UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10‑Q

(Mark One)
 
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarterly Period Ended May 3, 2019

OR


Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from___________ to ___________

Commission file number: 001‑25225



Cracker Barrel Old Country Store, Inc.
(Exact name of registrant as specified in its charter)

Tennessee
(State or other jurisdiction of incorporation or organization)
 
62‑0812904
(I.R.S. Employer Identification Number)
     
305 Hartmann Drive
Lebanon, Tennessee
(Address of principal executive offices)
 
37087-4779
(Zip code)

Registrant's telephone number, including area code: (615) 444-5533

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock (Par Value $0.01)
Rights to Purchase Series A Junior Participating
Preferred Stock (Par Value $0.01)
CBRL
The Nasdaq Stock Market LLC
(Nasdaq Global Select Market)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Yes ☑    No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☑    No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ☑
Accelerated filer  ☐
Non-accelerated filer  ☐
Smaller reporting company  ☐
Emerging growth company  ☐
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐    No ☑

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

24,044,402 Shares of Common Stock
Outstanding as of May 28, 2019



CRACKER BARREL OLD COUNTRY STORE, INC.

INDEX

PART I. FINANCIAL INFORMATION
Page
     
 
ITEM 1. Condensed Consolidated Financial Statements (Unaudited)
 
     
  3
 
 
 
  4
 
 
 
  5
 
 
 
  6
 
 
 
  7
 
 
 
  8
     
  17
     
  27
     
  28
     
PART II. OTHER INFORMATION
 
     
  28
     
  28
     
29

2

PART I – FINANCIAL INFORMATION
ITEM 1.
Financial Statements

CRACKER BARREL OLD COUNTRY STORE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)

ASSETS
 
May 3,
2019
   
August 3,
2018*
 
Current Assets:
           
Cash and cash equivalents
 
$
167,585
   
$
114,656
 
Accounts receivable
   
22,190
     
19,496
 
Inventories
   
152,582
     
156,253
 
Prepaid expenses and other current assets
   
18,811
     
16,347
 
Total current assets
   
361,168
     
306,752
 
Property and equipment
   
2,291,149
     
2,212,601
 
Less: Accumulated depreciation and amortization of capital leases
   
1,124,724
     
1,063,466
 
Property and equipment – net
   
1,166,425
     
1,149,135
 
Other assets
   
67,477
     
71,468
 
Total assets
 
$
1,595,070
   
$
1,527,355
 
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
Current Liabilities:
               
Accounts payable
 
$
115,317
   
$
122,332
 
Other current liabilities
   
248,439
     
242,287
 
Total current liabilities
   
363,756
     
364,619
 
 
               
Long-term debt
   
400,000
     
400,000
 
Long-term interest rate swap liability
   
1,684
     
--
 
Other long-term obligations
   
131,130
     
128,794
 
Deferred income taxes
   
50,477
     
52,161
 
 
               
Commitments and Contingencies (Note 12)
               
                 
Shareholders’ Equity:
               
Preferred stock – 100,000,000 shares of $.01 par value authorized; 300,000 shares designated as Series A Junior Participating Preferred Stock; no shares issued
   
--
     
--
 
Common stock – 400,000,000 shares of $.01 par value authorized; 24,044,402 shares issued and outstanding at May 3, 2019, and 24,011,550 shares issued and outstanding at August 3, 2018
   
241
     
240
 
Additional paid-in capital
   
47,500
     
44,049
 
Accumulated other comprehensive income (loss)
   
(281
)
   
4,685
 
Retained earnings
   
600,563
     
532,807
 
Total shareholders’ equity
   
648,023
     
581,781
 
Total liabilities and shareholders’ equity
 
$
1,595,070
   
$
1,527,355
 

See Notes to unaudited Condensed Consolidated Financial Statements.

* This Condensed Consolidated Balance Sheet has been derived from the audited Consolidated Balance Sheet as of August 3, 2018, as filed with the Securities and Exchange Commission in the Company’s Annual Report on Form 10-K for the fiscal year ended August 3, 2018.

3

CRACKER BARREL OLD COUNTRY STORE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share data)
(Unaudited)

   
Quarter Ended
   
Nine Months Ended
 
   
May 3,
2019
   
April 27,
2018
   
May 3,
2019
   
April 27,
2018
 
                         
Total revenue
 
$
739,603
   
$
721,413
   
$
2,284,853
   
$
2,219,552
 
                                 
Cost of goods sold (exclusive of depreciation and rent)
   
217,073
     
217,719
     
704,545
     
689,420
 
Labor and other related expenses
   
267,641
     
257,360
     
802,574
     
769,154
 
Other store operating expenses
   
152,679
     
147,616
     
461,976
     
441,843
 
Store operating income
   
102,210
     
98,718
     
315,758
     
319,135
 
General and administrative expenses
   
37,125
     
35,409
     
112,284
     
108,314
 
Operating income
   
65,085
     
63,309
     
203,474
     
210,821
 
Interest expense
   
4,111
     
3,594
     
12,637
     
10,892
 
Income before income taxes
   
60,974
     
59,715
     
190,837
     
199,929
 
Provision for income taxes
   
10,560
     
10,968
     
32,461
     
13,663
 
Net income
 
$
50,414
   
$
48,747
   
$
158,376
   
$
186,266
 
                                 
Net income per share:
                               
Basic
 
$
2.10
   
$
2.03
   
$
6.59
   
$
7.76
 
Diluted
 
$
2.09
   
$
2.03
   
$
6.57
   
$
7.74
 
                                 
Weighted average shares:
                               
Basic
   
24,041,673
     
24,003,611
     
24,034,878
     
24,013,435
 
Diluted
   
24,104,432
     
24,065,783
     
24,090,626
     
24,075,834
 
                                 
Dividends declared per share
 
$
1.25
   
$
1.20
   
$
3.75
   
$
3.60
 
                                 
Dividends paid per share
 
$
1.25
   
$
1.20
   
$
3.75
   
$
3.60
 

See Notes to unaudited Condensed Consolidated Financial Statements.

4

CRACKER BARREL OLD COUNTRY STORE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited and in thousands)

   
Quarter Ended
   
Nine Months Ended
 
   
May 3,
2019
   
April 27,
2018
   
May 3,
2019
   
April 27,
2018
 
                         
Net income
 
$
50,414
   
$
48,747
   
$
158,376
   
$
186,266
 
                                 
Other comprehensive (loss) income before income tax (benefit) expense:
                               
Change in fair value of interest rate swaps
   
(2,957
)
   
4,330
     
(6,629
)
   
12,779
 
Income tax (benefit) expense
   
(737
)
   
1,076
     
(1,663
)
   
4,099
 
Other comprehensive (loss) income, net of tax
   
(2,220
)
   
3,254
     
(4,966
)
   
8,680
 
Comprehensive income
 
$
48,194
   
$
52,001
   
$
153,410
   
$
194,946
 

See Notes to unaudited Condensed Consolidated Financial Statements.

