Good day, and welcome to the Cracker Barrel Strategic Transformation Update Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touchtone phone. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Adam Hanan, Senior Manager of Investor Relations. Please go ahead.
Thank you. Good afternoon, and welcome to Cracker Barrel's Strategic Transformation Update Conference Call and Webcast. On the call with me this morning are Cracker Barrel's President and CEO, Julie Masino, and Senior Vice President and CFO, Craig Pommells. Before I turn it over to Julie and Craig, I'd like to call your attention to a few things. First, in our press release and on this call, we will refer to non-GAAP financial measures such as EBITDA and adjusted EBITDA. I refer you to footnote one in our press release for some important explanations and further details about these metrics. Second, the press release included an update regarding our expectations for our third and fourth fiscal quarters for this year, which we expect to be below our previous expectations due to weaker traffic trends.
These statements and all other statements that may be made by management of their beliefs and expectations regarding the company's future operating results or expected future events 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. 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.
Please note that we won't be taking any questions related to our third quarter results or to fiscal 2024, as the focus of today's call is on our strategic transformation plan that is intended to drive our business for the next decade. We will report our fiscal third quarter results on May 30, at which time we will provide a full update on our quarterly performance and expectations for the rest of the year. I'll now turn the call over to Cracker Barrel's President and CEO, Julie Masino. Julie?
Thank you and good afternoon. I'm excited to provide an update on our long-term strategic transformation and discuss why Cracker Barrel has an exceptionally bright future. As I've shared publicly before, I joined the company about nine months ago because I believed Cracker Barrel was one of the industry's most iconic and differentiated brands, with high guest affinity, a great culture, a national footprint, and a strong balance sheet. I also believed, however, that the brand had lost some of its shine, and particularly post-pandemic, was not delivering the financial results that shareholders deserved. I took the job because I believed that the company's strengths more than outweighed its challenges, that these challenges represented opportunities, and that with the proper strategic focus, we could put the ship on an outstanding course. I am even more convicted today than I was nine months ago.
Cracker Barrel is a great concept and a great company. All the core elements are in place to be successful over the long term, but to ignite growth, we must revitalize the brand. To be clear, this is about refining and enhancing the brand, not reinventing or overhauling it, and this is something that any brand, especially one that is iconic and distinct and has connected with tens of millions of guests over many decades, can achieve. I believe that there's an emotional connection waiting to happen with our longtime guests and with our future guests, and that all the right pieces are in place to return to being a leading restaurant company with meaningfully improved margins and growth potential. But there is work to do.
Before getting into the details, I should point out that today's call is about laying out the strategic framework we are employing to tackle our challenges and grow, not just in the next several years, but for the next 10 years and beyond. We're at the beginning of the journey, and we look forward to providing you with regular updates on our quarterly calls, beginning with our Q3 call on May 30. Okay, let's begin. Right after I joined the company, we began our strategic work with extensive consumer research, including a consumer segmentation study designed to better understand behaviors, spending patterns, and demographics of full-service restaurant users. This study differed from other ones that the company had conducted in the past because it included both Cracker Barrel and non-Cracker Barrel guests.
This provided critical insight into why our brand is not resonating as much as it should with certain segments and has helped us identify our biggest opportunities. The study we undertook highlighted and confirmed the various core positives that led me to Cracker Barrel in the first place, such as the distinctiveness of the brand and the strong affinity it has with consumers. However, our research also underscored the challenges we face and why a transformation is necessary. For example, we examined our scores versus competitors for numerous attributes across the four key dimensions of food, experience, value, and convenience. This research showed we generally rank in the middle of the peer set across many of these attributes, and we are not leading in any area. We will change that... Falling to the middle of the pack has impacted our traffic in recent years.
To provide some context, compared to fiscal 2019, our comparable store traffic year-to-date is down approximately 16%. Although the casual dining industry is also significantly down during this period, the reality is we've lost some market share, especially at dinner. These traffic headwinds have in turn greatly pressured our financial performance, and when combined with the significant commodity and wage inflation we've seen, it's no surprise that our margins have significantly contracted compared to fiscal 2019. Improving traffic, particularly at dinner, is critical. Now let's talk about our strategy. As I discussed on our last earnings call, our strategy revolves around three critical imperatives: first, driving relevancy; second, delivering food and an experience that guests love; and third, growing profitability. Everything we're doing is anchored around delivering these ideas.
