While commodities are historically variable and should wind down, Cracker Barrel believes high wage rates will be more permanent. So in addition to cost-saving projects, like supply diversification and G&A management, the company is tackling longer-term initiatives to simplify the operational environment, like reimagining how restaurants approach and incentivize retail and restaurant responsibilities and leveraging technology to improve execution.
One key piece will be the chain’s new POS system. The solution should be in all stores by the end of Q3, and will support the continued rollout of the new food cost management system that’s currently in 400 units, but will be systemwide soon. Additionally, the POS technology will facilitate a new labor management system launching in fiscal 2023.
“Our food and labor management systems are part of a broader strategy to improve our business model to allow us to eventually move toward pre-pandemic levels of profitability despite the high inflationary environment in which we find ourselves,” Cochran said.
Even with higher costs, Cracker Barrel’s successful holiday season helped Q2 same-store sales rise 1.9 percent against 2019 and fueled revenue growth of 6.2 percent versus two years ago. Menu promotions included the Cinnamon Roll Pie and Country Fried Turkey, which significantly outperformed seasonal LTOs from last year. Thanksgiving and Christmas Heat n’ Serve offerings delivered modest year-over-year sales growth on a combined basis, and catering beat expectations.
Off-premises sales mixed 24 percent in the second quarter and were approximately flat compared to last year, which is impressive considering nearly 20 percent of restaurants in the year-ago period were operating off-premises only for at least a portion of the quarter.
Comps were rising in the mid-single digits until December, when Omicron drove declines through the end of the month and into January. But as COVID cases have decreased, restaurants have seen a noticeable bump in consumer confidence.
After seeing an acceleration of COVID exclusions and reduced operating hours, Cochran said application flow is increasing, meaning managers can be more selective in the hiring process. She estimated that only about 10 restaurants would be considered “critically understaffed” right now.
“I'm confident that we have the staffing in place to meet the anticipated traffic recovery in the third quarter and that we will be well-positioned in this regard as we head into our busy fourth quarter,” Cochran said.
Absent another wave of surging COVID cases, Cracker Barrel believes its sales and traffic recovery will continue into the fourth quarter. The chain also expects inflation to moderate, and combined with average check growth and multiple cost-saving actions, margins are projected to approach last year’s levels.
The chain is preparing for a busy summer travel season, even with the higher-than-usual gas prices.
“I think we believe that folks have gotten more used to generally higher inflation right now,” said CFO Craig Pommells. “So we think that will mitigate what we would normally see at these type of gas price levels. Now, if gas prices go up significantly from here that could change the outlook. But I think our thinking is in the context of generally broader inflation, that those two things will kind of mostly mitigate each other, but we'll see.”
In the second half of fiscal 2022, the company plans to open two Cracker Barrel stores and between nine and 11 Maple Street Biscuity Company stores. The Maple Street guidance was previously 15 restaurants during the fiscal year, but the projection was lowered due to construction delays.