Cracker Barrel Old Country Store Inc (CBRL) 2008 Q2 法說會逐字稿

Please stand by.

We are about to begin.

Good day and welcome to the CBRL Group second quarter conference call.

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

Eastern, through March 5th, 2008 at 11:59 Eastern by dialing 719-457-0820, and entering the passcode 9640854.

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

Diana Wynne, Senior Vice President of Corporate Affairs.

Please go ahead.

Thank you, Matt.

Welcome to our second quarter and 2008 conference call and webcast this morning.

Our press release announcing our fiscal 2008 second quarter results, and updating our outlook for fiscal 2008, was released before the market opened this morning.

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

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

In addition, any guidance that we give speaks only as of the date it is given, and we do not update our own guidance or express continuing comfort with it, except in broadly disseminated disclosures, such as this morning's press release and this call.

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 summarized in the cautionary descriptions of risks and uncertainties found at the end of this morning's press release, and are described in detail in our filings that we make with the SEC.

We urge you to read this information carefully.

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 disseminations, such as press releases, or in our filings with the SEC.

On the call this morning, with me are CBRL Chairman, President and CEO, Mike Woodhouse, and Cracker Barrel Senior Vice President of Finance, Doug Couvillion.

Mike will begin with a review of the business, Doug will review the financials, and then Mike will return to discuss the outlook.

With that, I will turn the call over to Mike Woodhouse.

Mike.

Thank you.

Good morning everyone.

Thanks for joining us this morning.

As we report and discuss our second quarter performance this morning, I think it is important to bear in mind the external environment we are dealing with.

Gas prices continue to be high, mortgage foreclosures continue to grow, as do late credit card payments, and consumer confidence is at levels not seen since just after Hurricane Katrina in 2005.

Nobody knows how long this economic decline may last, but most estimate at least until this summer.

That is bad news.

The good news is that we are very pleased to report positive comparable store sales for both restaurant and retail.

And although down, our restaurant traffic continues to outperform the casual dining industry, and our retail sales growth is achieved without resorting to higher markdowns than last year.

We are also pleased to report a higher operating margin than last year, thanks to our efforts in controlling labor and operating expenses.

On the favorable cost side, in the quarter were general insurance, G&A expenses, advertising, and hourly labor costs, partially offsetting these items were higher cost of goods, higher workers comp expense, and the non-recurrence of proceeds from a favorable litigation settlement in the second quarter of fiscal 2007.

We are confident we are on the right track, and Doug will be providing you with more detail on the numbers in a few minutes.

Next I want to talk to you about the strength of the Cracker Barrel brand.

While there are many ways to communicate what the brand stands for, it really comes down to the guest experience.

That is our focus.

In order to see how we are doing we use numerous tools to measure that performance, for example, we track guest satisfaction scores at every store every month.

It is always gratifying however, to have our internal viewpoint validated by external sources.

We have two such reports this quarter.

The first is a study conducted by PeopleMetrics, a research firm that tracks customers, employees, and consumer markets.

They surveyed 1,250 customers on their experiences at restaurants owned by nine publicly traded companies, that each have 300 units.

The study found that Cracker Barrel Old Country Store in customer engagement, which means that 1) the customer feels valued, 2) there is an engaged employee who is creating the experience, and 3) there is a clean environment and hot food.

It all goes back directly to our mission of pleasing people.

Our #1 focus is on employees trained to deliver a pleasing experience to our guests each and every time.

Cracker Barrel also rated in the Top 10 of most competitive companies among U.S.

consumers ranked by an independent competitive research firm, W Ratings.

W.

Ratings identifies best performing companies or business segments through a patented method that blends financial and market data.

It measures a company's ability to achieve higher economic profit than competitors, and sustain that competitive advantage through barriers to entry as weighted by consumers.

Cracker Barrel was tied for 10th place with Heineken and Nokia, and Ruth's Chris Steak House at #9 was the only restaurant company ranked higher than Cracker Barrel.

I just talked about focusing on the guest experience.

Now I want to talk about execution across a number of fronts, including drive-in traffic, our new menu, our Seat to Eat project, managing food costs, and labor scheduling.

