Cracker Barrel Old Country Store Inc (CBRL) 2003 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to your CBRL Group's second quarter earnings conference call.

At this time, all lines are in listen-only mode.

My name is George, and I will coordinator.

If during this call, you should require assistance, please key star zero on your touchtone phone and we'll be happy to assist you.

As a reminder, this call is being recorded for replay purposes.

Now your host of today’s conference, Mr. Dan Evins, Chairman of the Board, pleases proceeds.

Thanks George.

Good morning everyone and we appreciate you all being here.

With me is Jim Blackstock, our Senior Vice President and Corporate Counsel.

I just started to refer to that person in the organization as counsellary (ph), I don't know they are very intelligent.

Larry White is Senior Vice President and Chief Financial officer and Mike Woodhouse, our very excellent President and CEO.

I had any number of other things to say, but then thought better of it, so, I will just turn this over to Larry White for his remarks.

Larry.

Thanks Dan.

And thank you to our listeners on the conference call and web cast, for your interest and participation this morning.

Hopefully everyone's had an opportunity to see this morning's press release announcing our fiscal second quarter results and providing an update on current trends and the company's guidance for earnings for the third and fourth fiscal quarters.

As a reminder, and in compliance with regulation FD, we don't review our comment on earnings estimates made by other parties nor do we provide continuing updates of or express continuing comfort with our own guidance and trends, except in broad public disclosures such as we have done this morning.

We urge caution to our listeners and readers and considering the information on current trends and earnings guidance, the restaurant industry is highly competitive and trends and guidance are subject to numerous factors and influences that can cause future actual results to differ materially from those trends and guidance.

Some of those factors are described in the cautionary description of risks and uncertainties found at the end of this morning's press release, and we urge you to read that language carefully.

Company assumes no obligations to update or disclose information on trends or guidance, and should we provide any updates after today, they'll be made only by press release or in periodic filings with the SEC under the forms 10-K, 10-Q, and 8-K.

With those caveats and disclaimers aside let us review this mornings good news and for another quarter, we think at least that it is really good news.

First let's put the quarter in perspective.

A year ago, we enjoyed one of the strongest quarters we've ever had, benefiting from well-positioned and well-executed concepts in an environment where, I guess, welcomed our values, familiarity, and our comfort [Inaudible].

Further strengthening result a year ago was the favorable impact on sales of an unusually mild winter.

People were ready to get out, we had what they wanted and the weather was co-operative.

Cracker Barrel same-store restaurant sales were up 7.8% and strong sales results also were reported at Logan's and at our retail gift shops last year.

And so our operating margins improved by 110 basis points over the prior year on the strong sales and operational execution initiatives that we had in place.

So, the question we are asking ourselves as we entered this year's second quarter was how are we ever going to top that.

Today we are reporting that we did.

Bottom line, we reported diluted earnings per share for our second fiscal quarter of $0.48 vs. $0.37 a year ago, an increase of 29.7% and in line with our most recent guidance of 30% or better growth, as this closed on January 16th, and in spite of the severe weather effects at the end of January.

We also reported the 12th consecutive quarter of positive comparable store restaurant sales at Cracker Barrel and positive comparable store sales at retail in Logan's, all in spite of the difficult comparison with very strong year-ago quarter.

A lot of good news in our opinion, we like to look at some of the details.

Revenue on our fiscal second quarter into January 31st increased 7.5% from last year's second quarter.

Its $563m compared to the $524m.

The increase came primarily from new unit openings and from positive comparable store restaurant retail sales at the Cracker Barrel and at Logan's Roadhouse.

Cracker Barrel comparable store restaurant sales were up 2% from a year ago, the quarter year ago in which we had strong positive comps of 7.8%.

So, that is positive on top of a very strong year-ago quarter in spite of difficult consumer sentiment, uncertain economic conditions, and unexpected severe weather late in January.

Improvement reflected a 2.8% higher average check including about 1.6% of higher menu pricing, and guest traffic was down less than 1%.

Remember, however, the year ago guest traffic was up 5.1%, a very difficult comparison, that marks 12 consecutive quarters of positive comparable store sales in our Cracker Barrel restaurants.

Right after our last inter quarter sales update on January 16, we were shocked in the midst because of the worst winter and snowstorm in several years.

In fact, right after that press release hit the wires, I got a call from an analyst who probably is listening this morning who wanted (a) to congratulate us on our sales report and (b) to warn me that from his office, 25 miles away, there was a already a white out in Nashua.

But, we got hit hard.

The sales in the last weeks of the quarter weren’t quite as strong as immediately before the snow.

Listeners in the Northeast probably are sneering with comments, about snow after this weeks blizzard up there.

But we are just not good at dealing with in as you are.

But let’s face it, winter happens.

In spite of that, our comparable store restaurant sales were up in January and every Cracker Barrel geographic region, but the upper Midwest.

Weekday sales were up across all three-day parts, breakfast, lunch, and dinner as well as weekend breakfast and lunch.

But we experienced some softness in weekend dinner sales and guest counts, which we believe reflects the present uncertain consumer and economic environment as well as those very difficult comparisons with a year ago quarter.

Cracker Barrel comparable store retail sales in the second quarter were up 0.2% compared with the strong year ago quarter and which retail comparable store sales were up 4.3%, another difficult comparison.

We executed a new holiday merchandize markdown strategy and we think that it really jump-started our retail sales.

We'll tell you more on this shortly, but fundamentally, it was a strategy of marketing merchandize down 25% pre-holiday and it increased sales and avoided some of the traditional post-holiday markdowns of 50% to 75% off.

In this year's difficult consumer environment, pre-holiday markdowns were the norm virtually all retailers and we credit this change in our usual strategy with making our holiday retail season a success.

If you want discounting, you just wanted in the [Inaudible] this year.

Running over our comparable store sales results, our Logan's Roadhouse concept recorded an increase of 0.5% in comparable restaurant sales reflecting a 1.6% decrease in guest traffic offset by 2.1% increase in average check, which included about 1.1% of menu pricing.

