Cracker Barrel Old Country Store, Inc. (CBRL) Q2 2017 Earnings Report, Transcript and Summary

Good morning and welcome to the Cracker Barrel Fiscal 2017 Second Quarter Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Jessica Hazel, Senior Manager of Investor Relations. Please go ahead.

Thanks, Chad. Good morning and welcome to Cracker Barrel’s second quarter fiscal 2017 conference call and webcast. This morning, we issued a press release announcing our second quarter results and our outlook for the 2017 fiscal year. On the call with me this morning are Cracker Barrel’s President and CEO, Sandy Cochran; Senior Vice President and CFO, Jill Golder; Vice President, Marketplace and Product Development, Chris Ciavarra; and Vice President and Principal Accounting Officer, Jeff Wilson. Sandy will begin with a review of the business and Jill will review the financials and outlook. We will then open up the call for questions for Sandy, Jill, Chris and Jeff. On this call, we will refer to non-GAAP financial measures for the prior fiscal year, adjusted to exclude the prior year impact of the retroactive reinstatement of the Work Opportunity Tax Credit. Excluding these tax effects from financial results provides information that may be more indicative of the company’s ongoing operating performance while improving comparability to other periods. This information is not intended to be considered in isolation or as a substitute for financial information prepared in accordance with GAAP. Reconciliations of the non-GAAP information to the GAAP financials are provided on the last page of this morning’s press release, which is posted in the investor section of our website, crackerbarrel.com. In addition, statements may be made by management of their beliefs and expectations regarding the company’s future operating results or expected future events. These are known as forward-looking statements which involve risks and uncertainties that in many cases are beyond management’s control and may cause actual results to differ materially from expectations. We caution 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 the press release and are described in detail in our reports that we file with or furnish to the SEC. I’ll now turn the call over to Cracker Barrel’s President and CEO, Sandy Cochran. Sandy?

