Q1 2020 Earnings Call
[music].
Ladies and gentlemen, thank you for standing by welcome to lead Cheesecake factory first quarter fiscal 2020, <unk> earnings Conference call.
And I like to hand, the conference over to your speaker today Stacy Feit.
Thank you. Please go ahead.
Thanks.
Good afternoon, and welcome to our first quarter fiscal 2020 earnings call.
Today or do you mean.
Our chairman and Chief Executive Officer, David Gordon our President.
Clark, our executive Vice President.
[laughter] Chief Financial Officer.
We're dialing in from remote location.
And are considered forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Actual results could be materially differ from those stated or implied in forward looking statements.
The factors detailed in today's press release.
Which is available on our website.
That's jurist Doctor Cheesecake factory dotcom and in our filings with the Securities and exchange.
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 statements.
In addition throughout this conference call.
I think preliminary results on an adjusted basis.
He's preliminary financial results do not include impairment of the company long lived assets.
Well and other intangible assets and the revaluation.
Considerations associated with the acquisition of box restaurant concept, that's wells corresponding tax effects as result of the impact to covert 19, all of which are currently being evaluated.
While these items are noncash in nature impact on reported results is expected to be material.
Filing of the company's quarterly report on form 10-Q will be delayed due to this impairment analysis a revaluation.
An 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.
Steve It over time will begin today's call was from opening remarks, and David Gordon will provide an operational update.
Well then briefly review our first quarter results and provide a current financial uptick with that I'll turn the call over to David Overton [laughter]. Thank you Stacy.
And everyone on the line for joining US. This afternoon, we hope you and your families are staying healthy insane. During these trying time [noise].
It goes without saying, Hey, Colby, 19th and the containment measures.
Having an unprecedented impact on the restaurant.
Industry. This forced us to change the way, we do business overnight. Our teams have done a tremendous job shifting to an off premise old.
We operating model and executing in the face of significant.
Adversity, we have seen kneipp off premise sales volumes accelerate and I want to thank all of our staff members for their commitment to keeping her business running and continuing to serve our guess I also want to extend our gratitude to our international partners as well as our vendors for ensuring that our restaurants and supply.
With our key ingredients and the necessary items to keep our staff members and guess safe.
[laughter] implemented meaningful cost savings measures, none more difficult than the furloughing of a significant number of her staff members.
We have also reduce board executive and corporate support staff compensation eliminated nonessential spending is suspended new unit development for now.
We have balance these actions with planning for eventual reopening of a restaurant dining rooms, although social distancing restrictions are expected to impact on premise dining for some time by maintaining a restaurant management teams field leadership and adequate corporate support we believe we are well.
Oh position for a strong we start.
With a number of states now reopening or communicating their plans to soon open we have shifted to planning for the reopening of our dining rooms.
We will execute our plans within the guidelines.
Local jurisdictions that have varying pace across the country and with it and enhanced focus on social distancing and other appropriate health and safety precautions to size, we're restaurants, and our flexible seemingly out well uniquely enable us to ensure apple ample levels of social.
Distancing, while maintaining sufficient seating capacity to generate would we believe could be meaningful sales volumes. Our teams have been nimble in innovative isn't in the code is a kobin 19 environment and we believe their execution of our we openings will be somewhere.
Given this dynamic situation.
We are constantly reevaluating are we opening schedule and currently planned to open several cheesecake factory restaurants dining rooms in multiple geographies as soon as next week.
We will share key learnings and best practices across the system has additional relaunches or phases at the same time, we will continue to focus on generating strong off from a sales volumes that are restaurants have been producing.
In the over 40 years since our founding and other tenured leadership team has weathered.
Numerous economic downturns, including 911, and the great recession, well, we have never experienced anything quite like this I believe that our steadfast commitment to running this company with a long term in mind, coupled with our recently strengthened liquidity liquidity position will enable us to continue to affect.
If we manage through and ultimately emerged from this crisis, even stronger as we have proven in prior cycles. So with that I'll now turn the call over to David Gordon.
Thank you David.
First I'd like to Echo David's gratitude for our teams and everything there are doing to continue to live our purpose of nurturing bodies mines hartson spirits. During this difficult time.
Our restaurant management teams to mobilize to adapt to changes that we never could affect them before.
And their loyalty to our guest communities and their fellow staff members has been second to none.
As David mentioned, we're currently operating it off premise model.
Recall that we had a very established and strong business and the off premise chattel generating sales volumes size of many standalone restaurants.
The first quarter fiscal 2020 off premise sales accounted for approximately 22% of Cheesecake factory sales.
Reflecting the acceleration that began from the social distancing and shelter in place orders.
Since then.
We have seen sales volumes accelerate with average weekly sales nearly doubling from first quarter off premise levels, including a solid lifts to average check as well.
On an annualized basis recent weekly Cheesecake factory off premise sales would equate to nearly $4 million per unit on average.
And we're seeing the strength across both the lunch and dinner day parts.
Digital currently represents approximately 80% of sales in our own online ordering platform eclipse delivery for the first time since its launch in 2018.
As a reminder, this was our most profitable sales channel.
We've enhanced our curbside pickup process in place at most of our restaurants. Our operators are found a good rhythm with it and our guests seem to love. It as it provides a neighbor safe and even safer way for them to enjoy their cheesecake factory experience at home.
