Good day, welcome to the Cracker Barrel Fiscal 2023 Second Quarter Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Kaleb Johannes, Vice President, Investor Relations, and Business Transformation. Please go ahead. Thank you. Good morning and welcome to Cracker Barrel's Second Quarter Fiscal 2023 Conference Call and Webcast. This morning, we issued a press release announcing our second quarter results. In this press release and on the call, we'll refer to non-GAAP financial measures for the second quarter ended January 27th, 2023. The non-GAAP financial measures are adjusted to exclude the non-cash amortization of the assets recognized from the gain on our sale and leaseback transactions and the related tax impacts. The company believes that excluding these items from the financial results provides investors with an enhanced understanding of the company's financial performance. This information is not intended to be considered in isolation or as a substitute for net income or earnings per share information prepared in accordance with GAAP. The last pages of the press release include reconciliations from the non-GAAP information to the GAAP financials. On the call with me this morning are Cracker Barrel's President and CEO, Sandy Cochran, Senior Vice President and CFO, Craig Pommells, and Senior Vice President and CMO, Jennifer Tate. Sandy and Craig will provide a review of the business, financials, and outlook. We will then open up the call for questions for Sandy, Craig, and Jen. On this call, statements may be made by management of their beliefs and expectations regarding the company's future operating results or expected future events. These are known as forward-looking statements, which involve risks and uncertainties that in many cases are beyond management's control or may cause actual results to differ materially from expectations. We caution our listeners and readers in considering forward-looking statements and information. Many of the factors that could affect results are summarized in the cautionary description of risks and uncertainties found at the end of the press release and are described in detail in our reports that we filed with or furnished to the SEC. Finally, the information shared on the call is valid as of today's date, and the company undertakes no obligation to update it except as may be required under applicable law. I'll now turn the call over to Cracker Barrel's President and CEO, Sandy Cochran. Sandy? Thank you. Good morning, everyone. This morning, we announced total sales growth of 8.3% and adjusted operating income margin rate of 4.5%. These results exceeded our expectations, and I was especially pleased with our continued strong retail and off-premise performance. I believe our results underscore the appeal of our brand, menu offerings, and merchandise, as well as the traction from our initiatives. While we continue to face macroeconomic headwinds and heightened uncertainty, we are making great progress on key initiatives, and I believe we're well-positioned to sustain our momentum and deliver further margin improvements in the back half of the year, driven by Q4. I'd now like to speak to some highlights from our second quarter. As you know, our second quarter is of outsized importance to us due to the Thanksgiving and Christmas holidays, and our teams once again executed at a high level and bolstered our leadership for these occasions, particularly in our off-premise channels. We again saw significant demand for our bundled holiday offerings, meaningfully grew our catering business, and offered seasonal culinary promotions, including Country Fried Turkey and Cinnamon Roll Pie, that continue to resonate with guests, as did the other menu items we introduced, such as our new sampler offerings. We saw and are continuing to see our catering channel do well, driven by enhancements we've made to our offerings and our optimized marketing support, and we're on track to achieve our target of growing this channel by 25% to $100 million this fiscal year. Our retail teams continued their streak of delivering strong results, which was especially impressive in light of the challenged retail backdrop and the performance we were lapping in the prior year. Guests responded enthusiastically to our holiday assortments, particularly our nostalgic blow molds, glitter globes, and holiday trim. Our retail margins, though well below last year's historically high levels, were in line with our expectations. From an operations standpoint, we remain focused on hospitality and the guest experience. We believe our staffing levels are solid, and we've seen improvements in both hourly and manager turnover. We're encouraged by the test results of our labor system, and we recently implemented it in over 150 stores, bringing the total to approximately 300, and are planning to complete the rollout to the substantial majority of the system by the end of the fiscal year. We believe this new system will enhance both the guest and employee experience while also delivering productivity improvements. From a guest visitation perspective, we again saw gains with the lower-income guests, as we believe our strong value proposition continues to appeal to this group, who remain pressured by the macroeconomic environment. We saw moderate improvement in year-over-year visitation from guests 65 and over, which was in part due to lapping Omicron, and visitation among younger guests was relatively flat compared to the prior year. Maple Street opened two locations during the quarter, both of which were in new markets, Columbus, Ohio, and