As with Cracker Barrel, this reflected in an improvement from a strong year-earlier quarter when comparable restaurant sales were up 3.6% and guest traffic was up 3.5%.

We continue to view alcohol sales of Logan's as both the challenge and an opportunity, but there alcoholic beverage mix are off about 50 basis points in the year ago quarter, some of which reflects relatively stronger lunch versus dinner sales of Logan's.

Our alcohol mix is running just under 9% year-to-date.

During the second quarter, we opened five new Cracker Barrel Old Country Store units and four new company-operated Logan's Roadhouse restaurants.

We presently expect to open six Cracker Barrel units this quarter, three of which are opened so far and eight in the fourth quarter for a total of 23 for the full fiscal year.

Logan's has already opened two of the three restaurants expected this quarter, which will complete its development schedule of a total of 12 for the full fiscal year.

As of today, we have 469 Cracker Barrel Old Country Store restaurants and gift shops in 41 states and 95 company-operated and 12 franchised Logan's Roadhouse units in 17 states.

Let's continue on down the income statement.

Operating income for the second quarter was up almost 18% on a 7.5% revenue increase and operating margins improved 60 basis points and 6.5% to 7.1% of revenues.

As we have seen in recent quarters, the improvements primarily reflected lower cost of goods sold in all three areas of our business Cracker Barrel restaurant and retail and in Logan's.

Well we also improved slightly on labor and related expenses and held the line on year-over-year G&A expenses as a percent of revenue.

Improvements compared to last year in food cost reflect a lower cost in certain pork and dairy products and orange juice as well as numerous other less significant items.

There has been a favorable commodity cost environment.

Some of these improvements also came from vendor reviews by our margins initiative scheme at Cracker Barrel.

The group has been working with our vendors to find opportunities for savings while emphasizing on maintaining or improving product quality.

They are working with vendors to improve everything from raw material purchasing to freight cost, to packaging cost as well as contracting ahead to achieve price stability.

They can also, may be note [Inaudible] while we had cost improvement in certain food items such as milk and buttermilk; certain other dairy items such as butter were up this quarter versus a year ago.

We have such a diversified menu with so many supply contracts, thus we are often less sensitive to changes in product cost than are some others in our industry.

Food cost management, both concepts was generally favorable to our allowed or targeted levels and Logan's achieved about a 70 basis point improvement in its alcohol cost of sales largely as a result of the focus on that area of our business.

A real bright spot was retail cost of goods.

Retail benefited primarily from improved initial margins or mark on (ph) and very importantly from retail shrink, that was partly offset by higher markdowns as a consequence of our markdown strategy.

Shrink is notable because we struggled with this cost for sometime.

As a result of numerous initiatives, including focus store initiatives for high shrink location, bonus programs, and even the benefits we believe we derived from our holiday merchandise and markdown strategy, we brought first half shrink down by nearly half from the rate last year.

I don't think this battle is over yet but this improvement was notable and helped to offset the unfavorable impact of the inclement weather on our sales and profits in the final week of January.

Labor cost was slightly lower than last year at both Cracker Barrel and Logan, primarily reflecting lower hourly labor cost as a percent of sales.

Wage inflation for our non-tipped (ph) employees was down slightly at Cracker Barrel from a year ago, reflecting increased emphasis we put on hourly wage administration.

We are also focused on overtime management through labor scheduling and staffing best practices initiatives and our overtime rates were improved from last year's second fiscal quarter.

Workers' Compensation and Group Health expenses have been under some pressure but Group Health cost while up have not been up as much as we originally expected.

Other store operating expenses in the second quarter were higher than a year ago by 40 basis points reflecting higher utilities, advertising, maintenance and rent, as well as various other expenses.

Accommodation of a comparison to last year's mild winter and higher energy prices caused utilities to be an area of cost increase for the first time in several quarters.

We have about 20% of our Cracker Barrel locations under supply contracts for Natural Gas and 10% for electricity, which helps, though we expect continuing pressure for the remainder of the year.

General and administrative expense was unchanged from a year ago for the second fiscal quarter as a percent of revenues and that is good news.

Interest expense in the second quarter was slightly higher than a year ago reflecting higher outstanding borrowing probably offset by lower interest rates.

As we have reported before the higher debt levels reflect the achievement during the fiscal 2002, capital structure targets that, including the affect of off balance sheet real-estate operating leases give us a total indebtness (ph) to capitalization ratio of about 35%.

Wrapping up the second quarter, net income of $24.6m was improved 16.5% from $21.1m a year ago.

Diluted earnings per share of $0.48 were improved approximately 30% from $0.37 reported in the second quarter of last year.

We are very pleased with this solid performance in the phase of difficult economic and consumer confidence environment even after the unexpectedly severe weather in the last two weeks of January.

Earlier this fiscal year, our Board of Directors authorized share repurchase plan under which we were to repurchase up to 2m shares of our common stock from time to time in open market transactions.

We have completed that authorization for an aggregate outlay of about $54m or just under $27 a share.

And I note again that this was accomplished within our capital structure charges.

At the end of the quarter we had approximately 49.4m shares outstanding, which has changed relatively low from the beginning of the quarter because of option exercises during the quarter.

Finally in this morning's press release, we updated our current sales trends and earnings guidance.

I again urge you to consider the cautionary discussion of risks and uncertainties at the end of today's press release and to understand the inherent risks associated with trends, targets, guidance, and estimates in a competitive industry such as ours.

Furthermore, in today's unsettled economic and world environment, uncertainties may be even greater than at other times.

Remind you we assume no specific obligation to update this information other than the periodic fillings with the SEC from time to time, also we won't offer any further guidance nor after today express continuing comfort with today's disclosure other than in public fillings or by other broadly disseminated means such as press releases from time to time.

This discussion of trends and guidance does earlier - and earlier, parts of today's discussion and press release contains forward-looking statements provided pursuant to the Safe Harbor provisions and the Private Securities Litigation Reform Act of 1995, and it should be evaluated in the context of the uncertainties described in this mornings press release.

