Q2 2020 Cheesecake Factory Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to the Cheesecake factories second quarter fiscal 2020 earnings conference call.
At this time, all participants are any listen only mode. After the speakers presentation. There will be a question answer session to ask a question. During the session you will need to press star one in your telephone.
Please be advised of today's conference is being recorded if your part any further assistance. Please press star zero I'd now like to hand, the conference over to your Speaker today, Stacy Feit, Vice President Investor Relations. Thank you. Please go ahead.
Thanks, Rob Good afternoon, and welcome to our second quarter fiscal 2020 earnings.
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 will be discussed that are not based on historical facts and are considered forward looking statements within the meaning of the private Securities Litigation Reform Act at 1995.
Actual results could be materially different from those stated or implied in forward looking statements. As a result, the factors detailed in today's press release.
Which is available on our website.
Investors not to Cheesecake factory dotcom 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 statements.
In addition throughout this conference call, we will be presenting results on an adjusted if converted basis.
This reflects the potential impact of the conversion of the company's convertible preferred stock into common stock.
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.
Finally, please also note that our press release includes an additional table calculating basic and diluted net loss per common share, which shows the line item impact of the company's convertible preferred stock.
Well the to our preferred stock participate in dividends on an as converted basis when declared on common stock.
As a result, our preferred stock meets the definition of a participating securities which requires us to apply that to cost method to compute both basic and diluted net income per share.
The two class method as an earnings allocation formula that treat participating securities as having rights to earnings that would otherwise have been available to common stockholders.
In addition, as.
As our preferred stock at the participating security we're required to calculate diluted net income per share under the if converted method. In addition to the two class method and utilize the most dilutive result.
In periods, where there was a net loss go allocation of undistributed net loss to preferred shareholders performed as the holders of our preferred stock are not contractually obligated to participate in our losses.
Now for the agenda, David over 10 will begin today's call with some opening remarks, and David Gordon will provide an operational update not will then briefly review our second quarter results and provide a current financial update with that I'll turn the call over to David.
Thank you Stacy.
Yes, we're pivoting quickly to an off premise only operating model in March.
The onset of co good 19th.
We saw solid increase.
And Cheesecake factory off premise sales.
Second quarter, as we geared up to reopen or dining rooms in mid may we have taken deliberate approach.
Opening strategy has been health and safety over teams in gas remain our top priority. In addition to securing adequate ERP for staff members and implementing additional safety protocols. We also made a number of operational changes in technology upgrades, including contract with Smith menu.
And payment technology text paging in order to ensure the best and face as possible experiences for guesses.
Her strategic decision to maintain or restaurant management teams has enabled us to reopen our dining room very effectively.
We've seen strong pent up demand with many cheesecake factory locations running a weight on weekends, our large restaurant footprint and flexible seeding layouts are enabling us to recapture meaningful sales levels. Despite catastrophe restrictions.
During the second quarter, we managed the business well with strength across the Cheesecake factory restaurants key performance indicators, including food efficiency labor productivity and controllable Crawford.
With some states reversing course on.
On their reopenings, our operators have done an extraordinary job navigating evolving regulations has cobot cases continue to rise in many parts of the country. We know the situation will remain fluid.
We believe our operational excellence and strong financial position will enable us to navigate this dynamic environment as effectively as possible.
Tomorrow, we're celebrating national Cheesecake day to commemorate the occasion this year, we're launching two new cheesecake.
Chocolate covered malicious cheesecake made with sneakers and are low malicious cheesecake, which is low carb no sugar added and gluten free.
Now more than ever there's so much need in our communities. So we have decided to use our platform. This year to support feeding Americas hunger relief efforts with a donation of one dollar for every slice of Cheesecake sold tomorrow.
Our marketing team has generated great coverage in the press with over 1 billion media impressions.
While our current reality is quite different this year, we look forward to continuing to provide our guest delicious memorable experiences whether in our dining rooms in or patios or the comfort over the road homes.
With that I'll turn the call over to David Gordon.
Thank you David.
While cobot as presented extraordinary challenges in the second quarter was anything but normal.
Power of the Cheesecake factory brands are strongest affinity and our talented teams remain a constant.
As David mentioned, our guests have been very excited to return to our restaurants indoor dining rooms reopened and our off premise business remains well in excess of three cobot levels.
We continue to see strength in the off premise channel that both reopened restaurants and those continuing to offer operate and off premise only model with off premise comprising approximately half of our total sales quarter to date.
In fact.
Since reopening began.
Maintained on average 90% of elevated cobot off premise sales and cheesecake factory restaurants with reopened dining rooms.
This has contributed to our recapture on average quarter to date of nearly 80% of prior year sales level and these reopen locations.