Thanks, Jessica. Good morning, everyone. As you can see from today’s press release, we delivered positive comparable restaurant sales for the 11th consecutive quarter. We increased our operating margins and we delivered earnings above our expectations, despite the impact of winter weather and the ongoing challenges in the restaurant and retail industry. We believe these results reflect favorability in the commodity environment, as well as the strong performance of our field operations and leadership teams, who managed our expense lines well and remaining focused on the initiatives laid out at the beginning of the year. We ended the second quarter encouraged by our November traffic performance, which was in part driven by the success of our Thanksgiving Heat n’ Serve program, but then experienced severe weather in December and a holiday timing shift between December and January. Despite this, we once again outperformed the casual dining industry sales index. The second quarter is a very important period for us, as the Cracker Barrel brand is inextricably linked to the holidays. Our welcoming guest experience in-store and at-home family dining opportunities and unique holiday retail merchandise allows us to leverage the strong affinity guests have for our brand. Cracker Barrel is known as a destination for Thanksgiving. And this year, we drove our – further drove our performance with the system-wide roll out of the Heat n’ Serve Family Size Holiday Meals To-Go program. The program exceeded our expectations, driving both incremental traffic and sales mix in fiscal November. Our Christmas Heat n’ Serve offering also proved to be very successful. And we believe with additional marketing support, there’s an opportunity to grow the Christmas program in the coming years. We also plan to introduce Heat n’ Serve system-wide at Easter, as we continue to build marketplace awareness of our ability to serve these occasions. Additionally, during our second quarter, sales for our holiday menu promotion exceeded our expectations. This was driven by highlighted core menu offerings, such as, our chicken fried chicken and limited-time-only offerings like our mushroom braised pot roast. We’re pleased with our guests response to these and our other seasonal offerings. As we head into the second-half of the fiscal year, we remain focused on driving news and excitement through our seasonal menu offerings like our spring menu promotion. This promotion will highlight both core and new menu entrees like an indulgent multi-berry pancake breakfast, a better-for-you fruit and yogurt parfait breakfast, a flavorful grilled chicken and strawberry spinach salad and a delicious maple ham and bacon burger. With the introduction of our spring menu promotion, we’ll roll out caloric menu labeling system-wide in compliance with the menu labeling mandates. Tested previously in a small group of stores, we experienced some trade behavior amongst menu items, but did not experience any material financial impacts from this update. We are, however, cautious as with any major operations initiative, there could be short-term disruption as our employees and guests acclimate to the change. Lastly, regarding our second-half promotional pipeline, our popular Campfire meals will return during the fourth quarter supported by a fully integrated marketing campaign. We continue to believe this is a unique and compelling offer in the marketplace and are excited for its return. To address the challenges of the competitive restaurant environment, our primary marketing efforts during the second quarter emphasized value, our unique menu offerings, and our strong brand differentiation within the marketplace. Our second quarter six weeks of national cable advertising with five weeks of local Spanish television advertising highlighted our Country Dinner Plates category. This category builds value perceptions, particularly for the dinner day part, while also offering variety and customization. Our advertising campaign drove favorable sales mix during the second quarter, as we believe its price point messaging was relevant during an environment where guests continue to seek value. Our third quarter national cable advertising, which features new creative will share experiential brand highlights as viewers join our guests in the pleasures of dinning and shopping with us. On air for five weeks, we believe this campaign will strengthen the relationship with our guests by inviting them to come enjoy all the little things we do to make their visit with us so memorable. Additionally, during the third quarter, we’re kicking off a billboard campaign that includes new creative and messaging on more than 75% of our billboard system. We’re excited about this update, which will be complete in May. We continue to connect with our guests through the use of digital media and our Spotlight Music Program. As part of this, we’re excited to once again partner with Alison Krauss on the third quarter release of exclusive Cracker Barrel warehouse video performances and an exclusive CD. Our Spotlight Music Program affords us a platform for generating awareness of the Cracker Barrel brand through our own and our partner artists’ social and digital media channels. And just last week, the Dolly Parton andPentatonix exclusive collaboration that I previously shared is part of this program won a Grammy. The Cracker Barrel video of the performance has now been viewed over 22 million times. During a very difficult holiday season throughout the brick-and -mortar retail industry, our merchandise and retail operations teams delivered second quarter sales results, which were improved from the previous quarter. Our challenged retail sales were impacted primarily by our reduced restaurant traffic. With that being said, our Christmas themed business performed well, particularly merchandise designed for our more traditional guest. And this year, we grew our offerings targeting a younger demographic and we’re pleased with the guest response. Looking to the second-half of the fiscal year, our retail teams continue to innovate and introduce newness in our merchandise assortments and are mindful that value offerings remain vital as the retail industry continues to be highly promotional. We’re working diligently to improve our retail sales performance. Although, we anticipate a challenged retail environment throughout this fiscal year, we’re hopeful that the third and fourth quarter will show sequential improvements. I’m pleased to report that we’ve made solid progress towards our annual cost reduction target. Thanks to the hard work of our dedicated operations team we delivered at the top end of our expected range of savings for the first-half of the fiscal year. We continue to experience favorability from our retail, sales, and service initiative that was rolled to our stores in the first quarter. By cross training our retail sales associate and cashier positions and removing labor hours from the lowest volume periods of the week, we improved labor productivity. We’ve identified additional process enhancements and task reduction opportunities that we believe will contribute additional savings to the labor expense line in the second-half of the fiscal year. And I’ll be providing an update on these during our next call. Within the utilities lines, our efforts to improve energy efficiencies and establish better controls continue to drive favorability, which we anticipate remaining through the second-half of the fiscal year. Supported by this year-to-date successes and the expected successful implementation of this year’s remaining cost reduction initiatives, we now anticipate delivering between $18 million and $20 million in annual cost savings for the fiscal year. And we believe these cost reduction initiatives will help offset some of our continued wage inflation pressures. Before handing the call over to Jill, I’d like to add that we remain cautious regarding our expectations for top line growth in the second-half and now anticipate more modest second-half traffic improvements in our previous expectations. We continue to believe in the strength of our highly differentiated brand and are addressing the industry environment through our seasonal menu offerings, targeted marketing campaigns, and unique retail merchandise. And in addition, we’re protecting our value positioning through a more modest second-half pricing increase. We believe with these plans in place, we’ll deliver sequential improvements in our quarterly traffic results. And with that, I’ll now hand the call over to Jill. Jill?

