Earnings Call: Q3 2021

May 25, 2021

Good day, and welcome to the Cracker Barrel Fiscal Year 2021 Third Quarter Earnings Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note, today's event is being recorded. I would now like to turn the conference over to Jessica Hazel, Senior Director, Investor Relations, please go ahead. Thank you. Good morning, and welcome to Cracker Barrel's Q3 fiscal 2021 conference Call and Webcast. This morning, we issued a press release announcing our Q3 results. In this press release and on this call, We will refer to non GAAP financial measures for the Q3 ended April 30, 2021. The 3rd quarter non GAAP financial measures are adjusted to exclude the non cash amortization of the asset recognized from the gains on our sale leaseback transactions and the related tax impacts. The company believes that excluding these items Its financial results provides investors with an enhanced understanding of the company's financial performance. This information is not intended to be considered in isolation or as a substitute for net income or earnings per share information prepared in accordance with GAAP. The last pages of the press release include reconciliations from the non GAAP information to the GAAP financials. On the call with me this morning are Cracker Barrel's President and CEO, Sandy Cochran Senior Vice President and Interim CFO, Doug Couvillion and Senior Vice President and CMO, Jen Tate. Sandy will begin with a review of the business, and Doug will review the financials and outlook. We will then open up the call for questions for Sandy, Doug And Jen. On this call, 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 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. Finally, the information shared on this call is valid as of today's date, And the company undertakes no obligation to update it except as may be required under applicable law. I'll now turn the call over to Cracker Barrel's President and CEO, Sandy Cochran. Sandy? Thank you, and good morning, everyone. I appreciate you joining us for today's call. We delivered strong 3rd quarter results, which exceeded our Our operators did an excellent job this quarter managing a significant step up in dine in traffic, Continuing to support elevated off premise sales and driving double digit retail sales growth compared to 2019. It was largely due to our progress on sales recovery that we delivered operating income margin that improved by 5.30 basis points over the Q2. This strong financial performance, combined with the actions we took during the pandemic to strengthen our balance sheet and The progress we made in the Q3 on paying down our debt enabled us to declare quarterly dividend of $1 per share. Our Board has been committed to reestablishing a quarterly dividend as part of our overall capital allocation And I'm glad that we delivered results that allowed them to start down this path this quarter. Going forward, As we have consistently done, we will continue to evaluate our alternatives to prudently structure and allocate capital in ways that create value for all of our shareholders. During the quarter, we delivered sequential monthly improvements in our Grew from approximately $56,000 per week during fiscal January to approximately $70,000 per week in April. We believe this growth was driven by a number of factors. First, the progress of vaccinations and the relaxation of Capacity restrictions. 2nd, our sales initiatives and strong retention of off premise sales, which remained above 20% of restaurant sales Even with increased dine in traffic. And lastly, for at least some of the quarter, the favorable impact of the stimulus package and its impact on the On average, our locations were operating at approximately 75% effective capacity during the 3rd quarter. Our weekday sales trends showed larger improvement than weekend during the quarter, which we attribute in part to the fact that we're less likely to bump up against those capacity constraints during the week. As we move through the balance of the year, we look forward to This is an evolving situation that we continue to monitor as the recovery progresses. Key sales initiatives like the beer and wine program, digital investments and our menu evolution initiative, All of which I've spoken to on previous calls contributed to our 3rd quarter traffic and sales performance. We anticipate continued favorable sales contributions from each of these initiatives as well as from our new fully integrated branding campaign, which Launched in April. The campaign, which was developed with our new advertising agency, Dentsu, Highlights the concept of care as our secret ingredient. It emphasizes the care we take making our home style food, Curating our retail offerings, welcoming our guests like family and taking care of our employees. This launch is being supported with national and streaming TV advertising, which runs for 6 weeks, Digital and social media support and a refresh of our more than 1500 billboards. As dine in sales grew, our off premise volume remained strong and increased 144% over the more normalized fiscal In fact, April off premise sales volumes outperformed the prior year We continue to be pleased with the growth in all of our off premise channels, which include individual to go, 3rd party delivery and catering. Individual to go, which includes either pickup in store or curbside remains by far our largest channel, accounting for roughly 55 percent of off premise sales over the past 12 months. During the quarter, we made enhancements to our curbside process off premise sales over the same period has grown rapidly since the start of the pandemic as we launched additional vendors and guest demand increased. We believe this channel has introduced us to new customers and new occasions, and we're pleased with how third