Cracker Barrel Old Country Store Inc (CBRL) 2018 Q3 法說會逐字稿

Good morning, and welcome to the Cracker Barrel Fiscal 2018 Third Quarter Earnings Conference Call.

(Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Adam Hannon.

Please go ahead.

Thanks, Chad.

Good morning, and welcome to Cracker Barrel's Third Quarter Fiscal 2018 Conference Call and Webcast.

This morning, we issued a press release announcing our third quarter results and our outlook for the 2018 fiscal year.

In this press release and on this call, we will refer to non-GAAP financial measures for the current year adjusted to exclude a onetime noncash revaluation of the company's net deferred tax liability, which occurred in the second quarter.

The company believes that excluding these tax effects from its financial results provides information that may be more indicative of the company's ongoing operating performance, while improving comparability to prior periods.

This information is not intended to be considered in isolation or as a substitute for financial information prepared in accordance with GAAP.

The last page of the press release includes a reconciliation from the non-GAAP information to the GAAP financials.

On the call with me this morning are Cracker Barrel's President and CEO, Sandy Cochran; Senior Vice President and CFO, Jill Golder; Senior Vice President of Marketing, Don Hoffman; and Vice President and Principal Accounting Officer, Jeff Wilson.

Sandy will begin with a review of the business, and Jill will review the financials and outlook.

We will then open up the call for questions for Sandy, Jill, Don and Jeff.

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?

Thanks, Adam, and good morning, everyone.

This morning, we announced positive comparable store sales in both our restaurant and retail businesses.

Sales trends for the quarter reflected an improvement versus the previous quarter, and we again outperformed the industry, and we delivered third quarter earnings per share that were above our expectations.

Higher commodity inflation and expenses related to our initiatives pressured operating margins, but I'm pleased with the progress that we're making.

We also announced an increase in our regular quarterly dividend to $1.25 per share.

Over the last 7 years, we've increased our dividend 9x totaling nearly 470% growth.

Additionally, we declared our fourth special dividend.

The increase in our regular dividend and the declaration of a special dividend reflects our commitment to returning capital to our shareholders after we have appropriately invested in our business.

Jill will review the financial results for the quarter as well as our updated full year expectations, but before she does I'd like to speak to some of the third quarter highlights and our plans for the fourth quarter.

Our third quarter in-store menu promotion featured our new limited-time only Southern Bowls, which included a Fried Chicken Benedict Bowl, a Ham n' Maple Bacon Bowl, and a Sausage, Grits Cakes n’ Green Tomato Gravy Bowl.

Supported by an integrated marketing campaign that included 5 weeks of national cable TV, these items showcased high-quality ingredients and homestyle flavors with a new Southern twist, and we believe they resonated with both our frequent and infrequent users of the brand.

Our summer menu promotion, which launched yesterday, marked the return of our popular Campfire menu.

In addition to returning favorites such as our Campfire Beef entrée and our Campfire S'mores dessert, we're excited about several new offerings, such as our Smoky Beef Brisket Breakfast and Roasted Sweet Glazed Chicken.

Our new campfire offerings are rooted in what our guests know and love while providing new news to maintain the relevance of this menu promotion.

The Campfire promotion will last 8 weeks and will be supported by an integrated marketing campaign featuring 6 weeks of national cable TV and promotional billboards in key markets along with social and digital advertising.

Moving on to our retail business.

I'm pleased that we further built on the momentum from the second quarter and grew our comparable retail sales both versus prior year and the previous quarter.

Our team continues to do a great job assembling unique assortments that resonate with our guests and that are a compelling value.

Our retail theme business performed well, and in addition to returning favorites, we continued to introduce new themes such as our retro collection, which focused on nostalgic items inspired by the '50s, '60s, '70s and '80s and had broad generational appeal.

Additionally, we again improved our conversion of restaurant guests to retail purchasers.

Turning to our strategic initiatives.

