Good day and welcome to the Cracker Barrel's Fiscal 2016 Second Quarter Earnings Conference Call. Today's conference is being recorded and will be available for replay today from 2:00 p.m. Eastern through March 8 at 2:00 p.m. Eastern by dialing (719) 457-0820 and entering passcode 4134222. At this time, for opening remarks and introductions, I would like to turn the call over to Jessica Hazel. Please go ahead, ma'am.

Thank you, Priscilla. Good morning and welcome to Cracker Barrel's second quarter fiscal 2016 conference call and webcast. This morning, we issued a press release announcing our second quarter results and our updated guidance for the 2016 fiscal year. In this press release and on this call, we will refer to non-GAAP financial measures for the current quarter adjusted to exclude the prior year favorable effect of the December 2015 retroactive reinstatement of the Work Opportunity Tax Credit. We will also refer to non-GAAP financial measures for the prior fiscal year adjusted to exclude a litigation matter and the previous year of favorable effect of the December 2014 retroactive reinstatement of the Work Opportunity Tax Credit. The company believes that excluding these charges and tax effects from its financial results provides information that may be more indicative of the company's ongoing operating performance, while improving comparability to prior periods. This information is not intended to be considered in isolation or as a substitute for financial information prepared in accordance with GAAP. The last page of the press release includes a reconciliation from the non-GAAP information to the GAAP financials. The press release can be found in the investor section of our website crackerbarrel.com. In that press release and during this call statements may be made by management of their beliefs and expectations of the company's future operating results or expected future events. These are what are known as forward-looking statements, which involve risks and uncertainties, and in many cases are beyond management's control and may cause actual results to differ materially from expectations. We urge caution to our listeners and readers in considering forward-looking statements and information. Many of the factors that could affect results are summarized in the cautionary description of risks and uncertainties found at the end of this morning's press release, and are described in detail in our reports that we filed with or furnished to the SEC. We urge you to read this information carefully. We also remind you that we do not comment on earnings estimates made by other parties. In addition, any guidance or outlook we provide or statements we make regarding trends speak only as of the date they're given and we do not update or express continuing comfort with our guidance, outlook, or trends, except in broadly disseminated disclosures such as this morning's press release, filings with SEC or as otherwise required by law. On the call with me this morning are Cracker Barrel's President and CEO, Sandy Cochran; Senior Vice President and CFO, Larry Hyatt; and Senior Vice President of Marketing, Chris Ciavarra. Sandy will begin with review of the business and Larry will review the financials and outlook. We will then open up the call for questions for Sandy, Larry, and Chris. We ask that you please limit your questions to matters relating to the company's performance, outlook, and plans. With that, I'll now turn the call over to Cracker Barrel's President and CEO, Sandy Cochran. Sandy?

Thanks, Jessica. Good morning, everyone and thanks for joining us today. We continue to deliver positive comparable store sales in the second quarter, continue to outperform our casual dining industry peers, and delivered earnings at the high-end of our expectations. As we moved into the second quarter the consumer and economic environment remain challenging as reflected in our traffic and sales in November and December. Although, we saw a positive change in our traffic and sales trend in the first half of January, despite comping our most difficult prior year month, we encountered severe winter weather for the remainder of the month which more than offset the initial gains. This morning, I'll show the highlights of the second quarter and our plans for the second half for the year, and then Larry will provide some detail on the financial results for the quarter. For Cracker Barrel and our guests, the second quarter is centered around holiday celebrations and travel. Consistent with our efforts to be a holiday occasion destination we were very pleased that our combined restaurant and retail sales on Thanksgiving Day set a new company record for single day sales. Additionally, we drove year-over-year sales increases of seasonal pies and holiday hams during the second quarter. And we believe this reflects the success of our in store and social media marketing efforts around holiday occasion dining both in store and at home. Sales for our holiday promotion which ran much of the quarter and featured four breakfasts and three lunch dinner entrees, exceed our expectations. This was driven by highlighted core menu offerings, such as Fancy Fixin's Chicken Fried Chicken and limited time only offering such as White Chocolate n' Fresh Berry French Toast. During the quarter, we ran a number of marketing and operational tests which we…

