================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported): November 16, 2004
-----------------
CBRL GROUP, INC.
Tennessee 0-25225 62-1749513
--------- ------- ----------
(State or Other Jurisdiction (Commission File Number) (I.R.S. Employer
of Incorporation) Identification No.)
305 Hartmann Drive, Lebanon, Tennessee 37087
(615) 444-5533
Check the appropriate box if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions :
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR.13e-4(c))
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Item 2.02. Results of Operations and Financial Condition.
On November 16, 2004, CBRL Group, Inc. (the "Company") issued the annual
report supplement that is furnished as Exhibit 99 to this Current Report on Form
8-K, which by this reference is incorporated herein as if copied verbatim, with
respect to the fiscal year ending July 30, 2004. The annual report supplement
is posted on the Company's website, located at www.cbrlgroup.com, and will be
discussed at the Company's upcoming conference call on November 18, 2004. See
information furnished under Item 7.01 of the Company's Current Report on Form
8-K with the Commission on November 12, 2004 for instructions on accessing the
conference call.
Item 7.01. Regulation FD Disclosure.
The information set forth in Item 2.02 above is incorporated by
reference as if fully set forth herein.
Item 9.01. Financial Statements and Exhibits.
(a) Financial Statements. None
(b) Pro Forma Financial Information. None
(c) Exhibits.
99 Annual Report Supplement
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: November 16, 2004 CBRL GROUP, INC.
By: /s/ James F. Blackstock
------------------------------------
Name: James F. Blackstock
Title: Senior Vice President, General
Counsel and Secretary
CBRL Group, Inc.
Annual Report Supplement
Fiscal Year Ending July 30, 2004
Safe-Harbor Statement
The Company urges caution in considering its current trends and the earnings
guidance disclosed in this annual report supplement. The restaurant industry is
highly competitive, and trends and guidance are subject to numerous factors and
influences, some of which are discussed in the cautionary language that follows.
The Company disclaims any obligation to update disclosed information on trends
or targets other than in its periodic filings on Forms 10-K, 10-Q, and 8-K with
the Securities and Exchange Commission (SEC).
Except for specific historical information, many of the matters discussed in
this annual report supplement may express or imply projections of revenues or
expenditures, statements of plans and objectives or future operations or
statements of future economic performance. These, and similar statements are
forward-looking statements concerning matters that involve risks, uncertainties
and other factors which may cause the actual performance of CBRL Group, Inc. and
its subsidiaries to differ materially from those expressed or implied by this
discussion. All forward-looking information is provided by the Company pursuant
to the safe harbor established under the Private Securities Litigation Reform
Act of 1995 and should be evaluated in the context of these factors.
Forward-looking statements generally can be identified by the use of
forward-looking terminology such as "assumptions," "target," "guidance,"
"outlook," "plans," "projection," "may," "will," "would," "expect," "intend,"
"estimate," "anticipate," "believe," "potential" or "continue" (or the negative
or other derivatives of each of these terms) or similar terminology. Factors
which could materially affect actual results include, but are not limited to:
changes in or implementation of additional governmental or regulatory rules,
regulations and interpretations affecting accounting (including but not limited
to, accounting for convertible debt under EITF Issue Abstract No. 04-08), tax,
wage and hour matters, health and safety, pensions, insurance or other
undeterminable areas; the effects of uncertain consumer confidence or general or
regional economic weakness on sales and customer travel activity; the ability of
the Company to identify, acquire and sell successful new lines of retail
merchandise; commodity, workers' compensation, group health and utility price
changes; consumer behavior based on concerns over nutritional or safety aspects
of the Company's products or restaurant food in general; competitive marketing
and operational initiatives; the effects of plans intended to improve
operational execution and performance; practical or psychological effects of
terrorist acts or war and military or government responses; the effects of
increased competition at Company locations on sales and on labor recruiting,
cost, and retention; the ability of and cost to the Company to recruit, train,
and retain qualified restaurant hourly and management employees; disruptions to
the company's restaurant or retail supply chain; the actual results of pending
or threatened litigation or governmental investigations or charges and the costs
and effects of negative publicity associated with these activities; changes in
foreign exchange rates affecting the Company's future retail inventory
purchases; the availability and cost of acceptable sites for development and the
Company's ability to identify such sites; changes in generally accepted
accounting principles in the United States of America (GAAP) or changes in
capital market conditions that could affect valuations of restaurant companies
in general or the Company's goodwill in particular; increases in construction
costs; changes in interest rates affecting the Company's financing costs; and
other factors described from time to time in the Company's filings with the SEC,
press releases, and other communications.
Also, "non-GAAP financial measures," as that term is defined by the SEC in
Regulation G, are included in this document. The reconciliations to GAAP
measures are reflected in the Appendix at the end of this document and are also
available on our web site, cbrlgroup.com. Certain numbers in this supplement are
from the Company's audited financial statements, but readers should refer only
to the audited financial statements themselves to rely on audited numbers.
2
[Logo of CBRL Group, Inc.]- Improving Shareholders Returns
[Logo of Cracker Barrel Old Country Store (R)]- Expanding Our Leading Franchise
[Logo of Logan's Roadhouse (R)]- Emerging Growth Opportunity
Corporate Profile
- -----------------
CBRL Group, Inc. ("CBRL" or "CBRL Group") (Nasdaq: CBRL) is a holding company
whose business is to own and develop established restaurant concepts. It is our
objective to improve shareholder returns through focus on maximizing the
long-term performance of our operating businesses and optimizing the allocation
of capital. The holding company provides the operating companies with management
oversight, guidance in the development of strategies and leadership in
organizational processes. The holding company also allocates and manages capital
through development of capital structure strategies, investment of capital in
business units and return of capital to shareholders through dividends and share
repurchases.
Currently, CBRL's two concepts are Cracker Barrel Old Country Store(R) ("Cracker
Barrel" or "CBOCS") and Logan's Roadhouse(R) ("Logan's"). Cracker Barrel is a
leading mature franchise in the family-dining segment that the Company expects
to expand at a moderate pace and leverage continuous incremental improvements in
operating performance. Logan's is an emerging growth concept in the roadhouse
segment of casual dining that CBRL is preparing for 20% annual unit growth.
Thirty-five years ago, Cracker Barrel's founder, Dan Evins, recognized the
potential to offer interstate highway travelers quality food, service and value
consistently and conveniently by focusing on a mission of "Pleasing People." The
initial success of the concept drove continued expansion along the interstate
system, and today Cracker Barrel has evolved into an indelible part of the
family-travel experience. It is now one of the leading and most highly
differentiated restaurant chains in the United States. Cracker Barrel welcomes
over a half-million people per day on average, serving meals for three dayparts
and offering breakfast all day through its more than 500 stores in 41 states.
Each location also has one of our unique and successful retail shops that
generates an average of approximately $1 million in retail sales annually, or
approximately $470 per square foot of retail selling space, driven primarily by
the high level of restaurant guest traffic.
Cracker Barrel is a recognized customer favorite, having been named "Best in
Family Dining" by Restaurants and Institutions magazine's "Choice in Chains"
consumer survey for the 14th consecutive year in 2004. As of October 29, 2004,
there were 509 Cracker Barrel stores in 41 states.
3
In addition to the Cracker Barrel business, CBRL's other principal brand,
Logan's, is an early-stage growth opportunity in the popular casual roadhouse
category which was founded in 1991 and acquired by CBRL in 1999. Logan's has
broad appeal serving generous portions of moderately priced, high quality food
in a casual, kickin' atmosphere. Logan's serves lunches and dinners that feature
steak (USDA choice, extra-aged and hand-cut on premises), ribs, chicken and
seafood, and its signature yeast rolls that are made from scratch. A large part
of the Logan's experience is the relaxed, fun atmosphere reminiscent of American
roadhouses of the 1930s and 1940s and accentuated by complimentary peanuts
offered at every table and throughout the restaurant where guests are encouraged
to toss empty peanut shells on the floor. Unlike Cracker Barrel, Logan's serves
alcoholic beverages, reflecting less than 9% of Logan's fiscal 2004 revenues. As
of October 29, 2004, there were 114 company-owned and 20 franchised Logan's
located in 18 states.
