Cracker Barrel Old Country Store Inc (CBRL) 2010 Q1 法說會逐字稿

Good day and welcome to the Cracker Barrel Old Country Store first-quarter 2010 conference call.

Today's call is being recorded and will be available for replay today from 2:00 PM Eastern time through December 8, 2009 at 11:59 PM Eastern time by dialing 719-457-0820 and entering passcode 8640132.

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

Barb Gould.

Please go ahead.

Thank you, Kristin.

Welcome to our first-quarter 2010 conference call and webcast this morning.

Our press release announcing our fiscal 2010 first-quarter results and our updated outlook for fiscal 2010 was released before the Market opened this morning.

In our press release and during this call statements may be made by management of their beliefs and expectations as to the Company's future operating results.

These are what is known as forward-looking statements, which involve risks and uncertainties and in many cases are beyond the control of the Company and may cause actual results to differ materially from management's expectations.

We urge caution to our listeners and readers in considering forward-looking statements or information.

Many of the factors that can affect results are summarized in the cautionary description of risks and uncertainties found at the end of this morning's press release and are described in detail in our annual and quarterly reports that we file with the SEC and we urge you to read this information carefully.

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

In addition, any guidance 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 as required by law and in broadly disseminated disclosures, such as this morning's press release and this call.

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 filings with the SEC.

We plan to release fiscal 2010 second-quarter earnings and comparable-store restaurant and retail sales on Tuesday, February 23rd before the Market opens.

On the call with me this morning are Cracker Barrel's Chairman, President and CEO, Mike Woodhouse, and our Executive Vice President and CFO, Sandy Cochran.

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

We will then respond to your questions.

Mike?

Thanks, Barb.

Good morning, everyone.

Thank you for joining us today.

We have a lot of good news to share with you.

We're pleased to report positive comparable-store restaurant sales for the quarter, combined with a positive check average, improving operating margin and very strong earnings.

We're also pleased that our business trends and actions that we've taken to strengthen the balance sheet have resulted in both Standard & Poor's and Moody's raising our credit outlook to stable.

While we're happy with our recent quarterly results I'm even more pleased about what I believe we can accomplish going forward.

As we've previously reported, we've been working on a number of programs to simplify our business, provide a better guest experience, and improve our profitability.

First and foremost, we've been putting the focus on better execution at peak periods, meaning weekends, rather than trying to reinvent our concept.

We don't believe that's necessary or appropriate.

The second area of emphasis has been on our new promotional menu items.

We're finding ways to compliment the true -- tried and true favorites with a number of new offerings.

And the third focus is on reinvigorating our retail sales with new product strategies, store layouts and visual presentations.

If I had to choose a theme for the first quarter I'd say it's one of just beginning to hit our stride.

We've seen a measurable improvement across the Company.

However, I anticipate further progress as our execution becomes even more consistent, and I want to acknowledge the daily efforts of our 66,000 employees, and we look forward to continuing to deliver premium results from our premium brand.

However, we recognize that we still have a tough road ahead.

Although there are some signs that the overall economy is improving, an unemployment rate of 10% translates into consumers still being very cautious on when and where they're spending their disposable income.

Until we're seeing more jobs created than lost, we tonight expect to see dramatic change spending habits.

Specific to the restaurant industry a recent article Nation's Restaurant News cited a study that said that restaurant company -- customers are planning to spend about 20% less per meal in 2010 than they did in 2009.

This study was done by business consultant, Alex Palmer, LLC, and it surveyed 1,000 consumers who said they plan to spend an average of $11.49 per meal next year compared with respondents reporting spending an average of $13.25 per meal in a similar study done nine months earlier.

With an average check of $8.94, high-quality food and ample portions, Cracker Barrel clearly offers a great value along with a great guest experience.

Being voted the best family dining restaurant for the last 19 years by Restaurants & Institutions magazine's choice in chains survey is a testimonial to the success of our strategy.

One of our competitive advantages is that we're truly unique in our customer appeal, with our country heritage, our retail shop and our leading interstate presence.

The enduring nature the brand appeal leads to another significant advantage; the lack of any need to redesign our stores or make other capital-intensive investments to refresh our brand.

