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Heard on the call: Cracker Barrel

Customer service initiative increased traffic; chain plans to expand program

Cracker Barrel Old Country Store officials said increased restaurant traffic resulting from the chain’s customer service initiative and value proposition helped fuel its first-quarter growth in sales and net income.

During an earnings conference call Tuesday, executives told analysts the “Seat to Eat” program — which aims to get guests seated and eating within 14 minutes to cut wait times and increase throughput — in particular has produced better guest satisfaction scores.

The initiative was expanded into three more regions in the first quarter of fiscal 2011, ended Oct. 29, and the company expects to have the program in place in all 10 of its regions by the end of the third quarter.

“We’re pleased with the regions that already have implemented it, where we’re seeing an average speed of service score that’s 4 to 6 percentage points higher than the system, and in some cases 20 points higher,” said chief executive Michael Woodhouse. “One of the good outcomes is our servers can spend approximately 15 percent more time with our guests to improve the overall service experience.”

For the quarter, Lebanon, Tenn.-based Cracker Barrel reported net income of $23.7 million, compared with $18 million in the first quarter of 2010. Earnings per diluted share rose 29.5 percent to $1.01, compared with 78 cents a year earlier.

Revenue for the quarter rose 3 percent to $598.7 million, reflecting comparable-sales gains of 2.4 percent in Cracker Barrel’s restaurant sales and 1.5 percent in sales at its retail gift shops.

Guest traffic rose 0.5 percent in the quarter compared with the year-earlier period, which officials said made its improvements in internal guest satisfaction scores more impressive.

“With ‘Seat to Eat’ we’re getting better guest satisfaction scores with the background of positive guest traffic,” Woodhouse said. “So it’s not a ‘survivor’ phenomenon where we’re doing a better job serving fewer guests. It’s a legitimate improvement in guest satisfaction.”

Cracker Barrel’s average check rose 1.9 percent during the period. Officials said the chain took a menu price increase of approximately 2 percent.

Cracker Barrel opened three new restaurants in the quarter and one so far in the second quarter, in Maine, which marks the debut of the brand in its 42nd state. Cracker Barrel expects to open seven more units in fiscal 2011.

The company reaffirmed its fiscal 2011 guidance for earnings per share between $3.95 and $4.10, projecting comparable-sales growth between 1.5 percent and 3 percent in its restaurants and between 2 percent and 4 percent in the attached gift shops.

The first quarter contained comparisons to a strong September and October from 2009, when promotional support for Cracker Barrel’s 40th anniversary helped drive sales and traffic, Woodhouse said.

“To the rest of the year, we’re comfortable with our guidance, and we’re performing at levels consistent with that [projection] in November,” he said. “The question becomes, what’s the consumer going to do? The obvious answer is if consumers come back stronger than we anticipate, we’ll have stronger sales and profits, but we’re comfortable with our anticipation of spending right now. If there’s some upside this year, we’d be happy to have it.”

Officials cautioned that the economic environment is still uncertain and that projected increases in commodity costs — including double-digit gains likely for some pork products and butter — could pressure earnings.

Cracker Barrel operates 597 family dining restaurants.

Contact Mark Brandau at mbran[email protected]

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