decrease was primarily driven by sales leverage, partially offset by hourly restaurant wage inflation of approximately 5.5%. Adjusted other operating expenses were 23.3% of revenue versus 23.1% in the prior year quarter. This 20 basis point increase was primarily driven by higher advertising and maintenance expenses. Our general and administrative expenses in the third quarter were 5.4% of revenue versus 5.4% in the prior year quarter. This 40 basis point increase primarily resulted from investments to support our growth initiatives and a more normalized incentive compensation. Additionally, our GAAP results include impairment charges of $11.7 million as well as $2.2 million in costs associated with store closures. All of this culminated in GAAP operating income of $16.8 million. Adjusted for impairment charges, store closure expenses and the noncash amortization of the asset recognized from the gains on the sale and leaseback transactions, operating income for the quarter was $33.9 million or 4.1% of revenue. Net interest expense for the quarter was $4.5 million compared to net interest expense of $2.2 million in the prior year quarter. The increase is a result of higher interest rates and a higher level of borrowing. Our GAAP effective tax rate for the quarter was negative 14%, reflecting a true-up based on our year-to-date GAAP earnings before taxes, which includes the impact of the impairment charges and store closure costs. On an adjusted basis, our effective tax rate was 7.8%. Third quarter GAAP earnings per diluted share were $0.63 and adjusted earnings per diluted share were $1.21. In the third quarter, adjusted EBITDA was $60.3 million or 7.2% of total revenue. Now turning to capital allocation and our balance sheet. We remain committed to a balanced approach to capital allocation. Our first priority remains investing in the growth of Cracker Barrel and Maple Street. Beyond that, we plan to return capital to our shareholders while maintaining appropriate flexibility and a strong balance sheet. In the third quarter, we invested $38 million in capital expenditures, and we returned $29 million to shareholders in dividends. Lastly, we ended the quarter with $445 million in total debt. With respect to our fiscal 2023 outlook, I would like to provide some additional color on the guidance in this morning's release and an update on recent trends. Quarter-to-date, our top line trend has generally been in line with April. Looking ahead, the environment remains uncertain. June and July are 2 of our highest-volume months and are heavily influenced by summer travel patterns. Our base-case scenario is that these months experience a modest travel trend improvement compared to April and May, largely due to increased travel and easier comparisons from the prior year. Assuming this improvement in our traffic trend, we currently expect total revenue growth in the fourth quarter of 1% to 3%, which includes pricing of approximately 8.5%. We anticipate opening 1 new Cracker Barrel location and 5 to 7 new Maple Street locations during the quarter. Several Maple Streets are slated to open towards the end of the fiscal year, and our updated expectation reflects the possibility that a couple may slip into early fiscal 2024 due to permitting or equipment delays. In Q4, we anticipate commodity inflation will be approximately flat and hourly wage inflation will be approximately 5%. In addition to the above assumptions for revenue growth, commodity and wage inflation and cost savings, our operating income margin expectation contemplates the following: first, investment in additional labor hours to ensure we are delivering exceptional service and hospitality during the high-traffic summer months. Second, within G&A, we have investments to support our strategic initiatives, such as our loyalty program and other digital initiatives as well as an increase in incentive compensation relative to the prior year. Third, we have increased our cost-savings estimate and now expect to deliver approximately $13 million in cost savings during the fiscal year with additional gains in fiscal 2024. Taking all of this into account and assuming industry traffic and summer travel patterns play out as we expect, we now expect adjusted operating income margin in the range of 4.5% to 5.5% in Q4. We expect a Q4 GAAP effective tax rate of approximately 0% and an adjusted effective tax rate of approximately 4%. Finally, we anticipate capital expenditures of $30 million to $35 million during the quarter.