5

CRACKER BARREL OLD COUNTRY STORE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited and in thousands except share data)

   
Common Stock
   
Additional
Paid-In
   
Accumulated
Other
Comprehensive
   
Retained
   
Total
Shareholders’
 
   
Shares
   
Amount
   
Capital
   
Income (Loss)
   
Earnings
   
Equity
 
Balances at January 26, 2018
   
24,003,611
   
$
240
   
$
41,849
   
$
1,197
   
$
572,339
   
$
615,625
 
Comprehensive Income:
                                               
Net income
   
--
     
--
     
--
     
--
     
48,747
     
48,747
 
Other comprehensive income (loss), net of tax
   
--
     
--
     
--
     
3,254
     
--
     
3,254
 
Total comprehensive income (loss)
   
--
     
--
     
--
     
3,254
     
48,747
     
52,001
 
Cash dividends declared - $1.20 per share
   
--
     
--
     
--
     
--
     
(28,987
)
   
(28,987
)
Share-based compensation
   
--
     
--
     
1,742
     
--
     
--
     
1,742
 
Issuance of share-based  compensation awards, net of shares withheld for employee  taxes
   
--
     
--
     
--
     
--
     
--
     
--
 
Purchases and retirement of common stock
   
--
     
--
     
--
     
--
     
--
     
--
 
Balances at April 27, 2018
   
24,003,611
   
$
240
   
$
43,591
   
$
4,451
   
$
592,099
   
$
640,381
 

   
Common Stock
   
Additional
Paid-In
   
Accumulated
Other
Comprehensive
   
Retained
   
Total
Shareholders’
 
   
Shares
   
Amount
   
Capital
   
Income (Loss)
   
Earnings
   
Equity
 
Balances at July 28, 2017
   
24,055,682
   
$
241
   
$
55,659
   
$
(4,229
)
 
$
492,836
   
$
544,507
 
Comprehensive Income:
                                               
Net income
   
--
     
--
     
--
     
--
     
186,266
     
186,266
 
Other comprehensive income (loss), net of tax
   
--
     
--
     
--
     
8,680
     
--
     
8,680
 
Total comprehensive income (loss)
   
--
     
--
     
--
     
8,680
     
186,266
     
194,946
 
Cash dividends declared - $3.60 per share
   
--
     
--
     
--
     
--
     
(87,003
)
   
(87,003
)
Share-based compensation
   
--
     
--
     
6,063
     
--
     
--
     
6,063
 
Issuance of share-based  compensation awards, net of shares withheld for employee  taxes
   
47,929
     
--
     
(3,360
)
   
--
     
--
     
(3,360
)
Purchases and retirement of common stock
   
(100,000
)
   
(1
)
   
(14,771
)
   
--
     
--
     
(14,772
)
Balances at April 27, 2018
   
24,003,611
   
$
240
   
$
43,591
   
$
4,451
   
$
592,099
   
$
640,381
 

   
Common Stock
   
Additional
Paid-In
   
Accumulated
Other
Comprehensive
   
Retained
   
Total
Shareholders’
 
   
Shares
   
Amount
   
Capital
   
Income (Loss)
   
Earnings
   
Equity
 
Balances at February 1, 2019
   
24,041,374
   
$
240
   
$
46,125
   
$
1,939
   
$
580,314
   
$
628,618
 
Comprehensive Income:
                                               
Net income
   
--
     
--
     
--
     
--
     
50,414
     
50,414
 
Other comprehensive income (loss), net of tax
   
--
     
--
     
--
     
(2,220
)
   
--
     
(2,220
)
Total comprehensive income (loss)
   
--
     
--
     
--
     
(2,220
)
   
50,414
     
48,194
 
Cash dividends declared - $1.25 per share
   
--
     
--
     
--
     
--
     
(30,165
)
   
(30,165
)
Share-based compensation
   
--
     
--
     
1,539
     
--
     
--
     
1,539
 
Issuance of share-based  compensation awards, net of shares withheld for employee  taxes
   
3,028
     
1
     
(164
)
   
--
     
--
     
(163
)
Purchases and retirement of common stock
   
--
     
--
     
--
     
--
     
--
     
--
 
Balances at May 3, 2019
   
24,044,402
   
$
241
   
$
47,500
   
$
(281
)
 
$
600,563
   
$
648,023
 

   
Common Stock
   
Additional
Paid-In
   
Accumulated
Other
Comprehensive
   
Retained
   
Total
Shareholders’
 
   
Shares
   
Amount
   
Capital
   
Income (Loss)
   
Earnings
   
Equity
 
Balances at August 3, 2018
   
24,011,550
   
$
240
   
$
44,049
   
$
4,685
   
$
532,807
   
$
581,781
 
Comprehensive Income:
                                               
Net income
   
--
     
--
     
--
     
--
     
158,376
     
158,376
 
Other comprehensive income (loss), net of tax
   
--
     
--
     
--
     
(4,966
)
   
--
     
(4,966
)
Total comprehensive income (loss)
   
--
     
--
     
--
     
(4,966
)
   
158,376
     
153,410
 
Cash dividends declared - $3.75 per share
   
--
     
--
     
--
     
--
     
(90,620
)
   
(90,620
)
Share-based compensation
   
--
     
--
     
5,672
     
--
     
--
     
5,672
 
Issuance of share-based  compensation awards, net of shares withheld for employee  taxes
   
32,852
     
1
     
(2,221
)
   
--
     
--
     
(2,220
)
Purchases and retirement of common stock
   
--
     
--
     
--
     
--
     
--
     
--
 
Balances at May 3, 2019
   
24,044,402
   
$
241
   
$
47,500
   
$
(281
)
 
$
600,563
   
$
648,023
 

See Notes to unaudited Condensed Consolidated Financial Statements.