This would equate to over $8 million per unit on average on an annualized basis, despite 50% capacity restrictions.
That we've seen sales with the Cheesecake factory restaurants that are operating and off premise only model continue to accelerate.
With current weekly off premise sales equating to $4.2 million on average per unit on an annualized basis.
In states that have rolled back their reopenings, including California, and Florida, we're fortunate to have sizable patios and many locations to continue to serve guess accordance with outdoor only Tony and restrictions.
Some cases, given the strength of our relationship with many of our landlords you've also been able to access additional space to augment our outdoor seating capacity.
Concurrently.
We've seen off premise sales accelerate and most of these locations as our guests want to enjoy the cheesecake factory. Despite the additional restrictions.
In total our.
Our restaurants opened for outdoor dining only or currently doing volumes of nearly 90% on average of Cheesecake factory locations with indoor dining rooms open.
Currently.
146, Cheesecake factory locations have indoor dining rooms open.
36 are open for outdoor dining only.
And 22 locations are operating and off premise only model and a corn coordinates with local mandates.
And we have one cheesecake factory location that remains closed in San Francisco.
In aggregate across restaurant operating models fiscal third quarter to date through June July 26 comparable sales at the Cheesecake factory restaurants are down approximately 32%.
The breadth of our menu and our dessert offerings continue to differentiate the cheesecake factory for all occasions.
Our sales performance has been supported by on brand marketing campaigns, mostly focused on the off premise channel leveraging the Cheesecake factory brand identity as a dessert leader and the breadth of our menu to meet demand across all dayparts.
Our fourth of July Burger offer resonated with new and existing guest as well as the media with coverage in over 120 outlets generating over 4 billion media impressions as well as significant social media engagement.
The guest response was so tremendous so we had to reduce the duration of the offer given that demand far exceeded our forecast that supply levels.
Notably a majority of sales for this promotion came through our online ordering channel.
As a reported on our last call our own online ordering platform eclipse delivery for the first time since its launch in 2018 and Thats strength sustained in the second quarter with the channel comprising over 40% of our off premise sales and delivery contributing approximately 35%.
Cheesecake factory brand also continues to perform well in the delivery channel. We saw both our average customer order frequency than average customer order value increase during the second quarter.
Guest affinity for the Cheesecake factory brands also continues to support performance in the retail channel.
We achieved our highest level of consumer packaged goods royalty revenues during the second quarter driven by continued strength in sales of our famous brown breadth and building awareness of our new ice-cream offerings.
In regard to North Italia, we began reopening indoor dining rooms towards the end of May and soft sales built throughout the second quarter.
Currently 17, north locations have indoor dining rooms open and six our open for outdoor dining only.
Quarter to date through July 26 comp store sales are down approximately 32%.
During cobot, we've continued to build out north off premise business, which was in its infancy prior to the acquisition.
We've leveraged our existing relationship with door Dash and we've also launched an online ordering platform for takeout utilizing the same technology that we use of the Cheesecake factory.
With building awareness through marketing campaigns and solid operational execution off premise sales currently comprise over 30% of north total sales.
The FRC concepts began to reopening dining rooms in mid May and also saw sales built throughout the second quarter with continued strong contribution from off premise.
Currently 39, FRC locations have indoor dining rooms open for our open for outdoor dining only and seven locations remain closed.
As we move into the back half of the year, we know volatility in the restaurant operating environment will remain as covert continues to impact consumer behavior, and our ability to fully operate our dining rooms.
I'm incredibly proud of how nimble our teams have been constantly adapting to whatever changes come their way.
Well, there's little doubt the 2020 has been the toughest period, the restaurant industry has ever faced and confident in our ability to continue to navigate through this dynamic landscape and we expect to emerge stronger on the other side of the pandemic.
And with that I'll now turn the call over to map for our financial review.
Thank you David.
Second quarter comparable sales of the Cheesecake factory restaurants declined 56.9%.
For context, we saw sales ramp throughout the quarter reopening of our dining rooms, beginning in mid may.
From a low of down approximately 66% in April through a 42% decline in June.
Revenue contribution from North Italia foresee totaled $37.2 million.
North of Telia comparable sales declined 59%.
Sales per operating week, I've ever see including flower Charles were approximately $46200.
Including $14.7 million external bakery sales.
Total revenues were $295.9 million during the second quarter fiscal 2020.
Note, we had 29 locations across our concepts, including three cheesecake factories closed for most of the quarter.
Exited Q2 with main team, including one Cheesecake factory so closed.
As usual I'm going to provide year over year detail on expenses.
Of course note that the significant disparity in revenues given the impact from coated in the second quarter. This year drew abnormal year over year variances.
