Q4 2020 Cheesecake Factory Inc Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the Cheesecake factory fourth quarter fiscal 2020 earnings conference call.
At this time all participants are in a listen only mode Atkins speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star one on your telephone. Please be advised of today's conference is being recorded I would now.
Now like to hand, the conference over to your Speaker today, Stacy Feit, Vice President of Investor Relations. Thank you. Please go ahead.
Thanks, Rob.
Welcome to our fourth quarter fiscal 2020 earnings call on the call today are David Overton, Our chairman and Chief Executive Officer, David Gordon, Our President and Matt 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 fact and are considered forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095.
Actual results could be materially different from those stated or implied in forward looking statements. As a result of the factors detailed in today's press release, which is available on our website at Investor Dot The Cheesecake factory Dot com and in our filings with the Securities and Exchange Commission.
All forward looking statements made on this call speak only as of today's date.
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 basis, which reflects the potential impact of the conversion of the company's convertible preferred stock into common stock at.
An explanation of our use of non-GAAP financial measures and reconciliations to the most directly comparable GAAP measures appear on our press release on our website as previously described.
David Overton will begin today's call with some opening remarks, and David Gordon will provide an operational update.
Matt will then briefly review our fourth quarter results and provide a financial update.
With that I'll turn the call over to David Overton. Thank.
Thank you Stacey.
A good start to the fourth quarter with comparable sales.
Because we have two cheesecake factory restaurants down just high single digits.
In October despite mandated capacity restrictions at <unk>.
Time, we had approximately 90% of our locations operating with reopened dining rooms through the balance of the quarter sales softened given the impact of additional dining room closures and tremendous end.
Capacity restrictions in response to rising COVID-19 cases.
On a number of our markets.
Context, we exited the fourth quarter with 75 Cheesecake factory restaurants transitioned to an off premise only operating model and just over 60% of locations with indoor dining rooms open with capacity restrictions.
Our restaurant teams demonstrated exceptional resilience again in response to these abrupt shifts operational execution was solid during the fourth quarter.
Quite the challenges faced with year over year increases at both the Cheesecake factory labor productivity and food efficiency at.
In addition, our strong position in the off premise channel help support the business. During this period with sales at the Cheesecake factory restaurants that were operating an off premise only model far exceeding prior peak off premise sales volumes seen earlier in the COVID-19 pandemic.
And our restaurants with reopened dining rooms continue to demonstrate strong performance of the off premise channel as well during the fourth quarter.
Notably we had 2004 cheesecake factory locations with positive comparable sales during the fourth quarter despite capacity restrictions.
On the development front.
Since our last call we opened the Cheesecake factory at Clearwater, Florida in late December two tremendous demand.
Locations at nearly $200000 in sales and at spruce weak even with restrictions on it.
Of the FRC incubation brands Black hole opened another location in the Arizona and Arizona further scaling the concept.
Market and then six Cheesecake factory locations in Mexico opened under licensing agreement during the fourth quarter.
With a solid pipeline of sites. We believe we are on track to open as many as 12 to 15, new restaurants across our concepts. This year of internationally, we expect as many of three cheesecake factory locations to open under licensing agreements.
While we are not at of the woods, yet with respect to COVID-19, we believe that with vaccination of on the horizon, our concepts are well positioned for a recovery as dining restrictions ease.
And looking further ahead, we believe our collection of strong concepts, coupled with our financial position will enable us to further accelerate growth as we emerge from the pandemic.
With that I'll now turn the call over to David Gordon.
Thank you David.
During the fourth quarter, we drove year over year increases in both manager and hourly staff retention, which we believe go hand in hand with delivering great guest experiences ultimately sales performance.
Time and time again during the pandemic at the.
Humbled by how our teams of supported each other for guests and communities remained dedicated to fulfilling our mission of absolute guest satisfaction.
This is a cultural touchstone of the Cheesecake factory that I believe continues to differentiate us in the restaurant industry.
In fact, we saw both sequential and year over year increases in our overall dine in and off premise guest satisfaction metrics during the fourth quarter.
This is an achievement, we are particularly proud of given the challenges of the Covid operating environment.
With respect to end person dining our top priority is to provide a safe comfortable experience for our guests and our staff members.
We continue to receive positive guest feedback on our safety efforts as well as the other core attributes that contribute to the Cheesecake factory experience.
We are continually evolving our practices to remain at the forefront sanitation and safety and to that end.
We are working to install an additional air filtration system at all Cheesecake factory restaurants by the end of the month.
While we believe we have always had best in class heating ventilation and air cooling systems. This new system.
<unk> bipolar ionization to actively cleaned the year, helping to kill bacteria and viruses, while reducing allergens and other airborne particles.
Third party testing shows that it can effectively reduce pathogens, including the corona virus strength that causes COVID-19.
We have updated all of our guest facing health and safety materials in our restaurants to inform guests about this incremental safety measure.
We are also encouraging all of our staff to get vaccinated. When the vaccine is available to them, providing hourly staff with paid time off for each vaccine appointment.
For those guests want or need the convenience of on off premise occasion, our offering continues to meet their needs.
During the fourth quarter, we continued to see significant pent up demand at our restaurants with the reopened dining rooms and remarkable sales volumes at our off premise only locations.
In fact during the last week of December we had a handful of cheesecake factory locations with capacity constrained indoor dining that did over $300000 in sales at a number of off premise only locations that generated $170000 on sales.
