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CBRL Group, Inc. (NASDAQ:CBRL)

F2Q08 Earnings Call

February 26, 2008, 11:00 am ET

Executives

Diana Wynne – Senior VP, Corporate Affairs

Michael Woodhouse – Chairman, President and CEO

Doug Couvillion – Senior VP of Finance

Analysts

Bryan Elliott – Raymond James

Steven Rees – J.P. Morgan

Chris O’Cull – Suntrust Robinson Humphrey

Brad Ludington – Keybank Capital Markets

Conrad Lyon – FTN Midwest Securities Corp.

Amy Greene – Avondale Partners LLC

Operator

Good day and welcome to the CBRL Group Second Quarter Conference Call. Today’s call is being recorded and will be available for replay today from 2:00 p.m. Eastern through March 5, 2008, at 11:59 Eastern by dialing 719-457-0820. Again, it’s 719-457-0820 and entering the pass code 9640854. At this time for opening remarks and introductions, I’d like to turn the call over to Ms. Diana Wynne, Senior Vice President of Corporate Affairs. Please go ahead, ma’am.

Diana Wynne

Thank you, Matt. Welcome to our Second Quarter 2008 Conference Call and webcast this morning. Our press release announcing our Fiscal 2008 Second Quarter Results and Updating our Outlook for Fiscal 2008 was released before the market opened this morning. We urge caution to our listeners and readers in considering the information on our expectations, trends and earnings guidance. We remind you that we don’t review or comment on earnings estimates made by other parties. In addition, any guidance that we give speaks only as of the date it is given, and we do not update our own guidance or express continue comfort with it except in broadly disseminated disclosures such as this morning’s press release and this call. The restaurant industry is highly competitive and trends and guidance are subject to numerous factors and influences that can cause future actual results to differ materially from such trends and guidance. Many of these factors are summarized in the cautionary description of risk and uncertainties found at the end of this morning’s press release and are described in detail in our filings that we make with the SEC, and we urge you to read this information carefully. The Company disclaims any obligations to update disclosed information on trends or guidance and should we provide any updates after today, they will be made only by broad dissemination such as press releases or in our filings with the SEC.

On the call this morning with me our CBRL’s Chairman, President and CEO Mike Woodhouse and Cracker Barrel’s Senior Vice President of Finance Doug Couvillion. Mike will begin with a review of the business, Doug will review the financials, and then Mike will return to discuss the outlook.

With that, I will turn the call over to Mike Woodhouse. Mike.

Michael Woodhouse

Thank you, Diana. Good morning, everyone. Thanks for joining us this morning. (inaudible) report and discuss our second quarter performance this morning, I think it’s important to bear in mind the external environment we’re dealing with. Gas prices continue to be high, mortgage foreclosures continue to grow as do late credit card payments and consumer confidence is at levels not seen since just after Hurricane Katrina in October 2005. Nobody knows how long this economic decline may last, but most estimate at least until the summer. That’s the bad news.

The good news is that we’re very pleased to report positive comparable store sales for both restaurant and retail and a low down, our restaurant traffic continues to outperform the casual dining industry and our retail sales growth was achieved without resorting to higher markdowns than last year. We’re also pleased to report a higher operating margin than last year thanks to our efforts in controlling labor and operating expenses.

On the favorable cost side in the quarter were general insurance, G&A expenses, advertising and hourly labor costs. Partially offsetting these items were higher cost of goods, higher workers comp expense and the non-recurrence of proceeds from a favorable litigation settlement in the second quarter of fiscal 2007. We’re confident we’re on the right track, and Doug Couvillion will be providing you with more detail on the numbers in a few minutes.

Next I want to talk to you about the strength of the Cracker Barrel brand. While there are many ways to communicate what the brand stands for, it really comes down to the guest experience, and that’s our focus. In order to see how we’re doing, we use numerous tools to measure that performance. For example, we track guest satisfaction scores at every store every month. It’s always gratifying, however, to have our internal viewpoint validated by external sources, and we have two such reports this quarter.

