Cracker Barrel 2004 Annual Report Download - page 6

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As we complete our 35th year of operation, we can
look back and see years in which we found uncertain
operating environments and difficult challenges.
Fiscal 2004 was such a year. The year began with a big
challenge: grow diluted net income per share (EPS)
on top of the 28% increase achieved in fiscal 2003,
which itself was on top of a prior year in which we
also substantially exceeded our long-term growth
objective of 15%. Plus, we set objectives to strengthen
the Company and generate more cash from operations
than we needed to fund our growth and dividends.
While we began 2004 well ahead of our plan, we
ran into some extraordinary external conditions that
added unforeseen challenges for many restaurant
operators, including us. Most notable were soaring
commodity costs, which pressured operating margins,
and the apparent impact of high gasoline prices that
squeezed consumers’ discretionary income and
dampened guest traffic. As a result of this confluence
of external events, the second half of the year had
much lower financial performance than the very strong
first half, but we still achieved a solid increase in
EPS for the year, and we achieved a number of our
other objectives. We believe that we made it
through the unexpectedly tough conditions in fiscal
2004 reasonably well, and we expect in fiscal 2005
to get back on track for long-term 15% EPS growth.
We are pleased with our accomplishments, both
financially and operationally, in fiscal 2004 in spite
of all the unforeseen changes in conditions:
•EPS grew 8.3% from $2.06 in fiscal 2003 to $2.23
in fiscal 2004. And, the 2004 results included a
fourth quarter charge of $0.06 per share for the
settlement of long outstanding litigation. Apart
from that charge, EPS grew 11.2%. The litigation
settlement is discussed below.
•Operating income margin was down slightly to 7.7%
of total revenue from 7.8% in fiscal 2003.
Excluding the settlement charge, operating margin
would have improved to 7.9%.
•Cracker Barrel Old Country Store (“Cracker Barrel”)
passed the $2 billion mark in revenues, and
Logan’s Roadhouse (“Logan’s”) passed the $300
million mark, resulting in 8.3% consolidated total
revenue growth.
•Cracker Barrel recorded a 2.0% increase in
comparable store restaurant sales for the year, its
fifth consecutive full year of increases, and a
5.3% increase in comparable store retail sales.
Overall retail sales as a percent of total Cracker
Barrel sales improved from 23.1% in fiscal 2003
to 23.6% in fiscal 2004.
•Logan’s comparable restaurant sales improved 4.8%.
•We opened 24 new Cracker Barrel stores, reaching
the 500 mark with a May opening in Missouri, and
ending the year with 504 stores in 41 states.
We also opened 11 company-operated and 4 fran-
chised Logan’s restaurants, bringing our total
in 17 states to 107 company-operated and 20
franchised locations.
•Net cash provided by operating activities of
$200 million exceeded the $145 million used for
purchase of property and equipment (capital
expenditures), the fifth consecutive year in which
cash generated by operations exceeded capital
expenditures and the fourth consecutive year that
the surplus was more than $50 million.
•We returned cash to our shareholders through
$69 million in share repurchases and a new dividend
policy that increased from the previous $0.02 per
share annual dividend to $0.11 per share quarterly.
Recently we increased the dividend again, to
$0.12 per share.
So, in spite of extraordinary external challenges,
we believe we fared reasonably well. And we expect
fiscal 2005 to be another improved year with a
goal of $2.6 billion in revenues and EPS percentage
growth in the mid-teens on a comparable basis.
Before discussing some of our other accomplish-
ments and our outlook, I think it’s useful to
describe some of those extraordinary external factors
in more detail.
Generally, we believe that we historically have
enjoyed a relatively advantageous position in our indus-
try with respect to food commodity cost increases.
To Our Shareholders: (Please see discussion of forward-looking statements on page 34 of this report)
This letter has been revised to reflect the restatement further discussed in Note 2 to the accompanying consolidated financial statements.