Q4 2019 Earnings Call
Ladies and gentlemen, today's conference is scheduled to begin shortly please continue to standby. Thank you for your patience.
[music].
Ask a question during the session you'll need to press star one on your telephone if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today, Stacy Feit, Vice President of Investor Relations. Thank you. Please go ahead.
Thanks.
Good afternoon, and welcome to our fourth quarter fiscal 2019 earnings call on the call today or David Overton, Our chairman and Chief Executive Officer, David Gordon, Our President and not Clark, our executive Vice President and Chief Financial Officer.
Before we begin let me quickly remind you that during this call items, we discuss that are not based on historical facts and are considered forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Actual results could be materially different from those stated or implied forward looking statements.
Results of the factors detailed in today's press release, which is available on our website investors got the Cheesecake factory Dot com and in our filings with the Securities and Exchange Commission.
All forward looking statements made on this call speak only as of today's date and the company undertakes no duty to update any forward looking statement.
In addition throughout this conference call, we will be presenting results on an adjusted basis.
Explanation of our use of non-GAAP financial measures and reconciliations to the most directly comparable GAAP measures appear in our press release on our website as previously described.
David overtime will begin today's call with some opening remarks, and David Gordon will provide an operational update not will then take you through our financial results in detail and provide our outlook for the first quarter and the full year 2020.
With that I'll turn the call over to David Overton [laughter]. Thank you Stacy comparable sales at the Cheesecake factory restaurants, again outperformed the casual dining industry during the fourth quarter, our operators executed very well.
Peculiar strings labor management, which contributed to solid restaurant profitability.
This drove bottom line results.
Core business within our guidance range.
During the fourth quarter. We also men are 2019 development objectives.
We opened three cheesecake factory restaurants, including Grand Rapids, Michigan, where we have seen incredible pent up demand as well as coral gables in Orlando, Florida, We opened the north Italian restaurant Charlotte two forward child locations opened in Mclean, Virginia in Dallas.
In addition, three Cheesecake factory restaurants opened internationally [laughter] under licensing agreements during the fourth quarter, including the first location in Macau [laughter] location, Mexico, and the fourth location in Saudi Arabia for a total of six locations opened during fiscal 2019 as expect.
Right.
Looking ahead to 2020, we continue to expect or unit growth to meaningful we excel accelerate with the opening of as many as 20 new restaurants.
Adding six cheesecake factory locations.
North Italian restaurants, and eight restaurants within the University subsidiary, which now include sportswear were trials locations given the shift in timing.
Oh, one new unit. We also continue to expect as many as for Cheesecake factory restaurants to open internationally under licensing agreements.
This quid unit growth supports or 8% total revenue growth objectives.
I'd like to take a moment to think or teams together, we accomplished so much in 2019.
The Cheesecake factory was recognized as one of the top restaurant brands for both food quality and ambience and the nation's restaurant news consumer pick survey just yesterday. We also named to Fortune magazine's 100 best companies to work for lives for the seventh consecutive year. We again, we're the only restaurant company I believe.
And finally, we closed on the acquisitions of North Italia, and Fox restaurant concepts reinforcing our leadership positions in experiencing some timing.
We continue to believe the combination of or companies will drive long term value.
For our shareholders I guess and staff members.
I'll now turn the call over to David Gordon.
Sure David.
During the fourth quarter, we continue to drive year over year increases in both manager and I really stop retention, which we believe go hand in hand, with delivering great guest experiences and ultimately comp store sales performance.
Sure so proud to be up and recognized as a great place to work underscoring our position as a best in class employer, which will continue to be crucial door future success.
Our industry, leading retention engagement as what wasn't even sharper focus on service and hospitality contributed to sequential increases in our guest satisfaction metrics across both the dining and off premise occasions.
And we're continuing to drive momentum in our off premise business, which comprise 70% of Cheesecake factory sales in the fourth quarter.
We also saw year over year growth in our online ordering platform for pickup orders.
Overall, we remain pleased with how well the cheesecake factory resonates with our purpose guests and our differentiated offering continues to be it in increasing increasingly competitive market.
The on premise channel is also served as a great testing ground for marketing initiatives as we're applying these learnings to the business more broadly to drive comp store sales.
We're planning to continue to test a variety of additional marketing lovers and 2020 as we look to continue to increase unaided awareness of the Cheesecake factory and further lean into convenience.
Specifically, we were encouraged by the initial results of the TV campaign, we ran last year and are planning to do another test later this year.
Secondly, we recently rolled out limited reservations and our locations nationwide.
One of the biggest hurdles for our guests to be our long wait times. So we're hoping this additional convenience will encourage guests who are more pressed for time to dine with us.
Based on the deliberate approach, we're taking and the results of our initial test we expect our guest throughput to be consistent.
We also have some additional in restaurant traffic driving initiatives as well as continued collaborative marketing campaigns across day parts with our delivery provider planned for later in the year.