The challenge in recent years has been to find -- has been in finding ways to generate profitable growth in the face of a variety of negative external factors.

We believe at Cracker Barrel that our opportunity to grow lies within the four walls of each store, so to get sales growth back on track we set out to accomplish three things.

First, to ensure the best possible guest experience during weekends by making certain that we're executing at the highest possible standard at the busiest times of the week.

Second, to introduce a series of strong new product offerings in our promotions.

And third, to support the brand with increased radio and TV advertising in key markets.

And while I'm speaking of advertising, I hope those of you who travel will have noticed that our new billboards once again have that distinctive Cracker Barrel look and feel.

The positive effects from these efforts can clearly be seen in our continuing performance compared with the Knapp-Track index.

We've now outperformed Knapp-Track -- the Knapp-Track index in guest traffic for the past 13 quarters; in the past two quarters by more than three percentage points.

And our check average remains positive in an industry where discounting has become the norm.

Let me say a word about profit margins.

While we benefited from our ability to take advantage of favorable commodity costs in the first quarter it was the combination of positive sales leverage and lower operating expenses that produced significantly better margins at the store operating level compared to a year ago.

Our new tools and management systems have gone a long way towards improving our execution while at the same time providing tighter control of store operating costs.

And most importantly, we improved the bottom line without compromising the guest experience.

No changes in product specs or portions and no reduction in service levels and, of course, we did not resort to coupons or other types of discounting.

So I've said many times it's all about the brand.

I believe the reason Cracker Barrel has done so well over the years is because we've stayed true to the brand and true to the principals that have been there since our founding.

Now, this isn't to say that we haven't veered off course once in awhile, like when we changed our billboard design to put more of an emphasis on food and retail.

We learned a valuable lesson, that our guests after strong emotional attachment to the original look and feel of Cracker Barrel.

We don't need to look at something else, or should I say everybody else.

As I mentioned earlier, we don't need to reinvent the concept.

The key for us is better execution.

There's something about genuine Cracker Barrel hospitality that inspires a strong sense of loyalty to the brand, and that's one reason why people continue to rate us the best.

There's more evidence to show that our efforts are producing positive results.

Our top-box guest satisfaction scores in the quarter increased two percentage points over last year.

All of this has been accomplished through a combination of factors that contributed to guest satisfaction, whether it's the availability of something new on the menu, how quickly people are served, or being able to buy the latest music from their favorite country artist.

.

Let's look at our recent menu additions.

This fall we introduced new men -- new items, which were both old and new to tie in with our 40th anniversary.

We want our regular guests to visit us more frequently and we also want to expand the range of offerings at affordable price points to stimulate trial from newer users.

New for this fall for breakfast were the fresh fruit n' yogurt and the apple streusel french toast, along with the more traditional offering of country meat and biscuits with our fried chicken tenderloin.

For lunch and dinner we've brought back a guest favorite, Autumn Applefest grilled chicken and dressing, and introduced Autumn Applefest grilled chicken salad, which broadened our salad range and built on the success of the pineapple salad that we offered during the summer.

We also reintroduced lemon pepper grilled trout.

For dessert, also to celebrate our 40th anniversary, we're offering our popular and exclusive double-chocolate fudge Coca-Cola cake all year long.

We're now in our holiday promotion period and we've continued the Applefest grilled chicken salad and the fresh fruit n' yogurt, and the trout has been added to the menu on a full-time basis.

Our other holiday promotional items include the holiday breakfast sampler, the always-popular roast beef dinner, and for dessert several varieties of fresh-baked pies topped with vanilla ice cream.

Next a few words on quicker guest service.

The "Seat to Eat" initiative is a tool to drive more traffic and increase productivity.

The program reduces the number of steps from seating at the table to entering the order, reduces [coat] times and improves the ability in the kitchen to control the order flow process.

We've begun to roll out this initiative.

We started at that the beginning of October and we plan to complete the effort over 18 months, rolling it out on a region-by-region basis.

A huge part of the guest experience relates to table service and the experienced employees that make all the difference.

Our goal is always to have the right people in the right place at that time right time in order to provide the best possible service.