6

CRACKER BARREL OLD COUNTRY STORE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and in thousands)

   
Nine Months Ended
 
   
May 3,
2019
   
April 27,
2018
 
Cash flows from operating activities:
           
Net income
 
$
158,376
   
$
186,266
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
   
78,499
     
68,297
 
Loss on disposition of property and equipment
   
7,522
     
4,757
 
Share-based compensation
   
5,672
     
6,063
 
Changes in assets and liabilities:
               
Inventories
   
3,671
     
(624
)
Other current assets
   
(5,158
)
   
(562
)
Accounts payable
   
(7,015
)
   
(13,693
)
Other current liabilities
   
6,822
     
(9,269
)
Other long-term assets and liabilities
   
4,197
     
(20,260
)
Net cash provided by operating activities
   
252,586
     
220,975
 
Cash flows from investing activities:
               
Purchase of property and equipment
   
(103,862
)
   
(101,985
)
Proceeds from insurance recoveries of property and equipment
   
603
     
300
 
Proceeds from sale of property and equipment
   
134
     
393
 
Net cash used in investing activities
   
(103,125
)
   
(101,292
)
Cash flows from financing activities:
               
Proceeds from issuance of long-term debt
   
400,000
     
--
 
(Taxes withheld) and proceeds from issuance of share-based compensation awards, net
   
(2,220
)
   
(3,360
)
Principal payments under long-term debt
   
(400,000
)
   
--
 
Purchases and retirement of common stock
   
--
     
(14,772
)
Deferred financing costs
   
(3,022
)
   
--
 
Dividends on common stock
   
(91,290
)
   
(88,258
)
Net cash used in financing activities
   
(96,532
)
   
(106,390
)
                 
Net increase in cash and cash equivalents
   
52,929
     
13,293
 
Cash and cash equivalents, beginning of period
   
114,656
     
161,001
 
Cash and cash equivalents, end of period
 
$
167,585
   
$
174,294
 
                 
Supplemental disclosures of cash flow information:
               
Cash paid during the period for:
               
Interest, net of amounts capitalized
 
$
11,881
   
$
10,213
 
Income taxes
 
$
31,129
   
$
32,940
 
                 
Supplemental schedule of non-cash investing and financing activities:
               
Capital expenditures accrued in accounts payable
 
$
4,980
   
$
6,291
 
Change in fair value of interest rate swaps
 
$
(6,629
)
 
$
12,779
 
Change in deferred tax asset for interest rate swaps
 
$
1,663
   
$
(4,099
)
Dividends declared but not yet paid
 
$
31,106
   
$
30,035
 

See Notes to unaudited Condensed Consolidated Financial Statements.

7

CRACKER BARREL OLD COUNTRY STORE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except percentages, share and per share data)
(Unaudited)

1.
Condensed Consolidated Financial Statements

Cracker Barrel Old Country Store, Inc. and its affiliates (collectively, in these Notes to Condensed Consolidated Financial Statements, the “Company”) are principally engaged in the operation and development in the United States of the Cracker Barrel Old Country Store® (“Cracker Barrel”) concept.

The accompanying condensed consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) without audit.  In the opinion of management, all adjustments (consisting of normal and recurring items) necessary for a fair presentation of such condensed consolidated financial statements have been made.  The results of operations for any interim period are not necessarily indicative of results for a full year.

These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the year ended August 3, 2018 (the “2018 Form 10-K”).  The accounting policies used in preparing these condensed consolidated financial statements are the same as described in the 2018 Form 10-K except for the expanded accounting policy disclosure for revenue recognition discussed in Note 8.  References to a year in these Notes to Condensed Consolidated Financial Statements are to the Company’s fiscal year unless otherwise noted.

Recent Accounting Pronouncements Adopted

Revenue Recognition

In May 2014, the Financial Accounting Standards Board (“FASB”) issued accounting guidance which clarifies the principles for recognizing revenue and provides a comprehensive model for revenue recognition.  Revenue recognition should depict the transfer of goods or services to a customer at an amount that reflects the consideration a company expects to receive in exchange for those goods or services.  The guidance also requires additional disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts.  The Company adopted this accounting guidance using the modified retrospective transition method.  The adoption of this accounting guidance in the first quarter of 2019 did not have a material effect on the Company’s consolidated financial position or results of operations, and the Company did not record a cumulative catch-up adjustment to the opening balance of retained earnings.  See Note 8 for further discussion on revenue recognition accounting policies and related disclosures.

Recognition of Breakage for Certain Prepaid Stored-Value Products

In March 2016, in order to address diversity in practice related to the derecognition of a prepaid stored-value product liability, the FASB issued accounting guidance requiring breakage for prepaid stored-value product liabilities to be accounted for consistent with the breakage guidance in the revenue recognition standard (see “Revenue Recognition” above).  The Company adopted this accounting guidance using the modified retrospective transition method.  The adoption of this accounting guidance in the first quarter of 2019 did not have a significant impact on the Company’s consolidated financial position or results of operations, and the Company did not record a cumulative catch-up adjustment to the opening balance of retained earnings.

8

Modification of Share-Based Payment Awards

In May 2017, the FASB issued accounting guidance to provide clarity, reduce the diversity in practice and to simplify the accounting guidance related to a change to the terms or conditions of a share-based payment award. This new standard provides guidance for evaluating which changes to the terms or conditions of a share-based payment award are substantive and require modification accounting to be applied.  The adoption of this accounting guidance in the first quarter of 2019 did not have a significant impact on the Company’s consolidated financial position or results of operations.

Recent Accounting Pronouncements Not Yet Adopted

Leases

In February 2016, the FASB issued accounting guidance which requires the recognition of lease assets and lease liabilities on the balance sheet and disclosure of key information about leasing arrangements.  The accounting guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years on a modified retrospective basis.  Early adoption is permitted.  The Company plans to apply the transition requirements at the effective date rather than at the beginning of the earliest comparative period presented.  This election allows for a cumulative effective adjustment to the opening balance of retained earnings in the period of adoption, and prior periods will not be restated.   The Company also plans to elect the transition package of practical expedients permitted under this guidance, which among other things, allows the carryforward of historical lease classifications.  The Company is still evaluating other practical expedients and policy elections.  The Company is implementing software to assist in the quantification of the impact on the Company’s consolidated financial position and results of operations related to the adoption of this accounting guidance in the first quarter of 2020.  The Company is also evaluating additional changes to its processes and internal controls to ensure compliance with the reporting and disclosure requirements of the accounting guidance.  The Company expects that the adoption of this accounting guidance will result in a material increase in lease-related assets and liabilities on the Company’s consolidated balance sheet.  The Company currently does not expect that the adoption of this accounting guidance will have a material impact on the Company’s consolidated statements of income and cash flows.

Accounting for Hedging Activities

In August 2017, the FASB issued accounting guidance which amends the recognition, presentation and disclosure requirements of hedge accounting in order to better portray the economics of entities’ risk management activities, increase transparency and understandability of hedging relationships and simplify the application of hedge accounting.  This accounting guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early application is permitted.  The recognition requirements for cash flow and net investment hedges existing at the date of adoption will be applied using a cumulative-effect adjustment to retained earnings.  The amended presentation and disclosure requirements will be applied on a prospective basis.  The Company currently does not expect that the adoption of this accounting guidance in the first quarter of 2020 will have a significant impact on the Company’s consolidated financial position or results of operations.

