Cracker Barrel Old Country Store Inc (CBRL) 2019 Q3 法說會逐字稿

Good morning and welcome to the Cracker Barrel Fiscal 2019 Third Quarter Earnings Conference Call.

(Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Adam Hannon, Manager of Investor Relations.

Please go ahead.

Thank you, operator.

Good morning and welcome to Cracker Barrel's Third Quarter Fiscal 2019 Conference Call and Webcast.

This morning, we issued a press release announcing our third quarter results and our outlook for the 2019 fiscal year.

In this press release and on this call, we will refer to non-GAAP financial measures for fiscal 2018 adjusted to exclude the impact of the 53rd week that occurred in our fourth quarter and a onetime noncash revaluation of the company's net deferred tax liability that occurred in our second quarter.

The company believes that excluding these 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 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 financial.

On the call with me today are Cracker Barrel's President and CEO, Sandy Cochran; Senior Vice President and CFO, Jill Golder; and Vice President and Principal Accounting Officer, Jeff Wilson.

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

We will then open up the call for questions for Sandy, Jill and Jeff.

On this call, statements may be made by management of their beliefs and expectations regarding the company's future operating results or expected future events.

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

We caution 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 the press release and are described in detail in our reports that we file with or furnish to the SEC.

Finally, the information shared on this call is valid as of today's date, and the company undertakes no obligation to update, except as may be required under applicable law.

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

Sandy?

Good morning, and thank you, Adam.

This morning, we announced positive comparable store restaurant sales that outperformed the industry, and we reported earnings per share of $2.09.

I'm pleased with the quarter as a whole as we continue to make progress on key initiatives, driving performance through an increased focus on our menu, the employee and guest experience and the continued expansion of our off-premise business.

We also announced an increase on our regular quarterly dividend to $1.30 per share.

Over the last 8 years, we've increased our dividend 10x, totaling nearly 490% growth.

Additionally, we declared a $3 special dividend, our fifth, and our Board authorized a new share repurchase program for up to $50 million of the company's outstanding shares.

The increase on our regular dividend, the declaration of a special dividend and the authorization of the new share repurchase program reflect our commitment to returning capital to our shareholders after we have appropriately invested in our business.

Jill will review the financial results for the quarter as well as our updated full year expectations.

But before she does, I want to speak to some of the highlights for the quarter and provide an update on our plans for the remainder of the fiscal year.

Our third quarter menu promotion was centered around Cracker Barrel favorites and featured several popular core menu offerings such as our Chicken n' Dumplins, Country Fried Steak and Grandma's Sampler.

This promotion was supported by national TV, and the ad continued our strategy of more explicitly highlighting our food and value.

I'm pleased with the menu promotion and marketing campaign, which drove top line growth in line with expectations.

Additionally, featuring core menu favorites further benefited our stores by simplifying operations and enabling a heightened focus on the introduction of our Signature Fried Chicken platform.

As a reminder, the initial offering from this new platform is our Southern Fried Chicken, which is currently being featured in our summer menu promotion and includes a generous portion of 4 pieces of hand-breaded bone-in chicken, with honey for drizzling, 2 sides and a choice of homemade biscuits or cornbread.

The promotion also features summer sides such as corn on the cob and bacon baked beans as well as a banana pudding for dessert.

To support this major initiative, we have been and will continue to invest in training, hourly labor and advertising.

We plan to air 12 weeks of national TV, emphasizing the handmade preparation and abundance of this delicious craveable offering.

We also recently completed updating the creative on our entire system of billboards, with the majority of the new messaging featuring Southern Fried Chicken.

I'm pleased with the rollout of this significant initiative and with our stores' execution.

To date, guest response to our Southern Fried Chicken has been strong, and we remain excited about this new platform.

Moving to off-premise.

We continue to see growth in this business, and it was a meaningful contributor to the top line results for the quarter.

As a percent of sales have increased 110 basis points compared to the prior year quarter, I was pleased with the sales performance of the Easter heat and serve offering, which grew over 25% versus the prior year as we continue to build this holiday occasion.