In the second quarter we continued our TV advertising test, and added seasonal specials to the creative to test their ability to build traffic.

Sales in the test markets continued to run at positive levels, but have not yet reached the aggressive goals we set for ourselves.

We will continue to advertising test through the remainder of the fiscal year as planned.

The Best of the Barrel menu test is in a 30 store beta test.

This new menu is designed to improve speed of service, and dollar margins per guest, by highlighting high margin products that are fast out of the kitchen.

Operationally the menu has been a success, and we are continuing the test to determine how to achieve all of the quantitative goals we established.

We continue to be optimistic that an updated menu is key to our ability to achieve all of our sales and margin goals, and we will be providing an update on the future plans for this initiative at the end of the third quarter.

The Seat to Eat project also continues to move forward.

Our project team is working on the best, working to find the best combination of improvements for both the front and back of the house, including changes in equipment and kitchen configuration, and an improved window management process.

One district is testing several combination of these changes.

Based on these results a larger group of stores would test the recommended package of these process changes.

The objective of beginning a roll-out across the system in fiscal 2009.

We are also working to simplify the process of preparing food, to increase speed and reduce complexity in our kitchens, while at the same time improving consistency of quality.

We tested one such example system-wide at Thanksgiving.

In the past, our preparations for Thanksgiving were probably very similar to the way that you would cook the meal at home, it was a very labor intensive process, and required extra shifts of labor for us to serve all guests who came to enjoy a Thanksgiving meal with us.

This year we introduced ready to serve products, including the turkey and gravy and sweet potatoes.

In transferring a portion of the preparation processes to our vendors, we were able to reduce the labor in our stores, improving consistency and profitability.

The results of these changes exceeded our expectations for Thanksgiving day.

The results of these changes exceeded our expectations for Thanksgiving Day.

We experienced a 7% increase in per store sales, including higher guest traffic, lower product waste, and the reduction of over 100 labor hours per store, which totals about $500,000 dollars, as well as an 80% reduction in overtime cost.

The complete roll out of process simplification will require the ability to closely manage labor to achieve the labor savings that are expected, in addition to the speed and quality improvements.

The new labor deployment system that will allow us to accomplish this is also in the early stages of operational testing, as that test progresses we will provide an update on our expectations on both initiatives.

I mentioned earlier that our cost control programs are gaining traction.

One example is our recipe right program, which targets high waste products in our stores, and gives operators guidelines and tools for producing the best food quality, while keeping food costs in line, and waste to a minimum.

By executing our standards and recipes correctly, we can realize significant cost savings on a variety of products such as jams and jellies, flour, meatloaf, and bacon, all of which improve our margins.

Another example of the cost control program was when all stores began using a meat loaf cradle, that allows for the cooked meatloaf to be lifted from the cooking pan without the use of a spatula, thereby preventing the meatloaf from breaking.

This innovation will save every store almost $1,000 a year in food waste and small waste expense.

Now I want to talk about labor.

Although our hourly labor costs were down as a percentage of sales in the quarter, we are looking at still more ways to improve our use and scheduling of labor hours.

Part of that focus is the Rising Star program, which continues to reduce hourly turnover.

In the second quarter, we were below 100% turnover, compared with over 114% turnover in the second quarter of fiscal 2007.

The big improvement in turnover was in the Rising Star and PAR 1 categories.

The real proof is in seven consecutive months of improving guest satisfaction scores, since we introduced the Rising Star program.

This clearly shows that by placing more focus on the hiring process, and on training, we are retaining more employees, which in turn reduces our total cost and improves the guest experience.

Now let look at the retail business.

We were pleased to report positive retail sales for the quarter.

However, sales of our women's apparel was still weak, but we are testing potential products with focus groups, to understand what the customers like and will purchase.

We are also adjusting the mix of sizes we are buying initially, and we are now able to replenish by size, so that we can make certain we have the right sizes in stock, rather than ordering two of every size, when we already have six smalls in stock and no larges.

We expect these changes to lead to improved sales and reduce markdowns in our apparel business.

The reduction in apparel inventories was already ahead of projection at the end of the second quarter.

Toys including stuffed animals, Webkins and dress-up play sets, and decor items for the home, such as quilts and gifts for the inspiration theme, also sold well in the quarter.