Good morning everyone, and thank you, Sandy. I would like to begin by discussing our financial performance for the second quarter of fiscal 2016 and then our outlook for the 2016 fiscal year. As I discussed our results, I will refer to adjusted financial information for the current and prior year second quarters. This financial information reflects the following adjustments to GAAP net income. First, during the prior year second quarter we accrued $2.2 million for a litigation matter. Second, in December of 2014, the Federal Government retroactively reinstated the Work Opportunity Tax Credit or WOTC for the period of January 1 to December 31 of 2014. It expired again at the end of the 2014 calendar year and was again retroactively reinstated at the end of the 2015 calendar year. In both instances the retroactive reinstatement impacted both a current and a prior fiscal year. And in both instances we have adjusted out the prior year's positive impact which were $0.10 per diluted share in the second quarter of 2015 and $0.10 per diluted share in the second quarter of 2016. For the second quarter of fiscal 2016, we reported GAAP net income of $48.2 million or $2.01 per diluted share and adjusted net income of $46 million or $1.91 per diluted share compared with adjusted net income of $46.3 million or $1.93 per diluted share in the prior year quarter. Our revenue in the quarter was $764 million, an increase of 1.1% compared to revenue of $756 million in the prior year quarter. Our restaurant revenue increased 0.6% to $580.9 million and our retail revenue increased 2.6% to $183.1 million. Our comparable store restaurant sales in the quarter increased 0.6% as an increase in average check of 3.4% was partially offset by a 2.8% decline in traffic. The…

[Operator Instructions]. We will take our first question from Jeff Farmer with Wells Fargo. Your line is open.

Thank you. On the planned $7.99 dinner LTOs, what level of discount does that represent relative to the average entree that you guys are selling there, the average entree price points? And how confident are you that that level price point will drive the incremental traffic that you're looking for?

Hey Jeff, it's Chris Ciavarra. So that represents about a $1 or $2 off what our typical entrée would represent. We are really mindful when we put these programs in the marketplace that we have other products surrounding it. So we aim for the overall program to be margin neutral but recognize that these products have the ability to draw guests into our stores.

Okay. And then Larry, you touched on it, but what level of commodity basket inflation does that 1% full-year number imply for the third and fourth quarters?

Let me get that specifically in front of me. It implies some very modest commodity -- the deflation in the third quarter in the 1% range, Jeff, and approximately flat in the fourth quarter.

Okay, and then just one more quick one. I believe last year in January you saw a pretty sizable jump in gift card redemptions. I think it was $5 million. I am not sure, but it looks like it was at least a 1% same-store sales tailwind. Again, what was the gift card redemption outlook in '16? What it look like for you guys this year?

Let me answer that both in terms of gift card sales and gift card redemption, Jeff. Gift card sales and gift card redemption for the second quarter of 2016 were higher than in the second quarter of fiscal 2015 in low-single-digits.

Thank you. We will go next to Joe Buckley with Bank of America. Your line is open.

Hi thank you. Could we go back to the retail sales performance, which I think was really extraordinary in this holiday season? And you mentioned higher initial markups. How did you manage the markdowns, I guess, as the quarter proceeded? And were there any particular hits on the retail side that resulted in the strong performance?

Joe I was -- thank you for the compliment. I was very pleased as well with the performance of our retail business in a very challenging holiday environment. Our merchants assembled terrific assortment of product that really resonated with our guest from a sort of fun uniqueness nostalgic viewpoint much of which really reinforced our objective which is to provide value. In terms of the highlights, I'd say our seasonal product both Thanksgiving and Christmas which are the core, the tabletops, the ornaments and so on was very strong this year and in fact we were able to sell through that product at a much higher level before we needed to bring discounting in. I think our payroll was also very strong and very on trend and on target perfect for the impulse buyer and really allowed them to buy now, wear now, walkout of the store with something that was very high quality for not a lot of price. In terms of where we did take markdowns there were a couple of categories I would say toys was one that we were disappointed with which is why as I mentioned in my prepared remarks, we're going to be more aggressive about managing the square footage and the inventory levels in the case we think that that shift in toys and the use is permanent and so we will be addressing that on the floor. We were a little disappointed in some of the themes gifts under 10 didn't perform the way we had hoped. So we did have pockets of product that didn't all work as we had hoped. But overall I think that the team the field team and our buyers did a good job of delivering on the retail side.

So, kind of procedural change with retail, I know you have -- you shipped in the retail for couple of years now. But, the performance seems to be a little bit more consistent and yet it's holiday season, I think, that's extremely good. Are there changes in the ways being managed that are leading to the changes?

Well I think Laura has continued to develop her team and to work very hard in fact. I think she is back today from one of several overseas trips that she has been on in the year. But the entire buying team I think is working really hard to source unique interesting products that reflect value. They are working very hard to keep the floor fresher. So one of the strategies that Laura had a couple of years ago when she came on was to refresh our themes more frequently so that the guest that comes in see something new and so on. She has worked very hard at supporting the core businesses which are around the parameter of the store. And so I think what you see is the combination of a lot of work being done in a lot of areas coming together.