At the same time, we're also focused on continuing our stable four wall margin performance as we work to maintain our food efficiency and overall effective labor management 2020.
Turning to our consumer package goods business were recently announced Cheesecake factory branded I screen, which will be a first an ice cream do include real cheesecake ingredients right in the mix.
Inspired by our legendary Cheesecakes, several flavors will be available or retailers nationwide beginning this month.
We generated tremendous attention from the initial story the people magazine broke with more than 600 million media impressions, including follow on pieces and throw less bullish and cosmopolitan.
And our official announcement yesterday has driven another significant wave uplift publicity and social media engagement.
Finally, the integration of North Italia continues to proceed smoothly.
That we saw manager and staff retention increased following the close of the acquisition.
And we drove strong performance with fourth quarter compelled comparable sales up 4% continuing the trend a meaningful industry outperformance, but that I will now turn the call over them out for our financial review. Thank you David.
We closed out 29 team, where we anticipated.
The completion of the acquisitions.
I see that accounting impacts created some expected noise in the fourth quarter result.
And they're also some inconsistency in the street models, so I want to take a moment to briefly summarize our fourth quarter results.
Cheesecake factory comp store sales were within our expectations.
Solid operational execution enabled us to continue to stabilize restaurant level margins assisted factory, excluding the impact of lease account.
This drove bottom line results for the core business within the 61 to 66 cents range. We provided on our last call when using the underlying tax rate assumption in our guidance range.
In addition, the impact from the recent acquisitions to fourth quarter results.
Was also within the 12 to 15, so range we provided.
With respect to North Italia, specifically restaurant level margins were impacted by about 300 to 400 basis points from a timing and classification of certain expenses versus the acquisition close.
This is a fourth quarter specific impact given the closing of the acquisition and will not continue into 2020.
No further details on a consolidated results.
Fourth quarter comparable sales at the Cheesecake factory restaurants increased 8.6%, including an approximately 30 basis points negative impact from weather related and other temporary closures.
Revenue contribution from North Italia never see including comparable restaurant sales growth of 4% and North Italia and approximately $90000 in sales per operating way did I foresee totaled $92 million.
And including $19.3 million, an external bakery sales total revenues were $694 million during the fourth quarter.
Cost of sales was 22.8% of revenues a decrease of approximately 20 basis points from a fourth quarter last year, reflecting menu price leverage.
Labor was 36.2% of revenues an increase of 40 basis points from a fourth quarter last year. This is primarily attributable to higher hourly wage rates as expected.
Other operating costs were 26% of revenues up 200 basis points from the same period last year. This is primarily due to the additional non cash rent associated with the adoption of a new lease accounting standard across our concepts.
There were also a variety of puts and takes in other areas, including planned higher marketing costs and unfavorable workers comp insurance at the Cheesecake factory.
Pre opening expense was approximately $6.3 million in the fourth quarter 2019 versus $5.1 million in the same period last year.
We had six openings across concepts in the fourth quarter of 29 team versus three openings in the same period last year.
June it was approximately 6.8% of revenues in the fourth quarter fiscal 2019 as expected.
Was up 50 basis points from the same quarter of the prior year, given an unfavorable year over year comparison.
The incremental bonus accrual and some minor de leverage from the FRC acquisition in the quarter on a four year basis Gionee as a percentage of sales was consistent with our expectations.
Finally during the fourth quarter, we recorded a pretax charge of $18.2 million, which was primarily comprised of non cash impairment of four restaurants as well as lease termination expense associated with Grand Lux Cafe, Austin, Rocksugar Oak Brook, which discontinued operations on December 30, Onest as their performance was not meeting our expectations.
Excluding the impairment as well as other special items, which included a $52.7 million gain on investment and unconsolidated affiliates $2.1 million, an acquisition related costs and $1 million, an acquisition related contingent consideration compensation and amortization adjusted or.
As per share for the fourth quarter of 2019 was 58 cents, which was well within our expectations.
Cash flow from operations for fiscal 2019 was approximately $226 million roughly $74 million was used for capital expenditures and we returned $112 million to our shareholders via our dividend and share repurchase program.
Also ended the year with $290 million drawn on a revolving credit facility slightly less than the level, we had anticipated.
As we've done in the past we continue to provide our best estimate for earnings per share ranges based on the realistic comparable sales assumptions and the most current cost information we have at this time.
These assumptions factor everything we know as of today, which includes quarter to date trends, where we think will happen in the weeks ahead, I mean effects of any impacts associated with holidays or whether.
In addition, we're providing some additional direction to assist in your modeling of a consolidated company.
This will not be an ongoing practice, but given the transactions. We thought this would be helpful and aligning your 2020 assumptions.