Management throughout the business brings years of experience successfully
growing public restaurant chains. The Company's executive officers average more
than 20 years of experience in the restaurant industry.
Historical Perspective
- ----------------------
During the late 1990s, as Cracker Barrel endeavored to maintain its strong,
historical rate of growth, a number of issues led, for a brief period of time,
to deterioration in the Company's performance. Opening new stores at a rate of
50 per year strained the Cracker Barrel system. Aggressive menu pricing and
tight management of restaurant expenses threw the consumer value equation at
Cracker Barrel out of balance. A gradual decline in operational execution
occurred, and, during 1998 and 1999, Cracker Barrel experienced declines in
comparable store guest traffic in all but one quarter.
Cracker Barrel undertook a series of changes designed to turnaround the declines
in financial and operational performance. Store expansion was reduced and site
selection processes were overhauled. Investments in store labor and reductions
in menu prices were implemented. Training practices were improved, as were
new-store real estate approval processes. Senior management changes were made as
well, resulting in charges during 2000 due to a redirection of management
priorities.
During 2001, CBRL management decided to exit the three-location Carmine
Giardini's gourmet market and restaurant business that it had operated in
Florida. The cost of exiting that business, along with costs to close four
underperforming Cracker Barrel and three underperforming Logan's locations,
which had been opened or acquired during the rapid expansion period for both
concepts in the 1990s, led to additional charges at the end of 2001. In its
35-year history, Cracker Barrel has the exceptional record of closing only eight
stores (plus one not rebuilt after it was destroyed by a tornado) because of
poor performance.
As a result of these actions and the overriding management focus towards
achieving continuous incremental improvement, financial results improved, and a
new era of prudent and careful expansion is underway. Management's objective is
continuous incremental improvement in sales, operating margins, and return on
both existing and new capital invested in the business. Encouraging a culture of
planning and measured risk taking, the Company has adopted the balanced use of
internal best practices and industry-proven, low-risk techniques and
technologies to pursue its goals.
4
Financial Highlights
After a period of rapid growth and acquisitions, CBRL's revenue and unit growth
rates have moderated and management has been focused on the Company's two core
concepts.
[See accompnaying PDF file, pg.5 for Revenue History Chart]
Notes to Chart:
(a) Compound Average growth Rate ("CAGR") is used to show average annual growth
rates over extended periods of time to demonstrate long-term results.
(b) Fiscal year included 53 weeks; all other fiscal years included 52 weeks.
(c) From 1998 to 2001, the Company operated Carmine Giardini's, a small chain of
gourmet grocery stores and restaurants in Florida.
(d) Logan's was acquired in February, 1999.
5
[See accompnaying PDF file, pg.6 for Annual Unit Growth Chart]
Annual Unit Growth
#of Units
- ---------
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Cracker Barrel
Begining 152 182 218 257 307 357 396 426 437 457 480
Open 30 36 43 50 50 40 30 15 20 23 24
Close 0 0 4 0 0 1 (1) 0 4 0 0 0
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Ending 182 218 257 307 357 396 426 437 457 480 504
==== ==== ==== ==== ==== ==== ==== ==== ==== ==== ====
Annual Unit Growth % 19.7% 19.8% 19.7% 19.2% 16.3% 11.2% 7.6% 3.5% 4.5% 5.0% 5.0%
Logan's Roadhouse - - - - - 42 54 65 75 84 96
Begining - - - - - 12 12 13 (2) 9 12 11
Open - - - - - 0 1 (2) 3 0 0 0
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Ending - - - - - 54 65 75 84 96 107
==== ==== ==== ==== ==== ==== ==== ==== ==== ==== ====
Annual Unit Growth % 22.2% 19.7% 11.5% 14.3% 11.5%
Franchised - - - - - 4 7 8 12 16 20
==== ==== ==== ==== ==== ==== ==== ==== ==== ==== ====
Carmine's
Begining - - - - - 2 2 3 - - -
Open - - - - - 0 1 0 - - -
Close - - - - - 0 0 3 - - -
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Ending - - - - 2 2 3 0 - - -
==== ==== ==== ==== ==== ==== ==== ==== ==== ==== ====
Consolidated
Begining 152 182 218 257 307 401 452 494 512 541 576
Open 30 36 43 50 50 52 43 28 29 35 35
Close 0 0 4 0 0 1 1 10 0 0 0
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Ending (Co. Owned) 182 218 257 307 359 452 494 512 541 576 611
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Annual Unit Growth % 19.2% 16.3% 14.6% 9.5% 5.7% 5.6% 6.5% 6.1%
Franchise - - - - - 4 7 8 12 16 20
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Ending 182 218 257 307 359 456 501 520 553 592 631
==== ==== ==== ==== ==== ==== ==== ==== ==== ==== ====
(1) CBOCS unit destroyed in tornado.
(2) Logan's unit destroyed in fire. Rebuilt and reopened in FY01.
6
The Company has demonstrated renewed growth in net income and EPS following
management changes in 2000.
[See accompanying PDF file, pg.7 for Net Income History Chart and
Diluted Net Income Per Share History Chart]]
Notes and Reconciliations to Charts:
(a) Excludes after-tax charge of $8.8 million ($0.15 per share) related to store
closures. Including the effects of the charge, net income would have been $63.5
million and EPS would have been $1.04. Includes 53rd week.
(b) Excludes after-tax charges of $5.4 million ($0.09 per share) related to
management changes and refocused operating priorities. Including the effects of
charges, net income would have been $59.0 million and EPS would have been $1.02.
(c) Excludes after-tax charges of $24.5 million ($0.43 per share) related to
store closures, disposition of Carmine Giardini's and accrual for a proposed
settlement of litigation. Including the effects of charges, net income would
have been $49.2 million and EPS would have been $0.87. Includes 53rd week.
(d) Excludes after-tax charge of $3.3 million ($0.06 per share) related to
settlement of litigation. Including the effects of the charge, net income would
have been $13.3 million and EPS would have been $2.25.
(e) Diluted EPS history does not reflect restatement related to adoption of EITF
04-8 - Effect of Contingently Convertible Instruments on Diluted EPS.
7
The Company's strong balance sheet, including a high proportion of owned
properties, and conservative leverage position provides financial flexibility
and liquidity.
Consolidated Balance Sheet Highlights
($Millions)
(Derived from Audited Financials) 2000 2001 2002 2003 2004
------ ------ ------ ------ ------
Total Assets 1,335.1 1,213.0 1,263.8 1,326.3 1,434.9
Long Term Debt 292.0 125.0 194.5 186.7 185.1
Total Stockholders' Equity 829.0 846.1 783.0 794.9 880.3
------- ------- ------- ------- -------
Total GAAP Capitalization 1,121.0 971.1 977.5 981.6 1,065.4
Debt to Total Capitalization % 26.0% 12.9% 19.9% 19.0% 17.4%
(Non-Gaap Internal Measure, Unaudited)*
- ---------------------------------------
Balance Sheet Long-Term Debt $292.0 $125.0 $194.5 $186.7 $185.1
Real Estate Operating Leases* 68.5 206.8 215.5 237.5 254.5
------- ------ ------- ------- -------
Total Indebtedness 360.5 331.8 410.0 424.2 439.6
Equity 829.0 846.1 783.0 794.9 880.3
------- ------ ------- ------- -------
Total Capitalization $1,189.5 $1,177.9 $1,193.0 $1,219.1 $1,319.9
Total Indebtedness to Total
Capitalization % 30.3% 28.2% 34.4% 34.8% 33.3%
Memo:
Owned Locations at Year End 441 386 391 400 419
Leased Locations at Year End 53 126 150 176 192
* Capitalized for internal CBRL Group, Inc. capital structure measurement
purposes at 8 times last 12 months rent expense, excluding shorter-term
billboard rent (as disclosed in financial statement footnote) to approximate
capitalized value of long-term lease obligations, since the Company believes
inclusion provides a more complete reflection of long-term capital structure.
After funding its capital expenditure needs (purchase of property and equipment)
and dividend payments from operating cash flow, the Company is a generator of
free cash flow, which has been used primarily for significant share repurchases.