We completed the rollout of the Crafted Coffee platform in April and continue to be pleased with the results.

The crafted coffee program, which is part of our specialty beverage initiative and features both hot and cold espresso drinks, helps satisfy our guests' desire for multiple flavors and higher-quality beverages, and it drives check favorability.

Last quarter, we introduced a signature Goo Goo Cluster Latte.

And for those of you who are not familiar with the Goo Goo Cluster, it is a delicious, classic Southern candy featuring caramel, nougat, roasted peanuts and milk chocolate that was created in Nashville in 1912 and is a guest favorite in our retail store.

We're looking forward to introducing additional seasonal flavors with our future menu promotions, such as the S'mores Latte featuring marshmallow, milk chocolate and graham cracker that will be part of our Campfire menu promotion.

During the quarter, we continued to make progress on our off-premise initiative, which as a reminder, encompasses 3 different platforms: individual To-Go, Heat n' Serve and catering.

We've been pleased with the growth of individual To-Go, which has largely occurred organically, and in the coming quarters we'll be testing third-party delivery as we seek to expand this part of the business.

In the Heat n' Serve business, we anticipated a significant increase in sales versus prior year for our Easter offering, and we were pleased with the performance, which continues to grow.

Because of the success we've had with our Heat n' Serve program, we'll be expanding it to additional occasions such as Mother's Day.

We also continue to build our catering business.

For example, in the quarter, we introduced breakfast bundles, which added new menu offerings that are conveniently bundled with complementary items, such as our Cracker Barrel Classic, which includes our ham, egg and cheese casserole, grits, sawmill gravy and biscuits along with a choice of breakfast meat and hash brown casserole or fried apples.

During the quarter, we also developed new items that will be exclusive to catering that will begin testing in 2 weeks as we enhance the catering offering.

Additionally, we'll be expanding our in-house delivery program in the coming quarters to further support our off-premise initiative.

We have been and will be investing in additional marketing, technology and labor.

While we've spoken of this year being a year of investing in our top line initiatives, we've not lost sight of our cost-savings initiatives.

We continue to make good progress on achieving our targeted cost-savings for fiscal 2018 as well as setting the foundation for additional cost-savings in the coming years.

Lastly, we continue to expand our footprint by opening new stores both in our core and developing markets.

We opened 4 Cracker Barrels in the third quarter, including our first California location.

We've opened a total of 8 this year.

Also, we opened a Holler & Dash location in Charlotte, North Carolina last quarter bringing the total number of stores to 7, 3 of which opened this year.

And we are proud that last week, Holler & Dash was 1 of 5 recipients of the 2018 Hot Concept Award from Nation's Restaurant News.

In closing, we are pleased with the quarter overall and we remain focused on driving top line growth and accelerating our initiatives.

We believe that the plans we have in place, along with our continued investments, will help us achieve these objectives.

And with that, I'll turn the call over to Jill.

Good morning, everyone, and thank you, Sandy.

I would like to begin by discussing our financial performance for the third quarter of fiscal 2018 and then our outlook for the 2018 fiscal year.

In this morning's release, we reported third quarter net income of $48.7 million or $2.03 per diluted share compared to prior year earnings per diluted share of $1.95.

For the quarter, we reported total revenue of $721.4 million, an increase of 3% when compared to prior year revenue of $700.4 million.

Our restaurant revenue increased 3.1% to $592.7 million, and our retail revenue increased 2.7% to $128.7 million.

Our total revenue increase was driven by positive comparable restaurant and retail sales and the opening of 9 new Cracker Barrel locations and 3 new Holler & Dash locations since the prior year third quarter.

Cracker Barrel comparable store restaurant sales in the quarter increased 1.5% as average check increased 2.8% and traffic decreased 1.3%.

The increase in average check reflected menu price increases of approximately 2.5% and a favorable menu mix impact of 0.3%.

