Same-store sales increased for the 10th consecutive quarter at Cracker Barrel Old Country Store Inc. in the first quarter ended Oct. 28, the company said Tuesday, but lower traffic hurt retail sales.
Still, sales growth coupled with lower-than-expected commodity costs to generate higher profits at the Lebanon, Tenn.-based family-dining operator.
Net income rose more than 18 percent in the quarter, to $48.4 million, or $2.01 per share, from $40.9 million, or $1.70 per share the previous year. Profit beat analyst expectation in the quarter, and Cracker Barrel’s stock price increased nearly 6 percent.
“The differentiation of our brand experience and our excellent operational execution, along with broad marketing efforts, helped us outpace the industry,” Sandra Cochran, Cracker Barrel CEO, said during an earnings call Tuesday.
Same-store sales rose 1.3 percent in the quarter, driven entirely by an increase in menu prices. Average check increased 3 percent, mostly on a 2.2-percent increase in menu prices.
Traffic fell 1.7 percent, causing retail sales to decline 4 percent.
“We had fewer guest visits,” Cochran said. “And we had fewer guests purchasing a retail product.”
It was the first time since the second quarter of 2014 that Cracker Barrel reported lower retail sales. The company said it had to discount more items to get customers to buy them.
“Guests are favoring value,” Cochran said.
Restaurant costs fell to 25.4 percent of revenue, a 210-basis-point decline from the same period a year ago. That was due largely to lower commodity costs. Food costs fell 5.1 percent in the quarter.
Commodity deflation was “more favorable than anticipated.”
As a result, Cracker Barrel raised its guidance on earnings for the full year, to $8.10 per share to $8.25 per share. But the company also said same-store sales would be “in the lower half” of a range of 1 percent to 2 percent on the year. The company is being “cautious” in its outlook for traffic for the full year.
Revenue in the first quarter increased 1 percent, to $710 million, from $703 million the previous year.
Cracker Barrel opened two locations in the quarter, and now has 643 units.
In addition, Cracker Barrel opened its third Holler & Dash fast-casual restaurant, and is “pleased with the brand’s progress,” Cochran said. The chain has locations in Alabama and Florida, and it plans to open a fourth unit in Nashville, Tenn.
Labor costs and other expenses as a percent of sales increased 30 basis points, to 35.1 percent, from 34.8 percent a year ago. The company is working on a strategy that will enable it to reduce labor during non-peak hours, with the ability to reduce hourly labor by 25 hours to 30 hours per week.
The initiative “will be a significant contributor to fiscal 2017 cost savings,” Cochran said.
Cracker Barrel plans to decelerate menu prices in the second half of the year amid continued concern about the state of the consumer. The chain is advertising its everyday value menu and currently has a deal that lets customers select one of 10 protein offerings, along with two side items and a biscuit or cornbread, for $7.99.
“Today’s consumers are focused on value, affordability and variety,” Cochran said.
“The environment includes a lot of uncertainty,” she added. “With the election, hopefully some of that has been resolved. But a number of issues will continue to be on consumers’ minds, and potentially impact the degree to which they eat out at restaurants.”