Cracker Barrel's Q1 2026 Earnings Call: Contradictions Emerge on Advertising Strategy, Traffic Guidance, and Food Quality Initiatives

Date of Call: December 9, 2025

Financials Results

• Revenue: $797.2M, down 5.7% YOY (restaurant revenue $650.6M, down 4.8%)
• EPS: GAAP diluted loss of $1.10 per share; adjusted diluted loss of $0.74 per share
• Gross Margin: Approximately 68.8% (COGS 31.2% of revenue) compared to ~69.4% in the prior year (COGS 30.6%)
• Operating Margin: Adjusted EBITDA margin 0.9% of revenue, compared to 5.4% in the prior year (down ~450 bps YOY)

Guidance:

• Total revenue FY26 expected $3.2B–$3.3B (embedded traffic ~ -8% to -10%).
• Pricing 3.5%–4.5% (prior 4%–5%); expect lower menu mix from higher discounts and reduced dinner traffic.
• Commodity inflation 2.5%–3.5%; hourly wage inflation 3%–4%.
• Annualized G&A savings targeted ~$20M–$25M from restructurings.
• Advertising to be reduced ~$12M–$16M in Q2–Q4 vs prior year.
• Full-year adjusted EBITDA targeted ~$70M–$110M; capex planned $110M–$125M.

Business Commentary:

• Sales and Traffic Performance:
• Total revenue for the first fiscal quarter of 2026 was $797.2 million, down 5.7% from the prior year quarter.
• Comparable store restaurant sales decreased by 4.7%, with a 7.3% decline in traffic, while off-premise sales accounted for 18.1% of restaurant sales.
• The decrease was exacerbated by a backdrop of choppy traffic patterns and a decline in dinner traffic.

• Cost Management and Expense Reductions:
• Total cost of goods sold was 31.2% of total revenue, an increase of 50 basis points from the prior year.
• The company is implementing a corporate restructuring expected to result in annualized G&A savings of approximately $20 million to $25 million.

• These actions are aimed at streamlining costs and protecting food quality and guest experience.

• Advertising and Promotional Spend:

• Incremental advertising expenses contributed to higher marketing costs, with Q1 expenses at 4.2% of sales.

• The company plans to reduce aggregate advertising spend by approximately $12 million to $16 million over Q2 through Q4, aligning with current traffic levels.

• Operational and Leadership Changes:

• Key operational leadership changes were made to remove a layer of management and improve focus on food and hospitality, including promoting Doug Hisel to Senior Vice President, Store Operations.
• These changes had encouraging trends in guest metrics, with Google star ratings reaching their highest level since early 2020 and improvements in food taste, service, and value.
  

  Sentiment Analysis:

  Overall Tone: Neutral

  • Management acknowledged weak results (sales down 5.7%, adjusted EBITDA $7.2M, 0.9% margin) but repeatedly expressed confidence in the turnaround: "we are confident we can return to growth" and provided explicit FY26 targets (revenue $3.2B–$3.3B; adjusted EBITDA $70M–$110M) plus operational and cost actions to restore performance.

Q&A:

• Question from Todd Brooks (The Benchmark Company, LLC, Research Division): Is the advertising spend cut focused on Q2 holiday period to stabilize before re‑investing to draw customers back?
  Response: Q1 marketing was elevated and largely committed; management will reduce ad spend by ~$12M–$16M over Q2–Q4 to align with current traffic, relying more on the loyalty program to communicate cost‑effectively.

• Question from Todd Brooks (The Benchmark Company, LLC, Research Division): Any incremental initiatives for the November–December holiday window to look for an inflection, or is improvement expected later in the year?
  Response: Primary focus is rebuilding trust via consistent in‑store food and service; targeted short‑term promotions (e.g., toy promo) and menu bring‑backs will be used to drive traffic now while longer‑term operational fixes should yield recovery later.

• Question from Jeffrey Farmer (Gordon Haskett Research Advisors): What is the updated FY26 traffic guidance range?
  Response: Embedded in the $3.2B–$3.3B sales outlook, traffic is roughly negative 8% to negative 10%; the high end assumes back‑half recovery and less discounting/stronger retail attachment.

• Question from Jeffrey Farmer (Gordon Haskett Research Advisors): Anything specific on the macro backdrop you're seeing versus peers?
  Response: Consumer sentiment and industry traffic softened versus September; labor and demand are softer but not dramatically different across income cohorts; modestly better performance in 55+ and 65+ cohorts.

• Question from Jeffrey Farmer (Gordon Haskett Research Advisors): Did Phase 1 operational rollout materially impact same‑store sales or traffic in the reported quarter?
  Response: Yes — Phase 1 complexity hurt consistent execution and food quality at scale, so they paused and reverted to prior processes, retrained teams and revised testing before advancing Phase 2.

• Question from Jake Bartlett (Truist Securities, Inc., Research Division): Can you disaggregate macro pressures from the rebranding impact on decelerating traffic?
  Response: Not precisely; traffic has been steady around -10% to -11% recently, short‑term promotions temporarily boosted traffic but industry trends also show a decline versus summer.

• Question from Jake Bartlett (Truist Securities, Inc., Research Division): What are the primary actions (menu, marketing, operations) that could change the trajectory in 6–9 months?
  Response: Focus on delivering consistent food and hospitality, loyalty targeting, promotions (toy, military discount, Meals for 2), menu bring‑backs and new innovations (Breakfast Burger, spring items) plus operational retraining to sustain improvements.

