Cracker Barrel Old Country Store Inc (CBRL) 2007 Q4 法說會逐字稿

Good day, and welcome to the CBRL Group conference call.

Today's call is being recorded and will be available for replay today from 2:00 p.m.

Eastern time through September 26, at 11:59 p.m.

Eastern time, by dialing 888-203-1112 and entering pass code 3746237.

At this time for opening remarks and introductions, I would like to turn the call over to Mr.

Michael Woodhouse, Chairman, President, and Chief Executive Officer.

Please go ahead, Mr.

Woodhouse.

Thanks.

Good morning, everyone.

Welcome to our year end conference call.

As usual, of course, I have with me Larry White, and we have a lot of good news to share this morning.

We have seen some really positive developments since the last time we spoke.

We had a strong quarter, despite the prevailing conditions out there and we're making real headway with our operating initiatives and we have a clear path forward into 2008.

Of course the other news today is that Larry has, is planning to retire and I'll talk about that a little bit at the end of our business review.

But first, as always, I'll hand over to Larry for his financial review.

Thanks, Mike, and thank you to our listeners on the conference call and webcast for your interest and participation this morning.

Our press release announcing our fiscal 2007 fourth quarter and full year results and providing our outlook for fiscal 2008 was released before the market opened this morning.

After Mike and I have discussed the quarter results and the initial fiscal 2008 outlook, I'll have a few remarks about our other announcement this morning, my upcoming retirement plans.

We urge caution to our listeners and readers in considering the information on our expectations, trends and earnings guidance.

We remind you, we don't review or comment on earnings estimates made by other parties.

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 such trends and guidance.

Many of these 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.

In addition, a more complete discussion of these risks and uncertainties is contained in our annual report on Form 10-K for the fiscal year ended July 28, 2006.

The Company disclaims any obligation to update disclosed information on trends or guidance and should we provide any updates after today, they will be made only by broad dissemination, such as press releases or in our filings with the SEC.

With those cautionary reminders completed, I want to acknowledge that over the past year, we appreciate your understanding and support during this period when we couldn't provide our normal level of guidance.

During that time, we limited our guidance to revenues and operating income, because of uncertainty associated with the share count and interest expense related to timing and magnitude of final outcomes from the strategic initiatives begun in fiscal 2006.

These strategic initiatives included a recapitalization of the Company, including most recently the redemption of our convertible notes and the successful sale of our Logan's Roadhouse subsidiary.

With our strategic initiatives successfully completed, we are resuming EPS guidance in fiscal 2008.

Let me begin by commenting on the completion of the strategic initiatives in fiscal 2007.

We, of course, closed on the sale of Logan's Roadhouse in December, and we used $350 million of the proceeds for share repurchases.

We completed our second Dutch Auction Tender Offer in January 2007, using $250 million of that amount.

We used the remaining $100 million, plus approximately $55 million, to repurchase shares in the open market under 10b51 plans, which we completed early in the fourth quarter.

In total, we purchased 8.8 million shares in fiscal 2007.

We had 23.7 million shares outstanding at year end on August 3, 2007.

Since we began the strategic initiatives in the third quarter of fiscal 2006, we have repurchased approximately 54% of the shares that were outstanding at that time, or 25.5 million shares, for about $1.1 billion, returning substantial capital to shareholders who sold and creating substantial potential leverage benefit for shareholders who remain.

In the fourth quarter of fiscal 2007, we completed our recapitalization initiatives by redeeming our outstanding senior convertible notes.

Our capital structure previously had approximately $422 million in principal amount at maturity of the original notes outstanding, with an accretive value on our balance sheet of approximately $200 million.

These notes had a dilutive effect of about 4.6 million shares.

During the third quarter, we undertook an exchange offer in which 89% of the original notes were exchanged for new notes that had a net share settlement feature.

The net share settlement feature allowed us to satisfy most of our obligations upon conversion of the new notes in cash, rather than with shares of stock, which significantly reduced the 4.6 million share dilutive effect of the notes.

In the fourth quarter, holders of the convertible notes converted their notes into approximately $190 million of cash and approximately 400,000 shares.

Subsequently, we purchased an equivalent amount of shares in the market to offset this dilution.

These shares are included in the share repurchase amounts, which I discussed earlier.

We ended fiscal 2007 with $756 million of long-term debt and 23.7 million shares outstanding, compared with $911 million and 30.9 million shares at year end fiscal 2006.

Debt no longer is convertible into the 4.6 million shares previously diluted from the convertible notes.

Of the 756 million outstanding at the end of fiscal 2007, 24 million will be due in 2011, when our $250 million revolving credit facility expires.

Our debt repayment schedule for the remaining $732 million is approximately $8 million a year, until 2013, when the $700 million balance is due.

So with that background aside, let's review the information released this morning.

As I've done all year, I'll be discussing only continuing operations in my remarks, and I'm going to focus on the fourth quarter.

We recorded diluted income per share from continuing operations of $1.15 versus $0.82 a year ago, an increase of 40%.

Diluted income per share benefited from a 30% reduction in diluted share count, resulting from our successful recapitalization efforts, which I've already described.

Because the convertible debt was not all exchanged for the net share settlement notes, and remained outstanding until mid June, it still had a small dilutive effect on income per share from continuing operations in the fourth quarter, so the full benefit is not to be reflected until fiscal 2008.

After-tax income from continuing operations of $28.2 million was lower than the prior year quarter, primarily as the result of a higher income tax rate than last year's unusually low rate.

The fourth quarter of fiscal 2007 benefited from a 14th week that added an estimated $4.4 million of after-tax income from continuing operations, or $0.17 per diluted share.

Excluding the benefit of the additional week still resulted in diluted income per share of $0.98, that's a 20% increase from the fiscal 2006 fourth quarter.

We believe this is beginning to demonstrate the leverage benefits of our recapitalization.

Revenue from continuing operations in our fiscal fourth quarter, which ended August 3, 2007, increased to $632 million, up 12.2% from last year's fourth quarter, and in line with guidance.

Approximately $46.3 million, or 8.2 percentage points of the increase was due to the additional week in the quarter, and that also was in line with our guidance.

During this year's fourth quarter, we opened five new Cracker Barrel Old Country store units for a total of 19 for fiscal 2007.