This can be challenging -- especially challenging at peak period demand times, and the weekend execution initiative that we rolled out in 2009 has been very effective.

And while we're very pleased with the results, as with many other things, we're working on something new, working on an even more effective way to schedule and deploy our labor.

At Cracker Barrel retake pride in our continued ability to attract and retain great people.

Our annualized turnover for the first quarter was 72% for hourly employees and 19% for management.

So now let's talk about what's new in retail.

First of all, we've reduced the number of Christmas items.

If you walk into a Cracker Barrel unit over the past month you will have found that it still looks and feels like Christmas.

but the number of themes and the quantity of each item is lower in order to reduce potential seasonal markdowns and therefore improve margins.

We also introduced our great gift program.

This is a colorful and prominent display that's front and center when you first enter our stores, and it offers items that are both fun and practical, all for under $20.

These items are not specifically tied to Christmas, they're intended to be giftable items at any type of the year.

Again, this should reduce our potential for seasonal markdowns.

Our branded product line has been expanded further to include applesauce and flavored coffees, in addition to the pancake mix, coffee and fried apples that we've offered for the past year and we've been pleased to see that more people like to take Cracker Barrel home with them.

In the media category we featured something old and something new in the first quarter.

An exclusive CD by George Jones called "A Collection of My Best Recollection" went on sale in August and was supported through [Earned Media] with George's appearances in September on several popular talk shows; The Late Show with David Letterman, Late Night with Jimmy Fallon, and Huckabee.

Then in September we introduced an exclusive CD by the Zac Brown Band, which was names the top new group by the Academy of Country Music this year.

On November 2nd we rolled out the Alan Jackson collection, which includes men's wear, women's wear, food items, collectibles, and an Alan Jackson signature rocker and, of course, an exclusive CD called "Songs of Love and Heartache." The CD includes two previously unreleased songs, as well as ten other songs, including such hits as "Here in the Real World" and "Remember When." To tie in with the Country Music Association CMA awards in Nashville, which is a major industry event, we created a temporary Cracker Barrel Old Country Store retail shop at First and Broadway in downtown Nashville.

The store featured the Alan Jackson collection, as well as other Cracker Barrel retail merchandise related to music 'and our branded food products.

So going back to our strategy, as we move into the holiday season we now have 25% more product on the retail floor, which is all intended to better satisfy the thrill of the hunt,which is the key part of the Cracker Barrel retail experience.

And of course we continue to have free gift wrapping and our retail employees will help guests create and ship our special gift baskets.

Finally, as we mentioned on the year-end call, we were looking at refinancing options for our debt.

Shortly after the end of the quarter we were able to extend a portion of our debt maturities to 2016 at rates with which we're very pleased.

Sandy is going to cover this in more detail in her financial review and she will also be talking about guidance for the rest of the year.

Thanks, Mike.

I'd like to review the financials now in more detail.

Overall for the first quarter of 2010 we reported a 37% increase in diluted earnings per share of $0.78 compared with $0.57 per diluted share in the first quarter of last year.

Revenues during first quarter increased 1.3% to $581 million, reflecting 2.4% top-line growth in restaurant revenues, which was driven by an increase in comparable -tore restaurant sales plus store growth, partially offset by year-over-year decline in comparable-store retail sales.

Comparable-store restaurant sales increased 0.6%.

Our average check increased 2%, including a menu price increase of approximately 2.7%.

Our average check was negatively affected by our lower incidence of beverages than last year and promotional effects early in the quarter.

The negative promotional effects on average checks were offset by improvements in gross margin on those items, however.

Guest traffic was down 1.4% for the quarter.

We've outperformed the Knapp-Track index for traffic 13 consecutive quarters since the last quarter of fiscal '06, and the gap in traffic has widened to more than three percentage points in the past two quarters.

The industry has had negative average check as a result of discounting and promotional activity while our strong brand and solid every-day value has enabled us to sustain pricing power and a positive average check.

As a result, our favorable gap to the Knapp-Track index for sales for the quarter was approximately six percentage points.

Cracker Barrel comparable-store retail sales were down 4.8% in the first quarter of 2010.

We saw continued growth in food business, especially in candy, and our [Colegio] business.

