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CRACKER BARREL OLD COUNTRY STORE, INC.

(CBRL)
  Report
Real-time Estimate Cboe BZX  -  02:29 2022-11-28 pm EST
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CRACKER BARREL OLD COUNTRY STORE, INC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-K)

09/27/2022 | 02:26pm EST
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") provides information which management believes is
relevant to an assessment and understanding of our consolidated results of
operations and financial condition.  MD&A should be read in conjunction with the
Consolidated Financial Statements and notes thereto.  Readers should also
carefully review the information presented under the section entitled "Risk
Factors" and other cautionary statements in this report.  All dollar amounts
(other than per share amounts) reported or discussed in this MD&A are shown in
thousands.  References in MD&A to a year or quarter are to our fiscal year or
quarter unless expressly noted or the context clearly indicates otherwise.

This overview summarizes the MD&A, which includes the following sections:

• Executive Overview - a general description of our business, the restaurant and

retail industries, our key performance indicators and the Company's performance

in 2022.

• Results of Operations - an analysis of our consolidated statements of income

(loss) for the three years presented in our Consolidated Financial Statements.




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• Liquidity and Capital Resources - an analysis of our primary sources of

liquidity, capital expenditures and material commitments.

• Critical Accounting Estimates - a discussion of accounting policies that

require critical judgments and estimates.

EXECUTIVE OVERVIEW


Cracker Barrel Old Country Store, Inc. (the "Company," "our" or "we") is a
publicly traded (Nasdaq: CBRL) company that, through its operations and those of
certain subsidiaries, is principally engaged in the operation and development of
the Cracker Barrel Old Country Store® ("Cracker Barrel") concept.  Each Cracker
Barrel store consists of a restaurant with a gift shop.  The restaurants serve
breakfast, lunch and dinner.  The gift shop offers a variety of decorative and
functional items specializing in rocking chairs, holiday gifts, toys, apparel
and foods.  As of September 14, 2022, the Company operated 664 Cracker Barrel
stores located in 45 states.  Effective October 19, 2019, the Company acquired
100% ownership of Maple Street Biscuit Company ("MSBC"), a breakfast and lunch
fast casual concept.  As of September 14, 2022, the Company operated 53 MSBC
locations in nine states, none of which are franchised.

Company Performance in 2022

Management believes that the Cracker Barrel brand remains one of the strongest and most differentiated brands in the restaurant industry, and we plan to continue to leverage and build on that strength as a core component of our business strategy.


Our long-term strategy remains centered on driving sustainable sales growth,
continued business model improvements, building profitable Cracker Barrel and
MSBC stores, and ultimately driving shareholder returns.

Fiscal 2022 included challenges from historically high commodity and wage
inflation, COVID-19 case count resurgences and record gas prices in the second
half of the fiscal year (adversely impacting consumers' discretionary income).
While navigating these challenges, we focused our efforts on maintaining a
strong value proposition, continued growth in our off-premise business,
delivering continued strong retail sales, marketing and culinary innovation to
grow average check through introduction of add-ons and menu enhancements,
thoughtful expansion of MSBC, and store-level operational excellence.

While our overall performance was not where we expected at the outset of the
fiscal year, and macro challenges worsened as the year progressed, we made
significant progress on many of our key business initiatives, and we continued
our focus on generating shareholder returns by paying $4.90 per share in
dividends for fiscal 2022 and declaring a dividend of $1.30 per share that was
subsequently paid on August 5, 2022 to shareholders of record on July 15, 2022,
totaling $143,744 dividends declared or paid in 2022, and repurchasing $131,542
in shares of our common stock.

Key Performance Indicators

Management uses a number of key performance measures to evaluate our operational and financial performance, including the following:

• Comparable store restaurant sales increase/(decrease): To calculate comparable

store restaurant sales increase/(decrease), we determine total restaurant sales

of stores open at least six full quarters before the beginning of the

applicable period, measured on comparable calendar weeks. We then subtract

total comparable store restaurant sales for the current year period from total

comparable store restaurant sales for the applicable historical period to

calculate the absolute dollar change. To calculate comparable store restaurant

sales increase/(decrease), which we express as a percentage, we divide the

   absolute dollar change by the comparable store restaurant sales for the
   historical period.


• Comparable store average restaurant sales: To calculate comparable store

average restaurant sales, we determine total restaurant sales of stores open at

least six full quarters before the beginning of the applicable period, measured

   on comparable calendar weeks, and divide by the number of comparable stores for
   the applicable period.




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• Comparable store retail sales increase/(decrease): To calculate comparable

store retail sales increase/(decrease), we determine total retail sales of

stores open at least six full quarters before the beginning of the applicable

period, measured on comparable calendar weeks. We then subtract total

comparable store retail sales for the current year period from total comparable

store retail sales for the applicable historical period to calculate the

absolute dollar change. To calculate comparable store retail sales

increase/(decrease), which we express as a percentage, we divide the absolute

dollar change by the comparable store retail sales for the historical period.

• Comparable store retail average weekly sales: To calculate comparable store

average retail sales, we determine total retail sales of stores open at least

six full quarters before the beginning of the applicable period, measured on

comparable calendar weeks, and divide by the number of comparable stores for

   the applicable period.



• Comparable restaurant guest traffic increase/(decrease): To calculate

comparable restaurant guest traffic increase/(decrease), we determine the

number of entrees sold in our dine-in and off-premise business from stores open

at least six full quarters at the beginning of the applicable period, measured

on comparable calendar weeks. We then subtract total entrees sold for the

current year period from total entrees sold for the applicable historical

period to calculate the absolute numerical change. To calculate comparable

restaurant guest traffic increase/(decrease), which we express as a percentage,

we divide the absolute numerical change by the total entrees sold for the

   historical period.



• Average check increase per guest: To calculate average check per guest, we

determine comparable store restaurant sales, as described above, and divide by

comparable guest traffic (as described above). We then subtract average check

per guest for the current year period from average check per guest for the

applicable historical period to calculate the absolute dollar change. The

absolute dollar change is divided by the prior year average check number to

calculate average check increase per guest, which we express as a percentage.




These performance indicators exclude the impact of new store openings and sales
related to MSBC and Holler & Dash Biscuit HouseTM ("Holler & Dash"), since we
acquired MSBC in the first quarter of 2020 and converted our Holler & Dash
locations into MSBC locations.

We use comparable store sales metrics as indicators of sales growth to evaluate
how our established stores have performed over time. We use comparable
restaurant guest traffic increase/(decrease) to evaluate how established stores
have performed over time, excluding growth achieved through menu price and sales
mix change. Finally, we use average check per guest to identify trends in guest
preferences, as well as the effectiveness of menu changes. We believe these
performance indicators are useful for investors to provide a consistent
comparison of sales results and trends across comparable periods within our
core, established store base, unaffected by results of store openings, closings,
and other transitional changes.