With regard to delivery as most of you are aware late last year, we renegotiated and extended our exclusive delivery agreement with door dash, which further improve the economics of the delivery business for us, while maintaining our marketing support including our preferential positioning on the door Dash App.
Maintaining are top of AD placement within the delivery radius of our restaurants has been incredibly important and differentiating during cobot 19, and we continue to believe that we are competitively well positioned in the delivery channel.
In fact over a third of our delivery orders are coming from new guests, we have roughly doubled our weekly new delivery guests since February.
We believe these statistics, coupled with even higher dessert incident rates are strong indicators of how differentiated the cheesecake factory offering isn't the delivery channel.
We've also seen sales accelerate at North Italia, and the FRC concepts, both have done a tremendous job with their marketing, including innovative family meal offerings like north Italias fresh pasta kits, which speak to the hand crafted nature of the brand and enable guest to maintain that experience at home.
Complemented by a great assortment crafted cocktails for takeout where loud.
FRC hasn't seen similar success each of their preordered family meal programs have sold out and it also seeing great guest response their creative add on cocktail options.
[noise] currently.
32 locations across our concepts, including three Cheesecake factory restaurants are temporarily closed.
Before I turn it over to Matt I'd like to share some pre cobot business highlights as our first quarter was off to a very strong start before the onset of the virus.
She's cake factory comp store sales growth was both ahead of plan and outperforming the broader casual dining industry, which drove solid restaurant level margin results through February.
Our operations were hitting on all cylinders with some sales lifts from our national rollout of reservations and some other marketing initiatives as well as strong labor productivity retention and food efficiency performance.
We were also honored to have to Cheesecake factory again recognized as the 2020 Harris poll equity trend casual dining brands at the year underscoring the strongest affinity for the brand.
Well there are still uncertainty with respect to the duration of the cobot 19 pandemic win and under what conditions all of our dining rooms will be able to reopen and ultimately how cobot night, she may impact guest behavior and the economy longer term.
What we do know as if we have an incredibly strong team culture and brands that our guests love and can't wait to come back to.
We look forward to the day, when our business returns to normal.
The tenure of our teams provides us with a distinct competitive advantage and we look forward to the reopening of our dining rooms, we believe our best in class operational execution, coupled with the fact that a majority of our operators saw the company through the last recession positions us well to recapture unit volumes post cobot.
And with that I'll now turn the call over to Matt for our financial review.
Thank you David.
Since first quarter financial results are truly in the rear view at this point I will just provide a brief recap and spend the balance of our time Warner covert 19 financial update.
First quarter comparable sales at the Cheesecake factory restaurants declined 12.9%, reflecting approximately 3% sales growth through February offset by a 46% decline in March with the onset of Coven 19.
Revenue contribution from North Italia, and FRC totaled $84.1 million.
North Italia comparable sales growth was 5% through February but was offset by a 48% decline in March with the onset of covert 19, which drove a first quarter recoverable sales declined 12%.
Sales for operating week at FRC or approximately 85.4 thousand.
And including $13.8 million, an external bakery sales total revenues were $615.1 million during the first quarter fiscal twentytwenty.
Cost of sales increased 20 basis points, driven primarily by produce inflation and a slight change in mix associated with the acquisition of North Italia foresee.
[noise] labor increased 250 basis points, which was primarily attributable to costs associated with maintaining our full restaurant management team in the reduced sales environment as well as higher group medical insurance cost, reflecting both higher large claims activity and the costs associated with health care benefits for furloughed staff.
Members.
Other operating expenses increased 170 basis points due primarily to sales deleverage, partially offset by a lower restaurant variable compensation accrual.
Good day increased 60 basis points also reflecting sales deleverage, partially offset by a reduction in the corporate variable compensation accrual.
Pre opening costs were approximately $3.1 million associated with the opening of one north Italia and one flower child prior to covert 19.
Finally during the first quarter, we reported $4 million in Cobot 19 related expenses, primarily related to health care and meal benefits for our furlough staff members captured in the labor and other operating expense lines on the income statement.
GAAP diluted net loss per share was nine cents.
Excluding the good related charges as well as other special items, which included $324000 in lease termination expense associated with two restaurants closed late last year $1.2 million and acquisition related costs and $1.9 million and acquisition related contingent consideration compensation.
And then amortization adjusted diluted net income per share for the first quarter of 2020 was four cents.
Now turning to our balance sheet and cash flow.
We ended the first quarter was $81 million in cash and $380 million in debt.
This reflects cash used in operating activities of approximately $33 million from a working capital impact related to covert 19.
Capex of just under $16 million.
Even of the dividend declared.
Prior to covert 19 of approximately $16 million I'm, a $90 million revolver draw.
[noise] other announced last month.
We meaningfully enhanced our liquidity and financial flexibility with a 200 million convertible preferred investment from work.
As of April Thirtyth, our cash balance was approximately $260 million.
In addition, we entered into an amendment on the revolver the provides for leverage and interest and rent coverage ratio covenant relief through the first quarter fiscal 2021.
For the next 15 months, we anticipate an average interest rate of approximately 3.25%.
And we have optimized our working capital with the support of our vendors today, we havent encountered any material supply disruptions and our supply chain remains intact.
[noise] on average are open to cheesecake factory restaurants, or cash flow breakeven up to 4 million dollar level under the off premise Mo.
With respect to rent this assumes payment of our common area maintenance fees and property taxes, which together or approximately $1 million per week.
And then equivalent per cent of sales rent multiplier with our pre drove it levels.