The strength in these businesses was more than offset by declines in toys and women's and children's apparel.

Gross margin for the quarter improved 110-basis points compared with last year.

On the restaurant side cost of sales as a percentage of sales was lower than last year because of favorable menu pricing and lower food costs, which declined 2.1% compared with last year, primarily because of price declines in dairy, eggs, and seafood.

As mentioned earlier, we also benefited from favorable promotional effects on food costs.

Higher retail cost of sales partially offset the favorable restaurant cost of sales.

Retail gross margin in the quarter was lower due to mix shifts and product assortments and higher markdowns resulting from a stronger porch clearance event in September.

Both restaurant and retail cost of sales benefited from lower freight costs.

Labor expenses as a percentage of sales were unchanged from the comparable quarter last year.

Restaurant hourly labor costs, management labor and workers' compensation costs were lower, but were partially offset by higher healthcare costs versus last year and increases in store bonus expense.

Healthcare costs were in line with expectations for the quarter and were favorable compared to the prior two quarters.

Our hourly wage inflation in the quarter was only 0.1%.

Continued low hourly turnover, which is now at 72%, as Mike mentioned, has reduced our hiring and training costs and helped contribute to higher guest satisfaction scores and positive guest experience.

Other store operating expenses were 30-basis points better than last year.

Lower utilities, lower supplies expense, and lower expenses related to our turnover were partially offset by the higher rent expense resulting from the sale-lease back that was completed at the end of fiscal 2009.

General and administrative expenses were higher by 60-basis points, because of higher incentive comp expense.

As a result of higher gross margin and favorable operating expenses, partially offset by higher general and administrative expenses, our operating income of $38 million was 16.7% higher than in the same quarter last year, and operating income margin of 6.5% was 80-basis points higher.

Interest expense of $11.8 million was $2.3 million less than last-year's first quarter, primarily due to less debt outstanding as a result of the debt reductions that were made in fiscal 2009.

In the first quarter the income tax rate was 31.2% compared with 30.7% in the first-quarter last year.

The higher tax rate in the quarter was due to lower employer tax credits as a percent of higher pretax income.

As a result of higher revenues, higher operating margins, and lower interest expense, our net income of $18 million in the first quarter was $5.2 million, or 40% higher than last year.

Our balance sheet and cash flow statement show the benefits of the initiatives that we have under way to improve our cash flow and reduce debt.

For example, on our balance sheet our retail inventory of $120 million is down $29 million from the first quarter of fiscal 2009, and our total inventory was $153 million, down $33 million from the first quarter of 2009.

Our total borrowings, including current maturities, were $644 million, and there were no outstanding borrowings under our revolver at the end of the quarter.

We remain in compliance with our debt covenants.

At the end of the quarter our total leverage ratio was 2.92, which is substantially below the maximum of 3.75 allowed by the credit agreement.

Now let's move to our cash flow.

In the first quarter of fiscal 2010, cash provided by operating activities was $23 million compared with a use of cash of $7 million in 2009.

The increase reflects the higher net income and smaller seasonal increase in retail inventories in fiscal 2010, which reflect our inventory management initiatives.

Capital expenditures for the quarter were $15 million compared with $22 million last year, reflecting fewer new units in fiscal 2010, and we paid cash dividends of $4.6 million, or $0.20 a share quarterly.

Now let's take a look at the outlook.

Given the most recent trends we believe the consumer environment is not yet improving and that consumer spending will remain tight throughout our fiscal 2010.

Total revenues are projected to be flat to up approximately 2%.

We lowered the top end of our comparable-store sales ranges and the overall revenue guidance that we gave at the beginning of the year.

Comparable-store restaurant sales for the full year are projected to range between a decrease of 0.5% to an increase of 1%, including approximately 2.5% of menu pricing.

We expect comparable-store sales for retail to be negative to flat for the year.

We're focused on controlling our costs, maintaining our inventory levels and improving sales trends as the year progresses.

We intend to open seven new Cracker Barrel units in fiscal 2010, five of which are open.

The remaining two will open in the second half of the fiscal year.

With additional key commodities now locked, and a quarter more visibility, we're now forecasting commodity costs for fiscal 2010 to be down 1% to 2%.