Cost of sales increased 210 basis points, reflecting a shift in sales mix as well as inflation in meat and dairy.
Labor increased 530 basis points, which was primarily attributable to the cost of maintaining our full restaurant management team in the reduced sales environment.
As well as higher group medical insurance costs associated with company paid healthcare benefits for our furloughed staff members, which concluded June thirtyth.
And higher large claims activity.
Partially offset by a benefit from the employee retention credit Invacares Act.
Other operating expenses increased to 41.1% of sales due primarily to sales deleverage increased marketing costs for additional cream PPD and other expenses associated with coated.
In June a increased 590 basis points also reflecting sales deleverage, partially offset by a reduction in the corporate variable compensation accrual.
Pre opening costs were approximately $2.1 million in the quarter associated with our new unit development Department and restaurant management bench.
We recorded $2.4 million impairment charge associated with the Stamford, Connecticut suit factory location, which discontinued operations last week as this performance was not meeting our expectations.
Finally during the second quarter, we recorded $11.7 million and cobot 19 related expenses.
Including the health care benefits for our furloughed staff members and the cost for additional cleaning PBC and other expenses that I mentioned, a moment ago as well as some other smaller items.
These expenses were primarily captured in the labor other operating expense from cost of sales lines on the income statement.
GAAP diluted net loss per share was $1.61.
Reflecting the potential impact of the conversion of the company's convertible preferred stock into common stock.
And excluding the coated related costs impairment charge as well as other special items, including $1.1 million and acquisition related costs, and a $1 million credit to the acquisition related contingent consideration compensation and amortization driven by an increase in our interest rate during the quarter.
Adjusted if converted net loss per share for the second quarter of 2020 was 87 cents.
Now turning to our balance sheet and cash flow.
We ended the second quarter with $250 million in cash and $376 million in debt.
This reflects cash used in operating activities of approximately $2.7 million.
Capex of 13.7 million.
At $4 million repayment on our credit facility to free up room for letters of credit and the 200 million dollar convertible preferred stock investment for more that we closed in April.
The $3.7 million dividends for the second quarter fiscal 2020 was paid inclined to holders of the company's convertible preferred stock.
Our second quarter cash burn came in below where we have projected at the time of our first quarter earnings call given our sales recovery and good working capital management.
At present, our Cheesecake factory restaurants, our cash flow positive on average at a 6 million dollar annualized average unit volume equivalent with our current cost structure, including continuing to retain all of our manager restaurant management teams as well as an accrual for full base rent.
Importantly.
Our 33 Cheesecake factory locations opened with 50% indoor dining capacity for the full month of June achieved 87% of prior year sales volume with an almost flat year over year four wall margin of approximately seven team and a half percent for the month of June.
From a cash perspective, the company has paid a substantial majority of its rent payments through July after giving effect to various abatement and deferrals structures in place for certain lease agreements.
Well, we will not be providing guidance given the level of continued uncertainty associated with the virus, we want to provide some color around our cash flow and capital allocation expectations.
At the company level with the current sales trends and our reduce junaid structure, we're roughly breakeven at the operating cash flow level.
We continue to expect approximately $5 million per quarter of maintenance Capex and we're currently estimating $5 million to $10 million per quarter of growth Capex for the back half of the year to finish construction of nearly complete new units under development.
We are monitoring operating conditions in their respective markets to determine when to move forward with these new unit openings.
In closing.
Industry operating environment has been challenging we've managed the business well across brands, both operationally and financially.
Our sales ramp has produced results in line with our modify the expectations for coated and we continue to prudently manage costs and our cash position.
We believe coated we'll continue to bring volatility to the restaurant industry and our business given trends in the virus and the constantly changing patchwork quilt of regulations.
Financial strength and flexibility will continue to be a key determinant of the restaurant concepts that can endure improvement.
With the strength of our brands teams culture and balance sheet. We believe we are positioned to not only continued to manage through the pandemic, but also thrive on the other side.
With that Doug will 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 will need to press star one in your telephone to withdraw your question. Please press the pound key.
And your first question comes from the line of Sharon Zackfia from William Blair. Your line is open.
Hi, good afternoon, Thanks for taking my question I.
I guess the.
There are two questions really thank you for the context on.
Breakeven cash flow I'm wondering, though what kind of level comp you need at this point to get to breakeven corporate.
EBITDA I think that would be helpful and then secondarily.
Given the 4 million implies that you need you're doing an off promo Lee.
What is that due to kind of inform future restaurant development thoughts I mean.
You've clearly how does seismic change in your business and I know you're not developing new units.
For say right now, but they've got any some learnings here that kind of inform how you think about that business going forward.