Well this assumption is equivalent to our full base rent it takes into account a variety of rent deferral structures for the second quarter that we have negotiated or currently in discussions with our landlords on.
When taking into account the fixed costs associated with our closed restaurants.
A reduced gionee level.
An assumption for necessary maintenance Capex and interest expense, our current cash burn rate is approximately $3.25 million per week.
This does include continuing to carry all of our restaurant management teams. However, it does not reflect an additional $1 million per week associated with health insurance and daily meals that we're providing to our furloughed stuff, which we anticipate continuing through June.
Well, we will not be providing guidance given the level of uncertainty associated with the virus.
And the reopening of the economy, we want to provide you with some of our thinking around how the reopening of our dining rooms may look.
Our base case assumes that once dining rooms, reopen we will be operating under capacity restrictions for sometime the social distancing protocols remain in place.
In this phase we would anticipate off premise mixed remain elevated as in store volumes begin to rebuild consistent with what we have seen in China is ongoing recovery today.
We believe overtime off premise volumes will moderate somewhat as consumers become more comfortable going out again, an on premise sales continued to build.
Well, the extent and duration of the impacts of covert 19 on our industry and the economy are unknown, we're cautiously optimistic didn't environment could normalize about a year from now and enable us to recapture 2019 unit volumes in that timeframe.
Likely with some degree of a permanent increase it off premise sales.
However, if the reopening does not fall that type of trajectory. We believe that we have additional levers to pull to further reduce our cash burn.
The additional capital we raised let's say currently anticipated 40 million dollar cash inflow in fiscal 2021 from the I know well carry back provision in the Cures Act. We believe we would have sufficient liquidity to endure and off premise only operating model for the next 18 to 24 months.
Should that be necessary due to ongoing code related business disruption.
With regard to capital allocation to preserve liquidity and in conjunction with the terms of the credit facility Amendment. The board has suspended the quarterly dividends on our common stock as well as share repurchases.
As David discussed we have also suspended new unit development until more clarity on the restaurant industry operating environment emerges.
We anticipate approximately $5 million of necessary maintenance capex per quarter and this is incorporated in the estimated cash burn that I discussed.
In closing the durability of our business has been proven and both strong in challenging times well the great recession isn't a perfect proxy for covert 19, our sales trends recovered one year earlier than the broader casual dining industry at that time and set us up for meaningful outperformance of the following a few years.
At the same time, we effectively managed costs and preserve cash during the last downturn, enabling the business to generate significant free cash flow in both 2008 in 2009.
Well covered 19, let's caused a much more rapid and deep sales decline, we believe we're making the right business decisions to drive a similar marketshare trajectory and margin earnings and cash flow recovery. Once we emerge on the other side of his pandemic.
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 re queue with any additional questions operator.
As a reminder to ask a question you need to press star one of your telephone once again that star one all your telephone to ask questions.
And your first question comes from the line of Nicole Miller with Piper Sandler.
Thank you and good afternoon that is one of the no better layouts, if I may say to understanding you know the phased approach and what things might look like in the near term in a longtime what I was wondering if.
They have bearing season or mandate.
Well you run eats.
You know your individually kind of go round.
So let's call them stayed at the highest level mandates or would you revert to maybe the most strict standards and the initial phase to better align that portfolio in terms of processes procedures. Thank you very much.
Thank you Nicole I, it's David Gordon.
Our strategy is going to be as of the local mandate or state level mandate.
As enacted a we will take a look at what requirements are within that particular jurisdiction, but at the same time, we're hoping to have what we consider to be consistent operating procedures across all the restaurants with the safety of our guest and staff being first and foremost so although particular jurisdiction might not mandate.
As an example masks on staff members, our stance will be that at least in the near term we will have masks on all of our staff members. So they can feel safe across the country. So our approach will be will learn as we opened in each one of those markets as David Overton mentioned, we'll have a few restaurants open next week.
Learn from those see how guest and staff are responding, but we'd like to have [laughter] operations consistent operations across all of the restaurants nationally.
Your next question comes from the line of David Tarantino with Baird.
Hi, good afternoon, and I hope everyone is doing well I.
I guess my first question is Matt I, just wanted to clarify the implications for this same store sales or comp.
Quarter today that I know you mentioned, the 4 million are approaching 4 million.
On on or off premise sales, but could you quantify what that means for same store sales. So that we're all on the same page on what that means and how that's developed I guess as the quarter has moved on here.
Sure. It's it relates to about a negative 65% or so it is I think consistent with the broader industry improves.
Over the quarter and we're running sort of mid Seventys in terms of average weekly sales at this point in time because I.
Give you enough color David.
Yeah that that's got a I guess at the low point at the end of March Lynn what was what was the number just so that we can gauge how much Bruce how much improvement we've had I guess over the last four probably.
Yes, when we when we put up the initial press release, we're running and HCV you know sort of average of about 3 million and I was a negative 75% give or take.
Got it okay perfect. Thanks, and then I guess my my question on this off premise search that you've seen I think you mentioned that you're optimistic you can hold on or maybe a higher mix of off premise on the other side.
This and and I, just wonder what you're seeing inside the data that would give you.
Finance you could do that and then and then secondly, what what types of adjustments to the operating model or to the menu or are the overall approach might you need to make to support a higher off premise.
Business longer term as a as the dine in comes back.
Thanks, David It's David Gordon.
Some of what would lead us to believe that we could sustain a if not close to sustain some of the off premise business has that.