We currently have approximately 70% of the remainder of our fiscal 2010 commodity requirements under contract.

We believe our 2010 guidance balances uncertainties about consumer spending and the costs from rolling out important initiatives during the year against the benefits of our ongoing cost management efforts and expectation of easing inflationary pressures on key cost lines.

We expect our year-over-year improvements in operating margins to diminish later in the year as we begin to lap cost management efforts begun last year and we have a greater level of investment in rolling out key initiatives.

We're raising our operating margin guidance for fiscal '10 to be between 6.2% and 6.5% compared with 6% in fiscal 2009.

Our net interest expense is projected at a range of $48 million to $50 million.

The $2 million increase over the beginning of the year guidance is the result of additional interest expense and fees associated with amending and extending our credit agreement, partially offset by expectations for lower underlying interest rates.

In regard to the amendment to our credit agreement, we're pleased with the support that we received from our participating financial institutions.

We were oversubscribed for the portions of the facility that were extended at attractive rates.

We believe this transaction strengthens our balance sheet and enhances the structure of our debt.

Our strong performance in the first quarter and expectations for continued solid performance more than offset the higher interest expense for the year, allowing us to increase EPS guidance.

Our guidance on diluted earnings per share for fiscal 2010 is expected to be in the range of $3.05 to 3.30, with an estimated average 23 million diluted shares outstanding.

We plan to repurchase shares during the year only to offset dilution in the year associated with stock option exercises and other share-based compensation.

Capital expenditures are forecast to be in the range of $70 million to $75 million, which allows for approximately $30 million of maintenance capital, seven new stores for 20 -- fiscal 2010, anticipated spending for fiscal 2011 new stores, plus investment in init -- innovation initiatives, such as "Seat to Eat."

In conclusion, we're very pleased that we were able to achieve positive comparable-store restaurant sales and substantial earnings growth in an environment that continues to be challenging and that we generated positive cash flow in our first quarter.

As one of the strongest and most highly-differentiated brands in the industry we're well positioned to take advantage of an improved operating environment and to deliver premium returns to our shareholders.

Now I'll turn the call back over to Mike and thank you for your time.

Okay, and I think we're now ready to go to questions.

(Operator Instructions).

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

Thank you.

I wanted to just housekeeping issue look at the timing of porch sales last year in the second quarter and forward.

Do you have when those were last year?

Brad, I don't have that with me.

No problem.

You're looking to know going forward for the balance of the year?

Yes.

How we're matching up?

Yes.

I don't expect it to be materially different, but I'll have to get with you -- that information later.

Okay, I'll talk to you later about that.

And then on the new menu items, we talked a lot about those and very good, I've enjoyed them.

One thing I haven't asked before is, are you focusing on margin a little more when putting those menu items together?

Yes, we are.

We look at the individual items, but we're really designing a total promotion.

We're looking at the impact of the total promotion on our overall mix and looking at overall dollar margin.

We're going to get some ups and downs on price, and we're going to get some ups and downs on food costs, but specifically, as Sandy mentioned, in this quarter we saw a little bit of a reduction in check because of the mix on the promotional items, but on a dollar basis we were offset in terms of dollar margins.

So the overall goal is dollars of gross margin per seat per hour, and we're focusing with our advertising and with our execution on speed.

We'd like to think that the attractiveness of the products will increase our frequency and drive the number of people coming in, but we designed the products -- the promotions to be pos -- neutral to positive on margin dollars at neutral traffic.

Okay, and then one more and I'll let somebody else get on.

I just want to clarify on -- cost of sales improved quite a bit this year in the first quarter and you're saying that's really all attributable to restaurant cost of sales and retail inventory management and price management did not help this quarter?

Well, we did after price increase, so we were able to get the benefit of that.

But the majority of the improvement was due to the benefit we got from the -- from food costs being lower than we had expected, offset by deterioration in the retail gross margin.

Okay, thank you very much.

Thank you.

We'll take our next question from Jeff Omohundro with Wells Fargo.

Thanks and good morning.

Good morning.

My question is related to retail, in particular if you could share a little more about the strategies going through this important holiday season?