Okay. And a question on the nurturing side. You mentioned meals to go. Could you share with us what percentage increase in meals to go or take out sales were in the quarter?

I'm going to let Larry speak to it. So I don't know whether we disclosed it. Our meals to go in general are higher in November and December, than they are for the rest of the year. But in either times of the year they are still in the single-digits. So I would say mid-single-digits overall, high-single-digits November and December.

Okay. And Larry, a question; the guidance for the third quarter and for the full-year implies a stronger third-quarter year-over-year EPS increase than in fourth quarter, and just kind of curious, your thoughts around that?

Yes. Some of that has to do with the year-over-year change in food, commodity cost. As I indicated earlier in response to Jeff Farmer’s question, we anticipate food commodity cost down in the third quarter and we anticipate it to be roughly flat in the fourth quarter. Additionally, we anticipate somewhat of a stronger year-over-year traffic growth in the third quarter than in the fourth quarter which will be driven at least in part by the fact that we will be media advertising for the first time in the third quarter.

Okay it’s helpful. Thank you.

Thank you. We will go next to Bob Derrington with Telsey Advisory Group. Your line is open.

Yes, thank you. Larry, if I could follow on that the third quarter traffic basically, it sounds directionally like mix and traffic would be somewhat offsetting; is that reasonable or is that kind of what we’re thinking about for the third quarter? Mix down, traffic up?

We are anticipating traffic to be positive, to be slightly positive in the third quarter and check to be positive consistent with our year to date trend in menu pricing, Bob.

Okay, all right. Thank you. Second question as we look at, Larry, in this past quarter the operating expense, the other operating expense which included the marketing, should we expect that that number as a percent will also be higher because of the additional four-week period of advertising?

Our advertising expense, as we said at the time that we guided at the beginning of the year that our advertising expense is expected to be high as the percent of sales in 2016 than in 2015, which is consistent with what the company laid out in the three-year strategy of gradually increasing advertising and marketing spend from a fiscal 2014 level which was about 2.3% to 2.4% to a fiscal 2017 in level in the 2.8% to 2.9% of sales range. So it’s reasonable to anticipate for the full year that our advertising spend will be between 200 basis points and 300 basis points higher than in the 2015 fiscal year which is consistent with the longer term strategy and some of the timing differences may be reflected in a higher spend in the third quarter as a result of the advertising slide.

Got it, thank you. And Sandy, if I may, one more question, as we look at development obviously it is way too soon to talk about Holler & Dash and development plan there but when you look at the Old Country Store for this year it looks like development is a little bit later push back a little bit, how should we think about this year’s development for the Old Country Store and possibly some early thoughts on next year?

I’m going to actually let Larry speak to that.

Yes. Bob, the stores that we expect to open in fiscal 2016 are largely backend loaded into fourth quarter. The reason why we are still offering a range of five or six is that we have two stores scheduled to open in a new Western market in the last week of the fiscal year. We are reasonably confident about one of them opening and the other one is a little more of a question mark. As far as our development outlook going into 2017 which we will, of course, be able to talk about more thoroughly in our fourth quarter conference call at the time that we offer our outlook for 2017, we have spent 2016 in building up the pipeline and we anticipate our new store openings for 2017 are likely to be at a higher pace than 2016.

I assume you are talking about the Old Country Store?

Yes, sir.

Okay, thank you.

Thank you. We will move now to Jake Bartlett with SunTrust. Your line is open.

Hi, great, thanks for taking the question. Larry, first a question for you, just to clarify your comments on traffic and check for the third quarter, you previously said that it is like slightly positive traffic and then you expect the check to be about what it was year-to-date. And then year-to-date I’m looking at what positive 3.3, I mean is this to assume that your, the higher end of your kind of the implied range for the back half of the year in the third quarter, you expect in the higher end or any kind of indication?

Yes. I said consistent with increases in menu prices for the first half of the year; we have been carrying about 50 basis points of menu mix. So that would probably take it to the high 2s, Jake, which is estimate to the success that that company has had so far in its regional pricing effort.

Got it. So the -- are you, I guess the investments to Bob’s question earlier, when you say that you think that the new promotions are going to drive negative mix this or do you think flat is a reasonable expectation for the third quarter?

We never project mix because the way that we manage our menu and our promotion is that mix tends to be margin neutral.