party sales volumes Held during the Q3 as dining rooms reopened. Catering sales, which includes special occasion heat and serve Accounts for the remainder of our off premise business. Catering landscape has been challenging at times during COVID, But our catering teams have done a great job adapting with new offerings such as our individually packaged box meals, which we believe have a strong value We believe our catering sales have further room for growth and will help with overall off Lastly, on off premise, while it remains early, we've been encouraged by the learnings we've achieved from the single location test of our virtual brand, Chicken and biscuits. We're extending the test to 19 additional locations this week and we'll provide you with further updates over the coming quarters. Retail sales once again exceeded our expectations while delivering improved gross margin. The retail shop has always been a differentiator for our brand with unique merchandise and strong value price points. During the pandemic and as our guests have returned to indoor dining, we've seen them respond quite positively to the convenience of dining and shopping in one The merchandising and operations teams have continued to deliver strong sales performance on lower inventory levels, And we've been encouraged by the response to the look and feel of a more curated collection of merchandise. Teams have been nimble in applying recent learnings back into our purchasing strategies and we're seeing positive results. For example, we saw sales growth in our men's merchandise early in the pandemic and believe this was being driven by strong attachment rates from customers picking up off premise orders. We quickly sourced new and unique men's assortments and have seen continued growth in this category. As we look to the Q4, we're optimistic that retail sales will continue above fiscal 2019 levels. However, we believe there could be some moderation in our retail sales and margin performance versus the 3rd quarter due to the potential for inventory issues related to ongoing industry supply chain challenges. Mako Street sales throughout the pandemic and during the recent recovery months have been very impressive. Sales volumes remained well above fiscal 2019 levels during the quarter. And on an annualized basis, Their 3rd quarter performance would result in AUVs of over $1,000,000 In addition, we've been pleased with their recent store economics and their ability to manage controllable expenses in support of a solid business model. During the quarter, we opened a location in Tennessee, been very Community and connection, and we believe that Maple Street with its focus on community is uniquely situated to meet this demand. We're pleased with the growth in sales volumes our Cracker Barrel and Maple Street stores achieved during the quarter. Our operators at both brands did an excellent job executing in a difficult environment. We had a number of locations that encountered staffing challenges, which in some locations continue today. Our field leaders and home office staff have implemented several strategies to quickly recruit, from these ongoing sourcing and supply chain challenges as we work with our product suppliers. We remain diligent across the company in ensuring that our operators are fully supported in both of these areas and that our guests and employees feel Before I hand it over to Doug, I'd like to recognize the addition of Chip Wade To our already accomplished and diverse Board, Chip is a 40 year veteran of the restaurant industry and will bring valuable perspective and meaningful insight To both our Board and our management team, he's the 3rd Director we've added over the past 12 months as part of our thoughtful Board succession planning and And with that, I'll ask Doug to provide you with further financial details on the quarter. Doug? Thank you, Sandy, and good morning, everyone. We are pleased with our sales performance in the 3rd quarter, which exceeded our expectations. The improvement in sales during the quarter has us at our closest point to normalized fiscal year 2019 levels since the pandemic started. In addition, we made significantly more progress on operating margin than we anticipated in the 3rd quarter, and our adjusted operating income was 7 Our better than expected sales performance, especially in our retail business, was the primary driver of our margin outperformance. As I get into the detailed financials, I will be commenting on our performance relative to both prior year and Q3 of fiscal 2019, which we believe is the benchmark to understand the business at this point in time given our stores are operating in an off premise only model from late March through April of the prior year. For the Q3, we reported total revenue of $713,000,000 Our restaurant revenue increased 58% and our retail revenue increased nearly 100% versus the prior year Q3. Compared to the Q3 of fiscal 2019, comparable store restaurant sales decreased 8.6%. With more dining rooms open and our guests knowing they can return to a safe experience that delivers on our mission of pleasing people, Our dine in sales volumes significantly accelerated in the 3rd quarter. Even with the dining rooms reopening Reaching improved capacity rates, we retained approximately 95% of our 2nd quarter individual to go and delivery sales in the 3rd quarter. 