For the first quarter of 2020, we estimate adjusted diluted earnings per share between 69, and 74 cents based on comparable sales at a range of 1% to 2% at the Cheesecake factory restaurants, and total revenue of approximately $715 million to $720 million.
Turning to full year 2020, we're estimating comparable sales in a range of 1% to 2%, but the cheesecake factory restaurants, and total revenue of approximately $2.9 billion.
We now expect to North Italia, an opportunity to contribute approximately $425 million in revenue in 2020, given some shifts and the timing of new openings.
On the cost side, we continue to expect food inflation for 2020 market basket.
Approximately 2% an hourly wage inflation of about 5.5%.
With regard to the specific expense lines on a consolidated basis and the panel we would expect some slight leverage on the cost of sales volumes.
We anticipate some slight deleverage on the labor line, given our wage rate inflation assumption.
We expect other operating expenses as a percentage of sales to be relatively consistent with fiscal 2019 results.
We expect gionee as a percentage of sales to be roughly in line with the fiscal 2019 levels and anticipate some slight D. Some slight leverage DNA.
In total operating margins before Preopening would then be expected to be fairly consistent year over year at the midpoint of our range.
Based on our anticipated new unit openings, we expect approximately $23 million and Preopening expenses about 60% of which we expect in the back half of the year.
And we continue to expect North foresees operating income to cover the approximately $8.5 million in interest expense associated with the acquisition financing and therefore continue to expect the acquisitions to be approximately neutral to earnings per share in fiscal 2020, excluding acquisition related costs.
To reiterate margins of the acquired concepts were impacted by the timing classifications of certain expenses versus the acquisition close which was specific to the fourth quarter, our expectations for north Italian FRC margins remained consistent with our initial modeling.
Sides, and incremental 50 basis point net impact from lease accounting, which reflects some additional non cash rent expense, partially offset by some favorability in DNA.
Finally, we anticipate a 22000 tax rate of approximately 9%.
Based on these assumptions, we're estimating adjusted diluted earnings per share between $2.70 and $2.86 for fiscal 2020.
Note that this range is on an adjusted basis, excluding an estimated $2 million and acquisition related costs and $1 million in contingent consideration compensation and amortization per quarter each.
With regard to capital allocation.
We expect our cash capex in 2020 to be between 130 and $140 million to support anticipated new unit growth across the concepts and ongoing maintenance needs.
We will also have a 17 million dollar cash outflow for deferred consideration associated with the acquisitions.
In closing, we made significant strides in 2019 to position the company for long term profitable growth.
We stabilized four wall margins at the Cheesecake factory achieved our earnings per share objective in every quarter of the year when completed the acquisitions of North Italian FRC, reinforcing our leadership position and experimental dining.
Looking to 2020, we are executing our strategic roadmap to build cheesecake factory sales and maintain margins.
Drive performance, a normal Italian FRC and accelerate our unit growth will continuing or capital return programs to maintain a balanced capital allocation strategy and maximize long term value for our shareholders.
With that said, we'll take your questions in order to accommodate as many questions as possible. Please limit yourself to one question and then review with any additional questions.
Okay.
As a reminder to ask a question you in the press Star one on your telephone to withdraw your question press the pound or Husky. Please standby only compiled the Q and a roster.
Your first question comes from Sharon deal with William Blair. Your line is open.
Hi, Good afternoon, I guess a question around the marketing in the limited reservations I guess the first question is how are you getting the word out on a limited reservations and I think you said, you're starting to roll that out. So if you could kind of clarify where it is and I kind of what that process might look like.
And then I remember.
Other causes of obviously done this how are you managing that from a throughput perspective are you just assuming certain table turns and then restaurants and tables open up are you actually quite a whole tables that you could talk to us about that.
Hi, sharing this David Gordon Thanks for the question.
So today limited reservations are alive, and all restaurants across the country.
We launched nationally just a few weeks ago.
And when I say limited, we're able to manage throughput due to the fact that they're limited thats not that you can maximize every seat in the restaurant with reservations everyday of the week. So.
Every time slot throughout the week, we've allocated a certain amount of tables to be available for reservations and at the same time, let guests know that they can always walk in so that they're not under the impression that were only taken reservations and they're all available through yelp.
And so we're marketing that through Yelp, you can go into our website and see reservations are now available at anytime you want to Yelp and look of Cheesecake factory you'd be able to make reservation right through yelp with one click.
Right right on the site.
Is there any thought of doing a tag line on the TV marketing.
We're still evaluating what the market is going to look like.
Because we are going to do some additional TV marketing, we havent decided yet what that marketing might exactly look like so we'll see.
Okay. Thank you.
Your next question comes from John Glass with Morgan Stanley. Your line is open.
Thanks, very much the two two related questions, perhaps just on the fourth quarter I know you said, both the cake in the acquisition.
Costs through within expectations, but can you just reconcile I think you said 61 to 66 and then you said 12 to 15 cents I don't know.