We've been expanding our third-party delivery coverage, and this service is currently available in nearly 350 locations, and we plan to have it in over 100 additional stores by the end of the fiscal year.

We've been pleased with the early results and believe this occasion is highly incremental.

In conjunction with the launch of our Southern Fried Chicken, we recently introduced a family sized offering that includes 12 pieces of chicken, 2 quarts of sides and biscuits or cornbread, all served in a fun picnic basket themed to-go box that will be available for both in-store pickup and third-party delivery.

Our retail business underperformed versus our expectations, both women's apparel and decor fell below their respective plans, contributing to the year-over-year comparable store sales decline.

Within women's apparel, which had been a successful category for us in recent quarters, we bought deeper in particular styles that unfortunately did not resonate as strongly as we had anticipated.

Although our sales results were below expectations, we delivered an improvement in gross margin rate through our markdown optimization initiative and targeted shrink reduction.

During the fourth quarter, we're focused on strengthening our retail position with our travel guests, who historically have spent more per visit on retail merchandise compared to our local guests.

We're optimizing our assortments in key floor locations along the customer journey to better highlight merchandise targeted with our traveling guests.

We remain focused on our employee experience and our guest experience.

In the third quarter, we continue to make enhancements to our PAR program as we seek to better leverage our PAR IV employees as leaders and mentors.

We are continuing to implement several initiatives designed to drive higher employee engagement, which we believe will, in turn, lead to a better guest experience.

I'm encouraged by the improvements we saw across several key guest experience metrics in the third quarter, and I'm optimistic we will continue to build on this momentum and achieve further gains in the coming quarters.

In closing, I'm pleased with the quarter overall and we remain confident in our plans and focused on driving top line growth through the execution of our key business initiatives.

And with that, I'll turn the call over to Jill.

Good morning, everyone, and thank you, Sandy.

I would like to begin by discussing our financial performance for the third quarter of fiscal 2019 and then our outlook for the 2019 fiscal year.

In this morning's release, we reported third quarter net income of $50.4 million or $2.09 per diluted share compared to prior year earnings per diluted share of $2.03.

For the quarter, we reported total revenue of $739.6 million, an increase of 2.5% when compared to prior year revenue of $721.4 million.

Our restaurant revenue increased 2.9% to $610.1 million and our retail revenue increased 0.6% to $129.5 million.

Our total revenue increase was driven by positive comparable restaurant sales and the net opening of 7 new Cracker Barrel locations.

Cracker Barrel comparable store restaurant sales in the quarter increased 1.3% as average check increased 3.1% and traffic decreased 1.8%.

We estimate that unfavorable weather impacted comparable store restaurant traffic by approximately 30 basis points.

The increase in average check reflected menu price increases of approximately 1.8% and a favorable menu mix impact of 1.3%.

The third quarter mix favorability was driven primarily by our menu promotions and the growth of our off-premise business.

We were again pleased with our off-premise business, which grew over 15% compared to the prior year and contributed to our comparable store sales results.

Third quarter comparable store retail sales decreased 2.6%, with decreases coming primarily within our women's apparel, accessories and decor categories.

Moving on to expenses.

Total cost of goods sold in the quarter was 29.3% of total revenue versus 30.2% in the prior year quarter.

Our restaurant cost of goods sold was 25.2% of restaurant sales, a 40 basis point decrease versus the prior year.

This decrease was primarily due to flat food commodity inflation and menu price increases.

Our retail cost of goods sold was 48.8% of retail sales compared to 51.1% in the prior year quarter.

This decrease was primarily a result of reduction in markdowns and improved shrink.

Labor and related expenses were $267.6 million or 36.2% of revenue compared to $257.4 million or 35.7% of revenue in the prior year quarter.

This 50 basis point increase was primarily driven by wage inflation of 3.3%, on a constant mix basis, and investments to support the guest experience, our fried chicken initiative and our off-premise business.

Other store operating expenses in the quarter were $152.7 million or 20.7% of revenue compared to other store operating expenses of $147.6 million or 20.4% of revenue in the prior year quarter.

This 30 basis point increase was primarily the result of planned depreciation increases related to capital expenditures.