The precautionary advice ought to be heeded, especially carefully when considering our recorded sales trends for the third fiscal quarter today.

We are just a little more than two weeks into the third fiscal quarter.

It's very early and there are some notable issues that have affected those recorded numbers unfavorably.

First, the blizzard like conditions that's grid locked the northeast that had an impact on us too.

We have 35 Cracker Barrels closed on Monday, which was President's Day.

The President's Day holiday like most Monday holidays is in above normal volume Monday not this year.

Many other stores sharply reduced sales even if they were able to remain open for part of the day.

Valentine's Day occurred on a Friday this year versus the Thursday last year.

Because Friday already is one of the strongest days of the week in terms of sales there was less ability to generate incremental sales volume and Mardi Gras and Ash Wednesday which like Valentine's Day and President's Day are popular dining out days, where in a year ago period were three weeks later this year occurring in the first week of March.

So again I caution you that it is very early in the quarter and transfer subject to a lot of influences that can cause changes as we get further along.

But as said, I repeat what we did further this morning, as has been our reporting practice on early quarter sales trend.

Back to Barrel comparable store restaurant sales are down approximately 3.5% and retail is down approximately 10%.

Logan's comparable restaurant sales are down approximately 2%.

The present guidance for diluted earnings per share for the third fiscal quarter is for an improvement 10 to 15%.

I repeat that, an improvement of 10 to 15% from $0.36 a year ago.

Our present guidance for the fourth fiscal quarter is for an improvement of better than 15% from $0.56 in the fiscal 2002.

We presently expect total revenue growth of approximately 6% in the third quarter, and approximately 7% in the fourth quarter.

Our guidance reflects achieving comparable store restaurant sales increases for the full third quarter of 0 to 1% with comparable store retail sales down about 1 to 3%.

It's important to note that the present quarter is getting affected unfavorably by weather conditions and our guidance of 10 to 15% diluted earnings per share growth reflects our estimate right now, approximately at a $0.02 unfavorable impact of the severe weather we've experienced so far.

So, we reported gift(ph) sales and earnings results this morning, results that came against a very tough prior year comparison, and we were discharging positive guidance based on our present outlook.

Remember, however the comparisons are affected by recent severe weather that we estimate is going to have a $0.2 unfavorable effect on this quarter's results and as reflected in that guidance and with temporary weather conditions is going to happen from time to time.

In the near term, world and economic condition is unsettling adding to the inherent uncertainty of any outlook.

We continue to believe that we are right on track operationally as evidenced by our results.

With that, and I thank you for your patience with my financial review, I would like to introduce Michael Woodhouse, President and Chief Executive Officer who has further remarks on operating trends and initiatives.

Mike.

Thanks Larry and good morning everyone.

Pleased to be here again this morning to talk about another very positive quarter for CBRL.

As Larry said, when we were going in to the second quarter, we knew that Barrel was set very high for improvement in sales and earnings.

We had a very strong quarter last year with 42% EPS growth and Cracker Barrel comp store restaurant sales up 7.8%, which was the strongest quarter since 1993.

Of course, we couldn't bank on the same mild weather that we experienced year ago happening again.

However, we were confident that the approach we were taking to managing the business would deliver flat-to-positive comp store sales and an earnings increase in line with our long-term goal.

As it turns out, we did better than that.

And today we are very pleased to report results ahead of our original guidance and in line with our most recent guidance for the quarter.

I said, last quarter that our focus is on managing the things that we can control and there are certain external factors that we can't control such as the economy and the weather and both of these certainly didn't help in the second quarter.

The economy, as measured by consumer sentiment and the results of many retailers in western companies continue to weaken and of course, the weather played its part on the last two weeks in the quarter.

So, with all of those as background, we are very pleased to be able to report a 30% EPS gain for the quarter.

As Larry mentioned, the early going in the new quarter, the weather has again cost us sales and we think about $0.02 in EPS.

Despite that we are projecting EPS growth of 10 to 15% for the quarter, which will keep us on track to comfortably meet our long-term goal of 15% or better annual earnings growth again this year.

Before I move on to review the quarter in a little more detail, I would like to comment on the recent increases in gasoline prices.

We felt some concern expressed on the possible impact on the Cracker Barrel sales of recent increases in gasoline prices.

While none of us can predict the future, when we look back at the price, the analysis we and others have done shows that historically, there have been no measurable connections between gasoline prices and Cracker Barrel sales trends.

Our earnings growth here at CBRL continues to come from strong operating performance coupled with maintenance of our target capital structure and our operating goals continue to be top line growth coming from positive comparable store sales and new store development combined with continued improvements in store operating margins.

In the second quarter, we saw the 12th consecutive quarter of positive comparable store sales in Cracker Barrel and we continue to see strong sales in the new units opened at both concepts and we again reported margin improvements.

The positive top line performance is always critical and our focus is always on continuous improvement in the guest experience.

So, whatever we do in our ongoing initiatives to control and reduce operating costs, we are not going to lie back to negatively affect guest experience by compromising the quality of food or service in either concept.

However as I said there is no critical external factors we can't control.

So, in addition to working on sales we will continue to put a lot of focus on maximizing the benefit form those that we can control among which are operating costs.

As a result of those efforts, store operating margins were up 60 basis points in the quarter and 80 basis points year-to-date, which is on top of a 70 basis point improvement year-to-date last year.

Turning now to the specifics of each business, Mike told first about Cracker Barrel.

As we've said many times, familiar food made from quality ingredients and at an attractive price is a key part of the Cracker Barrel experience.

We will continue to welcome many developments to help us achieve sales increases and develop, test new menu items for future season's promotions.

Ever since the last conference call we have run three tried and proved promotional items.

The first was the repeat of the home style chicken promotion, where the results exceeded the sales in the spring of 2002 and this product is now in the menu as our permanent Sunday feature and is building a loyal following.