Houston, Texas, and we're encouraged by the performance of these new locations. The team continues to prepare for successfully scaling, and we're looking forward to accelerating their growth in the back half of the fiscal year and beyond. Fred will now cover our second quarter results in greater detail and provide an update on our expectations for the fiscal year. Once he's finished, I'll provide some additional details about upcoming initiatives. Thank you, Sandy. Good morning, everyone. For the second quarter, we delivered top-line results that surpassed our expectations for both restaurant and retail. Total revenue was $933.9 million, an increase of 8.3% over the prior year quarter. From a monthly cadence, our performance in November and December was generally in line with our expectations, and January outperformed as we benefited from a larger than anticipated benefit from lapping Omicron, as well as favorable weather during the month. Restaurant revenue increased 9.4% to $718 million, and retail revenue increased 4.7% to $215.9 million versus the prior year quarter. Comparable store total sales, including both restaurant and retail, grew by 7.4%. Comparable store restaurant sales grew by 8.4% over the prior year, driven primarily by approximately 9% pricing, roughly half of which was carryforward pricing from fiscal 2022 and half of which was new pricing. Traffic declined 1.7%, which was in line with industry trends. We continue to closely monitor the impact our pricing has had on traffic and check. We remain pleased that we have not seen any meaningful pushback from our guests in this regard. We also saw favorable menu mix of over 1%, driven by increased sales for our shareable Barrel Bites and beverages. Off-premise sales were approximately 23% of restaurant sales. As a reminder, off-premise mix is elevated during the second quarter due to the seasonally high sales for our bundled holiday offerings and catering business. Comparable store retail sales increased 4.1% compared to the second quarter of the prior year. Apparel, decor, and food delivered the largest increases by category. Moving on to our second quarter expenses. Total cost of goods sold in the quarter was 35% of total revenue versus 32.9% in the prior year quarter. Restaurant cost of goods sold in the second quarter was 29.3% of restaurant sales versus 27.4% in the prior year quarter. This 190 basis point increase was primarily driven by commodity inflation of 12.5%, partially offset by pricing, and to a lesser extent, by a change in mix of menu items as well as higher freight. We experienced inflation across most of our market basket, while the primary drivers of the year-over-year increase in Q2 were poultry, dairy, and produce. Second quarter retail cost of goods sold was in line with our expectations at 54% of retail sales versus 50.4% in the prior quarter, which, as a reminder, was an atypically low COGS rate. This 360 basis point increase was primarily driven by more normalized promotional activity. Our markdown rates remained favorable when compared to historical levels. Our inventories at quarter end were $187 million compared to $154 million in the prior year. The increase was primarily due to carrying more retail product to support higher sales and to a lesser extent, a normalization in timing of deliveries. With regard to labor costs, our second quarter labor and related expenses were 33.6% of revenue versus 34.4% in the prior year quarter. This 80 basis point decrease was primarily driven by sales leverage, partially offset by hourly restaurant wage inflation of 7%. Adjusted other operating expenses were 22% of revenue versus 21.9% in the prior year quarter. This 10 basis point increase was primarily driven by higher maintenance, utilities, and supplies expense resulting from inflation, partially offset by lower depreciation and advertising expense resulting from sales leverage. Finally, our general and administrative expenses in the second quarter were 4.8% of revenue versus 5% in the prior year quarter. This 20 basis point decrease primarily resulted from sales leverage. All of this culminated in GAAP operating income of $39 million. Adjusted for the non-cash amortization of the asset recognized from the gains on the sale and leaseback transactions, operating income for the quarter was $42.2 million or 4.5% of revenue. Net interest expense for the quarter was $4.4 million compared to net interest expense of $2.2 million in the prior quarter. This increase is the result of higher interest rates and a higher level of borrowing. Our GAAP effective tax rate for the second quarter was 11.8%. Second quarter GAAP earnings per diluted share were $1.37, and adjusted earnings per diluted share were $1.48. In the second quarter, EBITDA was $67.7 million or 7.3% of total revenue. Now turning to capital allocation and our balance sheet. We remain committed to a balanced approach to our capital allocation. Our first priority remains invested in the growth of Cracker Barrel and Maple Street. We plan to return capital to our shareholders while maintaining appropriate flexibility and a conservative balance sheet. In the second quarter, we invested $27 million in capital expenditures, and we returned $34 million to shareholders in the second quarter through a combination of dividends and share repurchases. We ended the quarter with $454 million in total debt. With respect to our 2023 outlook, I would like to provide some additional color on the guidance in this morning's release. We're pleased with our Q2 results, and we're confident we will sustain