Good morning, everyone, and thank you, Sandy. I would like to begin by discussing our financial performance for the second quarter of fiscal 2017 and then our outlook for the 2017 fiscal year. In this morning’s release, we reported second quarter net income of $52.7 million, or $2.19 per diluted share, representing a 15% increase over prior year adjusted earnings per diluted share of $1.91, when adjusting for the prior year impact of the retroactive reinstatement of the Work Opportunity Tax Credit. For the quarter, we reported total revenue of $772.7 million, an increase of 1.1% when compared to prior year revenue of $764 million. Our restaurant revenue increased 1.8% to $591.1 million. This was partially offset by a 0.8% decrease in retail revenue to $181.6 million. Our total revenue increase was driven by positive comparable store restaurant sales growth and the net opening of six Cracker Barrel’s and four Holler & Dash Biscuit Houses since the prior year second quarter. Comparable store restaurant sales in the quarter increased 0.6%, as average check increased 2.7% and traffic decreased 2.1%. The increase in average check reflected menu price increases of approximately 2.1% and a favorable menu mix impact of 0.6%. The second quarter mix favorability was driven primarily by our Country Dinner Plates category, which was featured in our second quarter national cable advertising and by our Heat n’ Serve offerings. Comparable store retail sales decreased 2.2%, primarily driven by our negative store traffic. We believe the severe winter weather, which occurred in December negatively impacted comparable store traffic, restaurant sales, and retail sales by approximately 1.6% in December and 0.3% for the quarter. Additionally, we estimate that the timing shifts from fiscal December last year to fiscal January this year at Christmas Eve, a day which we closed at 2:00 PM and Christmas Day, where we are closed all day increased December comparable store traffic restaurant sales and retail sales by approximately 5.7% and reduced to January by approximately 5%. This timing shift resulted in a relatively flat quarterly impact. Total cost of goods sold in the quarter was 33% of total revenue, a 170 basis point improvement from the prior year quarter. Our restaurant cost of goods were 25.9% of restaurant sales compared to 28.4% in the prior year quarter. This 250 basis point improvement was driven primarily by favorability in our commodity market basket. On a constant mix basis, our food commodity costs were approximately 7.8% lower in the quarter than in the prior year quarter, due to deflation in most of our market basket categories with the greatest dollar favorability from our eggs and beef categories. Our retail cost of goods sold was 56% of retail sales compared to 54.7% in the prior year quarter. This 130 basis point increase was primarily the result of increased markdown spend. Our retail inventories at quarter end were $118.6 million compared to $112.7 million at the prior year quarter end. This increase is primarily the result of the earlier receipt of merchandise to accommodate the early Chinese New Year. Labor and related expenses were $259.3 million, or 33.6% of revenue compared with $251.9 million, or 33% of revenue in the prior year quarter. This 60 basis point increase was primarily due to greater store management bonus expenses attributed to the store’s second quarter expense management performance, as well as higher store management staffing level as our prior year staffing levels were below target. Other store operating expenses in the quarter were $141 million, or 18.2% of revenue, including the $600,000 in recovery proceeds from the legal settlement of the 2010 BP Deepwater Horizon oil spill. This is compared with other store operating expenses of $141.1 million, or 18.4% of revenue in the prior year quarter. This 20 basis point favorability was primarily driven by better store level management of our maintenance expense line compared to the prior year quarter, lower advertising expenses due to a more productive TV and media buying strategy, and decreased utilities expenses from the success of our cost reduction initiatives. Store operating income was $117.5 million in the second quarter, or 15.2% of revenue, compared with store operating income of $106 million, or 13.9% of revenue in the prior year quarter. General and administrative expenses in the quarter were $34.8 million compared to $35.5 million in the prior year quarter. As a percent of revenue, G&A decreased 20 basis points to 4.5% versus 4.7% in the prior year second quarter. Operating income was $82.7 million, or 10.7% of revenue, compared with operating income of $70.5 million, or 9.2% of revenue in the prior year quarter, a 150 basis point improvement. Net interest expense for the quarter was $3.6 million compared to $3.6 million in the prior year second