On a comparable week basis, Cracker Barrel comparable store restaurant sales for the fourth quarter were up 0.9% compared to a year ago, and that reflected a 2% higher average check due to, all to higher menu pricing, with guest traffic that was down about 1.1%.

We took a 1% price increase at the beginning of the fourth quarter and an additional effect of 1.9% early in the present quarter.

While we're never satisfied with negative traffic, we are nonetheless pleased that in a very tough consumer environment, our guest traffic trends have continued to compare favorably with overall industry performance, as measured by Knapp-Track.

Cracker Barrel comparable store retail sales were up 2.5% in the fourth quarter of fiscal 2007 on a comparable week basis again.

A reduction in the porch sale clearance event reduced sales by about $1 million versus the prior year, or about 0.9% on a comparable store sales basis.

The good news about the porch sale-related reduction is we've made substantial progress in the last year of reducing clearance inventory.

Our retail sales trends, while better than a year ago, and better than many non-luxury product retailers are not as strong as we had expected.

Retail purchases are the most discretionary for our guests, and we believe we continue to experience the effects of pressures on consumer discretionary income.

An important factor in our results for the quarter was the extra week in fiscal 2007, and I'm going to give you the details now.

So you might want to take notes.

As I noted earlier, the week added $46.3 million to revenues.

Because certain fixed costs, depreciation, for example, are incurred or accrued on a period basis instead of a weekly basis, the extra week creates leverage on operating results because it doesn't carry those costs.

The effects of the, on the components of operating margin were as follows.

There was no effect on cost of goods sold or gross margin.

Labor and related expenses were favorable, about 10 basis points as a result of the extra week.

Other store operating expenses were favorable, about 40 basis points, and store operating margin was favorable about 50 basis points.

G&A was favorable about 10 basis points, so operating income was favorable by 60 basis points, or about $7.8 million.

Net interest, of course, was unfavorable because we had additional week of debt outstanding, and that means that it increased by $1.1 million for that reason.

Income from continuing operations after taxes was favorable $4.4 million, or $0.17 per diluted share.

Now, let me go into some of the details.

Operating income from continuing operations for the fourth quarter was $57.6 million, up 9.5% over fourth quarter 2007, but down 5.3% -- 2006, excuse me.

But down 5.3% excluding the favorable effect of the additional week.

Operating margins came in slightly better than earlier guidance at 9.1% of revenues compared with guidance of 8.5 to 9%, primarily reflecting lower retail cost of goods sold from lower markdowns and better initial mark-ons.

Operating income in the fourth quarter of fiscal 2007 compared with fiscal 2006 benefited from the additional week.

Also from lower strategic initiatives expenses this year versus last year, and lower severance after last year's organizational changes, but it was effected unfavorably by non-recurrence of last year's insurance recoveries from hurricane damages.

Non-recurrence of a gain recorded last year on sale of locations, which was recorded in the impairment charges line, was offset by a gain this year from sale of a former Logan's property that we have been leasing to Logan's, and that's recorded in G&A expense.

And we had additional writedown on previously closed stores, reflecting updated sales contracts on those stores, or updated appraisals on them.

Gross profit improved by 20 basis points, reflecting improved retail gross margin, partly offset by higher percentage of retail sales, which carry a lower gross margin than food products, and we also had higher food costs, offsetting the retail favorability.

We are pleased at being able to sell more products at full margin in retail as a result of better planning and merchandising.

Food cost was higher year-over-year, with about 2.1% commodity inflation, which was pretty much offset by the higher menu pricing.

The higher food costs that we incurred for the quarter really reflected unfavorable mix effect from year-over-year changes and in-store promotions.

The increase in commodity inflation from a year ago was primarily due to increases in dairy and poultry products.

We at this time have contracted for over 65% of our estimated needs for fiscal 2008, with an overall expected inflation of 4 to 4.5%.

We expect to see continued inflationary pressures from dairy, poultry and coffee in fiscal '08.

Labor and related expenses as a percentage of revenues were about 90 basis points higher than last year, or 100 basis points excluding the benefit of the additional week.

That primarily was reflecting higher hourly and management labor costs, as well as higher group health insurance.

We experienced significantly increasing wage rate inflation, about 4.6% in hourly wage rates, as a number of state mandated minimum wage increases affected the wage we paid to our tipped employees in those states and we're also seeing prevailing wage rates for non-tipped employees beginning to increase at a higher rate as well.

We also have been experiencing higher group health plan payments for which I think you know we are self-insured.

Other store operating expenses were favorable by about 20 basis points compared with last year's fourth quarter, and that was benefiting from 40 basis points of the leverage of the additional week, so apart from that, we would have been down.

In addition to the previously mentioned non-recurrence of hurricane-related insurance recoveries from last year, and write-down of property valuations for previously closed locations, other store operating expenses were pressured by higher maintenance expenses.

Our fourth quarter income tax rate was 34.2% for continuing operations, which was higher than last year's fourth quarter rate of 26.3%.

The prior year quarter was unusually low, because of a lower effective state and local income tax rates, completion of a federal audit, and higher than expected tax credits.

We've not yet completed our evaluation of the adoption of FIN 48 in fiscal 2008, so our guidance for this year presently is based on our having the same income tax rate for 2008 as we did in fiscal 2007.

And we will expect to update that after we've completed our FIN 48 evaluation.

Cash flow from operating activities was approximately $97 million.

Note that cash from operating activities included the portion of the convertible debt redemption that reflected accreted interest.

It also reflected the higher income tax payments that we had, which were substantially related to strategic initiatives.

The sale of Logan's and the redemption of the convertible debt.

Our cash flow from operating activities remains, and is expected to remain, to continue to remain strong.

Capital expenditures of $96 million were higher than our latest guidance and that reflected expenditures in fiscal 2007 for fiscal 2008 store expansion.

It was higher than we expected.

And dividends, while having been paid at a $0.01 higher rate per share, were lower than last year because, of course, of the reduced shares outstanding resulting from our recapitalization efforts.

I reiterate that the full effect of the recapitalization was not reflected in the fiscal 2007 quarter because the convertible debt was not fully exchanged into net share settlement notes and the debt was outstanding for part of the quarter.