If you add those together it gets to be less than the number you just reported some maybe if there's if as we had just to reconcile it to understand how the splits versus what you thought.
And then I just want to make sure I understand your view on restaurant margins next year with FRC, it's neutral can margins, except for the lease accounting and that's 50 basis points. It was a 50 basis points just on their margin. If you could just explain what what you meant by that.
Sure John So the first part is.
The best way I would sort of triangulate. This when we do provide sort of a non-GAAP table, but to try to put those pieces together probably the one piece.
It is not in the non gap to the get to the 58 cents to try to get back to what was the interest expense, which we sort of added in when we said the 12 to 15 cents. So I think if you adjust for that youre going to be right, where we thought we would be if that makes sense.
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The second part is the 50 basis points versus our initial modeling not compared to sort of year over year comparison was the impact of lease accounting for just the north and FRC pieces. So.
Total company basis, it's not not material on those within the guidance that we're providing right now.
Okay. Thank you.
Your next question comes from Joshua along with Piper Soundly. Your line is open.
Great. Thanks for taking the question.
Labour Management was mentioned a couple times in the prepared comments skews might be able to update us there you've had some initiatives in place now and curious if.
You've gained some more learnings are those have been able to expand a bit in terms of.
Where they've been either rolled out or how they're being executed at the store level to help support those strong labor margins.
Sure. John This is Matt I think you know the biggest things we've been focused on we continue to make traction on.
Those include improvements and retention, obviously again being named number 12 on the list. This year for fortune is great and reflective of our ability to attract and retain those employees. So that continues to be a driver for us I also think wage management.
We saw slight tick down in the fourth quarter closer to 5% versus the 5.5%. So that was a part that made it effective for us.
Overtime management was solid all year and this is just about good operations and good systems and practices right. So we're just continuing to refine our ability to attract and manage those key pieces of making sure that we're not paying more both the right amount for talent not overpaying with you over time and keeping people will be.
Does that helps manage the the training and in all the costs associated with bringing somebody else on board. So we saw positive movements in all of those areas that we've been working on this year.
Great very helpful and one quick one on the CPG.
Section, if we might curious on good great to see than product expansion. There curious if you could give updates in terms of.
How far you penetrated within that segment either in outlets or just how you're framing up the potential for for growing that that side of the business.
Sure Josh as David.
Currently products are for sale that over 70 retailers nationwide.
The freight though the brown breadth that we launched last year is doing incredibly well.
Our sales last year doubled our sales in 2018, just on that one product.
The launch of the ice cream, which is happening here at the end of the month and into next month is going to be strong national distribution at launch there'll be a broad set of retailers, representing thousands of doors, including Kroger Albertsons Safeway target.
So I think most importantly, what we've seen is that there are folks out there who continue to be excited about the brand and sharing the affinity and love for Cheesecake factory with these different products and we continue to see growth in just about every sector and the ice cream I think is.
Ingenuity live and different and innovative which is what we are a cheesecake factory. So we're excited to get that launched we think that there'll be great demand for it.
Great. Thank you.
Okay.
Your next question comes from David Tarantino with Baird. Your line is open.
Hi, good afternoon.
My questions about the comps for the core Cheesecake factory business than first I was wondering if you could breakout.
Check and traffic components of that for the backward looking quarter for Q4.
And then I guess my my main question is.
Following.
Couple of soft quarters in the back half of last year.
Wondering if you could just.
Maybe walk us through your thoughts on on why the 1% to 2% guidance for this year makes sense and what your particularly focused on in terms of driving traffic to achieve that number.
Sure do this is Matt.
So the just a cover off the technical piece on the Cheesecake comp for the quarter pricing was 3.2, there was a positive mix of 1.2 and traffic was the delta there and obviously within the mix pieces, we've said before the significant part of that.
Is related to how we capture the off premise and.
The driver there so it's probably a little bit of of noise. So net net it was pretty consistent with the third quarter in kind of then that relates to your second part of the question.
Certainly.
In this quarter as we look at it I think you're seeing some positivity.
And casual dining.
And I think we do move a little bit what the industry.
I also think specifically to what we're working on as David Gordon commented on we are increasing our marketing efforts I think we've seen good results. When we've done I think there's good ROI. So I think that's one piece of it I think another piece on the reservations, while we're anticipating.
To manage the throughput there that's something different for us and I think an opportunity. So when we look at what we're doing and then the environment, which doesnt feel that much different we feel like we can build a little bit of on where we have been we also continue to have great sales with our delivery and off premise business from continue.
To grow that we are incrementally doing things to move up from the run rate that we were out I think you know as we move into the back half of your we'll have to watch and see what the environment as light to make sure that things were doing our enough to continue to build upon the run rate that were out.
Thank you for that and then just one quick one on pricing are you still planning to or what is the level of pricing that's a banner and your outlook.
3%.
