Cracker Barrel Old Country Store Inc (CBRL) 2013 Q1 法說會逐字稿

Good day and welcome to the Cracker Barrel fiscal 2013 first-quarter earnings conference call.

Today's conference is being recorded and will be available for replay today from 2 PM Eastern through December 13, 2012 at 11.59 PM Eastern by dialing 719-457-0820 and entering passcode 5897742.

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

Please go ahead, ma'am.

Thanks, Gabbari.

Good morning and welcome to Cracker Barrel's first-quarter fiscal 2013 conference call and webcast.

This morning, we issued a press release announcing our first-quarter results and outlook for the 2013 fiscal year.

In this press release and on this call, we will refer to non-GAAP financial measures, adjusted to exclude charges and tax effects related to severance and to the proxy contest concluded at the Company's annual meeting of shareholders on November 15.

We will also refer to non-GAAP financial measures for the prior-year quarter adjusted to exclude charges and tax effects related to the prior-year proxy contest.

The Company believes that excluding these charges and tax effects from its financial results provides information that may be more indicative of the Company's ongoing operating performance, while improving comparability to prior periods.

This information is not intended to be considered in isolation or as a substitute for the financial information prepared in accordance with GAAP.

The last page of the press release includes a reconciliation from the non-GAAP information to the GAAP financials.

The press release can be found in the investor section of our website, www.crackerbarrel.com.

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 risks 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 the 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 with 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 provide or statements we make regarding trends speak only as of the date they are 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 President and CEO, Sandy Cochran, and Senior Vice President and CFO, Larry Hyatt.

Sandy will begin with a review of the business and Larry will review the financials and outlook.

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

We ask that you please limit your questions to matters relating to the Company's performance, outlook and plans.

With that, I will now turn the call over to Cracker Barrel's President and CEO, Sandy Cochran.

Sandy?

Thanks, Coco, good morning, everyone.

As you can see from today's press release we're off to a solid start in fiscal 2013 with our first quarter exceeding our expectations.

The quarter reflects the accomplishments of a continued focus on our long-term strategy to enhance the core business, expand the footprint of our stores and extend the Cracker Barrel brand.

For the fourth consecutive quarter, we experienced positive traffic, positive restaurant and retail sales and outperformed the Knapp-Track Casual Dining Index for sales and traffic.

Our operating income and earnings per share benefited from the operational improvements and general and administrative savings implemented in fiscal 2012 and the initial execution of our business priorities for fiscal 2013.

In addition, guest surveys indicated that during the quarter our scores increased in many key categories including overall satisfaction, intent to return, likely to recommend and overall value.

I'd like to congratulate our operations team for making this Thanksgiving the highest sales day in our Company's history, with a strong operating performance and continued marketing focus, we increased sales for both the in-store dining and our to go meals during the holiday.

Thanksgiving has always been a busy day at Cracker Barrel but for each of the last two years we've set new Company records.

Larry will review the financial results for the quarter in more detail and I'll update you on the initial progress we're making on our business priorities.

Our first four priorities for fiscal 2013 center on enhancing the core business.

And the first priority is to refresh and develop select menu categories that reinforce the affordability of Cracker Barrel and the availability of healthy options for our guests.

As we've discussed previously, our seasonal menu promotions provide our guests with an opportunity to sample new items or try old favorites and offer additional reasons to visit our stores.

We were pleased with the overall performance of our Fall promotion which met guest needs for value and healthier items and featured our country vegetable plate at lunch and dinner and our apple cider-braised pork roast and ever popular broccoli cheddar chicken at dinner.

For breakfast the promotion included our wholesome mornin' sampler, apple streusel french toast and country meat and biscuits.

Currently our holiday promotion is in stores and appeals more to the indulgent nature of the holidays with savory bacon 'n cheese barbecue chicken and a peppermill grill, and cinnamon streusel french toast and fresh baked pies for taking home.

We've made progress on refreshing our core menu in the quarter with a focus on providing better for you items to our guests.

As part of the Fall and Holiday promotions, we introduced new sides to meet guest preferences for lighter and healthier options to customize their meals.

These items include a baked sweet potato, cucumber, tomato and onion salad, a brown rice pilaf and two fresh fruit options.