Overall we increased the average selling price and the number of units per check in the quarter compared to last year.

Our updated point of sales system is providing better sales which improves product allocation across stores, and allows us to be more creative for bundling items to drive sales with lower markdowns.

As I mentioned in last quarter's call, retail presentations this spring will include more cross departmental themes, to encourage customers to explore all product presentations throughout the store.

We currently have a chocolate theme, that includes not only candy and sweets, but novelly serveware, whimsical gifts, and apparel.

This theme is timed to run through Easter.

In line with our focus on uniqueness, much of the product for this theme was designed exclusively for Cracker Barrel.

Third party gift cards are playing a growing role in our marketing efforts.

We had gift cards available at over 19,000 outlets including Kroger, Rite Aid, and Wal-Mart locations for the Holidays.

Along with these additional sales, the gift cards keep the Cracker Barrel brand highly visible on a daily basis in many new locations.

Our brand continues to have a powerful association with travel and for travelers.

We are working on a national promotion, which will be a first for Cracker Barrel, to build on this other travel promotion in the fourth quarter.

So far in fiscal 2008 we have opened 11 stores, we opened our 49th in Tennessee on February 11th after the end of the quarter.

Although we have not slowed our new store openings, our goal is to sustain the opening sales momentum that we achieve in these new locations, and achieve target profitability in a shorter period of time.

One focus is managing the labor cost in our new stores.

We are making significant progress with updated labor guidelines for stores we have opened this year, and we are already seeing improved labor productivity in the stores that are using the guidelines.

Overall the fiscal 2008 stores opened through November, a total of eight stores, have improved compared with the fiscal 2007 new stores on a open-to-date basis, compared to our approval expectations for both sales and cash flow.

With that, I will turn the call over to Doug for his detailed financial review of the quarter.

Doug.

Thank you, Mike.

Now let's review in some more detail the second quarter of fiscal 2008, that we released earlier this morning.

We have reported diluted income per share from continuing operations of $0.85, versus $0.60 a year ago, an increase of 42%.

Income per diluted share benefited from a 34% reduction in diluted share count, resulting from the strategic initiatives that we completed in fiscal 2007, and from the additional purchase of 1.6 million shares in the second quarter of this year.

After tax income from continuing operations of $20.2 million, was slightly lower than the prior year quarter, reflecting higher operating income offset by lower interest income.

During the second quarter of fiscal 2007, we completed the sale of Logan's Roadhouse for $486 million.

As a result, the prior year quarter reflected $2.28 per diluted share of income from discontinued operations, and our balance sheet reported $258 million in net divestiture proceeds and other cash balances.

In this year's quarter, we have a small loss from discontinued operations, and we sold the final Logan's property that we temporarily retained.

Revenue from continuing operations in our fiscal second quarter which ended February 1st, 2008, increased to $634 million, up 3.6% from last year's second quarter.

During this year's second quarter, we opened four new Cracker Barrel Old Country Store units.

In the first six months of the year, we have opened ten stores and closed two.

We have also relocated an additional unit to a better location at a nearby Interstate exit.

Cracker Barrel comparable store restaurant sales for the second quarter were up 1.1% to a year ago, making this the third consecutive quarter of positive comparable store restaurant sales increases.

Our average check was 3.4%, higher primarily due to average menu price increases of 3.5%.

For the second quarter, our price increases in dollar terms, more than offset higher food and hourly labor costs.

Guest traffic declined 2.3% for the quarter, but our traffic continues to run ahead of the industry as a whole, as measured by the [NATRAC] index.

Cracker Barrel comparable store retail sales were up 1.4% in the second quarter of fiscal 2008.

Our apparel sales were soft in the second quarter, in-line with general industry trends.

Excluding apparel, comparable store retail sales would have been up 3.5%.

With apparel comprising about 20% of retail sales, we think the changes underway in style selections and ordering patterns for women's apparel, can improve total apparel sales in the second half of fiscal 2008.

Operating income from continuing operations for the second quarter was $45.4 million, 7.5% higher than the second quarter of fiscal 2007.