As I mentioned in my opening remarks, we've seen growth in new guests from door dash. So we're reaching some gas that we hadn't previously and we're pretty pleased with the reorder rates, we've even seen from those guests. So I would anticipate that'll continue to happen.
As far as a menu goes well continue to leverage the full cheesecake Cheesecake factory menu.
We know that Thats one of the things that the guests are appreciating about being able to order whether its online or through jordache, whether they're picking up is that the most of the majority of the menu is available. So once the restaurants open though reopen with their full menu and operationally per off premise. Our teams have been doing everything from.
Moving to a texting model, where possible so gas can stand their car and we techs them, telling them, we're about to bring it out to make it easier for them everything we can do to make it is contact free as possible, including having obviously open parking lots would make that easier or a line for people just to pull their car up some gas you've been choose just opened their trunking we put.
The food right and their trunk. So some of those learnings have been have been great and where we can will adapt those even once the restaurant as fully opened whether that's at a 50% capacity or whatever is mandated by the jurisdiction.
And then David do you think it ever make sense economically or operationally, it's a two year on delivery at these types of volumes I guess what are your thoughts on that.
Hey, David This is Matt I'll I I don't think so I mean, I still think that you know, we're very happy with door to us and they're really best in class. That's a a completely different business frankly, and I think it takes a you know your focus also being great restaurants tours and and I think you lose something in that front.
And between operating two different businesses.
Right. Thank you very much.
Your next question comes from the line of John Tower with Wells Fargo.
Great. Thanks, I was just curious if you could talk about perhaps the competitive landscape in the malls themselves I think a fairly significant.
Significant headwind to your traffic over time has been competitive encroachment within the malls and obviously right now many miles are not open.
But maybe you can discuss.
How you expect the competitive set within those malls to look once the economy's reopened I mean, if they're good mix of independence in those malls and then I have a few other questions if I may.
John This is Matt that's it that's a really interesting question and I think were partly we'll just have to wait wait and see it could be very different by every location in some instances you have very strong national players that are in there that we believe will bring critical mass back to those malls and that will be a good thing I think.
Other instances as you noted you have some one off chef driven restaurants that may not make it through through this cycle and we'll see where that goes I think the at one of the important things on the mall side of it for US, though that has proven to be a real advantage in this cycle as we have fantastic parking great access.
Yes, really enabled us to operate the frictionless delivery our did pick up that David Gordon was talking about and you know what's our own doors in operating hours I think maintaining that connection to the gas has been super important we essentially operate just like any high street location, even though we happened to be.
Be in those malls and so I think we'll see what the competitive landscape is but I think that it's it will be good to have as many reopening as possible to bring that that that traffic back to the malls and as a we hope that everybody in the restaurant industry has a positive experience coming out of us.
Okay, and then and then just on the rent relief side from the landlords.
Long should we expect this to run through that a certain sales level that you're expecting per box. When you can go back to prior rental agreements or have you negotiated new termed it sounds like that's something that's going on across the industry right now a with different operators and landlords and just curious to see what you guys are doing.
Okay.
Yeah, it's pretty dynamic I don't think anybody really knows right because we can't project. What this cycle will do and how quickly sales will come back. So I think it's a little premature to be predicting a new types of arrangements rather were mostly talking to them about.
Temporary relief in this environment and making sure that we are good partners and we all come out on the other side you know I think as we noted the volumes that we're doing our covering the kamin pacsun and a good percentage if not all of the percentage rent and I think you, we where you can come pretty close.
Close you know certainly a 50% occupancy type of situations to covering our base rent and those types of scenarios for sure.
Okay. Thanks, and then just last one on its.
David Gordon you had mentioned on the call just earlier the idea of seeing good reorder rates through the delivery channel and I'm just curious to know how you expect to keep that going once we move out of this cope it landscape specifically is there anything you're doing to incent people to come back to the Cheesecake factory brand are you gathering EMA.
Males that you weren't having be all right and you didn't have before and therefore can contact them more regularly.
I think our strategy will be to continue to partner with door dash on the delivery side around some of the marketing we've done a that maybe a little more unique than we've done the path to drive some of that off premise over the past few weeks. We've done some very specific lunch promotions, which I think we've talked about even in the past on some of these calls to try and targets I'm lunch business.
We've seen some some good spends on that so we'll continue to partner with them to look for ways to do that we've been building our our email database now for a while and we'll continue to market as appropriate not just a drive that off premise, but also to make sure guests are aware of in restaurant dining when we opened a that the full menu.
Will there be available.
And as I stated also my opening remarks are we at just started taking some live in every day reservations before all this hit and we think that that will be a a great advantage to guests as they feel more comfortable to come back into the restaurants to reservations and so as we do that we'll be getting their guest information as well and be able to reach out to them from a marketing perspective.
Yeah, I use the reservations they were great. So I look forward to use it and again when the the restaurants opened up again, so thank you very much.
Thank you we look forward to it too.
Your next question comes from the line of John Glass with Morgan Stanley.
Hey, Thanks, very much you made some hard decisions about following up a bunch of staff going into this how do you think about the startup cost of going back to dining operation. One do you think staff is still available to do you have to bring them on an advance or can you sort of seasoned staff. According to volume. So you don't really.
I see a de leveraging their increasing cash burn rate.
One follow up after that.