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

On December 22, 2017, the U.S. government enacted P.L. 115-97, the Tax Cuts and Jobs Act (the “Tax Act”).  In February 2018, the FASB issued accounting guidance which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Act.  This accounting guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. If elected, this accounting guidance should be applied either in the period of adoption or retrospectively to each period in which the change in the U.S. federal corporate rate in the Tax Act is recognized.  Early application is permitted.  The Company currently does not expect to elect this reclassification option upon adoption of the accounting guidance in the first quarter of 2020.

9

Share-Based Payment Arrangements With Nonemployees

In June 2018, the FASB issued accounting guidance in order to simplify accounting for share-based payments granted to nonemployees for goods and services.  This new guidance aligns most of the accounting requirements for share-based payments granted to nonemployees with the existing guidance for share-based payments granted to employees.  This accounting guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, using a modified retrospective transition approach.   Early adoption is permitted.  The Company does not expect that the adoption of this accounting guidance in the first quarter of 2020 will have a significant impact on the Company’s consolidated financial position or results of operations.

2.
Fair Value Measurements

The Company’s assets and liabilities measured at fair value on a recurring basis at May 3, 2019 were as follows:

   
Level 1
   
Level 2
   
Level 3
   
Total Fair
Value
 
Cash equivalents*
 
$
100,446
   
$
--
   
$
--
   
$
100,446
 
Interest rate swap asset (see Note 5)
   
--
     
38
     
--
     
38
 
Total
 
$
100,446
   
$
38
   
$
--
   
$
100,484
 
Deferred compensation plan assets**
                           
32,218
 
Total assets at fair value
                         
$
132,702
 

Interest rate swap liability (see Note 5)
 
$
--
   
$
1,684
   
$
--
   
$
1,684
 
Total liabilities at fair value
 
$
--
   
$
1,684
   
$
--
   
$
1,684
 

The Company’s assets and liabilities measured at fair value on a recurring basis at August 3, 2018 were as follows:

   
Level 1
   
Level 2
   
Level 3
   
Total Fair
Value
 
Cash equivalents*
 
$
38,446
   
$
--
   
$
--
   
$
38,446
 
Interest rate swap asset (see Note 5)
   
--
     
6,255
     
--
     
6,255
 
Total
 
$
38,446
   
$
6,255
   
$
--
   
$
44,701
 
Deferred compensation plan assets**
                           
32,669
 
Total assets at fair value
                         
$
77,370
 

Interest rate swap liability (see Note 5)
 
$
--
   
$
--
   
$
--
   
$
--
 
Total liabilities at fair value
 
$
--
   
$
--
   
$
--
   
$
--
 

*Consists of money market fund investments.
**Represents plan assets invested in mutual funds established under a rabbi trust for the Company’s non-qualified savings plan and is included in the Condensed Consolidated Balance Sheets as other assets.

The Company’s money market fund investments are measured at fair value using quoted market prices.  The fair values of the Company’s interest rate swap assets and liabilities are determined based on the present value of expected future cash flows.  Since the values of the Company’s interest rate swaps are based on the LIBOR forward curve, which is observable at commonly quoted intervals for the full terms of the swaps, it is considered a Level 2 input.  Non-performance risk is reflected in determining the fair value of the interest rate swaps by using the Company’s credit spread less the risk-free interest rate, both of which are observable at commonly quoted intervals for the terms of the swaps.  Thus, the adjustment for non-performance risk is also considered a Level 2 input.  The Company’s deferred compensation plan assets are measured based on net asset value per share as a practical expedient to estimate fair value.

The fair values of the Company’s accounts receivable and accounts payable approximate their carrying amounts because of their short duration.  The fair value of the Company’s variable rate debt, based on quoted market prices, which are considered Level 1 inputs, approximates its carrying amount at May 3, 2019 and August 3, 2018.

10

3.
Inventories

Inventories were comprised of the following at:

   
May 3, 2019
   
August 3, 2018
 
Retail
 
$
112,390
   
$
117,606
 
Restaurant
   
21,701
     
20,659
 
Supplies
   
18,491
     
17,988
 
Total
 
$
152,582
   
$
156,253
 

4.
Debt

On September 5, 2018, the Company entered into a five-year $950,000 revolving credit facility (“2019 Revolving Credit Facility”).   The 2019 Revolving Credit Facility also contains an option to increase the revolving credit facility by $300,000.  The 2019 Revolving Credit Facility replaced the Company’s $750,000 revolving credit facility (“Prior Credit Facility”).  Loan acquisition costs associated with the 2019 Revolving Credit Facility were capitalized in the amount of $3,022 and will be amortized over the five-year term of the 2019 Revolving Credit Facility.  Loan acquisition costs of $166 associated with the Prior Credit Facility were written off in the first quarter of 2019 and are recorded in interest expense in the Condensed Consolidated Statement of Income.

At both May 3, 2019 and August 3, 2018, the Company had $400,000 of outstanding borrowings under its credit facility.  At May 3, 2019, the Company had $8,955 of standby letters of credit, which reduce the Company’s borrowing availability under the 2019 Revolving Credit Facility (see Note 12 for more information on the Company’s standby letters of credit).  At May 3, 2019, the Company had $541,045 in borrowing availability under the 2019 Revolving Credit Facility.

In accordance with the 2019 Revolving Credit Facility, outstanding borrowings bear interest, at the Company’s election, either at LIBOR or prime plus a percentage point spread based on certain specified financial ratios under the 2019 Revolving Credit Facility.  At May 3, 2019, $350,000 of the Company’s outstanding borrowings were swapped at a weighted average interest rate of 3.74% (see Note 5 for information on the Company’s interest rate swaps).  At May 3, 2019, the weighted average interest rate on the remaining $50,000 of the Company’s outstanding borrowings was 3.83%.

The 2019 Revolving Credit Facility contains customary financial covenants, which include maintenance of a maximum consolidated total leverage ratio and a minimum consolidated interest coverage ratio.  At May 3, 2019, the Company was in compliance with all financial covenants.

The 2019 Revolving Credit Facility also imposes restrictions on the amount of dividends the Company is permitted to pay and the amount of shares the Company is permitted to repurchase.  Under the 2019 Revolving Credit Facility, provided there is no default existing and the total of the Company’s availability under the 2019 Revolving Credit Facility plus the Company’s cash and cash equivalents on hand is at least $100,000 (the “cash availability”), the Company may declare and pay cash dividends on shares of its common stock and repurchase shares of its common stock (1) in an unlimited amount if, at the time such dividend or repurchase is made, the Company’s consolidated total leverage ratio is 3.00 to 1.00 or less and (2) in an aggregate amount not to exceed $100,000 in any fiscal year if the Company’s consolidated total leverage ratio is greater than 3.00 to 1.00 at the time the dividend or repurchase is made; notwithstanding (1) and (2), so long as immediately after giving effect to the payment of any such dividends, cash availability is at least $100,000, the Company may declare and pay cash dividends on shares of its common stock in an aggregate amount not to exceed in any fiscal year the product of the aggregate amount of dividends declared in the fourth quarter of the immediately preceding fiscal year multiplied by four.