Sandy Cochran, President and CEO

Although we're currently operating under more uncertainty, we remain confident that we have the right strategy in place to navigate these short-term challenges and win market share. In the current environment, our primary focus is driving sales growth, but we will simultaneously continue enhancing our business model. I'd now like to discuss our strategic priorities. First, we're focused on the guest experience. Our teams are highly focused on strong execution and delivering an exceptional guest experience. We've placed a priority on ensuring stores are properly staffed for the high-volume summer months. We continue to believe that hospitality is a key differentiator for us, and we will continue to make investments to support this. We're also focused on the training and development of our store employees and believe enhancing these areas will drive further improvements to retention and guest satisfaction. Second, we're continuing to emphasize and protect our strong value proposition. Everyday value has always been and will continue to be a key pillar of our strategy, and we're continuing to leverage this core equity through our $20 and $12 advertising campaign. We believe our investments to preserve the value sections of our menu and our attractive price points have been and will continue to appeal to our guests and will maintain our value strength even in a more promotional competitive landscape. The sustained strength and growth of our off-premise channels, in particular catering for both everyday and holiday occasions, demonstrates our value proposition extends beyond dine-in. We are especially excited about the catering business and continue to enhance the menu and service model. Third, we're looking to accelerate frequency among our growth segments. To achieve this, we remain focused on menu innovation and introducing offerings that feature bolder and more complex flavor profiles, which especially appeal to this group. For example, we recently introduced our Steak and Egg Hash Brown Casserole and Biscuit Bene, our version of eggs benedict, and we've been encouraged by the response. Our loyalty program is a key initiative and it's another way that we're extending our care and hospitality to our guests as part of our larger digital transformation initiative. While we believe the loyalty program will appeal to all guests, we think it will especially resonate with our growth segments. We've made significant progress in the development of the program and to support the successful implementation of this large-scale complex initiative, we're planning for a beta launch in July. I'm excited about the program, which incorporates all of our channels, including retail and features fun gaming elements. We believe the loyalty program will drive higher frequency, increase brand loyalty and customer lifetime value and provide robust actionable guest data. Finally, we're continuing to improve our business model. Our cost-savings program has delivered significant savings this year, and we expect to also deliver meaningful savings to fiscal 2024. We're pleased with our investments in technology, including our food and labor systems, and we will continue to leverage these systems and optimize our processes to drive further efficiencies. And although our top focus is protecting the top line and delivering an exceptional guest experience across all channels, our operators are tightly managing the business to control costs in this more challenged environment. In closing, I believe our focus on the guest experience, value, accelerating frequency with our growth segments and enhancing our business model has us well positioned to navigate the short-term challenges we're currently facing and sets us up for capturing market share and driving long-term value creation. And with that, I'll turn the call over to the operator for your questions.

Operator, Operator

And our first question will come from Katherine Griffin of Bank of America.

Katherine Griffin, Analyst

Craig, I wanted to clarify your comments about the trends in May. You mentioned they are similar to April, but I need to know if that means traffic is decreasing slightly, considering the positive mix you referenced. Or are you seeing an improvement in the decelerating traffic trend from April? I just wanted to clarify those points.

Craig Pommells, Senior Vice President and CFO

I think we can confidently say that during the quarter, we experienced a significant decrease in our traffic, a trend observed throughout the industry as well. May has shown consistency with April, indicating no substantial changes in either direction. Therefore, we are not experiencing a deceleration or acceleration, just a steady trend. The broader environment remains challenging and dynamic, but the good news is that conditions are not worsening, nor are they significantly improving. With that in mind, I will provide some additional detail. We expect to see a modest improvement in our trends as we move into the summer. April and May were aligned, and we anticipate this slight improvement in line with the summer travel season, which is factored into our base-case assumptions.

Katherine Griffin, Analyst

Okay. Great. And then I just had a question on CapEx. There’s a bit of a step-up in the third quarter. So I wanted to know what the drivers of that were. And then just given the lowered outlook for restaurant development, sort of why maintain the full year CapEx guidance?

Craig Pommells, Senior Vice President and CFO

Actually, I think this is a good story here. We – for many months now, many quarters, there has been a backlog in getting equipment for repairs. And now finally, we’re on the backside of that issue, and we’re basically getting caught up on some deferred equipment replacement.

Operator, Operator

The next question comes from Jeff Farmer of Gordon Haskett.

Jeff Farmer, Analyst

A couple of questions. So I'm just curious what the implied same-store sales and traffic growth expectation is that comes with that 1% to 3% F 4Q revenue growth guidance. If you can just sort of give us a little bit of a guidepost there, that would be helpful.

