Cracker Barrel Old Country Store Inc (CBRL) 2011 Q4 法說會逐字稿

Good day, and welcome to the Cracker Barrel's fourth-quarter 2011 conference call.

Today's call is being recorded, and will be available for replay today from 5.00 PM Eastern Time through September 28, 2011 at 12.59 AM Eastern, by dialing 719-457-0820, and entering pass code 4852080.

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

Please go ahead.

Thank you, Jessica.

Welcome to Cracker Barrel's fourth quarter 2011 conference call and Webcast.

This morning we released our fourth-quarter and full-year results and our fiscal 2012 outlook.

In that press release and during this call, statements may be made by management of their beliefs and expectations of the Company's future operating results or expected future events.

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

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

Many of the factors that could affect results are summarized in the cautionary description of risks and uncertainties found at the end of this morning's press release, and are described in detail in our reports that we file or furnish to the SEC.

We urge you to read this information carefully.

We also remind you that we do not comment on earnings estimates made by other parties.

In addition, any guidance or outlook we give or provide, the statements that we make regarding trends speak only as of the date they're given, and we do not update or express continuing comfort with our guidance, outlook or trends, except in broadly disseminated disclosures such as this morning's press release, filings with the SEC, or as otherwise required by law.

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

Mike will begin with opening remarks, Sandy will review the business and our plans for 2012, and Larry will review the financials and outlook.

We will then open up the call for questions and Sandy will then return to close.

Please limit your questions to matters relating to the Company's performance, outlook and plans.

We do not intend to answer any questions today regarding the potential proxy contest as we will have an opportunity to address that topic in advance of our annual shareholder meeting.

Thank you in advance for your cooperation, and with that, I will turn the call over to Cracker Barrel's Executive Chairman, Mike Woodhouse.

Thanks, Dave.

Good morning, everyone, and thanks for joining us today.

As we talk about today's earnings release, let me state up front that we're not satisfied with our fourth-quarter results as our comparable store traffic and sales were below our expectations, and below Knapp-Track.

We're very conscious of the fact that this is our second quarter of underperforming Knapp-Track after more than four years of outperforming the index.

However, thanks to strong cost controls, when we adjust our results for the fourth-quarter charges, our diluted earnings per share for the year were at the midpoint of the guidance that we offered on our third-quarter conference call.

Continued high unemployment rates and increased prices for groceries and gasoline continue to put pressure on the discretionary spending budgets of consumers.

As we discussed last quarter, our market research shows that we have more parties with children under age 11 than many of our competitors.

We believe that the dining out budgets of this group, as well as for our older guests who are more likely to be on fixed incomes, continue to be squeezed.

In this environment, we understand that we need to make our menu more accessible to price-sensitive customers and Sandy will be talking about our plans in this regard.

We've taken a number of steps since our last earnings release to ensure that Cracker Barrel is well positioned to capitalize on our Company's significant strengths and opportunities, as we manage through a challenging consumer environment and build for the future.

Most importantly, Sandy Cochran has become the Company's Chief Executive Officer and a member of our Board of Directors yesterday.

With this promotion, Sandy became only the third CEO in the 42-year history of Cracker Barrel.

I'll continue to serve the Company as Executive Chairman, and look forward to working with Sandy in her new role.

Sandy joined Cracker Barrel in April of 2009 as Chief Financial Officer, was elevated to President and Chief Operating Officer the following year, and her promotion to CEO was part of a deliberate succession planning process that took place over the past two years.

She's a talented and experienced CEO, and I'm optimistic about the future of our Company with Sandy at its helm.

Along with our management succession process we've also been working on a Board succession process, and we've added three highly-qualified independent directors since June.

Cole Peterson, Jim Bradford, and Bill McCarten are great talents who have immediately provided insight and strategic thinking to support the Company.

In addition, two long-term directors, Bob Hilton and Jimmie White, have decided not to stand for re-election at the 2011 annual meeting.

I'd like to take this opportunity to thank them publicly for their long and valuable service to the Company.

In July, we completed a new $750 million bank credit facility.

This is one of the largest all-bank financing transactions ever completed by a full-service restaurant company.

We believe that this transaction demonstrates the confidence of the financial community in our Company, the Cracker Barrel brand and our strategic direction.

By simplifying and extending the maturities of our financing arrangements, this new credit facility provides us with greater financial stability and flexibility.

Also in July, we announced changes to our organization that resulted in the elimination of approximately 16 management staff positions, mostly here at the home office.

The estimated annual pre-tax savings from these actions is approximately $10 million.

While these decisions were very difficult and involve many long-term employees, we believe that they have improved our organizational effectiveness.

We announced this morning that our Board of Directors has approved a 13.6% increase in our quarterly dividend, to $0.25 per share, and also authorized share repurchases of $65 million.

These decisions are consistent with our balanced approach of growing the business with continuous improvements and return on invested capital, while at the same time, returning capital to our shareholders.

These decisions also express the Board's confidence in the Company's leadership and long-term prospects.

Before I turn the call over to Sandy, I'd like to take this opportunity to talk a little about my new role as Executive Chairman.

As CEO, Sandy will report to the full board and will articulate the vision, set direction and continue to capitalize on the strength of the Cracker Barrel brand.

As Executive Chairman, I plan to focus on four key areas.

First, I'll continue to work on menu strategy.

Second, I'll be involved with brand reputation and issues management.

Third, I'll continue to work on Board development.

And fourth, I'll be here to serve as a sounding board for Sandy.

Our goal remains to provide outstanding returns to our shareholders from a premium brand.