As is our basic estimate for 2020.
Great. Thank you very much.
Your next question comes from Gregory Francfort with Bank of America. Your line is open.
Hey, Thank you very much I have two questions.
The first is just on labor in wages I think you said hourly wages would be a 5.5% as you can you maybe walk through some of the big offsets in terms of efficiencies are programs, you're putting in place on that front.
And then the other question I had was.
Industry focused and I know you guys don't like talking quarter to date, but.
It's been kind of hard to ignore how strong casual has been in January and I'm wondering if you just have any thoughts on kind of what's going on in the industry.
Just maybe if there's been an industry shift and what's driving that that'd be great. Thank you.
Sure Greg is not all I'll start with the second part and you know I think it's going as a little bit hard to know out of the gate I do think that there was a little bit of a benefit in the industry relative to the calendar and certainly whether you know I know here in California. At this time last year, we'd had a significant amount of rain.
And it's been it's been pretty dry I think that Weve referred VAT.
Listen to your call with Malcolm and he said the maybe people were just ready to go out again.
That could be part of it for sure.
I think it's probably a little bit of each of those I don't think if anyone material factor and I think as I noted in answering another question that we do tend to move and capture some of the same benefits at the industry do daus and I think that that's baked into our first quarter expectations.
With respect to the wage piece, particularly.
Looking about how we ended the year is a lot of the similar attributes that we would attempt to continue with.
The next part of your I think.
It's getting increasingly hard for some restaurants, even get staff.
And yet we are best place to work in our retention is getting better I think that in of itself is a huge barometer of our ability to manage it I think really focusing on the forecasting and staffing needs is under appreciated and a lot of circles because that extra half a percent.
The 1% of wage inflation or overtime is really the difference between being at 6% or 5% wage inflation, and I think 3% pricing and 2% commodities. We can we can manage the piano at that 5% to 5.5% wage inflation. So I think it's a combination of those and I think.
This is continuing to get better versus trying to introduce something where we're taking out a significant amount of labor. That's never been our focus we want to also continue to drive sales.
That's great. Thank you.
Your next question comes from John Ivanhoe with Jpmorgan. Your line is open.
Thank you asked the question is actually on delivery and one thing and maybe I missed that then your prepared remarks is whether delivery on a per store basis was still up year over year in the fourth quarter of 19, if you expect that it could be up in 2020 and as obviously the market I think especially for you shifts to off premise.
How are you expecting it to kind of protect the profitability or even increase the profitability.
That transaction is maybe the product mix might look a little bit different, especially on the beverage side versus what happens within your stores.
Hi, John It's David Gordon, we continue to see strong off premise sales they were 17% of sales in the fourth quarter.
2019.
Per restaurant, we continue to see growth in off premise, we continue to see growth and delivery, we think there's still opportunity for more growth moving forward.
We feel good about the deal we have with our with our partner and we feel good about the margin, though that we currently have on all of our off premise business wouldn't anticipate there were looking to offset our current plan I think our current plan as part of our.
Our LP for this coming year, and we feel good about it there we continue to do really creative marketing campaigns with door at ash and with our online ability and we see that as a traffic driver of growth driver as well and we'll continue to pull that lever throughout the year.
Okay. So it's a doordash it does sound like actually is up year over year on a per store basis. I think there was a change in the economics in terms of you basically paying them less because you're one of the the original partners of them.
Has that affected the kind of the money or this is the for the support that they give you in any way.
And the 2020, where might you contribute more to communicating the on premise challenge or so the off premise opportunity yourself, yes, sure we haven't actually disclose what our deal is but I can tell you that in no way has the deal changed in regards to the marketing support that we're getting so you'll still see that were top of the App. We're right there in the top of the Kara.
Well, we will continue to be and they'll continue to provide the same level of marketing support that they have historically.
Thank you.
Your next question comes from Andy Barish with Jefferies. Your line is open.
Yes on the.
The cadence of openings as we look to 2020.
You gave the Preopening does does the openings kind of match that the 40 60 and as some of the Fox and North stop kind of even things out a little bit maybe during the year.
And is Matt I think not quite obviously as everybody knows in the pre opening we do capture some other costs. We have the Preopening Department, we have some management bench so.
Instead of 40 60, it's probably more like.
30, 70, or 20 575 in terms of the split it will even out a little bit, but it's still going to be I was a relatively back loaded in the fourth quarter and again, that's mostly cheesecake factory. So I would say the north FRC will be a little bit more balanced with cheesecake factory pretty much in the back half.
And thanks, Matt and can you give us that just a quick update on sort of your expectations on free cash flow priorities now that you have some debt on the balance sheet.
Yes, that's a great question I mean, I think in the short term we are free cash flow priorities are to build gray return restaurants across our portfolio or we have a lot of options to do that as well to continue to keep the maintenance up so they look like new.
