Cracker Barrel Old Country Store’s latest earnings report contained a notable contradiction.
The 660-unit family-dining chain predicted on Thursday that tariffs will take a $5 million bite out of its earnings for the quarter, in part because many of the products sold in its retail shops come from China.
And yet in the same breath, Cracker Barrel also raised its profit guidance for the full fiscal year. It’s now expecting earnings before interest, taxes, depreciation and amortization (EBITDA) of $215 million to $225 million, up from $210 million to $220 million.
How do you explain that?
Cracker Barrel had been working to expand its bottom line long before the tariffs hit. It has simplified its operations to boost productivity and has changed its pricing strategy to encourage trade up. The moves are part of a sweeping $700 million transformation plan launched last year that is starting to pay off just in time.
“We are bringing to life now a lot of the things that we've been testing and learning and investing in,” CFO Craig Pommells said during an earnings call Thursday. “And so, you're starting to see the benefit of the broader strategic work come to life, in particular as it relates to labor.”
During the quarter, the chain expanded the first phase of a kitchen optimization plan to all of its restaurants. The plan is designed to simplify old processes. For instance, cooks now prep food closer to when it’s ordered, rather than in big batches early in the morning.
“It’s made their jobs easier,” CEO Julie Masino said in an interview Thursday. “You’re not making these massive batches of food, and it’s improved quality, because the food is fresher.”
And employees are happier. Hourly turnover in the period improved by 14 percentage points, she said, and sentiment scores rose 2.3%.
In another move aimed at boosting profits, the chain has put more premium-priced items on the menu, such as shrimp entrees and a pot roast. That strategy has been effective: Menu mix was up 1.7% in the quarter, meaning customers ordered more expensive items.
As for those tariffs, they will be felt most acutely by Cracker Barrel’s retail shops, where it sells clothing, candy and knick-knacks. About a third of those products come from China, and others come from vendors that use Chinese materials.
The chain is negotiating with vendors and looking at alternative sources for its products, while also being “thoughtful” about pricing. But even before the tariffs hit, the chain had been working to update the selection in its shops. Same-store retail sales fell 3.8% in the quarter.
On the restaurant side, the Lebanon, Tennessee-based chain overcame bad weather and consumer uncertainty in February to post its fourth consecutive quarter of positive same-store sales. They were up 1% for the three-month period ended May 2.
The growth came on prices that were 5% higher, implying lower traffic than a year ago. But executives said traffic improved after the February slump and has continued its momentum into the current quarter.
That’s thanks in part to the return of the chain’s popular Campfire Meals. The roasted, foil-wrapped meals were last offered in 2018 and were a highly requested item from customers. Cracker Barrel has invested in advertising behind those meals and they are driving traffic.
“It’s so unique, and it’s so delicious, and it’s also experiential in a really fun way,” Masino said. “There’s a little bit of a Christmas unboxing element to it. You open this packet and you’re greeted with this amazing aroma and steam.”
The chain’s loyalty program, Cracker Barrel Rewards, has also proven to be a traffic driver. The program recently surpassed 8 million members and is generating incremental sales and traffic. The chain is now looking to push it further with AI-powered personalization that can send tailored marketing messages to individual customers. So far, that has produced a mid-single-digit increase in average revenue per member versus a control group.
Given those promising signs, Masino described the mixed results of the last quarter as but a “speed bump” in the chain’s three-year revival plan.
“We’re real proud of the quarter,” she said. “The transformation is working. It’s not always going to be a straight line. … But the trajectory and the trends are going in the right direction, and that’s what we’re real excited about.”
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