So John this is David I'll start maybe turn over to Matt from a burn rate perspective, our teams have done a terrific job of standing communication with the staff throughout the past six weeks, so having the daily Mail program in place and the restaurant has allowed the staff to come in if they'd like to every day and get a meal or we connect with the management team.
Continuing the the benefits for staff has been powerful as well so we're not anticipating having a struggle to get the restaurants open at that 50% capacity level I know that I'm hearing from staff, even myself there a lot of people don't want to get back to work that we're excited to get back into that little more social environment as long as I noted that it's safe.
And I think as I stated in my opening remarks that will be very important to us to make sure that safety is job one so the staff to feel comfortable to come back.
John This is Matt I think you know I'm on the ramp up we're going to be very careful to maintain as David said, it's safe environment I don't think that because it is is happening you know relatively quickly compared to what we imagined on the downside scenario that theres a lot of retraining to do but there is some.
You thought that needs to go into the phasing certainly the part that will be tricky to will be predicting sales levels and making sure you're aligning appropriately and doing those types of activities and really getting in front of the supply chain, making sure that you can get all the right product there, including the appropriate PV will be something overpaying attend.
Isn't too, but I don't think theres, a significant ramp up cost. It's just make sure that we're going to be very careful to align to the sales levels and do the best the weekend as it ramps back up.
And in that could you just how level what are the basic tenets of the preferred offering I presume, it's a payment in kind and not a cash he meant what's the conversion point the dilution maybe just high level what are the things we should I understand about the preferred offering and the impact to earnings.
Sure the dividend as is 9.5, it's a cash or pick at the likes of the company, but certainly as we noted with respect to the amendment.
We will clearly be on the pick side of that for at least a period of time.
The conversion prices 20 to 23.
So you know roughly at the offering it was around 16 and out to 17%.
The outstanding.
And the company has a a conversion right at three years out of 200%.
Those are some of the key pieces I'd be happy to go through anymore of the specifics that you want.
Offline jobs, there's more promotions.
Thank you that's helpful.
Your next question comes from the line of Jeff Farmer with Gordon Haskett.
Thank you you touched on it but can you share with us what you expect to see with U.S. smaller you openings in coming weeks and how that impacts your own decision to reopen somebody restaurants.
Sure Jeff This is David our our decisions will be based first on the jurisdiction. So whether that's again at the local or the state level.
And then we'll assess whatever that date is in probably looks to open a seven to 14 days past that date.
For the most part thus far it would appear that malls are very much in line with with that same legislation. So well I don't think we're going to find ourselves in a situation, where we want to do something different than them all but if we did that would be fine as well as Matt said, we have our own and trends we have all the parking and if we decided we want to open at a particular location.
And even if I'm always an open yet, but we certainly could do that.
And then unrelated or not you you mentioned to briefly blood, but how a bakery sales in international licensing revenues been impacted by the virus over the last.
Few months or told over the last few months in terms of looking forward over the back half of calendar 20.
And any insight there in terms of I know, it's not guidance, but anyway, we should be thinking about Dod moving forward.
Sure I tried to give you a framework at least is it fair question. You certainly you can anticipate that the restaurants of our licensees have been impacted some more related to what has happened in.
In the United States. The good news is that a 11 in the far east our partner there maxims is starting to see some green shoots and you know we hope that that trajectory will carry through to two Austin you know again I would do we don't know where that ultimately would lead to but they seem to be maintaining a good amount of.
Off premise sales and are generally operating and 50% capacity restrictions, but that gives them to a good a good potential sales level. So I would think for the back half of the year. They would be ahead of us, perhaps the middle east would be sort of similar.
Due to the U.S. in terms of that trajectory and Mexico, a little bit behind.
So you know for this quarter, there's not a significant amount of revenue from that but obviously it would track to our performance for the back half of the year. The bakery is doing very well.
We used to say that they've managed through this a exceptionally well and the external demand continues to be.
Similar levels to where it was in the first quarter a little bit of movement. Among the channel with you as you might expect foodservice down a little bit, but retail up a little bit. So you know that that would consistently outperform I think through the back half as well [noise].
Hi, Thank you.
Your next question comes from the line of Gregory Francfort Bank of America.
Hey, Thank you very much can you just maybe talk a little bit how the how the consumers using the business either from an off premise perspective in terms of like alcohol mix is a beverage attach or even if you're seeing big shifts in terms of dayparts or.
What kind of days a week that that'd be helpful. Thanks.
Sure Hey, this is Matt I'll start and then of did a good overdone. Our Gordon has some color you can you can add that generally is pretty consistent as we've mentioned before we know that the whole menu gets used the things I would note about right now there could be a little bit different maybe a good dessert is even stronger.
He knows we talk about reorder rates really guest affinity we're seeing exceptionally strong dessert rates, which is good we are piloting alcohol sales, where we can in the in the approaches that we can it's not a big driver for us. It never has been a but what we're continuing to see a little bit of momentum as that's growing.
The good thing the other part that's interesting perhaps is the average check a really both for the two digital platforms, whether that's our own online ordering or delivery or have both increased meaningfully and are more in that 45 to 50 dollar range at this point in time, and I think that that really.
He goes to show a round to the value in the the approach that may be families are taking ordering meals in at dinner time that seems to do something that we're seeing and again from a meal replacement perspective, I think that Cheesecake factory. We've always said performs very well. It's a it's a great value you can get to Andres and an appetizer and.