Obviously, we announced we are maintaining the dividend where it's I would you think is a pretty healthy yield and then you get down to you know share repurchases and I think debt pay down it's a little bit of a fungible pool in the short term we are actively evaluating that we'll probably have another update.
The next call you know to the degree to which we will pay down debt and or buy back shares I think it's a little bit of both right now and then we will see where we get through I mean, obviously rates are very very low and attractive and so we'll look at dive into whether or not maintaining some level on the balance sheet makes sense in the longer term.
As well, but we haven't quite nailed that down yet for this year it will be a balance between the two.
Thank you.
Your next question comes from Matt Difrisco with Guggenheim Securities. Your line is open.
Thank you just two quick questions here with respect to.
Italia 125000 looks like or about 126000. The average weekly sales is that a good number sort of per quarter or is there are some seasonality to consider and there is it a little higher maybe in the summer months.
No I think that's probably pretty close I mean, obviously now it's a blend of some newer restaurants north tends to ramp up in the different sort of trajectory than cheesecake factory, just because the brand awareness, but I think thats, probably a fair number for from a time being added probably balances out during the year end, even you have a good good.
Segment in Arizona in Southern California, the benefits, sometimes from the the winter month and five so I think you know I wouldn't expect too much seasonality in that one.
Got it and then looking at the Cheesecake brand as it matures. Some other brands that are around your vintage have started to talk a little bit more and you some capital towards relocations and obviously, there's been a lot of chatter about your correlation with lifestyle centers in retail in general.
Is that they are there some opportunities for that have you already done that assessment of sort of things that are coming up on 10 years or where it's not as costly maybe to move to a new trade center within the market for all your sites pretty much been vetted.
No we will always consider lifestyle centers, new most of our leases are 20 years and when they come up we see how we're doing what's going on in the neighborhood and what our options are and we are free to move and we've done that or renew our lease for usually an additional two fives or another.
For 10 years, so not.
That's how we doing so now we're constantly reviewing that and the opportunities as David said, we have done in the past it had some great success.
And it's on a case by case basis.
Okay, and then just going to the international side, you said, a 26 stores at the end.
The period or the ended the year.
Lastly, I think it was your predecessor used to speak about it as far as about roughly a penny per store that opened would contribute to the EPS line that was in times when the tax rate was a little higher.
How is that sort of correlate now what the 26 or so stores is that sort of should we think about it accurately close to 30 cents of earnings on an annualized basis, maybe close to about 10% of your overall EBITDA.
I think I would stick with a penny per share model and then you know taxes, a little bit different but our profile as a little bit different Joe and certainly as we've talked about a couple of those locations in the middle East our outsized performers. So I would stick with the Penny and the 26 times for now.
And then let tying that back into China, the for that or a Max maxims.
Managed is it correct to assume that those are probably nearly closed right now.
Actually Matt This is David Gordon the only restaurant. This close right now is in Shanghai, The Disney properties still close they're looking to hopefully be open here by the end of the month.
In Beijing, and Macau are there some limited hours with our operating under in Hong Kong.
As is normal hours right now so there's certainly seen some pressure.
I wouldn't anticipate that to be long term, but as we all know don't know, which way things are going to move fall Movil going forward I think the fact that Disney is planning to open here at the end of February is a good sign.
Of course, thank you very much of the color.
Your next question comes from Dennis Geiger with UBI US Your line is open.
Thanks for the question wondering if you could provide any more commentary around upcoming throughput initiatives that you mentioned and if there's anything else beyond the opportunities that you called out with the reservations platform.
And then just as it relates to the daypart opportunities around delivery anything more there as it relates to how you can take advantage of of.
On underutilized capacity within the restaurant through that delivery platform. Thank you.
Sure I'd say I mean throughput is sort of by definition, what the Cheesecake factory does that mean I think are we run really really busy restaurants and.
Our objective is to get a little bit faster all the time I think right now we're focused on digesting the limited reservation, that's a pretty big thing for US, we'll see how that doesn't we want to make sure that the guest experience is not impacted other than positively for that so as we have additional throughput initiatives will certainly.
Keep you posted I do think you make a good point about you know the day parts I think we have had a lot of success with the creativity of the delivery programs and we'll continue to look to drive different types of demand throughout the day or different parts of the we even weekdays versus weekends, I think thats important and something.
That resonates in the power of our Cheesecake.
Oftentimes helps us to accomplish side. So I think we will look to drive areas of convenience and to continue to broaden the shoulders of the business throughout the day parts with that with that vehicle for sure.
Thank you.
Your next question comes from Jeffrey Bernstein with Barclays. Your line is open.
Great. Thank you very much a couple of questions on comps just one for the core.
She's cake.
More recently, you're comfortable with the 3% plus pricing.
But with the traffic down presumably three or 4% I'm just wondering your comfort with that mix I didn't know whether you see a relationship one between the other or whether there's any concern around affordability from a consumer standpoint or.