our momentum in the second half of the year. I want to remind everyone we continue to operate in an environment with heightened uncertainty that makes predicting the balance of the year even more challenging than normal. Turning to the guidance. We currently expect total fiscal 2023 revenue growth over the prior year of 7%-9%. This is primarily driven by pricing, which we now anticipate will be approximately 8.5% for the full year. As previously mentioned, we remain prudent and thoughtful in our approach to pricing and continue to utilize multiple approaches to monitor guest reactions to price increases. We anticipate the opening of three-four new Cracker Barrel locations and approximately 15 new Maple Street locations. Our updated expectations for Maple Street reflects the possibility that some units that were planned to open late in fiscal 2023 may slip into early fiscal 2024, primarily as a result of construction delays. We now anticipate commodity inflation of approximately 8.5%-9% for the fiscal year. This assumes mid-single-digit inflation in Q3 and low single digit inflation in Q4. Our current outlook for commodity inflation reflects updated expectations for Q4. While we now expect lower inflation in some protein categories compared to our previous outlook, this favorability is being more than offset by higher anticipated inflation in eggs and produce. We now expect restaurant hourly inflation of 6.5% for the fiscal year. The labor market for restaurants and hospitality remains relatively tight, which is resulting in a slower than anticipated moderation of wage inflation. We now expect to deliver approximately $25 million in cost savings during this fiscal year. In addition to the above assumptions for revenue growth, commodity and wage inflation and cost savings, our operating income margin expectation continues to contemplate the following assumptions. Continued inflationary pressures in other areas of the P&L, most notably supplies, utilities, and maintenance, moderation in retail margin compared to the prior year near historic high, and incentive compensation normalization, which will have a meaningful impact on G&A in Q3 and Q4. Taking all of this into account, we expect full year adjusted operating income margin in the high 4% range, including 4.3%-4.7% in Q3 and 6.5%-7% in Q4. We also believe there is upside in our operating income expectation if there were to be further moderation in the commodity environment and potential downside if there were to be deterioration of the consumer environment or if inflation fails to moderate or further increases. Lastly, we expect a GAAP effective tax rate of 10%-12% and an adjusted effective tax rate of 11%-13%. We anticipate that capital expenditures for the full year will be approximately $110 million-$120 million. I'll now turn the call back over to Sandy so she may share additional details around our business plans and outlook for fiscal 2023. As Craig outlined, while we continue to operate in an uncertain environment and face some headwinds, our outlook is optimistic. Despite this backdrop, we're confident that we'll deliver further margin improvements in the back half of the year, primarily driven by margin gains in Q4. I'd now like to speak to some Q3 highlights. I'm excited about several menu initiatives that we believe will further reinforce our value leadership, which we think is critical in the current environment, while also introducing new craveable offerings. Our current menu promotion and advertising campaign is focused on value and variety, reminding guests that we have over 20 meals for under $12, including several hearty signature favorites. Additionally, we recently introduced new $5 take-home offerings. With the purchase of any entree, guests have the choice to add one of three additional entrees, which includes a protein and side for just $5. We've been encouraged by what we've seen so far and believe this is yet another way we can provide value to and build affinity with our guests. We remain thoughtful and deliberate on how we're taking pricing. We're being mindful to maintain the value sections of our menu and attractive entry price points. We continue to closely monitor the effects of our pricing actions and believe our strategy is appropriately balancing protecting margins while also preserving our value strength. In addition to focusing on value, we continue to enhance our menu, currently featuring a new Cheesy Bacon Homestyle Chicken, which is part of the 20 under $12. We're also seeing success with recent innovation at the breakfast daypart with offerings such as our Homestyle Chicken and French Toast. Both of these offerings are examples of how we continue to leverage our signature fried chicken and innovate our menu. For off-premise, we're looking forward to the Easter occasion and expect we'll see strong demand for our Easter bundled offerings. We're continuing to enhance our catering menu as well. Regarding retail, we believe the strong value and uniqueness of our merchandise will continue to have cross-generational appeal. Our Easter assortments are off to a good start, and we're excited about other seasonal assortments that we believe will also resonate with guests. In closing, we had a solid quarter. We delivered quarterly results that exceeded our expectations. Our initiatives are gaining traction, and we're making progress on our margin recovery. We remain confident in our strategies and believe we're well positioned to drive continued performance through our strategic initiatives and our focus on operational excellence, menu