The sides were well received by our guests, exceeded our internal sales projections and will remain on the core menu after the holiday promotion ends.

We also added the reformulated salads which sold very well as part of last year's promotion to our core menu and we're pleased that the entree salads have continued to perform well even after transitioning off of an in-store promotion.

We believe the consumer will continue to look for value in the New Year and as part of our winter promotion we'll target the dinner day part by highlighting the affordability of our country dinner plates, a category currently on the menu with over a dozen entree choices combined with the choice of two sides and bread service all for only $7.69.

The plan to reinforce the value of our country dinner plates with in-store marketing and the selective use of billboards.

We also continue to work on wholesome fixings with the expectation of adding this category to the menu at the end of the fiscal year.

This designated menu category will provide lighter, lower calorie alternatives for our guests with offerings below 600 calories further expanding our selection of better for you meals.

Our second priority is to grow retail sales with an enhanced assortment of unique nostalgic and authentic merchandise.

Our August sales benefited from an increase in travel guests who typically purchase more retail products and we saw strength in sales of novelty chocolate, children's toys and women's accessories.

Throughout the quarter, we saw continued strength in women's apparel and accessories especially wraps, scarves and earrings.

For the months of September and October, more discretional seasonal merchandise typically has a greater impact on total retail sales and we were disappointed by the weaker sales of our Halloween themed merchandise.

We're well positioned for the holiday season.

Our stores are stocked with a broad and unique assortment of gift items including a variety of nostalgic and fun items like sock monkeys, many family entertainment gifts and seven newly introduced Butterfly Dolls.

Our third priority is to build on the successful advertising campaign we launched last year.

As many of you may have noticed, we updated all of our 1600 plus billboards to our handcrafted by Cracker Barrel advertising theme.

Billboards remain a primary marketing tool and support our iconic Cracker Barrel brand with over 24 billion impressions a year.

The new boards further emphasize our focus on affordability and availability of healthy offerings with messages that remind the marketplace about our value and the freshness of our products.

And if you haven't already, you may soon see our TV ads or hear our radio spots which began airing on November 12.

Like the previous two flights, our TV commercials will run on national cable stations popular with our media target audience of women between the ages of 25 to 54.

Our radio ads cover approximately 65% of our store base and highlight the brand, our retail selections and holiday promotions.

We continue to strengthen the relationship with our guests through the use of digital media and our exclusive music program.

During the quarter, we grew our customer base in each of our digital channels and all of our social media outlets increased in engagement.

Contributing to the increase was our digital campaign, the sharing tree which ran during September and October and encouraged connecting with family and friends around the Cracker Barrel brand.

And for the holiday season, we've launched a pick it to win it game, which encourages our guests to engage with the brand across multiple digital mediums and features the value and breadth of the retail products we offer in stores and online.

Another highlight of the quarter was the success of Josh Turner's second album release with Cracker Barrel live across America which included 12 tracks he recorded while on a Cracker Barrel sponsored tour performing in cities across the country during 2012.

This exclusive CD debuted at Number 9 on the Billboard Magazine Top Country Albums Chart.

Our fourth priority focuses on investing in and leveraging technology and equipment to support operations and reduce costs.

During the quarter, we implemented additional enhancements to our labor model, and as reflected in our guidance, this improvement in scheduling hourly labor will remove approximately 10 basis points of hourly labor costs beginning during the second quarter.

As we mentioned on the last call, we implemented a new merchandise planning system during the quarter.

This tool improves our ability to plan purchases within individual categories and increases the visibility of key metrics in the retail business.

We continue to make progress on rolling out the second phase of our production planner, and anticipate that later in the fiscal year we'll begin to see an increase in the productivity of our prep area and a further reduction in food waste.

Our fifth priority is a continued focus on maximizing shareholder return with a balanced approach to returning cash to our shareholders and investing in the Company for future growth.

As many of you know, we increased our quarterly dividend in the first quarter to $0.50, an increase which was well received for our shareholders.

We opened four stores during the quarter and have opened one other since the end of the quarter.

Our sixth priority highlights our strategy to extend the brand with a focus on our eCommerce and licensing program.