These imperatives are supported by five strategic pillars, and each of those has a series of specific initiatives associated with it. We have approximately 20 of these initiatives. Some are focused on running the day-to-day business, and others are focused on transforming the business and are longer term in nature. I will be highlighting many of them today, and we will share details on the others in the future. Let's get into the five pillars, which are, first, refining the brand, second, enhancing the menu, third, evolving the store and guest experience, fourth, winning in digital and off-premise, and fifth, elevating the employee experience. Our first pillar is refining our brand, particularly with respect to our marketing, so that it better resonates with today's guests and ignites fandom. Cracker Barrel is an iconic brand, but even iconic brands have to evolve.
We know from our research that despite high levels of consumer affinity, we're just not as relevant as we once were. We need to address these dynamics by refreshing and refining the brand and reflecting this in all of the ways we interact with our guests: our marketing and messaging, our delicious food and unique retail products, our visual identity and atmosphere, and our in-store and off-premise experience. We recently selected and engaged an agency to assist us in this important work. While there's obviously a lot of detail to come, I can tell you that our work will continue to be grounded in extensive research and several core principles. First, we will remain authentically Cracker Barrel. Second, we will continue to be rooted in our country, heritage, and legacy.
Third, we will evolve the brand in a way that will resonate with, but not alienate, current guests while increasing our appeal to new guests. In short, we will take what is known and beloved about our differentiated brand and build upon it so that it's more relevant to today's and tomorrow's guests. Our second strategic pillar is all about what makes up about 80% of our sales, our menu. Cracker Barrel is known for our home-style country cooking, but we need to enhance our menu and make it more relevant to guests. We also have to make it easier to execute for our employees and help us reduce our fixed labor requirements. To increase our menu relevance, we're leaning into innovation, particularly around the dinner day part.
Simply put, we have to have more food, especially at dinner, that is authentically Cracker Barrel, but speaks to more current tastes. In February, we launched a core menu revamp test that included approximately 20 new items, several modified items, and over 20 deletions. We've been pleased with the guest response. For example, eight of the new lunch and dinner entrees are in the top 20 for entree product mix at these stores. We're also seeing strong mix for new items in other categories, such as our Green Chile Cornbread and our Banana Pudding. We've now expanded the next iteration of this test to over 10 stores, and based on the positive guest response, we're introducing several of these new items to the full system this fall, including our Creamy and Savory Chicken and Rice, Slow-Braised Pot Roast, and Hashbrown Casserole Shepherd's Pie.
These are just a few examples of upcoming delicious new menu innovation, and there's plenty more in the pipeline that we're excited about. In addition to innovating our menu, it's critical that we drive more efficiencies to improve profitability and make back-of-house jobs easier and more enjoyable while we reduce the amount of fixed labor in our model. We have a lot of terrific menu items, but some of our recipes and processes haven't evolved in decades. While there are examples where this makes complete sense, like handmade dumplings and biscuits, for example, there are others where it does not, like hand-cutting lettuce and pineapple. To assist us in this endeavor, we have engaged an industrial engineering firm to materially alter and improve our business model and find ways to improve efficiencies, simplify our processes, and reduce the amount of fixed labor currently required in the back of house.
We're also conducting a full review of our menu from a profitability standpoint, which is critical given the impact of food and labor inflation since COVID, and we're evaluating opportunities to improve the fully loaded margins for each item, including, for example, completing some steps outside of our stores. Additionally, we expect to delete certain menu items because we must balance our innovation with simplification. To be clear, we will continue to be a heavily scratch-made concept, and this is an important part of our DNA. But given the breadth and complexity of our menu, we think there's an opportunity to improve margins without affecting the guest experience through some targeted changes.... Another way we are optimizing our menu is by enhancing our strategic pricing capabilities and practices, and this initiative is the one where we've taken the most action.
We believe there's a large opportunity to improve the way we price, both across the menu and across stores, to hit the sweet spot where pricing at a store is optimized based on consumer willingness to pay, competitor prices, and store operating costs. We have begun to realign our pricing tiers and optimize them based on more sophisticated criteria. We currently have five pricing tiers, and approximately 60% of our stores are in a single tier, which happens to also be the tier with the lowest pricing. This unbalanced approach has resulted in various pricing inefficiencies and inconsistencies. For example, we have stores in metro areas with an average annual household income of $55,000 in the same pricing tier as ones with $90,000.