And also, you've put a significant effort behind the Alan Jackson collection, I'm wondering if you could maybe share with us what you're seeing in terms of initial response to that relative to your expectations?

Thanks.

Okay.

Well, our overall strategy is to -- first of all, we're in a long lead time business, so we were making decisions about Christmas back in February and March of this year, so coming off a very -- and in the meddle of a deepening recession.

So the strategy was to protect ourselves in terms of quality of product, make certain that we had attractive product, reduce the number of Christmas themes, and look to get a better overall margin on all of the product that we sold, so that's for the Christmas piece.

The great gifts then supplements that, or compliments that, because those items tend to have attractive price points, they are giftable items that are not tied to Christmas, but, of course, Christmas as a big gift-giving season, but they have the virtue of not expiring, if you will, the day after Christmas.

They have value going forward, so we will avoid seasonal markdowns on the great gifts and they are selling quite well.

We're sold out of a couple of items within the great gives and we're looking to replace them right now.

The Alan Jackson effort was a part of our overall strategy of tieing country music into our brand because there's some natural associations based on our consumers and the demographics, and the positioning of our brand, both as an old country store and as a place where music makes sense, both from an ambiance point of view and from a sales point of view.

This was an effort to broaden that with a very popular country artist so we put a little more effort behind that.

We saw some great results in terms of publicity, the range of selling, and we're just coming into our key Christmas selling season, so we expect to continue to do well with the collection.

But the first part of your response would lead me to suggest that -- or to infer that the expectation is a superior margin performance through this holiday than last year, is that correct?

That's correct.

Yes.

And that's built into our guidance.

Very good, thank you.

thank you.

We'll take our next question from Chris O'Cull with SunTrust Bank.

Good morning, guys.

Good morning.

Hey, Chris,

I understand that you don't give quarterly guidance, but would you describe how much of the full-year earnings revision reflects better-than-expected results from the first-quarter report?

How did the first quarter fare relative to your internal expectations?

I'm trying to figure out if we can answer that without giving quarterly guidance.

You're trying to give us some retro first-quarter guidance, we're not going to do that.

(LAUGHTER)

How much did we beat our own number?

Obviously we had a number for the first quarter and performance was, no question, better than we originally planned for the quarter, so that's built in for the rest of the year, but I don't think we want to get into the arithmetic game of what percentage of the year's increase have we so far achieved.

I think when I look -- when we look at the rest of the year I think it's important, we're pretty -- feeling good about cost controls and cost improvements that we've seen, both in the operational cost side and managing labor costs and food waste and all of those kinds of things.

We've seen some improvement, and we're confident to improve our food cost outlook, which we talk about.

On the sales side I think it's a question of where the economy's going.

We're very much tied to -- we're doing better than the industry based on Knapp-Track and getting better than Knapp-Track, but we're not optimists about the economy.

I think an increasing -- continuingly increasing unemployment rate is a major factor in how the industry's going to fair over the next several quarters and we're just taking a cautious outlook on that.

We don't want to get ahead of ourselves or ahead of where the economy can take us.

Okay, fair enough.

And Mike, you talk a lot about how the traveling user is a light user because of low top-of-mind awareness, and your need to really convert them to being more frequent users, would you talk about the evidence you've seen in frequency improving of that group?

I know you've spent a lot on that and you've done a lot of good advertising and new product development, so can you share with us some results that you've seen?

Well, it's tough to get on a frequency greater -- or less than annual, I guess -- more frequently than annual it's tough to get good reads, because there's so much of a seasonal effect with travel so you've really got to look at year to year.

Right now, a snapshot, we're hoping to be pleased -- we're hoping to be pleased this week that we hear that more people are driving than flying this year so we should pick that up.

But overall, I think one of the things that I would point to is that we have sustained, over time, and over the last several years, where miles driven has flattened down, not increasing like it used to that our share of travel is holding up.

But in terms of answering the question, you really can't measure week by week because there's just so many fluctuations.

No, I understand, and then one last question.

I believe one of the development opportunities for Cracker Barrel is building in stores in smaller markets.

Have you built, or do you plan to build any new stores this year in some of these smaller markets?

We -- to get to the smaller market we're looking at the prototype and the efficiency, and got an initiative going on that, which will take some time.