We made improvements to our eCommerce site in October making the pages more visually appealing and easier to navigate.

We believe this has improved visits to the site and click through rates while guests are on the site.

For the holiday season, we're highlighting our Butterflies Dolls, furniture and our great gifts as holiday gift ideas.

While still a very small part of our retail revenues, we're encouraged by the percentage increases we see in our eCommerce activity over the last year.

Earlier this month, we announced a multi-year licensing agreement with John Morrell Food Group, a subsidiary of Smithfield Foods which will make select Cracker Barrel bacon and ham products available to consumers in new retail channels.

John Morrell Food Group is a leader in consumer meat products with an outstanding reputation for quality and service.

We don't expect this initiative to have a material effect on our financial results for fiscal 2013, but we're pleased with the progress of the partnership, the increased visibility of the brand and the potential contribution to profitability in future years.

In summary, despite continued economic concerns and increasing food costs, our consistent focus on our long-term strategy and our initial execution of our business priorities lead us through a solid quarter, steady revenue growth and strong operating performance.

With that I'll hand the call over to Larry for more details on the quarter.

Good morning, everyone, and thank you, Sandy.

I would like to begin by discussing our financial performance for the first quarter of fiscal 2013 and then our outlook for the 2013 fiscal year.

For the first quarter of fiscal 2013, we reported net income of $23.2 million, or $0.97 per diluted share.

When adjusted for charges relating to the proxy contest and severance expenses, our adjusted earnings were $1.08 per diluted share compared with $1.09 in adjusted earnings per diluted share in the prior-year quarter.

Our operating income was $45.3 million, or 7.2% of revenue, compared with $44.6 million, or 7.5% of revenue in the prior-year quarter.

Adjusted for proxy contest and severance expenses, adjusted operating income was $49.2 million, or 7.8% of revenue, compared with $46.6 million, or 7.8% of revenue in the prior-year quarter.

As previously noted, the prior-year quarter included an aggregate net benefit of $5.5 million, or 0.9% of revenue, resulting from the following four items.

A favorable premium adjustment of $2.5 million related to employee health insurance, a favorable adjustment of $2.6 million related to Workers' Compensation reserves, the settlement of a litigation matter resulting in a $3 million payment to the Company, and then these three items were partially offset by expenses related to a Company wide Managers conference that was held for the first time in many years.

Our revenue in the quarter was $627.5 million compared to $598.4 million in the prior-year first quarter.

Our restaurant revenues increased 4.7% to $504.3 million and retail revenues increased 5.3% to $123.1 million.

Our comparable store restaurant sales increased 3.3% as traffic increased 0.8% and average check increased 2.5%.

The increase in average check reflected menu price increases of approximately 2% and a favorable mix impact of 0.5%.

Our comparable store retail sales increased 1.6% in the first quarter.

Our total cost of goods sold in the quarter was 31.5% of revenue, a 40 basis point increase over the prior-year quarter.

Our restaurant cost of goods was 26.8% of restaurant sales compared to 26.5% in the prior-year quarter.

This 30 basis point increase was the result of changes in menu mix and increases in food commodity costs which were partially offset by increases in menu prices and reductions in food waste.

Our commodity costs were up approximately 2.4% in the quarter compared to the prior-year quarter as costs for beef, fruits and vegetables and oils were up sharply from last year.

Our retail cost of goods was 50.9% of retail sales compared to the prior year quarter of 50.1%.

This 80 basis point increase was the result of a number of factors including lower initial mark ups, higher mark downs and reserves on seasonal merchandise partially offset by lower freight expense.

Our retail inventories at the end of the quarter were $139.6 million, an increase of $14.3 million over the first quarter of the prior year.

This increase was a result of higher in-stock positions on certain popular items and the earlier receipt of Spring merchandise.

Our store payroll and related expenses were $232.7 million, or 37.1% of sales, an increase of $11.8 million, or 10 basis points compared to the prior-year quarter.

Improvements in store level labor productivity and reductions in District Manager expenses resulting from the field reorganization in April were more than impact-- were more than offset by the impact of the healthcare and Workers' Compensation adjustments in the prior-year first quarter.