COVID-19 Impact and Company Response


During 2022, the Company continued to recover from the COVID-19 pandemic
(notwithstanding new variant outbreaks), and all dining rooms were open to some
extent during 2022.  While all our dining rooms are currently operating without
COVID-19-related restrictions, it is possible that renewed outbreaks or
increases in cases and/or further new variants of the disease, either as part of
a national trend or on a more localized basis, could result in COVID-19-related
restrictions including capacity restrictions or otherwise limit our dine-in
services, or negatively affect consumer demand.

In response to the COVID-19 pandemic, we instituted operational protocols to
comply with applicable regulatory requirements to protect the health and safety
of employees and guests, and we implemented and continually adapted a number of
strategies to support the recovery of our business and navigate through the
uncertain environment.  We continue to focus on growing our off-premise business
and investing in our digital infrastructure to improve the guest experience in
the face of these ongoing challenges.

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Restaurant and Retail Industries


Our stores operate in both the restaurant and retail industries in the United
States.  The restaurant and retail industries are highly competitive with
respect to quality, variety and price of the food products, availability of
carryout and home delivery, internet and mobile ordering capabilities and retail
merchandise offered.  We compete with a significant number of national and
regional restaurant and retail chains.  Additionally, there are many segments
within the restaurant industry, such as family dining, casual dining,
full-service, fast casual and quick service, which often overlap and provide
competition for widely diverse restaurant concepts.  Cracker Barrel primarily
operates in the full-service segment of the restaurant industry, and our growing
MSBC concept operates in the fast casual segment.  Competition also exists in
securing prime real estate locations for new stores, in hiring qualified
employees, in advertising, in the attractiveness of facilities and with
competitors having similar menu offerings or convenience features.  The
restaurant and retail industries are often affected by changes in consumer taste
and preference; national, regional or local economic conditions; demographic
trends; traffic patterns; the type, number and location of competing restaurants
and retailers; and consumers' discretionary purchasing power.

Additionally, economic, seasonal and weather conditions affect the restaurant
and retail industries.  Adverse economic conditions and unemployment rates
affect consumer discretionary income and dining and shopping habits.
Historically, interstate tourist traffic and the propensity to dine out have
been much higher during the summer months, thereby contributing to higher
profits in our fourth quarter.  Retail sales, which are made substantially to
our restaurant guests, are historically strongest in the second quarter, which
includes the holiday shopping season.

Severe weather events such as hurricanes, floods, tornadoes, and winter storms
may prevent or dissuade guests from visiting our stores, impair our ability to
staff our stores or force us to temporarily close affected stores, adversely
impacting our restaurant and retail sales.  Additionally, severe drought
conditions (such as the severe drought affecting much of the southwestern United
States) and associated restrictions on water use may impair restaurant
operations or increase costs in locations affected by such conditions. Climate
change, changing weather patterns or unpredictable weather patterns may increase
the incidence of any of these events and otherwise also impact guest visitation
patterns on a macro scale. In addition to its impact on store operations, severe
weather may also disrupt our supply chain, both in distribution to ports and
central warehouses and in distribution to local stores.  In general, we believe
that the geographic dispersion of our stores and multiple sources of
distribution adequately mitigate the potential impact of severe weather and
changing weather patterns on our stores, but our board of directors and
management team continually monitor and reexamine these considerations in light
of ongoing trends.

RESULTS OF OPERATIONS

The following table highlights operating results over the past three years:

Relationship to Total Revenue

                                                             2022             2021          2020
Total revenue                                                  100.0 %          100.0 %       100.0 %
Cost of goods sold (exclusive of depreciation and rent)         32.1             30.7          30.9
Labor and other related expenses                                35.2             34.8          36.7
Other store operating expenses                                  23.2             24.0          24.4
General and administrative                                       4.8              5.2           5.8
Gain on sale and leaseback transactions                            -             (7.7 )        (2.8 )
Impairment                                                         -                -           0.9
Operating income                                                 4.7             13.0           4.1
Interest expense                                                 0.3              2.0           0.9
Income before income taxes                                       4.4             11.0           3.2
Provision for income taxes (income tax benefit)                  0.4              2.0          (1.1 )
Net loss from unconsolidated subsidiary                            -                -          (5.6 )
Net income (loss)                                                4.0              9.0          (1.3 )



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Total Revenue


The following table highlights the key components of revenue for the past three
years:

                                                        2022            2021            2020
Revenue in dollars(1):
Restaurant                                           $ 2,565,628     $ 2,227,246     $ 2,032,030
Retail                                                   702,158         594,198         490,762
Total revenue                                        $ 3,267,786     $ 2,821,444     $ 2,522,792
Total revenue percentage increase (decrease)                15.8 %          11.8 %         (17.9 %)
Total revenue by percentage relationships:
Restaurant                                                  78.5 %          78.9 %          80.5 %
Retail                                                      21.5 %          21.1 %          19.5 %
Comparable number of stores                                  659             655             646
Comparable store sales averages per store: (1)
Restaurant                                           $     3,804     $     3,312     $     3,065
Retail                                                     1,052             890             737
Total                                                $     4,856     $     4,202     $     3,802
Restaurant average weekly sales (2)                  $      72.9     $      63.4     $      58.4
Retail average weekly sales (2)                             20.3            17.2            14.3
Average check increase                                       7.0 %           3.1 %           2.7 %
Comparable restaurant guest traffic
increase/(decrease) (3)                                      8.0 %          

5.3 % (21.6 %)



(1) Comparable store averages exclude MSBC and Holler & Dash.
(2) Average weekly sales are calculated by dividing net sales by operating weeks
and include all stores except for MSBC and Holler & Dash.
(3) Comparable store sales and traffic consist of sales of stores open at least
six full quarters at the beginning of the period and are measured on comparable
calendar weeks.  Comparable store sales and traffic exclude MSBC and Holler &
Dash.

Total revenue benefited from the opening of seven new MSBC units in 2022, two
new units for both Cracker Barrel and MSBC in 2021, and four new Cracker Barrel
units and one new MSBC unit in 2020, partially offset by the closing of one
Cracker Barrel unit in 2021 and one unit each for Cracker Barrel and Holler &
Dash in 2020.  Additionally, in the fourth quarter of 2022, the Company acquired
direct ownership of MSBC's seven franchised units from their respective
franchisees.

During 2020 and 2021, the COVID-19 pandemic negatively impacted our sales and
traffic as a result of both changes in consumer behavior and federal, state and
local governmental authorities' continuation of various restrictions on travel,
group gatherings and dine-in services.  Dining room service was operational to
varying degrees, yet most locations were impacted at times by capacity
restrictions, social distancing guidelines, and decreased consumer demand for
in-person dining.  In 2022, the Company continued to recover from the COVID-19
pandemic; however, we believe outbreaks of new variants adversely impacted
consumer demand in 2022.    All dining rooms were open to some extent during
2022 and most dining rooms operated with few, if any, restrictions.  Going
forward it is possible that renewed outbreaks, increases in cases and/or new
variants of the disease, either as part of a national trend or on a more
localized basis, could result in COVID-19-related restrictions including
capacity restrictions or otherwise limit our dine-in services, or negatively
affect consumer demand.