The ability to perhaps narrow that gap.
If that is a concern for you in the short term.
Sure Hey, Jeff as much as.
Well, we've analyzed it interestingly enough we have moved over time to taking different pricing in different geographies based predominantly on the input costs and specifically around labor and minimum wage and one thing that gives me comfort that that were not pushing the envelope is the.
Fact that in some of the areas, where we've taken more pricing, we're doing better with respect to traffic right. So I don't know there was a one to one correlation per se the bigger drivers for us often times, our construction of a mall and things like that they can really move you know a couple of location significantly.
The other thing for us that is true as we have such a broad menu and I really pay attention to the mix and the wallet share that our guests are are using and it's very very stable cementing trade out of people picking one thing or the other we have items on there that are you know 11 $12.
Hi, guys that are full meal. So I think I think we do feel comfortable answering I would say as you know I think that in general the level of pricing. If you are on a national footprint and I mean, those restaurant companies that have significant California northeast presence not just in the south in the middle of the country, you're seeing 3% pricing as an add.
Average across that so I don't think we're out pricing our competitors in any market certainly traffic is important and where we have drivers there were working on to improve bad, but I don't think the pricing in of itself as a negative.
Good to know it and realize that regional color that's helpful.
Then second in terms of North Italia, and then you mentioned I guess, a rounded 4% comp in the fourth quarter.
Slide deck talked about a 6% for the full year. So I guess, we don't have the quarterly cadence or whatnot, but maybe can you talk about whether there has been a slowing trend or maybe I don't if you're going to share the components of that comp or how we should think about comparisons can seemingly I guess earlier in the year. They must have been comping sevens and eights or something along those lines any color around the north Italia.
Potential comps would be great.
Sure you have moved up and down a little bit you're talking about a relatively smaller base compared to say like the cheesecake factory and so you have restaurant fixing kind of come in and move out I don't think that moved.
More than a percent or two per quarter. So there is some rounding in there.
I think a pricing has been we're not giving specifics, but it's been less than a cheesecake factory. So certainly positive traffic and just in general very consistent I mean, the trends are I've been pretty consistent throughout the past two years that we've really been tracking it always within a couple of percent of sort of the longer term ABS.
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Great. Thank you.
Your next question comes from Brian Bittner with Oppenheimer. Your line is open.
Thanks, Good afternoon, guys, Matt Thanks for all the the 2020 forecasting information helpful.
As it relates to all the line items you didn't go through ticket to the operating margins, which which ultimately gets you to your S. Can you just help us fully understand what's assumed from a financial synergies perspective that you have embedded in that from the acquisition can you just maybe talk about how much synergies are in there.
As numbers, how you'll get there.
Now quickly you expect to achieve it.
Yes, theres really not a lot of synergies baked in Brian. Thanks for question.
As we noted sort of previously the margins with the level of growth that's being undertaken at both north and FRC Theyre blended margin profile happens to just be very very similar to the cheesecake factories right and so.
The interesting thing when you look at the consolidated BNL Theres really not a lot of movement and that Doesnt factor in synergies we've talked about the key aspect of this deal being about growth I think that there there are things that we need to do to help scale in those areas that we can help improve on cost.
Structure wise, but that's all we're focused on out of the gave that give you looked at for example, the north Italia immigration maintaining comp store sales ensuring that the pipeline is there. The same thing applies for FRC. So that's really kind of a run rate basis. There. We know as we dig in more and have more color will provide that but it's not a synergy based.
Outlook.
Thanks, and just to confirm you said the blended operating margins are similar to cheesecake.
It's also.
Just to clarify a previous question just so I understand is the restaurant margins similar to meeting well, they're not be any type of major mix impact to restaurant margins in 2020 as the acquisitions.
On a year over year basis.
That is that is correct again, keeping in mind, the different sort of levels of growth.
So as we've talked about and then the presentations the north to tell your margins on a mature bases are slightly accretive to cheesecake factory, but they also just kind of consumed 50% growth in one year. So you'd have to look at the blend of that so thats what I mean at this stage right now the margin profile as is very very similar and we wouldn't expect there to be.
The much difference between the line items as I delineated just slight ups and downs.
Okay. Thank you.
Your next question comes from Jeff Farmer with Gordon Haskett. Your line is open.
Great. Thank you I believe you called out an increasingly competitive off from this landscape assuming I heard that correctly can you guys just provide a little bit more color on what you're seeing out there.
I don't know the we specifically called out maybe we just said its everybody's in the off premise game I think as a good way to stated today.
I think what we feel good about as at the offering that we have the variety of our menu the value of our menu plays really really well for off premise. So today a family of four can easily order to entrees, one appetizer and get our complementary bread and feed themselves for $40, a 10 Bucks a person.