Our other store operating expenses in the quarter were $115.9 million, or 18.5% of revenue, compared with $109 million, or 18.2% of revenue in the prior-year quarter, an increase of 30 basis points.

A 30 basis point reduction in utilities expense was more than offset by the positive impact of the litigation settlement in the prior-year quarter and the timing of advertising expenses related to the update of our billboards in order to reflect the handcrafted by Cracker Barrel theme.

Our store operating income was $80.9 million, or 12.9% of revenue, compared to $82.1 million, or 13.7% of revenue in the prior-year quarter.

On a GAAP basis, our general and administrative expenses in the quarter were $35.7 million, or 5.7% of revenue.

Adjusted for proxy contests and severance expenses, our G&A expenses were $31.8 million, or 5.8% of revenue, compared with $35.5 million, or 5.9% of revenue in the prior-years' first quarter.

The prior-year included a $2.6 million expense related to the Company wide Managers conference.

Our payroll and related expenses, incentive compensation and professional fees were favorable in this first quarter over the prior-year quarter.

On a GAAP basis, our adjusted operating income in the quarter was $45.3 million.

Adjusted for proxy contest and severance expense, our operating income was $49.2 million, or 7.8% of revenue, compared with $46.6 million, or 7.8% of revenue in the prior-year quarter.

Our interest expense in the quarter was $10.7 million compared to $11.1 million in the prior-year quarter due primarily to lower borrowings.

Our effective income tax rate was 33% for the quarter compared to 28.9% in the prior-year quarter.

The increase in the tax rate was a result primarily of the expiration of the work opportunity tax credit.

The higher tax rate in the first quarter reduced earnings per diluted share by $0.06.

Our capital expenditures in the first quarter were $13.3 million compared to $18.8 million in the prior-year quarter reflecting one less opening in the first quarter of this year and timing of new store construction.

The Company's balance sheet continues to be strong.

We ended the quarter with $118.9 million of cash and equivalents compared to $49.8 million at the end of the prior-year quarter.

Our total debt is approximately $525 million and we have unused capacity on our revolver in excess of $150 million.

We did not repurchase any shares in the first quarter.

With respect to our outlook, everyone should be mindful of the risks and uncertainties associated with our outlook as described in today's earnings release and in our reports filed with the SEC as conditions in the US economy and the prices and supply of food continue to be concerned.

So bearing that in mind, we reaffirm our previous guidance of total revenue for fiscal 2013 in the range of $2.6 billion to $2.65 billion reflecting anticipated increases in comparable store restaurant and retail sales in the range of 2% to 3%.

We now expect to open nine to 11 new Cracker Barrel stores in the 2013 fiscal year and we continue to expect to report adjusted earnings per diluted share for the fiscal year in the range of $4.50 to $4.70.

We continue to expect increases in food commodity costs on a constant mix basis of between 5% and 6% for the fiscal year with the most significant increases in the latter half of the year in beef, chicken, eggs, fruits and oils.

We have locked in our pricing on 58% of our commodity requirements for the remaining three quarters of fiscal 2013 as compared to 63% locked in at this time last year.

We continue to expect our adjusted operating margin for the year to be in the range of 7.3% to 7.5% of revenues, for depreciation expense to be between $66 million and $69 million, our net interest expense in the range of $36 million to $38 million, and effective tax rate for the year in the 32% to 33% range and capital expenditures of between $90 million and $100 million.

For the second quarter of fiscal 2013, we expect to report adjusted earnings per diluted share of between $1.22 and $1.27.

Our earnings guidance for the quarter and the full year excludes the impact of proxy contest and severance expenses.

We currently expect that our proxy contest expense for the year will be in the range of $0.12 to $0.14 per diluted share, of which $0.08 was recognized in the first quarter.

And with that, I will now turn the call over to the Operator for your questions.

Thank you very much.

Thank you.

(Operator Instructions) Jeff Omohundro from Davenport & Company.

My question relates to the strategies around value year over year, specifically related to the comments around the focus on affordability with efforts such as the country dinner plate.

Is there an increased focus on value, given the tough macro environment, and does that impact your pricing outlook as well?

Thanks.

Okay, so Jeff, there is.