This is illustrative, and household income is just one of several variables for our new pricing model, but the point is that we are moving to a more sophisticated approach to optimize our pricing. Menu architecture is another aspect of our pricing initiative. We're evolving our pricing to be more strategic at the item and category level, creating a more balanced barbell architecture and adding offerings to fill in gaps so that guests have different options based on their desired spending level, while allowing us to protect key value price points. Finally, we're also enhancing our pricing capabilities through better data science and tools, and we're implementing a robust test-and-learn approach with a more frequent cadence that will facilitate quick learnings and more agile refinement to allow us to build a multiyear pricing roadmap. We implemented our first test in March, and the results have been positive.
We've seen a lift on average check of approximately 3% in the test stores, with no measurable negative impacts to traffic or value perceptions. This is just the first step of a multiphase initiative that we will carefully implement over the next three years, but we are pleased with the initial results. Before moving on, I want to emphasize that optimizing our price points across the menu doesn't mean just increasing prices. In several places, it may actually mean taking the opposite approach. We understand the lower-end consumer is challenged, and value is and will remain an important part of the brand, and we will work vigorously to protect it. Our third pillar is focused on the guest experience, and this encompasses both operational execution as well as store design and atmosphere.
As I shared before, operational excellence and consistent execution are a top priority, and our teams remain committed to delivering a consistent guest experience every shift, every guest, every day. We are hyper-focused on the metrics that matter most: guest satisfaction, speed, hourly turnover, and average skill level for key job roles. All of these metrics have improved in recent months and will continue to be a point of emphasis. The guest experience is also driven by our store design and atmosphere. This includes the quality and condition of our stores, both front of house and back of house, as well as our overall design aesthetic. Given our aging asset base, we are investing in both and believe this is critical to positioning us to win in the near and long term.
This means that we will have to meaningfully increase our maintenance capital spending to ensure that our stores are meeting our brand standards, that they compare well to the competition, and that our stores are desirable places to work. Craig will provide more detail on the level of investment, which we would characterize as defensive, but we are focused on areas that we believe will have the greatest impact on the guest and employee experience, such as exterior paint, parking lots, flooring, and restrooms. Of course, to improve relevancy, we have to do more than invest defensively. Historically, Cracker Barrel has made limited changes to our design aesthetic, and we've probably relied a little too much on what was perceived to be the timeless nature of our concept. Two months ago, we began conducting a pilot remodel in two test stores.
This included refreshing the interior and exterior of these stores by using a different color palette, updating lighting, offering more comfortable seating, and simplifying decor and fixtures. The goal, simply put, was to freshen things in such a way as to be noticeable and attractive, but still feel like Cracker Barrel. Among other things, we curated, reframed, and repositioned the course that was brighter and warmer. We replaced our traditional lattice dividers with open bookcases that open up the sight lines and allow for different displays, and we tweaked the retail area to better attract purchases of certain items. The guest and employee feedback has been highly encouraging. Guests have commented that the new design feels lighter, brighter, fresher, and cleaner, and that they're especially excited in one of our remodels about having booths and banquettes as seating options.
Just as important, our employees in these locations are enthusiastic about the investments we've made and have a renewed spring in their step as a result. We are expanding this remodel test, but we'll do so deliberately and carefully. We plan to test several different options that vary in scope so that we can see what resonates most with the guests and employees and is most likely to lift traffic. We anticipate completing approximately 25-30 remodels in fiscal 2025, and our learnings from these will inform our future plans. Of course, we will remain thoughtful and highly disciplined as we deploy capital for our stores. In addition to refreshing current stores, we are refining our store prototype. In fall 2025, we plan to debut a prototype that is approximately 15% smaller than our current prototype, with nearly the same number of seats.
We won't be stopping there. We believe there's an opportunity to engineer an even smaller prototype, and this will help unlock unit growth over the long term. Retail remains a key differentiator of our brand and an important part of the guest experience. The team is evaluating and updating our assortments to ensure our products are fresh and relevant, while continuing to deliver superior value and the unique Cracker Barrel treasure hunt. Go ahead and Google Cracker Barrel versus Anthropologie. It's a thing, and if you know, you know. We're also exploring collaborations with other brands to feature their products in our stores. We've demonstrated success with this shop-within-a-shop approach via our long-term partnership with Lodge Cast Iron, and I believe there are opportunities to partner with other brands.