Fisher and hope you are doing well this is not.
Appreciate the questions. So it on the first what I think we may have answered it but let me just clarify for you. We did to current sales levels were breakeven at the company level cash Abra operating cash flow and so I think I think that's what you're referring to.
Our quarter, they just get Gregory concert or down 32%.
With respect to the the off premise you know.
We do believe it will be sticky I think consumer trends of have definitely changed over time I don't know that it will.
Greatly influence.
How we develop going forward given that our reference are really set up well to do this already so I don't have that we would credit ourselves with having the hindsight to see all those but the foresight, but we're certainly happy with the productivity that we can get and we want to continued to have vivid over dimension all of the options.
Available, whether that's in restaurants on the paddy or at home. So I think we would.
Happy continuing with these trends and our restaurants would look and feel similar as we continue to grow.
I guess, maybe a follow up on that I mean does it make you question does size of restaurants going forward, though if you can do these kinds of volumes.
You know capacity restrictions of what the kind of off premise such that you're doing well Sharon we do have a number of size restaurants.
So there is small is 5500 square feet and so we choose the restaurant base on the demographic and what we think we can do and our estimate so we have from 10000 down to 5500, and it's a pot. It's a possibility that we would want a little bit smaller dining rooms, but that remains to be seen.
Okay. Thank you.
Your next question comes from lineup Nicole Miller from Piper Sandler Your line is open.
Thank you so much and good afternoon.
Very interesting in the prepared commentary to say you were on a wait and clearly that says.
A lot about the brand equity of the Cheesecake factory right. What does that also on pellets about consumer behavior. What do you think are permanent shift.
And when you know and how do you think the consumer really wants to go back to eat and that's what they're going to do.
I will share in height I'm starting to call Hi. This is this is David Gordon.
Good to hear voice I think that we know that people want to get out and what's been interesting is that even the restaurants that opened their dining rooms early on so at the beginning of the quarter.
I have seen weights throughout the entire quarter. So it's not just that they want to get out because they were pent up and how to get out for a couple of weeks, we've seen that consistent behavior happen all throughout the quarter.
And we're on weights anywhere from 20 to 60 minutes on the weekends and Thats in every geography and every size restaurants. So it's not even like it's just happening is geography, perhaps where cobot isn't as impacted so it's a good sign and to your point if you could shows the affinity for the brand.
And it does show that along with surveys that were out there and beginning that when the first things people would want to do once they cut back together was go out and died.
So we think we're well positioned to capture.
Dining occasions, whether that continues to be in.
In the restaurant on a weight or continuing to build the off premise business and sustain the off premise business that we've had.
I don't want to break the rule. So I won't ask another question, but that's that's helpful and again fascinating and I'm sure. There is a way that you interact with them.
To get all the data you want as they wait.
So thank you very much.
Thanks.
Our next question comes from a light as David Tarantino from Baird. Your line is open.
Hi, good afternoon.
A question about the sales trends this thing in the the location.
Guiding on both got I. Thank you.
For the to take that the recapturing about 80% of the sale.
And I was wondering if you could.
Maybe think about throughput constraints that you might be and.
The question the nature of the question as you think that.
Number would be higher or you are operating at full capacity.
In other words like the consumer demand.
Is there to get to back to 100% Thats, just a matter of getting the capacity back in the restaurant or do you think.
Theres, maybe low demand now than.
You had before okay.
Thanks, David Heights, It's David Gordon again.
I think that the cup any capacity that.
We have number one we can handle so I think that restriction of 80% is just based on the 50% dining room capacity, we see that people are waiting.
Just like they were waiting previously and we don't see any increase in people walking away or are not being willing to wait so.
I think as Matt said also the up premise business. We think is going to be sticky. So as restrictions continue to lift not just in those 50% capacity, but in the 25% moving to 50 and who knows when we could even get to 75 for dining rooms reopened again.
We think we'll be able to keep a decent percentage off premise sales be able to handle that capacity and get back to where we were before in the in the dining rooms with the weights on the weekends and even the weights during the week.
And do this is Matt I think I think just mathematically you can clearly see that in the fact that the the restaurants with the dining rooms at 50% are doing higher volume than the patio only right. So as we have more capacity were we are doing.
It will be more volume so so I definitely think dosages.
So I guess.
A follow up a related question would be the thanks.
On the other side of the when you have 100 per click capacity back as it is it your view the volume.
Well above where youre previously because of the off premise sales.
Well I think that though was true anyway, I think we believe that anyway.
We have been down a little bit off of our peak throughput. So there was capacity.
We could have tapped into but I think also really what we've seen with the increase in the off premise.