The third quarter mix favorability was driven primarily by our Crafted Coffee initiative and our spring menu promotion, which featured our Southern Bowls.

As we shared on our February earnings call, severe weather affected our February comparable store sales results, and we estimate that inclement weather in the third quarter has adversely impacted comparable store sales and traffic by approximately 0.4%.

Third quarter comparable store retail sales increased 0.9% with increases coming primarily within books and stationary and women's accessories.

Moving on to expenses.

Total cost of goods sold in the quarter was 30.2% of total revenue versus 29.4% in the prior year quarter.

Our restaurant cost of goods sold was 25.6% of restaurant sales, an 80 basis point increase versus the prior year.

This increase was driven primarily by the impact of commodity inflation.

On a constant mix basis, our food commodity costs were approximately 5.1% higher in the quarter than in the prior year quarter driven by increases in beef, pork and eggs.

Our retail cost of goods sold was 51.1% of retail sales compared to 50.6% in the prior year quarter.

This 50 basis point increase was primarily due to increased promotional activity as well as the impact of higher shrink during this year's inventory cycle.

Our retail inventories at quarter-end were $117.5 million compared to $117.8 million at the prior year quarter-end.

Labor and related expenses were $257.4 million or 35.7% of revenue compared with $250.8 million or 35.8% of revenue in the prior year quarter.

This 10 basis point improvement was largely driven by favorability in employees' benefits and incentive compensation, partially offset by unfavorability in restaurant hourly wages.

Wage inflation for the third quarter increased 2.4% over the prior year quarter.

Other store operating expenses in the quarter were $147.6 million or 20.4% of revenue compared with other store operating expenses of $136.2 million or 19.5% of revenue in the prior year quarter.

This 90 basis point increase was the result of several items: higher costs related to building and equipment repairs, higher computer maintenance expenses from the implementation of our previously announced initiatives, higher costs associated with adverse weather such as snow removal, planned depreciation increases related to higher capital expenditures and higher supply expenses resulting from growth in our off-premise program.

Within the other operating expenses line, approximately $1.1 million of favorability versus our previous guidance, or about $0.03 of EPS, was due to a shift in marketing to support our fourth quarter during the busy summer travel season.

Store operating income was $98.7 million in the third quarter or 13.7% of revenue compared with store operating income of $107.5 million or 15.3% of revenue in the prior year quarter.

General and administrative expenses in the quarter were $35.4 million or 4.9% of revenue compared to $36 million in the prior year quarter.

G&A was favorable versus the prior year quarter by 20 basis points.

This decrease was primarily driven by lower incentive compensation.

Operating income was $63.3 million or 8.8% of revenue compared with operating income of $71.5 million or 10.2% of revenue in the prior year quarter.

Net interest expense for the quarter was $3.6 million compared to $3.4 million in the prior year third quarter.

Our effective tax rate for the third quarter was 18.4% compared to an effective tax rate of 31.1% in the prior year quarter.

Turning to our balance sheet.

We ended the fiscal quarter with $174.3 million of cash and equivalent compared to $183.7 million at the prior year quarter-end.

Our total debt was $400 million at quarter-end.

Before moving to our fiscal 2018 outlook, I would like to note that starting in fiscal 2019, we will no longer provide monthly comparable store sales information in our press release.

We are making this change due to the variability in monthly sales results from items such as weather, holiday timing shift, and menu and marketing promotions.

With respect to our fiscal 2018 outlook, everyone should be mindful of the risks and uncertainties associated with this outlook, as described in today's earnings release and in our reports filed with the SEC.

We continue to expect total revenue of approximately $3.1 billion.

We continue to anticipate comparable store restaurant sales growth for the full fiscal year in the range of 1% and 2%.

We continue to expect comparable store retail sales growth to be approximately flat.

We expect to open 8 new Cracker Barrel stores and 3 new Holler & Dash stores in fiscal 2018.