Rather than you're in that that ballpark that I'm mentioning there to feed the family. So I think we're seeing a little bit what we expected to see a and I think we're we're pleased that as a as David Gordon noted you know that to return rates are as strong as they are I would just add I think it's also great to see that the the online ordering has increased the way to this has I mean.
We've been we've been wanting guest to moved online ordering to remove some of the friction of calling in whether its waiting on hold or even calling the restaurant for the first time, so to see those numbers at nearly 40% has great and I would anticipate that will continue and make it even faster and easier for guests to order off premise.
Thank you.
Your next question comes from a lot of Dennis Geiger would you be yes.
Great. Thanks for the question just wondering if you could highlight the improvement that you've seen from that March and end of March trough.
Through a through last week, I guess, specifically sort of what's driving the acceleration in the momentum.
In recent weeks that you highlighted I guess, how much of it is coming from somebody initiatives that you put in place as well as from greater awareness of the brands off premise availability.
Maybe how much of it is coming from any kind of stimulus checks.
Benefit that you see thank you.
Sure. This is Matt I think it's it's all of the above its a little bit tricky, it's a very dynamic environment. So to try to specify the amount from each of those pieces I think would be the quote unquote illusion of precision I think we've done a great job with our marketing.
Okay very on brand for the Cheesecake factory very specific things that we can offer like the cheesecake, which I think is held a I think that you've seen increased order rates I know that what we're doing very well in terms of sort of total wallet share on delivery I think that were best in class and back out.
Gory on doors, so I think that goes to the affinity of the brand once we get people to use it they tend to see it you know the value that maybe they hadn't before certainly like everyone else, we saw a little bit of a tick up with the stimulus checks Easter was particularly strong in so I think that.
That helps I mean, I think everybody who is looking to celebrate we sold a ton of whole cheesecakes for that holiday. So I don't know that I would tell you. It's any one thing I think it's a combination of all of them.
Great. Thank you.
Your next question comes from the line of Andy Barish with Jefferies.
Yeah quick.
Clarification and then.
Just a numbers question on that on the 4 million average weekly sales you War.
And breakeven at the restaurant level contribution is that what you were discussing.
Exactly and assuming as a percentage rent on those sales Andy.
Okay.
And then.
Can you give us a sense of a run rate DNA at this point.
Yes, we've taken a meaningful amount through all of the movements that we've done whether it's the salary reductions or the the Furloughing I think there. We believe we've taken the actions necessary to align the business to what would be that 50%.
I had occupancy was off premise.
Sales levels and that you know trying to keep that in in line in those periods, but we don't know really what their ramp up will look like and we'll have to continue to monitor the situation I think on a weekly burn rate is around two to two and a $1 billion.
Okay, and then just finally on that on the 32 temporarily closed locations.
What did the circumstances behind that is that more regulatory or more your own no economic resolve predominantly we looked at the ability to generate the appropriate level of off premise sales.
To support it that was the biggest factor in evaluation.
And are those still in your account base.
Just a reminder, only three of those are cheesecake factory restaurants.
Right. So the cheesecake comp that I noted is the entire GSK base.
Thank you very much stay well.
Your next question comes from the line, a Matthew Difrisco with Guggenheim sick security.
Thank you appreciate all the detail you gave and glad you're all doing well with respect to the reopening process and your success with getting people over to digital is there any K is there potential there are two maybe do something a little out of the box and look towards preordering I'm sort of a follow on with the.
The reservation Optionality now, but also maybe.
Advance are wondering or a sort of enticing people to use that more as what sort of a labor savings and then also I just wanted to ask a when you reopened do you envision perhaps maybe doing a slimmer menu with you're only going to have 25% capacity in the dining room does it make it a little bit harder to make available the or the full menu.
The over 200 items in a kitchen, when you really can't reach or full capacity in the dining them.
Hey, Matt This is David that great questions with your operations had on.
Certainly we are going off for the full menu I think that that's the power of the brand and we want people to be able to come in and how do you experience that they've had before although a little bit safer. So we can execute that full menu or our plans right now are to open at the 50, 50% capacity model I would.
Not anticipating opening dining rooms as of now with a 25% or so so that'll help us from an execution standpoint, and we're offering just about the full menu now in off premise about 4 million dollar volume. So on it's not that much different from from what we're currently doing as far as ordering ahead I don't think that's in our current roadmap.
Oh, well continue to find ways to leverage technology, certainly on the payment side to make that faster and easier and more non contact for guests on a check inside as well, but for now we wouldn't anticipate doing anything on the order inside.
Okay.
Thank you.
Thank you.
Your next question comes from the line of Jeffrey Bernstein with Barclays.
Oh.
Great. Thank you.
Two questions first one.
I guess, Matt in terms of restaurant margin enough for the first quarter. It was just shy of 12%, but with calms down 13%, but clearly lots of moving pieces with the first two months followed by the third month sharp swings. So I was wondering if you could maybe share the margin specific to whether its march well, we know the comp like you said.
It down 46% or maybe some color on April margin with the comp down 65, or you know if you don't want to necessarily share specific month, maybe some sensitivity framework to think about margin and ultimately earnings as we think about this comp recovery from where we are today today.
Yeah, I mean, I guess the jump to the first thing I would say is really thinking about the comment on a 4 million at you'd be levels being essentially at the breakeven assuming that being percentage rent and it gives you a starting point and you know obviously it depends on what the sales levels are the recover.