Finally, we are rationalizing our SKUs and rethinking various aspects of our merchandising to improve the shopping experience and to drive profitability. Our fourth strategic pillar is about winning in digital and off-premise. Both of these are important to today's consumer. With regard to digital, we continue to believe Cracker Barrel Rewards is one of the most engaging and differentiated loyalty programs in full-service dining. While it's still early, we're very encouraged by the initial success of the program. In fact, I'm pleased to say that after launching in mid-September, we already have nearly 5 million Cracker Barrel Rewards members, which is approximately 25% higher than our initial projections. We believe this speaks to the appeal and distinctiveness of the program and gives us confidence to lean in even more than we have.
Knowing that technology will power our future, we will be accelerating additional investment in the rewards platform to further improve functionality, enhance personalization, and improve our ability to leverage guest insights. We'll continue to use the program as a key driver of value to our guests and to reinforce our relevance. With regard to off-premise, although we've seen solid growth, there's an opportunity to further grow this business and improve the experience. We have reprioritized our off-premise channels so that we are appropriately focused on our largest and most profitable ones, namely individual to-go and third-party delivery. Of course, we also remain bullish about catering, particularly our occasion-based offerings around the holidays. This is an area where we can be better, sell less, and earn more. Turning to our fifth and final pillar, we're in the hospitality business, which is built on human connection.
We exist to nourish people and bring them together around food and experiences. Our people are at the heart of everything we do, and ultimately, when you feel good about where you work and what you do, you're happier, and that translates to the guest. When you do that across every restaurant and every shift, every day, that's how you develop a culture of excellence, and that's exactly what we're striving for. We'll continue to focus on staffing and retention to ensure that we have and keep the best people, and we're also focused on making everyone's jobs easier and more fulfilling through simplification. We're enhancing our training and development programs, and we're upgrading our tools.
Managers are especially critical to our success, so we are determined to improve their experience and streamline their jobs to allow them to direct their time to what's most impactful, directing and coaching their teams, and supporting a great guest experience day in and day out. I'll now turn it over to Craig.
Thank you, Julie. I share Julie's conviction in the brand, our team members, our strategy, and our ability to execute. Now, let's turn to capital allocation and our outlook. The company's board of directors is committed to a balanced capital allocation approach. Investing in the business to drive profitable growth continues to be the top priority, followed by returning cash to shareholders through a regular quarterly dividend and share repurchases. We believe we have significant opportunity to grow the core business by increasing our investments in it. As a result, we are shifting more capital towards investing in the core business, and we are reducing the dividend.
More specifically, the board is reducing the quarterly cash dividend from $1.30 per share, or $5.20 annualized, to $0.25 per share, or $1 annualized, and will be investing the reallocated capital in what we believe are critical value drivers. At the end of the day, organic growth is our priority, and we all strongly believe that this decision is in the best long-term interest of shareholders. We remain committed to returning cash to shareholders and providing an attractive and sustainable dividend. Our investments will be as follows: For the three-year period, we anticipate total capital expenditures of $600 million-$700 million.
This comprises the following amounts per year: approximately $160 million-$180 million in fiscal 2025, approximately $180 million-$220 million in fiscal 2026, and approximately $260 million-$300 million in fiscal 2027. The acceleration in fiscal 2026 and fiscal 2027 contemplates the expansion of our maintenance and remodel initiatives, as well as additional technology investments. As Julie noted, we characterize the increase in maintenance capital as defensive. This work is aimed at bringing our stores up to our high brand standards in key areas. Approximately half of our capital expenditures are related to maintenance. Once this work is completed in fiscal 2027, we expect our maintenance capital spending to reduce to more normalized levels.
Finally, as a reminder, we still have nearly $138 million left on our existing share repurchase program, which provides us the flexibility to be active in the market if and when it is appropriate, and is another lever to enhance shareholder value. Turning to our outlook. We will now be providing adjusted EBITDA guidance going forward, as we believe it is more meaningful to investors to evaluate our performance before the impact of depreciation, given the increase in our investments, which will result in higher depreciation expense. Additionally, we have modified our definition of adjusted EBITDA, and I encourage everyone to refer to footnote 1 in the press release for additional information. From a timing perspective, Fiscal 2025 will be an investment year, as many of our initiatives will be in the early stages.