quarter. Our effective tax rate for the second quarter was 33.3% compared to the prior year quarter of 27.9% on a GAAP basis, or 31.4% when adjusted for the prior year reinstatement of the Work Opportunity Tax Credit. This 190 basis point increase over the prior year adjusted rate was primarily due to lower levels of Work Opportunity Tax Credit. Turning to our balance sheet. We ended the fiscal quarter with $185.7 million of cash and equivalents compared to $171.6 million at the prior year quarter end. Our total debt was $400 million at quarter end. With respect to our fiscal 2017 outlook, everyone should be mindful of the risks and uncertainties associated with this outlook, as described in today’s earnings release and in our reports filed with the SEC. We expect to report earnings per diluted share for the 2017 fiscal year of between $8.10 and $8.25. We now expect total revenue of approximately $2.95 billion. Driven by our softer second quarter sales results, our more modest expectation for traffic improvement in the second-half and our planned second-half pricing decelerations, we now anticipate comparable store restaurant sales growth for the full fiscal year to be in the range of 0.5% and 1%. This restaurant sales guidance anticipates annual pricing in the range of 1% to 2%, some modest third quarter mix favorability from our Easter Heat n’ Serve program and some modest fourth quarter mix unfavorability from the later introduction of our campfire promotion, which is expected to begin on May 22. We now anticipate comparable store retail sales of approximately negative 2%, reflecting further caution regarding our outlook on the retail environment. Specifically, we believe that retail sales growth will improve each quarter, but the rate of improvement may be more modest than originally expected. During fiscal 2017, we expect to open eight new Cracker Barrel stores and four new Holler & Dash stores. We now expect decreases in food commodity costs on a constant mix basis of approximately 4% for the fiscal year, driven by the favorability we’ve experienced in the first-half of the fiscal year and some moderate favorability in the second-half. We’ve locked in our pricing on approximately 65% of our commodity requirements for fiscal 2017, which is equal to the percentage at this time last year. We continue to expect advertising expenses to be approximately 2.9% of revenue for the full fiscal year. This would imply second-half advertising expense growth of approximately 30 basis points over the prior year second-half. Based upon the success of our year-to-date savings from our cost reduction initiatives, we now anticipate delivering annual reduced expenses of between $18 million and $20 million from these initiatives. We continue to expect depreciation of expense of between $85 million and $87 million for the year, an increase of approximately 20 basis points over the prior year. We now expect our operating income margin for the year to be in the range of 10% to 10.5% of total revenue. We anticipate net interest expense of approximately $15 million. We expect an effective tax rate for the year of approximately 32%. We anticipate that capital expenditures for the year will be approximately $125 million. For the third quarter of fiscal 2017, we expect to report earnings per diluted share of between $1.75 and $1.85. The third quarter guidance is predicated on our current expectations. For the top line, these expectations include a more modest price increase than in the first-half of the fiscal year, some anticipated mix favorability from our Easter Heat n’ Serve program and continued traffic pressure. We anticipate our third quarter traffic growth to improve from our second quarter growth rate. However, we are not yet experiencing these improvements. With four days remaining in fiscal February, our month-to-date traffic has been more challenged than our recent base trend. We anticipate the menu and marketing efforts that Sandy discussed to drive improvements in March and April, yet we are very cautious regarding our traffic expectations. On the expense side, our third quarter guidance includes expectations of higher retail COGS as a percent of revenue, hourly wage inflation of approximately 3.5%, and year-over-year growth in advertising and depreciation expenses. We believe these increased expense lines will be partially offset by continued commodity deflation, although less favorable than we experienced in the first-half of the fiscal year, as well as continued savings from the successful implementation of our cost reduction initiative. This third quarter guidance implies relatively flat fourth quarter earnings per diluted share, which is primarily driven by the expected timing of our fiscal year marketing investments. And with that, I’ll turn the call over to the operator, so that we can take your questions. Thank you very much.

And thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question will come from Robert Derrington with Telsey Advisory Group. Please go ahead.

Yes, thank you. A couple questions if I may. On the – there wasn’t any kind of commentary about G&A directional guidance, which typically you don’t provide. But I’m just wondering as I look at the first couple of quarters of the year, it looks like stock comp is running down year-to-date about 43% versus last year. Is that kind of a general thought that we should be thinking about as we look at the second-half of the year as well?

Hi, good morning, Bob. It’s Jill, thanks for your question. We continue to anticipate flat G&A as a percent of revenue as we look at our full fiscal year guidance.

Okay, all right. Okay. And then as we think about the retail COGS, obviously, the trend has been drifting higher as sales have softened directionally. I would expect – or should we anticipate second-half of the year to be up materially versus what it was last year in the second-half, which was actually relatively good?

Well, Bob, I think first of all, we believe that the retail industry is going to remain highly promotional through the balance of this fiscal year. And although our buyers and our merchandise teams are doing a good job of trying to adjust the buys to and the allocation in specific stores and so on in order to address this trend, I’m anticipating that the margin line will continue to be stressed.

Okay. And, Sandy, if I could ask kind of a general overall question. As you look at the current environment in which we find ourselves, the company operating, are there – is there anything that you can help us understand about the performance in the last couple of quarters either regionally, have there been any big variances, stronger trends in different geographies, or is it generally a level of malaise across the system?

I’ll let Jill speak to whatever sort of specific regional variability, of course. In this time of year, you always have pockets depending on weather more than anything else. But I would say that the volatility and the overall malaise – what was your word malaise is more related to what we believe is the consumer is very uncomfortable right now. And as a result that that’s impacting their willingness to spend.

And Bob, this is Jill. Just as we’re looking back at the first-half from a weather standpoint, it did impact certain regions. Though in the first quarter, we had Hurricane Matthew, which impacted some of the south. And then in the most recent quarter, our stores in the Midwest and New England underperformed the system average. But again, that was primarily due to weather.

Gotcha. Okay. I’ll jump back in the queue. Thank you.

The next question will come from Gregory Francfort of Bank of America. Please go ahead.

Hey, guys. Just maybe two questions on sort of the current industry environment. One, Sandy, your comments on the uncomfortable consumer, are you seeing anything in sort of how they’re spending in your restaurants that’s telling you that, or is that sort of something you’re watching more on a macro basis? Is it consumers maybe not doing add-ons as much, I guess, how are you seeing that in your stores?

I think the comment I’m making is really more of a macro issue, which is I doubt surprising to anybody listening to this, which – but the consumer just seems anxious. And the problem is, they all seem to be anxious about different things, whether it is increasing healthcare costs, the potential for increasing healthcare costs, the timing of tax refunds, the size of the tax refunds, I think, we’re looking at the issue about food at home, food away from home and the disparity in the pricing of those two. And when you add to that the depth of competitive discounting, I think, it is just restaurants are all fighting for market share with a consumer that, as I just said, I think when people feel this way, they tend to spend less.

And you…

And one of the things I do think is that, what they look though is to brands that they trust in an environment like this. And as I sort of mentioned, I think on every call, I think that’s where Cracker Barrel’s particularly well suited and with its consistent safe, warm, familiar, friendly, approachable and all of those attributes and that we’re known for and we continue to deliver, I think is what allows us to compete in this environment and to continue to outperform the industry.

Got it. That makes sense. Helpful perspective. And you hit on one comment, I guess, my second question was, just on the February and the tax refunds, do you think the delay in the tax refund filings and sort of the anti-fraud detection installments that the IRS is making is having an impact on traffic trend so far in the month?

Well, we think it’s one issue in the mosaic if you will of all the various issues impacting our guests. So we can’t quantify the impact. But certainly, the delay in tax returns and the money that’s not putting in customers – is having some effect. And – but there’s lot of other issues as well.

Got it. Then maybe two real quick ones. Just on the marketing spending and being up 30 basis points in the back-half of the year, does that assume you are on air for advertising anymore weeks or less weeks, or is there any shifts around in sort of the timing of when you are on TV?

Hey, Greg, it’s Chris here. So for Q3, we absolutely will be adding in another week on a year-over-year basis and our waits will be up as well in a pretty significant fashion. And then when we get into Q4 while waits will be pretty flat on a year-over-year basis. We think about reach and frequency overall, as we lay any new programs, Sandy has been talking about digitally and radio and all those types of things those numbers are up on a year-over-year basis.