Holiday promotion of Roast Pork and we are now coming to the end of our annual chicken and rice promotion.

Both of these products fit our model of high appeal products with attractive price points; $7.99 for the Roast Pork and $7.49 for the Chicken and Rice.

Both have strong dollar margins and that both [Inaudible] prepared in the kitchen.

And of course they both fit our overall strategy of familiar comfort food.

Before I leave Cracker Barrel restaurant sales, I would just like to give an annual report on Thanksgiving.

Our average unit volume on Thanksgiving Day was up an 11% from the previous Thanksgiving, which itself was up an 11% from the prior year.

We averaged 780 orders per store of the Thanksgiving dinner special, up from 707 last year and we had one store that served 2,443 orders in the Thanksgiving dinner from a little over 200 seats.

In front of all of this is the continuing improvement on the day when all of those stores are very busy and none of the guest are in a hurry, speaks for the success of our focus on speed and friendliness of service and the popularity of the Thanksgiving dinner, itself speaks of the core appeal of the Cracker Barrel brand.

We mentioned last time that we are going to focus on the sale of whole Pies this year.

That was very successful.

Pies sales this year, this holiday season were five times the level of the prior year.

As I reported last time, in line with our ongoing strategy, we took a modest price increase in November.

The increase was eight-tenths of a percent.

So, we ran a 1.6 percent calculated price increase from the time of the increase until this week, when we are lacking the increase we took in the February last year.

We are continuing to run a check increase high than the calculated price effect in Cracker Barrel, which means we are seeing an ongoing benefit from the mix of guests trading out.

Improved margins in Cracker Barrel came from number of initiatives, our new hourly wage management system has resulted in slightly negative hourly wage inflation and the ongoing effects of our purchasing initiatives are showing up in both lower food cost and retail cost of goods as Larry mentioned.

At the store level, we are reinforcing the best practices initiatives which we developed over the past two years, and we'll continue to focus on managing food cost, the management of waste and optimal labor scheduling and speed of table turns to build sales and to control labor costs.

We are very pleased with the retail sales, which improved during the quarter, and ended up positive for the quarter on top of a 4.3% comparable store sales increase last year.

Christmas season was the first opportunity we had for our new retail planning function to show its skills.

They developed a new markdown strategy, where instead of waiting until after Christmas to markdown the seasonal merchandises as we usually do, we took selective 25% markdown starting after Thanksgiving and then across the board 25% markdowns in the two weeks before Christmas.

Result was a full sell through of the Christmas merchandise and positive sales for the season.

Following the success of Christmas we are looking forward to seeing an ongoing positive impact on retail sales coming from the planning team.

Another big success was the improvement of the shrink numbers in retail, which Larry spoke about.

We've been working out a number of initiatives to control shrink for quite some time and we are pleased to see the results show up in the numbers this time around.

Shrink is going to continue to be a priority.

We hope to see the same kind of positive results in the future, but it's an area we are going to have to pay continuing attention to deliver the results that we want.

Management turnover Cracker Barrel was 22% bringing the YTD turnover to 23%, and YTD hourly turnover was 114% down from a 127% this time last year, and the turnover in the very critical PAR 4 group of employees was 22% down from 23% at the end of last quarter.

And again the stability in the depth of experience that we see from these low turnover rates at all levels continues to be a major contributing factor in improving our operational execution.

We were especially pleased to see the PAR 4 turnover continue to come down.

This validated the changes and benefits we made in the first quarter for our PAR 4 employees.

Historically, we granted options to this group of employees and these options represented roughly one-third of our annual option grant.

When we conducted a survey to determine which benefits were important to the group, we found that stock options were less important and some other things especially the group health plan.

So, as a result, we have discontinued the option grant this year, improved the discount program and made some plan design changes for the health plan to contain inflation and cost increases and at the same time protect the basic integrity of the plan.

So, in addition to continue low turnover numbers, we are pleased to see the benefit coming from the health plan changes in the form of lower than expected healthcare costs.

As Larry reported, we have planned (ph) Cracker Barrel stores in the quarter and the new store review process where we have been conducting a comprehensive review of every store in the first and third months of opening.

It is really having a positive impact from the quality of the new store openings and we are seeing fiscal 2003 new openings continued to perform better than the fiscal 2002 and fiscal 2001 stores.

As we announced last week, we had a change in leadership of Logan's.

Peter T. Hayes (ph) submitted his resignation as President and COO and we have begun a search to find a replacement.

In the interim, I'd assume Peter's responsibilities.

I will be working closely with the executive team of Logan's to manage the business until we find a replacement.

This change in no way signals the change of directors for Logan's concept.

I believe this is a very strong concept with the potential to be a very successful growth vehicle for CBRL.

We have the core, with a strong management team in place and we have the tools in place to deliver the continuous improvement and execution.

It is one of our two key priorities for Logan's and as we focus on using these tools I have the confidence that we will see the steady improvements in the guest (ph) experience and the resulting sales improvements, which we expect from Logan's.

The other priority for Logan's is the priority of the brand identity.

Logan's was pioneer on the Roadhouse segment.

It had a very distinctive consumer appeal and brand personality.

And it is our intention that we make use of the distinctiveness of the Logan's brand as an integral part of our strategy as we go forward.

As I mentioned last time, we are going to be supporting our branding activities with an increased level of market research, make certain we're on the right track and to learn more we will be refining and modifying as necessary our marketing and many development strategies.

At the tactical(ph) level, we have a successful holiday promotion of Logan's and we achieved our goal of building the check average and we have a spring promotion taking off in March 3rd and at the same time we are going to be rolling out a slightly modified manuals (ph) and new products.

As of Cracker Barrel, we have seen management continue to run at low levels of Logan's and second quarter, we were at 17%, which was the same level of last year and hourly turnover continued to improve.

It was 114% year-to-date compared with the 120% the same time last year.

On the cost side, we are seeing the benefits already from the new beef contracts where for a number of the cuts of beef that we buy, market prices can be at or above the tax (ph) on the contract.