While Sandy has taken the reins as CEO, I look forward to continuing to serve and be part of this exceptional Company.

With that it's my pleasure to turn the call over to Cracker Barrel's new CEO, Sandy Cochran.

Sandy?

Thanks, Mike.

Good morning, everyone.

I'd like to take this opportunity to recognize Mike Woodhouse, and to thank him for his decade of service as Chief Executive Officer of Cracker Barrel.

Mike led this Company through a period of tremendous growth and challenges, and provided exceptional long-term returns to our shareholders, all while staying true to our mission of pleasing people.

I'm excited and honored to be succeeding him at CEO, and am grateful that given his many years of Cracker Barrel experience, he'll continue to serve the Company in his new role.

Before I comment on our fourth-quarter results and outline our plans for the current fiscal year, I'd like to spend a moment sharing my view of the current state of the Company and how I see us moving forward.

Cracker Barrel is a highly-differentiated brand, which has earned a solid reputation for providing value and hospitality over the years.

This was reaffirmed just last week as Cracker Barrel took first place in the family dining category in a new independent consumer survey, Consumer Picks, that was sponsored by Nation's Restaurant News, the industry's top trade publication.

Results were released in the September 5th issue and showed Cracker Barrel almost 8 percentage points ahead of the nearest competitor.

Cracker Barrel had the highest ranking in food quality, cleanliness, service, menu variety, atmosphere, reputation, likely to recommend, and likely to return.

Cracker Barrel was also recognized by consumers in the new Zagat restaurant survey for having the best breakfast.

I am committed to protecting the brand, maintaining quality and authenticity, and continuing to stress our guest-centric approach to the business, because that's what our guests love about us, the unique, authentic experience they get only at Cracker Barrel.

While I'm committed to remaining true to our heritage, I also recognize that we must evolve to confront the realities of the current environment and respond quickly to customer circumstances and competitive challenges.

As I outline our priorities for the 2012 fiscal year, I'll discuss the initiatives we've planned to meet these challenges which we've already begun to implement.

Larry will discuss our results for the fourth quarter in detail, but I want to comment briefly on them.

As Mike mentioned, we are not satisfied with our sales and traffic results in the quarter.

Because our fiscal fourth quarter coincides with the summer travel season, it's a very important quarter for us.

With gasoline prices on average 36% higher than last year, stubbornly high unemployment and continued economic anxiety, many would-be vacationers seemed to stay home this year.

Data on miles driven in the US, which were down in May and June versus last year, appear to confirm that.

While we don't typically note difficult prior year sales comparisons, lower gasoline prices and pent-up travel demand last year helped generate a strong travel season in the fourth quarter.

As a result, travelers made up a smaller share of our visits in the fourth quarter this year, compared to a year ago.

We also believe that aggressive discounting by many of our competitors contributed to some of our fourth-quarter traffic decline.

Our limited-time menu promotions continue to be well-received by our guests.

In the fourth quarter, we featured Kansas City Barbecue Chicken, Texas Beef Brisket, Grilled Chicken and Summertime Vegetable Salad, and we continued our springtime seasonal breakfast offering of the Wholesome Morning Sampler, Six Grain and Granola Pancake Breakfast and the Multigrain Pancake Breakfast.

The promotions accounted for approximately 10% of our sales mix, which was in line with our expectations and helped drive positive sales mix effects in our average check during the fourth quarter.

As we expected, margins came under increased pressure in the fourth quarter, as a result of food commodity cost increases.

Again, Larry will discuss the impact on our financial results for the fourth quarter, and our outlook for fiscal 2012 in more detail, but I want to point out that commodity inflation had a significant effect on our fourth-quarter results and we expect it will continue to create headwinds in fiscal 2012.

Despite this pressure and softness in sales, we believe we did a good job managing our costs to protect our margin.

Moving to retail, it's important to point out that our research indicates that our traveling guests tend to spend more per visit on retail merchandise than our local guests.

As I noted earlier, Our travel business was down compared to the fourth quarter of last year.

Nevertheless, we are pleased that our comparable store retail sales in the quarter, while down overall, improved sequentially during the quarter or slightly positive in July.

We continue to see guests favoring value price points in our assortments, and we had success with our jewelry offerings all with price points under $20.

Our apparel assortment continued its strong performance as we focused on matching guest preferences for buy-now, wear-now items with seasonally appropriate styles.

Countering these strong results, toys were down versus last year and we lapped strong sales from last summer's hot items, Webkinz and Silly Bands.

Additionally, our candle business continues to be challenged.

I would like to spend the rest of my time on today's call talking about our priorities for the business and some of the important initiatives we have under way.

The Cracker Barrel brand remains one of the strongest in the restaurant industry, and we plan to leverage that strength to grow guest traffic, sales and profits.

We have 6 priorities in 2012.

First, we'll introduce new marketing messaging to better connect with our current and potential guests, and to reinforce the authentic value of the Cracker Barrel experience that's created such a powerful attraction to the brand.

Second, we'll implement refined menu and pricing strategies to increase the variety and everyday affordability of our menu, in the face of our ongoing challenges to our guests' household budgets.

Third, we'll implement enhancements to our restaurant operating platform to generate sustained improvements in the guest experience.

Fourth, we'll drive retail sales growth by continuing to review and refine our retail assortment to deliver value and reinforce our vital connection with the brand.

Fifth, we'll implement initiatives to reduce costs to offset at least a portion of the impact of higher food commodity costs.

And sixth, we'll leverage our strong cash flow generation to both reinvest in the business as well as increase our return of capital to our shareholder.

Let me start with messaging.