So the answer is, no, we don't have the box that we'd be happy with to go into smaller markets.

We think building to the longer term there's a significant opportunity for us to build out over the next five, ten, 15 years in smaller markets.

Right.

Okay, great.

Thanks, guys.

Thank you.

We'll take our next question from Joe Buckley with Banc of America-Merrill Lynch.

Thank you.

continuingly First on the "Seat to Eat," I believe you started rolling it out in October to the first region, was that completed in the first region, and can you tell us what you learned as you began to roll out the program?

What we learned is that we've got the right program.

The rollout to the first region was successful in terms of the mechanics and logistics, which are not trivial in what we're trying to do with the number of employees and some equipment changes, number of stores, so we feel like we're very much on track.

We did have -- built in we had a checkpoint of once we rolled a region for real what do we look like, and we're continuing on with our program as planned so you -- I would say it was successful at this point, and expect to be successful as we roll out over the next 18 months.

Mike, were you able to meet the service goals, which I think are 14 minutes, from a guest being seated to the food being delivered?

We met our goals.

We don't expect instant success, it takes awhile for the team in any given store to adjust to the new platform.

The big win that we've seen in the testing and the early rollout is the number of outliers, the number of long ticket times, it goes down substantially and that's the first big win -- there's a couple of things.

It obviously improves the average ticket time but it also -- from a guest satisfaction point of view, guests aren't looking at an average experience, they're looking at their own individual experience, so by eliminating the long ticket times we're really, I think, going to see some guest satisfaction improvements.

Okay, and then one more question.

On the weekend execution goals, just bring us up to date if you're finding more ways to execute better on the weekends, or when that program began to get emphasis last year, when we might lap it and just the dynamics of that program, how we should think about it as the year goes on?

Yes, we rolled the program -- or we started rolling it out in October a year ago.

There were two phases, and it rolled out over a period of time, so the whole system -- by the end of the fiscal year the whole system had been through both phases.

It's all about operating to our current standards.

We use the overall banner headline of one best way.

We have our standards and this is about executing to our standards.

Now we are now focusing on how do we structurally improve our execution and "Seat to Eat" is a good example of that.

"Seat to Eat" is a significant improvement in the operating platform for the kitchen and service to the table, so as we roll that out we'll corporate that in one best way and weekend execution, so it's really two different things.

One is innovation to improve how we do things structurally.

The other is making certain that we are executing at our highest level on whatever the current platform is, and, of course, weekends, as we talked about before, are our busiest times so the greatest gain comes at our busiest time.

So it's an an ongoing -- it's now a way of life rather than something new that we roll out and forget about.

Okay, thank you.

Thank you.

We'll take our next question from Bryan Elliott with Raymond James.

Hi, good morning.

I wanted to touch base on the mix at the restaurants.

If you could give us a little insight as to where you're still seeing some of the mix declines and maybe a sense of some day part and geography, just drill down a little bit on the restaurant sales?

The biggest issue about mix, Bryan, continues to be beverage incidence, which is a trend we've seen over the past few quarters as guests manage their check, as well as some add ons, we're seeing some softness in that.

Then as we discussed we had a promotional affect, the fall promotion had a little retail, although a better food cost than we expected, so that had an affect on the mix.

In terms of the day part, we've been seeing some softness in the weekday dinner part, and that continues and we are beginning to see a little bit of softness in weekday breakfast, which we attribute to the unemployment issues.

Yes.

Yes, okay, thank you.

Bryan, let me clarify on the breakfast thing.

As we've seen -- you saw our monthly, sequentially we're improving in restaurant traffic.

Breakfast is the slowest of the three day parts to improve --

Okay.

-- is the way I would say that.

I do think it's -- unemployment, as said earlier, overall is an impact on industry, on us, and probably breakfast is, my guess, would be the day part most impacted.

But it clearly demonstrates getting traction on a lot of the other day part initiatives certainly, too, so --

Back on the mix question and the add-ons, we've -- dessert is an area I think there's a real opportunity.

We have some really good desserts, we just have never been able to get them to a significant level of our mix, so menu team is working on some new desserts and some new ways of doing that.

So more to follow on that.

