Cracker Barrel 2005 Annual Report Download - page 39

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Cost of Goods Sold
Cost of goods sold as a percentage of total revenue in
2005 remained flat compared to 2004 at 33.0%. This
was due to higher commodity costs for beef, pork,
poultry and produce and higher markdowns on retail
merchandise offset by higher menu pricing and a
lower percentage of retail sales, which have a higher
cost as a percent of sales than do restaurant sales,
and higher initial mark-ons of retail merchandise.
Cost of goods sold as a percentage of total revenue
increased in 2004 to 33.0% from 32.0% in 2003. This
increase was due to higher commodity costs for beef,
butter, bacon and other dairy, including eggs, all of
which had high single-digit percentage increases due to
unfavorable market conditions. Also affecting cost of
goods sold in 2004 was a higher mix of retail sales as a
percent of total revenue (retail has a higher product
cost than restaurant) and higher markdowns of retail
merchandise versus the prior year. Management
believes that increases in 2004 were unusual in both
magnitude and the breadth of commodities affected.
These increases were partially offset by higher menu
pricing and higher initial mark-ons of retail merchandise.
Labor and Related Expenses
Labor and other related expenses include all direct
and indirect labor and related costs incurred in store
operations. Labor expenses as a percentage of total
revenue were 36.6%, 37.0% and 37.3% in 2005, 2004
and 2003, respectively. The year to year decrease
from 2004 to 2005 was due to higher menu pricing
and lower bonuses under unit-level bonus programs,
partially offset by higher hourly wage rates and manager
wages versus the prior year. The year to year decrease
from 2003 to 2004 was due to higher menu pricing,
lower hourly labor, including wage rates and decreased
workers’ compensation and group health costs offset
partially by increases in manager wages and bonuses
versus the prior year.
Other Store Operating Expenses
Other store operating expenses include all unit-level
operating costs, the major components of which are
operating supplies, utilities, repairs and maintenance,
advertising, rent, depreciation and amortization.
Other store operating expenses as a percentage of total
revenue were 17.4%, 17.0% and 17.3% in 2005, 2004
and 2003, respectively. The year to year increase from
2004 to 2005 was due to higher utilities, advertising
and maintenance expenses offset partially by higher
menu pricing versus the prior year. The decrease from
2003 to 2004 was due to lower advertising and
depreciation and higher menu pricing versus the
prior year offset partially by higher losses on disposi-
tion of property and equipment versus the prior year.
General and Administrative Expenses
General and administrative expenses as a percentage
of total revenue were 5.1%, 5.3% and 5.6% in 2005,
2004 and 2003, respectively. The year to year decrease
from 2004 to 2005 was due to lower legal fees
compared to prior year, which included a legal settle-
ment and an insurance recovery relative to litigation
settlements and related expenses incurred in
prior years discussed earlier (also see Note 10 to the
Consolidated Financial Statements), offset partially by
higher salaries versus prior year. The year to year
decrease from 2003 to 2004 was due to lower profes-
sional fees and lower bonus accruals reflective of
lower performance against financial objectives offset
partially by the legal settlement discussed earlier (also
see Note 10 to the Consolidated Financial Statements).
Interest Expense
Interest expense increased to $8,693 in 2005 from
$8,444 in 2004, which represented a decrease from
$8,892 in 2003. The year to year increase from 2004
to 2005 was due to higher average outstanding debt
and higher interest rates, offset partially by lower
amortization of deferred financing costs and higher
capitalized interest. The decrease from 2003 to 2004
resulted from lower average outstanding debt as
compared to the prior year.
Provision for Income Taxes
Provision for income taxes as a percent of income before
income taxes was 34.6% for 2005, 35.9% for 2004
and 35.5% for 2003. The reason for the decrease in the
tax rate from 2004 to 2005 reflected the passage
of the Work Opportunity and Welfare to Work federal
tax credit legislation signed on October 22, 2004
retroactive to January 1, 2004. The reason for the
increase in the tax rate from 2003 to 2004 was the
expiration of the same federal tax credit legislation
on January 1, 2004.