Therefore, we expect our Adjusted EBITDA results will be pressured in fiscal 2025 and are generally in line with or slightly lower than our fiscal 2024 results. However, we anticipate our results will significantly and sequentially improve by the second half of fiscal 2026 into fiscal 2027 as our initiatives gain traction, culminating in fiscal 2027 sales of $3.8 billion-$3.9 billion, and fiscal 2027 Adjusted EBITDA of $375 million-$425 million. Although many of the initiatives Julie described are top-line drivers, and growing the top line is critical to improving profitability, we also remain focused on margin optimization through our Cost Savings Program, and our guidance is inclusive of approximately $50 million-$60 million in cumulative cost savings over the three-year period.
Before turning it back over to Julie, I want to emphasize that the board and management are fully aligned on our strategy and capital allocation. We believe our strategy, coupled with our strong balance sheet and our modified capital allocation, will drive meaningful long-term value creation and position the company for sustainable, profitable growth for many years to come.
Thanks, Craig. Admittedly, this is a lot to digest, so I want to finish with a quick recap of some of our key messages. First, Cracker Barrel has all the core elements in place to be successful. We are a distinct brand. We have an emotional connection with our guests, and we have passionate employees. Second, we have a deep grasp of our challenges, and our actions will deliver our business imperatives of driving relevancy, delivering food and an experience that guests love, and growing profitability. Strategically, we'll get there by refining our brand strategy, enhancing our menu, evolving our stores and guest experience, winning in digital and off-premise, and elevating our employee experience. Doing these things will not only help us return to appropriate levels of top line and bottom line growth in our existing stores, but will restart the engine on new unit growth.
If our new stores can reflect and support the strategic imperatives I've outlined today, we believe there remains a lot of white space for new units, including in places we've not traditionally been. Next, the management team and I have instilled a sense of urgency across the organization. Agile testing and learning is an important part of my management philosophy, and I've been pleased with how quickly the team has mobilized for new initiatives, such as our core menu revamp test, our remodel test, and our pricing test. These three initiatives were all developed and implemented as part of our transformation, which began last fall. Although it will take some time for our initiatives to gain traction, rest assured that we have and will continue to drive urgency and move quickly but methodically across all layers of the organization.
Of course, we need to do this with a more balanced approach to capital allocation. We simply have to invest in the future. Some of it is defensive spending, as I mentioned, table stakes, if you will. Other spending will have a more tangible return over time. But after an investment period in 2025, we'll see improved performance starting in the back half of fiscal 2026, which will improve in fiscal 2027 and position us to further accelerate growth beyond. A balanced approach to capital allocation is the best path we see to sustainable value creation, and when combined with a strong balance sheet, we are confident we will have numerous levers at our disposal to drive equity value over time. Lastly, our future is so bright.
We know what we need to do, and we are going to do it well and in a way that is authentically Cracker Barrel. I want all of our shareholders and other stakeholders to know that the management team and I are energized and excited to make this happen.
We will now begin the question-and-answer session. To ask a question, you may press Star, then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys.
... If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Brian Mullan with Piper Sandler. Please go ahead.
Hey, thank you. Thanks for everything in the release today. I just want to ask on the second pillar, enhancing the menu. Specifically, wanted to ask on, you know, the comments about streamlining processes to improve execution. You know, Julie, in the prepared remarks, I think you referenced engaging some outside help here, too. Sounds like you've identified some areas of opportunities. My question is, you know, when do you start executing on what? How quickly can you go? You know, just any examples you can provide or specifics around what you have in mind or the sequencing on that element of the plan, that would be really helpful to hear.
Sure, Brian. Thanks for the question. We've engaged an outside industrial engineering firm specifically because we believe there's a lot of opportunity in our back-of-house processes. Like I said in the prepared remarks, you know, things like biscuits and dumplings, really, we haven't changed that in a very long time. So there's opportunity, given the breadth and complexity of our menu, to evolve our processes and our recipes to improve the efficiency and profitability. We're in the early stages with this outside consulting firm, but we look forward to updating on our quarterly calls, the progress, and the savings that we're going to realize from working with them.
Okay, thank you.
The next question comes from Katherine Griffin with Bank of America. Please go ahead.
Thanks for the question. Julie, you talked a little bit about retaining the authenticity of the Cracker Barrel brand while also improving its relevance and doing so in a way that doesn't alienate your current guests. Can you just elaborate a little bit more on what that tension is and I guess how you're approaching you know the strategy to maintain authenticity, but you know maybe shift the guest cohort mix a little bit?