So we think that our offerings a little differentiated certainly the cheese cakes are a big part of that as well. So as others are entering into off premise and may be having to change how they're doing things a bit it plays really well into what we've already been doing for 40 years and we'll continue to do along with just the very solid execution and making sure that the guest experience.
As protected from food quality to the speed of delivery and everything else that we measure with every off premise transaction.
Thank you might have missed it but did you did you provide the DNA guidance or expectation for 2020.
We said were 2020 that there would be slight leverage on DNA keep in mind that that some of the similarities with the lease accounting component, where we're getting a little bit more leverage with the acquisition goes a little bit of cost and other opex or slight leverage there all right. Thank you.
Your next question comes from John Taylor with Wells Fargo. Your line is open.
Great just a few for me.
Quick clarification, so on the delivery mix, if you could that for the period I know in past quarters, you have an online ordering mix as well.
For the quarter was 17% was total off premise.
35% of that was delivery, 13% online ordering and phone in walk in about right around 50%.
Great. Thanks, and know that on the question.
Thinking about marketing can can you discuss how the company plans to fund this going forward. Obviously this year, it's more of a test than you did some testing last year, but I think as a percentage of sales at least from a restaurant standpoint Thunder 25 basis points are so it is at least but it wasn't 2018 I'm curious to hear from here.
Where do you think that might go overtime and how you expect to potentially funded.
Well, we're moving it incrementally so we don't expect in any given year youre going to see a big driver I mean, we do talk about every quarter the ups and downs and I think it's probably gone up a couple times since that 25 basis point right. So in each year, it's moved up maybe a 10th.
We're funding through better execution in the restaurant savings other places, but for 110th of a percent. It's not like we have to do something significant to move it and as I noted we feel like we've gotten good ROI. We are very effective marketing campaigns and so you know effectively they're going to they're going to pay for themselves, but we wouldn't move it much faster than than that.
Okay and then just.
Focusing on the.
Small footprint side, it's been a big topic of discussion for.
Your shareholders for while in terms of.
The idea that a lot of malls or re purpose thing there.
Their footprint away from retail and towards restaurants and experiences. So can you maybe frame for us based on your conversations where we are in that cycle, how much more pain potentially the malls.
Will there be for you over the next several years.
I think we're probably.
75% for room into sort of a math is roughly it was high single digits as an allocation of square footage. If you go back eight to 10 years now we're in the low 20, percents and they probably are going to target, 25% plus and so that would kind of put us 70.
5% to 80% of the way through that I know the good news is that the ones that they are refurbishing and changing out they do happen to be where the cheesecake factories are because they're the best locations rights of the concentration of entertainment around us will benefit us in the long term and there's certainly some some pain.
Right now and Thats part of what we're going through in any given location and a lot of times, it's not even just the fact that they're putting in new restaurants assist the construction process and you might have a parking lot across the street from a cheesecake factory one day and the next month, it's basically a construction site in their building a whole new.
Parking ramp for example, so it's not I don't think it's all that is just a process I think ultimately we'll find out that we're still in the best real estate and that sort of concentration of options as a positive for most people and so you're probably talking another two or three years of that cycle.
Okay, and then on that point, how how are likely are you to consider adding your own brands to the mix given that you now have quite a portfolio to pull from.
Well part of what we're looking at is diversification. So I think you can work some of those brands that we have acquired whether it's a northstar effort. They can work in malls, but that won't be a focus will definitely want to be and more of a variety of places and that will kind of help us with the ebbs and flows of real estate overtime.
Awesome. Thank you.
Your next question comes from Catharina Ritchie with Goldman Sachs. Your line is open.
Great. Thank you.
Okay clarification question actually one.
Lord outside.
Hi.
Keith.
That's helpful.
Mark can you just.
Well the honestly so why not.
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If I heard you clearly I think your question was our some of the promotions, you're seeing whether a free slice promotion or a percentage off part of the marketing initiatives. It can be at times. It has.
Okay. So attendees.
Our next week.
Great all right.
That's right.
Okay.
We also.
Good.
Gary.
Are you considering potential team.
Well it will sell.
Do you see comedy Liberty.
Thank you wouldn't.
Yes.
You know as is a Mac Katie.
As David Gordon mentioned, I think you know.
We have a set deal in place and we don't look to make it quite so promotional if you will it's really about driving unique experiences and capitalizing on the brand and long term investment in the strategy. So.
I think we feel really good about what we have done I think our partner feels really good about we have done I wouldn't expect that to change.
Okay, great and.
Thank you changed a little bit would you guys have flexibility add another delivery partner.
The promotional environment that has pulled back a lot.
Your your operating better deals and the out would you feel you'd be able to do that or do you. Currently remain at provides good visibility for the next couple of years.
I don't think Thats something were considering we're very happy at this point in time.
Alright, thank you.
There are no further questions at this time. This concludes today's conference call you may now disconnect.
Okay.
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