So there was a small dilutive effect that carried over into the fourth quarter.

Finally, in this morning's press release, we provided our outlook for fiscal year 2008.

I again urge you to consider the cautionary discussion of risks and uncertainties at the end of today's press release, as well as those discussed in our 2006 Form 10-K.

And understand the inherent risks associated with trends, targets, guidance, and estimates in a competitive industry such as ours.

Based on current trends, we presently expect fiscal 2008 total revenue to increase approximately 4.5 to 5.5% over the $2.35 billion of total revenue from continuing operations in fiscal 2007.

The increase includes the effect of the 53rd week in fiscal 2007, which, as I said, provided an additional $46 million in revenues.

Also includes the opening of 20 new Cracker Barrel units during fiscal '08 and comparable store sales increases of 3.3 to 4% for restaurant including 3 to 3.5% of menu pricing and 3 to 5% for retail.

Excluding the effect of the 53rd week in fiscal 2007, the projected 2008 revenue increase would be about 6.5 to 7.5%.

We look for about a 1.9% -- we took about a 1.9% effective price increase in mid-August and we're carrying approximately 3.9% of menu pricing at the present time.

With increased inflation and food costs and hourly labor, as well as the non-recurrence of the additional week in fiscal 2007, and all that partly offset by G&A growth at a lower rate than revenue growth, we expect operating margins to be down in fiscal 2008.

Our present projections for operating margins in the 6.7 to 7% range, which compares with fiscal 2007 of 7%, excluding the favorable effect of the 53rd week.

Both net interest expense and depreciation are projected to be approximately $60 million in fiscal 2008.

The diluted weighted average share count is expected to be 23 to 23.5 million shares, and based on a tax rate equal to fiscal 2007, and again, that's an assumption that will be updated when we report the first quarter and have completed our evaluation of the effects of adoption of FIN 48.

We presently expect diluted per share income from continuing operations to be $3.05 to $3.20 for fiscal 2008.

Capital plans for fiscal 2008 include 20 new stores and expenditures of approximately $105 million.

That $105 million includes spending on fiscal '09 openings, which are not reflected in the store count, of course, as well as various other in-store and corporate office initiatives.

We expect cash flow from operations to exceed our capital expenditure and dividend payment outlays, once again, in fiscal 2008.

So in summary, we're reporting what we review as solid results and expecting continued solid performance, despite operating in a tough industry environment, where the consumers' discretionary income is under pressure.

We are faced with mounting labor and commodity cost pressures, where our focus is not only on our recounting these issues, but on working to build restaurant, guest traffic, and retail sales.

With that, thank you for your attention, and I'm going to turn this back over to Mike Woodhouse.

Mike?

Thanks, Larry.

Good morning again, everyone.

Before we begin discussion of fiscal 2007, I would like to take a quick look back to fiscal 2006, when we began a series of strategic initiatives, which were viewed at the time as rather bold moves, especially for a Company with a reputation for conservative management, such as ours.

First, we took advantage of the then robust credit markets to secure a $1.25 billion credit facility, at what proved to be very favorable terms.

We then started a trend in the restaurant industry, by executing share repurchases through Dutch Auction tenders.

We executed the first of two modified Dutch Auction tenders in April 2006.

At the time that, Tender Offer was among the 10 largest undertaken by any company in any industry over the preceding 10 years.

After that, a number of other restaurant companies followed suit, although not all as successfully as ours.

The retirement of the convertible debt without a full conversion was also a new financial tactic.

In addition to the Dutch Tender Auctions and the convertible debt retirement, we repurchased shares on the open market using 10b51 plans to complete the repurchase authorization our Board of Directors approved last year.

Of course we completed the divestiture of Logan's Roadhouse through a sale of two private equity firms at a price in excess of most expectations, including our own.

It's very important to remember that these initiatives were not an end in themselves, but a means to an end.

The end was a solid foundation from which we could put our entire focus on making our core brand more valuable, more valuable to our customers, by improving the guest experience and more valuable to our shareholders by driving top line growth through improved restaurant traffic, increased retail sales, and by seeking ways to improve operating margins.

We believe that Cracker Barrel is unusual in that the overall experience is just as important to our guests, perhaps more important as the quality of the food and the friendliness of our service.

This was validated in a 2007 research study performed by Kanbay Research and presented at the NRA show.

The study found that Cracker Barrel and Country Store was rated as the only full-service restaurant to exceed guests' expectations and providing an overall experience for its guests, by remaining consistent to our business strategy that appropriately blends restaurant and retail with a unique focus on travelers.

We were also selected for the 17th year in a row the best family dining restaurant in America in Restaurants and Institutions annual Choice in Chains poll.

These awards confirm the strength and differentiation of the Cracker Barrel Country Store brand.

They also confirm our decision to devote everything to our best restaurant concept.

I'm pleased to be able to report on the progress we're making here at Cracker Barrel, despite the head winds that are affecting the full-service restaurant industry and as usual, I'll start with a review of the quarter followed by an update on the strategic initiatives and the outlook for fiscal 2008.

While we're not pleased with the absolute same-store sales numbers in the fourth quarter, we're pleased yet again to be ahead of casual dining guest counts, as reported by Knapp-Track.

And excluding the impact of having a shorter porch sale during the quarter our retail same-store sales were up by more than 3%, which was better performance than many retailers reported.

The cost pressures resulting from the minimum wage increases implemented on January the 1st and July 1, by a number of states, especially those that raised the cash wage for tip employees, and higher commodity costs in general, continue to be felt in the quarter.

We took a 1% price increase at the beginning of the fourth quarter and about a 2% price increase in mid-August, which means our average price is now running about 3.9% over last year.

While this latest increase came earlier than we had originally planned, we've now covered the dollar year on year increases in food and labor costs that we expect during the course of this new fiscal year.

As we reported recently, we experienced an unfavorable mix effect on the average check in August.

The effect began in late July, several weeks before the menu increase went in and reflects shifts related to the prior year promotional activity.

Next, I want to update you on the status of our strategic initiatives to drive shareholder value, specifically increasing restaurant traffic, retail sales, and operating margins.

We've obviously completed the recapitalization initiatives that I discussed earlier, and Larry's covered these in detail in his remarks, so I'll move directly on to the operating business.