5.
Derivative Instruments and Hedging Activities

The Company has interest rate risk relative to its outstanding borrowings (see Note 4 for information on the Company’s outstanding borrowings).  The Company’s policy has been to manage interest cost using a mix of fixed and variable rate debt.  To manage this risk in a cost-efficient manner, the Company uses derivative instruments, specifically interest rate swaps.
11

For each of the Company’s interest rate swaps, the Company has agreed to exchange with a counterparty the difference between fixed and variable interest amounts calculated by reference to an agreed-upon notional principal amount.  The interest rates on the portion of the Company’s outstanding debt covered by its interest rate swaps are fixed at the rates in the table below plus the Company’s credit spread.  The Company’s credit spread at May 3, 2019 was 1.25%.  All of the Company’s interest rate swaps are accounted for as cash flow hedges.

A summary of the Company’s interest rate swaps at May 3, 2019 is as follows:

 
Trade Date
 
Effective Date
 
Term
(in Years)
   
Notional Amount
   
Fixed
Rate
 
January 30, 2015
May 3, 2019
   
2
   
$
60,000
     
2.16
%
January 30, 2015
May 4, 2021
   
3
     
120,000
     
2.41
%
January 30, 2015
May 3, 2019
   
2
     
60,000
     
2.15
%
January 30, 2015
May 4, 2021
   
3
     
80,000
     
2.40
%
January 16, 2019
May 3, 2019
   
3
     
115,000
     
2.63
%
January 16, 2019
May 3, 2019
   
2
     
115,000
     
2.68
%

The Company does not hold or use derivative instruments for trading purposes.  The Company also does not have any derivatives not designated as hedging instruments and has not designated any non-derivatives as hedging instruments.

Companies may elect to offset related assets and liabilities and report the net amount on their financial statements if the right of setoff exists.  Under a master netting agreement, the Company has the legal right to offset the amounts owed to the Company against amounts owed by the Company under a derivative instrument that exists between the Company and a counterparty.  When the Company is engaged in more than one outstanding derivative transaction with the same counterparty and also has a legally enforceable master netting agreement with that counterparty, its credit risk exposure is based on the net exposure under the master netting agreement.  If, on a net basis, the Company owes the counterparty, the Company regards its credit exposure to the counterparty as being zero.

The estimated fair values of the Company’s derivative instruments as of May 3, 2019 and August 3, 2018 were as follows:

(See Note 2)
Balance Sheet Location
 
May 3, 2019
   
August 3, 2018
 
Interest rate swaps
Prepaid expenses and other current assets
 
$
--
   
$
169
 
Interest rate swaps
Other assets
   
38
     
6,086
 
Total assets
 
 
$
38
   
$
6,255
 
                   
Interest rate swaps
Long-term interest rate swap liability
 
$
1,684
   
$
--
 
Total liabilities
 
 
$
1,684
   
$
--
 

The following table summarizes the offsetting of the Company’s derivative assets in the Condensed Consolidated Balance Sheets at May 3, 2019 and August 3, 2018:

   
Gross Asset Amounts
   
Liability Amount Offset
   
Net Asset Amount Presented
in the Balance Sheets
 
 
(See Note 2)
 
May 3,
2019
   
August 3,
2018
   
May 3,
2019
   
August 3,
2018
   
May 3,
2019
   
August 3,
2018
 
Interest rate swaps
 
$
295
   
$
6,255
   
$
(257
)
 
$
--
   
$
38
   
$
6,255
 

The following table summarizes the offsetting of the Company’s derivative liabilities in the Condensed Consolidated Balance Sheets at May 3, 2019 and August 3, 2018:

   
Gross Liability Amounts
   
Asset Amount Offset
   
Net Liability Amount Presented
in the Balance Sheets
 
 
(See Note 2)
 
May 3,
2019
   
August 3,
2018
   
May 3,
2019
   
August 3,
2018
   
May 3,
2019
   
August 3,
2018
 
Interest rate swaps
 
$
1,966
   
$
--
   
$
(282
)
 
$
--
   
$
1,684
   
$
--
 

12

The estimated fair value of the Company’s interest rate swap assets and liabilities incorporate the Company’s non-performance risk (see Note 2).  The adjustment related to the Company’s non-performance risk at May 3, 2019 and August 3, 2018 resulted in reductions of $62 and $213, respectively, in the fair value of the interest rate swap assets and liabilities.  The offset to the interest rate swap assets and liabilities are recorded in accumulated other comprehensive income (loss) (“AOCIL”), net of the deferred tax asset, and will be reclassified into earnings over the term of the underlying debt.  As of May 3, 2019, the estimated pre-tax portion of AOCIL that is expected to be reclassified into earnings over the next twelve months is $530.  Cash flows related to the interest rate swaps are included in interest expense in the Condensed Consolidated Statements of Income and in operating activities in the Condensed Consolidated Statements of Cash Flows.

The following table summarizes the pre-tax effects of the Company’s derivative instruments on AOCIL for the nine months ended May 3, 2019 and the year ended August 3, 2018:

   
Amount of (Loss) Income Recognized in
AOCIL on Derivatives (Effective Portion)
 
   
Nine Months Ended
May 3, 2019
   
Year Ended
August 3, 2018
 
Cash flow hedges:
           
Interest rate swaps
 
$
(6,629
)
 
$
13,103
 

The following table summarizes the pre-tax effects of the Company’s derivative instruments on income for the quarters and nine-month periods ended May 3, 2019 and April 27, 2018:


Location of Loss
(Gain) Reclassified
from AOCIL into
Income (Effective
Portion)
 
Amount of Loss (Gain) Reclassified from AOCIL into Income
(Effective Portion)
 
      
Quarter Ended
   
Nine Months Ended
 
     
May 3,
2019
   
April 27,
2018
   
May 3,
2019
   
April 27,
2018
 
Cash flow hedges:
                         
Interest rate swaps
Interest expense
 
$
(99
)
 
$
865
   
$
43
   
$
2,852
 

Any portion of the fair value of the swaps determined to be ineffective will be recognized currently in earnings.  No ineffectiveness has been recorded in the nine-month periods ended May 3, 2019 and April 27, 2018.

