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Cracker Barrel outlines future amid Biglari conflict

While struggling with an activist investor and a challenging economy, Sandra Cochran, who took over Monday as chief executive of Cracker Barrel Old Country Store Inc., outlined plans for the family-dining chain’s future.

Just a day before Cracker Barrel released its fourth-quarter earnings, which showed net income had fallen 36 percent, the company’s largest shareholder, Biglari Holdings Inc., amped up its fight for a board seat with Cracker Barrel with a letter to shareholders and a website

Cochran, who was promoted from president and chief operating officer and has been with Cracker Barrel since 2009, outlined initiatives the company was taking to improve guest traffic, including a new $5.99 lunch promotion. However, Cochran told securities analysts that she would not comment on the potential proxy fight with Biglari Holdings and its owner, Sardar Biglari, other than a short statement.

EARLIER: Cracker Barrel, Biglari Holdings board battle

“I want to remind everyone that we tried in good faith to reach an amicable resolution with [Biglari], offering him the opportunity to appoint two independent seats on our board,” Cochran told analysts Tuesday. “And we’re disappointed that he has chosen to embark on a disruptive and costly campaign. Although we disagree with his assertions, we believe the most important thing we can do today is to focus on the company’s operations and earnings.”

Biglari owns about 9.3 percent of shares in the 604-unit Cracker Barrel and has called for more transparency in the chain’s reporting of retail operations versus foodservice sales.

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In his Monday letter, Biglari said, “Over the last several months I have spent time with the board and management to understand their approach to the business and to their shareholders — and it has become increasingly clear to us that top leadership has shaped a culture that lacks … accountability, transparency and stock ownership.

“I believe that the Cracker Barrel Board has failed to perform up to the company's potential,” Biglari continued. “My aim was to join the board of Cracker Barrel to share my expertise and experiences — all in an endeavor to create substantial and sustainable shareholder value for all owners. But my efforts to work with the board have been fruitless. Therefore, I am turning to you, the true owners of the company.”

Cracker Barrel formally elects board members at its annual shareholder meeting, which traditionally is in December.

Meanwhile, Cracker Barrel on Tuesday reported net income for the July-ended quarter fell to $17.5 million, or 75 cents a share, from $27.4 million in the same quarter last year. The company faced higher commodity costs and reduced guest traffic. Revenue for the quarter was effectively flat, at $612.9 million, compared to $612.5 million a year ago.

Cracker Barrel executives outlined initiatives that they said will improve earnings in fiscal 2012, including:

New marketing messaging. This will emphasize “authenticity and everyday affordability,” Cochran said. The company expects to broaden its advertising under its new agency, Euro RSCG, which is expected to boost “local occasion” use among low and non-users. The company is relying on radio in the fall and radio and television during the holidays, Cochran said. It has also redesigned its website as part of its expansion into social media, which Cochran said is important.

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New menu and pricing strategies. Cracker Barrel plans to selectively reduce prices on certain menu items. The chain is introducing lunch specials at $5.99 that will feature existing menu items and a new salad and soup or baked potato combination that is being marketing with radio and billboards, Cochran said. “We view this as a thoughtful approach to address value in a brand-appropriate way,” she said.

Cracker Barrel, she added, is working “to increase variety in the everyday affordability of our menus in the face of ongoing challenges to our guests’ household budgets.” However, the company is avoiding coupons and discounting, she said.

Enhance restaurant operations. Cracker Barrel is working on improving ticket times amid some slippage in guest satisfaction scores for friendliness and attentiveness, order accuracy and temperature of food. “We began work in the fourth quarter to make refinements in the operating platform to reverse those trends,” Cochran said, adding that the company is seeing progress by limiting team service responsibilities to one dining room.

Retail merchandise. Terry Maxwell, senior vice president of retail, will be retiring after 31 years with the company and a national search is underway for replacement. The company plans to beef up its kids’ apparel and jewelry offerings and improve inventory management, Cochran said.

Cost reductions. To counter higher food costs, Cochran said the Cracker Barrel is introducing a new labor management system. In addition, a lighting initiative, currently in test, will roll out systemwide in fiscal 2012. She said that replacing light bulbs with high-efficiency bulbs will result in savings of $2 million to $3 million a year.

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Food cost prices. Food costs in the fourth quarter were up about 5.4 percent compared to the prior year, which was more than two and half times menu price increases, Lawrence E. Hyatt, Cracker Barrel’s chief financial officer, said. “Costs for pork, beef, dairy and coffee were up sharply from last year,” he said. For 2012, Cracker Barrel expects food commodity costs increases of 5.5 percent to 6.5 percent, Hyatt said, with the most significant increases in seafood, coffee, eggs and beef.

Same-store sales. Hyatt said Cracker Barrel anticipated same-store sales for fiscal 2012 to be flat to up 1.5 percent with menu-price increases of between 2 percent and 3 percent.

New store development. Cracker Barrel opened 11 new stores in fiscal 2011, with three of those opening in the fourth quarter. In 2012, the company plans to open 15 new Cracker Barrel units. Seven of the 11 stores opened in 2011 were a prototype that is less expensive to build, Cochran said. One main change is two dining rooms rather than the traditional three, with all in proximity to the popular fireplace.

Cracker Barrel has stores in 42 states.

Contact Ron Ruggless at [email protected].
Follow him on Twitter: @RonRuggless

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