As I mentioned last time, the tax on the contract are better than we had originally expected and lower than the tax on the contract for 2002.

So we feel we are well positioned competitively for the remainder of this calendar year.

The new restaurants of Logan's are performing well ahead of the units opened last year and the year before and just as at Cracker Barrel we are using a new, you know, review process to sustain to perform in these stores.

Finally in closing, just like to reiterate, we recognize that we are living through some very uncertain times.

But, I believe that we're doing the right things to protect and strengthen both of our businesses for the long-term and at the same time we have initiatives in place, which will continue to deliver positive results in a short-term.

We're looking forward to confidence, this confidence for the rest of 2003, we recognize as ever there are plenty of chances today (ph) but we're certain of the sustained internal momentum which came from the successful we had last year and the two successful quarters we had this year will help us meet our goals and with that, I would like to open up the floor to questions.

Ladies and gentlemen, this is your question and answer session.

If you have a question or a comment, please key star one on your touch-tone phone.

If you wish to withdraw your question, please key star two.

Questions will be taken in the order in which they are received.

Again, it's star one for questions.

Your first question coming Bryan Elliott of Raymond James; please proceed.

Hi, good morning, a couple of follow-ups on some of the key cost areas.

The commodity cost, you said you've a lot of the contracts that expire at different times eccentric.

Could you help us understand sort of how far out visibility is on the commodities and whether you expect to continue to see some measurable benefits from the supply chain initiatives that have been in place for a while, is there more room there?

And secondly, on the hourly wage management system, could you refresh my memory on kind of what the key factors of that system are and how you were able to utilize that system to -- that's actually bring down wage inflation, which is not something I've heard in a long time in this business?

Bryan on the food commodity contracts, we don't right now see anything that represents a big exposure based on the contracts we have and we literally have contracts expiring from March of this year through probably March or April of next year and they intend to be spread out so much over such broad range of commodities and broad range of time that while yet there are some areas where we maintain some pressure than other areas because were contract that had we feel that we are in control.

As Mike said, the new contract on B's (ph) at Logan's is already operative with smart prices being above the caps for some of the B's (ph) that we buy.

So, at this point we are not seeing any major exposures related to commodity cost.

I want to be fair enough.

Apart from that then that you've may be three to four quarters of visibility?

Yeah.

We think we've a build into the guidance's that we've given and I think that -- yes; there could be some fluctuations.

But, we don't see any major exposures in the costs related to commodity cost.

Bryan on the hourly wages, what we did in Cracker (ph), we've put a new hourly wage management system in.

We use wage (ph), which tie to market wave to, in each of the markets we are in and a GM can operate within those.

If he wishes to go outside of those, he has to go beyond the store for approval and we automated that[Inaudible] system.

But, we also focused on the fact that even with our low turnover rates, we have sufficient turnover that we by managing the hiring wages little more aggressively, we can take advantage of the easier labor market out there.

So, it's a simple concept and we hope our competitors aren't listening to this, try traditionally (ph) about it.

Fair enough.

That's helpful.

Thanks a lot.

Your next question comes from Matt DiFrisco of GKM.

Please proceed.

Hi guys, congratulations on a strong quarter.

Just want to help clarify something here.

Back on the 16th of January you said in your text, in your guidance that you are looking for $2 for the year or North of $2.

Now you are using language like 10% to 15% for the third quarter and above 15% for the fourth quarter.

On the lowest most conservative ends you are getting about 98, are you basically extending the range a little bit lower or is it just changing of the language and you still feel comfortable with $2 or above for the year?

One thing, we are not going to give any more details in our guidance for the guidance, but I point out that we just pointed out that we think there is about $0.2 of weather effect in the first couple of weeks of this quarter.

Okay.

Which is loss?

I mean there is no way we can off-set that, every thing else we are doing, we are doing any way.

Yeah, but it also looks as though today's comments are getting a little stronger about the fourth quarter, but that's okay.

It's, I understand.

Also looking at the third quarter when you are talking about the comp guidance here, it looks as though you are being some what conservative, I am just trying to read into it, you did a 2% comp in this current quarter, the second quarter and did 30% EPS.

If you are looking now at 10% to 15% EPS growth of, say 2000 to 2001comp at Cracker Barrel restaurants is this all the slower EPS growth.

Is it all reflective of just less sales leverage or are you seeing, or do you expect cost pressures in the third quarter that you didn't experience in the second quarter year-over-year?

I think it primarily relates to sales and the uncertainty of the sales environment.

Okay.

Great.

Thank you.

Your next question comes from Joseph Buckley of Bear Stearns.

Please proceed.

Thank you.

Had a question on the retail shrink initiatives, just the size of things you are doing and -- which may be, we are doing on an on-going basis and may be just share with us what that retail shrink number might be right now?

We don't give specific detail of components at that level, those who pointed out at, it was patent about half from the rate that we had last year and there has been numerous initiatives, some of which started before this year, but I think that just as we have been more successful and getting focused on them that they've really had worked thus far this year.

Some examples are we have a group of high shrink stores that we call the Focus 60 stores.

I think, if I am not mistaken, I believe every one of those stores improved in its shrink this year versus where it was last year.

So, we had some very detailed attention given to them by operating management and every one of those improved.

We put in a bonus plan this year that was a combination of bonus in for our retail managers on a combination of shrink and in-store damages, so if they had a broken item that they had to write out of their inventory, the damages were part of it.

And we had a nice savings and in-store damages as well but, basically we are putting money were our mouth was and said okay, we want you to do this, we needed to do this and if you did, we are going to bonus for it.

So, we think that was helpful.

We think that the merchandising strategy, combination of the way we put products on the floor, the speed at which we were able to move the product with the mark down strategy, they (ph) avoided having product breaking in the store and we think we got less pilferage as well.

So, there were a variety of things and it all comes down to what so many things come down to in this business of focus.

One other question.

Could you update us on the performance of the stores you are opening in the state highways?

Yes.