Store operating income was $102.2 million in the third quarter or 13.8% of revenue compared to store operating income of $98.7 million or 13.7% of revenue in the prior year quarter.

General and administrative expenses in the quarter were $37.1 million or 5% of revenue compared to $35.4 million or 4.9% of revenue in the prior year quarters.

Operating income was $65.1 million, an increase of 2.8% compared to operating income of $63.3 million.

As a percentage of total revenue, operating income was 8.8%, which was equal to the prior year quarter.

Our EBITDA for the quarter was $92.5 million, an increase of 6% compared to EBITDA of $87.3 million in the prior year quarter.

Net interest expense for the quarter was $4.1 million compared to $3.6 million in the prior year quarter.

Our effective tax rate for the third quarter was 17.3% compared to an effective tax rate of 18.4% in the prior year quarter.

Turning to our balance sheet.

We ended the fiscal quarter with $167.6 million of cash and equivalents compared to $174.3 million at the prior year quarter end.

Our total debt was $400 million at quarter end.

With respect our fiscal 2019 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.

We continue to expect total revenue of approximately $3.05 billion, and we now expect comparable store restaurant sales growth for the full fiscal year of approximately 2%.

Our retail outlook is now more cautious and we currently expect comparable store retail sales growth to be flat to slightly down versus the prior year.

We have opened 8 new Cracker Barrel stores in fiscal 2019, with a final opening for the fiscal year having occurred in May.

We continue to expect increased food commodity costs on a constant mix basis of approximately 2% for the fiscal year.

We have locked in our pricing on approximately 65% of our commodity requirements for the balance of fiscal 2019 compared to 70% at this time last year.

We continue to expect depreciation expense of approximately $110 million for the year and net interest expense of approximately $17 million.

We continue to expect an effective tax rate for the fiscal year of approximately 17%.

We continue to anticipate capital expenditures for the year of approximately $150 million.

We continue to project approximately $10 million in business model improvement, resulting in sustainable cost savings.

We continue to monitor food commodity inflation and wage inflation, which represent potential headwinds in the fourth quarter.

We plan to continue investing in training, labor and advertising to support our Southern Fried Chicken initiative.

And lastly, we believe we have made much progress in addressing the top line challenges from our fourth quarter.

In fiscal 2018, we remained cautious with regard to visit frequency with our lighter users who disproportionately visit us in the fourth quarter.

Taking these assumptions into account, we continue to expect full year operating income margin in the range of 9% to 9.3%.

We continue to expect to report full year earnings per share of between $8.95 and $9.10.

And with that, I will turn the call over to the operator so that we can take your questions.

Thank you very much.

(Operator Instructions) And our first question will come from Jeff Farmer of Gordon Haskett.

You did provide some details, but I'm just looking for a little bit more.

So can you touch on, what is your commodity basket exposure to pork?

How are you contracted for that protein moving into FY '20?

And what is your outlook for pork prices heading into next year?

Great.

This is Jill, thanks for that question.

So we talked about our current guidance for commodities for the fiscal year.

Overall, it's 2%.

Within our commodity basket, approximately 10% is pork, with approximately 5% of that, bacon.

For the remainder of this fiscal year, we continue to have a -- we believe we've got good visibility to that.

So we've got some locked in and we got good visibility so there's some risk there but not as much.

As we look out to fiscal '20, we're not ready to give longer-term guidance, but we certainly believe that commodities in general will be a little bit more of a headwind, a little bit more volatile next fiscal year; and pork, in particular.

And then just 2 quick follow-ups.

Again, things that you mentioned in the prepared remarks, but what percent of the retail inventory could be impacted by the tariffs on the Chinese imports?

So from a retail standpoint, we import approximately 1/3, the majority of that coming from China.

So our teams have really been working diligently to mitigate the impact of some tariffs.

How they're doing it, they're looking for alternative sourcing with different countries.

They're partnering with vendors to help share costs.

We're looking at product assortment, potentially adjusting pricing in certain circumstances.

We've had some impact from the tariff in this fiscal year, which is fully baked into our guidance for this year.