The following table highlights comparable store sales* results over the past two
years:

                               Period to Period
                             Increase (Decrease)
                       2022 vs 2021        2021 vs 2020
                       (659 Stores)        (655 Stores)
Restaurant                      15.0 %               8.4 %
Retail                          18.2                20.9
Restaurant & Retail             15.7 %              10.8 %

*Comparable store sales consist of sales of stores open at least six full quarters at the beginning of the year, are measured on comparable calendar weeks and exclude MSBC and Holler & Dash.

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Our comparable store restaurant sales increase in 2022 as compared to 2021 resulted from an average check increase of 7.0% (including a 5.9% average menu price increase) and an increase in guest traffic of 8.0%.

Our comparable store restaurant sales increase in 2021 as compared to 2020 resulted from an average check increase of 3.1% (including a 2.1% average menu price increase) and an increase in guest traffic of 5.3%.


Our retail sales are made substantially to our restaurant guests.  The increase
in our comparable store retail sales in 2022 as compared to 2021 resulted
primarily from the guest traffic increase and strong performance in the apparel
and accessories, food and convenience, toys, décor, and bed and bath merchandise
categories. The increase in our comparable store retail sales in 2021 as
compared to 2020 resulted primarily from the guest traffic increase and strong
performance in the toys, apparel and accessories, food and convenience and décor
merchandise categories.

Cost of Goods Sold (Exclusive of Depreciation and Rent)

The following table highlights the components of cost of goods sold in dollar amounts for the past three years:

                              2022           2021          2020
Cost of Goods Sold:
Restaurant                 $   706,125     $ 567,825     $ 515,663
Retail                         343,759       297,436       264,274
Total Cost of Goods Sold   $ 1,049,884     $ 865,261     $ 779,937


The following table highlights restaurant cost of goods sold as a percentage of restaurant revenue for the past three years:

                                 2022       2021       2020
Restaurant Cost of Goods Sold     27.5 %     25.5 %     25.4 %


The increase in restaurant cost of goods sold as a percentage of restaurant revenue in 2022 as compared to 2021 was primarily the result of commodity inflation of 13.1% partially offset by our menu price increase referenced above.

The increase in restaurant cost of goods sold as a percentage of restaurant revenue in 2021 as compared to 2020 was primarily the result of commodity inflation of 2.4% partially offset by lower food waste and a decrease in employee discounts. Lower food waste and the decrease in employee discounts both accounted for decreases of 0.1%.

We continue to partially offset inflationary pressures through menu price increases and operational improvements, and we presently expect the rate of commodity inflation to be approximately 8% in 2023 as compared to 13.1% in 2022.

The following table highlights retail cost of goods sold as a percentage of retail revenue for the past three years:

                             2022       2021       2020
Retail Cost of Goods Sold     49.0 %     50.1 %     53.8 %



                                       2022 Compared to 2021
                                     (Decrease) Increase as a
                                    Percentage of Total Revenue
Markdowns                                                   (1.4 %)
Provision for obsolete inventory                             0.4 %



The decrease in retail cost of goods sold as a percentage of retail revenue in 2022 as compared to 2021 resulted primarily from lower markdowns partially offset by the change in the provision for obsolete inventory.

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                                       2021 Compared to 2020
                                     (Decrease) Increase as a
                                    Percentage of Total Revenue
Markdowns                                                   (2.9 %)
Higher initial margin                                       (0.3 %)
Freight expense                                             (0.3 %)
Provision for obsolete inventory                            (0.2 %)
Inventory shrinkage                                         (0.2 %)
Discounts and allowances                                     0.2 %



The decrease in retail cost of goods sold as a percentage of retail revenue in
2021 as compared to 2020 resulted from lower markdowns, higher initial margin,
lower freight expense, the change in the provision for obsolete inventory and
lower inventory shrinkage partially offset by an increase in discounts and
allowances.

Labor and Other Related Expenses

Labor and other related expenses include all direct and indirect labor and related costs incurred in store operations. The following table highlights labor and other related expenses as a percentage of total revenue for the past three years:


                                    2022       2021       2020

Labor and other related expenses 35.2 % 34.8 % 36.7 %




The year-to-year percentage change in 2022 as compared to 2021 resulted from the
following:

                                2022 Compared to 2021
                              Increase (Decrease) as a
                             Percentage of Total Revenue
Store hourly labor                                    1.1 %
Store management expenses                            (0.7 %)



The increase in store hourly labor in 2022 as compared to 2021 as a percentage
of total revenue resulted primarily from wage inflation exceeding menu price
increases and lower productivity, i.e., fewer guests served per labor hours
incurred.  In addition to menu price increases, we continue to partially offset
inflationary pressures through labor productivity initiatives, and we presently
expect the rate of wage inflation to be approximately 5% in 2023.

The decrease in store management expenses as a percentage of total revenue in
2022 as compared to 2021 was primarily driven by lower bonus expense in 2022 and
the increase in total revenue in 2022 partially offset by wage inflation.  The
lower bonus expense resulted from lower performance against financial objectives
for certain components of the incentive plan in 2022 as compared to 2021.

The year-to-year percentage change in 2021 as compared to 2020 resulted
primarily from the following:

                                    2021 Compared to 2020
                                  (Decrease) Increase as a
                                 Percentage of Total Revenue
Store management compensation                            (1.5 %)
Miscellaneous wages                                      (0.8 %)
Employee health care expenses                            (0.2 %)
Store bonus expense                                      (0.1 %)
co hourly labor                                           0.8 %



In general, during 2021 as compared to 2020, certain expenses as a percentage of
total revenue materially decreased as a function of the significant increase in
total revenue and increased operations. In particular, the decreases in store
management compensation, miscellaneous wages, and store bonus expense as a
percentage of total revenue in 2021 as compared to 2020 were primarily driven by
the increases in total revenue in 2021.


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Lower employee health care expenses as a percentage of total revenue in 2021 as compared to 2020 resulted primarily from both lower claims activity and the increase in total revenue in 2021.


The increase in store hourly labor in 2021 as compared to 2020 as a percentage
of total revenue resulted primarily from wage inflation exceeding menu price
increases.

Other Store Operating Expenses


Other store operating expenses include all store-level operating costs, the
major components of which are operating supplies, repairs and maintenance,
utilities, depreciation and amortization, advertising, rent, credit card and
gift card fees, real and personal property taxes and general insurance.  The
following table highlights other store operating expenses as a percentage of
total revenue for the past three years:

                                  2022       2021       2020

Other store operating expenses 23.2 % 24.0 % 24.4 %

The year-to-year percentage change in 2022 as compared to 2021 resulted primarily from the following:

                           2022 Compared to 2021
                         (Decrease) Increase as a
                        Percentage of Total Revenue
Depreciation                                    (0.6 %)
Rent                                            (0.3 %)
Advertising                                     (0.2 %)
Maintenance                                      0.2 %
Other store expenses                             0.2 %


The decreases in depreciation expense, rent and advertising expenses as a percentage of total revenue for 2022 as compared to 2021 were primarily driven by the increase in total revenue in 2022.