Research tells us that our guests have a strong emotional attachment to Cracker Barrel, but we may not be getting enough credit for key elements of the Cracker Barrel experience, such as authenticity and everyday affordability.

We know through our research that we have guests within our current base who have a strong emotional attachment, but don't use us frequently.

We believe that the new messaging, along with advertising more broadly can have an impact on the behavior of these consumers.

In July, we announced a new advertising agency, Euro RSCG, which is the largest unit of Havas, a world leader in communications and one of the largest integrated marketing communication agencies in the world.

We challenged Euro to start with a completely fresh approach on how to reach guests more effectively, and we're very encouraged at some of their early ideas.

While it's too soon to discuss today, I think you'll see some exciting things in the upcoming months.

We believe we will be effective through this messaging strategy in building consideration and usage of Cracker Barrel for local occasions, especially among our less-frequent users and non-users.

We are reworking our marketing spend and adjusting our advertising calendar to increase the coverage of our store base by media.

We'll focus on advertising to build our business at peak times of the year, with radio advertising in markets covering more than 60% of our stores planned for the fall, and TV or radio advertising slated to cover even additional stores during the holidays.

Another part of our efforts to enhance our communication with our guests is our newly-redesigned website.

In addition to better providing information about store locations and menus, we redesigned the site to better engage our customers on the Cracker Barrel lifestyle, with information and demonstrations on hobbies, games and Americana.

The new site offers expanded e-commerce capability, which we expect to leverage over time to sell more of our merchandise online.

We view this new website as part of our expansion into social media, which is becoming an increasingly important platform for connecting with our guests.

The second priority is increasing frequency of use through refined menu and pricing strategies.

We remain committed to providing honest, everyday value to our guests and we do not intend to coupon or discount as many of our competitors have done in recent years.

We'll also continue our limited or promotional strategy of limited-time offers with products designed to appeal to both regular users and our less frequent guests.

However, I believe that consumers have become increasingly price-sensitive, as sustained growth in household incomes remain elusive.

To address that, we'll be introducing new offerings at more accessible price points, highlighting our already affordable items across our menu base and selectively reducing the prices of certain existing menu items.

Our fall seasonal promotion which begins on Thursday, demonstrates this strategy.

Our promotion features Cracker Barrel favorites such as Country Fried Steak, Meatloaf and Apple Streusel French Toast to appeal to our regular users, while we are offering a new Premium Roasted Turkey and Cranberry Salad to appeal to our lighter and more health-conscious users.

We'll also launch our weekday daily lunch specials at $5.99, which will include certain existing Cracker Barrel products, and a new lunch-oriented salad and soup or baked potato combination.

The testing we conducted in select markets over the past several weeks, we saw significant improvements in guest perceptions, of variety at lunch, everyday value and healthful offerings.

We'll support this launch with an expanded media mix, including the use of radio and billboards, featuring our $5.99 daily lunch specials.

We view this as a thoughtful approach to address value in a brand-appropriate way, and we'll continue to be deliberate as we focus on enhancing the affordability of our menu.

We're also working on redesigning our base menu.

In addition to new marketing messaging, we're reworking the design of the menu to better communicate quality, value, and choice to our guests.

We plan later in the year to introduce new offerings in certain categories as well, and you'll see these initiatives in the stores starting this winter.

Our third priority is to drive restaurant traffic by continued refinement of our restaurant operating platform.

Consistent execution that provides a genuine Cracker Barrel experience to each guest at every visit is a corner stone of our business.

As we have previously discussed with you, we identified certain operational challenges, which emerged during an intensive phase of our Seat to Eat roll-out in the third quarter.

While Seat to Eat accomplished its primary objective of faster and more consistent ticket times, guest satisfaction for a portion of our guest base slipped, particularly related to friendliness and attentiveness of servers, order accuracy, and temperature of food.

We began work in the fourth quarter to make refinements to the operating platform to reverse those trends, and I'm pleased to report that we've made solid progress.

In order to address these issues, we have redefined roles and responsibilities in the grill and service areas to improve order accuracy, food temperature and server attentiveness.

As part of these changes we have rebalanced the elements of servers to refocus our servers on their primary guests and to limit team service responsibilities to one dining room.

While overall guest satisfaction scores were lower in the fourth quarter this year compared to last year, they improved sequentially during May, June and July.

I believe that these changes, when taken together, will improve guest satisfaction and lead to additional repeat visits over time.

Our fourth priority is to grow retail sales.

We will transition the leadership of our retail business in 2012.

Terry Maxwell, our Senior VP of Retail, has announced his plans to retire after 31 years with the Company.

I want to thank Terry for his leadership of our retail business, as well as his keen insights into the Cracker Barrel business drawn from his career in operations leadership.

We have a national search under way for head of retail, and I'm confident we'll attract the right leader to build upon our retail base.

In the face of tough economic conditions, we plan to grow our retail sales by continuing to improve our assortments and delivering great value.

We'll focus our merchandising to highlight affordability, with strong price points and prominent locations in the shop for giftable offerings.

We're enhancing our holiday great gifts program and we'll again provide outstanding value to our guests with all price points under $20.

We're moving forward to new product and private label introductions that we'll roll out in time for this holiday season, and we also expect to build on the growth of our apparel business, particularly our kids assortments, which have been very strong as our quality and value statement that is resonating with our guests.

We will work to grow our jewelry and accessories business as well.

We plan to leverage new technology to strengthen the retail business.

Our aim will be to improve inventory management and to enhance assortment planning.

We'll implement a new merchandise planning system during the year, and improve our inventory allocation processes.