We've been talking now for over a year about our view of the consumer which is that they're interested in affordability and better for you and our commitment to both providing it, continuing to provide it, because I think we have a very strong value proposition in the market now, and in reinforcing that perception.

So we started last year with our daily lunch specials at $5.99, and at that time I signaled we would attack the dinner day part after that, which is what we're doing by highlighting our country dinner plates which currently are on our menu, they are an exceptional value at $7.69.

It's a choice of a number of proteins, as well as a choice of two sides and we have a number of those and bread service, all for a fixed price, so it really offers the consumer what we think they want.

One of the things that we wanted to do was to even increase the amount of choice the consumer had by improving our choice of sides and having these healthier options, which is why we were pleased to have been able to introduce the baked sweet potato, the fresh fruit, and so on, which were very well-- which really resonated with the guests.

So what we intend to do is to highlight that, particularly beginning in January through some selective use of our billboards, similar to what we did with the daily lunch special, and certainly in our in store.

Another thing we did is on the holiday promotion this year, we really sharpened our price point through the offerings, so the peppermill at $8.99 I think is an excellent value.

The barbecue chicken at $7.99 I think is an excellent value.

So, even the holiday promotion we tried to have a mind towards providing an indulgent offering for what we believe the guest is looking for maybe that time of year, but at a price point that we think that they need and want to see.

I also am feeling good about our strategy for the year about the price increase.

We plan to do a fairly modest one but consistent with Cracker Barrel's history.

We do test our price increases and then when we do them we have hold back stores so that we can fully understand the way those price increases are working, and I'm comfortable with how we've been able to pull that through in the menu.

Thank you.

Joe Buckley with Bank of America Merrill Lynch.

Thank you, it's Andrew Charles for Joe today.

Can you talk about your reduced development targets for the year despite the high number of openings in 1Q, as well as one opening already in 2Q?

Sure, Andrew, hi.

The slippage is mainly the result of delays in permitting and construction on stores that we had initially hoped to open towards the end of the fiscal year.

In particular, we have two stores in the middle Atlantic states that we had expected to open in fiscal '13 that because of some routine permitting matters, but that we had nevertheless not anticipated, look now like they're likely to open in early 2014.

Great, thanks.

And then can you talk about your confidence around the same-store sales guidance, given the tougher comparison over the balance of the fiscal year?

Yes, we are confident that with the focus on value, affordability, healthy choices that with the marketing campaigns that we have in place and with the customers receptivity to our recent modest price increases, we've got a high confidence level in the same-store sales forecast, recognizing though that it remains a challenging consumer and a challenging economic environment.

And I'll additionally note, that particularly in the second quarter, weather is a wild card.

We had relatively mild weather in the second quarter last year and so there certainly is that risk in the second quarter of the current year.

Great, thank you.

Jeff Farmer with Wells Fargo.

Following up on that question, really the F2Q same-store sales, so what is the expectation embedded in that EPS guidance that you provided for the quarter?

Is there some range that you've again put in there, something we shouldn't imply from the EPS guidance in terms of same-store sales?

Yes, we don't specifically provide same-store sales guidance for the individual quarters, Jeff.

Our same-store guidance for the fiscal year is in the 2% to 3% range and there may be some seasonal variation there but that isn't one that we're going to specifically comment on.

Okay, but I guess given how much more difficult the comparison gets relative to the fiscal first quarter, it's fair to say that you expect at least a fairly material deceleration in that number in the current quarter?

I don't know that I would necessarily assume that, Jeff.

Okay, that's fair enough.

And then coming back to the balance sheet for a second, you touched on this, but $152 million in cash at the end of FY '12, I think that number jumped or dropped down to about $120 million at the end of this quarter, so combine that with a little bit of down tick in unit development, which I don't know how that impacts your CapEx, but still the question remains what's the near-term game plan for all of the cash?

Yes, Jeff, we don't comment on any stock purchase decisions that we may make in advance.

We report on those on a quarterly basis in arrears.

May the swaps roll off so we have enhanced flexibility to pay down debt and the timing of CapEx was relatively low on a ratable basis in the first quarter as compared to what it's likely to be for the balance of the year.