Operating income margin of 7.2% was higher than last year's operating margin of 6.9%, primarily reflecting higher sales, lower general insurance, general administrative expenses, advertising, and store hourly labor costs.

Partly offsetting these favorable effects were higher food and retail freight costs, higher workers compensation expense, and the non-recurrence of recoveries and favorable litigation settlements in the prior year's second quarter.

Our gross profit margin was 90 basis points lower than last year's second quarter, reflecting higher food costs and fuel surcharges, which increased the distribution costs of both food and retail merchandise.

Food cost was higher in the second quarter of this year with about 7% commodity inflation.

Inflation was higher than anticipated, primarily as a result of higher produce prices.

The overall commodity inflation for the quarter compared to the same quarter last year, was primarily due to dairy products, eggs and produce, which are subject to short-term market trends and growing conditions, and cannot be cost effectively hedged long term.

Combined these categories accounted for over 50% of our commodity inflation for the quarter.

For example, we are a large user of fresh shell eggs, and the prices for this product were up over 50% for the quarter.

We are comfortable with our commodity outlook, and have contracted for about 80% of our estimated need for the balance of the year.

We expect some reduction in dairy product inflation in the second half of the year, while eggs, oils, and grain-based products are expected to be higher.

Mike will discuss our full year commodity inflation expectation later when reviews the fiscal '08 outlook.

Labor and related expenses were about 30 basis points higher than the second quarter of last year, favorable restaurant and retail hourly labor and lower store bonuses were more than offset by an increase in workers compensation costs.

Although restaurant hourly labor is lower than last year, we still experienced approximately 3.7% wage inflation, which reflects some reduction from last quarter, when we reported 4.6 wage inflation.

Current trends were lower now that we have lapped the minimum wage increases in certain states that were effective in January of last year.

Consistent with prior years, we performed a limited scope actuarial update, and adjusted our self-insured reserves accordingly.

We are still seeing favorable trends in workers compensation loss rates, and recorded a favorable adjustment in this year's second quarter.

Favorable adjustment however was significantly less than last year, resulting in a year-over-year increase in workers compensation expenses.

Other store operating expenses improved 50 basis points to 16.8% of sales, compared to 17.3% in last year's second quarter.

General insurance cost declined in the quarter as a limited scope actuarial update, similar to that done for workers compensation, allowed us to record a favorable adjustment to general insurance reserves, compared to an unfavorable adjustment last year.

The net benefit to general insurance was partly offset by the non-recurrence of settlement proceeds received last year, from litigation related to credit card fees.

Advertising expenses declined due to our use of radio advertising, in about 30 markets last year, compared with the television test in just three markets this year.

Finally, our focus on controlling expenses has gained momentum, resulting in lower supplies expense for the quarter, in dollars and as a percent of sales.

General and administrative expense was 100 basis points lower than the second quarter of last year, due to lower incentive compensation accruals, as well as a $1.8 million gain on the sale of the last of three pieces of real estate retained from the Logan's divestiture, which closed in December of 2006.

Our second quarter income tax rate for continuing operations was 34.9%, flat with last year's second quarter rate.

The company adopted FIN 48 at the beginning of fiscal 2008.

The adoption and implementation of FIN 48 did not have a material effect on the Company's second quarter tax rate.

We are projecting that our third and fourth quarter rates should be lower than the first half of the year, and the effective tax rate for the full year of fiscal 2008, is now expected to be between 31.5 and 32%.

Year-to-date, cash flow from operating activities was $64 million, compared to $109 million in fiscal 2007.

The decrease reflects the timing of income tax payments.

During the second quarter of last year, we received the proceeds from the Logan's transactions, the taxes on the gains were not paid until subsequent quarters.

Capital expenditures were $45 million year-to-date, compared to $47 million for the same period last year, and in-line with our guidance.

In the second quarter of fiscal 2008, we repurchased 1.6 million shares at a total cost of $52.4 million, or $32.23 per share.

This completed our expected share repurchase activity for the year.

While quarterly dividends are $0.04 more per share, cash dividends paid were slightly lower compared to last year, because of the lower share count.

In summary, we reported a 42% increase in diluted income per share, positive comparable restaurant and retail sales and margin expansion, in a very challenging consumer and cost environment.