The first is a study conducted by PeopleMetrics, a research firm that tracks customers, employees and consumer markets. They surveyed 1,250 customers on their experiences at restaurants owned by nine-publicly traded companies that each have 300 units. The study found that Cracker Barrel Old Country Store scored high in customer engagement, which means that 1) the customer feels valued, 2) there’s an engaged employee who’s creating the experience and 3) is a clean environment and hot food. It all goes back directly to our mission of pleasing people. Our number one focus is our employees trained to deliver a pleasing experience to our guest each and every time.

Cracker Barrel also rated in the top ten of Most Competitive Companies Among U.S. Consumers ranked by an independent competitive research firm, W Ratings. W Ratings identifies best performing companies or business segments through a patented method that blends financial and market data. It measures a company’s ability to achieve higher economic profit than competitors and sustain that competitor advantage through barriers to entry as rated by consumers. Cracker Barrel was tied for tenth place with Heineken and Nokia and Ruth’s Chris Steakhouse at number nine was the only restaurant company ranked higher than Cracker Barrel.

I just talked about focusing on the guest experience, now I want to talk about execution across a number of fronts, including drive-in traffic, a new menu, a Seat to Eat project, managing food costs and labor scheduling. In the second quarter, we continued our TV advertising test and added seasonal specials for the grade to test their ability to build traffic. Sales in the test markets continue to run at positive levels but have not yet reached the aggressive goals we set for ourselves. We’ll continue the advertising test through the remainder of the fiscal year as planned. The Best of the Barrel Menu test is in a 30-store beta test. This new menu is designed to improve speed of service and (inaudible) margins for guest by highlighting high margin products that are fast out of the kitchen. Operationally, the menu’s been a success and will continue in the test to determine how to achieve all of the quantitative goals we established. We continue to be optimistic and an updated menu is key to our ability to achieve all of our sales and margin goals and we’ll be providing an update on the future plans for this initiative at the end of the third quarter. The Seat to Eat Project also continues to move forward. Our project team is working on the best, working to find the best combination of improvements for both the front and back of the house, including changes in equipment and kitchen configuration and an improved window management process.

One district is testing several combinations of these changes. Based on these results, a larger group of stores would test the recommended package of these process changes, the objective of beginning a rollout across the system in fiscal 2009. We’re also working to simplify the process of preparing food to increase speed and reduce complexity in our kitchens while at the same time improving consistency of quality. We tested one such example system-wide at Thanksgiving. In the past, our preparations for Thanksgiving were probably very similar to the way that you would cook the meal at home. It was a very labor-intensive process and required extra shifts of labor for us to serve all our guests who come to enjoy a Thanksgiving meal with us. This year we introduced a number of ready-to-serve products including the turkey and gravy and sweet potatoes. In transferring a portion of the preparation processes to our vendors, we were able to reduce the labor in our stores improving consistency, improve consistency and profitability. The results of these changes exceeded our expectations for Thanksgiving Day.

We experienced a 7% increase in first day sales, including higher guest traffic, lower product waste and a reduction of over 100-labor hours per store, which totals about $500,000 as well as an 80% reduction in overtime costs. The complete rollout of Process Simplification will require the ability to closely manage labor to achieve the labor savings that are expected in addition to the speed and quality improvements. The new labor deployment system that’ll allow us to accomplish this is also in the early stages of operational testing. As that test progresses, we’ll provide an update on our expectations for the rollout of both initiatives. I mentioned earlier that our cost control programs are gaining traction. One example is our Recipe Right Program which targets high waste products in our stores and gives operator’s guidelines and tools for producing the best food quality while keeping food costs inline and waste to a minimum. By executing our standards and recipes correctly, we can realize significant cost savings on a variety of products such as jams and jellies, flour, meatloaf and bacon, all of which improve our margins.