Okay, okay, and then last question regarding it looks like I mean essentially the back half is a pretty wide range for your expectations and I calculated positive 1.5 to positive 3.5, usually your annual range is pretty -- is this wide at the time but I am wondering just how much it reflects concern about the current environment, I mean if I add back the weather impact in January actually you did a -- it would have been very good in January given really difficult compares maybe if you could clarify what you are seeing in February to date, month to date, what the weather impact was in both of two periods last year and this year, and just how confident you are in sales growth in the back half of the year?

I will start on that one, Jake, and then can turn it then over to Larry and just by making one comment about the December, January and February periods where weather feels as though if it is not an issue this year we are trying to figure out whether it was an issue last year. So it is difficult to get a clean read on how you feel the underlying business is in particular, and I’m not sure Larry is going to give you that much more detail on the February numbers, but from a macro backdrop standpoint I can tell you that we think the environment remains mixed, our consumer continues to be tough to read and that our guidance, and Larry will speak in little more detail, implies that we do continue to be cautious.

Yes, Jake, we continue to be cautious when we look at the GDP numbers for the fourth quarter of 2015 calendar year, it’s possible to make an argument that those are near recession levels of GDP growth. On the other hand there continues to be some strength in the labor market numbers, although numbers are since mask a relatively low and continuing low levels of labor force participation which appears again to add disproportionately impact our consumer. And it is likely to be a very promotional and price competitive spring particularly in the QSR segment as beef prices come down while that’s very helpful for Cracker Barrel it’s even more helpful for the Hamburger based QSRs who as their behavior over the last couple of months is indicative are likely to be very aggressive on couponing and price promotions and for those new locations that Cracker Barrel is competing against the QSRs it's possible that that could have an impact. So that’s why, as Sandy laid out, we are focusing on value but that’s also why we are remaining cautious and there is a fairly wide range in the implied comp store sales in the second half of the year.

Great, thank you, and just lastly real quick, do you estimate that McDonald’s, all-day breakfast had any impact on your sales?

Interestingly, and we have looked at this a variety of ways including looking at comparisons of this year to last year, the breakfast item sales in the lunch and dinner day part before and after, and the conclusion that we've reached is that McDonald's all-day breakfast seems to have not had an impact on our breakfast item sales in the lunch and dinner period, and our conclusion is it really is the different dining occasion.

Great, thank you so much.

Thank you. We’ll go now to Alton Stump with Longbow Research. Your line is open.

Hey, guys it’s actually Brittany on for Alton this morning. Just kind of wanted to see your expectation for food cost inflation came down maybe from last quarter’s guidance, just kind wanted to see how much of that is may be from eggs or if anything else is driving that, may be beef, for example?

Sure, Brittany, as our commodity inflation expectation from the beginning of the first our guidance at the end of the first quarter to our guidance now has come down for the third and fourth quarters by about $10 million. That is made up of about 30% of that our changed outlook for beef, about 50% of that is our changed outlook for eggs, and the balance is various other things mostly poultry.

Okay, okay, that’s helpful. And then just going back to the McDonald's question but I guess a little bit more broadly on the competitive environment, are you seeing any other material changes some other casual diners or anything that’s impacting you guys?

Hey, Brittany, it’s Chris. I think, obviously as Sandy and Larry has spoken to, the environment has absolutely turned more promotional I think if we think back to last fall, we did see QSR operators really picking up the pace with value oriented offers. I mean, we continue to focus on what we need to do maintain and grow share. I think Sandy has outlined some of those pieces we’ve focused on today in terms of moving back to value based position and even a more strong basis through the, reintroduction of 7.99 offering as well as our billboards which were going to get reposted including more sharp price point messaging, and then on certainly on a relative basis, feeling like we are continuing to take share as well.

Okay, great. Thanks so much guys.

Thank you. We will take our next question from Michael Gallow with CL King. Your line is open.

Hi, good morning, most of my questions have been answered.

Good morning, Michael.

I just had a follow up. I know you guys have started testing kind of the kitchen the future, whether you might retrofit a couple stores and I was wondering if you can give us an update on where that stands at this point. Thanks.

Well, our first fusion kitchen, only fusion kitchen at this point is in North Carolina and we continue to work through the new processes and I continue to feel optimistic about the productivity improvements that we are expecting to get from that. Our second one of the opening in Idaho in a few weeks, [indiscernible] and then the fusion kitchen is the vehicle that will be using in future development. The retrofit opportunities were more about taking selected ideas out of the and learnings from the fusion kitchen and then testing first and then implementing those ideas in the chain. The first one for example is the food processor that we were able to put in and we’ve got a number of other ideas sort of in the pipeline. Unlikely that we would ever model or that it would ever model that you would completely scrape out an existing kitchen and lay in the fusion kitchen in totality.