We saw fiscal 2007 as the year to better understand who our customer is and how we best serve that customer.

It was also a year of moving the restaurant retailer marketing initiatives forward to a point where fiscal 2008 will be a year of execution, where we'll be rolling out a new menu and testing other occupational initiatives on a broad basis.

So let's look at the restaurant initiatives.

In keeping with our theme of simplify, focus, and execute, restaurant execution requires improving speed of service, while maintaining a quality guest experience.

As we developed our initiatives to deliver speed of service, we realized that our complex menu, which had built up over nearly 40 years, was the largest single impediment to providing faster service.

Accordingly, we addressed this issue by developing what we're calling internally a Best of the Barrel menu.

This simpler and easy to read menu is currently in a four-store test and is planned to be rolled out to a broad market test within the next two months.

The goal of the menu is to improve ticket times and improve dollar per guest margins by highlighting products that are high margin and fast out of the kitchen.

The menu features a new lunch section with high value, high margin products.

It also eliminates some low volume service to reduce waste and reduces the number of slow to make items.

And along with the new menu, we've completely overhauled our point of sale entry process to speed up the order processing on the front end.

Meanwhile, the comprehensive Seat to Eat initiative is progressing and includes kitchen processes, window management, management deployment, and front of the house service methods.

In related initiatives, we're taking a fresh look at how we can improve our throughput, both by simplifying recipe processes and improving labor deployment.

We're currently in test, testing elements and combinations of these initiatives in a number of stores.

From the tests, we'll develop plans to roll out the initiatives to the system.

As we've mentioned before, the challenge is always going to be to take full advantage of these opportunities, which we think are comfortable, while taking at the same time, avoiding distraction and possible failure by overburdening the stores with too many changes too quickly.

Turnover has been and will continue to be another area of focus for us, because improved skill levels, which come from reduced turnover lead to an enhanced guest experience.

The Rising Star program for new hires is already bearing fruit.

Since the program began in February 2007, we've averaged more than 25% fewer Rising Stars turning over each month than we had last year.

Our store management turnover is also down, down 4% from the level of the fourth quarter last year.

And one measure of our success with these initiatives are guest complaints.

We've seen fewer guest complaints, a lower level of guest complaints in the fourth quarter, which we believe shows that our focus on service is working.

We also announced in the fourth quarter that we'll eliminate all artificial trans fats later in fiscal 2008.

The focus here was equal or better quality and taste of the food that we serve.

Judging from guest feedback, we've been able to meet that standard as the result of dedicated efforts from the product development team and the implementation of an improved and more rigorous testing discipline.

In retail, our product selection and allocation processes are driving better sales.

New point of sales systems are providing better data on purchases, which allows us to focus and simplify our product offerings.

Improved assortments of women's apparel and accessories provided a double-digit growth in the fourth quarter, as did summer travel toys.

The perfect pet continues to be a favorite and collegiate products, including apparel, hats and gifts, also performed well in the quarter.

Our retail food sales were up mid-single digits in the quarter driven by strong sales of boxes of Remember When candy, which represents various decades of popular candies, and also summer travel products, as well as our new 10 sticks for $1 promotion on our ever popular thin sticks candy.

The thin stick promotion came out of an overall review of pricing and margins on our long-term offerings.

We found a number of cases where margins have eroded substantially over time, and we're implementing appropriate price increases.

In the case of thin sticks, we increased the unit price from $0.10 to $0.15, but as a result of our new point of sale capabilities, which are designed to allow BOGO and similar offers, we could offer a buy 10 for $1 deal, which increased the unit sales on this item by 22%.

Retail inventories finished the year higher that a year-ago.

Although aged product liquidator report sales continues to be lower.

We received products sooner than we expected for the fall harvest set in our retail stores and intentionally increased levels of collegiate inventory for some schools where sales have been particularly strong, but unfortunately that does not include Michigan.

We believe that we're achieving our goal of having the right amount of product to drive sales, but not so much that we have to generate sales growth with large markdowns during porch sales.

In marketing, we won the American business award for the best outdoor advertising campaign for our colorful Coming Right Up billboard campaign, which rolled out during the first nine months of fiscal 2007.

We are now looking at the next refresh on the outdoor campaign and the plan is to be ready to start rolling out the new campaign late in the fiscal year.

We have known for sometime that we're top of mind -- top of mind restaurant for a quarter of travelers, but less than 5% of people think of Cracker Barrel as the first restaurant to visit when they are at home.

The good news is that local people who do choose Cracker Barrel represent a very loyal customer base.

We would just like to attract more of them, so we have developed a brand TV campaign, which will be running in six markets, Louisville, Nashville, Jacksonville, Florida, Greenville, South Carolina, Indianapolis, and Lexington, Kentucky, starting in October.

And you'll also be able to view the commercials if you attend our investor day on October 3.

On the promotional front, we're continuing to run seasonal promotions with the product offering, with the product offerings in both the restaurant and the shop focused around our unique positioning as an old country store.

For example in the Autumn Applefest promotion coming up in October, we're featuring Apple Cheddar Chicken, Apple Cider on the menu, and a range of Apple-themed retail merchandise in the shop as well as our usual full range of fall and harvest merchandise.

And of course we'll be dressing up the store for the season with signage and other decor.

In our music program, the Josh Turner CD's have sold exceptionally well, the result we believe of Josh's broad appeal, especially to our younger female guests and the reviews on our Merle Haggard CD have also been positive and the CD appeals especially to our older guests.

Looking at new store openings, when we announced the third quarter earnings, we had just opened the Sherman, Texas store, which broke the opening day and seven-day sales records for off-interstate stores.

Since then, we've opened a new store in Lubbock, Texas, that broke Sherman's opening day and first seven-day records for both restaurant and retail.

Earlier in the fiscal year, the new Huntsville, Alabama store had broken the first seven-day opening records for off-interstate stores that had stood since 2002.

In fiscal 2007 we opened three record-breaking stores, one in an existing market and two in developmental markets, and all off-interstate.

And this supports our conviction about the strength of the concept and the viability of our ongoing development plans.

Looking at the outlook for fiscal 2008, we're once again offering guidance down to the EPS level, which I think will be helpful to all.