Those categories that have been affected so far are around stationary, furniture and decor.

So again, as we -- we'll give more guidance in September as to fiscal '20, but that remains a concern for us.

And then just last quick question.

Looks like you guys had 2 unit openings in the quarter.

But despite that, the new unit productivity looked pretty strong with the average weekly sales growth outpacing same-store sales growth for the first time in at least 10 quarters, at least according to our model.

Anything to comment on there in terms of the strength of like -- just those couple of units that opened in the quarter?

Yes.

Thanks, Jeff.

Yes, we did open a couple of units.

We've been pleased with the initial sales from those units.

Many of them are in the West Coast, so they have a higher price tier, which is helpful, but we have been pleased with the top line and consumer interest in Cracker Barrel.

Our next question comes from Stephen Anderson of Maxim Group.

Just wanted to go a little bit more into the special dividend.

I notice that for the first time in the last few years, we've actually seen a retreat -- or actually decline in that special dividend but actually increasing that the -- actually implementing a new share buyback program.

Can you give any specifics on the program itself, whether you expect to -- whether you see it diluting some of the options that are out there or you see maybe gaining a little bit ahead?

And maybe seeing any kind of a share -- maybe a reduction in the overall share count?

Okay.

So this is Jill, I'll start with just kind of a discussion of our capital allocation strategy just overall.

So as you know, our Board is very thoughtful and they continue to have a balanced approach to capital allocation.

So as we look at that, our first priority remains to reinvest in the business, to drive sales and earnings.

Secondly, we remain committed to our regular quarterly dividend.

And as we announced in our press release, we grew that 4% from $1.25 to $1.30.

After that, we have different options for returning excess capital or excess cash, which we consider on a case-by-case basis.

So in that basket, you have share repurchase as well as a special dividend.

The Board just authorized a $50 million share repurchase buyback, and we declared a $3 special, which was our fifth.

So as the Board contemplated this, we had discussion with some shareholders, and we believe that the Board continues to be thoughtful on how we manage the return of this excess capital to shareholders at this time.

Anything to add, Sandy?

I think the only thing I'd add is that at that kind of authorization, that would more than cover the dilution.

I think that was part of your question, Stephen, whether this was just to offset dilution, which -- or would be additional.

And right now, we would assume it would be additional share repurchase, so it would reduce the shares outstanding.

Our next question comes from Robert Derrington of Telsey Advisory.

That's close enough.

Sandy, typically, you all do a pretty good job about planning, especially as you look forward, and some of the headwinds, especially as it relates to both the retail COGS and the restaurant COGS, I don't think we've seen kind of a headwind like this come together in quite some while as we look out towards the new fiscal year.

Are there things that you can do within the business to help mitigate some of those risk factors, whether it's additional menu pricing or other ways of handling those things?

Well, we certainly look at each of the cost components of the P&L.

And Jill mentioned, and you've just mentioned a few of them that we are certainly monitoring closely.

On the retail COGS, the potential impact of tariffs, I think Jill's already mentioned the things that we're doing, whether it's diversifying our sourcing strategies, looking at our assortment, considering how to partner with vendors to offset it; in some cases, to raise pricing.

I mean, all of those are strategies that we -- we're thinking about.

The commodity environment is -- we've already talked about that in the context of pork and that's going to be one we're going to have to just navigate through.

Wage inflation, of course, that's one of those double-edged.

On the one hand, it is an immediate increase in the pricing to us.

What we hope is that, that translates to higher disposable income to our guests and that, that will help us in some cases.

So we're looking at all of those issues.

I would say that where we don't talk as much about, but is certainly an issue for us, is to the degree that things like the tariffs result in broadly broad increase in prices for consumers, that's going to have potentially a negative effect on consumer disposable income.

And so we're looking at that and the potential impact on our top line.

As it relates to labor costs and some of the pushes and pulls within the business, if you look at the new fiscal year, are there other cost-saving measures that you've talked about before that I'm just not remembering?

I know you've talked in the past about the POS plan, but that is, I guess, still developing.

Anything on the horizon as far as cost savings and labor cost?