The following table summarizes the changes in AOCIL, net of tax, related to the Company’s interest rate swaps for the nine months ended May 3, 2019 (see Notes 2 and 5):

   
Changes in AOCIL
 
AOCIL balance at August 3, 2018
 
$
4,685
 
Other comprehensive loss before reclassifications
   
(4,934
)
Amounts reclassified from AOCIL
   
(32
)
Other comprehensive loss, net of tax
   
(4,966
)
AOCIL balance at May 3, 2019
 
$
(281
)

The following table summarizes the amounts reclassified out of AOCIL related to the Company’s interest rate swaps for the quarter and nine months ended May 3, 2019:

   
Amount Reclassified from AOCIL
 
Affected Line Item in the
   
Quarter Ended
   
Nine Months Ended
 
Condensed Consolidated
Financial Statements
Gain (loss) on cash flow hedges:
               
Interest rate swaps
 
$
99
   
$
(43
)
Interest expense
Tax benefit (expense)
   
(25
)
   
11
 
Provision for income taxes
   
$
74
   
$
(32
)
Net of tax

13

6.
Seasonality

Historically, the net income of the Company has been lower in the first and third quarters and higher in the second and fourth quarters.  Management attributes these variations to the holiday shopping season and the summer vacation and travel season.  The Company's retail sales, which are made substantially to the Company’s restaurant customers, historically have been highest in the Company's second quarter, which includes the holiday shopping season.  Historically, interstate tourist traffic and the propensity to dine out have been higher during the summer months, thereby contributing to higher profits in the Company’s fourth quarter.  The Company generally opens additional new locations throughout the year.  Therefore, the results of operations for any interim period cannot be considered indicative of the operating results for an entire year.

7.
Segment Information

Cracker Barrel stores represent a single, integrated operation with two related and substantially integrated product lines.  The operating expenses of the restaurant and retail product lines of a Cracker Barrel store are shared and are indistinguishable in many respects.  Accordingly, the Company currently manages its business on the basis of one reportable operating segment.  All of the Company’s operations are located within the United States.

8.
Revenue Recognition

Revenue consists primarily of sales from restaurant and retail operations. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a restaurant guest, retail customer or other customer.  The Company’s policy is to present sales in the Condensed Consolidated Statements of Income on a net presentation basis after deducting sales tax.

Disaggregation of revenue

Total revenue was comprised of the following for the specified periods:

   
Quarter Ended
   
Nine Months Ended
 
   
May 3,
2019
   
April 27,
2018
   
May 3,
2019
   
April 27,
2018
 
Revenue:
                       
Restaurant
 
$
610,120
   
$
592,677
   
$
1,832,273
   
$
1,774,112
 
Retail
   
129,483
     
128,736
     
452,580
     
445,440
 
Total revenue
 
$
739,603
   
$
721,413
   
$
2,284,853
   
$
2,219,552
 

Restaurant Revenue

The Company recognizes revenues from restaurant sales when payment is tendered at the point of sale, as the Company’s performance obligation to provide food and beverages is satisfied.

Retail Revenue

The Company recognizes revenues from retail sales when payment is tendered at the point of sale, as the Company’s performance obligation to provide merchandise is satisfied.  Ecommerce sales, including shipping revenue, are recorded upon delivery to the customer. Additionally, estimated sales returns are calculated based on return history and sales levels.

Gift Card Breakage

Included in restaurant and retail revenue is gift card breakage.  Customer purchases of gift cards, to be utilized at the Company's stores, are not recognized as sales until the card is redeemed and the customer purchases food and/or merchandise.   Gift cards do not carry an expiration date; therefore, customers can redeem their gift cards indefinitely. A certain number of gift cards will not be fully redeemed. Management estimates unredeemed balances and recognizes gift card breakage revenue for these amounts in the Company's Condensed Consolidated Statements of Income over the expected redemption period.  Gift card breakage is recognized when the likelihood of a gift card being redeemed by the customer is remote and the Company determines that there is not a legal obligation to remit the unredeemed gift card balance to the relevant jurisdiction.

14

The determination of the gift card breakage rate is based upon the Company’s specific historical redemption patterns. The Company recognizes gift card breakage by applying its estimate of the rate of gift card breakage over the period of estimated redemption.  For the quarter and nine months ended May 3, 2019, respectively, gift card breakage was $1,699 and $5,355.  For the quarter and nine months ended April 27, 2018, respectively, gift card breakage was $1,894 and $5,647.

Deferred revenue related to the Company’s gift cards was $86,261 and $76,199, respectively, at May 3, 2019 and August 3, 2018.  Revenue recognized in the Condensed Consolidated Statements of Income for the nine months ended May 3, 2019 and April 27, 2018, respectively, for the redemption of gift cards which were included in the deferred revenue balance at the beginning of the fiscal year was $36,815 and $35,102.

9.
Share-Based Compensation

Share-based compensation is recorded in general and administrative expenses in the accompanying Condensed Consolidated Statements of Income.  Total share-based compensation was comprised of the following for the specified periods:

   
Quarter Ended
   
Nine Months Ended
 
   
May 3,
2019
   
April 27,
2018
   
May 3,
2019
   
April 27,
2018
 
Nonvested stock awards
 
$
1,539
   
$
1,495
   
$
5,672
   
$
5,414
 
Performance-based market stock units (“MSU Grants”)
   
--
     
247
     
--
     
649
 
   
$
1,539
   
$
1,742
   
$
5,672
   
$
6,063
 

10.
Income Taxes

On December 22, 2017, the U.S. government enacted the Tax Act. The Tax Act made broad and complex changes to the U.S. tax code, including, but not limited to, reducing the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018.  The Company used a rate of 21% in fiscal 2019 to record federal corporate income taxes, and, in accordance with Section 15 of the Internal Revenue Code, a blended rate of 26.9% for fiscal 2018, by applying a prorated percentage of the number of days prior to and subsequent to the January 1, 2018 effective date of the Tax Act.

The SEC’s Staff Accounting Bulletin No. 118 (“SAB 118”) provides guidance on accounting for tax effects of the Tax Act.  SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting guidance under FASB Accounting Standards Codification Topic 740, Income Taxes (“ASC 740”). In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, the company must record a provisional estimate to be included in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provision of the tax laws that were in effect immediately before the enactment of the Tax Act. Consequently, the Company recorded a provisional tax benefit for the re-measurement of deferred tax liabilities of $27,032 and $2,500 for long-term and short-term deferred tax liabilities, respectively, in the second quarter of 2018.  The Company finalized its calculation of the re-measurement of deferred tax liabilities in the second quarter of 2019; the completion of the Company’s analysis resulted in no impact to Company’s consolidated financial statements.