We have solid plans to achieve the guidance and we will be going into greater detail in our plans in our, during our investor day on October the 3rd.

You can access the webcast of that day through our website and for more information on the investor day and webcast, please consult our website.

If you would like to attend, please RSVP to Brown@CBRLGroup.com.

In closing, fiscal 2007 was a year of transition for Cracker Barrel.

Having completed the recap and the sale of Logan's, we now operate a single brand that continues to receive top ratings for food, facilities, and customer service.

We expect the cash flow from Cracker Barrel to remain strong and more than sufficient to service the higher debt levels and to finance Cracker Barrel's restaurant or retail initiatives and new expansion.

At the same time, we will continue to distribute a portion of the cash generated to our shareholders through dividends and share repurchases.

In 2008, we're focused on executing on the strategic initiatives for restaurant, retail, and marketing that we began in fiscal 2007.

A theme of simplify, focus, and execute is intended to drive increases in both traffic and retail sales, by growing traffic and improving retail sales, we can leverage our capital structure to significantly grow earnings per share.

Although we can't control gas prices, the housing, or credit markets, consumers still want to eat out today.

We offer outstanding value to consumers of all age groups and the strong multigenerational appeal of Cracker Barrel offers us the opportunity to reach different age groups at the same time, without having to segment our offering as may be the case for other concepts.

Our second release today announces the news that Larry White, our CFO, has announced plans to retire on February the 1st, 2008.

Larry spent eight years with us and he has been a constant and strong support to me, as we've navigated our way through a series of interesting times, beginning with the Cracker Barrel turnaround back in fiscal 2000, 2001 and most recently the weak half and the Logan's divestiture.

Of course along the way we dealt with a new role of Sarbanes-Oxley and quite a few new accounting rules.

At all times, Larry's given everything he has to further the interest of the business and maintain the highest levels of integrity.

And he's even managed to maintain the dry sense of humor that lightens the load for all of us at times.

I've worked with Larry and counted him a friend for 20 years and I know that coming to this decision, he will have given a lot of thought to the decision and I have every respect for his choice to start a new chapter in his life.

We'll be launching a nationwide search for a successor and hope to have someone on board by the time Larry retires and we do have an 18-month consulting arrangement with Larry to ensure a smooth transition.

And now, before we open up the call for questions, Larry would like to say a few words.

Thanks, Mike.

Thank you for those kind words.

To our listeners, as you saw in a separate press release this morning, we've announced my upcoming retirement plans, and I would like to add some brief personal reflections on that.

After more than 31 years in finance and a career that spanned the auto industry, the oil field service and supply industry, and for more than 20 years, the restaurant industry, I've decided to begin my retirement effective February 1, 2008, a date that the Company and I mutually agree upon to ensure a smooth transition to a new CFO.

It's not an easy decision to make this kind of change, especially for a chronic workaholic, but I'm looking forward to moving onto a new chapter and a more relaxed pace in my life.

I'm proud to have made a contribution over my eight years at CBRL, to draw on a litmus test from a personal hero of mine, we are better off than we were eight years ago.

The successful recapitalization and restructuring that we did over the last year and a half is the kind of significant opportunity that only rarely presents itself in one's career and I consider it to be a crowning achievement, and a fitting finale to my career and tenure at CBRL.

I believe I'm leaving the Company in sound financial condition, and my direct areas of responsibility at the peak of their capabilities, contributions, and effectiveness.

We have a great financial team and a strong executive leadership team, ready and able to continue Cracker Barrel and CBRL along the path of success.

This has been a wonderful industry in which to make a career, and I've had the privilege to work with some great people.

I want to thank Mike Woodhouse for opening doors of opportunity for me in my first experience in the industry, over 20 years ago at TGI Friday's and bringing me to CBRL Group eight years ago.

I want to thank my colleagues and staff and the Board of Directors here at CBRL for supporting and assisting me through every challenge along the way.

I especially want to thank our General Counsel, Forrest Shoaf, for our partnership during our recapitalization and restructuring initiatives.

It would not have happened without him.

Finally, on a very, very personal note, I am grateful to my career mentor, the late Mike Jenkins, for his confidence in me and the many challenging endeavors that we, endeavors that we tackled over the years.

And for the next four and a half months, I'm still your CFO and I'm committed to assisting in a smooth and effective transition to my successor.

Thank you.

Thanks, Larry.

With that, we'll open up the calls for questions.

Thank you.

(OPERATOR INSTRUCTIONS) We'll go first to Matthew DiFrisco with Thomas Weisel Partners.

Hi.

I just had a quick question on a little bit of the recapitalization looking at the guidance and then also, just, Larry, it was great working with you and good luck with the next step in your career.

With respect to the shares, it looks as though the guidance in the press release of 23 million, is that a year-end number, so presumably the fourth quarter, third and fourth quarter should be lower than that?

And then also, just looking at your interest expense guidance for fiscal '08 of $60 million, if you had $1 million incremental in the fourth quarter from the extra operating week, it looks as though you're really not incorporating any debt paydown.

Is that just being conservative, or are you primarily going to use your cash to buy back stock and not pay down the debt?

Matt, thanks for your comments.

I hope I remember all your questions.

First of all, we do not, in our projections at this time include any debt paydown other than the scheduled debt paydown, so we would expect to remain in a similar kind of capital structure we're at now.

There may be fluctuations, including potentially period-ending fluctuations in revolving credit draws, but we are not looking at any major changes in our capital structure.

On the shares, I'm not exactly sure how you're looking at the numbers, but we ended the fiscal year and quarter with 23.7 million actual shares outstanding.

Our guidance for the full year on a diluted share basis is 23 to 23.5 million shares.

So that would reflect an assumption, A, of some level of repurchases, and we can't be precise on that because that will vary during the year, and B, the dilutive effect of outstanding stock options, which, again, we can't be precise on because of -- that number varies with the share price.

So I hope that helped.

Well, my question, I guess, is more is that at the average of the four quarters, or is that--?

Yes, 23 to 23.5 is the average and we -- I really don't have a good number for you to work with on the, the first quarter.

Okay, and then can you give us what your inventories are at the end of fiscal '07?

Yes, they were up because we had some late retail deliveries.