Another example of a cost control program was when all stores began using a meatloaf cradle that allows for the cooked meatloaf to be lifted from the cooking pan without the use of a spatula, thereby preventing the meatloaf from breaking. This innovation will save every store almost $1,000 a year in food waste and small waste expense.

Now I want to talk about labor. Lower hourly labor costs were down as a percentage of sales in the quarter. We’re looking at still more ways to improve our use and scheduling of labor hours. Part of that focus is the Rising Star Program which continues to reduce hourly turnover. In the second quarter, we were below 100% turnover compared with over 114% turnover in the second quarter fiscal 2007. The big improvement in turnover was in the Rising Star and PAR One categories. The real proof is in seven consecutive months of improving guest satisfaction scores since we introduced the Rising Star Program. This clearly shows that by placing more focus on the hiring process and on training, we’re retaining more employees which in turn reduces our total cost and improve the guest experience.

Now let’s look at the retail business. We were pleased to report positive retail sales for the quarter. However, sales by women’s apparel were still weak, but we’re testing potential products and focus groups to understand what the customers like and will purchase. We’re also adjusting the mix of sizes we’re buying initially and we’re now able to replenish by size so that we can make certain we have the right sizes in stock rather than ordering two of every size when we already have six smalls in stock and no larges. We expect these changes to lead to improved sales and reduce markdowns in our apparel business. Reduction in apparel inventories was already ahead of projection at the end of the second quarter. Toys, including stuffed animals, Webkinz and dress-up play sets and décor items for the homes such as quilts and gifts for the inspiration theme also sold well in the quarter. Overall, we increased the average selling price and the number of units per check in the quarter compared with last year. Our updated point of sales system is to provide better sales information which improves product allocation across stores and allows us to be more creative in bundling items to drive sales with lower markdowns.

As I mentioned in last quarter’s call, retail presentations this spring will include more cross departmental themes to encourage customers to explore all product presentations throughout the store. We currently have a chocolate theme that includes not only candy and sweets but novelty serveware, whimsical gifts and apparel. This theme is timed to run through Easter. In line with our focus on uniqueness, much of the product for this theme was designed exclusively for Cracker Barrel. Third party gift cards are playing a growing role in our marketing efforts. We had gift cards available at over 19,000 outlets including Kroger, Rite Aid and Wal-Mart locations for the holidays. Along with these additional sales, the gift cards keep the Cracker Barrel brand highly visible on a daily basis in many new locations. Our brand continues to have a powerful association with travel and for travelers and we’re working on the national promotion, which will be a first for Cracker Barrel to build on the summer travel promotion in the fourth quarter.

So far in fiscal 2008, we’ve opened 11 stores. We opened our 49th in Tennessee on February 11th after the end of the quarter. Although we’ve not slowed on new store openings, our goal is to sustain the opening sales momentum that we achieve in these new locations and achieve target profitability in a shorter period of time. One focus is management of labor costs in our new stores. We’re making significant progress with updated guidelines, labor guidelines for stores we’ve opened this year and we’re already seeing improved labor productivity in the stores that are using the guidelines. Overall, the fiscal 2008 stores opened through November, a total of eight stores, have improved compared with the fiscal 2007 new stores on an open to date basis compared to our approval expectations for both sales and cash flow.

With that, I’ll turn the call over to Doug Couvillion for his detailed financial review of the quarter. Doug.

Doug Couvillion

Thank you, Mike. Now let’s review in some more detail the second quarter of fiscal 2008 we released earlier this morning. We’ve recorded diluted income per share from continuing operations of $0.85 versus $0.60 a year ago, an increase of 42%. Income per diluted share benefited from a 34% reduction in diluted share count resulting from the strategic initiatives that we completed in fiscal 2007 and from the additional purchase of 1.6 million shares in the second quarter of this year. After tax income from continuing operations of $20.2 million, slightly lower than the prior year quarter, reflecting higher operating income offset by lower interest income. During the second quarter of fiscal 2007, we completed the sale of Logan’s Roadhouse for $486 million. As a result, the prior year quarter reflected $2.28 per diluted share of income from discontinued operations and our balance sheet reported $258 million of net divestiture proceeds and other cash balances. In this year’s quarter, we have a small loss from discontinued operations and we sold the final Logan’s property that we temporarily retained.