I don't believe that there are things that Jill wants to talk about on this call.

I can tell you that addressing labor expense is a important conversation that we're having here.

And finding ways that we can deliver the guest experience, deliver the brand, continue to reflect the scratch cooking, the things in the kitchen that have made this brand what it is and control our labor expense is an important subject.

You hit on probably the biggest one, which is the tablets that are associated with the POS system.

Jill, is there any other ones that you want to talk about?

No.

I think that Sandy highlighted the big ones.

So Bob, as we're looking at it, we were on track to deliver the $10 million in cost savings this fiscal year.

We're committed to continuing to focus on taking out those value-added costs from the business, and especially places where we also think it will help improve the guest experience.

In regards to the POS and tablets in particular, as you recall, when we pulled the chicken initiative forward, we purposely slowed down some initiatives, including our POS initiative.

We're currently in about 90 stores.

We'll add about 20 within this quarter.

As we put together our final plans for next fiscal year, we'll look at what that rollout schedule looks like.

But that investment allows us to leverage the tablets and then some other technology that we believe will not only improve the guest and employee experience but also help reduce some other costs.

Our next question comes from Gregory Francfort of Bank of America.

I just had a couple of questions.

The first, Sandy, you talked a little bit about the difference between your frequent guests and your infrequent guests.

I think you've been talking about it for a little while.

But I'm wondering if you could quantify what's happening there and maybe offer any thoughts on kind of how that's impacting your business.

We have a lot of guests.

One of the great things about the brand is the breadth of the appeal, but many of our guests visit us infrequently.

So for example, they might only visit us when they're on their summer vacation to the beach and traveling down I-95 or on the holidays when they go to visit their family or something.

So for the second quarter and the fourth quarter, in particular, which tend to have a higher percentage of those travel guests, it is always important that we capture that guest and the kind of things that get in the way of that are, first of all, whether they do their trip.

So whether consumers this summer will be making their trips, whether they'll believe that they have the disposable income to stop; and then when they stop, will they buy retail?

And so we've been focused on ensuring that we can drive trial with things like the craveable food like our fried chicken platform, that we clearly message it.

We converted a significant portion of our billboards to our fried chicken message, partly to capture those guests who maybe were traveling over the summer and to remind them about why they might want to stop at Cracker Barrel.

So our marketing and media is focused on capturing the travel guests.

And then in ensuring that when they do stop with us, that the hospitality they receive in what is often a very busy time is -- meets their expectations.

So that's something that our operators are very focused on ensuring that we deliver as we head into this busy season.

Understood.

And then I think going back to -- I can't remember whose question it was on the pork contracting into next year.

I think about a year ago, you rolled off of a 5-year pork contract.

And I guess, could you just help us understand how far out you are able to lock pork?

And how much of that is locked pricing versus locked quantity and just sort of the methods of how you can do that in the market?

Yes.

We don't want to disclose specifics around how we purchase some of the commodities, including pork.

The pricing is formula based and it is subject to the underlying commodity basket.

But as I said, as we look at the fourth quarter, we feel like we have good visibility.

We've locked in a significant portion of that.

Pork prices are baked into our fourth quarter guidance.

And then as we look out from commodities in general, pork in specific, we would expect that to be a bit more of a headwind and a little more choppy in the commodities market next year.

And maybe if I could sneak one last one in.

Just the decision to put the special dividend where you put it, I think it will still potentially this year have total dividend outpace free cash flow modestly.

And I guess, I'm curious how you're thinking about your debt balance right now and whether or not you think that's an opportunity to maybe take advantage of where your balance sheet is to take debt up modestly over time and sort of the magnitude of that.

I guess, I'm just curious where your head's at on that front?

Yes.

No.

That's a great question, Greg.

As you know, we generate a fair amount of cash and we've been able to reinvest that cash back in the business to drive both our top line and bottom line results.

And then we've been able to pay out the regular dividend, special and then the modest share repurchase that we've done historically with that cash.

As we look longer term, what we've said in the past is that we'd be comfortable with a leverage ratio in the range of 1.5 to 2, depending on what drives us there.