1st store total off premise average weekly sales for the quarter were nearly $15,000 A 144% increase from the Q3 of 2019. This performance confidence that we will see a positive off premise contribution to our average weekly sales volumes once we fully return to pre COVID dine in volumes. We continue to be pleased with our strong retail performance, which was far better than anticipated during the Q3. Comparable store retail sales increased 10.8% over 2019. We saw strength in the quarter from food and convenience, Apparel and toys. And versus fiscal 'nineteen, we had increases across all operational retail metrics, such as the conversion rate of restaurant guests to retail purchase and the number of units purchased per retail ticket. Moving on to expenses. Our total cost of goods sold in the quarter was 28.8 percent of total revenue, which is favorable To both the prior year fiscal 2019 Q3, even with the ongoing elevated mix of retail sales, which as a reminder has a higher cost of goods rate. Restaurant cost of goods sold benefited from lower food waste And moderate commodity inflation offset with pricing of 2.8%. We anticipate a significant step up to approximately 5% commodity inflation for the 4th quarter, primarily due to the pork category. Retail cost of goods performance was driven largely by our ability to maintain newer and seasonal merchandise sales at full price levels Throughout the quarter, 3rd quarter labor and related expenses at 35.1 percent of revenue were also favorable to both the prior year and fiscal 2019. Our 2 year comparison benefited from approximately $7,500,000 in cost savings associated with the actions we took in the Q3 of fiscal 'twenty. Additionally, later in the quarter, Our stores delivered higher hourly productivity levels as sales increased ahead of our ability to increase staffing levels, which helped to offset much of the impact of wage inflation. For the Q4, we anticipate wage inflation on a constant mix basis of approximately 3% to 3.5%. Adjusted other operating expenses was 23.1% revenue, which was favorable to the prior year, but unfavorable compared to 2019. Portion of this unfavorability can be explained by temporary factors, including sales deleverage and higher utilities expense as a result of winter storms in February, but the primary drivers of the increase versus 2019 are: 1st, Higher supply expense and third party fees due to the strength of our off premise channels second, incremental rent expense as a result of the sale leaseback transactions. We anticipate these two changes to our business model during COVID continue to impact our margins for the foreseeable future. Moving beyond store level margins, General and administrative expenses in the 3rd quarter were $37,400,000 which is approximately flat compared to the Q3 of 20 19. We anticipate our 4th quarter G and A expense will be largely in line with the 3rd quarter results. Our effective tax rate for the Q3 was 21.9%, which was lower than we anticipated due to the strength of our performance and higher than expected pretax income. We now expect our 4th quarter effective tax rate to be in the range of 11% to 12%. These 3rd quarter results culminated in GAAP earnings per diluted share of $1.41 and adjusted earnings from the gains on the sale leaseback transactions. As sales recover and we maintain our diligent approach to managing expenses, EBITDA continues to grow. In the 3rd quarter, EBITDA was $83,000,000 an 84% improvement over our 2nd quarter EBITDA results. To close out our detailed financial results from the 3rd quarter, I want to speak to the strength of our balance sheet. In the Q3, we generated $91,000,000 in cash from operations, And our cash at quarter end was $385,000,000 As a result of our strong cash generation, we paid down $260,000,000 of debt during the 3rd quarter, leaving us with the remaining debt balance of $615,000,000 We expect to further reduce our debt by up to $165,000,000 in the 4th quarter, which would bring our total debt reduction to $500,000,000 during the fiscal year. As we look to near term expectations, I'd like to make a few additional comments. We've been pleased with our year to date sales recovery and anticipate continued recovery over the coming quarters. We expect 4th quarter total revenues to be approximately flat to the 4th quarter 2019 total revenues. We also expect 4th quarter operating income margin will improve sequentially compared to the Q3 of 2021, but remain below the Q4 of 2019. Let me walk you through the assumptions underlying our expectations. I'll begin with the tailwinds. We believe our comparable store sales will further recover as capacity restrictions are lessened. Additionally, we are confident in the targeted cost savings actions we took at the onset of the pandemic, which improved our cost structure and will benefit our results compared to 2019. We believe there are also several headwinds When comparing to our 4th quarter expectations versus fiscal 2019, First, the modest pricing increases that we took during the pandemic to maintain a strong value proposition will not offset The high commodity and wage inflation environment that we expect in the 4th quarter, even with a step up in 4th quarter pricing to 3 Percent. 2nd, as we navigate the current staffing environment, we anticipate additional employee related expenses to support store hourly and field leadership staffing and retention efforts. Lastly, we have incremental rent expense associated with the 20 We believe our work throughout the pandemic has positioned us well to deliver on these 4th quarter expectations. And with that, I will turn the call over to the operator for questions. Thank you. We will now begin the question and answer session. Today's first question comes from Jeff Farmer at Gordon Haskett. Please go ahead. Good morning. Thank you. A handful of labor questions to start with. And in the prepared remarks, you did touch on a couple of these. But What are your current staffing levels as we sit here in late May versus where they were in pre COVID levels? Okay. I was waiting for the for you to continue on, Jeff. Hey, good morning. This is Sandy. I'll say it this way that our staffing situation, although it's improved, it's still challenging. The way we categorize our store, about 