Sure, Katherine.
Thank you.
Thanks for being on the call with us today. Look, we are so grateful for everyone who chooses to dine at Cracker Barrel or shop in our retail stores. They are what brings our brand to life and, you know, helps us create jobs and, and continue to exist. So we are very focused on keeping the guests who love us today, continuing to delight them in all the ways that we do, but we're really working to open the aperture a little bit. And the reasons for this really came about in the research that we did. When we started digging in, we realized that the competitive landscape has just changed so very much around us. The world is so different than when Cracker Barrel was founded 54 years ago.
Some of it's about the competitive landscape, and some of it is that our internal processes haven't adapted as much as we've needed to over time. The relevance piece for us really starts with the brand, and that really shows up in so many different ways. The way we communicate, the things on the menu, the way the stores look and feel, and all of these things came up time and time again in our research as opportunities for us to really regain relevancy with our existing guests, people who have lapsed with us, as well as, as I mentioned, sort of opening that aperture to new people to come and join us in the brand.
Katherine, I'll add to that. In addition to the kind of normal structured way we go about figuring out something like that with research and so on, I will tell you that the management team has been personally in store numerous times at our stores, at the pilot remodel stores, as well as the new menu test stores. Every one of us are talking to guests personally. We're sitting down with them. We're getting their feedback on what they like and what they don't like, and it is really encouraging. So there are certainly some things where we're not going to do 100% of the things that we've tested, but the overall impact, the overall feedback is very positive, even from really hardcore, high frequency, legacy guests. Overall, very positive feedback.
Great. Thank you.
The next question comes from Jake Bartlett with Truist Securities. Please go ahead.
Great. Thank you so much for taking the question. Mine was I just want to make sure I'm getting it right, that you're not providing an update for guidance for 2024. I'm just trying to... I'd like, I'd love to be able to see what the growth rate is that you're anticipating from sales and from EBITDA growth, but I'm not sure if I understand what you're saying, maybe the base is going to be.
Hi, Jake, it's Craig. We'll provide an update on the thirtieth for the normal quarterly call. I'd say directionally, our traffic has been lower than we previously projected, so we'll be bringing down our projection as it relates to certainly as it relates to operating income and now adjusted EBITDA going forward. But we have not provided a specific amount other than to say we will be bringing down the projection as a result of traffic that is lower than we previously projected, and we'll provide more details on the thirtieth. I'm looking forward to doing that then.
Okay. You know, and, and, you know, in the past, you know, and this is maybe the more greater detail you provided in Investor Day, but you, you, you had in the, in the past, provided the algorithm, the drivers of growth for, for sales, you know, for one, whether it's traffic, price, unit growth. If I look at mine, you know, our estimates, versus 2024, which is, which is a 53-week year, so that, that's, that helps 2024. But, you know, it's a, it's a little over a 3% CAGR to, to the middle of your guidance, in 2027 for sales. So what, what is driving that? Is it, is it really all the, the, the price optimization? Do you expect some positive traffic in there?
You know, help us out in terms of what are the drivers of the sales that you're expecting?
...Absolutely. So over the three years, there are a combination of things. Price is certainly a component. We expect that over time, the traffic trend will also continue to improve as the brand, as we regain some relevancy. We think that's more on the back half of the time frame. Certainly, in the first half, we expect traffic to remain pressured. Fiscal 2025, we do want to just be clear there that we do see that as an investment year for EBITDA, and we expect EBITDA to be roughly in line with 2024, if not a little bit lower. We do have some benefit coming into 2025, but when you net it against the investments, relatively flat to slightly down.
In 2026, by the second half of 2026, we expect that the traffic momentum will start to build, and that will compound with the cost savings that we talked about, $50 million-$60 million, and that will really drive a really strong 2027. So there's a combination of traffic that's starting off softer, improving over that, over that horizon. A component of that is pricing as well, as well as the $50 million-$60 million in cost saves over that three-year window.
Got it. And then my last question is just a little more detail on the $50 million-$60 million of cost saves. It's more than the three-year plan that you provided in your last two investor days, but it doesn't feel like, I mean, it feels like you're kind of now, you know, hiring a, you know, consultant or someone to help you, you know, figure out how much there is to save on, and for instance, you know, scratch cooking or kind of more processed food that comes in the door or what have you. So, you know, where do you get to the $50 million-$60 million? Is that something that you have, you know, visibility into at this point? It's a big number.