But this fiscal year, we should be comfortable funding what we've announced.

Our next question comes from Alton Stump of Longbow Research.

I just have 2 questions, I guess, first of, and if I missed this, I'm sorry, but could you quantify or kind of ballpark what percentage of your total food input costs is represented by pork?

And secondly, as mentioned, the West Coast openings being strong.

If you could just give us an update on kind of how things trended.

Obviously, you've been out there for almost 2 years now and sort of how you foresee the West Coast market playing out as a percentage of your total new builds going forward?

Okay.

Alton, this is Jill.

I'll start with your pork question.

Pork is about 10% of our commodity basket; approximately half of that is bacon.

With respect to the West Coast, Alton, we opened our first store in California a little over a year ago, Oregon before that, which is probably what you're thinking about the 2 years.

We currently have 4 stores, where we're pleased with the guest response.

As Jill mentioned, our top line results have been encouraging and now we are working on and focused on improving the profitability out there and based on our learnings about how we need to modify the way we deliver the brand to make adjustments for the specific cost pressures that we find out in California.

Our next question comes from Jake Bartlett of SunTrust.

I had a question on the EBITDA guidance for 2019.

Typically, at this point of the year, with only 1 quarter left, you would have narrowed that.

So I'm looking at a 30 basis points kind of range.

And maybe just -- if you could let us know if there's any real big swing factors in the quarter that kind of has kept the -- to keep that wide guidance?

Or how should we think about the EBITDA guidance for the fourth quarter?

Great.

Jake, that's a great question.

This is Jill.

As I said in my prepared remarks, we've been pleased with the top line performance and the progress on our initiatives.

We do have some headwinds, probably more than we've had at this time a year ago with a little bit more uncertainty around them.

We've mentioned them on the call earlier.

So retail sales and tariffs being one and then wage inflation and commodity inflation.

So given that, we remained a little more cautious and provided a wider range.

And then Sandy earlier was just talking about visit frequency with our travel guests.

We believe we've made some significant progress with that but the travel guest disproportionately has more visits in the fourth quarter.

So we remain a little bit more cautious on that.

So those are the factors that led us to keep the guidance range where it was at.

Got it.

And are there some impacts in the fourth quarter that you should think about, like for instance, advertising?

I believe your -- the advertising for more weeks, I guess, 12 weeks this fourth quarter versus 8 last year, if I have that right.

But just anything to call out that we should be careful about with our fourth quarter margin expectations.

Yes, Jake.

There's a few things.

So you do, you have the marketing right this fiscal year because we wanted to feature and launch the chicken initiative on television.

We've got 12 fiscal weeks versus 6 national last year.

We did have 2 weeks of local media last year.

So marketing will be up over last year in the range of 40 basis points or so, although we expect it to be flat on the year.

And then we've invested in some things, so we've invested around training and labor to support the chicken initiative.

So those are the primary items within the fourth quarter.

Okay.

And then, Sandy, I'm hoping you can give us a little more color on how did the chicken -- fried chicken launch has gone.

It's been in tests for quite a while now, I guess for about a little more than a year in some markets.

How has experience been versus what your expectations were or what you saw in test?

Well, we're pleased, encouraged.

So just to remind the group, the objective was to drive frequency in trial with some new craveable signature food innovation.

We started with a Signature Fried Chicken platform.

The first offering, the Southern Fried Chicken, which is the bone-in.

It's in about 650 stores now.

The -- really, the media launch was the beginning of May.

Guest feedback has been positive, and I'm really pleased with the operator execution and engagement and how they've delivered it.

It was a complicated initiative to implement in each of our stores in terms of training and knowledge and all that.

But this product launch we've just started, it will go -- continue through the summer with Southern Fried Chicken.

Then we'll be introducing our Sunday chicken, homestyle, which is a boneless fried chicken product in the fall.

That will add to the platform.

And then we intend to bring hand-breaded, batter-breaded tenders on, maybe a sandwich and so on.

So longer term, I'm encouraged by the initial response to this initiative.

Great.

And then lastly, Jill, if you can -- you've given the longer-term target for leverage of 1.5 to 2x.

