The fast casual, purchased in 2019 by Cracker Barrel, is facing delays with supply chain, permitting, construction, and other areas.
Cracker Barrel is continuing to grow Maple Street Biscuit Company, although the economy isn't making it easy.
In the chain's fiscal second quarter, the fast-casual breakfast chain opened in Columbus, Ohio, and Houston—both new markets. CEO Sandy Cochran said the company is "encouraged by the performance of these new locations" and that it's "looking forward to accelerating their growth in the back half of the fiscal year and beyond."
Originally, the expectation was to open 15 to 20 Maple Street restaurants in fiscal 2023, which would mark the largest output since Cracker Barrel acquired the brand in October 2019 for $36 million. Through the first two quarters, five have debuted, including three in Q1 (two in Texas and one in Georgia). But on Tuesday, Cracker Barrel lowered its guidance to 15 stores to reflect the possibility that some units planned for late in the year will spill into fiscal 2024. That's primarily because of construction delays.
"Some cases, permitting is the issue," said Cochran during Cracker Barrel's Q2 earnings call. "Some communities don't have as many people to do it. It takes longer to get it. In some cases, we can't get the equipment. In some cases, we can't get the labor to do the construction. So it's every one of those categories we probably have at least one issue in."
The same problem exists for Cracker Barrel restaurants, just on a smaller scale. The chain is looking to open three to four units in fiscal 2023. It opened one this fiscal year and sits at 665 outlets systemwide.
"It's less of [a problem] because we have fewer stores, but on each of the ones we have, it is a problem," Cochran explained. "We actually are delayed on one of our new units because we couldn't pour the footings because of both weather and labor. So this is likely to be a problem for a little while longer while the supply chain problems and the labor issues continue to work their way through the system."
Maple Street finished Q2 with 56 restaurants. Those locations are based in Alabama, Florida, Georgia, Kentucky, North Carolina, Ohio, South Carolina, Tennessee, Texas, and Virginia. It was founded by Scott More and Gus Evans in November 2012. The company is now led by John Maguire, who joined in May 2022. He previously served as CEO of MOD Pizza, Johnny Rockets, and Friendly's, and as COO of Panera.
Cracker Barrel has been in the fast-casual breakfast business for roughly seven years, although the journey hasn't been a straight line. It began in 2016 with the launch of Holler & Dash, a trendy breakfast, brunch, and lunch chain targeting a millennial and Gen Z audience—much unlike Cracker Barrel's classic demographics. Holler & Dash expanded to more than a half-dozen units before Cracker Barrel decided to purchase Maple Street for $36 million. In the following months, all Holler & Dash units were converted into Maple Street.
The quick-service brand had 28 units when Cracker Barrel purchased it, meaning it's doubled in size in almost three-and-a-half years.
Cracker Barrel's goal is to push the fast casual's AUV to over $1 million and to reach store-level EBITDA of 17 percent. The chain doesn't break out Maple Street's financial performance and hasn't given recent updates on these objectives. But Cochran said she's pleased with the progress.
"What we're looking for is, we are opening in a variety of real estate locations," Cochran told investors in December. "So we're trying to understand better as we build our model of what works and what doesn't. But I'm also looking forward to John Maguire building his team out. One of the constraints to growth will be whether we think we have the resources and the infrastructure to support the growth in terms of managers and that kind of thing, and I'm very pleased with the progress that the team over there is making in putting that kind of infrastructure in place."
In terms of how Maple Street will ramp up growth in the coming years, that remains to be seen.
"At this time, it's still early enough in the planning process that we're not prepared to share any of our fiscal 2024 openings as of yet," said CFO Craig Pommels.
Cracker Barrel's same-store restaurant sales grew 8.4 percent in Q4, driven by 9 percent pricing and menu mix of more than 1 percent, thanks to increased sales of shareable Barrel Bites and beverages. The comps growth was offset by traffic decline of 1.7 percent, which was in line with expectations. Sales trended within projections in November and December, but January saw outperformance due to favorable weather and lapping of Omicron. Off-premises mixed 23 percent in the quarter, an elevated number due to seasonally high sales of holiday bundle offers. That includes strong expansion from a catering channel that should grow by 25 percent to $100 million in fiscal 2023.
On previous calls with investors, Cracker Barrel noted slower traffic from older customers. In December, CMO Jennifer Tate said sentiment was at all-time lows among the older cohort. For the first quarter, the casual-dining brand received somewhat good news with moderate improvement in year-over-year visitation from customers aged 65 and older. Traffic from younger guests was relatively flat compared to the prior year.
"But as we look back over several quarters, we have seen sort of steady, modest improvement with those younger cohorts," Tate said. "So I think this was just a quarter where we didn't see gains, but we did see some modest improvement with our older guests in this particular quarter ... Most likely that piece, the older guests returning was due to the wrapping of the Omicron wave. So we were pleased to see obviously some of our older guests coming back, and we do believe a significant portion of those will continue to return. It's just hard to say how many [and] when. And we have been working to diversify our guest base, and we are pleased with the progress we've seen in increasing frequency with a younger guest."
"Q2 just wasn't a particularly meaningful quarter with the younger cohorts, but overall we feel good about that, and we do have a lot planned towards the end of the year to continue those efforts to bring in more younger folks—one of the biggest ones being the launch of our loyalty rewards program," she added.
Cracker Barrel reported Q2 revenue of $933.9 million, an 8.3 percent increase year-over-year. Net income was $30.5 million, or 3.3 percent of total revenue. EBITDA was $67.7 million, or 7.3 percent of total revenue.