Revenue from continuing operations in our fiscal second quarter, which ended February 1, 2008, increased to $634 million, up 3.6% from last year’s second quarter. During this year’s second quarter, we opened four new Cracker Barrel Old Country Store units. In the first six months of the year, we have opened ten stores and closed two. We’ve also relocated an additional unit to a better location at a nearby interstate exit. Cracker Barrel comparable store restaurant sales for the second quarter were up 1.l% to a year ago, making this the third consecutive quarter of positive comparable store restaurant sales increases. Our average check was 3.4% higher primarily due to the average menu price increases of 3.5%. For the second quarter, our price increases in dollar terms more than offset higher food and hourly labor costs and guest traffic declined 2.3% for the quarter, but our traffic continues to run ahead of the industry as a whole as measured by the Knapp-Track Index.

Cracker Barrel comparable store retail sales were up 1.4% in the second quarter of fiscal 2008. Our apparel sales were soft in the second quarter in line with general industry trends. Excluding apparel, comparable store retail sales would’ve been up 3.5%. With apparel comprising about 20% of retail sales, we think the change is underway in style selections and ordering patterns for women’s apparel can improve total apparel sales in the second half of fiscal 2008.

Operating income from continuing operations for the second quarter was $45.4 million, 7.5% higher than the second quarter of fiscal 2007. Operating income margin of 7.2% was higher than last year’s operating margin of 6.9%, primarily reflecting higher sales, lower general insurance, general and administrative expenses, advertising and store hourly labor costs. Partly offsetting these favorable effects were higher food and retail freight costs, higher workers compensation expense and the non-recurrence of recoveries and favorable litigation settlements in the prior year second quarter.

Our gross profit margin was 90 basis point lower than last year’s second quarter reflecting higher food cost and fuel surcharges which increased the distribution cost of both food and retail merchandise. Food costs was higher in the second quarter of this year with about 7% commodity inflation. Inflation was higher than anticipated primarily as a result of higher produce prices. The overall commodity inflation for the quarter compared to the same quarter last year was primarily due to dairy products, eggs and produce which are subject to short-term market trends and growing conditions and cannot be cost effectively hedged long-term. Combined these categories accounted for over 50% of our commodity inflation for the quarter. For example, we’re a large user of fresh shell eggs and the prices for this product were up over 50% for the quarter. We are comfortable with our commodity outlook and have contracted for that 80% of our estimated need for the balance of the year. We expect some reduction in dairy product inflation in the second half of the year while eggs, oils and grain-based products are expected to be higher. Michael will discuss our full year commodity inflation expectation later when he reviews the fiscal 2008 outlook.

Labor and related expenses were about 30 basis points higher than the second quarter of last year, favorable restaurant and retail hourly labor and lower store bonuses were more than offset by an increase in workers compensation costs. Although restaurant hourly labor is lower than last year, we still experienced approximately 3.7% wage inflation which reflects some reduction from last quarter when we reported 4.6% wage inflation. Current trends are lower now that we’ve lapped the minimum wage increases in certain states that we’re effective in January of last year. Consistent with prior years, we performed a limited scope actuarial update and adjusted our self-insured reserves accordingly. We are still seeing favorable trends in workers compensation loss rates and we reported a favorable adjustment in this year’s second quarter. Favorable adjustment, however, was significantly less than last year’s resulting in a year-over-year increase in workers compensation expenses.

Other store operating expenses improved 50 basis points to 16.8% of sales compared with 17.3% in last year’s second quarter. General insurance costs declined in the quarter as a limited scope actuarial update similar to that done for worker’s compensation allowed us to record a favorable adjustment general (inaudible) insurance reserves compared to an unfavorable adjustment last year. The net benefit to general insurance was partly offset by the non-recurrence of settlement proceeds received last year from litigation related to credit card fees.