innovation, value, technology, and the guest experience. Finally, I want to thank our employees for their strong efforts and continued dedication. With that, I'll turn the call over to the operator for your questions. We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Jeff Farmer with Gordon Haskett. Please go ahead. Great. Thank you and good morning. You touched on it, but you're looking for $25 million of cost savings from and business model improvements, I should say. I guess the question is what drove that increase in the guidance in terms of flow-through? How much of that do you expect to flow through versus being reinvested? Good morning, Jeff. This is Craig. The increase in the guidance is a function of we've continued to add projects to our cost save list. I mean, as you think about how to address inflation, obviously there's a price component, and you constantly are looking for ways to make the business more efficient, and that's an ongoing process. So as more of those projects have gone from idea to confidence, high confidence that we'll implement them successfully, we have increased that, the cost saves as a result. In terms of the skew of the cost save, it's heavily weighted towards the second half of the year versus the first half of the year. Having said that, what I would say is the cost saves, some of that's being used to partially mitigate inflation in terms of commodity and in terms of wage. We have a gross cost save number. Some of that's being invested to drive things like different technology initiatives, and some of it's being used to partially mitigate cost increases in areas like maintenance and commodities and so on. It sounds like you're probably not going to be a little bit more specific than that. If it's $25 million gross, is half of it being reinvested or is there some sort of, you know, marker level you can provide for us? Yeah. You know, the inflation numbers that we've shared, for example, has the benefit of the, of the cost saves in them already. If I were to say how much is it flowing through net net, I think there's a risk of some double counting because we've already included it in some of our other guidance amounts. Okay. Just one more quick one. I apologize if I missed this, just in terms of February trends, sort of moving through the Omicron favorability, anything you guys offered? Again, I apologize if I missed it on February trends. Anything you can offer there? Clearly, January on a year-over-year basis was a big positive in large part because of Omicron, but also weather was quite favorable. It was warmer than normal. February has been, you know, much more consistent with our overall expectations. Clearly a moderation from January, but that was an unusual time period, and February is in line with expectations. All right. Thank you. Our next question comes from Todd Brooks with The Benchmark Company. Please go ahead. Hey, thanks for taking my questions. Appreciate it. First, if I can explore dine-in performance. Sandy, you talked about the buckets of strength at holiday being off-premise, being catering, but what are we seeing as far as dine-in performance, either if you wanna compare traffic levels to pre-pandemic or compare sequentially to what you were seeing in fiscal Q1, that would be helpful. Hey, good morning, Todd. It's Craig. I'll start us, you know, I'll start us off. On a one-year basis. You know, the consumer has shifted in a lot of ways, okay? On a one-year basis, we have continued to see, you know, some improvement in dine-in on a one-year basis. Dine-in is clearly still down versus pre, you know, versus pre-COVID. Yeah. I think those are, you know, those are the highlights. Dine-in is growing certainly with in sales and also with traffic. Relative to pre-COVID, we're still, you know, still down, but we've seen tremendous gains in off-premise or individual to-go, third party, and catering has been a particularly strong bright spot that we've made a focus area that's also driving our off-premise business. Okay. Craig, just to follow up there. Can you share how much of that $25 million in growth in catering is already kind of in the barn now that we're through the important holiday season? You want me to take that? Sure, Jen. I'll turn it over to Jen for that one. Yeah. I think what we would say is that Q2 exceeded our expectations in terms of off-premise. We were up 40% year-over-year in terms of catering, so we felt really, really good about the progress we made in the second quarter in catering. That's also true in terms of our third-party delivering. We had a solid quarter there as well. We definitely feel like we are well on track to hit that goal that we set out for the year. Q2 is our strongest. Okay, great. Yeah. With respect to catering, Q2 is the biggest quarter. Yes. Great. Great. Then a final one, I'll jump back in queue. On the pricing strategy, I know kinda coming out of last quarter, you were targeting maybe 8% menu price increase. I think the full year now has crept up another 50 basis points. Can we maybe talk about continued increases in the face of maybe a moderating, especially commodity, outlook going forward? How does price roll off? With the incremental, I think you said half of the increase you're running now occurred during the quarter. Do we stay at a steady kind of 8.5% through the balance of the year? Is it lumpier now that we've got... I don't know the timing of the other roll-offs. Thanks. Hi, Craig. It's Todd. The pricing, we have that 8.5 on the year. For Q2, about half of that is the rollover from prior year, and the other half is