Further validates that the total sales output from our restaurants could definitely be above where we were right before code.
Great. Thank you very much.
Your next question comes from the line of John Glass from Morgan Stanley. Your line is open.
Yes, thanks, very much but my question has to do with what your experiences bandwidth. How you are rethinking the business model through this period a lot of your peers have talked about structurally reducing.
Hi, narrowly hourly labor by whatever amount 150, 300 basis points. If they think can stay post coded how do you think about that in and the related topic. Some of that's come from menu simplification and obviously, the calling card Cheesecake factory has been many diversity of you've taken a look if you reduce the menu you taking a look at that and said maybe there is it ops.
Kennedy to reduce items at that work to improve labor productivity or is that not an opportunity you think is worth pursuing.
Hey, John This is Matt ill, just start sort of on the financial aspect of that I think it's very telling that in the 33 locations, where we had the 50% capacity for the full month of June we were able to achieve flat margins year over year and so due to the power of the Cheesecake factory and Thats what vessels.
The full menu right away the power is driving those volumes and if you're getting eight $910 million, we're able to flex in a way than many of our competitors just aren't able to do I think that they're in a position where they have to look at reducing guest options, which is what that amounts to and which will we feel really good about being able to manage our business.
Through this and still provide 100% of what makes the Cheesecake factory brand. So great that doesn't mean that we will look for ways to be more efficient of course, we will but certainly it doesn't need to be in the menu simplification or taking anything away from I guess I think it just.
Has to do with really sort of fine tune in every line item, where there is a little bit of opportunity and not making any sort of game changer type of changes.
Thank you.
Your next question comes from line of Dennis Skiver from Yes. Your line is open.
Great. Thanks for the question wondering if you can talk a bit more about how you're thinking about further gains.
Across the portfolio, but but also within that we opened restaurants from here or is it really more about increased consumer mobility and consumer willingness to dine out or do you feel like a lot of this is kind of things within your control and what's most significant there was that there are ways to increase capacity within the restaurants when states allow via dividers et cetera.
I used to drive the customer to other days and times that arent Addo overcapacity.
Opportunity for outdoor dining an integrator would increase that at all just some thoughts around what's in your control from here. Thank you.
Thanks to us certainly.
The social distancing requirements and the dining room capacity requirements are a bit of a restraint as they lift however, as an example, if texas before they had an outbreak that we're looking to go from 50% to 75% capacity.
We have plans and we are ready if we need to to be able to put dividers nicely highly designed to buy dividers and between booth. So we could easily get to that 75% capacity as fast as possible.
And we're planning wherever we can to be able to jump on those opportunities as soon as that capacity is expanded I think I may have stated on the opening remarks that on our patios today.
Since they are large we have a good seating capacity and in conjunction with our landlords in many many restaurants, we've been able to expand that just a little bit even outside of our traditional patio.
And add another one to four stations that that can be meaningful certainly and some of those long waits that we had talked about so our operators are exceptionally nimble and able to be creative in ways that still aligned with the guest experience that we want and we'll look for every opportunity to expand capacity, but still.
With the main focus being ensuring that it's safe for every single guest and for the staff because we know in the long run although you might get some short term sales out of something that has to be safe. So guests feel like they can return and they know it's a safe environment.
And does this I would just.
Add on to that we know that within our control for can you continue to drive some of the off premise business I mean, the fact that we it with those open dining rooms are keeping 90% of our elevated drove it off premise sales I think as a testament to how what we've always talked about the quality in the valley.
You have cheesecake factory off premise and I think guests are seeing that and we have really been developing innovative new ways to market and I think we can continue to do it. So I think that also that channel will be something that we can continue to grow and whether that's through our own online ordering and delivery or even just still calling in the old fashioned.
They were happy to do that.
Thank you.
Your next question comes on line John Ivankoe from Jpmorgan. Your line is open.
Hi, Thank you I'm I wanted to revisit the the margin to 17.5% margin comment that you made I mean, if that's flat year over year in that that subset of restaurants exactly how did you achieve.
What level of margins on a lower level of sales in other words, if the menu wasn't changed to the customer hasn't seen any change if there's not any change in the experience and we can you make some comments of use some of the operational changes that you may within this or that you could potentially carry forward in even build on you know assay go forward outside sales volume three bought across the entire chain.
Yes, John this is Matt.
I think that that the main driver that I would call out is that we just do much bigger volumes than our competitors and so the flex or the flow through if you will above the breakeven point for US is mostly is mostly variable and were able to adjust.
Right, because 1% to drive the at those levels of sales run percentage or Brian and and were able to move each of the line items in a way that's corresponding to the two revenue so theres not necessarily the magic other than the brands volumes. So I would say due to be fair. We do have the full management. The most restaurants, there was a little bit of margin.