Advertising expenses declined due to our use of radio advertising in about 30 markets last year compared with the television test in just three markets this year. Finally, our focus on controlling expenses has gained momentum resulting in lower supplies expensed for the quarter and dollars and as a percent of sales.

General and administrative expense was 100 basis points lower than the second quarter of last year due to lower incentive compensation accruals as well as $1.8 million gain on the sale of the last of three pieces of real estate retained from the Logan’s divestiture which closed in December 2006.

Our second quarter income tax rate for continuing operations was 34.9%, flat with last’s year second quarter rate. The company adopted FIN 48 at the beginning of fiscal 2008. The adoption and implementation of FIN 48 did not have a material effect on the company’s second quarter tax rate. We’re projecting that our third and fourth quarter rates should be lower than the first half of the year and the effective tax rate for the full year fiscal 2008 is now expected to be between 31.5% and 32%.

Year-to-date cash flow from operating activities was $64 million compared to a $109 million in fiscal 2007. The decrease reflects a timing of income tax payments. During the second quarter of last year, we received the proceeds from the Logan’s transactions. The taxes on the gains were not paid until subsequent quarters.

Capital expenditures were $45 million year-to-date compared to $47 million for the same period last year and in line with our guidance. In the second quarter of fiscal 2008, we repurchased 1.6 million shares at a total cost of $52.4 million or $32.23 per share. This completes our expected share repurchase activity for the year. While quarterly dividends our $0.04 per share, cash dividends paid were slightly lower compared to last year because of the lower share count.

In summary, we reported a 42% increase in diluted income per share, positive comparable restaurant and retail sales and margin expansion in a very challenging consumer and cost environment. While we do not expect significant relief from the external cost pressures for the remainder of the year, we believe the operational initiatives that Mike described earlier will position us to leverage our sales when the consumer environment strengthens.

With that, I’ll turn the call back over to Mike for a review of our fiscal 2008 outlook.

Michael Woodhouse

Thanks, Doug. Let’s look now at the update to the outlook for fiscal 2008. In light of continued industry trends, we’re taking a realistic view of sales and we’ve lowered our projection for same store sales and overall revenue growth. However, with the traction we’re seeing in our cost control initiatives, we’re able to maintain our EPS guidance for the year at a range of $3.00 to $3.15. We’re now projecting 2% to 3% revenue growth over the $2.35 billion of total revenue from continuing operations in fiscal 2007. As you remember, fiscal 2007 included a 53rd week which added $46 million of revenue, so on a 52-week basis, we’re projecting revenue to grow 4% to 5%.

We’re projecting comparable store restaurant sales up 1% to 2%, which includes about 3.5% menu pricing and is consistent with what we see in the first half of fiscal 2008. With half a year behind us, we’ve narrowed the range on comparable store retail sales to flat to up 1.5%. We’re maintaining our plans to open 17 new Cracker Barrel units of which 11 our currently open.

Capital expenditures have been reduced $5 million to $90 million reflecting lower maintenance cap ex and are shifting the timing of some spending into fiscal 2009. We expect cash flow from Cracker Barrel to remain strong and more than sufficient to service our debt and to finance our restaurant and retail initiatives as well our unit growth and to fund our dividend payouts. We’ll not be making any additional share repurchases this fiscal year because we’ve already purchased the maximum allowed under our credit agreements.

We’re not predicting when the economy will improve nor are we relying on external conditions to approve in order to achieve our projections for this fiscal year. Rather our focus in this environment will continue to be un-controlling what we can control, which means maximizing sales and market share through consistently superior execution while at the same time testing and developing rollout plans for those initiatives that will allow us to achieve our goal over premium return from a premium brand.

With that, I’d like to open up the call for questions.

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions) We’ll go to Bryan Elliott with Raymond James.