Got it. And then just the last one from me. On the tax rate, so far this year, it’s running 33%, up a little bit from last year. Anything sort of you can call out there in terms of maybe less hiring credits, or may be driving that up a little bit?

Sure. This is Jeff Wilson, I’ll take this one. Our Q2 tax rate difference compared to last year is largely due to changes in WOTC. Last year, you will recall that we had the favorable impact that the retroactively instatement of WOTC and we produced that difference in our adjusted rate which we did Reg G disclosure. This year, we just have lower levels of WOTC credit, and to your point, we do have a lower level of FICA tip credit as a percent of taxable income.

Got it. Thank you, guys.

The next question is from Jake Bartlett of SunTrust. Please go ahead.

Great. Thanks for taking the question. First, I had a question on the holiday impact, the impact of the Heat ‘n Serve and the higher prices for all the take out and all that you did. Can you parse that out to maybe how much that boosted the comp for the quarter in the restaurant side?

Well, we could Jake, as we don’t disclose it in that level of detail, we do think that our Heat ‘n Serve program due to variety of things for us, it fits with the brand. It help to reinforce our – the brand of the destination for meals like that. It add – it allowed us to increase the size of that day, but and it – we do believe it added certainly on the Thanksgiving day that it added to traffic and mix.

Okay. And looking forward just your guidance implies by my math an acceleration on a two-year basis. So you’re kind of going up against increased marketing dollars and things like that. Could you maybe just describe again the plan of how you expect to kind of overcome the difficult compares from last year and maybe just maybe discuss again the – what you’re going to do in the third quarter here and maybe why what you are doing has not impacted February?

So I’m going to turn it over to Chris to – and Jill to reiterate to some degree what was in the script. But in general, what we’re focused on is to continue to deliver the guest experience day in and day out, it’s what a large part of what differentiates Cracker Barrel. We will be through our marketing plans in a number of those programs we’ll be reinforcing the differentiation, and increasing and improving our engagement with our guests, and then working to address guest needs specifically convenience, speed, value and affordability and engagement. And I’ll let Chris summarize underneath those and reiterate the plan.

Thanks, Jake. So I think when we think about convenience we’ve had some conversations this morning about our Heat ‘n Serve program, what that did for us both at Thanksgiving and again in Christmas. We see that as a nice natural fit with the brand and sort of a family occasion, so are excited to extend that into Easter. We think we can become known as a destination over time just like we are at Thanksgiving and think as we get that message out. We can see that they grow as well as candidly the ability to cross sell across days. Additionally, we’ve been testing a new platform to service larger party off-premise occasions and that program is targeted to service both the business markets and the business to consumer market. And so that platform includes back of house equipment and technology, leveraging our new online ordering system, new packaging, limited editions to our menu and adjustments to our labor model to ensure we can meet the demand when it’s there. So and then last, we’re in test right now, the handful of stores online wait lists, not only does it have the potential to put the guest in more control, we believe it also has the potential to help us with peak periods with potential walkaways. On the speed side, you may recall that we put in dining room management last year. As we continue to gain field level expertise of the system, we’re focusing on how to reduce our total experience times through our steps to service without making the guest feel rushed. And the third area that Sandy talked about was value unique and affordability – sorry, unique value and affordable options. So we’re prepared, I think, as you know to reintroduce a perennial favorite Campfire for this year for a few shorter weeks with the addition of a new desert our S’mores. We’ll continue to feature our value destinations at breakfast, lunch, and dinner through all of our marketing vehicles, and I’ll talk about that in a second. And then we have multiple tests in a way right now within our lunch specials, breakfast and beverage categories that we believe the guest will perceive as value and provide a more unique and cravable eating experience. The third area Sandy talked about was just idea of sort of creating deeper engagement with the brand and broader reach with our messaging. We’ve been in a process of reallocating our dollars towards more digital and broadcast and focusing our messaging on value experience in signature food. So this spring I talked about the flight that’s going to go into market, it will start on the 20th. The spot will focus on the unexpected, the life and discoveries that are unique to Cracker Barrel. And we will be utilizing our weekday lunch special category with its 599 price point as a call to action. We’ve seen it work before for us and think that will be a marketplace appropriate. As I mentioned earlier, that includes one more week in prior year and 45% higher wait. On the digital side, we continue to expand in that space. We think it’s a very important place to meet the guests, where they are. So we’re expanding deeper into SDM, paid, social and e-mail driving that value experience signature food message. Sandy talked about our billboard program that launches again, or it has a complete relaunch, I should say. This marks with an entirely new look and new focus really again on value and signature menu items, and our ability over time to change, historically, we switched that up from a creative standpoint of every 12 to 18 months. We will now begin to move towards more frequently in our biggest and heaviest markets to try to drive frequency. We’ve got a focus on Hispanic and African-American markets as well. We’ve been working against those markets. On the Hispanic side, we are expanding our messaging. We’ve been focused on spot markets primarily in the Southwest in Florida. We’re going to now move nationally with a Hispanic cable broadcast. We think that will deliver greater media buying efficiencies and more market coverage brand awareness amongst those Spanish speaking guest base. And then last, in terms of unique and affordable options, we’ll reintroduce our perennial favorite Campfire, as I talked about in the beginning. So that’s a lot of detail I know, but hopefully it answered your question.