Consolidated Cash Flow Highlights
($millions)
(Derived from Audited Financials) 2000 2001 2002 2003 2004
-------- -------- -------- -------- --------
Cash flow from operating activities:
Net Income $59.0 $49.2 $91.8 $106.5 $113.3
Depreciation and Amortization 65.2 64.9 62.8 64.4 63.9
Other cash provided by operating activities 37.8 33.8 41.7 69.7 23.2
-------- -------- -------- -------- --------
Net cash provided by operating activities 162.0 147.9 196.3 240.6 200.4
-------- -------- -------- -------- --------
Purchase of property and equipment (138.0) (91.5) (96.7) (120.9) (144.6)
Dividends on common stock (0.7) (1.2) (1.2) (1.1) (16.2)
- ----------------------------------------------------------------------------------------------
"Free Cash Flow"* 23.3 55.3 98.4 118.6 39.6
- ----------------------------------------------------------------------------------------------
Net proceeds/(reductions) long-term debt (22.7) (167.2) 67.6 (13.1) (7.1)
--------------------------------------------------------------------------------------------
Share repurchases (21.1) (36.4) (216.8) (166.6) (69.2)
--------------------------------------------------------------------------------------------
Proceeds from exercise of stock options/other 16.1 146.3 54.1 60.4 51.1
Net increase/(decrease) in cash and cash
equivalents (4.5) (2.1) 3.3 (0.7) 14.4
Cash and cash equivalents, end of period $13.9 $11.8 $15.1 $14.4 $28.8
* "Free Cash Flow" is a GAAP-derived measure used by CBRL Group, Inc. which
calculates net cash generated by the business after purchase of property and
equipment and payment of dividends.
8
[See accompanying PDF file, pg.9 for Selected Cash Flow Components Chart
and Share Repurchase History Chart]
9
[See accompanying PDF file, pg.10 for graph of
Annual Returns on Invested Capital, Equity and Assets]
Notes and Reconciliations:
(a) Excludes after-tax charges of $5.4 million related to management changes and
refocused operating priorities. Including the effects of charges, ROIC, ROE and
ROA would have been 6.7%, 7.3% and 5.7%, respectively.
(b) Excludes after-tax charges of $24.5 million related to store closures,
disposition of Carmine Giardini's and accrual for proposed settlement of
litigation. Including the effects of charges, ROIC, ROE and ROA would have
been 5.4%, 5.9% and 4.5%, respectively. Includes 53rd week.
(c) Excludes after-tax charge of $3.3 million related to settlement of
litigation. Including the effects of charge, ROIC, ROE and ROA would have been
8.6%, 13.5% and 8.6%, respectively.
(d) Return on Invested Capital = After-Tax Operating Income /Average beginning
and ending Long-Term Debt + Shareholders' Equity
(e) Return on Equity = Net Income/Average beginning and ending Shareholders'
Equity
(f) Return on Assets = After-Tax Operating Income / Average beginning and ending
Total Assets
See Appendix for reconciliation of non-GAAP financial disclosures
Holding Company Role and Objectives
- -----------------------------------
The holding company's role is to maximize CBRL shareholder value through:
o Maximizing the long-term performance of the operating businesses
>> Guide development of business unit strategies, objectives and management
processes
>> Provide management oversight and governance for autonomous business unit
operations
>> Lead organizational development processes
o Optimal allocation of capital
>> Develop and execute prudent capital structure strategies
>> Develop and execute strategies for investment of shareholder capital
generated by the business through allocation of capital among business
units and development of specific expectations for returns on new
investment
>> Develop and execute strategies for returning capital generated by the
business to shareholders through share repurchases and dividends.
10
CBRL Group's management believes that execution of its current strategies
focused on careful expansion and continuous incremental business improvements
should enable the Company to continue to generate ample funds for expansion,
dividend payments and share repurchases. More specifically, management's
long-term corporate financial goals include:
o Low double-digit percentage total revenue growth driven by approximately 5%
unit expansion at Cracker Barrel, 20% company-operated unit growth at
Logan's by the end of FY 2005, and low to mid single-digit percentage
increases in comparable store sales growth for both concepts
o Operating profit growth outpacing revenue growth fueled by operating
leverage on higher sales, incremental improvements in product costs at
Cracker Barrel, implementation of low-risk, industry-proven technologies and
management processes, and continuous incremental operating improvements in
both concepts
o Diluted net income per share growth of 15% per year, including the effect of
share repurchases; excludes expected one-time effects of implementing
changes to diluted net income per share calculations mandated by EITF 04-8
accounting treatment for the Company's contingently convertible debt
o Total indebtedness (including capitalized real estate operating leases) to
total adjusted capital target ratio of 35%
o Investment grade credit rating maintained (currently BBB-/ Baa3 from
Standard & Poor's and Moody's, respectively).
11
[Logo of Cracker Barrel Old Country Store (R)]
Expanding Our Leading Franchise
12
Financial Highlights
CRACKER BARREL OLD COUNTRY STORE
FY 2000 FY 2001 FY 2002 FY 2003 FY 2004
- -----------------------------------------------------------------------------------------------------------------
Comparable Store Sales (Decrease)/Increase (Total) (1) (0.1%) 3.8% 4.6% 0.3% 2.8%
- -----------------------------------------------------------------------------------------------------------------
Comparable Store Sales Increase (Restaurant) (1) 0.6% 4.6% 5.3% 0.5% 2.0%
- -----------------------------------------------------------------------------------------------------------------
Comparable Store Sales (Decrease)/Increase (Retail) (1) (2.3%) 1.1% 2.3% (0.4%) 5.3%
- -----------------------------------------------------------------------------------------------------------------
Comparable Stores (1) 326 376 414 430 445
- -----------------------------------------------------------------------------------------------------------------
Total Operating Weeks 21,676 23,049 23,187 24,308 25,501
- -----------------------------------------------------------------------------------------------------------------
Average Unit Volumes ($000's) Total (2) 3,800 3,919 4,105 4,115 4,202
- -----------------------------------------------------------------------------------------------------------------
Average Unit Volumes ($000's) Restaurant (2) 2,871 2,989 3,152 3,166 3,210
- -----------------------------------------------------------------------------------------------------------------
Average Unit Volumes ($000's) Retail (2) 929 930 953 949 992
- -----------------------------------------------------------------------------------------------------------------
Average Check per Person (Comparable Restaurant) $6.99 $7.19 $7.39 $7.54 $7.68
- -----------------------------------------------------------------------------------------------------------------
Average Daily Traffic (Restaurant) (3) 1,128 1,142 1,172 1,154 1,148
- -----------------------------------------------------------------------------------------------------------------
Breakfast Sales as % of Total Restaurant Sales 21.8% 21.2% 21.3% 21.6% 21.8%
- -----------------------------------------------------------------------------------------------------------------
Lunch Sales as % of Total Restaurant Sales 35.5% 36.0% 36.1% 36.5% 36.3%
- -----------------------------------------------------------------------------------------------------------------
Dinner Sales as % of Total Restaurant Sales 42.7% 42.8% 42.6% 41.9% 41.9%
- -----------------------------------------------------------------------------------------------------------------
Retail Sales as % of Total Sales 24.5% 23.7% 23.2% 23.1% 23.6%
- -----------------------------------------------------------------------------------------------------------------
Average Sales per Square Foot (Retail) (4) $442 $443 $454 $452 $472
- -----------------------------------------------------------------------------------------------------------------
Average Sales of Top 10% of Comp Stores ($000's)(5) $5,281 $5,580 $5,655 $5,604 $5,698
- -----------------------------------------------------------------------------------------------------------------
Hourly Turnover Rate (6) 161% 151% 128% 113% 113%
- -----------------------------------------------------------------------------------------------------------------
Managerial Turnover Rate (7) 31.8% 25.2% 22.6% 22.9% 22.5%
- -----------------------------------------------------------------------------------------------------------------
(1) Comparable stores are those open at least 18 months at the beginning of the
year
(2) AUV = Sales / Operating Weeks x 52
(3) AUV / Check / 364
(4) Average unit retail sales / 2,100 square feet of retail selling space per
store
(5) Average total sales for top 10% of comparable store group each year
ranked by total sales volume
(6) Total hourly store employees terminating
employment / 12-month average total hourly store employees
(7) Total store managers terminating employment / 12-month average total store
managers
See Appendix for reconciliation to GAAP financials
13
Description of Cracker Barrel Old Country Store
-----------------------------------------------
Over its 35-year history, Cracker Barrel Old Country Store(R) ("Cracker Barrel")
has become one of the most recognized and highly differentiated brands in the
restaurant industry with a dominant position along the interstate highway
system. Cracker Barrel represents by far the largest component of CBRL's
business, accounting for 86.5% of total revenue in FY 2004.