Okay, thanks.

Thank you. We have a follow-up question from Bob Derrington with Telsey Advisory Group. Your line is open.

Yes, thank you. Sandy, can you give us any kind of color on the cost saving initiatives that you, you talked about in the past> I think the target was roughly a $10 million of incremental savings this year and I think the target was $20 million of savings for next year; any kind of update on those things?

Bob, this is Larry. To refresh everybody’s memory in the Analyst and Investor Day meeting back in May of 2014 when we laid out to your strategy we laid out about $50 million in cost savings over the 2015, 2016 and 2017 years, and roughly where it was that we expected those cost savings in terms of the implementation of various initiatives. And we said at the end of the 2015 fiscal year that we had achieved $20 million in annualized cost savings in 2015 fiscal year, we said at the same time as we were offering guidance for 2016 that we expect to realize about $10 million in savings, so that math would of course indicate that we are anticipating another $20 million of savings in 2017. We are proceeding along with the implementation of the number of our cost savings initiatives. Sandy mentioned couple of them in terms of the implementation of some new kitchen equipment here that would result in some labor cost savings, the implementation of some energy savings, we additionally in our manager's conference and attaining event in September trying to every General Manager in the Cracker Barrel system on our new targeted food management process. And we now have a fully rolled out. So we anticipate savings in the 2016 fiscal year given the choppiness of the consumer and the fact that our number one focus right now is on making sure that we meet the consumers' needs and won without the potential disruption, which sometimes occurs from the implementation of some of these cost savings initiatives. There is a possibility that the implementation pace in 2016 and 2017 is such that some of these anticipated cost savings may be utilized in subsequent years.

That's super helpful. If you could just clarify one point. I thought, Larry, in the past you all talked about the savings in fiscal '17 be more labor related. Did I remember that correctly?

Yes, indeed.

Okay. Terrific. Thank you.

Thank you. We'll move now to Stephen Anderson with Maxim Group. Your line is open.

Yes. Good morning. Now, just I wanted to follow-up on some of the questions that are asked about our commodity. That you so mentioned when deals tell about egg and beef prices. Wanted to see if you have any other color about some of your other commodity pricing to you on poultry, dairy and some of the other items?

Poultry, we are anticipating savings in poultry in the back half of the year, which is due to a very large extent from the success our supply chain teams add and the negotiation of some really favorable agreements, particularly with chicken suppliers. Dairy is additionally down due to some favorability and some lock converge for some dairy items, in particular like cheese and cheese sauce. And pork's down due to some favorability in sale prices.

Okay. Thank you.

Thank you. And we'll take a follow-up question from Joe Buckley with Bank of America. Your line is open.

Thank you. Does the earlier Easter play a role? I mean, otherwise Easter is in the April quarter in both periods, but does it falling earlier have any good or bad implications in terms of sales?

We talk about that a lot. And I'd say that spring breaks and how that changes is problem a much more important driver of our business in this quarter. Easter, when it comes to on the retail side, the earlier Easter is generally considered to not be as good as a later one. You're not quite in the mood for the spring flows if the weather hasn't changed and so on. So I would say the Easter shift is certainly factored into our guidance. But we're much more focused on spring break trends.

Okay. And Larry, just on the revised guidance of $7.40 or $7.50. Do you know that's adjusted, so what is in there for the WOTC and what is not?

Yes. What has been adjusted out for the WOTC in the guidance, Joe, is the $0.10 per share that we adjusted out in the second quarter that is a result of the retroactive application of the WOTC reinstatement to prior fiscal years. We feel that to the extent possible individual fiscal year should stand individually and shouldn't have the tax benefit from the retroactive reinstatements. Now, good news is that Congress has now reinstated WOTC for multiple years so we will presumably not face this again anytime soon. So as far as tax is concerned, as we go forward in the third and fourth quarter, we are currently not anticipating that there would be any differences in between adjusted and actual.

Okay. But so the increased sale from the $7.15 to $7.30 range to $7.40, $7.50, how much of that is tax rate you rated?

Joe, it's probably the change in the tax rate as result of the ongoing impact of WOTCs probably in the range of about a 100 basis points on the tax rate. And the balance is the change in commodity.

Okay. Got it. Thank you.

And we have no further questions today. I'd like to turn the call back to Sandy Cochran for closing comments today.

Thank you all for joining us today. I remain confident that we've got the right strategy and the wide leadership in place to move the brand forward to further drive shareholder value. We appreciate your interest and support and for your time this morning.

Thank you. And this does conclude today's conference. Thank you for your participation. You may disconnect at anytime.