My math is that your kind of current plan doesn't really move the needle very much in leverage, but how should we think about that as a target?

Is that a long -- over a number of years?

Or I mean, I guess, I'm just trying to understand what your intentions are with leverage given that you now have the opportunity to increase your leverage, buy back more shares, but you're not more aggressively doing so now.

Yes.

Jay, that's great.

I think you answered the question for me.

Yes, that's a longer-term target for us.

And really, as we look at it, it's what would be the drivers that would require us to increase that leverage so what would we be investing in and what would we use the cash for.

But yes, it's a longer-term target of the 1.5 to 2x.

And do I interpret that, that the uses of the cash would be different than just buying back shares and it would be something else like acquisitions?

I'm just trying to understand the -- what that means.

Yes.

I mean, it goes back to our overall capital allocation strategy.

So first, if we have great ideas like chicken to invest in the business, that was one initiative that wasn't on our radar screen this year that we pulled forward.

We have the POS.

So there's a number of initiatives that, that could encompass.

Our next question comes from Jon Tower of Wells Fargo.

Just hoping you could go into the pricing potentially for next year.

Obviously, labor inflation and COGS inflation now picking up.

Just kind of trying to think about how you think about using the pricing lever versus eating some of the margin impact to keep the relative value to the consumer at a reasonable level given that average check growth over the past several years has been between roughly 2.5% and 3%.

So maybe you could just talk about how you balance the relative value to the consumer versus protecting store margins over time.

Great question.

So we believe pricing in the range of 2% is an appropriate target for us over the long term.

We want to make sure that we do that pricing effectively so then we continue to leverage our price tiers.

We have a group of holdout stores that help us evaluate the pricing and some other consumer research that we're focused on to ensure that we remain -- or retain our overall value proposition with the guest.

That said, we have the opportunity to float up or float down a little bit on that.

So definitely, we would think about, is there some pricing that we could take to help offset things like higher commodity inflation.

And then another area that we have benefited from and expect to benefit from -- in the near term is some of the favorable menu mix.

We talked about the consumer's response to the introduction of the fried chicken that has been a great consumer benefit but it's also helped our overall check and margin, at least in the short term.

So that also could be a benefit.

Okay.

So today, is that the product priced in such a way that Southern Fried Chicken, that it's actually accretive to margin?

Yes, it is.

Okay.

And then just thinking about the next generation of this platform.

How should we think about the training around that and the cost behind it, I guess, both on the training side as well as the marketing side?

It sounds like trading should be less but I don't want to make too much of an assumption there.

And perhaps the marketing push next year around new iterations, whether it's the homestyle chicken or the tenders or the sandwich won't be as great as perhaps this fourth quarter launch, but maybe steer me in the right direction.

Well, I think the trainings -- you're probably right.

The biggest lift was the initial training of the actual frying system.

And we had not previously done a bone-in fried chicken product.

We currently do homestyle chicken, only on Sundays.

So that will be easier for both our stores and our guests to understand.

I think from a marketing standpoint though, we want to be sure we continue to drive awareness of the offer and the brand and the excitement of this, in the case of the sandwich, for example, the new news, the case of the Sunday chicken be available all day and the tenders and so on.

So I would not necessarily look for less of a marketing investment but potentially less than in a training one.

Okay.

And then just lastly on the retail business.

Same-store sales of, at least the guidance for the year have kind of bounced around from starting the year flat to 1 to up to 1 to 2, and now down roughly net flat to slightly negative expectation.

Can you just talk about how you forecast sales in that category and specifically how you choose the items that are featured and perhaps what has hit?

Why it hasn't hit at the rate that you were anticipating?

That's a very broad question.

So our retail team works over a year out as they think about the assortment that they're going to sort of have in the store at any one time, the core of -- the center of the store theme business changes from something like 30 times a year, and we try to keep that assortment sort of topical, fresh and to provide new news for our guest.

And then the perimeter of the store, if you think about sort of a core business, it's the food wall, the apparel wall, the toy department, personal care, sort of if you picture the retail team.