Craig Pommells, Senior Vice President and CFO

Jeff, it's Craig. Yes, on the restaurant side, our expectation in that 1% to 3% is that restaurant comp sales will be in the kind of low to mid-single-digit range for comp sales and retail, we would expect to be a higher single-digit negative sales comp.

Jeff Farmer, Analyst

Okay. That's helpful. As it pertains to Cracker Barrel specifically, regarding what you're observing at the concept level, is there a particular customer demographic or time of day that is experiencing more significant challenges as you mentioned becoming a bit more difficult as you entered May? Is there a demographic or time of day facing greater difficulties?

Sandy Cochran, President and CEO

Yes. Jen, why don't you take that one?

Jen Tate, Senior Vice President and CMO

Jeff, it's Jen. This quarter presents a situation that is quite different from the same time last year. During last year's third quarter, our older guests were hesitant to spend due to concerns over the Ukraine war and rising gas prices. This year, however, we've noticed a positive rebound in visits from older guests. Conversely, we're now seeing reduced visit frequency from younger customers, which aligns with a significant decline in consumer sentiment within that demographic. Thus, the third quarter tells a different tale. It's important to keep in mind that analyzing just one quarter can be bumpy, so we prefer to examine trends over a longer timeframe, especially since most of our initiatives focus on younger groups and are long-term in nature. When we look back over a two-year period, we've still observed some positive momentum among younger customers, but this third quarter certainly posed more challenges for that group.

Jeff Farmer, Analyst

Okay. And just last one is bookkeeping. You guys shared the pricing in the Q3, but traffic and mix in the quarter. I apologize if I missed it, but did you guys share traffic and mix in the quarter, the Q3 quarter?

Craig Pommells, Senior Vice President and CFO

We did not in the prepared remarks, but I'll go ahead and share those now. Traffic for the quarter was negative 3.2%. And in addition to the price, we also had positive menu mix of 1.8%.

Operator, Operator

Our next question comes from Dennis Geiger of UBS.

Dennis Geiger, Analyst

Could you discuss your expectations for the brand's resiliency over the coming quarters or year, considering the challenging environment you mentioned? I understand you highlighted the compelling value offers, but any additional thoughts on brand resiliency and the strategies you can implement in this context would be appreciated.

Sandy Cochran, President and CEO

Yes. Dennis, it's Sandy. I really will kind of focus on the prepared remarks in the last part, which is that we continue to believe that the brand is highly differentiated. It appeals across a broad spectrum of age, demographics, income. And our focus, first and foremost, is on ensuring that we're delivering the guest experience. We believe our hospitality is one of our key differentiators. And in this environment, it's particularly important if you're a guest that's managing their frequency, you want to be sure you're going to brands that you can trust to deliver both the experience and the value. And so that really leads to my second priority, which is leaning in and emphasizing and protecting our everyday value. We've been known for that. We're not as focused on promotions and deals but ensuring that a guest can come in any daypart and find on the menu a good value, just why we're focused on highlighting with our 20 under 12 initiative or promotion right now. It's not a promotion. It's every day. I think I'll let Jen speak to the $5 take-home, which we think is another great way to deliver value to our guests, and we've been encouraged by the reaction to that.

Jen Tate, Senior Vice President and CMO

Yes, I think starting with value is absolutely a critical part for us. In addition to communicating to consumers that we have 20 entrees on our menu for under $12 across all dayparts, we're also introducing new options in that category that we believe will appeal to our growth segments. These options feature more flavorful and complex tastes that we have tested with those segments. We feel positive about that. The $5 take-homes have been a nice addition that helps us increase check sizes, and we also see it improving our value scores on checks that include that offer. Another aspect we are very excited about is that we will soon begin beta testing our new loyalty rewards program sometime in July. Research indicates that this is a highly appealing proposition across all of our segments, both sustaining and growth segments. Everyone is showing interest in this new rewards program, which will be unique for us as it encompasses all of our channels, including retail. Our guests will be able to earn points whether they are dining in the restaurant or shopping in our retail space, and they will also be able to redeem points in both areas, making it quite distinct within the restaurant industry. We are very excited about the launch of our loyalty program and how it will enhance our digital roadmap moving forward. There are many developments coming that we believe will help us maintain our momentum.