We now expect increased food commodity costs on a constant mix basis to be approximately 3.25% for the fiscal year reflecting updated expectations for the price increases primarily within the categories of eggs and beef particularly related to the change in market pricing since January for fresh shell eggs as well as the underlying commodity price increases for beef related to exports and strong demand.

We have locked in our pricing on approximately 70% of our commodity requirements for fiscal 2018 compared to 75% at this time last year.

We expect depreciation expense of approximately $95 million for the year.

We continue to anticipate net interest expense of approximately $15 million to $16 million.

We now expect a GAAP blended effective tax rate for the fiscal year of approximately 11%.

We plan to invest approximately $10 million of our tax benefit in fiscal 2018 with the majority of these investments occurring in the fourth quarter.

These investments will be focused on strengthening the brand, supporting our strategic initiative and enhancing the employee experience.

We anticipate that capital expenditures for the year will be approximately $150 million.

Taking these assumptions into account, we now expect full year operating income margin of approximately 9.5% of total revenue, and we expect to report full year GAAP earnings per share of between $10.35 and $10.45 and adjusted earnings per share of between $9.30 and $9.40.

This guidance is predicated on current expectations.

We anticipate that our fourth quarter sales growth will improve upon our third quarter growth rate, and our guidance incorporates a modest improvement in the industry trend.

However, the start of May has been slower than our third quarter trend.

We anticipate that sales will accelerate due to our Campfire menu promotion, our marketing efforts and our strategic initiatives.

And with that, I will turn the call over to the operator so that we can take your questions.

Thank you very much.

(Operator Instructions) The first question will come from Alton Stump with Longbow Research.

If I could just ask on the commodity front.

Obviously, I'm sure you don't want to offer any full year '19 guidance just yet, but kind of how you see the commodity basket playing out.

If you think that the recent pressure could continue over the course of full year '19.

Alton, this is Jill.

So we'll talk more about our current commodities expectation.

As we said in our guidance, we saw a step-up in commodity inflation in the third quarter.

And as we look at the fourth quarter, we're expecting Q4 commodity inflation to be somewhat similar to what we saw in the third quarter.

And as I said, the majority of this is really coming from eggs, beef and pork.

And I guess, just as a reminder with eggs, our shell egg prices are set on a 90-day lag, so our Q4 pricing is largely determined by what we saw in Q3.

And again, in our most recent quarter, we saw shell egg prices peak at about $3 per dozen.

So we believe this increase was due to strong consumer demand, a static flock size and aggressive features on eggs during the retail season, especially around Easter.

And then again, we've seen some inflation in the beef category, primarily around roast beef and rib eye, and that's been primarily demand-driven.

And then, what we've seen more recently with pork is we're cycling a favorable fixed price position that expired last year at this time.

Okay.

That's helpful.

And then I guess one quick follow-up, I think you mentioned in your comments that you're thinking that we'll see at least a modest uptick in kind of overall category trends over the course of fiscal -- for 4Q here.

Just kind of curious, so what's driving that assumption.

And are you seeing any evidence of that so far in the quarter?

Alan, this is Sandy.

So you're referring to the fourth quarter sales sort of macro environment?

Is that correct?

Yes.

Well, so just broadly speaking, a number of consumer health metrics, as everyone knows, are strong and would appear the fundamentals of the economy have improved.

Certainly, unemployment flow, consumer confidence is high, wages are picking up.

In some sectors, at least spending is picking up.

It looks like there may have been some pent-up demand after the holidays as we saw the industry improve in Q3.

However, the competition remains very tough.

We still have a lot of overcapacity.

And in the Casual Dining segment, although improved, the traffic trend is still negative.

So it's a little too early to tell if the trend with the consumer will be sustained.

As Jill mentioned in her comments, the start of May has been softer than the trend in Q3, which could reflect some choppiness with the consumer.

We're watching the trends.

We're focusing our -- on executing initiatives.