the accumulation of the pricing action so far in this fiscal year. For the back half of the year, the overall pricing level cumulative, meaning the prior year rollover as well as pricing in this fiscal year, we expect to remain in the high 8% range. Just mathematically, as you go throughout the year, we will have less of that price is gonna be driven by actions that we took in the prior year, but we will benefit from pricing actions, for example, that we took in Q1. Upper 8% range for Q3 and Q4. Okay, thanks. I'll jump back in the queue. Our next question comes from Alton Stump with Loop Capital. Please go ahead. Great. Thank you. Good morning. You know, thanks for taking my question as always. You know, just wanted to ask you about the competitive environment. You know, there's obviously been a lot of news flow. You know, this time of year certainly, you know, is typically more promotional anyway. You know, even more so with consumers, you know, the concern about a recession or, you know, et cetera. You know, what are you seeing competitively? You know, is it worse than it usually is this time of year? You know, do you think it's, you know, on par with, you know, what you had thought heading into the first of the calendar year? Alton, I'll start and then let Jen sort of wrap up. As we mentioned, our focus in Q3 certainly has been on reinforcing the value that we believe is on our menu with our 20 under $12, and now we've introduced our $5 Take Home. Our marketing messaging will be largely about that because we believe value will be important. I think our competitors would agree based on the advertising we're seeing. We're seeing more, I would think, and I'll let Jen speak to detail, where it would appear they are either reintroducing or reinforcing the value on their menus and promotions. It's not dissimilar to what we went through back in 2010 and 2009 when the industry was coming out of a difficult economic time and consumers were challenged then. I would assume it's going to continue, if not accelerate. Yeah. I think Sandy said it really well. We're definitely seeing an increase in the number of price pointed, discounted, promotional messaging, you know, especially with some of our big competitors. What we're really focused on is talking about the fact that we just have so many items on our menu that are price pointed well from $8.99, $9.99, $10.99. You know, we have over 20 things, 20 meals that are under $12. We start, very soon- Promoting all of that across all channels of our media mix, just to drive home the point that whatever day part you come in, there are familiar favorites, but also new enticing innovations that are under $12. We'll be focusing on that strong everyday value and promoting that the balance of the year as well as that new platform of $5 Take Home, which we think will, you know, really give people added value and extra reason to make a visit to Cracker Barrel. We've seen really strong response so far on that. You know, I do think the competitive environment is heating up, but our intention is to continue to double down even more strongly on the great value we have on our menu. I'm gonna add to that a little, Jen, just 'cause while we're pleased with everything, Jen just said about value, we do continue to be pleased with the work we're doing on the check building initiatives that we have, our beverage attachments, our premium sides, our Barrel Bites and those things. We're watching all of that, especially with the price increases we're taking to be sure that for those guests who either are looking for something maybe more indulgent or can afford it, that those items are on the menu and we're seeing that they are still choosing them. For those guests that are looking for value, I think our investment over the last few years in ensuring the value is still there and now the marketing around it will be helpful. Got it. Thank you. That's some great color from both of you. Thanks so much. I will hop back in the queue. Our next question comes from Katherine Griffin with Bank of America. Please go ahead. Hi. Thank you. I wanted to ask about the, fourth quarter commodities outlook. I think that went from expectations of deflationary to low single digits inflation. I was just wondering, kind of how you could rank order what the main drivers of that were. Yeah. Hey, good morning, Katherine. The top two are going to be eggs and produce. Certainly I think if you were to, from a spot market perspective, you know, eggs went way up hundreds of% and then it's moderating. Relative to our contracts and formula prices, we were in a much more favorable position with eggs. Now, given the current market conditions, even though it's moderated from a spot market perspective, we do expect egg prices to be higher than our prior projections in Q4, and the same goes for produce. The good news is that we are seeing solid developments that are in line with our expectations on most in most proteins. Okay. Understood. Then just on the Maple Street unit outlook, I'm guessing that changes there. You called it some construction headwinds. I was just wondering if you could elaborate on that. Is that sort of supply chain constraints, labor, permitting? What do you mean by construction headwinds? All of that. Different stores have different. Some cases it's permitting is the issue. Some communities have, don't have as many people to do it. It takes longer to get it. In some cases, we can't get the equipment. In some cases, we can't get the labor to do the construction. It's every one of those categories, we probably have at least