11.
Net Income Per Share and Weighted Average Shares

Basic consolidated net income per share is computed by dividing consolidated net income available to common shareholders by the weighted average number of shares of common stock outstanding for the reporting period.  Diluted consolidated net income per share reflects the potential dilution that could occur if securities, options or other contracts to issue shares of common stock were exercised or converted into shares of common stock and is based upon the weighted average number of shares of common stock and common equivalent shares outstanding during the reporting period. Common equivalent shares related to nonvested stock awards and units and MSU Grants issued by the Company are calculated using the treasury stock method.  The outstanding nonvested stock awards and units, MSU Grants and stock options issued by the Company represent the only dilutive effects on diluted consolidated net income per share.

15

The following table reconciles the components of diluted earnings per share computations:

   
Quarter Ended
   
Nine Months Ended
 
   
May 3,
2019
   
April 27,
2018
   
May 3,
2019
   
April 27,
2018
 
Net income per share numerator
 
$
50,414
   
$
48,747
   
$
158,376
   
$
186,266
 
                                 
Net income per share denominator:
                               
Weighted average shares
   
24,041,673
     
24,003,611
     
24,034,878
     
24,013,435
 
Add potential dilution:
                               
Stock options, nonvested stock awards and MSU Grants
   
62,759
     
62,172
     
55,748
     
62,399
 
Diluted weighted average shares
   
24,104,432
     
24,065,783
     
24,090,626
     
24,075,834
 

12.
Commitments and Contingencies

The Company and its subsidiaries are party to various legal and regulatory proceedings and claims incidental to their business in the ordinary course.  In the opinion of management, based upon information currently available, the ultimate liability with respect to these contingencies will not materially affect the Company’s financial statements.

Related to its workers’ compensation insurance coverage, the Company is contingently liable pursuant to standby letters of credit as credit guarantees to certain insurers.  As of May 3, 2019, the Company had $8,955 of standby letters of credit related to securing reserved claims under workers’ compensation insurance.  All standby letters of credit are renewable annually and reduce the Company’s borrowing availability under its 2019 Revolving Credit Facility (see Note 4).

At May 3, 2019, the Company is secondarily liable for lease payments associated with two properties occupied by a third party.  The Company is not aware of any non-performance under these lease arrangements that would result in the Company having to perform in accordance with the terms of these guarantees; and therefore, no provision has been recorded in the Condensed Consolidated Balance Sheets for amounts to be paid in case of non-performance by the primary obligor under such lease arrangements.

The Company enters into certain indemnification agreements in favor of third parties in the ordinary course of business.  The Company believes that the probability of incurring an actual liability under such indemnification agreements is sufficiently remote that no such liability has been recorded in the Condensed Consolidated Balance Sheet as of May 3, 2019.

16

ITEM 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations

Cracker Barrel Old Country Store, Inc. and its subsidiaries (collectively, the “Company,” “our” or “we”) are principally engaged in the operation and development in the United States of the Cracker Barrel Old Country Store® (“Cracker Barrel”) concept.  At May 3, 2019, we operated 659 Cracker Barrel stores in 45 states and seven Holler & Dash Biscuit HouseTM locations in five states.  All dollar amounts reported or discussed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) are shown in thousands, except per share amounts and certain statistical information (e.g., number of stores).  References to years in MD&A are to our fiscal year unless otherwise noted.

MD&A provides information which management believes is relevant to an assessment and understanding of our consolidated results of operations and financial condition.  MD&A should be read in conjunction with the (i) condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q and (ii) audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended August 3, 2018 (the “2018 Form 10-K”).  Except for specific historical information, many of the matters discussed in this report may express or imply projections of items such as revenues or expenditures, estimated capital expenditures, compliance with debt covenants, plans and objectives for future operations, inventory shrinkage, growth or initiatives, expected future economic performance or the expected outcome or impact of pending or threatened litigation. These and similar statements regarding events or results which we expect will or may occur in the future are forward-looking statements that, by their nature, involve risks, uncertainties and other factors which may cause our actual results and performance to differ materially from those expressed or implied by such statements.  All forward-looking information is provided pursuant to the safe harbor established under the Private Securities Litigation Reform Act of 1995 and should be evaluated in the context of these risks, uncertainties and other factors. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “trends,” “assumptions,” “target,” “guidance,” “outlook,” “opportunity,” “future,” “plans,” “goals,” “objectives,” “expectations,” “near-term,” “long-term,” “projection,” “may,” “will,” “would,” “could,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “potential,” “should,” “projects,” “forecasts” or “continue”  (or the negative or other derivatives of each of these terms) or similar terminology.  We believe the assumptions underlying any forward-looking statements are reasonable; however, any of the assumptions could be inaccurate, and therefore, actual results may differ materially from those projected in or implied by the forward-looking statements.  In addition to the risks of ordinary business operations, and those discussed or described in this report or in information incorporated by reference into this report, factors and risks that may result in actual results differing from this forward-looking information include, but are not limited to, those contained in Part I, Item 1A of the 2018 Form 10-K, as well as the factors described under “Critical Accounting Estimates” on pages 26-27 of this report or, from time to time, in our filings with the Securities and Exchange Commission (“SEC”), press releases and other communications.

Readers are cautioned not to place undue reliance on forward-looking statements made in this report because the statements speak only as of the report’s date.  Except as may be required by law, we have no obligation or intention to update or revise any of these forward-looking statements to reflect events or circumstances occurring after the date of this report or to reflect the occurrence of unanticipated events.  Readers are advised, however, to consult any future public disclosures that we may make on related subjects in reports that we file with or furnish to the SEC or in our other public disclosures.

17

Overview

Management believes that the Cracker Barrel brand remains one of the strongest and most differentiated brands in the restaurant industry, and we plan to continue to leverage that strength throughout 2019 to grow sales and profits.  Our priorities for 2019 consist of the following:


Enhancing the core business through a heightened focus on the guest experience, food and value, and the continued expansion of our off-premise business;


Expanding the footprint in new and developing markets while replenishing our store opening pipeline.  We anticipate opening eight Cracker Barrel stores during 2019, of which seven opened in the first nine months of 2019; and


Extending the brand by optimizing long-term drivers, such as Holler & Dash Biscuit HouseTM, to further drive shareholder value.

We continued to be focused on the delivery of our 2019 priorities.