We feel we've got a number of sales-driving initiatives in the fourth quarter and do anticipate that there will be some improvement in the industry in the fourth quarter.

The next question will be from Jeff Farmer with Wells Fargo.

Is your greatest off-premise opportunity with catering?

I think you said 3 things: catering, individual To-Go or Heat n' Serve.

I'm just curious where you think your greatest opportunity is there.

And could you update us on where your off-premise mix currently stands as a percent of your sales?

Well, I'll start, Jeff.

So the 3 categories, I would say the biggest category is individual.

Where I think we have the biggest opportunity, though, to grow and to position where we are not currently and where we believe will be less incremental is in our catering side.

And so but there's where we're focused on the offering, on delivery.

We put in a number of programs to support that including sales managers in certain markets and that sort of thing.

So each category we are seeing growth in, though, and I'll let Jill speak to any of the other metrics that she's providing.

Yes, Jeff.

As a reminder, as we shared in our Investor Day, we're targeting growing our off-premise from just below 7% last year, 7% of sales, to 10% over the next 3 years.

Year-to-date, our off-premise is approximately 7.5% of sales.

And total off-premise sales are up double-digit versus a year ago.

And we are seeing growth in each of the 3 categories that Sandy talked about.

So we're seeing growth in our individual To-Go business, our special occasion business, which is Heat n' Serve, as well as our catering business.

And currently, we are early in some of our off-premise initiatives but we're pleased with the progress.

Okay.

And then I apologize if I missed this, but did you guys provide any color on the FY '19 tax rate, how we should be modeling that tax rate as we get into next year?

We haven't provided guidance on our FY '19 tax rate.

But Jeff, do you want to just address where we're expecting tax rate for the year and the pieces to get there?

Sure.

In the current year, because of the tax reform, we're expecting the current year rate to be about 11%.

I'll remind everybody that at midpoint of the year, due to tax reform, we were about 2% and we guided to the back half being approximately 20%.

So the current year getting to 11%, that's sort of how the math works.

And then, I would expect it to be similar in FY '19 to where it is -- or at the close of fiscal year '18.

Meaning, approximately 20%?

Yes.

Our next question will be from Jake Bartlett with SunTrust.

My first is around the Easter shift.

I'm trying to understanding whether that did impact your March versus April results so we can kind of understand the real run rate.

Okay.

Jake, this is Jill.

Let me just talk about the monthly cadence in traffic.

So just as a reminder, as I said in our prepared remarks, we thought that we had a weather impact in February, which was about 40 basis points on the quarter.

From an Easter standpoint, Easter was earlier in April than last year.

So within the same month in both fiscal years, although it was earlier, we do typically see a benefit from an earlier Easter holiday because it's often aligned with spring break and vacation.

So there may have been some lift in April associated with that change.

Okay, great.

And then, if you can help us understand the drivers to the improvement in April specifically from average check.

And I believe it's March when you do take some incremental menu pricing or you kind of roll over your old pricing, add some new.

Whether that had an outside effect in April.

I'm trying to -- if you can disaggregate the impact of the bowls versus the coffee, given the bowls are not continuing and the coffee is, so we can understand the impact from that.

Sure.

So you're right.

We take -- we generally introduce a new menu in March and then August or September, and that's usually when we would take some pricing.

So in April, our pricing was approximately 2.5% relatively similar to the quarter.

But that coupled with the full rollout of Crafted Coffee, Crafted Coffee did increase overall check and mix, and then plus our bowls promotion within April also helped support the check growth.

So would you say that the coffee was of a greater impact than the bowls, for instance?

It was.

Okay.

And the last question.

On the Campfire Meal, I believe last year you ran it for 11 weeks and the year before that, I think, it was 15 weeks.

And this year it's going to be 8 weeks, I believe is what I heard.

So I'm trying to understand what -- how much -- whether that will be more incremental this year and whether -- just your level of confidence that it's going to drive you -- it's going to increase results from the current deceleration just in the last few weeks.