Those retail deliveries had not been paid for, so our accounts payable were up by a similar amount.

Let's see if I've got that handy.

Inventories were I think about $144 million.

Again, that primarily represents timing of retail product deliveries.

Okay, and then last question, I think you also mentioned some records set for the latest round of stores opened off-interstate.

What, on average, is, or does an off-interstate store do versus a highway store now, or an interstate store, just on a comparison basis?

How many of those 20 going forward are off-interstate versus on-interstate in fiscal '08?

Well, taking the groups overall, there's very little difference between the average of total sales between on and off-interstate.

There's a little more retail mix in the on-interstate because our retail appeals to the traveler and if you think of the occasion, it's more likely to be a retail purchase occasion when somebody's traveling.

We are opening slightly more than half of the 20.

I don't have the exact number, would be off-interstate.

Yes.

And as we've mentioned before, we -- and for the last several years, we've been looking at a goal some of somewhere north of 1000 Cracker Barrels with our current format, current business model.

And with an increasing number of off-interstate stores as we continue to build out on the interstate and look for new opportunities and the encouraging thing, as I mentioned in my remarks, is the fact that the, the three very strong stores that we opened in fiscal 2007 were all off-interstate.

And two of them in Texas.

So, still classified as a development market for us, so it's encouraging that we can now start spreading our wings a little more than we have for a while and see good results.

Does the off-interstate store currently have a, or do you have plans for these, have the 22 have a smaller retail?

I think last call there was some discussion of retail, maybe the size of it, or with the trends of late, do you think it's something that we can look for going forward, a test of a store with a smaller retail?

Yes, it depends on how you characterize the discussion.

My point of view was that we're not going to have smaller retail space for a couple of reasons.

One is it is our waiting room.

It is part of the brand and part of the experience, that even if people aren't purchasing, it's a very different and more pleasurable experience than just sitting in a vestibule somewhere.

And frankly, one of the goals for our retail team is to look at ways to build on the great restaurant traffic we have in the off-interstate stores and get our retail in those locations up to the same as on the interstate by focusing on what does our local guest really want.

I think that's a big opportunity in all stores, as a matter of fact.

Okay.

Thank you.

Thank you.

Thank you.

We'll go next to Chris O'Cull with SunTrust.

Good morning, guys.

Good morning.

Mike, it appears that the restaurant comp is going to be driven primarily by higher menu prices next year, would you describe the testing process the menu went through, and also, what areas of the menu, the most recent price increase was taken?

Well, we -- to answer the first one last, we look around the menu always when we're looking at opportunities.

We're looking at, for increases.

We're looking at sensitivity by product and we're looking at sensitivity by market, because we don't have the same prices in every market.

So the testing protocol and the analysis protocol is using outside consultants to look at sensitivity, as I said, by product and by market.

And that varies over time, because it's a function not only of what we're doing, it's a function of what the competition is doing as well.

So we're pretty comfortable.

I know there's been some comment about our recent price increases.

I think, I don't know if [Malcolm Knapp] is on the call.

We always refer back to his survey, but if you look at casual dining right now, it looks like the average check is running 3 to 3.5% up, consistently.

So we're in good company.

We have been very careful to preserve our value positioning, and that's going to remain a constant theme as we go forward.

So I'm comfortable with the price increase.

I think when we say it all depends on -- our long-term goal is to have consistent and positive traffic, and we expect that this year as well.

Okay.

When you look at the retail comp, the comp assumption for the retail side of the business, it appears that you expect the trend to improve pretty significantly, yet it also appears, like you mentioned, the comp on the, or the guest counts on the restaurant side to be relatively flat, maybe slightly positive.

Is the higher-priced merchandise the primary assumption for the retail comp?

No.

Okay.

No.

We look at our retail business in terms of how many guests do we sell a retail product, or products to, then what the average price point is, and how many items they buy.

So we've got three metrics going on there and the goal has always been with a captive audience, the number one opportunity is to sell to more people and then selling more to each person who is making a purchase is not driven by price point.

Although, as I said before, we hollowed out our price points sometime ago.

We had high end and low end, but nothing in the 10 to $20 range, which was really what our guests think as the sweet spot for purchases.

So we filled that in, so to the extent that's going to give us some better sales, that's great.

And then in terms of improvement, we have a deliberate plan this year to put the Christmas merchandise out later than we did last year, to have a bigger impact at Christmas than we had last year, and we fully expect that to happen.

And if you also recall, we were selling a lot of, we had a lot of markdowns in the first half of last year, as we cleared out some long-term aged inventory and we will not be running against that as we move towards the second half of the year.

So they result in nice dollar sales, but terrible margins, so we'll have a pick of above sales comparisons and margins as we move through the year.

Got you.

And then in the past you said that you would begin testing TV advertising after you felt the results -- or the restaurants could benefit from some of the throughput initiatives you've been working on.

Can you quantify the benefit at the test stores you've seen from the Seat to Eat program and what your expectations are for this new menu?

That's a lot of questions all at once.

I'm not ready to put numbers out there.

We do have some internal goals, because one of the things we've done is we focused more on innovation, is to make certain we have quantified expectations when we develop and test something and not just develop it and see what happens.

So we do have expectations.

These things all have to come together.

The number one priority this year is the menu.

As I said in my remarks, we have it in test, in store test.

That's just a test to make certain we can handle it and deal with the changes.

Then we go to a market test and we'll be rolling it out February the 1st.

But that's all about improving margin and improving speed.

When we do those, we'll also leverage labor because labor in part is a fixed cost under those conditions.

So I -- we've seen some real benefits coming out of a simplified menu that we put in our new stores recently.

In fact, some of the record sales are probably a result of that.

It's easier to execute, and it just speeds up the whole process.

So they are all going to come together, as we get further down the road here for sure, we'll talk about quantifying, but they are all -- everything we're doing is aimed at that top line traffic and gross margin per guest.

Great, and then one last question.

Larry, what specific commodity items, and you may have mentioned this at presentation, but what specific commodity items have not been contracted for fiscal '08, and do you plan to try to get those under contract?

Yes, the way our commodity outlook works, along with everybody else in this industry, is you continually have contracts that are expiring and, that we're working on to renew and all that.