The increase in maintenance expense as a percentage of total revenue for 2022 as
compared to 2021 resulted primarily from higher expenditures, which were the
result of increased repair costs associated with limited availability of
replacement equipment.

The increase in other store expenses as a percentage of total revenue for 2022
as compared to the same period in the prior year resulted primarily from costs
associated with the expansion of our off-premise business.

The year-to-year percentage change from 2021 as compared to 2020 resulted from
the following:

                                       2021 Compared to 2020
                                     (Decrease) Increase as a
                                    Percentage of Total Revenue
Depreciation                                                (0.8 %)
Real and personal property taxes                            (0.2 %)
Utilities                                                   (0.1 %)
Pre-opening expenses                                        (0.1 %)
Loss on asset disposition                                   (0.1 %)
Advertising                                                 (0.1 %)
Rent                                                         0.6 %
Other store expenses                                         0.4 %



In general, during 2021 as compared to 2020, certain expenses as a percentage of
total revenue materially decreased by the significant increase in total revenue
and increased operations. In particular, the decreases in depreciation expense,
real and personal property taxes, and advertising expense as a percentage of
total revenue for 2021 as compared to 2020 were primarily driven by the increase
in total revenue in 2021.

The decrease in utilities expense as a percentage of total revenue for 2021 as
compared to 2020 was primarily driven by the increase in total revenue in 2021
partially offset by higher natural gas, electricity, and water rates.

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The decrease in pre-opening expenses as a percentage of total revenue for 2021 as compared to 2020 resulted primarily from the timing of new store openings.

The decrease in loss on asset disposition as a percentage of total revenue for 2021 as compared to 2020 resulted primarily from increased repair and maintenance activity for equipment as opposed to asset disposal.


The increase in rent expense as a percentage of total revenue for 2021 as
compared to 2020 resulted primarily from the sale and leaseback transaction
involving 62 of our owned Cracker Barrel stores completed on August 4, 2020.
The aggregate initial annual rent payment for these properties is approximately
$10,393.  Additionally, the related rent expense includes $12,735 recorded in
2021 for the non-cash amortization of the asset recognized from the gain on the
Company's sale and leaseback transactions. See Note 9 to the Consolidated
Financial Statements for additional information regarding the Company's sale and
leaseback transactions.

General and Administrative Expenses

The following table highlights general and administrative expenses as a percentage of total revenue for the past three years:


                                      2022      2021      2020

General and administrative expenses 4.8 % 5.2 % 5.8 %




The year-to-year percentage change in 2022 as compared to 2021 resulted from
lower incentive compensation.  The decrease in incentive compensation as a
percentage of total revenue in 2022 as compared to 2021 was primarily the result
of lower performance against financial objectives in 2022 as compared to 2021.

The year-to-year percentage change in 2021 as compared to 2020 resulted from the
following:

                                     2021 Compared to 2020
                                   (Decrease) Increase as a
                                  Percentage of Total Revenue
Payroll and related expenses                              (0.5 %)
Professional fees                                         (0.2 %)
Depreciation expense                                      (0.1 %)
Travel expense                                            (0.1 %)
Incentive compensation expense                             0.3 %



The decreases in payroll and related expense and travel expense as a percentage
of total revenue in 2021 as compared to 2020 were primarily driven by cost
savings initiatives implemented in response to the COVID-19 pandemic and the
increase in total revenue in 2021.

The decrease in professional fees as a percentage of total revenue in 2021 as
compared to 2020 was primarily driven by lower fees related to sale and
leaseback transactions partially offset by additional proxy expenses related to
the proxy contest initiated by affiliates of Sardar Biglari in connection with
the Company's 2020 annual shareholders meeting held on November 19, 2020. The
reduction in total professional fees as a percentage of total revenue in 2021
was the result of higher fees associated with the initial sale and leaseback
transaction in the fourth quarter of 2020, when compared to the 2021 sale and
leaseback transactions and additional professional fees related to the proxy
contest in connection with the 2020 annual meeting of shareholders (held in the
second fiscal quarter of 2021).

The decrease in depreciation expense as a percentage of total revenue in 2021 as compared to 2020 was primarily driven by the increase in total revenue in 2021.


The increase in incentive compensation as a percentage of total revenue in 2021
as compared to 2020 was primarily driven by better performance against financial
objectives in 2021 as compared to 2020.

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Gain on Sale and Leaseback Transactions


On July 29, 2020, we entered into a sale and leaseback transaction involving 64
of our owned Cracker Barrel properties and recorded a gain of $69,954.  On
August 4, 2020, we entered into a second sale and leaseback transaction
involving 62 of our owned Cracker Barrel stores and recorded a gain of $217,722.
See Note 9 to the Consolidated Financial Statements for additional information
regarding these sale and leaseback transactions.

Impairment


During the third and fourth quarters of 2020, we determined that certain Cracker
Barrel and MSBC locations were impaired, resulting in impairment charges of
$22,496.  These locations were impaired because of declining operating
performance and resulting negative cash flow projections as a result of the
impact of the COVID-19 pandemic.  The Company did not incur similar impairment
charges in 2022 or 2021.  It is possible that we may recognize future additional
impairment charges as a result of the unknown impacts of the COVID-19 pandemic
and our response or for other business reasons.

Interest Expense

The following table highlights interest expense for the past three years:

                    2022         2021         2020
Interest expense   $ 9,620     $ 56,108     $ 22,327



The year-to-year decrease in 2022 as compared to 2021 resulted primarily from
lower weighted average debt levels, lower weighted average interest rates and
the prior year including costs associated with the termination of the Company's
interest rate swaps.

The year-to-year increase in 2021 as compared to 2020 resulted primarily from
the costs associated with termination of interest rate swaps, higher weighted
average debt levels caused by our borrowing under our 2019 Revolving Credit
Facility in response to the COVID-19 pandemic, higher weighted average interest
rates, and the cessation of interest income on Punch Bowl Social ("PBS")
promissory notes written off in the third quarter of 2020.  Additionally, as
part of our amendment to the 2019 Revolving Credit Facility in the third quarter
of 2021, we incurred additional interest expense of $452 related to the
write-off of deferred financing costs and we incurred interest expense of $768
related to the amortization of the original issue discount on our Notes.