one issue in. It's less so a problem for the Cracker Barrel stores. It's less of one because we have fewer stores. On each of the ones we have, it is a problem. We actually are delayed on one of our new units because we couldn't pour the footings because of both weather and labor. This is likely to be a problem for a little while longer while the supply chain problems and the labor issues continue to work their way through the system. Got it. Okay. Thank you. I'll hop back in the queue. Our next question comes from Jake Bartlett with Truist Securities. Please go ahead. Great. Thanks for taking the question. My first is on the, on the top line, and there's still a very wide range for the year, which means a very, very wide range for the back half in terms of the revenue guidance. My rough math is, you know, just over 6% to just over 10%, you know, kind of range of revenue growth in the back half. Craig, and Sandy, you've talked about kind of the volatility of results kind of, you know, leading to some of that caution of the wide range. It seems like the volatility we've seen so far has been to the upside, you know, given the really strong January. You know, what are some signs that give you concern, about demand, you know, and kind of, you know, lead you to keep that range so wide even though we have half the year in the bag? Hey, good morning, Jake. You said it actually when you set it up. The underlying environment is much more volatile than is normal. I think given that volatility, that just implies to us a wider range. It kind of goes hand in hand. Our experience so far this fiscal has been that we're meeting our expectations, but the path from A to B, as we saw in January, for example, there's more movement than normal. As we think about our second half of the year, there are some assumptions built in that if they, to the degree that they play out very positively, will put us on the high end of the range, and to the degree that they don't, would put us on the low end of the range or maybe even put some risk. For example, in the second half of the year, we're going to be comping on the effects of the Ukraine war, which impacted gas prices, you know, specifically, which impacts how folks travel and what they do while they're on their travel trip. We also saw a sharp negative sentiment from our over 65 guests, and they were monitoring that, and it really had a negative halo in their minds in their outlook for their financial future. Our expectation in our guidance, there is an expectation that we're gonna comp over that, and that will be a positive. Now, to the degree that there is something else that's negative that, you know, offsets that, then that would impact us negatively. Got it. Got it. Okay. Then I wanna dig in a little bit more on the commodity and the COGS new guidance. If you can tell us what you have contracted at this point. I think the last time you spoke, it's 45%. If you could just give us an idea as to what's contracted and then also what we should look out for. You know, of the exposure out there, what are you most sensitive in the back maybe that you don't have contracted for, you know, that we can really, you know, monitor and see whether you're kinda, you know, on track or to hit that guidance. In the back half of the year, you know, we are carrying about 10% less coverage than we did last year at this time. That's a function of while, you know, spot market prices are coming down, but the spot market's a little different from your contracted price. Because the spot market's coming down, it's coming down off of highs. As a result of all of that, it hasn't seemed prudent to us to lock in to the degree that, you know, that we have traditionally. There are. That really extends across a variety of areas of our market basket. Less coverage than normal, but the rationale behind that is the spot market's coming down, but it's still high, and there is a lot of risk aversion with the suppliers. You know, they do not wanna provide the degree of coverage at the premium that they traditionally would. That math is starting to change, but it hasn't changed as yet. I would say, as you know, we carry a fairly broad market basket in terms of our concentration in different areas. There is exposure. That exposure to market forces is higher than it's been really across most of those. We do have a fair amount of coverage, but less than we normally would. We also have some formula prices out there, and those formulas have some exposure. It's probably not as black and white of an answer as you would like. More exposure than normal, but the underlying environment is also starting to look more favorable from a commodities perspective. Okay. Then, last question. You know, within COGS, there's been for the last four quarters a big, you know, bad guy in there, something that's causing your COGS to be higher. If I look at, you know, in the second quarter, 9% price, 12.5% commodities, you know, there was more pressure on COGS. Basically, there's kind of an unspoken for kind of 3.9%, you know, quote-unquote, inflation. It's been a bad guy. I I think there's freight in there, you know, mix. Does that switch to become, you know, a good tailwind in the next couple quarters, you know, as some of those normalize? Is that how we should think about it? We had about roughly 60 basis points off of menu mix. That menu mix is coming from some of the work that we've done to just, you know, really provide guests more options to upgrade. Those have come with a higher check in the form of PMIX, but it's also come with a higher COGS%. It's