As restaurants head into the typically profitable holiday season, Cracker Barrel Old Country Store Inc. executives said Tuesday that they were seeing a tougher economic environment and heightened consumer uncertainty.
“It’s a very tough environment out there, and many competitors are responding to it by offering deals and by supporting those with a lot of media,” Sandra Cochran, CEO of the Lebanon, Tenn.-based family-dining and retail operator, told analysts Tuesday after the company released first-quarter earnings.
“We certainly spend a lot of time here trying to understand the consumers, and they really are right now a bit of a mystery,” Cochran said.
Cracker Barrel reported that profit in the first quarter ended Oct. 30 rose 20.1 percent, to $40.9 million, or $1.70 per share, from $34 million, or $1.42 per share, in the prior year period. Revenue increased 2.8 percent, to $702.6 million, from $683.4 million in the same quarter last year.
Same-store sales rose 2.5 percent, with a 3.2-percent increase in average check partially offset by a 0.7-percent drop in traffic.
“These results were achieved in a period when industry performance was below prior-year levels and recent economic signals were mixed,” Cochran said. “We believe that consumer spending was challenged during the quarter, particularly in October, and that this is reflected in our comparable store traffic and sales.”
The macroeconomic environment was mixed, she said, with consumer confidence and sentiment varying from state to state and industry to industry, even with lower gasoline prices.
“It’s hard to completely understand what consumer spending is going to be like as we go into this really important holiday season,” Cochran said.
Cochran said the restaurant industry has reacted with increasingly competitive promotions and aggressive discounting.
“I don’t have any reason to believe it is going to abate,” Cochran said. “In the environment we are in — and we believe the industry is in — with a very challenged consumer, we certainly are all fighting for market share. We believe that in times like these what consumers are looking for are brands they trust, which we are one, and experiences that they can have confidence in, which another thing we think we do extremely well.”
Christopher Ciavarra, Cracker Barrel senior vice president of marketing, said the family-dining concept is positioned well with value-oriented offerings like weekday lunch specials and country dinner plates. “We have leveraged those over time,” Ciavarra said, and additional marketing behind those can highlight the brand’s affordability.
Cochran added that Cracker Barrel’s price strategy is a “rigorous approach,” which includes testing menu increases against what she called “hold-back” units without increases. “We use that to measure consumer behavior in both traffic and sales to see whether we are pulling through pricing and what effect it is having,” she said.
Ciavarra said potential competition from the quick-service segment, especially McDonald’s introduction of all-day breakfast on Oct. 6, hasn’t produced any significant impact on sales. He added that Nashville, Tenn., near Cracker Barrel’s headquarters, was a McDonald’s test market for the initiative, and the family-dining brand did not see a significant impact.
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“Clearly it’s a big initiative for McDonald’s, and they are putting a lot behind it, so we are continuing to monitor it,” Ciavarra added.
Since all-day breakfast has been a core Cracker Barrel offering, Ciavarra said the brand is prepared to react if sales trends change.
The brand is expanding its social media connections with customers through a promotion with the singing group Pentatonix and digitally with a new Cracker Barrel game app, which launched in the first quarter.
Pentatonix was featured in Cracker Barrel’s Facebook, Periscope and Twitter channels, Cochran said, “resulting in positive response from and growth in our social media followers.”
In the first quarter, Cracker Barrel also introduced a game app to appeal to young consumers. “We believe the new game app, which includes Cracker Barrel brand imagery throughout, reinforces our values of wholesome family fun,” she said. The games will be updated with seasonal content.
In guidance for the rest of the 2016 fiscal year, Cracker Barrel reaffirmed prior forecasts of earnings per share between $7.15 and $7.30. The company said it expects same-store restaurant and retail sales in the range of 2 percent to 3 percent.
Cracker Barrel, founded in 1969, owns and operates 635 restaurant-retail locations in 42 states.
Contact Ron Ruggless at [email protected].
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