As we have mentioned before, we are seeing the same kind of performance, as we go forward here they are performing well, with a mix of restaurant and retail, it is a little bit different.

We are seeing higher restaurants and a little bit lower retail which I think speaks for the travel component on the retail on all other state stores, but we are seeing good numbers and we are putting some marketing behind them, and seeing some results from that.

Ok thank you.

Thank you.

Your next question comes from Robert Derrington of Morgan Keagan.

Please proceed.

Hi.

Question Larry, the last several quarters you have started out the quarter generally with pretty conservative guidance, and as we have gone through the course of the quarter with the results being better than your initial guidance, you kind of lift it as you have gone along the way.

Do I understand that you are not changing that pattern or your pattern of guidance essentially; you know starts out conservative and generally tightens.

Is that reasonable to expect that is what you are doing as well here?

I think I can guarantee Bob, that every time we have given guidance, it has been highly and deeply considered, and we have considered all the potential risks and all potential opportunities that we have, and we look at what we think can be the outcome from that.

We currently have an uncertain environment right now with consumer sentiment being off because of unsettled world conditions and the difficult economic environment.

There are a lot of issues out there that is gnawing on people's minds.

We are clearly not going to be overtly aggressive in our assumption until we see that playing out, to exacerbate that making it more difficult, there are a lot of very unusual things going on both at the end of January and the early part of this quarter, and we are very early in this quarter, makes it more difficult to know what those underlying trends are.

So, we hope that we are conservative, but that certainly isn't our intent.

Our intent is to give the best reading of what we think the numbers are.

If you look at last quarter where we, that trend was pretty remarkable.

We had some very significant increases in our guidance and what we finally achieved when we started the quarter.

We are entering a quarter where we are going up against phenomenal sales results in the prior year.

Cracker Barrel restaurants was up 7.8%, retail about 4.3%, and Logan’s was up 3.6%.

And those were very, very tough hurdles to look at, and we were I think very reasonably conservative at that point, and our final results came in much stronger than we anticipated at the beginning of the quarter.

Hey Bob, We have got all those analyst report which said we may not be able to [Inaudible] quarter.

So, we kind of believed that.

Well, I would take your comment [Inaudible] to me that you are not changing the pattern the guidance.

Moving on, Mike, question about the business.

When you look at the gift shop, the old country store at Logan's Roadhouse, you made substantial improvement at the old country store, especially.

When you look into your crystal ball, where do you see the improvements in the business coming in the future?

I think that we have a continuing set.

We have a process in place that we put in place maybe a couple of years ago to look for continuous improvement in Cracker Barrel and we combine that with this whole focus thing that we talked about, managers talked about a few minutes ago.

So, we typically have more ideas than we're willing to try and execute because when the system it's complex and [Inaudible] Cracker Barrel or even Logan's doing a few things very well is much more effective than doing many things not very well.

So, we have our list of operational and things that we're going work on, the behind the scene, the vendor initiatives is probably the best example, that's something we can continue.

We haven't [Inaudible] our entire list on that.

I think we're beginning to see with the shrink and with the mark downs of Christmas, we got to sell through Christmas.

We're beginning to see some of the things that we've been looking for in improvements in our retail business.

I think that is still an opportunity to just do all of the stuff that better than we have and see the results from that.

I think that the numbers, that one of the reasons I gave was Thanksgiving numbers because you always get this question about capacity and all of that good stuff, and we really don't have a system wide capacity issue at Cracker Barrels.

So as we continue to execute there, the speed of servicing is really critical and we've done a number of things specifically to improve that but we can continue to get better.

Then we'll see growth coming from just being able to handle the demand that we have better and better and better.

So lots of things going forward, I think the management team at the Cracker Barrels has done a great job and I think that they're also very confident that they can continue to improve.

Everybody in the organization has extremely high standards which means we spend low [Inaudible] because we are not quite hitting those high standards but the good news is we can continue to improve towards those high standards.

Last question, history has shown that when you complete a share buyback typically you have a new authorization.

Any comment there?

We'll make an announcement when we have such an authorization.

We haven't had a board of directors meeting to get such an authorization.

Great.

Thanks guys.

Thank you.

Your next question comes Amy Green of Avondale Partners(ph).

Please proceed.

Hi guys, good quarter.

I wanted to touch base with you about utility prices?

I know that your - with the winter weather that we had here, your usage has to be up.

The $0.02 that you are crediting to the severe weather, is that more from the lower traffic due to the weather or are utility price increases or usage in Q3 wrapped up into that as well?

That was purely sales related and is based on our best estimate what we see now.

As we see sales trends that are out over the next couple of weeks, we may be able to revise our estimates, get the back-end reading in how our sales trends change, but based on what we saw during the first couple of weeks that was -- that is our estimate and it is purely sales.

To the extent we see additional utility expensed; we have built that into our overall guidance.

And then lastly regarding the retail, looks like it is off pretty substantially so far for the quarter.

Are you just now putting - I think I have seen in the couple of source I have been into, the Easter merchandise just starting to get put out on the shelf.

Are you looking for - I mean, do you have a fair amount of seasonal built in that you are looking for to rebound from or is there any kind of initiative that you are going to be executing in the quarter to try to push that number back up?

Well, we have all of our ongoing retail initiatives, the target item programs and so forth.

But basically this is a seasonal shift and Easter and we are seeing the affects of that and of course, back to the travel thing, when our business was hit by bad weather and travel shuts down, we got a disproportionate affect on retail.

Okay, thanks guys.

Thank you.

[Inaudible] this opportunity to market some of our products.

The environment that we have been in the last several weeks, which suggest that we really do hard predictions for the future you would need a rigid board, which prompted us to order some of those for our retail and if any, you guys might like one out there, we would be glad to send you one.

And your next question is coming from Dennis Forst from McDonald's Investments.

Please go ahead.

Yeah, good morning.

I had a couple of questions.

One about G&A, Larry.

In '00 and '01 G&A grew much less than revenues and that reversed last year and again this year.