Provision for Income Taxes (Income Tax Benefit)

The following table highlights the provision for income taxes (income tax benefit) as a percentage of income before income taxes ("effective tax rate") for the past three years:


                     2022       2021       2020

Effective tax rate 8.0 % 18.0 % (35.3 %)




The decrease in our effective tax rate in 2022 as compared to 2021 is primarily
the result of the decrease in income before income tax and the benefit of higher
income tax credits.  The increase in our effective tax rate in 2021 as compared
to 2020 is primarily the result of the increase in income before income tax.

We presently expect our effective tax rate for 2023 to be approximately 10% to 15%.

LIQUIDITY AND CAPITAL RESOURCES

The following table presents a summary of our cash flows for the last three years:


                                                          2022           2021           2020
Net cash provided by operating activities              $  205,253     $  301,903     $  161,002
Net cash provided by (used in) investing activities       (98,499 )       78,330       (157,226 )
Net cash provided by (used in) financing activities      (206,242 )     (672,636 )      396,336
Net increase (decrease) in cash and cash equivalents   $  (99,488 )   $ (292,403 )   $  400,112



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Our primary sources of liquidity are cash generated from our operations and our
borrowing capacity under our revolving credit facility. Our internally generated
cash, along with cash on hand at July 30, 2021 and borrowings under our
revolving credit facility, were sufficient to finance all of our growth, share
repurchases, dividend payments, working capital needs, interest payments on
long-term debt obligations and other cash payment obligations in 2022. We
believe that cash at July 29, 2022, along with cash expected to be generated
from our operating activities and the borrowing capacity under our revolving
credit facility, will be sufficient to finance our continuing operations, our
continuing expansion plans, debt service, dividend payments, share repurchases
and working capital needs for the next twelve months.  Furthermore, we believe
that cash expected to be generated from our operating activities and the
borrowing capacity under our revolving credit facility will be sufficient to
finance our continuing operations, capital expenditures, interest expense on
long-term debt obligations, operating lease obligations, continuing expansion
plans, share repurchases and working capital needs beyond the next twelve
months.

A summary of our contractual cash obligations and commitments as of July 29,
2022, is as follows:

                                                                       Payments due by Years
Contractual Obligations (a)             Total          2023          2024-2025       2026-2027      After 2027
2022 Revolving Credit Facility (b)   $   130,000     $       -     $         -     $   130,000     $          -
Convertible Debt (c)                     307,500         1,875           3,750         301,875                -
Leases (d)                             1,187,392        90,446         135,474         128,985          832,487
Purchase obligations (e)                  79,280        68,364           9,625           1,291                -
Other long-term obligations (f)           33,946            --           3,887              50           30,009
Total contractual cash obligations   $ 1,738,118     $ 160,685     $   152,736     $   562,201     $    862,496



                                                     Amount of Commitment Expirations by Years
                                       Total           2023          2024-2025       2026-2027      After 2027
2022 Revolving Credit Facility(b)   $   700,000     $        -     $         -     $   700,000     $           -
Convertible Debt (c)                    300,000              -               -         300,000                 -
Standby letters of credit(g)             31,896              -          31,896               -                 -
Total commitments                   $ 1,031,896     $        -     $    31,896     $ 1,000,000     $           -

(a) At July 29, 2022, the entire liability for uncertain tax positions (including

penalties and interest) is classified as a long-term liability. At this

time, we are unable to make a reasonably reliable estimate of the amounts and

timing of payments in individual years because of uncertainties in the timing

of the effective settlement of tax positions. As such, the liability for

uncertain tax positions of $17,991 is not included in the contractual cash

obligations and commitments table above.

(b) Our 2022 Revolving Credit Facility expires on June 17, 2027. Using our

weighted average interest rate of 3.49% and the outstanding borrowings at

July 29, 2022, we anticipate having interest payments of $4,543, $9,086 and

$9,086 in 2023, 2024-2025 and 2026-2027, respectively. Based on our

outstanding borrowings and our standby letters of credit at July 29, 2022 and

our current unused commitment fee as defined in the 2022 Revolving Credit

Facility, our unused commitment fees in 2023, 2024-2025 and 2026-2027 would

be $1,376, $2,753 and $2,613, respectively; however, the actual amount will

differ based on actual usage of the 2022 Revolving Credit Facility.



(c)  Our $300,000 aggregate principal amount of 0.625% Convertible Senior Notes
mature on June 15, 2026. The Notes bear cash interest at an annual rate of
0.625%, payable semi-annually in arrears on June 15 and December 15 of each
year.
(d) Includes base lease terms and certain optional renewal periods for which, at

the inception of the lease, it is reasonably certain that we will exercise.

(e) Purchase obligations consist of purchase orders for food and retail

merchandise; purchase orders for capital expenditures, supplies, other

operating needs and other services; and commitments under contracts for

maintenance needs and other services. We have excluded contracts that do not

contain minimum purchase obligations. We excluded long-term agreements for

services and operating needs that can be cancelled within 60 days without

penalty. We included long-term agreements and certain retail purchase orders

for services and operating needs that can be cancelled with more than 60

days' notice without penalty only through the term of the notice. We

included long-term agreements for services and operating needs that only can

be cancelled in the event of an uncured material breach or with a penalty

through the entire term of the contract. Because of the uncertainties of

seasonal demands and promotional calendar changes, our best estimate of usage

for food, supplies and other operating needs and services is ratably over

either the notice period or the remaining life of the contract, as

applicable, unless we had better information available at the time related to

    each contract.



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(f) Other long-term obligations include our Non-Qualified Savings Plan ($27,843,

with a corresponding long-term asset to fund the liability; see Note 12 to

the Consolidated Financial Statements), Deferred Compensation Plan ($2,166)

and our long-term incentive plans ($3,937).

(g) Our standby letters of credit relate to securing reserved claims under

workers' compensation insurance and securing certain sale and leaseback

transactions. Our standby letters of credit reduce our borrowing availability

under our revolving credit facility.

Cash Generated from Operations


The decrease in net cash flow provided by operating activities in 2022 as
compared to 2021 primarily reflected higher retail inventory, the timing of
payments for certain taxes and higher bonus payments made in 2022 as a result of
the prior year's performance.  The higher retail inventory in 2022 as compared
to 2021 was driven by unusually low retail inventory in 2021 resulting from
market constraints on the availability of goods.

The increase in net cash flow provided by operating activities in 2021 as
compared to 2020 primarily reflected the timing of payments for accounts payable
and certain taxes and lower bonus payments made in 2021 as a result of the prior
year impact of the COVID-19 pandemic on our operations in 2020.

Capital Expenditures and Proceeds from Sale of Property and Equipment

The following table presents our capital expenditures (purchase of property and equipment), net of proceeds from insurance recoveries, for the last three years:


                                                       2022          2021   

2020

Capital expenditures, net of proceeds from
insurance recoveries                                 $  97,104     $  70,130     $ 296,008



Our capital expenditures consisted primarily of capital investments for existing
stores, new store locations and strategic initiatives.  The increase in capital
expenditures in 2022 from 2021 resulted primarily from higher capital
expenditures for existing stores and an increase in the number of new store
locations partially offset by lower capital expenditures for strategic
initiatives.