Each Cracker Barrel location features an old country store style building
decorated with authentic antiques and country furnishings as well as nostalgic
items reminiscent of and similar to those found and sold in days gone by.
Cracker Barrel locations are highly complex operations integrating a high
volume, high table-turn restaurant with a successful retail shop. The retail
shop alone generated nearly half a billion dollars in systemwide sales in FY
2004 by catering to the needs of a "captive" base of restaurant guests.
The restaurants offer home-style country cooking featuring Cracker Barrel's own
recipes emphasizing authenticity and quality. The menu features
made-from-scratch products prepared from high-quality ingredients at affordable
prices, and the popular breakfast menu is served all day long. In addition,
Cracker Barrel periodically features off-menu specials to enhance customer
interest and identify potential future additions to the menu. In 2004, Cracker
Barrel introduced a new menu which included daily dinner features priced at only
$7.99 that showcase a popular dinner entree for each day of the week. The new
menu also introduced a low-carbohydrate section in both its breakfast and
lunch/dinner menus.
The Company believes that the combination of restaurant and retail provides an
important source of differentiation for the Cracker Barrel brand. The retail
shop, which occupies approximately 2,100 square feet of merchandise selling
space, provides a place for restaurant guests to wait and an opportunity for
Cracker Barrel to add sales while guests wait, similar to the bar/waiting area
at a casual dining restaurant. Most retail customers are also restaurant guests,
with less than 0.5% of retail sales made to "destination" shoppers who are not
using the restaurant. Each retail shop has 2,500-3,000 SKU's on display,
including a mix of year-round and seasonal products. The Company has been
expanding its merchandise lines to include more impulse-oriented products at
lower average price points. Management believes Cracker Barrel's annual sales
average of $472 per square foot of retail selling space compares favorably to
other specialty retailers. With an average of between 1,100 and 1,200 dining
guests per day being served in each Cracker Barrel store, the Company's goal is
to build retail sales as a percentage of total sales by increasing the frequency
of purchase by this "captive audience."
Leveraging its dominant interstate presence, Cracker Barrel uses outdoor
advertising as its primary advertising medium to reach travelers and tourists as
well as local customers on the highway. Cracker Barrel is the second-largest
user of billboards for restaurant companies in the country and is in the top 10
of billboard users overall. Outdoor advertising represents about 60% of
advertising expenditures. The Company also uses other types of media, including
radio and print, to increase brand awareness and build brand loyalty.
14
Sales Highlights
[See accompanying PDF file, pg.15 for graphs of Comparable
Restaurant Sales & Comparable Retail Sales]
15
[See accompanying PDF file, pg.16 for graph of
Retail Sales per Restaurant Guest]
Cracker Barrel Recognized As Consumer Favorite
- ----------------------------------------------
Cracker Barrel has been consistently recognized as a consumer favorite,
receiving awards for customer satisfaction and quality including:
o "Best in Family Dining" by Restaurants and Institutions Magazine - 14
consecutive years; topped survey in overall score and five of eight family
dining categories: menu variety, value, service, atmosphere and good
reputation; second in cleanliness and food quality and third in convenience
o "Highest Overall Satisfaction Among Family Restaurants" (2004) - J.D. Power
& Associates initial survey of customer satisfaction in the restaurant
industry
o "Chain of the Year" (2003) by Restaurant Hospitality Magazine
o "Best Restaurant Chain" by Destinations Magazine - 10 consecutive years
o "Best Restaurant for Tour Groups" by American Bus Association - 10
consecutive years
o "Welcome Mat Award as Best Restaurant in America" by the Good Sam Club - 3
consecutive years
Cracker Barrel has been successful generating comparatively high levels of trial
among consumers who are aware of the brand, even though Cracker Barrel spends
significantly less on advertising than many of its casual and family dining
peers. In addition, Cracker Barrel has a very high ratio of converting triers
into current users. These facts demonstrate the strong appeal of the Cracker
Barrel brand.
Another testament to the popularity of the concept is the fact that in 35 years
of operation and with over 500 openings, only eight locations have been closed
because of poor sales prospects without being relocated within the same general
market area. Another location was not rebuilt after being destroyed by a
tornado.
16
[See accompanying PDF file, pg.17 for charts on
Consumer Choice and Consumer Conversion]
17
[See accompanying PDF file, pg.18 for chart on Consumer Conversion]
Development Plans
- -----------------
Cracker Barrel's locations are concentrated in the Southeast and Midwest, which
are considered its core markets. The Company's current new store development is
focused in these markets and reflects a strategy to increase its dominant
presence along the interstates. Current plans are to expand the number of
Cracker Barrel stores by approximately 5% annually. We presently believe there
is the potential to expand in the future to more than 1,000 Cracker Barrel
locations without development of the West Coast, which the Company has yet to
evaluate. The Company has implemented a limited land banking strategy to help
secure high demand, premium sites in support of its moderate growth plans.
Cracker Barrel's management uses a rigorous process to approve potential new
store sites for construction. Detailed information about a proposed site and the
market surrounding it is gathered and evaluated. A proprietary site selection
model has been developed for Cracker Barrel based on the performance of existing
Cracker Barrel stores, and inputs for the model are updated annually. The
Company develops and uses an internal-rate-of-return hurdle to evaluate
discounted cash flow expectations for each site. The Company has a real estate
committee, consisting of executives from the primary functional areas and the
holding company that meets, discusses and approves each new site before it is
acquired. Several key members of the committee also visit new sites as part of
the process for projecting sales before approval.
18
[See accompanying PDF file, pg.19 for map of store locations and
chart of Real Estate Development Annual Unit Growth]
19
Focused Real Estate Development
Build-Out Potential
Interstate Off Interstate Destination TOTAL
A) Year-End FY 2004 Store Count 439 50 15 504
- -----------------------------------------------------------------------------------------
New Store Development
---------------------
Core Markets 122 106 3 231
Development Markets 162 101 9 272
-------------------------------------------------
B) Total New Store Potential 284 207 12 503
- -----------------------------------------------------------------------------------------
TOTAL BUILD-OUT POTENTIAL* 723 257 27 1,007
=================================================
* As of 6/25/04
Unit Economics
- --------------
The current Cracker Barrel store prototype is approximately 10,000 square feet
including approximately 2,100 square feet of retail gift shop selling space. The
prototype has 194 seats in the restaurant. Based on recent and projected new
store development, the average cost for approximately 2.5 acres of land for an
average purchased site for a new Cracker Barrel store is expected to be
approximately $900,000 (and generally expected to range between less than
$600,000 to $1.3 million). Development costs of a new restaurant are expected to
be approximately $2,450,000, including furniture, fixtures and equipment of
approximately $630,000. Individual site costs, however, can vary materially from
these estimates depending on local real estate, site and construction conditions
(and generally are expected to range between $2.1 million and $3.0 million,
excluding land). In addition, approximately $315,000 is budgeted for pre-opening
expenses. The Company typically projects that a new Cracker Barrel store will
generate annual sales of approximately $4,100,000 to $4,200,000 and mature store
direct operating cash flow margin of approximately 20% of sales (see the
Appendix for reconciliation to a comparable GAAP measure). There are many
uncertainties in projecting new store investment and operating performance, and
there can be no assurance that actual results, either individually or in the
aggregate, will achieve projected results. The Company's plans reflect a higher
percentage of purchased land than leased land for the near future.
Cracker Barrel believes it has another unique strength in the inherent
timelessness of its concept. Because it is intended to evoke memories of a time
gone by and an old country store, the facility does not need periodic remodels
to refreshen or update the concept that are typically necessary with some
restaurant concepts. In recent years, less than $35 million of repair and
replacement capital expenditures has been needed annually.