So I'll just start on Q4.

So as I said in our prepared remarks, our Q4 guidance on sales contemplates a modest increase in industry improvement, and that we start off a little slower.

But we are confident in our Campfire promotion, which started yesterday.

And Don, do you want to talk a little bit about our marketing plans in the fourth quarter?

Sure.

As it relates to campfire, we've tightened up the full duration of the program in-store a little bit to maximize the return on that program.

In terms of television support and marketing support, we're at comparable levels to a year ago.

We're continuing the strategy that we talked about in the last call about being more concentrated on the weeks that we are on air for greater impact and getting greater attention from our guests base.

And then we, of course, this year will continue to have a fully integrated marketing program that will support not only on television but out-of-home, digital and other in-store material that will support the event for the full duration.

We've also added a program at the backside of Campfire this year that we think is going to continue to sustain sales momentum for the balance of this summer.

And Jake, this is Jill.

Just to add a little more color on the fourth quarter guidance as you're kind of working through your numbers, we do expect Campfire to help support overall mix or check similar to what we saw with Southern Bowls in the most recent quarter.

And then, we will have -- since we're now fully rolled out with specialty beverage, we would also expect to have a mix lift associated with incremental sales of our specialty beverage coffees.

The next question will be from Michael Gallo with CLK.

I just want to dive in a little bit on the other operating expenses, which I think were up 90-or-so basis points in the quarter, just to understand some of the various components of that.

What you see recurring going forward, obviously, some of the technology and other costs and depreciation will be there.

But also you spoke to some incremental strategic reinvestments you plan to make around tax savings in the fourth quarter.

So I was wondering as we think about that other line, how we should think about the kind of year-over-year pressure going forward.

Should we expect it'll stay in the 90 to 100 basis point range, all things being equal on comps?

Or are there other puts and takes where that will sort of dial up or dial back?

Yes, we don't want to give guidance into '19, but let me talk about some of the puts and takes, as you said, in our other operating expenses.

So we have invested in our top line initiatives, which are pressuring margins, as Sandy mentioned in her comments, and those -- many of those expenses you see in other operating expenses.

So for example, our investment in our new POS system, which we believe will help support some cost-saving initiatives in the future, has some maintenance expense, which you would see in other operating expenses.

And as we roll that system out, we would expect that to be ongoing.

There is depreciation associated both with the rollout of our Crafted Coffee as well as some equipment that we put in for our off-premise.

And then, we've also seen some supplies impact in off-premise as we set the restaurants up for success to make sure they had the initial supplies that they needed.

But again, as that business grows, we see supply expense continue along with it.

So those are the big items within other operating expense that are being driven by our initiatives.

And then in terms of again just to come back to it.

So other than snow removal, was there anything in the third quarter that you'd see kind of not recurring going forward that would have hit that line?

I mean, yes, as you mentioned, we did see just some higher repair and maintenance expense within the quarter.

Some of that, we did have some snow removal with the late winter.

And that tends to ebb and flow a little bit by quarter depending on when things break and when we need to fix them.

Okay, great.

And then just a follow-up to Jake's question.

For the fourth quarter, obviously, you've started a little slower than the trend, but you anticipate a reacceleration.

Yet Campfire, you actually have running for 3 fewer weeks, and I think if I heard you right, 2 fewer weeks of TV advertising than you had last year.

So I guess sort of that towards the end of the quarter where you would have had the promotion, but not.

Is there something else that's going to come in, in its place?

Or are we simply going to have fewer weeks of TV this year versus last?

I'll let Don sort of add to it, but we've got a number of sales initiatives.

So we've got the Campfire promotion, which although has been shortened, we believe it's the right duration to avoid fatigue, and the marketing support plan, I think, will be more effective in the way it's being concentrated.

We've got the Crafted Coffee fully rolled out, and we'll be able to do a more effective job of marketing that as well as we're getting some traction in our off-premise business, especially the catering side.