What are we going to see going forward with G&A percentage growth?

We don't want to get into specifics.

But I have projections that we think that we will, as we did this quarter for we were on a percent of revenues similar to last year that we shouldn't see major departures from that based on what we see today.

Why did it grow more rapidly in the last year and a half or so in that revenue?

We had some higher professional fees.

We had infrastructure changes, organizational changes where we added people in positions in both the operating companies to support the growth of the business and do the kind of work that you are seeing in these results we reported this morning.

Was there any severance package from Mr. Keehas (ph) or anything out of the ordinary there?

Nothing reportable there.

Okay.

And then my next question has to do with store opening.

You said you are going to do 23 Cracker Barrels, 12 Logan's this year.

What about next year?

I can't give any guidance specifically at the things we've had the general guidance out there but we don't see Cracker Barrel increasing to a substantially hard number, or probably be a little higher next year, but we feel this has [Inaudible] right units growth rate level as opposed to percentage growth rate level, and Logan's we are working our way that to a 20% unit growth rate, and we will give specific guidance.

The [Inaudible] will give a specific guidance; we do only announce our year-end results.

Okay.

Good, and then the last question had to do with your comment about the first two weeks of the third quarter and the comps being down, is that through which day, that through yesterday, through...?

Yesterday.

It's through yesterday.

Okay.

So, the 30, just looking at the number of days, through yesterday the 19, so the first 19 days of the quarter?

Yes.

Right 19.

Okay.

Great, thank you.

Thank you.

Your next question comes from Peter (ph) of Merrill Lynch.

Please proceed.

Hi.

Good morning, actually I have few questions.

First of all, your answer related to the gas price comment you made upfront, I think your [Inaudible] with asking about the off inter-state performance.

Mike, I think, you have mentioned in kind of qualitative terms that it's good.

Could you just kind of reference that in the context of concerns about a higher gas prices and maybe a little reluctance in private consumer [Inaudible] drive.

Is there anything material as far as performance of those [Inaudible] but 5% a year units that are off into state and how that is versus the base as a whole?

What did they do well relative to systematic (ph) .

Okay, but the comp trends of late, have they materially shifted of those versus the base as a whole?

That's again into a very small number of stores [Inaudible] interstate strategy has been very long and if you wanted to have a bigger group of those before we start talking about what's going on with them as a group?

Especially you can tell, you are seen in the off interstate locations rocket ahead with comps versus the way beyond interstate motels?

Rocket means some material change now.

[Inaudible] Thank you.

You just kind of along the same lines, periodically you will survey your customers as to how they use one of the dimensions, if I remember is, kind of the traveler passing through kind of vagabond versus the local.

Can you update us on those numbers and there's been any material shift of late?

Yes and no?

Okay.

The first yes.

Just like kind of yes and no, there has been no[Inaudible] .

That's to update you.

If I remember the person (ph) traveling through is 45% to 50% a year...

We are do a lot of - we are doing increasing manual research and that question get us a number of different ways and we sometimes get as opposed to the [Inaudible] with just came from model across the parking lot.

We think to have traveled very far.

It's tough but if you look at the consistent numbers, I don't see any change over time in that number.

Okay.

As far as the vendor review process, can you remind us as to when that started kicking in and when it impacted your P&L.

Are we in the second quarter of that process or we actually little further along?

Second year.

We are in the second fiscal year but of course as we go the things we do [Inaudible] , you got to pick up annualized effect.

So, with some distance into it but again, as I had tried to indicate earlier, there is always a long list of things to do in that area and many other areas.

So, we don't - that's not a one short deal.

Right.

It just feels like maybe the impact from that is actually, I don't know if the word building is correct but it is [Inaudible] one more visibly?

Well, yeah, if you think that we started early last fiscal year, we started looking how much of the stuff is really on an annualized basis, that's right.

Okay.

I think you mentioned that part of Cracker Barrel store of the restaurants, excuse me, part of the comp was attributable to a mix shift.

Is that across all day parts or is they concentrated more on lunch and dinner?

[Inaudible] that mix on the [Inaudible] ?

Yeah.

It's all day part.

You got to separate, we got a lots of moving parts here but because you got a day part shift going on as well, little bit as Larry said, week-end dinner has been a little soft over the line.

Okay and part of that feedback process with the consumers.

Are you sensing any shift as to how the consumers using you?

Then may be how that would have a few years ago?

No, I don't any see any share.

The travel fees are strong.

One of the interesting things we have conducted a number of focus groups, dispatched [Inaudible] months and [Inaudible] have to use it, it's about Cracker Barrel.

We tried to tell him.

We [Inaudible] we could improve on it, not too many things that come up with it.

Okay.

Thanks a lot gentlemen.

Thank you.

And our next question comes from David Stone of FDFN.

Please proceed.

Please precede Mr. Stone.

And your next question comes from Bryan Elliott of Raymond James.

Please proceed.

Okay.

Just one follow-up on a couple of items although [Inaudible] .

You talked a lot about the third quarter guidance.

In the fourth quarter guidance, you didn't share the -- could you give us just a feel for the range of same-store sales that are implied in your fourth quarter comments out this morning.

I will take all.

What I really want to say about it is positive and really I think the further [Inaudible] the greater the potential volatility so we have consider that and our risks and opportunities are so to say that we expect positive comps in the fourth quarter.

Okay.

Fair enough.

Also Larry in you review of the line items, you mentioned, I believe, I heard rent increase is one of the [Inaudible] operating expense categories and could you -- are you seeing some real estate pressures?

Are you going to slightly different kind of locations where they [Inaudible] retire, what was the drive of that?

The driver is mostly that we have made greater use of ground leases in our new store developments.

So relatively larger proportions of our store base is under real estate leases though we have [Inaudible] a substantial own portion.

At the end of the quarter, we had 559 total units combined Cracker Barrel and Logan's and less than 170 of them were leased.

But that's up from about 140 or just under 140 a year or earlier.

Yeah, okay, I got you, all right.

Thanks a lot.