The prototype can handle a very high level of guest traffic. Although Cracker
Barrel's guest traffic is among the highest in our industry, at 1,100 to 1,200
guests on average per day, the top 10% of stores have more than 35% higher sales
than an average store. Additionally, the highest volume unit in FY 2004 had
restaurant sales nearly 70% above an average store, all with substantially
similar kitchens and dining room facilities.
20
Cracker Barrel Guest Profile
- ----------------------------
Guest occasions at Cracker Barrel tend to skew towards guests that visit at
least once per month, and more than 40% of visits are travel-related, especially
among lighter frequency users. Compared with all full-service guests in the
restaurant industry, Cracker Barrel's guests tend to have higher education and
income levels.
[See accompanying PDF file, pg.21 for chart on
Cracker Barrel Guest Usage]
Cracker Barrel Guest Profile
All Full Cracker Barrel
Service Guests Guests
- --------------------------------------------------------------------------------
Average Age (Years) 47 48
% Ages 35-49 27% 26%
% Ages 50-64 25% 27%
Average Household Income ($000's) $46 $48
% With At Least College Degree 39% 41%
% With Children 35% 31%
- --------------------------------------------------------------------------------
Source: FY 2004 Cracker Barrel Awareness & Usage Study
21
Training and Development Focus
- ------------------------------
Cracker Barrel views training and development of employees at all levels as a
critical investment to ensure successful execution of its complex and demanding
store operations. Hourly training and development is particularly important. The
Company's hourly PAR (Personal Achievement Responsibility) program is central to
its efforts to train and motivate hourly store employees. The PAR program, which
has been in use since the late 1970's, has four achievement levels within each
skill-position, with testing at each level to develop and document increasing
proficiency in skills. The opportunity to advance through the levels is coupled
with the opportunity to increase wages and qualify for additional healthcare
benefits, and ultimately upon reaching PAR IV (the highest level) employees
qualify for the same healthcare benefits as company executives. The Company
believes that a core of experienced hourly employees, especially PAR IV
employees, is critical to consistent execution of store operations. The
Company's annualized turnover among PAR IV employees was only 26% in FY 2004. To
facilitate training in its stores, Cracker Barrel has an Employee Training
Coordinator in each store whose role is dedicated to training hourly store
employees. A typical store also has a dedicated training center. The Company's
annualized turnover rate for all hourly store employees has been falling over
the past five years from 161% in FY 2000 to 113% in FY 2004.
Retail Distribution Center
- --------------------------
Cracker Barrel has a single distribution center for its retail products located
in Lebanon, TN that serves each of its more than 500 stores with one delivery
per week. Approximately 70% of Cracker Barrel's retail products are vendor
stocked and not distributed through the distribution center. The distribution
center is currently 381,000 square feet and could be expanded by another 100,000
feet to meet the needs of a growing store base. The distribution center's
inventory system receives store replenishment orders automatically, and
state-of-the-art picking systems direct order fulfillment. Other facts about the
distribution center include:
o Our third-party carrier operates a dedicated fleet of 45 tractors and 90
trailers making deliveries, serving approximately 100 routes per week and
approximately 20% more during peak season
o 6.8 million miles driven annually for deliveries and in support of inbound
vendor shipments
o Many trailers with Cracker Barrel logo, which are like moving billboards
o Record pick 3.0 million pieces in a week during October 2003
o Upgraded sorter system being implemented with potential to more than double
carton throughput capacity.
Bonus Plans
- -----------
Cracker Barrel has incentive compensation plans to focus store management on
achievement of financial objectives. The primary components of store management
plans are directly linked to improvements in sales and operating performance.
The Company awards 10% of store operating income, as defined, to the management
team to foster an ownership mindset. In addition, performance bonuses are
awarded for achievement of improved sales versus prior year and for reaching
food and labor targets. Cracker Barrel believes that a strong variable pay
component is important to attracting and retaining strong store management, and
the Company targets 40% or more of total cash compensation for general managers
and key field leaders to be comprised of variable pay components. Multi-unit
supervision and regional vice presidents also receive incentive compensation
based on performance of their units.
Corporate management incentive compensation plans are linked directly to
achievement of Company financial targets including sales, return on invested
capital, operating income and operating margins. In addition, the Company has
long-term incentive plans for officers and has adopted share ownership
guidelines for certain senior officers.
22
Operating Improvement and Margin Expansion Opportunities
Cracker Barrel management believes the Company has a number of key opportunities
to improve operating performance, expand operating margins, and improve returns
on invested capital. As Cracker Barrel management works toward its objective of
continuous incremental improvement in returns on invested capital, it believes
that expansion of operating margins will be a key component. Cracker Barrel
plans to focus on continuous incremental improvement in operating margins and
strategic implementation of processes and technologies that have been proven in
the restaurant and retail industries but not historically utilized at Cracker
Barrel. Management currently believes its key opportunities include:
o Ongoing product purchasing initiatives designed to optimize the number of
product vendors, leverage purchasing volume, minimize logistics and
packaging costs, and expand bid processes while maintaining or increasing
the quality of products
o Leveraging food-cost management systems for production planning and item
level waste reporting to reduce food waste
o Testing, evaluation and implementation of retail initiatives designed to
increase retail operations' interaction with guests, improve product
placement and presentation strategies and improve traffic flow of guests
through the retail shop
o Increasing retail sales as a percent of total sales by implementing
merchandising and retail operations strategies designed to increase
frequency of retail purchases by restaurant guests
o Testing, evaluation and implementation of restaurant design and process
re-engineering initiatives designed to decrease wait and service times,
improve food quality and consistency and increase operating efficiency
o Management of near-term pressures in the commodity markets, with
approximately 67% of food purchases contracted for FY 2005 as of October
2004 and an expectation for additional contracting to be completed
o Ongoing improvements in hourly store employee scheduling coupled with wage
administration initiatives to moderate average hourly restaurant wage
inflation (non-tipped hourly restaurant wages increased only 0.3% in the
fourth quarter of FY 2004)
o Prudent use of pricing power from a strong brand position to offset cost
inflation effectively
o Leveraging of comparable store sales increases.
Cracker Barrel Summary
o Highly differentiated brand with a unique country-cooking theme and country
store retail shop
o High guest traffic, and retail sales from a captive traffic flow of
restaurant guests
o 72% of locations owned (versus leased) as of the end of FY 2004
o Generated strong cash flow from operations in excess of capital expenditure
needs, with relatively modest capital expenditure needs for maintenance and
replacement
o Moderate annual unit growth rate of approximately 5%; identified potential
to double the size of the system
o Objectives of continuous incremental improvement in expanding operating
margins and returns on invested capital through application of proven
industry techniques and practices and by leveraging the growth of retail
23
[Logo of Logan's Roadhouse (R)]
Emerging Growth Opportunity
24
Financial Highlights
LOGAN'S ROADHOUSE
FY 2000 FY 2001 FY 2002 FY 2003 FY 2004
- ---------------------------------------------------------------------------------------------------------------
Comparable Store Sales Increase/(Decrease)(1) 3.2% (1.1%) 2.4% 0.0% 4.8%
- ---------------------------------------------------------------------------------------------------------------
Comparable Stores (1) 25 40 59 71 83
- ---------------------------------------------------------------------------------------------------------------
Operating Weeks 3,165 3,906 4,238 4,792 5,353
- ---------------------------------------------------------------------------------------------------------------
Average Unit Volumes ($000) (2) $2,929 $2,856 $2,945 $2,965 $3,094
- ---------------------------------------------------------------------------------------------------------------
Average Check per Person (Comparable Restaurants) $11.25 $11.40 $11.41 $11.61 $11.85
- ---------------------------------------------------------------------------------------------------------------
Average Daily Traffic (3) 717 690 711 703 719
- ---------------------------------------------------------------------------------------------------------------
Lunch Sales as % of Total Sales 33.0% 33.6% 33.9% 34.9% 35.1%
- ---------------------------------------------------------------------------------------------------------------
Dinner Sales as % of Total Sales 67.0% 66.4% 66.1% 65.1% 64.9%
- ---------------------------------------------------------------------------------------------------------------
Alcohol Sales as % of Total Sales 10.0% 9.5% 9.1% 8.7% 8.4%
- ---------------------------------------------------------------------------------------------------------------
Average Sales of Top 10% of Comparable Stores(4) $4,186 $4,003 $3,906 $3,864 $4,112
- ---------------------------------------------------------------------------------------------------------------
Hourly Turnover Rate(5) 144% 164% 138% 105% 104%
- ---------------------------------------------------------------------------------------------------------------
Managerial Turnover Rate(6) 27.1% 27.1% 23.2% 18.4% 20.4%
- ---------------------------------------------------------------------------------------------------------------
(1) Comparable stores are those open at least 18 months at the beginning of the
year
(2) AUV = Sales / Operating Weeks x 52
(3) AUV / Check / 363
(4) Average total sales for top 10% of comparable store group each year ranked
by total sales volume
(5) Total hourly restaurant employees terminating
employment / 12 month average total hourly restaurant employees
(6) Total restaurant managers terminating employment / 12 month average total
restaurant managers
See Appendix for reconciliation to GAAP financials
25
Description of Logan's Roadhouse
- --------------------------------
Founded in 1991, Logan's Roadhouse(R) ("Logan's") was acquired by CBRL in 1999.