While we do not expect significant relief from external cost pressures for the remainder of the year, we believe that the operational initiatives that Mike described earlier, will position us well to leverage our sales when the consumer environment strengthens.

With that, I will turn the call back over to Mike for a review of our fiscal 2008 outlook.

Thanks, Doug.

And let's look now at the update to the outlook for fiscal 2008.

In light of continued industry trends, we are taking a realistic view of sales, and we have lowered our projection for same store sales and overall revenue growth.

However, with the traction we are seeing on our cost control initiatives, we are able to maintain our EPS guidance for the year at the range of $3.00 to $3.15.

We are now projecting 2 to 3% revenue growth over the $2.35 billion of total revenue from continuing operations in fiscal 2007.

As you will remember, fiscal 2007 included a 53rd week, which added $46 million of revenue, so on a 52-week basis we are projecting revenue to grow 4 to 5%.

We are projecting comparable store restaurant sales up 1 to 2%, which includes about 3.5% menu pricing, and is consistent with what we have seen in the first half of fiscal 2008.

With half of the year behind us, we have narrowed the range on comparable store retail sales to flat to up 1.5%.

We are maintaining our plans to open 17 new Cracker Barrel units, of which 11 are currently open.

Capital expenditures have been reduced by $5 million, to $90 million, reflecting lower maintenance CapEx, and a shift in the timing of some spending into fiscal 2009.

We expect cash flow from Cracker Barrel to remain strong, and more than sufficient to service our debt, and to finance our restaurant and retail initiatives as well as our unit growth, and to fund our dividend pay outs.

We will not be making any additional share repurchases this fiscal year, because we have already purchased the maximum allowed under our credit agreements.

We are not predicting when the economy will improve, nor are we relying on external conditions to improve, in order to achieve our projections for this fiscal year, rather our focus is this environment will continue to be on controlling what we can control, which means maximizing sales and market share through consistently superior execution, while at the same time, testing and developing railroad plans for those initiatives that will allow us to achieve our goal of a premium return from a premium brand.

With that, I would like to open up the call for questions.

Thank you, sir.

(OPERATOR INSTRUCTIONS) Again, we will pause just a moment to get our roster.

We will go to Bryan Elliott with Raymond James.

Good morning.

Wanted to drill down a little on the labor and make sure I understood what was going on there.

You talked about better hiring up front, which is something you have been working on for a while.

So you are basically getting, better employees up front so they are performing better, and turning over less frequently, that I guess would be reducing training costs.

And I guess help me understand, sort of the mix between the training and benefits of that success with the labor scheduling, sort of how do the two, what is the ratio of the two impacting that number, that labor line?

Okay.

I don't know whether we can give you an exact--

Some sense of magnitude.

Sure.

I think there are two benefits from reducing turnover, which as you can see, it was down pretty substantially to be under 100% in this industry is a pretty good place to be.

The two benefits are lower training costs, but the other benefit is better productivity, because the employees that we hire, higher quality as you said, better trained, get up to speed faster than we typically would find.

We are seeing some productivity gains coming from that.

Those are the drivers really from our overall labor, this year compared with last year.

There were some other minor positives going on, including as we mentioned workers comp and group health.

But overall, it is the quality and the attention to training that is making the difference.

So hours per store aren't down?

Hours per store week, or however you might measure it?

In other words, we are not reducing scheduling.

That is not the focus right now, Bryan.

We have got a new labor scheduling tool that we are developing as part of labor deployment.

So the focus has been on the quality and the productivity of the employees.

Okay.

More to come, I guess is the best way to say that.

Okay.

And on the cost of goods, a quick question there, you have been focusing on and having some success in reducing markdowns.

Did that continue this quarter?

Was the retail gross margin better?

Yes.

Our markdowns were flat with last year, which we think is a major achievement in the environment, where everybody else out there seem to be very aggressively marking down during the Christmas season.

We continue to see improvements on our initial mark on in retail.

All right.

Very good.

Thank you.

Thanks, Brian.

We will go next to Steven Rees with JPMorgan.

Hi, thanks.

I wanted today ask for a second about advertising.

You said that the lower cost this quarter as you did radio last year versus the television test this quarter.