No, it’s very helpful. And then lastly and really quickly. Of the $18 million to $20 million that you’re now targeting for cost saves, how much were achieved in the first-half of the year? Should it accelerate in the back-half, or how should we think about that?

Hi, Jake, this is Jill. Our cost savings are pretty evenly split between the first-half of the year and the back-half of the fiscal year.

Great. Thank you very much.

You’re welcome.

The next question will come from Alton Stump with Longbow Research. Please go ahead.

All right. Thank you and good morning, everyone.

Good morning.

I think most of my questions about the current environment have already been asked. But maybe kind of switching gears, looking at a full-year 2018, obviously haven’t given guidance yet, of course not asking you to do so. But as you kind of think about on the margin front, whether on your own cost savings program, if you can remind us how much of that flows through into next year? And then also just looking at commodities, beef still down, eggs still down, how you see things playing out maybe even if just directionally from a commodity standpoint heading into full-year?

Hi. So, Alton, this is Jill. So yes, we’re not going to provide any 2018 guidance. I mean, what we’ve said is, we’re seeing the commodity deflation be more moderate in the back-half of this fiscal year. So that’s the trend that we’re on. And then from a cost saving standpoint, I mean, we’re always looking to eliminate what we call low value-added cost, so we can either reinvest in the business or flow those to the bottom line.

That’s helpful. Thanks. And then just one last question, as far as pretty competitive environment, it would appear that kind of family diners focused on [Technical Difficulty] held up better than most casuals over the last probably 18 months that that sort of broke down a little bit possibly over the last two months here. I mean, is there any certain kind of external factor that you see that was the biggest driver of that?

So if I understand the question, Alton, is that, how do we continue to outperform the industry?

Yes. Well, yes, kind of, Sandy, or just that I think kind of family diners in the publicly traded space like yourself, IHOP, Denny’s had held up better than most casual diners over the last 18 months. Does that seem to maybe come back down, or was that gap of outperformance come back down over the last month or two? Was it just the fact that December in particular was such a bad month for everyone that we would now think what you guys could do or see, or is there something else that you maybe we had a point to that will explain why the family diner has not performed as much of late versus other casuals in general?

I can’t really – we – because we compete really more against casuals and our lunch, dinner day parts, we view the casual sector is a competitor. We look across everything. I continue to believe that the winners in an environment like this are all of the reasons I have said before, which are brands that guest can feel they’re going get a consistent experience, honest value, and that are differentiated. And so I think that certainly from Cracker Barrel standpoint, we’re positioned at each day part to deliver that.

Got it. Thanks so much, Sandy and Jill.

[Operator Instructions] The next question will come from John Zolidis with Buckingham Research. Please go ahead.

Hi, good morning and thanks for taking my question.

Good morning.

Two quick questions. First, can you remind us the $0.10 from the October quarter that was timing related, there was a $0.10 benefit to the quarter. Have we now seen those expenses? Is that still in front of us?

So, John, that is still in front of us. So what we had said is that $0.10 we expected to see that in the back-half of the fiscal year, so that’s still in front of us.

Okay, great. And then a question on Holler & Dash, can you give us an update of the performance there and maybe some insight into where the new locations are and how you chose where to put those stores?