We've got some other tests we're doing that we're excited about.

We've got a bone-in fried chicken and a family size meals in test.

But Don alluded to at the end of Campfire, to fill the gap, we'll be running, it's about a 3-week program.

Don, you want to speak to that?

Sure.

A couple of points.

Thank you, Sandy.

First, I just wanted to clarify that our television weight levels are actually slightly above where they were last year.

Although shorter on duration, greater impact for the time that we're on.

And just in terms of the way television builds reach and frequency with our audience, we think it's prudent to get more people earlier on in a program for visiting the stores.

So the weight level is actually higher than it was a year ago.

The duration is more concentrated, as Sandy just mentioned.

The other types of things we're investing in, in the fourth quarter is we're doing more in terms of what I'd call off-premise media, things to take advantage of our traveling guests.

We're using some newer platforms for our media mix such as gas stations, television, some mapping programs for mobile phones, and so on.

We've got other programs that are going to be introduced in stores, as Sandy mentioned.

Especially the last 3 weeks of our fiscal year, we're going to be trying some retailer programs to take advantage of conversion and hopefully create some additional guest appeal for the summer travel occasion.

The next question will come from Gregory Francfort with Bank of America.

It's actually JonMichael on for Greg.

I want to ask on the labor line.

You continue getting leverage despite the tight labor environment and relatively modest comps.

Just wondering what you're doing there to achieve that.

Well, thank you.

It's a couple of things.

One is our wage inflation is in line with our pricing levels, so that's about 2.5%.

And then you'll remember of our $8 million to $9 million in cost savings that are impacting the business this year, a portion of that is on the labor line.

So we're improving on our labor productivity.

So those are probably the 2 biggest pieces in there.

Next question comes from Stephen Anderson with Maxim Group.

I have a follow-up question regarding the same restaurant sales.

And you mentioned at the beginning of the call that you saw the May pace of comp growth was maybe running slightly below what you saw in the third quarter.

What I want to ask is that you've seen gas prices, you saw it to climb up, getting close to, if not slightly over the $3 per gallon mark.

And given that you have high exposure to the Interstate Highway System, I just want to ask if you've seen yet any kind of slackening demand particularly as maybe the marginal consumer might decide to put that extra $10 in the gas other than spend on restaurant meals.

I just want to get your thoughts on that.

It's a great question.

So gas prices have moved up, and if you listen to some folks, they are projected to rise kind of over the summer months.

So the way we think about gas prices is to the degree that gas prices negatively impact discretionary income from a consumer, then that could create a headwind for us.

And so it's certainly something that we're taking a look at.

But I think we've talked about this in the past.

For it to really have an impact, usually you have to see a step change, and that we have not seen yet in terms of gas prices.

(Operator Instructions) The next question comes from Bob Derrington with Telsey Advisory Group.

This is Ben Flox on for Bob.

Sandy, I guess, first one for you.

To your comments on testing new items and catering.

Last quarter, we heard about the biscuit bar.

Now it sounds like we're hearing about new items that kind of skew more towards lunch and dinner.

I'm just trying to get a better handle on how this continues to evolve, what you're hearing from guests and what exactly is driving the tweaks in your testing.

Is this about tweaking the mix across dayparts?

Just broadening the menu?

How should we think about this?

Well, the Cracker Barrel Classic combo that I mentioned in my prepared remarks is actually a breakfast combination with a ham, egg and cheese casserole and then complementary items around it.

So that is designed to address the hot, hearty breakfast for consumers.

And we find that it's been very favorably received with our guests.

I also mentioned we were going to be testing some things in the next 2 weeks, I think it's actually next week, and that's when we'll be putting in the biscuit bar that I announce on the last call, which is assorted biscuit flavors and then different spreads to go with that, as well as some additional flavors of breakfast casserole.

So really, the majority of our testing and menu development up to now has been focused on the breakfast daypart and in particular, a hearty hot breakfast.