Let me mention also that the year-over-year change in cash is due mainly to the retail inventory build that I mentioned in my remarks and change in other liability due to the timing of some incentive comp payment.

Okay and then one quick final question.

As it relates to the Affordable Care Act, is there any incremental detail you can give us as we continue to get closer and closer to this thing?

I'll take that one, Jeff.

It's-- let me say this, first of all, we are still in the planning stage.

There's a number of details about the Act that are not yet clear but we are doing a lot of planning.

We believe that we're comfortable that we can manage through it and are doing-- are looking at a number of scenarios about how we operate in this environment but we are going to protect our guest experience, protect our employee experience and comply with the law, and I do believe we will be able to do all three.

Okay and real last one I promise.

Is there post-- I guess post the election, has there been a change in some of the consumer trends that you've seen?

Are consumers acting differently now or is there still fiscal cliff concerns out there potentially keeping people at home?

From a broader industry perspective.

Well, I think the data is a little bit mixed.

On the one hand, consumer confidence numbers would reflect some optimism, on the other hand, we certainly were concerned that the focus that shifted to the fiscal cliff and probably will continue to be there will be on guests' minds.

For our guests, the issue will be about their confidence in their job and that's probably the first and foremost, and then disposable income which will be impacted by what happens with the Affordable Care Act and things like gas prices.

Okay, great.

Thank you very much.

Michael Gallo with C.L. King.

Sandy, a question on the advertising expense.

I think you noted there was some shift from the first quarter into the second quarter as you focused around the redone billboards.

I was wondering how much that shift was and whether you'll see a measurable increase in advertising expense year over year in second quarter of this year versus the second quarter of last year?

Thank you.

All right, I'm going to probably turn it over to Larry, but to bring people up to what our plan was versus the historical trend, we spend about 2% of our sales on advertising, about half of that's billboards.

The other half what we did in fiscal 2012 and in '13 is that we focus the spend in the second and fourth quarters of the year when we have the most traffic, so that centers our advertising efforts around our holiday season and our summer travel season.

And those are the quarters that we run our TV and the majority of our radio.

So, I'm going to turn it over to Larry to answer your specifics about what we can say on the guidance on the advertising, but what we did this year second quarter is generally consistent with what we did last year second quarter.

Yes, and specifically first let me speak on a full-year basis, our guidance anticipates an advertising spend as a percentage of revenue that roughly is the equivalent of the spend in the prior fiscal year.

I think that you are probably specifically asking about the comment I made about the timing of the refresh of our billboards.

We refresh our billboards every 18 months with new creative and new vinyl and we usually spread that over a three- to four-month period.

In order to get that messaging out sooner to have an impact on sales now, we accelerated that, which had a timing impact in the first quarter that was order of magnitude about 10 basis points.

That's very helpful, thank you.

Bob Derrington with Northcoast Research.

Thank you.

Larry and Sandy, we really appreciate you suffering through our questions as we try and understand your business.

As I look at the next three quarters, Sandy, to get to the bottom end of your same-store sales guidance basically implies nominal comps of roughly 1.5% to slightly under 2%.

And as we look at the January quarter, or is it in the subsequent quarter, when the value focus comes in what I'm trying to understand is will that value or affordability focus, will that bring the check average down?

And so should we expect more of a benefit to traffic?

And what gives you the confidence that you can, if you've got generally about 2% of menu pricing that you can get to these numbers for the full year?

All right so, and we're happy, Bob, to answer your questions.

Value is something we've been working on for the last year, CDPs are currently in the menu.

We are testing what we do plan to rollout now, so we're getting a feel for it.

I don't think it will have a negative-- we're not anticipating right now a negative impact on check and-- but we do think that it will resonate with our guests who are looking for that.

Okay, and then looking into your guidance around the retail piece of the business, which I think historically it seems like it's a little bit more sensitive to the overall whims of the consumer.

As we go forward, given the fragile environment we're in, I'm wondering the extent to which you anticipate that there will be check average benefit within the retail mix, or is it typically feeds off of the traffic trends?

So if traffic is a little bit weaker, does that mean that there's more risk to retail, how should we think about that?

Okay, let's see.