10% of the chain, we've designated as critical in terms of how we believe Our staffing is relative to the demand we're either experiencing or anticipating. About 25 are in the category of concern. We've got a number of initiatives focused on that to help our operators, both in recruiting and retention. But that continues to be one of the biggest challenges that we're dealing with in the current environment. And then just more quick ones. So in terms of thinking about the end or the early end of extended and supplemental unemployment benefits as we get Into June and into early July, how helpful do you expect that to be in terms of the hiring process? So the enhanced unemployment benefits certainly was one of the factors that's Then impacting our staffing environment and the moves that I guess now we're at about 23 States that have made the decision to discontinue those additional benefits In the next month or so, we'll have an impact on the staffing environment. But I want to be clear, what we're really expecting It is that that mostly is going to help us with applicant flow. What we will still be facing is a lot of competition In the industry, sort of everybody is hiring at once in the restaurant industry as America opens up, But we've also got new competitors, if you will, for a lot of the similar skill sets, companies like Amazon and The kind of employment increases they've got, all of that competition is going to continue, I believe, To impact wage inflation. So in some sense, it will help, but it doesn't alleviate all the I missed some of this, but the 5% commodity inflation in the fiscal Q4. So look, carrying into Fiscal 2022, how should we be thinking about commodity inflation as you move into your next fiscal year? Yes. Thanks. That's a great question. I think in terms of the 4th quarter commodity inflation, I'll just call out that, that was Really being focused on the core commodity for us, we're lapping some relatively low pricing on bacon. And as we're coming over that and with some of the Changes in bellies and exports, it's caused kind of an unusual amount of inflation. I expect that commodity Inflation as we move into 'twenty two will moderate from that level. Okay. Thank you. And our next question today comes from Brett Levegh with MKM. Please go ahead. Great. Thanks for taking the call. I guess if we just go back into the labor again, starting with, what do you think you need to do Strategically to not just get the applicants to enter the door, but to retain them, How much do you think it's going to incrementally cost you at the unit level, whether it's just incremental training, added benefits? And then also just what can you do to accelerate your technology Efforts to try to drive some additional productivity to try to manage the labor side. Brett, let me take a stab at it. I don't know if Doug will want to add something at the end. There's a lot in that question, sort of some short term things and long term since I think that we've got a lot a number of short term pressures, some of which I just touched So as we think about recruiting, we're doing a number of things, certainly short term, everything from Front Porch events, which actually has been encouragingly successful. We've had a big program just to reach out to all of our former employees that we might have lost contact with over the course of the pandemic, Try to get them back because that will clearly those employees will be able to gear up certainly faster. We're doing For some of our most challenged stores, we've actually set up a centralized staffing function here that can Supplement the work being done at the store to try to focus even more. We've got employee referral programs. We've got We're starting with trying to be sure that we're competitive in terms of the wage rates that we're offering in the markets that we're in For the skill codes that we're offering. We also do your point is we need to be focused and we are on the retention of the There's perks that are in the kitchen to try to be sure that we're an employer both of choice Come to work for us and then when you get there you want to stay. I think our field teams are trying to do a lot to ensure that the Kind of cross training emphasis we have, and the kind of training in general to get productivity up Is offsetting the need for flexibility. So you need an employee to be able to fill multiple positions if you can, As well as to mitigate the inefficiency of a whole bunch of new employees at one time. Longer term, we're going to have to ensure that our wage and benefit packages are I would want them to stay with us and have a career with Cracker Barrel. I do think that there is some technology that we can apply And we are applying to that. For example, a lot of or some of the focus of our digital store Work will allow guests to pay online and the more we allow them to do that, that takes pressure off our cash. We It will allow us to just ordering online and the more we can move volume to things like that, It takes the pressure off the labor in the stores and we continue to look at How we can use functionality in the back of the house with our new food system and our new labor system That streamlines and simplifies the work that our managers do to run our restaurants. So those are just a couple of examples of how we can And just two quick technical questions. What do you think you talked about 2 cohorts are confirmed and challenged. How many employees do you think you had on the hourly level pre COVID And what's the shortfall right now? And then also you talked about an inching up of pricing. How should we think about your approach to pricing We're not just at 4Q, but as we end 'twenty one and go into 'twenty two. And then I'll let it let others have a chance. So on the first question, I know some what you're looking