I think we're going to save some of the details on the commodity outlook for analyst day and we'll introduce you to Ed Greene, our Senior Vice President of Strategic Initiatives and I think he'll give you a pretty clear picture of what's happening there.

But Ed has vastly improved our visibility on what we think we can expect with the commodity outlook and I would really like to save that for him in a couple of weeks.

Okay, fine.

Great.

Thanks, guys.

Thanks.

Thank you.

We'll go next to Steven Rees with JPMorgan.

Hi, thanks, and congratulations, Larry, on your well-deserved retirement.

I just wanted to ask about, or follow-up on the operational initiatives.

Perhaps you can remind us how many stores, or what percentage of the system has the Seat to Eat initiative and the table optimization initiative.

Well, Seat to Eat is a combination of things, and right now we have some of toes components in a variety of stores, but we're specifically testing the latest and greatest and hopefully the generation that we'll roll out of the Seat to Eat components in a district.

In terms of table optimization, I think we ended up with 50% of the system or more.

Yes, it was a little more.

That are effectively optimized.

What we found as I think we've counted before, is we were working on that, we found that the number of stores already had evolved because operators are always trying to find ways to do things better, evolve to being optimized.

What had happened, a little bit of history, is that a lot of our two-tops were taken out of the stores back in 2002 as an operational initiative that didn't get a lot of visibility, so as we were working our way through this, the opportunity really came to replace that and go further in terms of the optimization.

So table optimization is a, is a foundation on which we can build when we have these other things, because we got to have the kitchen moving quickly.

We got to have the order-taking and the order ticket times moving quickly to really gain from the table optimization.

Otherwise, simply if we stay at our same speed per guest, putting more guests in doesn't help us, because it just takes more time to deal with more guests.

So menu first, Seat to Eat, some components of all of those to follow that.

Then the other thing we haven't talked about, I mentioned in the call is this labor deployment, which, again, is all -- part of it's, again, speed, managing the window.

That has been part of what we've been looking at, and we are very slow with food coming out of the window, and that, along with the menu, are really the things that I believe will have the biggest impact in the short-term.

Okay, great.

Then I wanted to ask you about the competitive set, particularly in the breakfast day part.

We're seeing a lot of the fast food companies focus more on breakfast and specifically breakfast value, as well as some of the other family dining companies improving the product and marketing promotions.

Perhaps you can talk about how your traffic is holding up during the morning day part and how you plan on further differentiating your concept to maintain this important day part?

We continue to have breakfast be probably our strongest relative day part.

We, I think there's some conventional wisdom that the pressure from quick service has probably unduly effected us there, but that's not really the case.

We continue to be running pretty well.

In fact, we were in the fourth quarter, we were positive in breakfast customer counts throughout the quarter.

Okay, great.

And let me just add to it.

I think clearly the QSR guys are attacking breakfast.

I'm not certain, I think McDonald's is doing a good job.

I saw Wendy's announced the other day that they have achieved a grand total of 500 stores that have breakfast out of whatever their total is.

But I do think that there is a, there is a QSR breakfast occasion that we miss out on because we don't have products that are grab and go in terms of eat in the car or eat when you get to the office.

And frankly, I think that over the longer-term, that's an opportunity we can take advantage of, because I think when we put our brand and our reputation for quality breakfast around products of that nature, I think that we will have an interesting opportunity.

It's not an immediate priority, but it's, because we've got to get these other things done, but it's certainly on my list of things that we should address.

Okay, and then can you just talk quickly about the regional performance you may be seeing?

Are you seeing any signs of stabilization or improvement perhaps in the Florida market?

Yes, Florida's been, in recent periods, relatively strong for us.

I think some of that has related to changes in back to school dates and I think the travel business in Florida has probably been good and I think we'll see confirmations of that over time as others report.

Okay, great.

Thank you very much.

Thank you.

We'll go next to Conrad Lyon with FTN Midwest.

Yes, hi.

Wish you all the best Larry, here.

My question has to do with labor.

I think you mentioned some about labor inflation, but I wanted to ask you this, did you talk about where you expect labor to be as a percent of sales year-over-year?

We did -- no, we did not go into the detail by line item.

We will expect to see pressure, margin pressure on the labor line.

We're pricing substantially recover our dollar inflation and labor and commodities, but not to maintain margins.

So we expect to see some pressure there.

Okay, and maybe I can ask this from a high level point of view.

In terms of a comp that you need to get a leverage going forward, is there a range that you are looking at these days?

We get that question a lot, and frankly, we really don't look at it quite that way.

I mean it's -- we're, I guess on a more micro level, looking at the things we need to do to grow traffic and retail sales on a tough environment, and thus far on a relative basis, we're pretty pleased with how that's worked, but we don't really do that.

I think the closest thing to what we do that ties to what you're getting at is we estimate that both on the restaurant and retail side of the business, that we get about a 40% variable contribution on incremental sales.

Okay, all right.

Great.

Thank you.

Thank you.

We'll go next to Brad Ludington with KeyBanc Capital Markets.

Thank you.

Actually, my question was answered previously.

Appreciate it.

We'll go next to Bob Derrington with Morgan Keegan.

Thank you.

And again, Larry, congratulations on finally escaping having to deal with us all the time.

Question on, Mike, if I could come back to the marketing for a second.

It was mentioned previously that you were going to be, I believe, testing some TV advertising in the fourth quarter.

I believe that was pushed into the first quarter, if I remember correctly.

Was in fact, are those dollars being spent here in the first quarter?

Yes, as I mentioned in my remarks, we're going to be in six markets starting in October.

So we will be spending TV dollars in -- we pushed it back for many internal reasons, including the fact that we had put a place holder on the fourth quarter, but the fourth quarter is our busiest quarter and we do have this issue of, if, as we hope it will be, TV is really going to drive some incremental traffic here, we have to be able to absorb it.

What I was wondering, Mike, is is in fact that a test, or are you comfortable enough that this is an actual roll out into those markets?

No, we picked -- we've looked at our overall potential and obviously our potential is going to depend on how much effectiveness we get out of the advertising, but we've made an assumption, which I'm not going to share with you, as to what we can get in traffic from that advertising, and we chose these markets as being media-efficient in that sense.