On July 29, 2020, we entered into an agreement with the original lessor and a
third-party financier to obtain ownership of 64 Cracker Barrel properties and
simultaneously entered into a sale and leaseback transaction with the
financier.  The decrease in capital expenditures in 2021 from 2020 resulted
primarily from a similar transaction in 2021 as well as decreases in new store
construction, store remodels and other similar cost-saving measures in response
to the COVID-19 pandemic and lower capital expenditures for existing stores
partially offset by higher capital expenditures for strategic initiatives.

We estimate that our capital expenditures during 2023 will be approximately
$125,000. This estimate includes existing store maintenance and aging equipment
replacement, the acquisition of sites and construction costs of three to four
new Cracker Barrel stores and fifteen to twenty MSBC locations that we plan to
open during 2023, as well as acquisition and construction costs for store
locations to be opened in 2024, investments in digital and technology
infrastructure and the development of a loyalty program.  We intend to fund our
capital expenditures with cash generated by operations and cash on hand as the
result of borrowings under our revolving credit facility, as necessary.

The following table presents our proceeds from sale of property and equipment
for the last three years:

                                               2022        2021          2020

Proceeds from sale of property and equipment $ 105 $ 149,960 $ 207,253




In 2021 and 2020, we completed sale and leaseback transactions.  The decrease in
proceeds from sale of property and equipment in 2022 from 2021 resulted from the
sale and leaseback transaction in 2021.  The decrease in proceeds from sale of
property and equipment in 2021 from 2020 primarily relates to the proceeds from
the August 4, 2020 sale and leaseback transactions being lower than the July 29,
2020 sale and leaseback transaction.  See Note 9 to the Consolidated Financial
Statements for additional information regarding our sale and leaseback
transactions.

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Maple Street Biscuit Company


Effective October 10, 2019, we acquired 100% ownership of MSBC, a breakfast and
lunch fast casual concept, for a purchase price of $36,000, of which $32,000 was
paid to the sellers in cash with the remaining $4,000 being held as security for
the satisfaction of indemnification obligations, if any.  The first installment
of $1,500, to be held as security, was paid to the principal seller in the first
quarter of 2021, and the second installment of $1,500 was paid to the principal
seller in the first quarter of 2022.  We also incurred acquisition-related costs
of $1,269.  During 2020, we converted our six Holler & Dash locations into MSBC
locations.  We believe that the investment in MSBC supports our strategic
initiative to extend the brand by becoming a market leader in the breakfast and
lunch-focused fast casual dining segment of the restaurant industry and by
providing a platform for growth.

Punch Bowl Social


Effective July 18, 2019, we entered into a strategic relationship with PBS, a
food, beverage and entertainment concept, by purchasing a non-controlling equity
interest in the concept.  The PBS concept was developed to focus on
made-from-scratch food, a craft beverage program and social gaming.  At the time
of our investment, we believed the investment in PBS would provide a growth
vehicle to deliver additional shareholder value and extend our footprint into a
complementary market segment.  During the onset of the COVID-19 pandemic;
however, PBS Holdco's wholly-owned subsidiary and principal operating company,
PBS BrandCo, LLC ("Brandco") suffered unsustainable disruption to its business
across the chain and suspended all operations.  On March 20, 2020, the primary
lender under Brandco's secured credit facility ("Lender") provided notice of the
Lender's intention to foreclose on its collateral interest in Brandco unless
Cracker Barrel repaid or unconditionally guaranteed the indebtedness.  For
reasons previously disclosed in our public filings, we determined not to invest
further resources to prevent foreclosure or otherwise provide additional capital
to PBS and recorded a non-cash impairment charge on our investment of $132,878.

During the course of the pandemic, the Lender unsuccessfully sought a buyer for
Brandco and its assets, culminating in Brandco filing a petition for
reorganization under Chapter 11 of the United States Bankruptcy Code in December
2020.  In April 2021, the United States Bankruptcy Court for the District of
Delaware approved a plan of liquidation of Brandco, pursuant to which the Lender
purchased Brandco and certain of its assets and liabilities for a purchase price
of approximately $32,000, none of which proceeds were attributable to the
Company's interest in PBS.  Following the completion of this sale transaction,
the Company's remaining interest in PBS was determined to have no remaining
value.

Borrowing Capacity, Debt Covenants and Notes


On June 17, 2022, we entered into a five-year $700,000 revolving credit facility
(the "2022 Revolving Credit Facility") with substantially the same terms and
financial covenants as our previous amended $800,000 revolving credit facility
(the "2019 Revolving Credit Facility").  The 2022 Revolving Credit Facility also
contains an option for the Company to increase the revolving credit facility by
$200,000.

The following table highlights our borrowing capacity and outstanding borrowings
under the 2022 Revolving Credit Facility, our standby letters of credit and our
borrowing availability under the 2022 Revolving Credit Facility as of July 29,
2022:

                                                                          July 29, 2022
Borrowing capacity under the 2022 Revolving Credit Facility              $  

700,000

Less: Outstanding borrowings under the 2022 Revolving Credit Facility

130,000

Less: Standby letters of credit*                                            

31,896

Borrowing availability under the 2022 Revolving Credit Facility $

538,104



*Our standby letters of credit relate to securing reserved claims under workers'
compensation insurance and securing certain sale and leaseback transactions.
Our standby letters of credit reduce our borrowing availability under the 2022
Revolving Credit Facility.

During 2022, in addition to the refinancing of the revolving credit facility, we
borrowed $100,000 and repaid $55,000 of borrowings under the 2019 Revolving
Credit Facility.  During 2021, we repaid $924,395 under the 2019 Revolving
Credit Facility and borrowed an additional $60,000 under the 2019 Revolving
Credit Facility. During 2020, we borrowed $801,395 under the 2019 Revolving
Credit Facility to fund our dividend payments, acquisition of MSBC, other
working capital needs and to provide flexibility as a result of the uncertainty
caused by the COVID-19 pandemic.  During 2020, we repaid $252,000 of the
borrowings.

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Our 2022 Revolving Credit Facility contains customary financial covenants, which
include maintenance of a maximum consolidated total senior secured leverage
ratio and a minimum consolidated interest coverage ratio.  We were in compliance
with the 2022 Revolving Credit Facility's financial covenants at July 29, 2022,
and we expect to be in compliance with the 2022 Revolving Credit Facility's
financial covenants for the remaining term of the facility.

On June 18, 2021, the Company entered into an issuance and sale of $300,000
aggregate principal amount of 0.625% Convertible Senior Notes due 2026.  The
Notes are senior, unsecured obligations of the Company and bear cash interest at
a rate of 0.625% per annum, payable semi-annually in arrears on June 15 and
December 15 of each year, beginning on December 15, 2021. The Notes mature on
June 15, 2026, unless earlier converted, repurchased or redeemed.  Net proceeds
from the Notes were $291,125, after deducting the initial purchasers' discounts
and commissions and the Company's offering fees and expenses.