for is a number. I need X number of It's not really the way we look at it because, we're looking out sort of ramping. Basically, I'm not going to give you that We think of it more as which stores have critical needs as we look forward and in particular in certain skill codes. So the way I wanted to characterize it is sort of 25% are at a concern level and about 10% or We are thinking about our pricing strategy and how we need To move forward to offset these inflation pressures both in commodities and in wage, I'm going to let Doug speak to what we've announced, but we want to be very careful that we understand which of these pressures are short term versus long and being very mindful that our brand and our guest very much values value And that we want to be careful about not disrupting our reputation and commitment to Offering value on our menu. Doug, I don't do you want have we announced stock pricing? I think what we've talked in terms of short term pricing of about not pricing, but carry pricing of 3% that's in the 4th quarter. And again, as Sandy said, I think as we consider pricing going into next fiscal year, we'll be paying very close attention And to what's going on with wages and cost of goods and trying to maintain a balance with our pricing structure. But beyond that, we haven't really talked much about what we think We're going to say for next year just yet. And then just one last question. Of the 35%, the challenged and the inferred, Are those broad based or are those in any particular regions? Those are broad. There's probably certain DMAs and that you might see more, but it's broad. Thank you. And our next question today comes from Alton Stump with Longbow Research. Please go ahead. Great. Thank you. And congratulations On the impressive results, just wanted to ask kind of back to the pricing versus cost front and also labor costs. I mean, on the commodity front, is that a short term pressure? Or is that something you think bleeds into the better part of fiscal year 2022? Hi, Alton. I think that the pressures we're seeing related to the 5% are relatively short term, and I think, Again, that was related to bacon and some specific issues there. I think it will moderate as we move into Fiscal 2022, we're not really prepared to give specific guidance on that, but and I think as the markets move forward over the next or 3 months, we'll probably have a stronger opinion about which areas are specific risks for 'twenty two. And then just as you mentioned Sandy that you are doing a billboard refresh. As I recall, that's a pretty big piece of your advertising business, especially as Presumably people will be out doing all my road trips this summer. So could you just give some color on as what that refresh entails and How it's different than what you had previously? Hi, this is Jen. The billboard refresh is Part of a larger longer term campaign that Sandy spoke about, which is our care campaign, which is across lots of channels, including our TV and our digital and of course to your question about billboards and we are right now in the process of flipping over our Over 1500 billboards and they too will bring to life this idea that care and the care we take in making our food from scratch and The care we take in our hospitality and our service model and in curating our retail items, these boards bring that to life, right? So They tell that story that our secret ingredient is care. And so those are flipping right now just in time for what we hope And really believe we'll be in very busy summer travel season as families and friends take to the roads again Great. Thanks so much. I'll hop back in the queue. And our next question today comes from Jake Bartlett with Truist Securities. Please go ahead. Great. Thanks for taking the question. I know you've been hesitant in the past to give kind of quarter to date or monthly Same store sales. But I'm hoping you can help us with really with the cadence and I'm thinking about from April to May, Just how important kind of as we try to think about stimulus and also as we think about the impact of stimulus and as we think about the 4th quarter guidance And trying to gauge how conservative that may be, can you give us any color on May, perhaps whether it was Stronger than April or weaker, just whatever you could offer there would be great. All right. Well, let me take a stab at that, Jake. So Not surprisingly, we're encouraged, and certainly through the Q3 at the pace of recovery and the sequentially sequential monthly sales. And we definitely That it reflects strong pent up demand, willingness to spend, which we think was Certainly amplified by the stimulus, probably also helped by the savings that people were able To accumulate, while during the pandemic and we're seeing that. Although our guests, as I mentioned, are very value conscious, we Our seeing check and add on the premium sides and beer and wine and so on. And to Jen's point As she just may, we're very optimistic about our 4th quarter in general. But May has been choppy. It The last couple of weeks have softened somewhat. We're assuming that this is related to the shift in Memorial Day from What would have been yesterday to next week, somewhat to that Colonial Pipeline impact and the impact that may Add on travel during that week. But in general, we're looking forward, as Jen mentioned, to families traveling this summer And to people getting back to their normalized routines in terms of work, which we think will have a positive impact on our breakfast business. Great. That's really helpful. And then just in terms of your recovery, it's impressive trajectory, but it is Lower than what we're seeing with casual dining competitors. Can you offer your thoughts on why you think that is? And There's, whether it's breakfast, whether it's the type of markets you're