Results of Operations

The following table highlights our operating results by percentage relationships to total revenue for the quarter and nine-month period ended May 3, 2019 as compared to the same periods in the prior year:

   
Quarter Ended
   
Nine Months Ended
 
   
May 3,
2019
   
April 27,
2018
   
May 3,
2019
   
April 27,
2018
 
Total revenue
   
100.0
%
   
100.0
%
   
100.0
%
   
100.0
%
Cost of goods sold (exclusive of   depreciation and rent)
   
29.3
     
30.2
     
30.8
     
31.1
 
Labor and other related expenses
   
36.2
     
35.7
     
35.1
     
34.6
 
Other store operating expenses
   
20.7
     
20.4
     
20.3
     
19.9
 
Store operating income
   
13.8
     
13.7
     
13.8
     
14.4
 
General and administrative expenses
   
5.0
     
4.9
     
4.9
     
4.9
 
Operating income
   
8.8
     
8.8
     
8.9
     
9.5
 
Interest expense
   
0.6
     
0.5
     
0.5
     
0.5
 
Income before income taxes
   
8.2
     
8.3
     
8.4
     
9.0
 
Provision for income taxes
   
1.4
     
1.5
     
1.5
     
0.6
 
Net income
   
6.8
%
   
6.8
%
   
6.9
%
   
8.4
%

The following table sets forth the number of stores in operation at the beginning and end of the quarters and nine-month periods ended May 3, 2019 and April 27, 2018:

   
Quarter Ended
   
Nine Months Ended
 
   
May 3,
   
April 27,
   
May 3,
   
April 27,
 
   
2019
   
2018
   
2019
   
2018
 
Open at beginning of the period
   
664
     
654
     
660
     
649
 
Opened during the period
   
2
     
5
     
7
     
10
 
Closed during the period
   
--
     
--
     
(1
)
   
--
 
Open at end of the period
   
666
     
659
     
666
     
659
 

Total Revenue

Total revenue for the third quarter and first nine months of 2019 increased 2.5% and 2.9%, respectively, compared to the same periods in the prior year.

18

The following table highlights the key components of revenue for the quarter and nine-month period ended May 3, 2019 as compared to the quarter and nine-month period ended April 27, 2018:

   
Quarter Ended
   
Nine Months Ended
 
   
May 3,
2019
   
April 27,
2018
   
May 3,
2019
   
April 27,
2018
 
Revenue in dollars:
                       
Restaurant
 
$
610,120
   
$
592,677
   
$
1,832,273
   
$
1,774,112
 
Retail
   
129,483
     
128,736
     
452,580
     
445,440
 
Total revenue
 
$
739,603
   
$
721,413
   
$
2,284,853
   
$
2,219,552
 
Total revenue by percentage relationships:
                               
Restaurant
   
82.5
%
   
82.2
%
   
80.2
%
   
79.9
%
Retail
   
17.5
%
   
17.8
%
   
19.8
%
   
20.1
%
Average unit volumes(1):
                               
Restaurant
 
$
916.3
   
$
902.7
   
$
2,760.2
   
$
2,715.5
 
Retail
   
194.5
     
196.1
     
681.8
     
681.8
 
Total revenue
 
$
1,110.8
   
$
1,098.8
   
$
3,442.0
   
$
3,397.3
 
Comparable store sales increase (decrease):
                               
Restaurant
   
1.3
%
   
1.5
%
   
2.2
%
   
1.0
%
Retail
   
(2.6
%)
   
0.9
%
   
0.0
%
   
(0.6
%)
Restaurant and retail
   
0.6
%
   
1.4
%
   
1.8
%
   
0.6
%

 (1)Average unit volumes include sales of all stores.

For the third quarter of 2019, our comparable store restaurant sales increase resulted from a 3.1% average check increase (including a 1.8% average menu price increase) partially offset by a 1.8% guest traffic decrease as compared to the prior year third quarter. For the third quarter of 2019, our comparable store retail sales decrease resulted primarily from lower performance in the décor, kitchen and dining, bed and bath, and accessories merchandise categories as compared to the prior year third quarter.

For the first nine months of 2019, our comparable store restaurant sales increase resulted from a 3.2% average check increase (including a 2.0% average menu price increase) partially offset by a 1.0% guest traffic decline as compared to the prior year period. For the first nine months of 2019, our comparable store retail sales were flat to the same period in the prior year primarily due to strong performance in the apparel and media merchandise categories being offset by lower performance in décor and food merchandise categories as compared to the prior year period.

Restaurant and retail sales from newly opened stores accounted for the remainder of the total revenue increase in the third quarter and first nine months of 2019 as compared to the same periods in the prior year.

Cost of Goods Sold (Exclusive of Depreciation and Rent)

The following table highlights the components of cost of goods sold (exclusive of depreciation and rent) in dollar amounts and as percentages of revenues for the third quarter and first nine months of 2019 as compared to the same periods in the prior year:

   
Quarter Ended
   
Nine Months Ended
 
   
May 3,
2019
   
April 27,
2018
   
May 3,
2019
   
April 27,
2018
 
Cost of Goods Sold in dollars:
                       
Restaurant
 
$
153,947
   
$
151,953
   
$
468,996
   
$
453,016
 
Retail
   
63,126
     
65,766
     
235,549
     
236,404
 
Total Cost of Goods Sold
 
$
217,073
   
$
217,719
   
$
704,545
   
$
689,420
 
Cost of Goods Sold by percentage of revenue:
                               
Restaurant
   
25.2
%
   
25.6
%
   
25.6
%
   
25.5
%
Retail
   
48.8
%
   
51.1
%
   
52.0
%
   
53.1
%

19

The decrease in restaurant cost of goods sold as a percentage of restaurant revenue in the third quarter of 2019 as compared to the third quarter of 2018 was primarily the result of our menu price increase referenced above.

The increase in restaurant cost of goods sold as a percentage of restaurant revenue in the first nine months of 2019 as compared to the same period in the prior year was primarily the result of commodity inflation and a shift to higher cost menu items partially offset by our menu price increase referenced above and lower food waste.  Commodity inflation was 2.0% in the first nine months of 2019.  Higher cost menu items accounted for an increase of 0.1% as a percentage of restaurant revenue for the first nine months of 2019 as compared to the same period in the prior year.  Lower food waste accounted for a decrease of 0.1% in restaurant cost of goods sold as a percentage of restaurant revenue for the first nine months of 2019 as compared to the same period in the prior year.

We presently expect the rate of commodity inflation to be approximately 2.0% in 2019 as compared to 2018.

The decrease in retail cost of goods sold as a percentage of retail revenue in the third quarter of 2019 as compared to the prior year third quarter resulted from lower inventory shrinkage, lower markdowns and the change in the provision for obsolete inventory.

   
Third Quarter
Decrease as a Percentage
of Retail Revenue
 
Inventory shrinkage
   
(0.9
%)
Markdowns
   
(0.8
%)
Provision for obsolete inventory
   
(0.6
%)

The decrease in retail cost of goods sold as a percentage of retail revenue in the first nine months of 2019 as compared to the same period in the prior year resulted from lower markdowns, the change in the provision for obsolete inventory and lower inventory shrinkage partially offset by lower initial margin.

   
First Nine Months
(Decrease) Increase as a<