And we'll also begin work to expand our e-commerce business.

Our fifth priority is to implement initiatives to reduce costs, to offset at least a portion of the impact of higher food commodity costs.

We're working on a number of important initiatives, including several that we plan to roll out in fiscal year 2012.

We'll complete the roll-out of the first phase of our enhanced labor management system at the end of this month.

Based upon initial testing, we expect labor cost savings between 10 and 20 basis points, with the potential for additional savings as we further enhance this system over time.

We also plan to increase our focus in the upcoming year on controlling food waste, supplies and maintenance expenses.

Another example of our ongoing effort to lower operating costs is a lighting initiative, which we've been testing which we plan to roll out chain-wide in fiscal year 2012.

We'll replace the current light bulbs in our store with high-energy, high-efficiency bulbs which we expect to produce an annual cost savings from reduced electricity usage between $2 million to $3 million.

Later this month we'll begin using a new transportation management system to help us optimize routing schedules for delivery of our retail merchandise from our retail distribution center.

We estimate savings in the first year to be about $1 million, with savings in subsequent years to grow to between $2 million to $3 million a year.

As Mike mentioned earlier, we expect the recently-announced organizational realignment to save the Company $10 million a year.

By leveraging technology and streamlining our business processes, we will be able to improve our overall efficiency and effectiveness while significantly reducing overhead expenses.

All in all, I expect these cost savings initiatives to eventually save the Company between $15 million and $20 million annually in operating costs and I have challenged the leadership team to look for more opportunities that don't weaken the guest experience, but allow us to offset increased costs and improve margins.

We expect to realize some of these savings in the current fiscal year, and have reflected them in our outlook.

Our sixth priority is to effectively deploy the strong cash flow we generate in the business.

We remain confident in the future of the Cracker Barrel brand and in our ability to generate strong cash flow despite the current challenges we and the industry are facing.

We're increasing our level of capital investment to support more new stores this year, as we continue our gradual ramp-up of new store development.

Our goal is to position the Company for future growth, while being appropriately cautious in an uncertain economic environment.

We opened three stores in the fourth quarter, which brought the total new stores opened in fiscal 2011 to 11.

As a group, our fiscal year 2011 stores exceeded our expectations.

In fiscal 2012, we plan to increase new store growth by opening 15 Cracker Barrel stores.

We're making progress in the ongoing development of our new store prototype, 7 of the 11 stores opened in fiscal year 2011 were our new 177-seat prototype.

This new prototype is less expensive to build, and provides opportunities for expanded margins.

We'll continue to evolve our prototype as we work on changes that will further drive down investment costs and expand operating margins.

Because our business generates such strong cash flow, we have the ability to grow stores and return capital to our shareholders.

As noted in our press release this morning, the Board has authorized a 13.6% increase in our quarterly dividend, as well as a new share repurchase program for up to $65 million of the Company's outstanding common stock.

We view these steps as a continuation of our commitment to enhancing total shareholder returns.

As we enter our 2012 fiscal year, we remain cautious about the economy and concerned about food commodity costs.

But we are optimistic about Cracker Barrel's future and are moving forward on many fronts to meet the challenges we face now and strengthen the business for the future.

I'm confident that we have the right plans in place and a great team to execute them.

With that, I'll turn the call over to Larry to go over the financials.

Larry?

Good morning, everyone, and thank you, Sandy.

I would like to begin by discussing our financial performance for the fourth quarter of fiscal 2011, and then our outlook for the 2012 fiscal year.

For the fourth quarter of fiscal 2011, we reported net income of $17.5 million or $0.75 per diluted share.

Charges in the fourth quarter related to organizational changes and our new bank facility reduced net income by $5.9 million or $0.25 per diluted share.

In comparison, our net income in the prior-year quarter was $27.4 million or $1.14 per diluted share.

For the full year, we reported net income of $85.2 million or $3.61 per diluted share.

In other words, when we adjust for the fourth quarter charges, our earnings per share for the year were at the midpoint of the guidance range that we offered in the third quarter.

For the fourth quarter of fiscal 2011, revenue increased 0.1% to $612.9 million, from $612.5 million in last year's fourth quarter.

Restaurant revenues fell 0.1% to $497.3 million, and retail revenues increased 0.7% to $115.7 million.

Comparable store restaurant sales decreased 1.4%, as a 2.8% increase in average check was offset by a 4.2% decline in traffic.

The increase in average check reflected menu price increases of approximately 2.1%, and a favorable mix impact of 0.7% due primarily to the higher priced items in this year's summer promotion.

Comparable store retail sales fell 0.7%.

Our total cost of goods sold in the quarter was 31.6% of revenue, a 170 basis point increase over the prior-year quarter.

In this morning's release, we provided supplemental disclosure to separate our cost of goods sold between restaurant and retail.

As indicated, our restaurant cost of goods sold was 27.0% of restaurant sales, compared to 25.4% in the prior year quarter.

Food commodity costs were up approximately 5.4% in the quarter, compared to the prior year, which was more than 2.5 times our menu price increases.

Costs for pork, beef, dairy and coffee were up sharply from last year.

Our retail cost of goods was 51.3% of retail sales, compared to 49.5% in the prior-year quarter.

The increase was primarily the result of higher markdowns and higher freight charges, due to fuel cost increases.

Our retail inventories at the end of the quarter were $108.8 million, representing a reduction of $4.8 million, compared to the prior-year quarter.

Our store payroll and related expenses were approximately flat with the prior year quarter, at $229 million or 37.3% of sales, a 60 basis point reduction in store and field management bonus accruals was offset by increases in store management salaries, payroll taxes, pre-opening labor expenses and training wages.