margin favorable, but the COGS% has increased as a result. As you notated, we started seeing that play out to some degree in about Q3 of last year, and it got increased a little bit further in Q4 of last year. We'll be comping on that. I do not anticipate a major tailwind in that regard, but I also do not anticipate the headwind to the same degree. Having said all of that, you know, really we're providing, we've continued to give guests flexibility in terms of how they choose to use us, and we're keeping our lower entry price points. To the degree that guests opt into things that have a higher price, those items typically come with a higher cost of goods sold. That's fairly normal. To the degree that that continues to happen, I wouldn't be surprised that that is a COGS headwind. As of this point, as you noted, we will be comping over when that started in Q3. Great. I appreciate it. Thank you. Our next question comes from Andrew Wolf with C.L. King. Please go ahead. Thank you. Good morning. Wanted to start with the labor system where you've mentioned it's beginning to roll out or it is being rolled out to about half the chain by now. How is You know, could you just give us an update how it is doing versus sort of the achieving, you know, the milestone, let's say, in getting to the KPIs, you know, that you've targeted? As I understand it, a lot of it is to do with matching, you know, work with, you know, with guest traffic and so on. Is this something where, you know, ultimately it's a labor productivity metric that, you know, you could either share with us or we could try to figure out on our own? Yes. Good morning, Andrew. Let me start with that. First of all, we've got our new, we call it here, PCM labor, in about 300 stores now, but we just rolled about the last 150, and we are continuing to be pleased with the results. As you said, the system does a variety of things, but it primarily helps matching the specific labor that a store needs with the sales they anticipate, sort of by category. You know, catering sales have different labor demands than dine-in, which is different than, individual off-premise. And it helps the stores match labor to the specific time of day and type of business that they're trying to do. Gives them better visibility to their sales. It just allows them to better match. It also has a benefit for the employee experience. Employees are able to access the system and do a variety of things that helps them. It has this benefit to the employee experience. I think in general, we believe it will allow us to better manage our labor. I would imagine it will help us improve productivity, but I don't anticipate Craig giving specific guest per labor hour productivity metrics on that one component. There's a lot of other things in our labor line, management labor, over a whole lot of other components that roll up to the guidance. Yeah. I think, Andrew, in the $25 million cost save, we've got, I think it's about 40% coming out of cost of sales, and I think we've got about 40% coming out of labor. This is a component of that labor component. Okay. Appreciate that color. The other question I wanted to ask you, is if I heard it right, I think, you know, the younger cohort visits or sales were about flat year-over-year. I know that is a strategic target to increase penetration. Can you kinda give us? Is it kinda seasonality because you're selling more of other stuff like the catering related items in Thanksgiving and Christmas? Or is it? You know, do you think some of the marketing programs or product programs are kinda just sort of in a phase where they need to be, you know, you're waiting for loyalty program, for example? Is it just sort of a timing issue? Andrew. Hi, it's Jen. I think, you know, for Q2 specifically, we were unchanged with our younger cohorts. As we look back over several quarters, we have seen sort of steady, modest improvement with those younger cohorts. I think this was just a quarter where we didn't see gains. We did see some, you know, some modest improvement with our older guests in this particular quarter. I can't say whether that was seasonality or most likely that piece, the older guests returning, was due to the wrapping of the Omicron wave. We were pleased to see obviously some of our older guests coming back, and we do believe a significant portion of those will continue to return. It's just hard to say how many when. We, you know, we have been working to diversify our guest base, and we are pleased with the progress we've seen in increasing frequency with the younger guests. Q2 just wasn't a particularly meaningful quarter with the younger cohorts. Overall, we feel good about that. We do have a lot planned, you know, towards the end of the year to continue those efforts to bring in more younger folks, one of the biggest ones being the launch of our loyalty rewards program. You remain on track to launch the program in your fiscal fourth quarter, the loyalty program? You know, we are working very hard to meet that timing, and we certainly do intend to launch in the fourth quarter. Okay. Thank you. If you have a question, please press star then one. Our next question comes from Jon Tower with Citibank. Please go ahead. Jon, your line might be on mute. We're gonna go to the next questioner, Todd Brooks with The Benchmark Company. Please go ahead. Hey, thanks. Just a couple quick follow-ups here. An earlier question, you were talking about Maple Street and construction frictions. I just wanted to start to look out to the forward year. If this is a 15-unit type of year, and you're