Sandy Cochran, President and CEO

Thank you, Jen, for your input. I want to emphasize that retail, despite facing challenges currently, remains a key differentiator for us. It provides our guests with the opportunity to discover enjoyable, unique, and nostalgic items that offer great value. I believe this will continue to be true not only in the upcoming quarter but also over the next few years.

Dennis Geiger, Analyst

That’s great color. Just one more, if I may. Craig, you spoke to capital allocation priorities. So I just want to ask, in thinking about the attractive dividend and in thinking about some of the near-term macro pressure that you’ve spoken about, is there any thoughts to add with respect to the dividend and maybe balance sheet usage if it comes to just thinking about different scenarios looking ahead?

Craig Pommells, Senior Vice President and CFO

From a capital allocation perspective, I think our Board is incredibly thoughtful. And our priorities are investing in Cracker Barrel and Maple Street and then our return in cash to shareholders and our dividend is a primary way that we’re currently doing and that we have been doing that. And our current cash flows support our dividend. Our leverage ratio supports our dividend. So I don’t see anything in the future that would change that at this point.

Operator, Operator

The next question comes from Andrew Wolf of CL King.

Andrew Wolf, Analyst

I wanted to follow up on the traffic in April and May. Do you think the relatively cool and wet spring might have affected that, especially in the southern part of the country where it's usually hot by then and people are typically out on the highways? Do you believe the weather had any impact, or do you think it influenced things in other ways? I'm aware that some people prefer not to attribute things to the weather, but it is what it is, which is why I'm asking.

Sandy Cochran, President and CEO

Well, I'll begin by saying that we don't like to use weather as an excuse for not delivering the anticipated results. However, there has been discussion about whether this spring was indeed cool, and we've heard similar sentiments from several companies regarding its impact on business. This could have made people more hesitant to take trips they had planned. Our merchants have indicated that they felt it affected the timing of our summer clothing purchases. If it was still cold, interest in sundresses and sandals likely diminished, as we later observed. We don't believe there was a significant weather impact for the quarter, but we do think it may have influenced the timing for some of our consumers.

Andrew Wolf, Analyst

In the retail stores, your inventories appear to be in good shape. It seems there isn't much markdown risk despite the weather conditions. The decrease in inventory compared to last year, along with the generally stable restaurant inventory, suggests that the retail store inventories have fluctuated significantly. If the inventories are down, it could indicate that you have clean inventories, minimal markdown risk, or that you're already shifting towards lower-priced items. Can you provide some insight into what's happening with the inventories?

Sandy Cochran, President and CEO

Well, our retail teams, they've done a magnificent job over the past few quarters in delivering really very impressive retail sales. But in Q3, we did see the guests pull back. And we saw it broadly across the store base. We saw it broadly across categories, particularly in the more discretionary ones. And it kind of was reflected in conversion and UPT. The good news is that our merchants were preparing for this possibility in terms of managing our inventories. And I think they have done a good job of working in this environment to keep the inventories clean. They've been working with the field to be sure we were moving through the most vulnerable categories. They've been working with our vendors on margins. And I think they have, to the point you make, done a good job of managing that risk.

Craig Pommells, Senior Vice President and CFO

Yes. Andrew, I'll elaborate on that. As we've indicated previously, we anticipate the retail segment of the business will return to a more typical promotional pattern. In fiscal '22, our promotional activity was lower, and we have mentioned that in fiscal '23, we expect it to align more closely with pre-COVID promotional levels. This remains our outlook.

Andrew Wolf, Analyst

Okay. Can I ask one last question about pricing at the restaurants? What is included in the Q4 comparable guidance for price? Also, can you give us an idea of the pricing approach going into the next fiscal year? For instance, if no additional price increases were implemented, when would pricing stabilize?