Bryan Elliott – Raymond James

Good morning. Wanted to I guess drill down a little on the labor and make sure I understood what’s going on there. You talked about better hiring upfront, which is something you’ve been working for a while so you’re basically getting better employees upfront so they’re performing better and turning over less frequently. Is that I would guess would be reducing training costs and I guess help me understand sort of the mix between the training and benefits of that success with the labor scheduling, how did the two, what’s the ratio of the two impacting that number, that labor line?

Michael Woodhouse

Okay, I don’t know whether you can give an exact…

Bryan Elliott – Raymond James

Sure, but some sense of magnitude.

Michael Woodhouse

Sure. Well I think there are two benefits from reducing turnover which as you can see you heard was down pretty substantially to be under 100% in this industry so pretty good place to be. The two benefits are lower training costs, but the other benefit is better productivity because the employees that we hire, higher quality as you said, better trained, get up to speed faster than we typically we would find, so we’re seeing some productivity gains coming from there. Those are really the drivers from our overall waiver this year compared with last year. There was some other minor positives going on including as we mentioned workers comp and with apparel. But overall, it’s the quality and the attention to training that’s making the difference.

Bryan Elliott – Raymond James

So hours per store aren’t down, ours per store weak or however you might measure it? In other words, we’re not reducing scheduling?

Michael Woodhouse

That’s not the focus right now, Bryan. We’ve got a new labor scheduling tool that we’re developing as part of labor deployment. So the focus will be on the quality and the productivity of the employees, so more to come I guess is the best way to say that.

Bryan Elliott – Raymond James

All right. On the cost of goods, a quick question there, you’ve been focusing on and having some success in reducing markdowns. Did that continue this quarter? Was the retail gross margin better?

Michael Woodhouse

Yeah, our markdowns were flat with last year, which we think is a major achievement in the environment where everybody else out there seemed to be very aggressively marking down during the Christmas season, and we continue to see improvements on our initial markdown in retail.

Bryan Elliott – Raymond James

All right, very good. Thank you.

Michael Woodhouse

Thanks, Bryan.

Operator

We’ll go next to Steven Rees with J.P. Morgan.

Steven Rees – J.P. Morgan

I wanted to ask for a second about advertising. You decided to lower cost this quarter as you did radio last year versus the television test this quarter. Wanted to know if that would be the case in the second half that you expect to continue to see favorability in advertising costs.

Michael Woodhouse

I’ll let Doug help me with this one, but we are, we’re planning to continue the test in three markets at the end of the year, which was included in our guidance. The spending last year, if I recollect, was lower than in the second half than the first half, so I’m guessing that we’re probably flat year-to-year or slightly down.

Steven Rees – J.P. Morgan

Then it sounds like you’ve evolved into more of a product focus and I guess I wanted to ask how you plan on, but it’s not still meeting your expectations, so how do you further plan on evolving the advertising and how are you measuring the returns in terms of expecting a further role in 2009?

Michael Woodhouse

Well we have very high standards in terms of expectations in advertising. We’re getting a pretty good sales lift in the markets where we’re testing. One interesting fact that’s coming out of it that I don’t think I mentioned before is we’re seeing a greater lift on retail than on restaurant, and that’s encouraging because new trial, new people will try us for the first time and less frequent users tend to buy more retail so that says our advertising is working and bringing new customer in or bringing in frequent customers in more frequently. So that’s a plus. We’re running I think about breakeven in the markets that we’re testing. Our whole goal is to make money out of advertising, not just have a way to drive sales so, as I said, our expectations are pretty aggressive. The product promotional piece seems to be working well. We saw some positive impact in terms of product mix in one of our promotions, and that’s important because our promotional products are designed to be high margin products so the extent that we cannot only improve sales but also shift next with the advertising we’re getting a double benefit.

Steven Rees – J.P. Morgan

Great. Then I just wanted to ask about the unit development plans for 2009. Have you been kind of below that 5% target for a couple years now and just given the fact that the (inaudible) seen to performing better this year than last year. How are you thinking about unit development next year? Should we expect it to accelerate or kind of stay constant with what you’ve done over the last quarters?