in, just any thoughts you can give us why Cracker Barrel, maybe even just your family dining is trailing. Well, I think that there's been a number of issues for us That we've talked about on all the calls and you're alluding to a couple of them. Probably the 2 biggest relate to breakfast. It is Continues to be the day part that is the most challenged. It's the one it's the easiest to sort of people to do at home. It's probably the one most connected to a work routine that continues to be disrupted. So the breakfast day part is probably the biggest one and then the travel. We have not, I think, had the recovery Travel that certainly we are hoping and expecting to see over the next few months. Great. And then last a quick question on commodities. In the past, you've shared what level of contracting what percentage Of your commodity is contracted for. Could you share that now? Sure. Yes. As Looking at the 4th quarter, we've got a little over half of our commodity market basket locked up. That's a little bit lower than we would have had in the past. I think with price That elevated levels, we haven't advanced some of our positions as far, but we feel good about that. And like I said, just north of 50%. Great. I appreciate it. And our next question today comes from Brian Mullen with Deutsche Bank. Please go ahead. Hey, thank you. I was hoping you could give us an update on the beer and wine initiatives. Can you talk about what you're seeing where you have that in place from a sales lift Perspective and update us on the rollout schedule. And then just from a restaurant sales mix perspective, where was it in the quarter? And do you still feel good About getting to 2% or more of restaurant sales? Yes, sure. This is Jen. We have about 405 stores rolled out as of the end of Q3 and we are expecting that we'll be at about 600 stores by the time we get to the end of Q1 FY 'twenty two. We've made some great updates to our beer wine menu. So we've added things like sangria and blue moon that have done well. And actually 6 of the last 7 states that we've added have actually brought the mix up. So we've been bringing on states that happen to have a higher mix of beverage alcohol and so that's helping us. We're pleased with the results we've seen in places like the Northeast and Texas, where mix is running in some of those states at double, some Our early states average. So we are now optimistic that we can get beer and wine mix to 2% of dine in sales. Great. Thanks. And then just a follow-up, a question on Maple Street. For a time, you're talking about opening 15 units annually. Is that still a reasonable expectation for Maple Street when we think about fiscal 2022? And maybe could you talk about whether you're finding enough Quality sites out there, maybe touch on the construction cost inflation environment, could that have an impact, just your thinking on development there Brian, let me I'll touch on at least some of those issues. I'll start with just, As I said in the prepared remarks, I remain really pleased with their performance. I feel really confident about the brand and the growth potential. We are focused on securing the best sites and that is that's It's going well, but maybe not as quite as fast as I had hoped. I'm still hoping to get double digit growth in FY 'twenty two, whether it's going to be to the 15, we'll see. We're going to be doing both new markets and infill. And we'll be able to update you more about construction costs in more detail in our next call. Thank you. And our next question today comes from Todd Brooks at CL King and Associates. Please go ahead. Hey, good morning, everyone. Just a few questions, if I may. 1, Sandy, you were talking about just how encouraged you are with the off premise revenue streams and the maintenance of those Dreams' dining rooms have reopened. I guess, as you think about that business being in the kind of low-20s Percent of mix versus a little bit less than 10% pre pandemic. What's your best guess for what that settle out point is What percent of mix you expect off premise to be? Just trying to get a sense of what AUVs we're building back to beyond what we saw in fiscal 2019? Well, I'm going to let Jen kind of speak to what you're I assume kind of getting at Todd is off prem stickiness? Exactly. All right. Jen, why don't you address that? Yes. I think as Sandy said, we're really pleased with the strong demand for our off premise Offerings in Q3 and in particular April where even with a majority of our system open for dining rooms, We still did more sales in off premise this year than in April last year where the dining rooms were closed. So that has continued to reinforce Our optimism about that ability to maintain that stickiness. I know on the last call, Sandy talked about our belief We could retain at least 50% of the growth we saw in off premise from that sort of High single digits that we were at in a percentage of sales before the pandemic to the 20% -ish, Approximately 20% that we're at now. She had said at least 50%. I think we're comfortable today saying we're even more bullish About that, we believe we will retain at least 60% of the growth that we saw from pre pandemic to current, If not higher. So we continue to feel very positive about that, although we know we will see some consumers Trade out of individual categories like delivery back into dine in, we are seeing stronger than expected stickiness And we anticipate strong growth from the catering channel. Okay. And is there any Assumption or within that assumption, what's the thought about I know we're early on with the virtual brand, but are you building any thoughts in for that when you're talking about 60% or would that Kind of an incremental off premise stream and if that does fully rollout? We would treat that as incremental if that fully Rolls