Our average hourly wage rates increased by 1.5%, compared to the prior-year quarter, as a result of a 0.6% average rate increase, and a shift between tipped and non-tipped hours.

Store operating expenses in the quarter were $115.7 million, or 18.9% of revenue, compared with $116.9 million or 19.1% of revenue in the prior-year quarter, a 50 basis point decrease in maintenance expense was partially offset by higher advertising, store miscellaneous and depreciation expenses.

Store operating income was $74.7 million, or 12.2% of revenues, compared with $83.4 million or 13.6% of revenues in the prior-year quarter.

Our general and administrative expenses in the quarter were $35.3 million, or 5.8% of revenue, compared with $37.4 million or 6.1% of revenue in the prior-year quarter.

The 30 basis point decrease reflected lower incentive compensation accruals, partially offset by severance and other charges related to our organizational realignment.

As part of that realignment, the Company recognized an impairment charge of $1 million related to a corporate office building that we plan to sell in fiscal 2012.

Operating income in the quarter was $38.1 million, or 6.2% of revenue, compared to $45.5 million or 7.4% of revenue in the prior-year quarter.

Our interest expense in the quarter was $16.3 million, and included $5.1 million of charges related to our new bank facility.

In comparison, interest expense in the prior year quarter was $11.7 million.

Our effective income tax rate was 19.4% for the quarter, and 26.3% for the fiscal year, compared to 18.8% in the prior year quarter and 26.3% for the prior year.

Capital expenditures for the full year were $77.7 million, compared to $69.9 million in the 2010 fiscal year.

The $7.8 million increase in capital expenditures was primarily the result of additional new store growth and the Seat to Eat initiative.

Our balance sheet continues to be strong, and we believe our new bank facility makes it even stronger.

At the end of the quarter, our long-term debt was $550 million, which included $231.3 million outstanding under our term loan, and $318.8 million drawn on our $500 million revolver.

When we subtract our outstanding letters of credit, we have unused capacity on the revolver in excess of $150 million.

During the year, we reduced our debt outstanding by a total of $30.3 million.

For the fiscal year, we repurchased a total of 676,600 shares, for $33.6 million, which included 176,600 shares that were repurchased in the fourth quarter for $7.9 million.

We ended the year with $52.3 million of cash and cash equivalents, an increase of $4.6 million from the prior year.

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

Conditions in the US economy and the prices and supply of food and oil continue to be concerns.

Bearing that in mind, we expect total revenue for fiscal 2012 of between $2.55 billion and $2.6 billion, and earnings per diluted share of between $4.05 and $4.20.

The 2012 fiscal year is a 53-week year and we expect the impact of the 53rd week, which is included in our guidance to be additional revenue of approximately $50 million, and additional earnings per diluted share of approximately $0.25.

The revenue projection for 2012 reflects the expected opening of 15 new Cracker Barrel stores, and a forecast of comparable store restaurant and retail sales in the range of flat to up 1.5%, with menu price increases between 2% and 3%.

We expect increases in food commodity costs on a constant mix basis of between 5.5% and 6.5% for the year, with the most significant increases in seafood, oils, coffee, eggs and beef.

We have locked in our pricing on approximately 58% of our commodity requirements for fiscal 2012.

We expect our operating margin for the year to be between 6.9% and 7.1% of revenue.

We expect depreciation expense of between $66 million and $68 million for the year.

Net interest expense of approximately $45 million, and an effective tax rate of between 28% and 29%.

The Company had stronger financial results in the first half of 2011 than in the second half, and as noted in this morning's release, we expect our traffic to build throughout the year.

Therefore, our year-over-year financial performance is likely to be stronger in the second half of 2012 than in the first.

While we do not offer specific financial guidance on a quarterly basis, we would like to point out that we expect our first quarter earnings per diluted share to be below the prior-year quarter.

I would also like to note that our guidance for the year does not reflect any expenses that we may incur as a result of a potential proxy contest.

We anticipate capital expenditures for the year to be between $90 million and $100 million, including new store investment of between $45 million and $50 million, and maintenance CapEx of between $30 million and $35 million, and with that, I will now turn the call back to Sandy.

Thank you.

Thanks, Larry.

Before we begin the Q&A session, I would like to make one comment with regard to Mr.

Biglari, and his recent actions.

We want to remind everyone that we tried in good faith to reach an amicable resolution with him, and offering him the opportunity to employ 2 independent seats on our Board and were disappointed that he's chosen to embark on a disruptive and costly campaign.

Although we disagree with his assertions, we believe the most important thing we can do today is to focus on the Company's operations and earnings and we ask you to keep your questions to this area.

So with that, Jessica, we're now open for questions.

Thank you.

(Operator Instructions).

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

Thank you.

My first question relates to the strategy to move further toward more accessible price points, and what I'm curious about is, you mentioned the $5.99 lunch that's been -- that was running in the southeast.

To the extent you can, could you describe how that impacted traffic and margins in those test markets?

And how much do you expect average check to move with this strategy shift, and what kind of margin impact might you expect from it?

Good morning, Jeff.

I'll take that.

So we were pleased with the results, and the information that we got from our test, and although we're not going to disclose the specifics of the traffic that we achieved or anticipate or the margin for that, let me say that over time we anticipate that traffic will build as a result and in addition, offsetting the margin impact from the lower price, we anticipate and have seen higher beverage incidence and some higher desert incidence.

And as a follow-up, related to the competitive environment, particularly increased value efforts at casual dining competitors, are you seeing more of an impact at certain day parts than others, lunch versus dinner?