Michael Woodhouse

We haven’t… Well, I guess we did disclose some numbers back in October at the Analyst Day. I think that we see no reason to pull back on our growth in this environment even though we’ve seen others in the industry doing that. We are pleased with the improvement so far. There’s more to go in terms of our ability to get these things up to speed, so I would see us cautiously increasing that number. We’ll be back obviously at the end of the year with a specific number, but I wouldn’t see a big increase but certainly not a decrease.

Steven Rees – J.P. Morgan

Any change on maintenance cap ex or is still expected to kind of remain in that $25 million range?

Michael Woodhouse

Yes, just a little less because we’re becoming more efficient in our maintenance cap ex controls as well as some other things so just a little under that number.

Steven Rees – J.P. Morgan

Great. Thank you very much.

Michael Woodhouse

Thank you.

Operator

We’ll go to Chris O’Cull with Suntrust.

Chris O’Cull – Suntrust Robinson Humphrey

Hi. Thanks guys. Mike, do you know whether the improved ticket times at the stores that are offering the Best of the Barrel menu, are you seeing improved ticket times; and if so, is that resulting or translating into more table turns?

Michael Woodhouse

Yes, we are seeing better ticket times. Another measure of that is sales per hour. We’re seeing some record sales per hour at peak times in the stores that have the Best of the Barrel menu. Now the game plan is that as we speed up our service, not only do we get better guest satisfaction out of that, but over time we’ll get more guest returning and the knowledge that we’re getting faster will spread by word of mouth. So over time, we’ll start picking up the slack, which is the people who kindly won’t stay because the wait is too long. It takes time do that so it’s difficult to measure that directly, but we’re very encouraged by the fact that we are seeing the goal of faster ticket times and sales per hour being achieved.

Chris O’Cull – Suntrust Robinson Humphrey

Then you said that you expect the menu to improve the dollar margins per guest. How is the guest product mix preference shifting with the new menu versus the current menu?

Michael Woodhouse

I assume you’ve seen the new menu. We have products that are highlighted in boxes around the menu. We’re seeing the shift that we expected towards those products that we highlighted happening with the test, so we’re pleased with that. There’s probably some more opportunity around that and we’re thinking about how to achieve that.

Chris O’Cull – Suntrust Robinson Humphrey

Great. Then I know the last call you said you would expect a rollout maybe in April. Is that timeline changed at all?

Michael Woodhouse

Well as I said this morning, we’re continuing the beta test. We still have to nail down our performance. Out of that will come decisions about when we roll, how we roll or whether continue the test for a while. More will be decided. I mean we’re very confident the menu’s going to make a difference, we’re just not ready to make a decision about rolling it out yet.

Chris O’Cull – Suntrust Robinson Humphrey

Great. Thanks guys.

Michael Woodhouse

Thank you.

Operator

We’ll go next to Brad Ludington with Keybank Capital Markets.

Brad Ludington – Keybank Capital Markets

Hey, thank you. I just got a couple quick questions on kind of GNA and other operating. First off, on the $1.8 million for the sale of the Logan’s Restaurant, is that pretax or net of tax?

Michael Woodhouse

That’s pretax.

Brad Ludington – Keybank Capital Markets

.

Then is there a way that you can share looking closer into G&A, like what the dollar amount of favorability for the ad expense and general insurance adjustment was.

Michael Woodhouse

First of all, our expense is not in G&A.

Brad Ludington – Keybank Capital Markets

Oh is that in other operating?

Michael Woodhouse

It’s in other operating. We’ve got a number of moving parts on going on here. The goal this year was to, the internal goal was to keep G&A flat, at least flat in dollar terms for the year and we expect that we’re going to achieve that or do a little better.

Brad Ludington – Keybank Capital Markets

While I guess that covers it. Thank you.

Operator

We’ll go next to Conrad line with FTN Midwest.

Conrad Lyon – FTN Midwest Securities Corp.