Got you.

Okay.

I must have misunderstood something you had said previous.

And then on the timing of your POS rollout, is this part of -- I should say, is part of the rollout the new labor module?

Is this something we should expect to come later?

Just trying to get a handle on maybe when we'll see some marginal benefit to the labor line from that.

Yes.

That's a great question.

There's a number of things that we're testing to help with future cost savings, and certainly, the POS is foundational to all of that.

So as a reminder, the new POS system, we think, will enable other productivity tools, like tablets is one of the things that we talked about which would help with labor.

And so we're early in the development, testing and implementation of POS, but based on that being successful, then we would begin a rollout kind of post-fiscal 2018.

Separately, there are some other cost savings initiatives that we're working on currently.

Our prime cost management would have 2 pieces to it.

One of it is a food waste management focus, and the other is a labor management focus.

We're currently working on and testing the food waste management module.

Is that helpful?

The next question comes from Jake Bartlett, a follow-up, from SunTrust.

I just had a question about the value test that was going on with the sunrise surprise and the daily delights.

I don't believe it's rolled out much more to the system, maybe 150 stores or so from my count from 120 last quarter.

So I'm wondering where that stands, what the learnings have been.

Is it kind of -- is this how the pace you'd expected to roll out?

And what are the kind of moving pieces as to why it might not be going a little faster?

Okay.

I'll start, Jake, and then turn it over to Don.

So first of all, our value positioning is a strength in this brand.

We're focused on delivering everyday value.

It seems like everybody is competing in this basis, so we continue to believe that we have to do an even better job of reinforcing our everyday value and reminding our guests of the value that we currently have in the brand.

And so for those of you who aren't as familiar with it, our everyday menu really has 3 value platforms: our Breakfast $4.99 offerings, our Weekday Lunch Specials at $5.99 and in our Country Dinner Plates, which is a dinner offering at $7.99.

And the daily delights program that you are referring to, and I'll let Don give you an update on, was really designed to reinforce those 3 platforms and to bring a little bit of new news to that.

So Don, you want to give an update on where we are on that?

Sure.

Thanks, Jake.

As Sandy mentioned, there's a number of things that we're doing.

We know that the brand continues to deliver great value to the guests.

Our research shows we're maintaining and growing that strength.

Our culinary and marketing teams continue to look at a range of strategies and program tactics to reinforce the value that we offer to the guest.

As an example, we're looking at family-style meal offers, different bundling options, some new product news within our breakfast lunch and dinner dayparts.

As it relates to daily delights specifically, that program has been interesting.

As we've been rolling it out over the year, we've actually been looking at the analytics and we know we're driving incremental traffic and sales during the advertising sales time periods, and we know of that through our use of [gen attitude] study, we're growing overall brand ratings including brand awareness, visit intent and value ratings.

So from that perspective, it's been good.

As we continue, these ratings show to build over time, but there's also some things we're doing to evolve and build upon the program in and around things like operational simplicity, some of the profitability and making sure that the programs and products we're offering have the guest appeal that we're seeking.

So as Sandy just mentioned, one of things we're going to be doing in August as part of the daily delights program is we're going to be rolling out $4.99 sunrise special systemwide and that breakfast value selection, and we're also starting to look how to incorporate other elements of daily delights in the ongoing menu and how to improve the program over time.

We'll be assessing continuation of daily delights specifically for advertising in fiscal '19 and making a decision on that in the coming weeks.

Ladies and gentlemen, this concludes our question-and-answer session.

I would like to return the conference back over to Sandra Cochran for any closing remarks.

Thank you all for joining us today.

We look forward to building on the progress we're making as we continue to execute our long-term strategy.

I remain confident that we have the right strategy and the right leadership in place to move the brand forward and drive shareholder value.

We appreciate your interest and support.

The conference has now concluded.

Thank you for attending today's presentation.

You may now disconnect.