I wanted to know if that would be the case in the second half, would you expect to continue to see favorability in advertising cost?

I will let Doug help me with this one, but we are planning to continue the test in three markets through the end of the year, which is included in our guidance.

The spending last year if I recollect was lower in the second half than the first half.

So I am guessing that we are probably be flat year to year, or slightly down.

Okay.

And then, it sounds like you have evolved into more of a product focus.

I guess I wanted to ask how you plan on, you are still not meeting your expectation, how do you further plan on evolving the advertising, and how are you measuring the return in terms of expecting a further roll out in 2009?

We have very high standards in terms of expectations on advertising.

We are getting a pretty good sales lift in the markets where we are testing, one interesting fact that is coming out of it, that I don't think I mentioned before, is we are seeing a greater lift on retail than on restaurant.

That is encouraging because new trial, new people who try us for the first time and less frequent users tend to buy more retail, so that says our advertising is working in bringing new customers in, or bringing infrequent customers in more frequently.

That is a plus.

We are running I think about breakeven in the markets that we are testing.

Our whole goal is to make money out of advertising, not just have a way to drive sales.

So as I said, our expectations are pretty aggressive.

The product promotional piece seems to be working well.

We saw some positive impact in terms of product mix in one of our promotions.

That is important because our promotional products are designed to be high margin products.

So to the extent we can improve sales and shift mix with the advertising, we are getting a double benefit.

Okay.

Great.

And then I just wanted to ask about the unit development plans for 2009, have you been below that 5% target now for a couple of years, and given the fact that the new units seem to be performing better this year than last year.

How are you thinking about new development next year, should we expect it to accelerate or stay constant.

We haven't, well I guess we did disclose some numbers back in October at the Analyst Day.

I think that we are seeing no reason to pull back on our growth as we, in this environment, even though we have seen others in the industry doing that.

We are pleased with the improvement so far.

There is more to go in terms of our ability to get these things up to speed.

So I would see us cautiously increasing that number.

We will be back at the end of the year with a specific number.

I wouldn't expect to see a big increase, but certainly not a decrease.

Any change on maintenance CapEx, or is it still expected to remain in that 25 million range?

Just a little less, because we will be becoming more efficient in our maintenance CapEx controls, as well as some other things.

So just a little under that number.

Okay.

Great.

Thank you very much.

Thank you.

We will go to Chris O'Cull with SunTrust.

Hi, thanks, guys.

Do you know whether the improved ticket times at the stores that are offering the Best of the Barrel menu, are you seeing improved ticket times?

And if so, is that resulting or translating into more table turns?

Yes, we are seeing better ticket times.

Another measure of that is sales per hour.

We are seeing some record sales per hour, at peak times in the stores that have the Best of the Barrel menu.

Now, the game plan is that as we speed up our service, not only do we get better guest satisfaction out of that, but over time we will get more guests returning, and the knowledge that we are getting faster will spread by word of mouth.

So over time we will start picking up the slack, which is the people who currently won't stay because the wait is too long.

It takes time to do that, so it is difficult to measure that directly, but we are very encouraged by the fact that we are seeing the goal of faster ticket times, and sales per hour being achieved.

Okay.

And then, you said that you expect the menu to improve the dollar margins per guest.

How is the guest product mix preference shifting with the new menu, versus the current menu?

Well, I assume you have seen the new menu.

We have products that are highlighted and boxes around the menu.

We are seeing the shift that we expected towards those products that we highlighted happening with the test.

So we are pleased with that.

There is probably some more opportunity around that.

And we are thinking about how to achieve that.

Great.

And then, I know the last call you said you would expect a roll-out maybe in April.

Is that timeline changed at all?

As I said this morning, we are continuing the beta test.

We still have to nail down our performance.

Out of that will come decisions about when we roll, how we roll, or whether we continue the test for a while.

More will be decided.

We are very confident that the menu is going to make a difference.

We are just not ready to make a decision about rolling it out yet.

Okay.

Great.

Thanks, guys.

Thank you.

We will go next to Brad Ludington with Keybanc Capital Markets.

Hey, thank you.

I just got a couple of quick questions on kind of G&A and other operating.