Pressure, there, but because we were bringing back all of the staff that had already worked for Cheesecake factory, there was less training costs than year over year, but those are small those are small pieces for the most part everything lined up pretty well. So thats why we talk about not wanting to take away from the brand because the sales driving piece was what really.
Enables that I think we got a little bit smarter.
Scheduling and some of the smaller pieces of the PML that that helped to filling the gaps, but but it's really flexing appropriately across every line item.
And we are things like our NIM and marketing and yeah, and maybe even some of them.
Yeah, the fixed rent I mean word I guess the percentage right. In this case I mean was there anything that you know that was worth a couple of hundred basis points here and there I guess specifically focusing on.
On the are unemployed on the marketplace.
Okay with that big they were all in the 50 basis point 25 basis points lower trading off.
Thank you.
Your next question comes from a line of Gregory Francfort from Bank of America. Your line is open.
Hey, thanks.
My my understanding is part of what's given cheesecake the ability to pass to have the volume that it has is a bigger business the shoulder to shoulder period can you maybe talk about how that's recovered as dining rooms that opened up and if you're comping sort of a similar level that shoulder periods. As you are the rest of the maybe dinner and lunch day part.
Yeah.
Sure triggered with this is Matt.
It is remarkably was was similar particularly in a lunch and dinner, but obviously the part that I think.
Made up the difference really for US was that the mid afternoon was stronger in.
And a little bit of that came with the expenses because it's 100% right. If you think about it's got to add up to 100% late night was a little bit less.
Most of the expected we did have some shorter hours in there and things like that but the mid afternoon business definitely picked up and some of that was by design and I think that that goes to one of things we've been talking about for awhile and those through the off premise channel and our ability to specifically drive.
The times and days of the weak and so we were really optimizing capacity and some of those situations by weather REO, maybe we ran up promotion for lunch time, only and you know that ran through five o'clock and we picked up sales four or five o'clock that we might have otherwise. So so we feel really good particular about the mid afternoon.
In addition to keeping lunch and dinner where it was.
Great. Thanks.
Your next question comes from a line of Jeff Farmer from Gordon Haskett. Your line is open.
Thank you as Cheesecake has reopened restaurants in malls that have only real bell recently reopened themselves I'm just curious what the relationship is between Dot Dot mall traffic you're seeing in these recently reopened.
Malls and Jerome customer traffic.
Actually our traffic has remained pretty consistent whether or not a mall is follow reopened or not reopened there is there were some situations throughout the quarter, where we were able to reopen and maybe the mall and opened yet or vice versa.
Thats a sales throughout all of the restaurants small non mall open not open our consistent so in some of the malls that have fewer stores that have opened our sales have remained very very very strong a very similar to the malls, where a few more stores may be open and may have higher trial, that's helpful and just.
As a quick follow up when the stimulus shacks in April may.
What impact where are you able to discern on demand for your own business.
I think it was it was hard to say I mean to be honest stores. So many factors that we're going on right then and I do think that there seemed like there was like a week or two with a little bit of a blip up but pretty much. The trajectory was relatively consistent as I would or wouldn't there was immaterial, but it was not a big drive.
Over thank you.
Your next question comes from the line of John Tower from Wells Fargo. Your line is open great. Thanks, just a couple of quick ones from for me. So historically the company has not really done much by way of promotions and it sounds like this fourth of July Burger offer resonated pretty well and drove some decent sale. So first.
I was curious one if you'd quantify how much demand that drove during the period, but but too because it also have you've rethinking your promotional activity for the company going forward and and then they have one more follow up.
Hi, John This is David I don't think it.
As this rethinking our promotional activity I think that all along we thought about doing marketing in ways that align with what's right for the brand and this particular promotion happened to really really resonate and was was really successful drove some of the mid afternoon that particular, we commit that was talking about but it doesn't change I think our overall.
Outlook on how we'll use marketing moving forward I think it shows us that especially in the on premise channel, there's an opportunity to drive the value.
And everything that Cheesecake factory experience can bring in off premise, so well continue to do that but doesnt meaningful meaningfully change.
Our overall outlook on marketing.
This is Matt if you didn't for we're not going to quantified that for competitive reasons.
Yeah, I understand that in terms I was just thinking more on the frequency of it.
Versus what we've seen in the past, which has really been very much focused on cheesecake offering not necessarily food items, but I think the off premise channels different right and I think that it with the elevated levels of it I think there maybe opportunities.