Hey, good morning. I got a question on interest expense. I know you kept your outlook the same at $60 million. However, with LIBOR coming in here, and I believe there’s an option or you have an option to elect between time or LIBOR plus a percentage point spread. Do you think there might be some opportunity going here going forward in the coming quarters if LIBOR stays down to see perhaps a little benefit on your interest expense line?

Doug Couvillion

I think there might be a little bit of opportunity to the guidance that we gave with some of the upcoming great changes, yes.

Conrad Lyon – FTN Midwest Securities Corp.

Let me shift in a different direction then. Let me talk about, more about the frequency here with the guest. Mike, I think you talked about you’re getting more frequency out of in frequent guests. During your analyst day, you talked about trying to get people to think a little different about Cracker Barrel moreover to those guests that typically think of your Cracker Barrel as more of a destination than you will a frequent stop. Do you… Is that part of what’s happening here? Do you think that’s starting to gain traction, more people are thinking of it as more an every day stop?

Michael Woodhouse

That was certainly an objective. I don’t know, it’s very difficult to measure that because on a daily basis those numbers obviously move around all the time so that it’s very difficult to get any kind of decent pre period measurement. As I said earlier, I think the notion that we’re getting some first time trial and some less frequent users, and again less frequent travel users tend to be less frequent users so to their extent we could reduce but it’s only a deduction that we’re getting some local.

Conrad Lyon – FTN Midwest Securities Corp.

All right. Thank you very much.

Michael Woodhouse

Thank you.

Operator

(Operator Instructions) Amy Greene with Avondale Partners.

Amy Greene – Avondale Partners LLC

Hi guys. Could you give us an idea of what the customer response has been as you’ve done the Best of the Barrel menu, kind of rolled it into more stores?

Michael Woodhouse

Pretty favorable. One of the things we will always get the occasional customer who’s favorite product is no longer than, and I think one of the things we’ve always talked about with Cracker Barrel is that we have a history or a pretty unchanging menu and we have guests who come in order the same thing every time, so change is a little more challenging than it might be other places. But we haven’t seen any significant increase in guest complaints. I think part of that is that we really focused on getting ahead of that by training and scripting the service around the reasons why we’re making a change and the positive nature of the change, and I think that’s really helped deal with any potential complaints.

Amy Greene – Avondale Partners LLC

Good. Then lastly, just in looking at the retail floor and doing some store visits, it looks like there is more floor space or fewer kind of displays out this time of the year than there typically are. Is that the case and is that kind of a planned effort around focusing on things?

Michael Woodhouse

We’re always looking to optimize the way we display things, so one of the things you may be seeing is the fact the displays themselves are more appealing. This is the time of year, as you know, when we’re at our emptiest because we get beyond Christmas and into the pre spring season, but there’s no specific reason to reduce the amount of merchandise we have on the floor.

Amy Greene – Avondale Partners LLC

Thanks, guys.

Michael Woodhouse

Thank you.

Operator

(Operator Instructions) We’ll take a follow-up from Bryan Elliott with Raymond James.

Bryan Elliott – Raymond James

Quick housekeeping question. On depreciation, the guidance there was unchanged around $60 million, we’re tracking below that. Is there something that is going to change that’s going to raise the depreciation expense in the second half of the year or is that just a conservative estimate?

Doug Couvillion

We don’t have any real expectations to change anything and there might be a touch of conservatism in their, Bryan.

Bryan Elliott – Raymond James

Thank you.

Michael Woodhouse

Thank you.

Operator

With no other questions at this time, I’d like to turn the call back to management for any additional or closing comments.

Michael Woodhouse

Well thanks everybody for joining us today. We feel we had a pretty good quarter and we’re feeling very optimistic about being able to control our destiny going forward here even though the times are really tough, so we look forward to being back next quarter and hopefully with some good news. Thanks.

Operator

That does conclude today’s call. Again, thank you for your participation. Have a good day.

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Source: CBRL Group, Inc. F2Q08 (Qtr End 02/01/08) Earnings Call Transcript

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