In connection with the issuance of the Notes, the Company entered into privately
negotiated convertible note hedge transactions (the "Convertible Note Hedge
Transactions") with certain of the initial purchasers of the Notes  and/or their
respective affiliates and other financial institutions (in this capacity, the
"Hedge Counterparties"), which cover, subject to customary anti-dilution
adjustments, the aggregate number of shares of the Company's common stock that
initially underlie the Notes. Concurrently with the Company's entry into the
Convertible Note Hedge Transactions, the Company also entered into separate,
privately negotiated warrant transactions with the Hedge Counterparties
collectively relating to the same number of shares of the Company's common stock
underlying the Notes, subject to customary anti-dilution adjustments, and for
which the Company received premiums that partially offset the cost of entering
into the Convertible Note Hedge Transactions (the "Warrant Transactions").  The
portion of the net proceeds to the Company from the offering of the Notes that
was used to pay the premium on the Convertible Note Hedge Transactions, net of
the proceeds to the Company from the Warrant Transactions, was approximately
$30,300.

See Note 5 to our Consolidated Financial Statements for further information on our long-term debt.

Dividends, Share Repurchases and Share-Based Compensation Awards


Our 2022 Revolving Credit Facility imposes restrictions on the amount of
dividends we are permitted to pay and the amount of shares we are permitted to
repurchase.  Under the 2022 Revolving Credit Facility, provided there is no
default existing and the total of our availability under the 2022 Revolving
Credit Facility plus our cash and cash equivalents on hand is at least $100,000
(the "Cash Availability"), we may declare and pay cash dividends on shares of
our common stock and repurchase shares of our common stock (1) in an unlimited
amount if at the time the dividend or the repurchase is made our consolidated
total senior secured leverage ratio is 2.75 to 1.00 or less and (2) in an
aggregate amount not to exceed $100,000 in any fiscal year if our consolidated
total leverage ratio is greater than 2.75 to 1.00 at the time the dividend or
repurchase is made; notwithstanding (1) and (2), so long as immediately after
giving effect to the payment of any such dividends, Cash Availability is at
least $100,000, we may declare and pay cash dividends on shares of our common
stock in an aggregate amount not to exceed in any fiscal year the product of the
aggregate amount of dividends declared in the fourth quarter of the immediately
preceding fiscal year multiplied by four.

In 2022, we paid regular dividends of $4.90 per share and declared a dividend of
$1.30 per share that was subsequently paid on August 5, 2022 to shareholders of
record on July 15, 2022 of $1.30 per share.  In 2021, in order to preserve
available cash during the COVID-19 pandemic and in light of the uncertainties as
to its duration and economic impact, we deferred the payment of the dividend of
$1.30 per share declared in the third quarter of 2020 until September 2, 2020 to
shareholders of record on August 14, 2020 and temporarily suspended future
dividend payments.  In the fourth quarter of 2021, in light of the ongoing
recovery from the COVID-19 pandemic, our Board of Directors resumed our dividend
program.

The following table highlights the dividends per share we paid for the last
three years:

                            2022       2021       2020
Dividends per share paid   $ 4.90     $ 1.30     $ 3.90



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Our criteria for share repurchases are that they be accretive to expected net income per share and are within the limits imposed by our debt commitments.

In

2020, in response to the COVID-19 pandemic, we temporarily suspended all share
repurchases until the fourth quarter of 2021.  Subject to the limits imposed by
our revolving credit facility, in September 2021, we were authorized by our
Board of Directors to repurchase shares at the discretion of management up to
$100,000.  In the fourth quarter of 2022, we were authorized by our Board of
Directors to repurchase shares of the Company's outstanding common stock at
management's discretion up to a total value of $200,000; this authorization
replaced the previous unused portion of the previous $100,000 authorization.

The following table highlights our share repurchases for the last three years:


                                        2022           2021          2020
Shares of common stock repurchased     1,248,184       232,543       378,974
Cost of shares repurchased           $   131,542     $  35,000     $  55,007



Working Capital

In the restaurant industry, substantially all sales are either for cash or
third-party credit card.  Like many other restaurant companies, we are able to,
and often do, operate with negative working capital.  Restaurant inventories
purchased through our principal food distributor are on terms of net zero days,
while other restaurant inventories purchased locally are generally financed
through trade credit at terms of 30 days or less.  Because of our gift shop,
which has a lower product turnover than the restaurant, we carry larger
inventories than many other companies in the restaurant industry.  Retail
inventories are generally financed through trade credit at terms of 60 days or
less.  These various trade terms are aided by rapid turnover of the restaurant
inventory.  Employees generally are paid on weekly or semi-monthly schedules in
arrears for hours worked except for bonuses that are paid either quarterly or
annually in arrears.  Many other operating expenses have normal trade terms and
certain expenses such as certain taxes and some benefits are deferred for longer
periods of time.

The following table highlights our working capital deficit:

                               2022           2021          2020
Working capital (deficit)   $ (185,048 )   $ (111,666 )   $ 191,956



The change in working capital at July 29, 2022 compared to July 30, 2021
primarily reflected the decrease in cash, higher accounts payable and the timing
of payments for income taxes partially offset by higher inventory levels.  The
decrease in cash resulted primarily from higher share repurchases partially
offset by net borrowings under of revolving credit facility.  The change in
working capital at July 30, 2021 compared to July 31, 2020 primarily reflected
the decrease in cash and timing of payments for certain taxes.  The decrease in
cash resulted primarily from higher debt repayments partially offset by lower
capex spending, cash generated from operations and lower dividend payments.

Off-Balance Sheet Arrangements

We have no material off-balance sheet arrangements.

Recent Accounting Pronouncements Adopted


See Note 2 to the accompanying Consolidated Financial Statements for a
discussion of recent accounting guidance adopted.  The adoption of accounting
guidance on income taxes discussed in Note 2 did not have a significant impact
on our consolidated financial position or results of operations.  See Note 2
regarding the impact of the adoption of the convertible instruments guidance.
The adoption of the accounting guidance for convertible instruments discussed in
Note 2 resulted in an increase in long-term debt of $49,242, a reduction in
deferred income taxes of $12,286  and a decrease in equity of $36,956 on the
Consolidated Balance Sheet.


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CRITICAL ACCOUNTING ESTIMATES


We prepare our Consolidated Financial Statements in conformity with GAAP. The
preparation of these financial statements requires us to make estimates and
assumptions about future events and apply judgments that affect the reported
amounts of assets, liabilities, revenue, expenses and related disclosures.  We
base our estimates and judgments on historical experience, current trends,
outside advice from parties believed to be experts in such matters and on
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying value of assets and liabilities that are not readily apparent from
other sources.  However, because future events and their effects cannot be
determined with certainty, actual results could differ from those assumptions
and estimates, and such differences could be material.