Our hopes are that in fact we'll do better than that and the degree to which we can roll that out is going to depend on these test results and how much media effectiveness we have by market.

The other component of that is we've begun to coordinate our real estate development efforts with this idea of future media efficiency, and trying to find places where, in markets where we either are efficient today or where we can become efficient over the next few years with the addition of just one or two stores.

Now, of course, we're also going to have other markets that we go into to begin developing, but as far as I know, this is the first time we ever considered something like that as part of our real estate development strategy.

Is there any kind of targeted multiple in dollar cost spent return you expect out of sales?

Yes.

Sorry, Bob, you must have expected that answer.

Okay.

I can read the rest.

Last question, if I could, Mike, there's a question asked on a previous call about the Company's longer-term plan for EBITDA growth.

Can you give us any kind of perspective now?

Trying to recall the question.

I mean we've been focused on top line growth, operating income.

Margin growth -- we need operating growth and then leveraging that with the shares.

Now, we've obviously come through a complex period to read all of that, so I think if you work through our guidance and look at the EPS growth and think about the share count and the interest, and I think you have all those components, EBITDA growth should be running about where the operating income growth will be and that number is double digits?

Yes.

Fair enough.

Sorry to be nonspecific, but we're looking for healthy EBITDA growth, I guess is the best way to say it.

Got you.

Thank you, Mike.

Appreciate it.

Bob, you didn't ask that question, but let me just add it for some clarification on the advertising, the first quarter will bear the full load of the production expense related to that advertising.

So because it will be our initial airing of the commercial, so we'll have an unusually high advertising expense in the first quarter, given that we're only on the air for a few weeks.

Larry, could you tell us what percent, those restaurants in the six markets, what percent of your Company restaurants expect to get TV advertising benefit?

I forget the number off the top of my head.

10%?

15%?

I should know that off the top of my head, and I just can't remember, Bob.

Sorry, I must be getting old and ready to retire.

Come to analyst day, Bob.

Okay.

Thanks, again.

We'll go next to [Joe Fischer] from Bear Stearns.

Hi, everyone.

I'm calling in for Joe Buckley.

I was wondering, can you give us the dilution amount related to the senior notes in the fourth quarter?

It was pretty small.

It was in the neighborhood of 400,000 shares, but that, that dilution amount will go away in the first quarter.

Okay, and for the 105 million in CapEx, can you give us kind of a breakdown of new units versus maintenance versus anything else?

Yes, I really don't have that in front of me.

It's -- I just -- I don't want to speculate.

Okay.

We're not looking at substantial increases in maintenance expenditures from what we've been.

We will be spending some money on some of the initiatives that Mike talked about, if they are successful and lead to beginning rollout.

Okay.

On the G&A line, in '07, it kind of trended downward as a percent of sales.

Is it -- is this kind of -- is the 5.5 area percent of sales, is that a pretty reasonable, kind of a stabilized amount there?

Well, I think we expect to grow G&A at a slower rate than we're growing revenue, so we're looking at getting some leverage out of that.

Okay, continued leverage?

Yes.

Okay, and that 3.9% pricing that you have right now, when do you roll that off?

Over time, I think there's a little bit in October.

There's more in December.

There's more in January, and the reasons are that when we do price increases, we do two things.

First of all, we typically precede most of our price increases with tests, so we have some small effective tests out there with additional price increases, and then when we actually do a new price increase, we have some hold back stores, so we can really gauge what consumer reaction is to the price increases.

So the effect of that is that we get these minor price changes over time and this will begin to roll off, as I said, with a little bit in October, some additional I think in December, additional in January, and then the next change, I think, is probably in the third or early fourth quarter.

Okay, and just one more, those -- I believe it was four.

Was it four stores testing the new menu, the simplified menu?

Right now, yes.

Are those, are those all in existing markets, or are those new markets?

They are a mix of markets.

The first one was in a very well developed market and the others were in a mix to see how the thing plays out.

Has there been any customer feedback from, in existing markets, yes, in existing markets on the new menu that you care to mention?

Nothing notably.

At the store level, we're hearing very positive things.

Okay, great.

Thanks.

Thank you.

Thank you.

(OPERATOR INSTRUCTIONS) Next, we'll take a follow-up from Matthew DiFrisco with Thomas Weisel Partners.

Hi, I'll make it quick.

Just wanted to know, can you quantify, what, if there is any effect on the earlier timing of Labor Day might have an effect on the September comp to be reported?

We'll report those in two weeks, Matt.

Really can't talk about that now.

You can't talk about how much it might have helped August or how much it might effect just the shift?

Not--?

I don't want us to get in the habit of sort of predisclosing what's going on in a given month.

We have a calendar that was included at the end of the press release, and we're going to stick with that, just like we always have.

I mean we are keeping up with monthly sales reporting and not all of our competitors are.

So I think that's a pretty good disclosure policy.

Okay.

Just can I -- can you just comment on, am I correct to assume, though, that that doesn't help to have Labor Day earlier, probably helped August, didn't help December?

We'll give you clarity in a couple weeks, Matt.

Sorry.

Hey, Matt, I've been trying to make Larry change late in his career here and he doesn't ever change.

Okay.

What about, just last question, then, G&A, you guys talked about it lagging top line growth for the year, but with the comments of advertising spend, I think people are trying to figure out on modeling--?

G&A's--.

--is it going to be a little chunky in the first quarter?

G&A is in other store operating -- or, excuse me, advertising is other store operating expenses, not in G&A.

Thank you for that clarity.

Thank you.

Thank you.

At this time, we have no further questions.

I would like to turn today's program back over to the speakers for any additional or closing comment.

Thank you.

Let me thank everybody for joining us again today.

I have some late-breaking news for those of you who have stuck with us, that we, the number of stores that will be in the advertising test is 15% of the system, and as I hope you gathered, we think we have a very exciting year ahead.

We've been working very, very hard in the last year on innovation and things that are going to really move this business.

It's really coming together and we're going to see some action this year that I think we're all going to be very pleased with.

We look forward to seeing those of you who join us on analyst day, on October the 3rd, and we'll be back on the air at the end of this quarter to report on our performance.

Thanks.

Thanks, everyone.

That does conclude today's conference.

You may disconnect your lines at this time.