I'd love to kind of, you know, understand, you know, how much, you know, how kind of in the bag you think that is.
Some of it is pretty well defined. We have an ongoing cost savings program, and some of that is based on work that we've already started and we invested, and that's moving forward. There are other changes that we have not started, but they're well defined. And then there's new work that we expect coming out of the Industrial Engineering project. I think we have enough experience with the business to kind of point out the obvious. It's complicated. You know, the business is complicated. We've done a lot of work to understand, well, why has there been this deleverage as traffic's gone down? And some of that comes down to the fixed nature of some of our labor model.
So we are looking in very targeted areas to start, and over time, we think there will be even more opportunities. So it's a combination of we have line of sight and some of it we have confidence in because of the complexity of the menu.
All right. Thank you so much. I really appreciate it.
The next question comes from Jon Tower with Citigroup. Please go ahead.
Great. Maybe just a quick clarification on that last comment, the $50-$60 million. I'm assuming that's a net number, but I just want to clarify that.
It's really more of a gross number, Jon. I think the way I would think about how it all comes together is when it's all said and done, you know, we're at $375 million-$425 million. There are investments going in, there are cost savings coming out, there's price, there's traffic. But overall, if you look at the change over that time frame, I think it'll be somewhere in very, very, very rough terms, somewhere in the 400 basis point range as we think about 2027 versus 2024. 400 basis point improvement in EBITDA margins.
Okay. I guess then just on the remodels, obviously, that sounds like it's gonna be a large chunk of capital, that you're gonna be committing to the system. And I know that you mentioned that there were a couple pilot stores that you've tried it in already or, or remodeled already, and you like the returns. Can you just maybe speak to what you're seeing and/or, you know, perhaps if you're not, you, you haven't fully penciled out the returns that you're expecting, maybe or maybe just speak to what you're anticipating with respect to lifts, on this investment over time.
Sure. Jon, I'll start, and then maybe Craig will talk a little bit about lift. But it's very early days, and it's only two stores. But we are really encouraged by what we're seeing. We actually have formal groups about the field in these stores to really continue to build our database around what we're seeing, what we're learning, because we are committed to a very disciplined approach to capital. And we recognize that this is kind of new for Cracker Barrel to be remodeling stores kind of in this way, shape, or form. So what we're doing is we're getting out, we're learning. Guests have commented that they feel like the stores are lighter, they're brighter, they're less cluttered, they feel cleaner. You know, I had dinner next to one of our guests two weeks ago, and she was adorable.
She and her husband were having dinner, and she was so excited about the banquette. I can't even tell you. And when I told her it was the first one in the history of Cracker Barrel, she kind of sat up a little bit straighter and, you know, was just really excited and commented how comfortable it was and how much more often she'd be coming because it was now a much more comfortable place to have dinner. She was adorable. So really, the idea is that in 2025, we remodel about 25-30 stores so that we can actually test a high, medium, and a low kind of paradigm around what kind of investment is necessary, and then what kind of lift corresponds to those levels of investment.
We're also looking at, you know, do you need to take down a whole DMA, or can you just do a couple stores here and there? We really need to refine the investment thesis a little bit more, but I'll let Craig see if there's anything to add there.
I think the only thing I would add is we're comparing all of that to, you know, an appropriate kind of value-creating hurdle rate, and that's the reason to test different iterations, the high, the medium, the low, at higher volume stores, lower volume stores, and higher markets. So there is a robust test structure designed to ensure that this is all value created for shareholders.
Do you think the capital, I know you said about 50% of it is on the maintenance side. Do you think on the remodel side, that's enough to hit the whole system? You know, especially if you kind of test the high end of the range, and that's the level required to get the stores up to the necessary returns?
I think we'll learn more about that in 2025. That, you know, we're testing and we're, you know, providing a range, but a lot of it's going to depend on exactly what we learn in fiscal 2025. And if the win for our investors is, you know, the very high end of the range, then that's an opportunity. And so whatever we learn from there, we will incorporate that into our thinking and guidance subsequently.
Okay, and sorry, last one from me. Just in terms of the marketing side, I know this year you've amped up your message quite a bit. I'm curious to hear how you think the spend will look over the next several years as well on the marketing front.
