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VOL. 35 | NO. 36 | Friday, September 9, 2011




Cracker Barrel shareholder wants board seat

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NEW YORK (AP) - Cracker Barrel got a double headache Tuesday morning.

First, its largest shareholder launched a website criticizing the managers and asking for a seat on the board of directors.

A few hours later, the restaurant chain announced that its quarterly net income had plummeted 36 percent, as it paid more for ingredients and fewer customers came through the doors.

It all amounted to a rough morning for Sandra Cochran, on her second day as the company's CEO.

The shareholder, Sardar Biglari, is CEO of Biglari Holdings Inc., a San Antonio-based investment firm that owns a stake of more than 9 percent in Cracker Barrel Old Country Store Inc. He's been trying to gain seats on Cracker Barrel's board for himself and his vice chairman, complaining about falling revenue at restaurants open at least a year, a key measure of a company's health.

He also says the company should provide more detailed disclosures about its two units, t he restaurants and the retail stores. He also complained that the directors should invest more of their own money in the company's shares. The stock closed Monday at $39.86, down 27 percent for the year.

"I believe that the Cracker Barrel Board has failed to perform up to the Company's potential," Biglari wrote in an open letter to other shareholders. " ... But my efforts to work with the Board have been fruitless. Therefore, I am turning to you, the true owners of the Company."

Biglari also used the letter to announce the launch of a website, www.enhancecrackerbarrel.com , detailing his plans for the company. The annual shareholder meeting, where directors are elected, is traditionally held at the company's Lebanon, Tenn., headquarters in early December.

Cracker Barrel released a statement saying it disagreed with Biglari's accusations and would respond to them "in due course." The company also accused Bigl ari of trying to "divert the conversation" away from the quarterly earnings.

"We tried in good faith to reach an amicable resolution with Mr. Biglari in offering him the opportunity to appoint two independent seats on our board and we're disappointed that he has chosen to embark on a disruptive and costly proxy fight," Cracker Barrel said in a statement.

Cracker Barrel has previously said it can't allow Biglari on the board because his investment firm also owns Steak 'n Shake, a competitor.

Biglari says he refused the board seats because Cracker Barrel wouldn't let him nominate anyone affiliated with Biglari Holdings. Biglari says Cracker Barrel and Steak 'n Shake are different enough that they're not direct competitors.

Cracker Barrel also points out that it is already shaking up its headquarters, with the intention of generating sales and traffic. Since June, two longtime directors have announced they'll step down and the company has added three new ones. It has trimmed jobs at headquarters to save money. It named a new chief financial officer in December and last month announced that Michael Woodhouse, its CEO for 10 years, would step down from that role.

In Woodhouse's decade on the job, annual revenue has grown 18 percent to $2.43 billion from $2.07 billion. He is staying on the board as executive chairman.

Woodhouse was replaced as CEO Monday by Cochran, formerly Cracker Barrel's president and chief operating officer. A former Army captain and a chemical engineer by training, she led bookstore chain Books-A-Million from 2004 to 2009.

Cracker Barrel on Tuesday also reported disappointing results for its fiscal fourth quarter, which covered May through July.

Net income fell 36 percent to $17.5 million, or 75 cents pers share, from $27.4 million, as the company paid more for ingredients and fewer guests visited. On a per-share basis, earnings were 75 cents, missing analysts' expectations of 94 ce nts.

Quarterly revenue was basically unchanged at $612.9 million, compared to $612.5 million the year before. That missed analysts' estimates for $619.9 million, and the restaurant's own predictions for an increase of 1 to 2.5 percent this quarter.

Revenue at restaurants open at least a year fell 1.4 percent. That's an important measure because it excludes the impact of recently opened or closed stores. Traffic at restaurants open at least a year fell 4.2 percent. However, the size of the average check rose 2.8 percent.

Cochran said in a statement that she was "not satisfied" with sales and traffic.

To lure budget-conscious customers, the restaurant plans to introduce some lower-priced items and will emphasize affordability in advertisements, Cochran said. She also said that she believed the weak economy had crimped Americans' summer travel plans, which hurt the restaurant's sales. Cracker Barrel, known for homecooked-style food like meatloaf and biscu its, usually puts its stores near highways to appeal to travelers.

The company also raised the dividend, its quarterly cash payout to shareholders, to 25 cents per share from 22 cents.

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