Cracker Barrel 2008 Annual Report Download - page 41

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of retail merchandise partially offset by higher commodity
costs and a shift in the mix of sales versus prior year
from restaurant sales toward retail sales, the latter of
which typically have a higher cost of sales. The additional
week in 2007 had no effect on cost of goods sold as a
percentage of revenue.
Labor and Related Expenses
Labor and other related expenses include all direct
and indirect labor and related costs incurred in store
operations. Labor and other related expenses as a
percentage of total revenue were 38.2%, 38.0% and 37.6%
in 2008, 2007, and 2006, respectively. The year-to-year
increase from 2007 to 2008 was due to higher management
staffing levels as a percent of revenues versus 2007
and group health costs partially offset by lower bonus
accruals, lower store hourly labor costs as a percentage
of revenue versus the prior year and higher revenues driven
by menu pricing. The increase in group health costs was
due to higher medical and pharmacy claims and lower
employee contributions. The decrease in restaurant and
retail management bonus accruals reflected lower
performance against financial objectives in 2008 as
compared to 2007.
The year-to-year increase from 2006 to 2007 was due
to higher group health costs resulting from higher
medical and pharmacy claims due to an increase in the
number of participants and an increase in the utilization
of available plan benefits, higher hourly labor costs due
to wage inflation and the effect of higher management
staffing levels as a percent of revenues versus 2006
partially offset by lower workers’ compensation expenses.
The additional week in 2007 had no effect on labor and
related expenses as a percentage of revenue.
Impairment and Store Closing Costs
During 2008, we closed one leased Cracker Barrel store
and one owned Cracker Barrel store, which resulted in
impairment charges of $532 and store closing costs of
$345. The decision to close the leased store was due
to its age, the expiration of the lease and the proximity
of another Cracker Barrel store. The decision to close the
owned location was due to its age, expected future
capital expenditure requirements and changes in traffic
patterns around the store over the years. We expect to
sell the real estate related to the owned store within one
year. The store closing charges represent the total amount
expected to be incurred and no liability has been recorded
for store closing charges at August 1, 2008. We did not
incur any impairment losses or store closing charges in
2007. During 2006, we closed seven Cracker Barrel stores,
which resulted in impairment charges of $3,795 and store
closing costs of $736. We also recorded an impairment
of $838 on our Cracker Barrel management trainee
housing facility in 2006. See Note 2 to the accompanying
Consolidated Financial Statements for more details
surrounding the impairment and store closing charges.
Other Store Operating Expenses
Other store operating expenses include all unit-level
operating costs, the major components of which are
utilities, operating supplies, repairs and maintenance,
depreciation and amortization, advertising, rent
and credit card fees. Other store operating expenses as
a percentage of total revenue were 17.7%, 17.4% and
17.3% in 2008, 2007 and 2006, respectively. Without the
additional week in 2007, other store operating expenses
would have been 17.5% of total revenue in 2007.
The year-to-year increase from 2007 to 2008 was due to
higher utilities and the non-recurrence of the Visa/
MasterCard class action litigation settlement proceeds
received in 2007 partially offset by higher menu pricing
and lower general insurance expense as a result of revised
actuarial estimates.
The year-to-year increase from 2006 to 2007 was due
to higher general insurance expense as a result of higher
insurance premiums and revised actuarial estimates for
unfavorable changes in loss development factors, which
were partially offset by gains on disposition of property
and on the Visa/MasterCard class action litigation
settlement, higher menu pricing and the non-recurrence
of hurricane-related costs.