One of the reasons we attacked lunch first, is we believed that lunch had gotten to the be the most competitive day part, and the one that we had the biggest opportunity to make an impact with our guests.

So we chose to focus on lunch first.

Thank you.

We'll take our next question from Brad Ludington with KeyBanc Capital Markets.

Thank you.

Larry, just on a kind of a housekeeping question, can you comment some on, or do you know when the timing of some of these openings will be in fiscal 2012?

Brad, hi.

The timing will be -- it's very hard to specify because they will largely be spread throughout the course of the year.

We've got -- and again, this at this point is preliminary, but we are anticipating 3 openings in the first quarter, 2 openings in the second quarter, 7 in the third quarter, and the balance in the fourth quarter.

Very helpful.

Thank you very much.

And then Sandy, I wanted to follow up, just looking at the promotions and some of the changes, it sounds like you're still going to have the salad on there on the fall promotion but moving back to kind of some classics and favorites on the other items.

Do you think that's been part of the issue in recent quarters, is moving maybe to two differentiated of an item, or is it just your marketing primarily focused on that and not on the core items, or was it something else in your mind?

No, I think the summer promotion, for example, was very successful and the different products that we offer were received very positively by our guests, the mix in the summer, we were quite pleased with.

But what we thought we had an opportunity to do, going forward, is to incorporate a combination of new items to appeal to the lighter guest as well as highlighting some of our favorites, and then in the fall promotion, to introduce the affordable options including another salad with the soup and baked potato combination.

So what we are trying to do is address all of the issues that are going on right now in the macro environment.

Thank you.

I'll get off and jump back in the queue.

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

Thank you.

I have a question on the same store sales guidance and the comments on menu pricing.

So I think the same store sales guidance is for flat to up 1.5% with menu pricing up 2% to 3%.

So are you expecting mix to be down or traffic to be down and maybe relate this to some of the lower price point plans you have as well.

Joe, good morning.

We are anticipating traffic roughly down in the first half of the year, roughly flat in the second half of the year, as one we go after harder comparisons in the first half of the year than in the second half of the year, and secondly, as many of the traffic-building initiatives Sandy has spoken about will take some time to build.

Okay.

And then unrelated question on retail.

Retailers everywhere are complaining about the inflation rates that they're experiencing.

Could you talk a bit about that, what you're seeing from a cost of goods standpoint, inflation rate for retail?

Yes.

Joe, without specifically answering in terms of a specific number, we and many retailers who source from the Pacific Rim are facing pricing challenges in China.

We and many other retailers are looking at sourcing alternatives beyond China, and we are looking at managing a product assortment, as Sandy said, that will basically allow us to stay within the moderate price expectations our customers have, continue offering unique retail offerings, and doing it without meaningful changes in our retail margin.

We start the fiscal year with lower retail inventories than we started last fiscal year, which gives us some reason for optimism about our ability to manage markdowns, as we move through 2012.

Okay.

Thank you.

We'll take our next question from Steve West with Stifel Nicolaus.

Hey, guys.

Question on the guidance.

If we kind of back out the 53rd week, we've got $0.25 impact there and then looking at the roughly $0.25 or so from the cost savings you guys had originally announced in July, it looks like your core earnings guidance is actually down on a year over year basis.

Can you help me kind of bridge that gap, and one item is I guess the food inflation.

Is that all of what's driving this, is there some other maybe systemic items going on either at corporate or the store level that we're not seeing?

The food inflation in the range of 5.5% to 6.5% is on a constant mix basis, a year over year cost increase, say in the $30 million to $35 million range.

And with our anticipated -- and as we said, with our anticipation that we will have weaker comparable store traffic in the first half of the year, instead of the second half, even as we counter that with the cost savings initiatives Sandy spoke about, the coming fiscal year will be a challenging year.

Okay.

So it's really just food inflation and sales to leverage, nothing else going on in there?

Right.

Okay.

Thank you.

And our next question comes from Bryan Elliott with Raymond James.

Good morning.

Quick clarification.

I missed the timing on new store question.

What was Q1 store count, new store opening number?

We anticipate new store openings in Q1 to be approximately 3, Bryan.

Great.

Thank you.

My question relates to -- there was some discussion in the prepared remarks about the new lower cost prototype, number of last year's stores were new 177 seater.

Wondered if you could go through the reduction in investments, flesh that out a little bit, kind of what changes you were able to make and what kind of additional tweaks, maybe or -- that you're still looking at and how many of the 15 stores this year will be that new prototype?

Bryan, this year they all will be and let me try to summarize sort of the overall issues and I'll let Larry give you some numbers in the end if I miss some.

In general, the prototype we're using now is a slightly smaller building.

We took some width out of the building and took some from both the front of the house and the back of the house, which reduced our investment, and we reconfigured our dish room, which is probably the most significant impact, because it has an operating margin impact that we believe is meaningful and will be rolling out.

We reduced, as part of the 177 from 3 dining rooms to 2 dining rooms, from where we had been building, and that helps the operators in terms of operating efficiency.

Going forward, what we're working on is a continuation of both improvements in just the building costs, by changing literally the way we build it, and then energy management and to continue to look at where we can cut square footage, in particular in the back of the house.

So can you help flesh out how much smaller for example is it?

9,500 or --?

About 1,000 square feet.

Took 1,000 out, okay.

One of the things that was important when we did it was that the guest facing areas be the same or better.

For example, one of the things we like about the new prototype is all of the guests can now see the fireplace, which we believe is one of the brand icons at Cracker Barrel, and something that we like.