Craig Pommells, Senior Vice President and CFO

Yes, we have 8.5% in the current guidance for Q4. We have been very careful in our pricing strategy, continuously reviewing it with holdout groups and monitoring sentiment, value scores, and competitor prices. We are confident that our pricing is positively impacting traffic. We've implemented more frequent but smaller price increases, which means some of the pricing will carry over into fiscal '24, particularly in the first half. While we cannot specify the exact amount at this moment, we believe it is reasonable to assume a significant carryforward into the first half of fiscal '24. As we enter fiscal '24, we anticipate the inflation environment will be more normal, and our pricing strategy will adjust accordingly, which we will discuss further in the next call.

Operator, Operator

The next question comes from Jake Bartlett of Truist Securities.

Jake Bartlett, Analyst

My first question is about your performance compared to the industry. You mentioned that you outperformed again in the fourth quarter relative to Black Box, and I want to clarify which aspect of Black Box you are comparing to. I'm also curious if that outperformance continued through April and May. If it didn't, what do you think might be the reasons for that? Some of us are wondering if there has been any pushback on menu pricing, or if it's related to competition in your markets, particularly with grocery. If your market share gains have indeed reversed, could you provide any insights into what might be causing that?

Craig Pommells, Senior Vice President and CFO

I think there's a lot of detail behind that. So I think we're comfortable with saying that for 4 quarters in a row, we've been ahead of Black Box full service, and we have provided the additional texture that May is line with April.

Sandy Cochran, President and CEO

Black Box casual.

Craig Pommells, Senior Vice President and CFO

We have discussed our pricing strategy and how we have evaluated it thoroughly. While I understand the interest in gaining more information, it's still early in the quarter, and we look forward to providing further updates during the next call.

Jake Bartlett, Analyst

I understand. It seems that in April, your performance possibly shifted from exceeding expectations to falling short. I'm trying to determine whether the feedback from competitors during the first quarter indicated that there were no significant changes in consumer behavior regarding spending. However, your results appear quite different, prompting me to consider if there are unique factors related to your markets or customers that make you more vulnerable to these broader economic pressures, which haven't been evident among competitors so far.

Craig Pommells, Senior Vice President and CFO

Yes. Yes, it's a good question. I think the areas where we might be different from the competitors would be, for example, in the summer travel season, as an example. I think that would be an area where we could perform differently either to the good or to the bad. But outside of that, I guess I would just reiterate that we're pleased with the market share gains. And we obviously report out on a slightly different cadence from others. And I don't know that it would be super helpful to get into each individual month beyond that.

Jake Bartlett, Analyst

I have a question regarding COGS. Craig, this is another quarter where the calculations for your restaurant COGS show another ongoing issue. With 8.8% of menu price and 4.3% of commodity inflation, there seems to be another factor influenced by mix. I was considering that you might be seeing a year-over-year advantage from freight and similar factors, which I believe are included in those numbers. However, this ongoing issue has now persisted for five quarters, creating a drag compared to the third quarter of last year. As we look to the fourth quarter, can you provide guidance on what restaurant-level COGS should be if we assume flat COGS, flat commodity inflation, and 8.5% pricing? Could you clarify if there are any other issues expected, or will the situation be more straightforward in the fourth quarter?

Craig Pommells, Senior Vice President and CFO

Yes. The mix component affecting Q3 COGS and previous quarters is related to our efforts to provide guests with more options for a holistic experience, including items like Barrel Bites, shareable plates, and flavored drinks. For instance, consider iced tea, which has a low COGS percentage. If a customer chooses flavored iced tea instead of unflavored, the COGS percentage increases to the mid-teens. This change contributes to the tea mix we’re observing. The reason I elaborate is that the mix component will depend on how well those add-ons perform. If these add-ons continue to positively impact our check average, which increased by 1.8% this quarter, we will see a greater effect on restaurant COGS. Conversely, if there’s any decline in this area, the mix impact will be less pronounced. Ultimately, it will depend on our restaurant mix, and we’re pleased with it. This strategy allows us to boost top-line revenue, generate cash, and enhance cash profits, while giving guests the choice to participate. It also aligns with our growth segments and their preferences. I understand the P mix impact you’re alluding to, and I believe it is a strategic approach we’re employing.