Positioned in the roadhouse segment of the expanding casual dining industry,
Logan's provides an emerging growth opportunity for CBRL with upside potential
and sustained near-term 20% annual unit growth planned.
The Logan's concept is designed to appeal to a broad range of customers by
offering generous portions of moderately-priced, high quality food in a very
casual dining environment that is lively and entertaining. Logan's menu features
steaks, ribs, chicken, and seafood dishes in a distinctive atmosphere. Logan's
restaurants are generally constructed of rough-hewn cedar siding with bands of
corrugated metal outlined in red neon. Interiors are decorated with murals and
other artifacts depicting scenes or billboard advertisements reminiscent of
American roadhouses of the 1930s and 1940s. The menu emphasizes extra-aged,
hand-cut on-premises USDA choice steaks and signature dishes such as baked sweet
potatoes and made-from-scratch yeast rolls. The relaxed and fun atmosphere is
enhanced by display cooking of grilled items, an old-fashioned meat counter and
buckets of complimentary roasted in-shell peanuts on every table, which guests
are encouraged to enjoy and let the shells fall on the floor. Logan's also
serves alcoholic beverages, which represented less than 9% of sales in FY 2004.
A new leadership team was formed at Logan's during FY 2004, combining
experienced leaders from outside the company with key leaders from the existing
Logan's management team. The focus of the leadership team has been to enhance
operational execution, sharpen the brand positioning, enhance the menu with new,
"kickin" product offerings and develop a new restaurant prototype. Logan's has
also been preparing for an increased rate of new unit growth, with plans to
achieve a 20% annual growth rate by the end of FY 2005.
Logan's has a small base of franchised units, consisting of 20 locations in four
states. Growth is anticipated to continue from the existing franchisees, and
there is the potential for franchisees in new markets in the future.
[See accompanying PDF file, pg.26 for Comparable Store Sales chart]
26
Leadership Team
- ---------------
During FY 2004, a new leadership team was formed for Logan's. Tom Vogel, who
joined Logan's as president in August FY 2004, brought a strong background in
casual dining with experience in operations, marketing and concept development.
He worked to combine key operations and support leaders already at Logan's with
experienced casual dining executives from outside the company that added
expertise in other important functional areas. Key additions to the team
included leaders for real estate and concept development, human resources,
financial analysis, and the Company's first-ever senior director of food and
beverage. In late FY 2004, Logan's also announced its partnership with a new
advertising agency of record, which will partner with Logan's to develop
creative and advertising strategies to strengthen the Logan's brand.
Development Plans
- -----------------
Logan's company-operated locations are concentrated in the South and Midwest,
and there is one franchisee operating primarily in the Carolinas and one
franchisee in California. Logan's growth plans focus on building new restaurants
to backfill existing markets, increasing operational and marketing efficiencies
and growing brand awareness. Following a period of more modest expansion as the
leadership team focused on operational execution and brand sharpening, Logan's
is increasing the unit growth rate with the goal of achieving 20% annual unit
growth by the end of FY 2005. The Company believes that the use of advertising
is an important strategic element of its growth plans, and Logan's expects to be
media efficient in approximately half of its restaurants by the end of FY 2005,
and increasing that proportion in future years.
Logan's is developing a new restaurant prototype that highlights the brand
elements developed under the brand positioning initiatives. The new prototype,
which is also expected to be more flexible primarily by reducing building
frontage and increasing kitchen layout efficiency, is planned to be tested late
in FY 2005 or early FY 2006 for use in the latter part of FY 2006 for all new
units. In the interim, Logan's will continue to use the existing prototype to
expand the Logan's system to meet the strategic objectives of building brand
awareness and marketing efficiencies in existing markets. Logan's believes that
the existing prototype can be readily adapted to incorporate key brand elements
of the new prototype, and Logan's plans to test reimaging packages to introduce
these elements into the existing restaurant base.
Logan's management uses a rigorous process to approve potential new sites,
reflecting many of the best practices developed for Cracker Barrel. Detailed
information about a proposed site and the market surrounding it is gathered and
evaluated. The Company develops and uses an internal-rate-of-return hurdle to
evaluate discounted cash flow expectations for each site. Logan's has a real
estate committee, consisting of executives from the primary functional areas and
the holding company, who meet, discuss and approve each new site before it is
acquired. Several key members of the committee also visit new sites as part of
the process for projecting sales before approval.
27
[See accompanying PDF file, pg.28 for map of Company
Owned/Franchised Locations and Annual Unit Growth chart]
28
Unit Economics
- --------------
The current Logan's restaurant prototype is approximately 8,000 square feet with
286 seats, including 24 seats at the bar. Based on recent and projected new
store development, the average cost for approximately 1.5 acres of land for an
average purchased site for a new Logan's is expected to be approximately
$1,050,000 (and generally expected to range between less than $900,000 to $1.2
million). Development costs of a new restaurant are expected to be approximately
$2,050,000, including furniture, fixtures and equipment of approximately
$550,000. Individual site costs, however, can vary materially from these
estimates depending on local real estate, site and construction conditions (and
generally are expected to range between $1.9 million and $2.1 million excluding
land). In addition, pre-opening expenses of approximately $145,000 are budgeted.
The Company typically projects annual sales for a new Logan's restaurant of
approximately $3,000,000 to $3,100,000 and mature store operating cash flow
margin of approximately 22% of sales (see the Appendix for reconciliation to a
comparable GAAP measure). There are many uncertainties in projecting new store
investment and operating performance, and there can be no assurance that actual
results, either individually or in the aggregate, will achieve projected
results. A new Logan's prototype is under development with an initial opening
expected late in fiscal 2005 or early in fiscal 2006. Regular openings of the
new prototype are expected to begin during fiscal 2006, and sales and cost
estimates could vary in future months as the Company constructs and evaluates
units using the new prototype and its possible derivations. The Company plans a
higher percentage of leased land than purchased land for the near future.
Logan's Guest Profile
- ---------------------
Logan's guest profile reflects a concentration of frequent users who visit
Logan's twice a month or more. Annual household incomes for Logan's guests are
primarily between $30,000 and $75,000, and there is a significant segment of the
customer base that describes itself as blue collar, particularly among frequent
users. With a comparably low average dinner check, Logan's is positioned as an
affordable, steakhouse for every day of the week with high quality, high appeal
offerings.
[See accompanying PDF file, pg.29 for Value Proposition Chart]
29
Bonus Plans
Logan's has incentive compensation plans to focus restaurant management on
achievement of financial objectives. The primary components of restaurant
management plans are linked directly to achievement of sales and operating
performance targets. Logan's plan is balanced between awards for achievement of
sales and operating income targets and food and hourly labor management
standards. Annual special awards are made for performance above sales and
operating income targets. Logan's believes that a significant variable pay
component provides an important incentive for achieving company objectives and
for attracting and retaining strong restaurant management. Multi-unit
supervision positions and regional vice presidents also receive incentive
compensations based on performance of their units.