So we are -- but we continue to spend a lot of energy evolving the prototype, and I'm optimistic that we'll find some more savings going forward, as we continue to work on it.

How much reduction in retail selling space and the waiting area?

It wasn't very much.

It's now about 2,000 square feet, but we were able to reconfigure some of the doors, we had an exit door and a door to the manager's office, which we were able to reconfigure, and that gave us back some selling square footage.

So the impact was very modest on retail.

Great.

Thank you.

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

Thank you.

Couple questions, if I could.

First off, kind of a housekeeping.

Sandy, was there any impact during the first fiscal quarter from the recent hurricanes and the storms?

Were there store closures, or is that adding some pressure on the first-quarter results?

There was.

We don't believe that the impact in the quarter was material.

We did have some store closures.

We had a number of stores from power outages or mandatory evacuations and so on.

Okay.

And then secondarily, looking at the Company's marketing plan for this new fiscal year, historically I think you've used TV advertising at about 25% of the system.

Can you kind of give us a little bit of color on how you're finding more efficiencies to extend that penetration to a higher percent of the Company's stores?

Well, one of the ways is by re-evaluating what we view is efficient.

Euro has challenged us, and we've had internal discussions about the importance of increasing the coverage to invest in the brand.

So for some of those markets, it won't be efficient in the way we have historically calculated it, but what we think is important is that we increase the reach of the advertising by both moving to the message that I was discussing in the prepared remarks, to activate both users and non-users, to put into the message price point information that reinforces the availability of the lower price points, and the everyday affordability, and then to that, combined with the increased coverage with stores, which you'll see in the fall promotion, we believe will impact our traffic.

Are you extending to national cable or is all this, the incremental from radio?

We're still working out the details so I don't want to go into the specifics of how we're going to do it over holiday.

Okay, and then last question, if I could, real quick.

In the Seat to Eat program, what have you learned from going through the prior quarter and the changes?

Are your customers -- is there a core user base who's a lot more sensitive to kind of the interaction they have with their server, and so you want to kind of protect them?

You almost just answered the question.

What we've learned is just we reinforced what -- how strong the loyalty is with many of our guests, and how important the connection is between them and our servers, and what an important component of the guest experience that is, and that any changes that we do to modify that connection, we need to be very careful about.

A lot of the training that we've done and modifications that we've done have been to go back and reinforce the priority for each server to their particular table and to constrain our team service requirements so that the team service that happens now is all within one dining room, which we believe will provide a better and more consistent guest experience.

Great.

Thanks, Sandy.

We'll go next to Stephen Anderson with Miller Tabak.

Thank you.

Just wanted to get your third point of an enhanced restaurant operating platform.

How is this different than the Seat to Eat initiative that you had just rolled out?

And do you anticipate any kind of cost savings in particular from the changes to the platform?

Well, some of the changes that we made in the training and in the lessons learned we went back and in the grill area, for example, we were much more clear about the activities going on and who would do them and the rules behind that, how that labor was deployed.

As I just mentioned about, in our service area, we clarified the rules about our service and team service, so it wasn't as much training as it was reinforcing.

And we did make a few equipment modifications where we learned that with a few tweaks, we could provide the teams in the back of the house with a more effective tool.

I'm looking at Larry to see if I've covered -- I think that just about covers it.

Okay.

But are there any quantified cost savings from that, or is it more of an incremental improvement from what you've achieved from Seat to Eat?

I think that the cost savings will come as we work through and have a more -- have the team be more comfortable with the new system and as we work through this new training.

The new labor system, which we'll be rolling out this month, which we do see some initial labor benefits, I think will provide us a platform that we can build upon with our Seat to Eat.

And do you have any kind of timetable for the overall system-wide labor initiative?

We will have all of the training done by the end of this month.

Okay.

All right.

Thank you.

I do think that what the Seat to Eat enhancements will do is improve the guest experience, and that what that will do is help us build traffic and improve our throughput.

Thank you.

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

Thank you.

Sandy, just quickly on the -- when you talked about rolling out the new energy-efficient bulbs and the routing system, I just want to make sure I got that right.

Both of those should be rolled out in fiscal 2012 and the routing system will result in $1 million in savings in fiscal 2012 and more later on?

Is that right?

Well, yes, that's the first year, and I don't know how much of that exactly is in fiscal 2012.

It's not a full year because the TMS system starts next month, and that technology, which will have a couple of phases, we're very excited about.

But all those savings are in our outlook.

Okay.

And with all of the new units, all 15 being the smaller prototype, are they all going to be off-interstate this year as well?

We have a combination of that.

Yes.

Of the 15, we actually expect more on-interstate than off, Brad.

Thanks, Larry.

Appreciate it.

And we'll go next to Joe Buckley with Bank of America-Merrill Lynch.

Thank you.

I wanted to follow up on the marketing.

Are you anticipating marketing spending to be up year over year?

And you mentioned 60% of the store base being covered this fall.

I think by TV and radio, if I understood correctly.

What is that compared to a year ago in terms of coverage?

No, the overall spend won't be up.

We still are allocating the same amount.

It's about how we moved the dollars around.

In terms of last year, it was more like 25%.

Okay.

The fall promotion, Joe, is radio, and then we are doing a number of billboards where we've changed the messaging to reflect the price point and to highlight the $5.99 lunch special.

The TV and radio will come in for the holiday promotion.

Okay.

And then just a question on share repurchase.

This authorization I think is a little larger.

In the past, you've described it as kind of offsetting the effect of options.

Is this a little bit more aggressive, and I guess is any of the share repurchase included in your guidance?