Opportunities to do more there than we would have ever thought we would get with the off on premise side of it so that could be true and okay. I'll say just even during this time a good amount of what we've been promoting has still been cheesecake. So this this happened to be a one off promotion, but most of what we've been doing have spent around cheesecake and our gift cards. Okay.
And then the follow up I have it just you know in the stores that have reopened for indoor in restaurant guiding I'm curious to hear what the companys seeing with respect to restaurants that are co located in say the malls or the lifestyle centers that your and are they fully reopening meeting doing the same in store dining.
That you're doing.
Can you quantify perhaps how many have closed that you've noted or anything any qualifications around that'd be great.
I don't think that we could quantify anymore that have close than what you are going to read elsewhere. I think there was recently.
Meat was it open table are you also came out with a particular report around reservations on that's probably where you're going to be able to get a little bit more data than anecdotally from us I think that as far as restaurants reopening.
When it comes to us as larger chains, I think that they're opening more or less.
In concert with us if not faster in the beginning obviously I think we've talked about a lot of people were opening as fast as they possibly could and we were really being very prudent about how we opened in making sure that number one it was safer guest and staff.
But but overall I think the most of our neighbors specialty if they're larger chains.
Our opening and generally hitting the same capacity restrictions that we are.
Thank you.
Your next question comes from a line of Jeffrey Bernstein from Barclays. Your line is open.
Thank you very much.
One clarification and then a question just on the stats you gave would the stores that.
I guess for at 50% indoor seeding. The 33 units you, saying, if they're doing a down 13% comp and the hitting a 17.5% restaurant margin.
Obviously, that's quite impressive I'm just wondering if you can talk about maybe the relationship going forward between comp and margin as Lee model from here.
He said different way what would be the margin for example in Threeq you if the comps for the system stayed at the down 32%.
Just seems like you're hitting margins with significantly reduced comps. So it seems like a meaningful opportunity, but just trying to figure out the relationship between those two kind of as a rule of thumb and then I had one follow up.
Hey, Jeff It's Matt I think you know again just to reiterate what.
Where we're at from a cash flow perspective, which you can kind of back into margins on from current sales level that a company wide perspective, we're breaking even on a cash flow basis. So I think you know as you as you model through value, you'll kind of figure out where the margins are.
You know and certainly the ability of us too.
Go from there too which is a negative 32 to a negative 13.
You can you can kind of correlate the flowed through I mean, we typically target.
Between 20, and 40% flow through depending on the situation and as we add back sales, we will recapture at those levels.
Okay.
And then separately just on the below the restaurant level on the GE in a line specifically I'm just wondering as you look into the back half or what you've experienced over the past few months now how much of that of course spender, maybe what has been reduced most aggressively how should we think about the DNA spend as we look forward based on kind of current sales levels.
Yes, I mean, I think our objective is to align the business as best as possible would also realized but theres a lot of uncertainty and.
No hopeful we'll move optimism that that things stabilize.
In the first half of next year, and so we will try to balance being cost conscious and keeping the resources that we need you know I think the total DNA that we saw in.
Two has some noise in it just because of timing of different expenses that we weren't able because as fast as et cetera, but I think thats a good proxy for the absolute dollars for the back half of the year.
Great. Thank you.
Your next question comes from the line of Matthew Difrisco from Guggenheim. Your line is open.
Thank you.
On a two part question here with respect to sort of looking ahead in the brands you acquired North Italia, obviously was sort of called out and has been bifurcated broken out from the other Fox brands seeming to be the one that you wanted to grow.
Covance hit.
The North Italia brand, obviously has a little bit more or leans, a little bit more up against retail traffic or dependent on retail traffic. It appears how does.
No bid and a post cobot World maybe change your your view of the portfolio in the brands that grow I ask because I see flower child, I think so not mistaken you moved it into a different category and with Grand Lux and away from the Fox restaurant concepts that you had previously in west is that sort of represent maybe the flowers.
While brand in a post kobin worlds could be.
A higher priority for Greg.
So they are members of this backlog first of all I don't think it's changed our long term outlook on on any of them I think we're still very bullish across the portfolio.
North performance has been really pretty similar to Cheesecake factory comps are are running very similarly in margins are running similarly, so we feel like look that's a good indicator of the strength of the brand and that's with limited capacity and so.
I think the returns there are going to still be strong and it will still continue to grow. The segment reporting is just really an accounting piece flower child has probably been outperforming a little bit relatively because it's a fast casual and obviously had a bigger piece of off premise going forward and we want to continue to grow that brand as well.
So.
I wouldn't read anything into where it was placed but we really are still supportive of growing all of those brands I think in fact, we have a a couple of our job openings coming up potentially depending on the market conditions here in the back half of a third quarter and we continue to move forward with some of the north locations.