Corporate management incentive compensation plans are linked directly to
achievement of Company financial targets. In addition, the Company has long-term
incentive plans for key officers and has adopted share ownership guidelines for
certain senior officers.
Growth Opportunities
- --------------------
CBRL and Logan's management believe that Logan's has an opportunity to
contribute significantly to growth in CBRL's revenue and operating profits over
time through expansion and successful execution of Logan's brand strategies.
Management believes the key opportunities for growth include:
o Growth in comparable store sales through an ongoing operational execution
focus, implementation of marketing and advertising strategies, and menu and
product development initiatives
o 20% annual unit growth rate by the end of FY 2005
o Enhanced alcohol offerings to build alcohol sales responsibly, building on
the introduction of Happy Hour, development of new signature drinks and the
use of long neck beers as a key element of the brand image
o Long-term incremental margin improvements from leveraging sales growth and
realizing other identified operating efficiencies which are expected to be
partly offset in the near-term by continued pressure in the beef markets
and over time by an increase in advertising spending
o Growth from franchised operations as existing franchisees continue to open
new units and, potentially, through the addition of franchisees in new
markets in the future.
Logan's Summary
- ---------------
o Well-positioned roadhouse concept with broad appeal and significant growth
potential in the casual dining segment
o New leadership team implementing brand strengthening strategies
o Annual unit growth rate increasing to 20% by the end of FY 2005; focus on
backfilling markets to build operating and marketing efficiencies
o New prototype development underway for testing late in FY 2005 or early FY
2006
o Objectives of sustained expansion and improved returns on invested capital
through leveraging comparable store sales growth, achieving increased unit
growth rate, managing near-term commodity market pressures and evolving
business model to provide strong marketing and advertising support for the
brand
30
CBRL Group, Inc.
Table: Selected Financial Data
(in thousands, except per share data and percentages)
Fiscal Years Ended July 28 FY 2000 August 3 FY 2001 August 2 August 1 July 30 FY 2004
2000 Proforma 2001 Proforma 2002 2003 2004 Proforma
(a) (b) (c) (d)
- ------------------------------------------------------------------------------------------------------------------------------------
Operating Statement Highlights
- ------------------------------------------------------------------------------------------------------------------------------------
Total revenue $1,777,119 $1,777,119 $1,967,998 $1,967,998 $2,071,784 $2,198,182 $2,380,947 $2,380,947
- ------------------------------------------------------------------------------------------------------------------------------------
Store operating income 218,252 224,066 213,607 235,752 264,452 295,967 311,625 311,625
- ------------------------------------------------------------------------------------------------------------------------------------
% of Total Revenue 12.3% 12.6% 10.8% 12.0% 12.8% 13.5% 13.1% 13.1%
- ------------------------------------------------------------------------------------------------------------------------------------
General and administrative 95,289 92,511 102,541 102,051 115,152 121,886 126,489 121,279
- ------------------------------------------------------------------------------------------------------------------------------------
% of Total Revenue 5.4% 5.2% 5.2% 5.2% 5.6% 5.6% 5.3% 5.1%
- ------------------------------------------------------------------------------------------------------------------------------------
Amortization of goodwill 3,994 3,994 14,370 3,942 -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Operating income 118,969 127,561 96,696 129,759 149,300 174,081 185,136 190,346
- ------------------------------------------------------------------------------------------------------------------------------------
% of Total Revenue 6.7% 7.2% 4.9% 6.6% 7.2% 7.9% 7.8% 8.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Interest expense, net 24,264 24,264 12,232 12,232 6,769 8,819 8,439 8,439
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 94,705 103,297 84,464 117,527 142,531 165,262 176,697 181,907
- ------------------------------------------------------------------------------------------------------------------------------------
Provision for income taxes 35,707 38,947 35,283 43,873 50,742 58,733 63,435 65,305
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $58,998 $64,350 $49,181 $73,654 $91,789 $106,529 $113,262 $116,602
- ------------------------------------------------------------------------------------------------------------------------------------
Net income per diluted share (e) $1.02 $1.11 $0.87 $1.30 $1.64 $2.09 $2.25 $2.31
- ------------------------------------------------------------------------------------------------------------------------------------
Diluted weighted average shares
shares outstanding 58,041 56,799 56,091 50,998 50,370
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends declared per share $0.01 $0.02 $0.02 $0.02 $0.33
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Highlights
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents $13,865 $11,807 $15,074 $14,389 $28,775
- ------------------------------------------------------------------------------------------------------------------------------------
Working capital (25,079) (37,049) (54,245) (70,655) (43,742)
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets 1,335,101 1,212,955 1,263,831 1,326,323 1,434,862
- ------------------------------------------------------------------------------------------------------------------------------------
Long-term debt 292,000 125,000 194,476 186,730 185,138
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 506,131 366,847 480,837 531,427 554,615
- ------------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity 828,970 846,108 782,994 794,896 880,247
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Flow Highlights
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Provided by Operating $160,247 $147,859 $196,277 $240,586 $200,365
Activities
- ------------------------------------------------------------------------------------------------------------------------------------
Purchase of Property and 138,032 91,439 96,692 120,921 144,611
Equipment
- ------------------------------------------------------------------------------------------------------------------------------------
Share Repurchases 21,104 36,444 216,834 166,632 69,206
- ------------------------------------------------------------------------------------------------------------------------------------
Proceeds from Exercise of
Stock Options 530 5,155 53,103 59,649 50,210
- ------------------------------------------------------------------------------------------------------------------------------------
Return Highlights
- ------------------------------------------------------------------------------------------------------------------------------------
Return on Invested Capital (f) 6.7% 7.1% 5.8% 7.8% 9.9% 11.5% 11.6% 11.9%
- ------------------------------------------------------------------------------------------------------------------------------------
Return on Equity (g) 7.3% 7.9% 5.9% 8.8% 11.3% 13.5% 13.5% 13.9%
- ------------------------------------------------------------------------------------------------------------------------------------
Return on Assets (h) 5.7% 6.1% 4.8% 6.4% 7.8% 8.7% 8.6% 8.8%
- ------------------------------------------------------------------------------------------------------------------------------------
See Appendix for reconciliation to GAAP financial disclosures
(a) The Company recorded charges of $8,592 before taxes, principally as a result
of management changes and the resulting refocused operating priorities. Before
the effect of these charges, net income would have been $64,350 and diluted net
earnings per share would have been $1.11.
(b) The Company recorded charges of $33,063 before taxes, principally as a
result of exiting its Carmine Giardini's business, closing four Cracker Barrels
and three Logan's Roadhouse units, and accruing for the proposed settlement of
litigation. Before the effect of these charges, net income would have been
$73,654 and diluted net earnings per share would have been $1.30.
(c) The Company's fiscal year ends on the Friday nearest July 31st and each
quarter consists of 13 weeks unless noted otherwise. The Company's fiscal year
ended August 3, 2001 consisted of 53 weeks and the fourth quarter of fiscal 2001
consisted of 14 weeks.
(d) The Company recorded a charge of $5,210 before taxes in general and
administrative expense related to a settlement of litigation. Before the effect
of this charge, net income would have been $116,602 and diluted net earnings per
share would have been $2.31.
(e) Diluted net income per share not restated to reflect adoption of EITF -04-8
(Effect of Contingently Convertible Instruments on Diluted EPS)
(f) Return on Invested Capital = After-Tax Operating Income / Average beginning
and ending Long-Term Debt + Shareholders' Equity
(g) Return on Equity = Net Income / Average beginning and ending Shareholders'
Equity
(h) Return on Assets = After-tax Operating Income / Average beginning and ending
Total Assets
31
APPENDIX
32
Reconciliation of non-GAAP financials to GAAP disclosures
- ---------------------------------------------------------
Effects of Charges
- ------------------
As reported in the Company's annual consolidated financial statements, the
Company has taken certain charges to earnings. Since these charges were
considered infrequent in nature and related to changes undertaken as part of
changes in focus and priorities, or to settle long-standing litigation, the
Company is showing net income and diluted net income per share results excluding
the effects of these charges to improve the comparability of year-to-year
results. Reconciliation for the effect of charges on each of the GAAP financial
disclosures to the non-GAAP financials used in this supplemental analysis is
shown below, and more detail of these charges may be found in the consolidated
financial statements of the Company for the respective years.