• Question from Brian Mullan (Piper Sandler & Co., Research Division): Thoughts on retail holiday assortment and expected retail gross margin puts/takes for fiscal Q2?
  Response: Assortment execution is improved (later floor placement, fresher assortment), inventory heavier vs prior year; margins pressured by tariffs, mix shift and lower attach leading to more markdowns.

• Question from Brian Mullan (Piper Sandler & Co., Research Division): Clarification on G&A — what annual run rate savings should we model and timing?
  Response: Targeting $20M–$25M annualized G&A savings from corporate restructurings, largely expected to be in place by end of Q2 with benefits flowing into Q3/Q4.

• Question from Isiah Austin (BofA Securities, Research Division): How should we think about Google star rating as a leading indicator for traffic (lead time/spread)?
  Response: Google star rating remains highly correlated with same‑store sales over a longer time horizon (analyzed over ~a year); improvements are gradual, not immediate, but management sees recent positive movement as encouraging.

• Question from Isiah Austin (BofA Securities, Research Division): Could the corporate restructuring cuts harm long‑term performance — what specifically is being cut?
  Response: Restructuring refocuses resources toward guest experience; some longer‑term/value‑creating initiatives are being deprioritized for now to accelerate return to historical G&A levels without impairing guest‑facing priorities.

• Question from Jon Tower (Citigroup Inc., Research Division): What are the plans for the convertible debt maturing later this year?
  Response: Plan is to repay the June 2026 convertible at maturity by drawing on the revolver; about half of the original convert was already repaid and revolver capacity exists to cover remaining balance.

Contradiction Point 1

Advertising Spend Strategy

It involves a change in strategy regarding advertising spend, which directly impacts marketing efforts and potentially influences customer engagement and revenue.

Is the advertising spend reduction primarily due to a strategy to stabilize prior to aggressive advertising? - Todd Brooks(The Benchmark Company, LLC, Research Division)

2026Q1: Our advertising spend in Q1 was elevated at 4.2% of sales due to planned incremental spend for the brand relaunch. The spend for Q2 through Q4 will be $12 million to $16 million lower than in the prior year to align with current traffic levels. - Julie Masino(CEO)

How are you approaching marketing spend this year, given recent traffic changes after the logo change? Will you adjust the message or reduce spending? - Brian Mullan(Piper Sandler & Co., Research Division)

2025Q4: We expect marketing as a percent of sales to be slightly higher in '26 than in '25, especially in Q1. We're continuing to invest in marketing to drive traffic despite the current headwinds. - Julie Masino(CEO)

Contradiction Point 2

Traffic Guidance and Expectations

It involves changes in traffic guidance and expectations, which are critical indicators for investors and crucial for assessing the company's performance.

What is the updated guidance range for traffic this year? - Jeffrey Farmer(Gordon Haskett Research Advisors)

2026Q1: The traffic guidance is negative 8% to negative 10%, reflecting higher discounts, lower retail attachment, and more moderate discount levels. Any recovery in traffic is anticipated in the second half of the year. - Craig Pommells(CFO)

What are the current traffic trends following the logo change? - Dennis Geiger(UBS Investment Bank, Research Division)

2025Q4: Before the logo change, traffic was down about 1%. Post-change, traffic declined approximately 8%. Our guidance reflects our best estimate, and we expect sequential improvement quarter-over-quarter, with a better rate in the second half. - Craig Pommells(CFO)

Contradiction Point 3

Advertising Spend and Strategy

It reflects a change in the company's advertising strategy and spending, which could impact brand visibility, customer acquisition costs, and overall business performance.

Is the reduction in annual advertising spend a sign of needing to stabilize before aggressive advertising? - Todd Brooks(The Benchmark Company)

2026Q1: Advertising spend in Q1 was elevated at 4.2% of sales due to planned incremental spend for the brand relaunch. The spend for Q2 through Q4 will be $12 million to $16 million lower than in the prior year to align with current traffic levels. - Julie Masino(CEO)

Given the initiatives and consumer preference for Cracker Barrel, why is traffic still negative despite improvement from a soft start in February? - Sara Harkavy Senatore(BofA Securities)

2025Q3: We do plan to increase advertising spend in Q4 versus the Q3 level. We'll focus on leveraging digital channels across multiple platforms, including social media and search. And we'll continue to use the solid brand recognition that we have to drive guest engagement. - Julie Masino(CEO)

Contradiction Point 4

Food Quality and Operational Initiatives

It involves the company's approach to food quality and operational initiatives, which directly impact customer satisfaction and operational efficiency.

Did the operations initiative impact traffic in Q1? - Jeffrey Farmer(Gordon Haskett Research Advisors)

2026Q1: The first full deployment of Phase 1 in Q4 led to execution challenges and impacted food consistency. The initiative was paused to prioritize food quality and experience. - Julie Masino(CEO)

Do you expect a permanent reduction in back-of-house labor hours from this phase, and will the savings impact the bottom line or be reinvested elsewhere? - Brian Hugh Mullan(Piper Sandler)

2025Q3: We've made significant progress over the past year in improving our food and beverage operation, exiting with our strongest AUV and comparable sales performance in recent years. - Julie Masino(CEO)