I’ll give you a little bit, probably not as much as you would be hoping, John. We’re pleased with the response. The fourth store opened in January here in Nashville. We have planned to open two more stores this fiscal year. The four stores that we have now are in Birmingham, Tuscaloosa, Orlando and Nashville. One of the objective to the initial group of store openings was to look at different types of markets and different types of real estate to get a feel for how much brand – an appeal the brand had with a variety of consumers in a variety of real estate locations. So after we get a few more months of actual operations under it, we’ll give you all an update in a future call.

Great. Thanks and I look forward to coming down there for the Analyst Day in June.

We’ll look forward to it.

The next question is a follow-up from Jake Bartlett with SunTrust. Please go ahead.

Hi, thank you. I just had a real quick one on bacon. So not asking for your guidance going forward, but maybe just to help us understand, I have noticed, bacon is up 70% to 80% in the last few months. I think it’s about 5% of your COGS. How do you contract for bacon? Is that something that you can contract far out for and is that what you typically do?

I don’t think we normally talk about individual line items. But overall, we’ve seen that category slightly below last year like some of our other commodities. We do – we contract far out – your question maybe, do we lock-in price?

That is the question, yes.

[Multiple Speakers] which is a different thing. So we have a long-term contracts to ensure that we have a consistent supply of our specified bacon. And from time to time depending on the current market environment and what the suppliers are offering us, we will take advantage of the market and choose to lock in prices. We wouldn’t disclose that, but that would be part of the locked percentage that we do disclose, which for this quarter is 65%.

Got it. I know that with egg prices in the past you had talked about kind of a rolling basis with a three-year lag – or three-month lag and that’s changed a little bit. So I was just wondering whether there was any of that sort of commentary around bacon?

Sometimes we’ve been locked in bacon and sometime for period and other times that we have had a different arrangement.

Okay. And then just to clarify one last thing. On the weeks for advertising, I think there was nine weeks of advertising in the fourth quarter of last year on TV. Is that what we expect, or what you expect this fourth quarter?

So Q4 this year will have eight weeks versus nine last year. But as I said, when you think about it from a weight perspective, it will effectively be about flat year-over-year. If you plus that up, Jake, and you think beyond just specifically national broadcast, about all the other vehicles we’re driving into market, the digital spend, all those pieces, our reach and frequency is up on a year-over-year basis.

Got it. Thank you very much.

The next question is also a follow-up. It is from Robert Derrington with Telsey Advisory Group. Please go ahead.

Yes, thanks. I’m just curious, given the success that your Campfire meals typically have been, why is it that you’re delaying it just a little bit? I’m just curious.

The – I’ll let Chris respond to that one.

Hey, Bob. Yes, last year we ran the program for 15 weeks, as you may recall. This year, we shortened it three on the front and one on the back. I mean, we all know it’s a very differentiated offering, works really well for us. I think one of the things that we have to be mindful of is, our ability to execute at a high level day in, day out. And we’ve been really mindful of the impact last year of having that across with Mother’s Day specifically. And what that does in terms of our – which is our highest traffic day of the year being one piece. The second thing is just pushing back a few weeks allows our launch to better capitalize on those underlying trends around school vacations, memorial day and so forth.

Okay.

The impact from that is embedded in our guidance.

Gotcha. And specifically, as far as the menu price for the second-half of the year, I know it was a broad 1% to 2%. Is it towards the – what are we lapped recently? Any kind of color on that, Jill?

So we don’t break out by quarter, but we are seeing a deceleration in our pricing increase in the back-half versus the first-half.

Okay, all right. And then just a bookkeeping number, the EPS bogies that were expected to be flat in the fourth quarter, last year you reported $2.12. Was there – are there any restatements? Is that the bogie that we’re talking about being flat against?

Yes, we didn’t have any restatements in the fourth quarter. So that is the fourth quarter number that we’re comparing against.

Okay, super. Thank you. Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Sandy Cochran for any closing remarks.

Okay. Well, thank you all for joining us today. I remain pleased with our ability to manage through a challenging period and with our continued progress on this year’s business initiatives, we appreciate your interest and support and thank you for your time this morning.

And thank you. The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.