So it's all going forward and not just to clarify the timing of the segment change that happened in concert with our 10-K filing. So it wasn't this quarter. We were just trying to provide a little bit more information in the press release to provide clarity around the segment reporting and sometimes it's Nick and yet the filing.
Okay. That's very helpful. And then I guess just did you say Plummer Charles was positive or is positive right now.
No I said it was it was running a little bit better than the other brands. It was still down but it but obviously the more off premise business to begin with.
So its been a little bit higher than the other brands.
Thank you.
Your next question comes from the line of Lauren Silberman from Credit Suisse. Your line is open.
Thank you assuming I heard correctly, you're maintaining an impressive 90% of elevated optenet volumes in restaurants that are open for diamonds. So can you said the demographics of the off from on premise customers any overlap in Eightys and then any commentary regarding new customers you brought the system over the last several months football to go and delivery.
So in answer to this magnitude it's an interesting question you know.
We don't typically do that type of data research, but we have captured some of it overtime and really the guest demographic for dine in and off premise is remarkably similar.
Just a different occasion, so we tend to skew slightly more educated slightly more affluent slightly more tech savvy and those attributes are all similar across each of the channels.
The that our guests are using you know and I think one of the things that we've tried to do is move more to the online ordering piece of it certainly and thats been working and so I think there's affinity for all of the the different types of ways that our guest can reach the cheesecake factory.
Okay, and then any thoughts on how you're thinking about that run rate back the on premise first off premise in a post tobin environment.
Yeah, it's tricky to no I mean, I think that for US $4.2 million question right and so it we believe that it will be sticky.
I think there we were pleasantly surprised at the levels that were maintaining right now.
But but it's I think it's very difficult to know where exactly that will that will land I think that you will see the guest behavior you does get permanently modified after periods of three to six months out so it's going to be elevated this it's a matter of where where Atlanta.
James Rutherford from Stephens, Inc.
Thank you my question is really a follow up on the last couple of question then turned off premise business I think last quarter, you gave us that from a wrong, but the stat that that over a third of delivery orders.
Sort of Directionally understand and your ability to retain those customers and I.
I asked isn't like that speaks of the brands ability to come out of the pandemic with high.
Higher unit volumes than before so just is there a way to quantify that ability to retain those those new customers.
I don't think we stated that a third of the.
Customers, where new customers.
Our last quarter, we may have said that last quarter.
So we get that data through door dash, all the new customer acquisition data comes through door dash.
And they share with us whether or not we have higher repeat rates I think last quarter. We did state that we saw some really good repeat order rates from first time jordache guests. Some of the promotions we have run throughout this time in off premise have been.
Free delivery, if you've never heard from Cheesecake factory before so we're able to track those for a tight first seen positive return rates from those specific guests.
As was the we have seen.
The.
The average customer order value both increased during Q2, so those guests overcoming we're coming back more frequently.
In spending more money. So I think those are both good leading indicators.
Got it that's very helpful. Thank you.
Your next question comes from line of Brian Vaccaro from Raymond James Your line is open.
Hi, Thank you good evening, just a few for me.
International side of the business could you could you provide some color on how many units where does that stands currently and how sales are performing when you reopened and also any kind of form of relief that you're providing it's your international partners.
Sure, Brian So all of our partners.
Our serve up again, so we're up against when it comes to social distancing regulations and opening and closing throughout the quarter.
Right now.
As of.
Right now I believe all the restaurants are open.
Some of them may have restricted capacity some may be on the delivery only model the majority have dining rooms open.
And have seen.
Relatively consistent sales I'd say that the Asia locations are little bit ahead of the other markets.
We've seen in China, some volumes recently recovering with comps trending negative 10%. So that's a really good positive sign.
The middle East are little bit more up and down depending on what the capacity restrictions RM, probably in Mexico, the recoveries a little bit behind the U.S., but all those restaurants are opened in Mexico as well.
And for Q2, Brian This is Matt the preponderance of of the sites and partners and through each of the three periods were provided release given the circumstances.
Okay. Thank you and then also the 19 units that remain close I think you said it was 19 earlier in the call. How are you thinking about the timeline on reopening those units and how Mike how many might be a permanently closed.
Actually a 16 that are currently closed and a good slate of them are set to open here in the next couple of weeks and then we'll assess the performance of the others and determine what we would do moving forward.
Great and then one that bookkeeping 14 that the a the elevenseven holding costs could you help us allocate that between the cost lines Cogs labor and other opex. Thank you.
Yes, it's about 62020 with the 60% being in labor.
Perfect. Thank you.
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And there are no further questions at this time, ladies and gentlemen. This does conclude today's conference call. Thank you for participating you may now disconnect.
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