For me, that's a meaningful component of it we are continuing to keep all of the management team and so that will impact it as well, let's say you know the first two months of the year. We were ahead of plan and and on track for margins to be slightly ahead of the prior year. So you can kind of.
Into a math perspective, and what March impact was on a relative year over year basis kind of doing a weighted average for that.
But you know it's going to be very interesting you know when you look at the different components. Maybe some of this will help you right cost of sales ought to be relatively in line there could be small amounts of de leveraged depending on efficiencies, but should be pretty pretty close I think the other line item is.
Probably in the medium term, 25% fixed and 75% variable certainly it was more impacted in the in the first quarter because of the speed at which that happened, but that that's probably the right ratio you know and then I think aside from the management.
Teams, you're talking about pretty much a variable labor and so those are the pieces that would move up and down a little bit depending on the sales recovery.
Got it and then my other question was.
Just broader look at the industry and I know that David had been running restaurants for a long time talking about cheesecake being around for 40 plus years [laughter], but it does seem like don't change you compete where they're more often than not independent you might be competing with it seems like they're facing the crisis like they've never seen before so just wondering what your thoughts aren't.
Try to the future of kind of the bigger box more upper end more often than not independent maybe the supply demand thoughts and or whether or not you think this actually leads some better real estate opportunities funnel and maybe some closures weather for the Cheesecake are now that you have a whole portfolio of brands like turn into somewhat of a silver lining or market share opportunity any.
Thoughts on that would be great. Thank you.
Hey, Thanks, Jeff will almost certainly.
Well, we hope that all restaurant tours and great restaurants out they're able to to weather the storm.
I think we know that some of them.
Probably may not be able to do that and a if that leads to a change in market share or an opportunity to gain more market share because of a less competitive environment.
We certainly are we feel poised to take that market share.
Because of who we are because of our high end experiential dining.
So we would anticipate that.
Potentially that could happen and on a real it from the real estate perspective, if those opportunities come about we think that landlords would love to have any of our brands in any of those spots to continue to do the type of sales volumes that we've been able to do not just hit Cheesecake factory, but a north italia or any of the other FRC brands that we believe.
Could be good growth brands in the long run as well so will it take that approach and we'll see what comes our way I still be very site based in our decision, making once we do decide that it's appropriate to start growing again.
Based on the longer term outlook.
Thank you.
Your next question comes from comes around the line of Catherines locally with Goldman Sachs.
Great. Thank you my question I'm, it's more around your with your talk like small operators, how you're thinking about exactly what the heating and if there's any nuances or anything that we should expect one malls reopening that might impact you know the way that you are I story.
Our our Ronnie and then a point of clarification you I appreciate it only three or the 32 restaurants definitely RTC factory, but can you give us I'm not going to get back the other which brands. They are fair in locations that might take a longer time to come back to remodel.
Yep.
Oh I don't think there in any any particular locations that would take a longer time to come back they are the grand Lux restaurants.
13 of those and then there's a few others sprinkled in across the FRC concepts. Some of the call in every dropouts a they have a bigger footprint, obviously aware that are more social where people come together and play games and that type of thing, but the but none that I think would have any significant difference when the jurisdiction is able to open we'll use.
Same methodology for those as well as well RC.
As far as the malls go.
We've seen.
Well a lot of.
Thus far malls being pretty consistent with what they're planning to do for social distancing. So everything from offering enhanced sanitizer all throughout the mall to some malls limiting capacity to start so not allowing a everybody in not allowing big groups and some of them, allowing people just to come in and shopping.
So trying to make sure people don't just mill around a they change some of their configurations. When it comes to a gathering places so maybe separating couches that type of thing and so that's just slowly happening now.
And then really doesn't have an impact for us a thus far them. All it's been really cooperative really helpful with us when it comes to the off premise and allowing us to.
I have excess parking and whatever we need and so far as their reopening even allowing some retail businesses, where they can to do curbside pickup you want to still be able to help us with the type of curbside pickup volume. The we've had as well so thus far they've been great partners through the process and as they reopen weve anticipate the same.
Great and just a quick follow up there has there been any talks about delaying reopening appeal court and given it's a little trickier to social this is there.
Well, we've seen so far is that even in the food courts that are open theres, probably anyway, if theres a food court of 12 anywhere from two to five that are actually open. So I'm not every business is open where they can sort of the same approach that we're taking.
They have generally removed tables in food court areas. So the people can just come and get whatever just they want to get and keep moving along versus sitting in them all.
All right well thank you.
Well.
Your next question comes from Milan, Oh, Patrice Chen with JP Morgan.
Great. Thank you. My question is just on the commodities I know you guys have like a pretty wide range of items. The basket, but are we seeing some volatility as you know in spot pricing or whether it be right is to be can you just tell us maybe how that might flow through your cogs, even going into next year.
And.
Can you remind us you know what percentage of your basket is locked in at this point. Thanks.
Yeah, but this is Matt we're pretty much contracted a and and since we were previously mostly contracted with the lower volumes, we certainly still maintain the high level or and we have that I think a very resilient supply chain, we have great relationships with our vendors are we really have.
Even seen.
Some of the ups and downs that others have I think it's a little early to really prognosticating about what the pricing impact is you know certainly there could be some puts and takes or maybe some favorability if the demand remains low but that may not happen.
So I don't think we know for sure.
And usually those conversations don't start happening until the summer time.
But certainly it again as we've said before that the long term outlook for the U.S. agricultural complexes benign or we would continue to believe that it would be that.
Great. Thank you.