Yeah, as we've previously communicated, we expect advertising to really be in the low- to mid-3% range, compared to kind of the mid- to high-2s, where we were historically. We're continuing to really evaluate the mix and the message and really all the different channels of communication with our guests. What we're excited about in the, in kind of pillar number one in the brand refresh is really just looking at all of those pieces of it. How we communicate, what we communicate. We think there's even more there, John, that we can do to drive relevance and really get our message out to both our current fans as well as people who are open to, to coming to Cracker Barrel. So lots of more work, that'll be happening there.
Got it. Thanks for taking the questions.
The next question comes from Dennis Geiger with UBS. Please go ahead.
Thank you very much. Just one more clarification on the remodels. Craig, the number in 2026 and 2027, or maybe just confirmation that 2027 you'll be largely complete as it related to some of the CapEx spend. Is that— Do I have that cadence correct, or is there anything incremental on the rollout cadence there, as you think about the remodels early days?
Hi, Dennis. It is early days, so we've got 25 to 30 in fiscal 2025 to learn from. It is unlikely that if we... Let's say all that gets tested out really well in 2025, it would be unlikely that we would get through the entire system by 2027. Now, unless for some, you know, there are different scenarios you could imagine, but as a practical matter, it just takes a certain amount of time to ramp up a program and get it through the entire system.
Yep, that makes sense. Thank you. And then just another one, sort of on the margins as it relates to the back half, 2026 and 2027. Helpful color on the cost savings plan. Is there anything else as you bridge to that margin expansion that you can provide? You know, I know you talked about some of the value engineering maybe within the menu or the margin engineering within the menu. Anything beyond the cost saves to kind of help frame up, obviously, pricing and traffic, of course, but to help frame up or help bridge that EBITDA improvement, if anything more to share there?
I would just say that we, in addition to the items that you've mentioned, all of which are very, very sizable, we, we have an ongoing program where we're constantly evaluating opportunities to do things better at a lower cost, and that program has delivered a lot of money for us over the last, two years, and that's going to, that's going to continue. So we'll provide more details as we get into, into fiscal 2025, but I think you hit the big levers there. It really, you know, price is a big one, the traffic improvement is a big one, and then the cost savings program, a lot of which relates to the simplification effort, is also another expected to be another large contributor.
Thank you. And last for me, if I could. Julie, any commentary on how Maple Street fits into the portfolio as of now? Thanks, guys.
Sure, Dennis. We knew somebody was gonna ask us this. But today is... Yeah, Maple Street is a brand that we really do love. We think it's got great growth potential. The team there continues to work hard on enhancing the business model and positioning the brand for growth. Like I said, we do love this brand. We think the food is great. Today is really about Cracker Barrel. You know, Cracker Barrel is about 98% of our system sales as a company, and so we feel like it is the first place where we've got to right the ship. The management team and I have been very, very focused on making sure that we're charting the right path to get Cracker Barrel back to growth.
We're excited that we are on this journey of growth, because we believe that the balanced approach to capital allocation is the best path to sustainable value creation. So getting back to growth, getting back to value creation for our shareholders is really going to be what drives us into the future. We'll talk about Maple Street on some of our quarterly updates that are forthcoming over the next year.
Makes sense. Thank you.
This concludes our question and answer session. I would like to turn the conference back over to Julie Masino for any closing remarks.
Thank you all for joining us today. Cracker Barrel is a special brand with a strong foundation. We are intently focused on driving relevancy, delivering food and an experience guests love, and growing profitability. We believe we have the right strategy and initiatives in place to do this. We're evolving the brand in many ways, and these changes are centered around enhancing the brand to resonate with both today and tomorrow's guests. But we're committed to doing this in a way that is right and authentic, authentically Cracker Barrel. We believe in our modified capital allocation approach, which prioritizes organic growth investments, coupled with our strategic plan, will significantly improve our financial results starting in the back half of fiscal 2026 and drive further improvement in fiscal 2027 and well into the future.
We strongly believe our strategy and these changes are in the best interest of shareholders and position Cracker Barrel to drive meaningful value creation over the long term. I want to also thank our over 70,000 team members and leaders for all of their hard work each and every day, bringing the brand to life and fueling our transformation to growth. We thank you for your interest, and we look forward to providing regular updates on our progress in the coming future.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.