Jake Bartlett, Analyst

Great. And then last question. On stores, there’s been a number of closures. So I think 6 Cracker Barrels, I think there was 1 in May. So maybe we’re expecting kind of no net openings in the fourth quarter for Cracker Barrel. But then also, I think there’s 3 closures of Maple Street in the third quarter. So you opened 3 and there was net flat. So if you can give us some color on whether we should expect more, whether we should model in continued closures on either brand, that would be helpful.

Craig Pommells, Senior Vice President and CFO

Our approach to restaurant closures is largely that we’re in a business of operating restaurants, not closing restaurants. So in that the portfolio of 600-plus of anything, you’re going to have high performers, medium performers and low performers. And with the low performers, you work to make them be better. And in this case, as we came out of COVID, we had a handful of low performers that we have been working on and working on their recovery. And then at some point throughout the year, we came to the conclusion that we would not be able to operate those stores profitably and made the decision to exit some of those stores in some of those markets. So that’s what’s led to this position. So we – as you noted, we had 1 in – Cracker Barrel in Q1, we had 4 in Q3, and then we had 1 in early Q4. So it’s not a strategic shift. It’s more a function of timing coming out of COVID and working to improve these stores and then coming to the conclusion that we are not going to be able to operate them profitably. As it relates to Maple Street, as we’ve continued to refine that business model, we had a handful of stores that were on our type of franchise agreement that was not a part of the near-term business model. It may be a part of the long-term business model, but we would do it differently. So we decided to purchase those stores, all of them, and then some of them were particularly challenged and we decided to exit in that case. So it’s a part of getting that business set up to ultimately scale. So 2 of those 3 were a part of that, and then 1 of them was a bit of a one-off location that was a test location that didn’t – that we didn’t see a path forward with. So not a strategic shift, more of a, for lack of a better term, we’re just coming to a decision to kind of move forward on some stores that we've been working on for a period of time.

Operator, Operator

The next question comes from Todd Brooks of The Benchmark Company.

Todd Brooks, Analyst

One is just a follow-up on kind of that concept of unit growth going forward. Can you talk about the difficult construction environment, but also the cost to build units and how that may play into how we should think about the unit growth rate, especially for Maple Street, as we go into '24 when we were maybe looking to accelerate growth of the brand as far as cost to build? And what type of retrenchment in construction costs you'd like to see to really accelerate brand growth going forward?

Craig Pommells, Senior Vice President and CFO

You addressed all the important points, Todd. Our long-term outlook on unit growth remains unchanged. In the short term, we’ve noticed an increase in construction costs, which is happening alongside a slowing economy and higher interest rates. This has created a disconnect between building costs and the current macroeconomic situation. Our long-term strategy continues to focus on ensuring we provide a solid return to our shareholders with each new unit, which means we are passing on more opportunities now compared to a year ago. We expect that as the market stabilizes and the real estate sector adjusts to the current landscape, we will be able to move forward again. Additionally, like all businesses, we are continually working to refine our real estate model for cost efficiency, which requires further effort as we navigate the many changes that have occurred over the past few years. We are updating our site opportunity model to better understand potential sites and how these prospects have evolved. Our long-term perspective remains consistent, and we are also keeping an eye on any signs of a cooling market.

Todd Brooks, Analyst

That's great, Craig. Second follow-up, just talking about the April pullback that was cited. You gave us mix data for the full quarter. I was just curious if you start to look at April and where the consumer may be settling out, can you share how either the mix changed or maybe attach rates, if you're seeing any check management on the part of the consumer? And then, Jen, I know you do detailed testing around future pricing actions. Has there been a change in how the consumer is responding to the thought of future price increases from the current levels?

Jen Tate, Senior Vice President and CMO

Yes. The mix has remained fairly consistent. There wasn't much change, if any, in April. So when we consider key factors like attachment rates...

Sandy Cochran, President and CEO

On the restaurant side.

Jen Tate, Senior Vice President and CMO

On the restaurant side, to be specific, we've observed that when it comes to beverages, Barrel Bites, Premium Size, and $5 take-homes, there has been no significant change in guest choices. Regarding pricing, we frequently implement small increases while carefully monitoring them against our holdout group and assessing various metrics of value. We have not noticed any substantial resistance from guests concerning our pricing. Each time we adjust prices, we meticulously track any potential impact. However, one area where industry pricing might have had an effect is frequency; particularly, guests who are affected by economic uncertainty seem to be reducing the number of visits rather than the amount they spend per check. This appears to be where the pullback is occurring.