Our significant accounting policies are discussed in Note 2 to the Consolidated
Financial Statements.  Judgments and uncertainties affecting the application of
those policies may result in materially different amounts being reported under
different conditions or using different assumptions.  Critical accounting
estimates are those that:

• management believes are most important to the accurate portrayal of both our

financial condition and operating results; and

• require management's most difficult, subjective or complex judgments, often as

a result of the need to make estimates about the effect of matters that are

  inherently uncertain.



We consider the following accounting estimates to be most critical in understanding the judgments that are involved in preparing our Consolidated Financial Statements:

• Impairment of Long-Lived Assets

• Insurance Reserves

• Retail Inventory Valuation


• Lease Accounting


Management has reviewed these critical accounting estimates and related disclosures with the Audit Committee of our Board of Directors.

Impairment of Long-Lived Assets


We assess the impairment of long-lived assets whenever events or changes in
circumstances indicate that the carrying value of an asset may not be
recoverable.  Recoverability of assets is measured by comparing the carrying
value of the asset to the undiscounted future cash flows expected to be
generated by the asset.  If the total expected future cash flows are less than
the carrying amount of the asset, the carrying value is written down, for an
asset to be held and used, to the estimated fair value or, for an asset to be
disposed of, to the fair value, net of estimated costs of disposal.  Any loss
resulting from impairment is recognized by a charge to income.  Judgments and
estimates that we make related to the expected useful lives of long-lived assets
and future cash flows are affected by factors such as changes in economic
conditions and changes in operating performance.  The accuracy of such
provisions can vary materially from original estimates and management regularly
monitors the adequacy of the provisions until final disposition occurs.

We have not made any material changes in our methodology for assessing
impairments during the past three years and we do not believe that there is a
reasonable likelihood that there will be a material change in the estimates or
assumptions used by us to assess impairment of long-lived assets.  However, if
actual results are not consistent with our estimates and assumptions used in
estimating future cash flows and fair values of long-lived assets, we may be
exposed to losses that could be material.  During 2020, we recorded impairment
charges of approximately $23,000 due to the deterioration in operating
performance of certain Cracker Barrel and MSBC locations as a result of the
impact of the COVID-19 pandemic.  It is possible that we may recognize future
additional impairment charges as a result of the impacts of the COVID-19
pandemic and our response.

Insurance Reserves


We self-insure a significant portion of our expected workers' compensation and
general liability programs. We purchase insurance for individual workers'
compensation claims that exceed $300, $750 or $1,000 depending on the state in
which the claim originated.  We purchase insurance for individual general
liability claims that exceed $500.  We record a reserve for workers'
compensation and general liability for all unresolved claims and for an estimate
of incurred but not reported ("IBNR") claims.  These reserves and estimates of
IBNR claims are based upon a full scope actuarial study which is performed
annually at the end of our third quarter and is adjusted by the actuarially
determined losses and actual claims payments for the fourth quarter.
Additionally, we perform limited scope actuarial studies on a quarterly basis to
verify and/or modify our reserves.  The reserves and losses in the actuarial
study represent a range of possible outcomes within which no given estimate is
more likely than any other estimate.  As such, we record the losses in the lower
half of that range and discount them to present value using a risk-free interest
rate based on projected timing of payments. We also monitor actual claims
development, including incurrence or settlement of individual large claims
during the interim periods between actuarial studies as another means of
estimating the adequacy of our reserves.


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Our group health plans combine the use of self-insured and fully-insured
programs.  Benefits for any individual (employee or dependents) in the
self-insured group health program are limited.  We record a liability for the
self-insured portion of our group health program for all unpaid claims based
upon a loss development analysis derived from actual group health claims payment
experience.  We also record a liability for unpaid prescription drug claims
based on historical experience.

Our accounting policies regarding insurance reserves include certain actuarial
assumptions and management judgments regarding economic conditions, the
frequency and severity of claims and claim development history and settlement
practices.  We have not made any material changes in the methodology used to
establish our insurance reserves during the past three years and do not believe
there is a reasonable likelihood that there will be a material change in the
estimates or assumptions used to calculate the insurance reserves.  However,
changes in these actuarial assumptions or management judgments in the future may
produce materially different amounts of expense that would be reported under
these insurance programs.

Retail Inventory Valuation

Cost of goods sold includes the cost of retail merchandise sold at our stores
utilizing the retail inventory method ("RIM").  Under RIM, the valuation of our
retail inventories is determined by applying a cost-to-retail ratio to the
retail value of our inventories.  Inherent in the RIM calculation are certain
inputs, including initial markons, markups, markdowns and shrinkage, which may
significantly impact the gross margin calculation as well as the ending
inventory valuation.

Inventory valuation provisions are included for retail inventory obsolescence
and retail inventory shrinkage.  Retail inventory is reviewed on a quarterly
basis for obsolescence and adjusted as appropriate based on assumptions made by
management and judgment regarding inventory aging and future promotional
activities.  Retail inventory also includes an estimate of shrinkage that is
adjusted upon physical inventory counts.  Annual physical inventory counts are
conducted based upon a cyclical inventory schedule.  An estimate of shrinkage is
recorded for the time period between physical inventory counts by using a
two-year average of the physical inventories' results on a store-by-store basis.

We have not made any material changes in the methodologies, estimates or
assumptions related to our merchandise inventories during the past three years
and do not believe there is a reasonable likelihood that there will be a
material change in the estimates or assumptions in the future.  However, actual
obsolescence or shrinkage recorded may produce materially different amounts than
we have estimated.

Lease Accounting

We have ground leases for our leased stores and office space leases that are
recorded as operating leases under various non-cancellable operating leases.
Additionally, we lease our retail distribution center, advertising billboards,
vehicle fleets, and certain equipment under various non-cancellable operating
leases.

We evaluate our leases at contract inception to determine whether we have the
right to control use of the identified asset for a period of time in exchange
for consideration.  If we determine that we have the right to obtain
substantially all of the economic benefit from use of the identified asset and
the right to direct the use of the identified asset, we recognize a right-of-use
asset and lease liability.  Also, at contract inception, we evaluate our leases
to estimate their expected term which includes renewal options that we are
reasonably assured that we will exercise, and the classification of the lease as
either an operating lease or a finance lease.  Additionally, as our leases do
not provide an implicit rate, we use our incremental borrowing rate based on the
information available at the time of commencement or modification date in
determining the present value of lease payments. Assumptions used in determining
our incremental borrowing rate include our implied credit rating and an estimate
of secured borrowing rates based on comparable market data. We assess the
impairment of the right-of-use asset at the asset group level whenever events or
changes in circumstances indicate that the carrying value of the asset may not
be recoverable.

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Changes in these assumptions and management judgments may produce materially different amounts in the recognition of the right-of-use assets and lease liabilities. Additionally, any loss resulting from an impairment of the right-of-use assets is recognized by a charge to income, which could be material.

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