out, we've been working on optimizing the menu and the offering for the Chicken and Biscuits brand And gaining some operational learnings in the last couple of months. And this week, we're expanding that test from one location to 19 stores, Because we do believe chicken and biscuits has a simple but winning combination because it's very broadly appealing food, Hand battered, hand breaded fried chicken and tenders, just our top selling sides and scratch made biscuits, Combined with the fact that the menu is very streamlined, which enables us to deliver on guest expectations for speed. So because of that, we think that this brand may launch in at least half of our system pending the results Of a test being successful. That's great. And then 2 more quick ones. 1, Doug, for you. If we look at the guidance and just thinking about getting back to fiscal 2019 revenue levels in Q4, As we look longer term to returning to full year fiscal 2019 revenue levels, can you just walk through the puts and takes? How much tougher the inflation environment is, the wage pressure and that incremental pressure on occupancy and other from Packaging and the sale leaseback, just where do you feel like operating margins when you get there fall out On equivalent revenues to fiscal 2019? Yes. Let me take a crack at that. And so what you're talking about is, I guess, what we would affectionately call the post COVID Business model. And we've done a lot of thinking and a lot of work around restructuring our business for success In terms of what it's going to look like when we come through the pandemic, we feel really good about the steps that we're taking And continue to take to meaningful improve our business model over the long term. We're also working actively on Mitigating labor, commodity and other headwinds that the entire industry is facing and that we're expected to continue to see in fiscal 'twenty At this time, no one really knows how strong or how long these headwinds are going to be facing us, but We believe that we can ultimately prove that it's going to we will I'm sorry, it's While we can't say exactly when we're going to return to fiscal 'nineteen margins, we're confident that we will continue to make the business model improvements, And we're doing everything we can to offset labor and commodity inflation, and I'm optimistic that we'll see these margins improve over by the end of 'twenty 2. Okay, great. And then one final one and this just gets back to the labor and the 2 buckets, the critical and the concerned bucket. Any operational changes required? I know Sandy, when you talked about front porch dining in the past that that was fairly labor intense that it's hard to get out to the porch Really service those customers well. In those third of the stores where there's some challenges, are you having to curtail anything operationally that maybe in the near term diminishes the sales potential for those units? Thanks. Yes. We're giving our field leaders a lot of latitude about how they Manage the business, with the constraints that they're dealing with. And so in some cases, yes, the first thing they might say is, I Can't really support the front porch the way we would want to. You might see they close a dining room if they don't have enough Staffing on the grill or the servers are certainly in ChemSome categories for a period of time to that is the way they might When they either don't have the staffing or we still got employees who Unexpectedly can't come and work their shift that day for a variety of reasons. So what I've been really pleased with though is how in And as this demand has ramped up. Okay, great. Very helpful. Thank you all. Our next question today comes from Jon Tower, Wells Fargo. Please go ahead. Great. Thanks for taking the questions. Just have a few, if I may. First, starting up with marketing spend. It sounds like you've Obviously, you got a new program out there right now. I am curious to know if you're back at, say, full strength of spend on a dollar basis Relative to say the 2019 levels or are you not spending at the full level yet because of Either capacity constraints at the restaurants or maybe even labor issues? We're not At the level that we were, some of it I don't know that it's as much capacity as that we didn't Until we thought people were going to be back on the highways, I didn't want to invest, for example, in refreshing the billboards. So some part of the investment for the year we postponed till the end because We didn't think we would have the impact and the benefit from it previously. The marketing team has done a great job, I think, of shifting to More flexible like digital our digital marketing programs, which allow us to be more flexible and more targeted. And so I think as we've gotten through this year, it's been somewhat opportunistic And evolving as the environment has changed. I think when we speak in more detail to next year, you'll see a much more normalized investment And distribution of our marketing spend. Great. And do you following up on that, do you expect to return to pre crisis levels Spend or do you feel like you found given the digital channel there a more effective way with a lower dollar spend? I don't think Jen is actually, I'll let Jen answer this, but I suspect she hasn't fully concluded. But most marketing people, they'll Spend all of the money that they're allocated. It's just how they spend it and where they where it goes. I will say that the Worksheet and her teams and our digital app teams have done and our new agency To help us understand what's possible and the kind of results we can get on digital do support Shifting more of our dollars to that channel and getting a lot of bang or a lot more bang for that buck. Jen, do you want to add Any more? Yes. I won't comment on the exact dollar amount we're