Traffic does play an impact on our retail because a lot of it's about conversion, so well over 90% of the guests that buy in retail have also eaten with us or dined with us.

It is important for the retail, I think, assortment to reinforce the brand and to also address the consumers need for value.

And what we see in what they're buying right now is they're really gravitating towards the items that deliver the value and where we are calling out the value.

One of the disappointments in the quarter was our Halloween-themed merchandise which is a very discretionary purchase and so it is something I'm fairly conservative about in the outlook in the Christmas season is the Christmas merchandise.

But I think the merchants here are aware of the trend and have been focused on highlighting in our assortment and providing items that provide what the guest is looking for.

One last question if I could, Sandy.

Last year was the first year that you really began using some pretty high-quality TV ads to support your business in the second quarter/fourth quarter strategy.

As we look at this year and both the second quarter and the fourth quarter, is there some change within the advertising medium, the message, or the content that you think will add some additional benefit to the Business versus this past year?

No, we're pleased with the results from the advertising.

We've learned a lot from it.

We believe that it is contributing to the performance and traffic.

We're pleased that we were able to reach and support all of the stores.

We do believe it is reaching and influencing the lighter part of our current base which is what we intended and hoped to do through our program, and our data would say that it's influencing attitudes about the brand in a positive way.

So the focus at the moment is about refining our understanding of the effect and the impact across different-- across the various channels, so TV, radio, digital to-- so that we can really optimize that spend level both in where we're spending it and how we're-- at which medium we're allocating the dollars.

So I think that the-- I'm pleased that we were able to do the billboard refresh and to do it all in one month.

We are looking at the creative in our radio probably pretty strongly and we intend to have new creative on our TV in the fourth quarter of this year.

Got you, and again congratulations on the proxy contest.

Thank you, Bob.

Amit Kapoor with Gabelli & Company.

So a number of companies with real estate assets have in recent months chosen to take-- to convert to a REIT or the so-called Opco/Propco separation, more recently companies in gaming and lodging I guess.

Given that you own the land and buildings for over 400 of your locations, do you guys look at the Company through the Opco/Propco lens or have any thoughts on the matter of such a separation for Cracker Barrel?

Thank you.

Sure, Amit.

As you may know or recall, I was actually at Marriott when it split into an Opco/Propco back in the mid 90s.

And so this is a form that's worked very successfully for many lodging and gaming and other companies, has worked less successfully, in fact I don't think you can find any examples in the restaurant space.

Reason being that restaurants are more of a single purpose real estate investment, typically whose highest and best use at that moment is the current brand.

So that there's a tendency that the value of the real estate is basically the value of the operating company, and the credit worthiness of the operating company to meet its lease payments.

Therefore we're not currently looking at that very actively, but we are constantly looking at various financial alternatives to enhance long-term shareholder value and have ruled nothing out.

Okay, great.

Appreciate the response, thank you.

Steve Anderson with Miller Tabak.

Quick question, I think it might answer some of the questions regarding the retail sales around Halloween.

How many store closures did you have the weekend prior to Hurricane Sandy?

And I have a follow up.

All right,, Larry why don't you take that?

We had a handful of stores which were closed in most instances for no more than one day and there was really no material impact on the Company's sales from Super Storm Sandy.

And perhaps equally important, we didn't sustain any property damage and none of the employees who work for us in the Northeast were seriously adversely affected.

That's good news.

My follow up is regarding the-- I guess you pointed out, Larry a number of line items that affected the Q1 results from fiscal '12 and how they do not show up this year.

Are there any similar discrepancies for fiscal second quarter that we should be aware of?

With the exception of the proxy contest expenses which we have spoken about and which we identified separately in the second quarter of last year, certainly nothing that would be near the magnitude of what we had in last years' first quarter.

Okay, thank you.

That does conclude today's question-and-answer session.

I'll turn it back to the presenters for any additional or closing remarks.

Thank you.

Thank you all for joining us today.

I'm pleased with our first quarter results and encouraged by the initial progress we've made on our business priorities.

We look forward to building on the success of the first quarter throughout the remainder of the fiscal year and we appreciate your interest and support.

That does conclude today's conference.

Thank you for your participation.