FY 1996 Charges
- ---------------
In FY 1996, the Company incurred charges related to the closure of three Cracker
Barrel stores and discontinuance of the Cracker Barrel Corner Market concept.
The charges totaled $14.2 million before taxes and $8.8 million after the effect
of income taxes.
($ millions) Net Income Diluted Net Income Per Share
---------- ----------------------------
GAAP Financial Disclosure $63.5 $1.04
Add back effect of Charges 8.8 $0.15
------ -----
Non-GAAP Financial Measure $72.3 $1.19
FY 2000 Charges
- ---------------
In FY 2000, the Company incurred charges related to management changes and
refocused operating priorities. Charges totaled $8.6 million before taxes and
$5.4 million after the effect of income taxes.
($ millions) Net Income Diluted Net Income Per Share
---------- ----------------------------
GAAP Financial Disclosure $59.0 $1.02
Add back effect of Charges 5.4 $0.09
------ -----
Non-GAAP Financial Measure $64.4 $1.11
FY 2001 Charges
- ---------------
In FY 2001, the Company incurred charges related to discontinuance of its
Carmine Giardini's Gourmet Market business as well as the closure of four
Cracker Barrel stores and three Logan's Roadhouse restaurants, and an accrual
for proposed settlement of litigation. Charges totaled $33.1 million before
taxes and $24.5 million after the effect of income taxes.
($ millions) Net Income Diluted Net Income Per Share
---------- ----------------------------
GAAP Financial Disclosure $49.2 $0.87
Add back effect of Charges 24.5 $0.43
----- -----
Non-GAAP Financial Measure $73.7 $1.30
FY 2004 Charges
- ---------------
In FY 2004, the Company incurred a charge related to a settlement of certain
lawsuits against the Company's Cracker Barrel subsidiary. The charge totaled
$5.2 million before taxes and $3.3 million after the effect of income taxes.
($ millions) Net Income Diluted Net Income Per Share
---------- ----------------------------
GAAP Financial Disclosure $113.3 $2.25
Add back effect of Charges 3.3 $0.06
------ -----
Non-GAAP Financial Measure $116.6 $2.31
33
Total "Indebtedtness" to Total Capitalization
- ---------------------------------------------
The Company uses a non-GAAP measure of indebtedness to total capital for
internal purposes. Since many companies in the restaurant and retail industry
make significant use of real estate operating leases to finance land for
locations, the Company believes that use of a measure that reflects these
obligations provides a more complete representation of the Company's
indebtedness as a target for its capital structure. Reconciliation to the
GAAP-derived Total Debt to Total Capitalization ratio is provided below.
($ millions)
GAAP-Derived Financial FY 00 FY 01 FY 02 FY 03 FY 04
- ----------------------- ----- ----- ----- ----- -----
Balance Sheet Long-Term Debt $292.0 $125.0 $194.5 $186.7 $185.1
Total Stockholders'Equity 829.0 846.1 783.0 794.9 880.2
----- ----- ----- ----- -----
Total Capitalization $1,121.0 $971.1 $977.5 $981.6 $1,065.3
Memo: Average of Beginning $1,112.0 $1,046.1 $974.3 $979.6 $1,023.5
And End of Fiscal Year
Total Debt to Total Capitalization 26.0% 12.9% 19.9% 19.0% 17.4%
($ millions)
Non-GAAP Measures FY 00 FY 01 FY 02 FY 03 FY 04
- ------------------ ----- ----- ----- ----- -----
Balance Sheet Long-Term Debt $292.0 $125.0 $194.5 $186.7 $185.1
Capitalized Operating Leases* 68.5 206.8 215.5 237.1 254.5
---- ----- ----- ----- -----
Total "Indebtedness" 360.5 331.8 410.0 423.8 439.6
Total Stockholders'Equity 829.0 846.1 783.0 794.9 880.2
------ ----- ----- ----- -----
Total Capitalization $1,189.5 $1,177.9 $1,193.0 $1,218.7 $1,319.8
Memo: Average of Beginning $1,166.2 $1,183.7 $1,185.5 $1,205.9 $1,269.3
And End of Fiscal Year
Total Indebtedness to Total Capitalization 30.3% 28.2% 34.4% 34.8% 33.3%
*8 times last 12 months' rent expense, excluding shorter-term billboard rent
(as disclosed in the Company's financial statements) to approximate the
capitalized value of long-term operating lease obligations.
EBITDA
- ------
The Company uses EBITDA (Earnings Before Interest, Taxes, Depreciation and
Amortization) as a measure of operating performance exclusive of the impact of
capital structure, the relative age of asset base and how those assets were
acquired, and the effect of depreciation accounting methods. The Company
believes EBITDA, in conjunction with other GAAP and non-GAAP measures, is a
meaningful measure for evaluating and comparing the results of operations over
time after removing the factors noted above.
Reconciliation of EBITDA to Operating Income, the comparable GAAP measures are
shown below.
($ millions)
FY 00 FY 01 FY 02 FY 03 FY 04
----- ----- ----- ----- -----
Operating Income $119.0 $96.7 $149.3 $174.1 $185.1
Write-off of Goodwill 10.4
Depreciation and Amortization 65.2 64.9 62.8 64.4 63.9
---- ---- ---- ---- ----
EBITDA $184.2 $172.0 $212.1 $238.5 $249.0
Pro Forma(a) Pro Forma(b) Pro Forma(c)
FY 00 FY 01 FY 04
----- ----- -----
Pro Forma Operating Income $127.6 $129.8 $190.3
Depreciation and Amortization 65.2 64.9 63.9
---- ---- ----
Pro Forma EBITDA $192.8 $194.7 $254.2
(a) Operating income excludes $8.6 million (before tax) effect of charges
described above
(b) Operating income excludes $33.1 million (before tax) effect of charges
described above
(c) Operating income excludes $5.2 million (before tax) effect of charge
described above
34
Store-Level Operating Cash Flow
- -------------------------------
Store-level operating cash flow is a measure that the Company uses internally as
a measure of direct operating performance at the store level, exclusive of the
impact of the relative age of asset base and how those assets were acquired
(e.g., leased vs. owned), the effect of depreciation accounting methods, and the
effect of indirect or allocated expenses (e.g., the cost of multi-unit store
supervision). Because the Company does not report individual store performance
with an allocation of indirect costs there is not a comparable GAAP measure
other than the consolidated results of operation, in which these indirect costs,
location rent as opposed to billboard rent, and depreciation are additional
deductions from sales used in calculating store operating income, a consolidated
GAAP measure. Also, store operating income as reported in the consolidated
financial statements includes franchise revenues which also are not allocated in
the calculation of store level operating cash flow.
Free Cash Flow
- --------------
Free cash flow is a GAAP-derived measure that the Company uses internally to
evaluate its cash-generating performance. Derivation of the measure is described
on the related slides. It reflects cash provided by operating activities less
outlays for purchase of property and equipment and dividend payments. Free cash
flow is a measure of net cash available for other purposes such as share
repurchases.
After-Tax Operating Income
- --------------------------
($ millions)
FY 00 FY 01 FY 02 FY 03 FY 04
----- ----- ----- ----- -----
Operating Income $119.0 $96.7 $149.3 $174.1 $185.1
Less taxes at effective tax rate 44.9 36.1 53.2 61.8 66.4
---- ---- ---- ---- ----
After-Tax Operating Income $74.1 $60.6 $96.1 $112.3 $118.7
Pro Forma(a) Pro Forma(b) Pro Forma(c)
FY 00 FY 01 FY 04
----- ----- -----
Pro Forma Operating Income $127.6 $129.8 $190.3
Less taxes at effective tax rate 48.1 48.4 68.3
---- ---- ----
Pro Forma After-Tax Operating Income $79.5 $81.4 $122.0
(a) Operating income excludes $8.6 million (before tax) effect of charges
described above
(b) Operating income excludes $33.1 million (before tax) effect of charges
described above
(c) Operating income excludes $5.2 million (before tax) effect of charge
described above
35