Next question is a follow up question from Matt DiFrisco of GKM.

Please proceed.

Hi.

Two questions actually.

Can you just first give us an update on Cracker Barrel and Logan's?

Both their new venues (ph) the date of the introduction and what your expectations are from them?

I want to [Inaudible] carrying with them new items or [Inaudible] check, etc.

On Logan's we put the new menus rolling March 3rd and we have got some new items.

One of the -- thanks for the Logan's businesses - the we sold a lot of salads, which is great.

We have added couple of salads to the sandwich (ph) section.

We have a new appetizer combo put in potato skins on.

We have a chicken, fried chicken.

There’s a number of refreshing kind of things going on in the menu, but not a major overall.

Continue to look for all of things we look for -- from our menu, which is focused on the dollar margin as we check building our overall strong dollar margin products and of course building repeat business.

On the Cracker Barrel, I don't think we have mentioned that we have a new menu going out.

We do have a menu in test, which has been there for a little while and that again is focused on -- one of the things back though is just [Inaudible] is just the simple fact the readability that we are trying to find a way into make menu a little more user friendly from a readability navigation point of view.

We hope got some new items [Inaudible] testing.

And the roll out of that is the [Inaudible] successful is TVD.

I am sorry.

All right to be determined.

Okay I thought that was sooner.

And then also just on a follow up question on comp's, it's not in your forecast for the third quarter not to hammer this point too much but, given that you got 80% of the quarter roughly left a head of you, it looks as though your guidance of 0 to 1 or just use (ph) the mid point, you are only assuming about a 1.5% positive comp going forward on assuming normal days.

You can't obviously budget in what the weather is going to do.

First, a month ago your quarter-to-date (ph) trends when weather was, I guess considered norm and you are lapping a huge comp of the 47 comp growth at Cracker Barrel, you put up or you were trending it at 2.5 and 3.

Is there something different you are seeing in the consumer that you are purposely taking down I guess normal comp growth, versus normal comp growth axing out the weather or you just being a,-should we interpret as you being prudently conservative giving the uncertainty in today's world?

There is just a lot of things and now I think that clearly there is different levels of uncertainties.

Not to billed in a war, since we don't know when the war would happen or we don't know what the impact would be but we do know that, people are nervous and that's reflected in our judgment.

The third quarter, a year ago was very strong, not quiet strong as the second quarter a year ago.

So if you are looking at two-year trends, you get a different kind of approach as well.

So you come out in a lot of different ways and at this point that's really our best judgment and I acknowledge that it's a little wider than what we are seeing before.

But is that, I guess just to and the thought here is that base on tangible things you are seeing now or is it just an outlook of what you are expecting going forward?

As much as we can drive [Inaudible] tangible information from what we have seen with our judgment, we acknowledge that there a huge amount of uncertainty in the numbers that we have seen over the last month. [Inaudible] so many changes going on that have to tell what the inherent underline trend is and we will be watching that as we go.

This is our best judgment taking into consideration a lot of factors and we will be reporting an update in about a month.

Great.

I appreciate the details guys.

Next question is a follow-up question from Joseph Buckley of Bear Stearns.

Please proceed.

Thank you.

I know somebody asked the question on share repurchase.

I didn't quite get any answers.

So I just want to, kind of, revisit that.

It sounds like you're done and I think the answer may have been that it will be reconsidered at subsequent Board meetings.

Yeah.

Our practice has been and I don't, you know, I'm not going to tell the Board what their decision will be, but our practice has been that we have share repurchase authorizations that have run from typically 1 to 2m shares.

If we had a couple of authorizations, it would have been bigger than that and we execute them and then we go back to the Board and tell them what we think we ought to do going forward.

We just haven't had a Board meeting in a while and we'll be having one soon and perhaps we'll discuss it there.

And when we do, put out a press release and announce it.

And one last question.

I think I've heard just about it.

Every holiday shift possible in this business but [Inaudible] is the new a one for me.

Is Mardi Gras typically a big day for you and if so, is it [Inaudible] or is it some other factor?

That [Inaudible].

We have a concentration of Logan's restaurants in the comp-store base that are in that general region.

So that down towards New Orleans and of course we have the travel factor and Cracker Barrel, we can measure that quite a distance away.

Lot of people do travel in New Orleans.

It has a measurable effect on the comp stores on that day.

Okay.

Thank you.

Thank you.

And the next question comes from Dennis Forst of McDonald Investments.

Please proceed.

Just wanted to get a couple of dates.

Do you have a firm date for a Board meeting, Larry?

We have a regularly scheduled Board meeting next week.

What day is that?

Next week.

It's a regularly scheduled Board meeting.

I don't know the specific day of the week.

Thursday.

Thursday the 27th.

Great and then you said that there'd probably be an update of your guidance out in about a month.

Do you plan to have a press release on a specific day?

Our practice has always been to put out an update on the third Thursday.

I don't have the date in front of me. [Inaudible].

It would be the 20th of March.

Okay.

Great.

Thanks.

We'll look forward to both of those days.

Once again ladies and gentlemen, if you do have a question or comment, please key star one.

And we have a question from Bryan Elliot of Raymond James.

Please proceed.

I just have a finish up here with a question on those [Inaudible] boards.

Yeah.

Bryan.

Mine keeps coming up with $40 and I can't get it to change and I wonder maybe if I have a defective one.

You are on your own with that one. [Laughter] I wish you looked, I'd tell you that.

Thank you.

There are no further questions at this time, sir.

Okay.

Well if there aren't anymore questions, I'd just like to thank you all for joining us.

As we've said we feel very good about the quarter, we just closed.

We feel very good about all the things we are doing internally.

I want to add one thing to the externalist things we can't control which is the stock market, that is based on this morning [Inaudible] .

We look forward to delivering our sales update four weeks from now and being back to talk about the third quarter and see you then.

Thank you.

Thanks everyone.

Ladies and gentlemen, this concludes your conference.

Thank you for your participation.

You may disconnect.