going to spend next year, but I will say you're right that we are transitioning more and more of our investment To the digital space, especially now that we have the fully rolled out digital store that brings together Our eat, cater and shop so that people can on their same browsing visits, they can put things from They can put cool items from the retail shop in their cart. They can even put a catering order in their cart, right. So that now that we have that And we're making significant improvements to both our site and our app. We will continue to move dollars into those Digital channels that drive conversion there and we have seen a nice uptick in conversion and average order value, so we'll continue to invest in that. Okay. Thank you. And then just pivoting to the retail sales, obviously, the gross margins this quarter were very strong. I think some of the Strongest you have on record, if I'm not mistaken, for the retail business. And I'm just curious if How much of this you would attribute to full price sales? Or it sounds like full price sales mix was a driver of this. So is there any way to parse out How much of this was tied to short term tailwinds like stimulus, say, versus longer term initiatives around better inventory management Product selection for the consumer, just trying to gauge when looking at these numbers, how much Can stick in the future. And I understand obviously the supply chain stuff you had mentioned earlier, Doug, might be a bit of a near term headwind, But any way to kind of think about it over the longer term would be great. So I think first of all, I just I've got to say our retail team has done a phenomenal job of navigating through this. And there's a lot of issues at play. Certainly, the convenience of shopping and eating in the same location has resonated, but They've also just been able to have the kind of assortment that's Fun and unique, some nostalgia, great value, but it's Syke America wants to have fun and we had the product there that helped them do it. And I think all of that really helped Our helped our sales. In addition, that then, those full price sales helped our margins. I think that the team has had earnings through this. One of them I mentioned in my prepared remarks like at men's assortment, We've been able to see improvements there and then add on to that. I think they've also seen how this How the visual merchandising with less product potentially has allowed the guests to See the product better. So going forward, we believe we will be get some long term benefits about how much inventory we need To generate the sales, so certainly there's been some impact of the stimulus and the savings. But I think they've the retail team has done an excellent job of capturing that opportunity and in learning from it And we'll be translating some of those learnings going forward. Got it. Thank you. And then Just following up, I think, to an earlier conversation about kind of the off premise mix. And I think, Doug, you had mentioned earlier that 25% of your off premise Around that was coming from delivery or 3rd party platform. So I'm wondering if there's any way to determine how many of these customers are existing in store customers. And really, I guess, I'm trying to figure out how many of these customers might shift back to that in Or occasion when the option is available for them versus sticking to that 3rd party delivery. And then just one more on top of that. I don't know if you've offered this before, but is there any way to think about or tell us what the pricing differential is between An in store transaction and a delivery transaction excluding all the fees simplistically put, is there a 5% or 10% Pricing on a delivery menu versus, say, an in store transaction? I'm going to actually ask And to speak to maybe the beginning, the different channels and the stickiness, and then, Doug, I think you're going to say we're not going to we don't provide the specific pricing premium, Except to say that we largely offset the fees. But Jen, why don't you speak to the beginning part of that question? Yes. Your question about 3rd party delivery consumers and how much of those we think will trade back To dine in visit. What we have seen is that the 3rd party delivery guests tend to be incremental to the Cracker Barrel base. They are the least likely to be our core guests. Whereas a curbside pickup or an in store pickup guest is more likely To have at times dined in with us, 3rd party guests tend to be new to Cracker Barrel brands. They may have discovered Cracker Barrel during the And so they have been additive or incremental to us. And we have been impressed with the stickiness. We really have Seeing as our dining rooms have opened, an impressive portion of those 3rd party sales have remained. No one can predict what will happen a year from now as the pandemic is truly in our rearview mirror, but The 3rd party guest for us tends to be more incremental than the curbside guest. And as we entered the 3rd party delivery business a few years ago, we spent a lot of time thinking through the implications it had on our margins, and we have taken Additional pricing on 3rd party delivery, we just haven't quantified it. If you were to give us a try In your local area and go to and have a DoorDash delivery, I think you'll see what our structure looks like relative to our in store menu. That would probably help you out a bit. Yes. Unfortunately, I don't have one around me. I'll try next time I'm on the road and see what I can do. But Thank you for taking the time. I appreciate it. And ladies and gentlemen, this concludes our question and answer session. I'd like to the conference back over to the management team for any final remarks. All right. Well, thank you all for joining us today. We appreciate your interest, support and look