Your next question comes from the line, Brian Vaccaro with Raymond James.
Hi, Thanks, and good evening up she is back to the pace of reopening. It I think you said you expect to open a few units and if all goes as planned based on what's been announced I'm just curious how many or more broadly maybe what percentage of the system. You think you could reopen by the end of may or perhaps the end of second quarter anyway ballpark that floor.
Yes.
Yeah, Hey, Brian It's Matt it's a good it's a good question as we said it's you know it's very dynamic we're trying to.
2000 lives up to date as possible as we look at our right now it could be 10% to 15% you know the of of the total capacity that is online by the end of May as we noted we're taking that extra week or two wells the jurisdiction opens and so certainly Oh, you know our ARLP would be.
That is that continues to move forward, we would have a nice steady cadence of reopening on through June, but let's just say maybe 15% by the end of Matt.
Alright, great and then on the Labor model just wanted to ask about labor model in a in the off premise world that were in can you share a little bit more what is the kitchen in front of house staffing levels look like at a $4 million. They use the on have you increased pay levels for hourly employees and perhaps you could ballpark labor costs.
As a percent of sales in this environment.
Yeah, I mean, it is it depends on the volume of the restaurant a little bit right. As we mentioned, we're utilizing a fully our management teams and then it really depends on on the lay out of the restaurant in the demand.
Variability how many are hourly staff you need to bring in to cover the rest of the kitchen, certainly we're staffing in a very different environment to to support the off premise model I think you know we look at the overall labor percentage, we we have a target.
I would say in aggregate that somewhere around the low 40% 40 to 42 and again that varies by jurisdiction. So that's a little bit of an average.
Okay. That's great and then last one for me that back to that and that is it bookkeeping question, but the $4 million of coded related costs. I think you said it spread between labor in Opex could you help allocate that just in broad strokes between the two lines. Thank you.
Three fourths of that is in labor one fourth in Opex.
Great. Thanks, Matt.
You're welcome.
Your next question comes from the line, though Brian Bittner with Oppenheimer and company.
Hey, guys, Matt just as we think about the off premise business can you help us understand what the contribution.
Margins on that business as it builds incrementally inclusive of the delivery build as well so just as you've seen that that build from take three to 4 million what see incremental contribution margin as extra dollars come on.
Yes, Brian that's really interesting question I would just be honestly I don't think we're thinking about it that way yet until were more to steady state right. I mean, it's a little it's because you're dealing with too many dynamics about trying to grow the business and what kind of staff to you need to brief bring back on what's the movement been between delivery.
Okay and online ordering versus phone in a and so I think it's hard to say with so many moving pieces in such a short period of time, you know I would say for sure that the online ordering margin is slightly better than then the delivery since.
So that's a positive for us and then in the steady state environment you know the dine in gas is in the middle between the two of them.
But in terms of sort of incremental I think that's more going to be relevant once we get the dining rooms back open and we think about that incrementality versus right now where the blended together so much.
Okay, and just lastly.
How does this environment just in general changed the way you're thinking about unit growth for for FRC in North Italia, obviously in the very near term, you're kinda handcuffed, but as we look out. The next couple of years I'm sure. We revert back to your targets on how you're thinking about growing that business.
So once this is over or does this impact how you think about the growth of those those two segments.
Yeah, I think in light of have not having additional information if we're assuming that the world of returns to some degree of prior levels. Then we would have the same commitments to the growth of all of our brands in that regard to your point in the short term, we're certainly I would probably use the word.
Cautious right now and and you know obviously in a cash preservation mode and so it won't be seen how quickly everything comes back but as I noted if it does then we would have the same remember the week before.
Thank you Matt.
Welcome.
Your last question comes from the line of Peters delay with BT I'd.
Great. Thanks for taking my question <unk>.
Can you guys remind us what percentage of linear square footage.
[laughter] typically used for.
Patios, and then [laughter] that percentage will be included in that 50% capacity that you intend to open.
So the patios are included in that 50% capacity, even when there's not a 50% capacity restriction just about every jurisdiction. Thus far has had the six foot social distancing restriction and that would include on the patios. So our patios would then have to same probably every other.
The table sort of feel when it comes to six feet apart with a little more flexibility because you're able to move those tables, a little bit more than them within the dining rooms.
They represent about 15% of our productive square feet in total.
Okay very helpful. Okay [laughter].
You guys mentioned the.
Christine customers from George I showed you otherwise wouldn't have seen whore <unk> customers can you give us a little bit of a sense of the profiles I guess, if if you can and how were they maybe different than your current customer profile.
We haven't really done analysis, yet on on those cast we're happy to have them and we're happy to half would continue to reorder. We haven't spent the time yet to really dig in and understand what the what may be unique and different about them. We certainly want to and I understand that's what we can reach out to market to more of them to see how we can get even more new guest on football.
That farm and maybe that's directly through marketing first time orders through door dash receive up or whether it's a slice. The cheesecake. We've done some of those type of promotions in the past or at all our off so well continue to learn from what has worked and certainly as we reopened restaurant still make sure we can maintain close to the levels.
Of our premise will be up now and we'll do that through some strategic marketing.
Alright, Thank you very much.
There are no further questions at this time I'll, let to turn it back to our speakers for any closing remarks.
I just want to thank everybody and hope everybody say space, Dave Thanks for your time today.
Ladies and gentlemen, this concludes todays conference call. Thank you for participating you may now disconnect.
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