First off, on the 1.8 million for the sale of the Logan's restaurant, is that pretax, or net of tax?

That is pretax.

Okay.

And there a way that you can share looking closer into G&A, like what the dollar amount of favorability for the ad expense and general insurance adjustment was?

First of all, ad expense is not in G&A.

Is that in Other operating?

It is in Other operating.

Okay.

We have put a number of moving parts going on here.

The goal was to, the internal goal was to keep G&A flat to at least flat in dollar terms for the year, and we expect that we are going to achieve that or do a little better.

Okay.

I guess that covers it.

Thank you.

Thank you.

We will go next to Conrad Lyon with FTN Midwest.

Hey, good morning.

I have a question on interest expense.

I know you kept your outlook the same at 60 million.

However, with LIBOR coming in here, I believe there is an option, or you have an option to elect between prime or LIBOR plus a percentage point spread.

Do you think there might be some opportunity here going forward in the coming quarters, if LIBOR stays down just perhaps a little benefit on your interest expense line?

I think there might be a little bit of opportunity for the guidance that we gave, with some of the upcoming rate changes, yes.

Okay.

Let me shift in a different direction then.

Let me talk about more about the frequency here with the guests.

Mike, I think you talked about, you are getting more frequency out of infrequent guests, and during your Analyst Day, you talked about trying to get people to think different about Cracker Barrel, moreover those guests that typically think of Cracker Barrel as more of a destination, than if you will, a frequent stop.

Do you see, is that part of what is happening here?

Is that starting to gain traction with people are thinking of it more as an everyday stop?

That was certainly an objective.

I don't know it is very difficult to measure that, because on a daily basis, those numbers obviously move around all the time.

It is very difficult to get any kind of descent pre-period measurement but as I said earlier, I think the notion that we are getting some first-time trial, and some less frequent users, and again less frequent, our travel users tend to be less frequent users.

To that extent, we could could deduce, but it is only a deduction, that we are getting some local.

Okay.

All right.

Thank you very much.

Thank you.

(OPERATOR INSTRUCTIONS)

We will go to Amy Greene with Avondale Partners.

Hi, guys.

Could you give us an idea of what the customer response has been, as you have done the Best of the Barrel menu, kind of rolled it into more stores?

Pretty favorable.

One with of the things we will always get the occasional customer whose favorite product is no longer there.

One of the things we have always talked about at Cracker Barrel is that we have a history of a pretty unchanging menu, and we have guests who come in and order the same thing every time.

Change is a little more challenging than it might be in some other places, but we haven't seen any significant increases in guest complaints.

Part of that is that we have really focused on getting ahead of that by training and scripting the service, around the reasons why we are making a change, and the positive nature of the change.

And I think that has really helped deal with any potential complaints.

Good.

And then lastly, just in looking at the retail, looking at the retail floor, and doing some store visits, it looks like there is more floor space, or fewer kind of displays out this time of the year then there typically are.

Is that the case, and is that kind of a planned effort around focusing on things?

No.

We are always looking to optimize the way we display things, so one the the things you may be seeing, is the fact that displays themselves are more appealing.

This is the time of the year as you know, when we are at our emptiest, because we get beyond Christmas and into the pre-Spring season, but there is no specific reason to reduce the amount of merchandise we have on the floor.

Okay.

Thanks, guys.

Thank you.

(OPERATOR INSTRUCTIONS) We will take a follow-up from Bryan Elliott with Raymond James.

Hey.

Quick housekeeping question on depreciation, the guidance there was unchanged around 60 million, we are tracking well below that.

Is there something that is going to change, that is going to raise the depreciation expense in the second half of the year, or is that just a conservative estimate?

We don't have any real expectations to change anything, and there might be a touch of conservatism in there, Bryan.

Thank you.

Thank you.

With no other questions at this time, I would like to turn the call back to management for any additional or closing comments.

Thanks everybody for joining us today.

We feel we had a pretty good quarter, and we are feeling very optimistic about being able to control our destiny going forward here, even though the times are really tough.

So we look forward to being back next quarter, and hopefully with some good news.

Thanks.

Again, that does conclude today's call.

Thank you for your participation.

Have a good day.