Yes, Joe, the $65 million does represent the potential of us repurchasing shares that would more than just do the offset of dilution that the Company's talked about for the past couple of years.

To explain where the $65 million comes from, that is in essence, is what our bank credit facility establishes as the minimum share repurchase we're allowed on an annual basis.

Banks.

Didn't I say banks?

Maximum.

Maximum, I mean.

I'm sorry.

Third is our guidance anticipates for the year that our share count will remain constant.

So to the extent that we buy back more than just for the dilution offset, that is a potential upside versus our EPS guidance.

Okay.

Thank you.

And we'll go next to Howard Penney with Hedgeye Risk Management.

Thanks very much.

Back in 2009, early 2010, you were -- your sales were, I guess trending above the average in sort of cited discounting as the reason, or you weren't really impacted by discounting at that time.

I was wondering what's changed for you to comment that discounting is actually now having an impact on your business.

And then can you maybe allude to the relationship between price and traffic, and you continue to take price, yet you see traffic trends continue to go down, yet you're lowering prices, and I'm just kind of curious as to the dynamic as to what you're thinking, lowering prices and traffic declines.

Lastly, on the unit openings, you're allocating more capital to unit openings, to the new units.

Can you talk about the returns for the new prototype versus the old one?

Thank you.

Okay.

That was a lot.

Let me see if I can address it all and if I don't, you can remind us.

So with respect to the discounting, 2 years ago, it was very aggressive.

If I had to characterize the discounting a year ago, it seemed to back off, and now it is both back aggressively, and it seems to have become part of the menu and part of a lot of our competitors.

So it is now in a lot of our guests' minds, part of their everyday low price, and in that sense I think they've reset the bar.

So it is a different environment in that sense.

It became clear to us that our guests were looking for value in this environment, and that we needed to address and reconfirm our position as having everyday affordable options, and to support our priority of driving traffic than to reassert and re-establish ourselves as having that affordability, is why we've had the priorities that I've just gone through.

In terms of pricing, it's a very sensitive time, and we've been very thoughtful, more thoughtful than even normal about how, when we raise prices.

We're being very careful about it.

We recently took an increase in the past several weeks, and are watching it very closely to see what the response is.

In terms of the new unit openings, I'm going to let Larry take that question on.

Yes.

And your question on new unit openings, as we said, all of the new units that we are planning to open in the current fiscal year will be our smaller 177-seat prototype and as Sandy mentioned in her remarks, looking at the stores that we opened in the 2011 fiscal year, we are as a group, very satisfied with the financial returns that we've achieved from them, and anticipate that the financial returns from the stores that we are going to be opening in the current fiscal year will be at or greater than the returns from the class of 2011.

There may have been a couple of other parts to your question, Howard, and if so, I will ask you to repeat them.

Does the return for the new stores, the new prototypes, have a higher return than the old prototype?

With comparable sales levels, yes.

Since both the investment is lower and the margin opportunity is higher, as a result of a number of the things Sandy mentioned, which has improved the efficiency of that new prototype.

Can I ask one last question?

You said something at a conference a couple quarters ago which I don't think I've ever heard before, in that you don't think you need to reinvest in the store base to upgrade or remodel or reimage, because it's Cracker Barrel Old Country Store and you want the look and feel of a 1960s, 1950s, 1960s store, do you still believe that's the case, that you really don't need to enhance and upgrade and improve the store base and that you want it to look old?

To be clear, --

And that's my last question.

What we said was is we will always spend money on maintenance CapEx.

We will make sure that those stores are in the excellent working and physical condition that our customers expect, and as I noted in my remarks, our CapEx forecast for the current fiscal year includes maintenance CapEx of $30 million to $35 million.

What we said in that conference, though, was that as compared to many of the casual dining companies that seem to invest every 7 years, 8 years, not so much for maintenance, but to make changes to the look and feel.

Maybe seven years ago it was primary colors.

Now it's earth tones.

Maybe it was fern hanging from the ceiling.

It's Tiffany lamps now.

We are and have been for 42 years, we're an old country store.

And our customers, based on the new Nation's Restaurant News Survey, give us the highest rankings in family dining for cleanliness and for atmosphere.

Thanks very much.

Thank you.

We'll go next to Bryan Elliott with Raymond James.

Hey.

Just a couple quick follow-ups.

First, the guidance assumes flat fully-diluted share count.

How many shares do you need to buy to offset dilution this year?

Roughly.

Roughly, about the same as we did in the prior year.

And I'd rather offer that as a range of say 500,000 to 700,000 shares, Brian.

Okay, that's great, thanks.

Secondly, the new prototype, just wondering what the actual cost reduction is on the changes?

What we have publicly said, and the Company's 10-K filing last year, we said that excluding land, the cost of a new store is in the range of $2.3 million to $2.9 million.

We've additionally said that what we expect with the new prototype is it will allow us to move closer to the bottom end of that range, but we've not been specific in dollar terms, Brian.

Okay.

And how much land do you expect to buy for the 15 stores, or have bought, I guess probably?

We're expecting it will probably be about 2/3, 1/3, leased versus owned.

2/3 leased.

Okay.

Yes.

Thank you.

This does conclude the question-and-answer session.

I would now like to turn the call back to the President and CEO, Sandra Cochran, for any additional or closing remarks.

Thank you all for joining us today.

We face challenges from the economic and competitive environment, but I believe we're well-positioned to meet them with a strong brand, a talented management team, and 70,000 engaged employees, committed to providing a great guest experience.

We appreciate your interest and your support.

Thank you.

This does conclude today's conference.

We thank you for your participation.