building a pipeline of sites, a pipeline of talent, and then taking the frictions into account, which hopefully will ease going into fiscal 2024 for you, what's a reasonable growth expectation? If you open 15 next year, you think you could open 20 in the out year? How should we start to frame that up? Hi, Todd. It's Craig. At this time, it's still early enough in the planning process that we're not prepared to share our fiscal 2024 openings as yet. Okay, fair enough. My second follow-up is on the retail gross margins. I know we talked in the quarter that just ended about a normalization in kind of markdown rates, and we saw that in the gross margin. When I look at Q3, because we've been so clean, the past couple of years from an inventory standpoint, we've seen kind of retail gross margins in that 47% range. Historically, in a normalized environment, they've been more in the mid 48%-49% range. Just wondering, how clean are the inventories? Do the markdowns carry over into this quarter? Should we think about that old historical kind of 48%-49% range, or is there a shot to do the 47% again? Thanks. Well, I'll start on the inventory and then turn it over to Craig to see what he how specific he wants to get on retail guidance. The inventories are actually, I'd say very clean. I think our retail teams did a good job of managing through particularly our seasonal inventories. The, first of all, the consumers loved them, and so that we went into the season with strong sales. As we got closer, they really did a good job of managing the markdown, so we were able to clear a lot of inventory at a higher price than I think we would have if we had waited longer. Particularly, we had a big storm right at the Christmas weekend. I feel good about where inventories are now. In terms of margin expectations for the quarter, I generally we're gonna be in more of a normalizing standpoint from now on, which is not as good as last year, but better than 2019, is kind of what I'm. Exactly. That's exactly right. We're The retail business is doing great. They're on track. We're very pleased. The margin approach is returning to normal. I think last year's Q3, we were still lower than normal, and by Q4 we were much closer. I would say as we go forward, it's closer to where we've been traditionally pre-COVID. Okay, very helpful. Thank you both. Our next question comes from Katherine Griffin with Bank of America. Please go ahead. Hi, thank you. I wanted to ask about a little bit more on off-premise. I think with that coming in a little stronger than expected, maybe reflecting, you know, some sort of structurally stronger demand, I'm just wondering if you could talk more about any of the changes you made in the restaurants, either, you know, with respect to technology or adapting the physical layout, in order to fulfill that demand? I'll turn it over to Jen to if she has more specifics, Katherine. First of all, the second quarter is historically a very strong off-premise quarter for us. We have lots of opportunities for whether it's celebration meals and the catering or our heat and serve programs or just individual to-go. I think in each category, our teams really did a good job of delivering. We had our operations teams have been really focused on the guest experience with off-prem and in improving accuracy and in, you know, delivering the particularly on Thanksgiving and Christmas, we do a lot of that business actually often at our back door, and it's managed really well. We invested in more marketing against our catering. I think some of the menu optimization items that we had available were good. Our catering sales managers, that team did a great job of selling our catering to lots of businesses as we went into the holidays. It was really a lot of work done by a lot of our teams that delivered the results. Jen, you wanna add anything to that? Well, that was pretty good. Yeah, I would just say our off-premise business is composed of 40% individual to-go pickup, 40% third-party delivery, and then 20% like catering and heat and serve. During this quarter, the two strongest parts of the off-premise business were indeed the third-party delivery and then our catering and heat and serve. I would say that big drivers of that were marketing efforts in terms of third party and catering and improving accuracy, which has really helped delivery. You know, getting fully staffed with those catering sales managers, 'cause we saw strong growth in the B2B sales there. Expanding that delivery network for catering so that all of our stores in our, in our whole system can deliver catering, that was really important. We are doubling down on marketing because we do have such a strong platform with catering and third party. We plan to continue that the balance of the year. We also did, launch and improve our digital app. Yeah, the app that we've now got a native app that has done really well, and our, and our app ratings are strong, and I think 4.8 was the latest I saw in the Apple Store. That's been a huge improvement. We're seeing a lot of customer adoption of that and an increased usage of that for placing these orders. Great. Thanks. Great color. This concludes our question and answer session. I would like to turn the conference over to Sandra Cochran for any closing remarks. Well, thank you for joining us today. We appreciate the interest. I'm pleased with our Q2 results, believe our strategy and execution will sustain our momentum and drive continued performance improvements in the second half of the fiscal year. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.