Todd Brooks, Analyst

Okay. And then one final one for me. I know you upped the cost savings guidance to $30 million from $25 million prior. I guess, where did we find the incremental $5 million in cost saves? Where should we be flowing that through the income statement? You seem excited about further cost-save opportunities into ‘24. I didn’t know if you could preview anything that you’ve latched on to there.

Craig Pommells, Senior Vice President and CFO

Todd, we are literally looking at every single line item. And as with every other company, we’re constantly looking in the food area, and we’ve made quite a few changes where the cost goes down and our guest satisfaction or guest research shows an improvement in their perceptions. So there are a lot of those, and that continues on. There are other indirects. It’s really a long list of things, banking fees, supplies, different components of labor that are a little bit more indirect in nature. But this is really an enterprise initiative where every single function, we’re looking at Internet costs, we’re – every single area. We’re looking for ways to improve our efficiency where it’s not a takeaway from our guests. And in cases where we do make a change, is an improvement from a guest perspective. So the point is it’s just not one big little thing. There are – one big thing. There are a lot of little things that add up to that $30 million. And it gives us confidence in the FY ‘24 benefit that we’ll continue to see from this initiative.

Operator, Operator

The next question is a follow-up from Jeff Farmer of Gordon Haskett.

Jeff Farmer, Analyst

You did touch on it, but how should we be thinking about G&A dollars in the Q4 and heading into fiscal '24?

Craig Pommells, Senior Vice President and CFO

I think the best way to think about G&A dollars is to look at the Q2 and Q3 G&A dollar amount and forecast that forward. One of the challenges with G&A is the incentive comp is in there. And as things move up or down, that number, you end up with big true-ups. So it's much better to look at the more recent quarters than it is to look at a comparison to the prior year.

Jeff Farmer, Analyst

Okay. I can work with that. Regarding incremental investments that may be necessary at the corporate or enterprise level as we approach 2024, do you anticipate anything significant over the next 12 months?

Craig Pommells, Senior Vice President and CFO

We'll discuss 2024 in our next quarter. I want to reiterate what we've mentioned for this year regarding our investments in digital capabilities aimed at better attracting our growth segments, especially our loyalty program, which has seen significant investment. Sandy also mentioned labor. In a context where consumers are reducing their visit frequency, it's crucial that when they do go out, they have a fantastic experience, and that’s the core of our business. Therefore, we are making further investments in that area.

Jeff Farmer, Analyst

Okay. And final question for me. You guys did share some commentary that made – some of the recent Maple Street openings had shown some strength. But just looking at my model, which is not perfect in terms of operating weeks, I don’t think you guys disclosed that for Maple Street. It does appear that Maple Street average weekly sales volumes are down in roughly the mid-single-digit range over the last several quarters. Assuming that math is in the ballpark and you are seeing declines in average weekly sales, what’s driving that decline as you more aggressively pursue openings for Maple Street?

Craig Pommells, Senior Vice President and CFO

There are a couple of things there. Once we exited those franchise type arrangements that we spoke about earlier, those stores were – had lower AUVs. So when we brought those into the system, that brought the AUV down. That’s one. Additionally, Maple Street has also – like Cracker Barrel has certainly in the last couple of months been impacted by traffic that’s lower than expectations. Now I will say that, again, the new stores have opened very, very strongly. We are continuing to be pleased with, for example, the weekend business has held up better there, and we’re continuing to make some refinements there to grow the weekday business to a greater degree.

Operator, Operator

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

Sandy Cochran, President and CEO

All right. Well, thank you for joining us today. Although we're facing heightened uncertainty and these headwinds, I'm confident that our strategic priorities on the guest experience, everyday value on accelerating frequency with our growth segments and then improving our business model that will help us successfully navigate these near-term challenges and that we are well positioned to drive long-term value creation. We appreciate your interest and support.

Operator, Operator

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