All right, great, thank you.

Thank you.

Thanks, Bryan.

We'll go next to Steve Anderson with MKM Partners.

Good morning and congratulations on the quarter.

Thank you, Stephen.

(inaudible) I know you mentioned the health insurance cost increase and that something you're still looking to anniversary in calendar 2010, and do you expect any incremental increase from there?

No, we'll -- the new plan rolls out the beginning of January, and we do expect then in the second half of fiscal '10 to see improved healthcare costs versus last year,but that's all baked into the guidance.

Okay, great, thanks.

Thank you.

We'll take our next question from Michael Wolleben with Sidoti & Company.

Good morning.

Good morning.

I wanted to go back to the retail side real quickly here.

Could you guys give us a inventory balance that you guys ended at here compared to last year and give us an update on the progress being made on reducing the number of trailers that you guys to have use at this point in time?

Percentage-wise on inventory I can tell you the trailers have gone.

100%?

Excuse me?

100% gone?

There's a couple of stores that still have them, but they're on their way out.

So the retail inventory for the year -- or for the quarter was $120 million, which is $29 million less than the first quarter of '09.

Okay.

And then --

The total inventory was $153 million.

$153 million And then if you could just comment on some of the trends at retail.

I know for a few quarters back you guys were commenting that guests were buying lower-ticket items, such as the gums and mints, are you still seeing a trade-down into those lower-ticket items, or are you seeing a lack of purchases from some of these customers that are coming in more so than you were seeing before?

The tickets are slightly smaller.

I think it's more about conversion of guests.

Fewer percentage of our guests are shopping tin retail store when they come to eat with us.

Okay.

And then just lastly, how do you look at when the consumer does rebound?

Do you expect those conversions to snap back quickly, or how are you thinking the about that retail bouncing back on the eventual consumer?

Well, we're trying hard to actually have that happen before the economy bounces back.

The whole -- we're all about impulse and we're all about buy it now because it won't be there next time and as continue to work on the uniqueness of our product I think that we should see some improvement.

If we can do that, and then at the same time have retail move up with our restaurant traffic we'll be in good shape.

But it's difficult to predict at what point does the guest suddenly feel like they can buy retail again at Cracker Barrel, that's difficult to predict.

So we're working on the proactive side of how do we make it more attractive for them to buy when they're coming in now.

Great, thank you.

Thank you.

Thank you.

(Operator Instructions).

We'll take our next question from Larry Miller with RBC.

Hey, guys.

Hey, Larry.

Hey, Larry.

How you doing?

Nice quarter.

I apologize if I missed this, but I'm not sure why you said you took down the top end of your restaurant comp-store sales range.

Seems like you have pretty good momentum there.

You talked about average check, and clearly the trend, if you just were to stay on it, would put you at least to the top end of that revised down range.

Can you provide any color there?

I think it's as I said a little earlier, we're just cautious about the outlook.

We think that things are going to get worse before they get better driven by this unemployment number and we don't want to get ahead of ourselves in terms of our projections or guidance, it's as simple as that.

Okay, thanks.

Thanks.

thanks, Larry.

This will conclude today's question-and-answer session.

At this time I'd like to turn the conference back over to Mr.

Woodhouse for any additional or closing remarks.

Okay, thank you.

Well, as we said earlier we're very pleased with what we've done in these difficult times and we're very proud of the fact that our brand is -- continues to be what it has been, that what we offer our guests is the true Cracker Barrel experience that we've had for many years.

And as I said earlier, also, I think we're just beginning to hit our stride.

Things are coming into place that are helping with us the top line and with the cost and margin side of the business.

We think the brand is solid, I think there continues to be opportunities to encourage our loyal guests to come in more frequently, and we want to keep reaching out to new guests to give us a try.

We're finding that this combination of serving up in the restaurant side products that appeal to our loyal long-term users and new product that may attract a broader audience seems to be a winning combination.

And internally we'll continue to focus on simplifying the business, improving the guest experience and continuing to work on our profitability.

We liked our first quarter performance, and we're looking forward to reporting in February on our second quarter, and have a great Thanksgiving, everybody.

Thanks.

This will conclude today's conference.

We thank you for your participation.