So our retail team is always trying to anticipate what guests are going to be looking for at a particular time of the year and how we can deliver fun, whether it's unique, fun, nostalgic items that you can kind of buy on an impulse but has a great value.

And they work pretty far out to do that.

We are addressing, at certain times of the year, the guest changes.

So whether it's a travel guest who might be looking for different kind of items and your core guest at other times of the year.

We're also trying to understand what the guests who are coming from an off-premise pickup occasion might want to have a retail attachment to a guest who isn't planning to spend an hour with us on a visit and eat in the dining room and so on.

And so what kind of items in the retail store would be the most likely to be interesting to that guest?

So the retail team is doing a lot of heavy lifting about trying to understand how we can set our retail store up to have something for that everyone just has to leave with.

That being said, I think that the disappointment in the last quarter, you don't always get it right and I think we went a little deep in a couple of areas, particularly in women's apparel, for example, where we just didn't see the interest that we expected to see.

And I think that they've navigated through that well.

We managed our inventories.

Effectively, we were able to deliver an improvement in margin rate by managing -- optimizing our markdown spend with some improvements in shrink.

And so I think they're doing a good job of navigating through.

But it's a very difficult challenge for any retail team to try to anticipate that far out, what guests can't live without.

Our next question is a follow-up from Stephen Anderson of Maxim Group.

I wanted to follow up with you, just take a little bit different track.

Let's talk about your 2020 and perhaps even 2021 pipeline.

What kind of range do you see in terms of new unit growth and whether you're taking a look at Holler & Dash again?

So Steve, on the new unit pipeline, it's just too early for us to talk about '20 and '21.

So we'll save that conversation for September.

Okay.

And with regard to Holler & Dash, I wanted to see if there's an update?

Obviously, you've got no new stores this year, but wanted to see -- talk about the progress you're seeing there.

Well, as we've talked, I think, in the last call or the call before that, we've got 7 units, different market types and we are in the process of now understanding better the demand, the profitability, possibilities and the viability in different real estate locations.

And once we feel like we've got a real solid understanding of that, we'll give you an update on what we plan to do going forward.

Our next question is a follow-up from Robert Derrington of Telsey Advisory.

Jill, could you help us with, as we look at the third quarter results, how much of the 50 basis points of labor cost increase year-over-year was related to the trending of the new chicken platform?

We don't really want to break all of that out.

Come on.

You can just tell me, okay?

Clearly -- yes, clearly, the biggest piece of it was our overall wage inflation of 3.3%.

Okay.

All right.

And Sandy, you haven't really talked a whole lot about the opportunity within third-party delivery, and it sounds as though it's certainly being expanded across the system.

You told us before you were going to use, I think, one out-state provider of the service and one more, I guess, for your more urban or suburban markets.

What can you share with us at this point about that program?

Well, I can assure that we're excited about the -- where we are so far.

I think I mentioned we're in about 350 stores.

We are using DoorDash currently.

I think we will potentially add 2 additional vendors to increase our coverage.

So it will largely depend on as we grow, who is the best vendor in a particular market.

But we're pleased with the early results and we do believe this occasion is highly incremental.

How is -- how do you look at the pricing of the product through those platforms?

Is the product priced at your store level, retail or is there an add-on through the service?

I think what I'd say is it's not priced at the store level.

Okay.

All right.

And then one last question.

As we look at the different components of the way you use your new chicken platform, whether it's in-store, dining, carry out, third-party delivery, catering, what are you seeing the most traction so far within?

And where do you see the biggest opportunity?

Well, we've only -- so we haven't had much time and I would say the majority of our sales are dine-in.

We've recently implemented this picnic box, which is on offer that I'm excited about and I can see it being that fried chicken could play an important role in our off-premise and catering initiatives.

But we're going to just build on this platform over time.

This concludes our question-and-answer session.

I would like to turn the conference back over to Sandy Cochran for any closing remarks.

Well, thank you for joining us today.

Cracker Barrel remains one of the most differentiated brands in the industry and I'm confident that our strategy and initiatives will continue to drive shareholder value.

We appreciate your interest and support.

Thank you.

The conference has now concluded.

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