Weekly sales at our off premise only restaurants weighted to nearly $5 million on average per unit on an annualized basis during the fourth quarter as our guests wanted to enjoy at the Cheesecake factory experience, regardless of the restrictions of the pandemic presented.
In addition locations with reopened dining rooms maintained approximately 90% of their elevated COVID-19 off premise sales.
This equated to approximately $3 $6 million on average per unit on an annualized basis based on average weekly off premise sales during the fourth quarter.
We believe the magnitude of these sales volumes underscores the tremendous brand affinity for the Cheesecake factory and we are well positioned to recapture of pre COVID-19 sales levels as of dining restrictions ease.
In addition, we continue to believe that a meaningful increase in off premise sales could be of longer term sales driver for the cheesecake factory as we emerge from the pandemic.
The breadth of our menu our value proposition and our food quality, coupled with creative marketing campaigns continue to differentiate us from the off premise channel driving both new guests to the brand as well as increased order frequency.
We have continued to produce effective on brand marketing campaigns to raise awareness in the off premise channel and drive sales.
Our second run of our $15 of lunch special.
Which included a slice of our legendary Cheesecake again saw great guest response and drove higher incremental sales of attachment compared to the September campaign.
This campaign increased awareness of our lunch offering and again drove sales to the late afternoon shoulder period.
Our January did share of new year's resolution campaign was extremely extremely successful as well.
Driving our highest week of delivery of sales ever at our highest week of sales through our online ordering platform since mother's day.
And we've continued our marketing momentum into February with a random acts of kindness gift card and delivery offer that are running this week.
Our continued strength from the off premise channel coupled with some easing of dining restrictions have supported an improvement at our sales trends with fiscal 2021 first quarter to date through February 16th comparable sales at the Cheesecake factory restaurants in aggregate across.
Operating models down 18%.
These quarter to date sales results reflect at nearly 2% impact from lapping of full capacity of holidays last year, including this past Valentine's day, and Presidents' day weekend as well as restaurant closures associated with the winter storms. This week.
For the Cheesecake factory restaurants with reopened in store dining rooms.
<unk> 2021 first quarter to date through February 16th comparable sales are down approximately 9%.
Which equates to approximately $10 million on average per unit on an annualized basis based on average weekly sales quarter to date.
Notably this sales volume level exceeds what we saw on October <unk>.
This is supported by approximately 40% off premise sales mix, which on a dollar basis exceeds prior peak off premise sales volumes seen earlier in the COVID-19 pandemic.
Currently 166 Cheesecake factory locations have indoor dining rooms open on average these locations are operating at 50% capacity.
The Cheesecake factory restaurants, operating with patios only have done physical 2021 first quarter to date through February 16th sales volumes of over 90% on average of Cheesecake factory restaurants offering in person.
Weekly off premise sales for these locations equates to approximately $9 1 million on average per unit on an annualized basis and thats during the middle of winter.
We also saw sales levels at Cheesecake factory restaurants that have been operating in off premise only model accelerate with fiscal 2021 first quarter.
Off premise sales equating to nearly $6 million on average per unit on an annualized basis.
Currently 18, North Italia locations have indoor dining rooms open and fiber opened for outdoor dining.
For fiscal 2021.
First quarter to date through February 16th comp store sales are down approximately 21% supported by nearly 35% off premise sales mix.
Aggregate sales performance at North Italia has been disproportionately impacted by dining restrictions in a number of its higher volume markets given the concept of smaller restaurant pace.
Currently 46, FRC locations have indoor dining rooms open.
For our open for outdoor dining one is operating off premise only and two locations remain closed.
In December FRC successfully launched a new online ordering platform that offers seamless ordering per guest across their full service brands from a single web location, while flower child continues to maintain at separate platform.
The performance of North Italia, and the FRC concepts. During this pandemic has further reinforced our confidence in the strength of these brands and our excitement for their long term growth potential.
2020 was an incredibly challenging year and COVID-19 related uncertainty remains in the near future.
We believe with the strength of our brands best in class operators and the breadth of high quality growth vehicles, our long term outlook is bright.
We owe a debt of gratitude of our staff members across our restaurants and bakeries at.
Corporate support center in California, and the big kitchen at FRC per delivering delicious memorable experiences for our guests and solid performance. Despite the challenges we of all faced.
And with that I'll now turn the call over to Matt for our financial review.
Thank you David.
Fourth quarter comparable sales at the Cheesecake factory restaurants declined 19, 5% on.
As David mentioned October comp store sales were down just high single digits, but decelerated, but down 32% in December given the additional COVID-19 restrictions in many of our markets and the anticipated impact of capacity restrictions on the visited on the busy holiday weeks.
Off premise represented approximately 43% of total Cheesecake factory restaurant sales during the fourth quarter.
Revenue contribution from North Italia, and FRC totaled $75 million.
North Italia comparable sales declined 18%.
Sales per operating week at FRC, including power trial of approximately $67850.
And including $23 million.
External bakery sales.
Total revenues were $554 6 million during the fourth quarter of fiscal 2020.
As we would've expected most of the year over year expense variances in the fourth quarter due to COVID-19 related sales deleverage.
We're still provide the usual line item detail.
Cost of sales increased 10 basis points, primarily reflecting a shift in sales mix with relatively higher year over year third party bakery sales.
Labor increased 310 basis points, primarily attributable to the cost of maintaining our full restaurant management team and the reduced sales environment and higher group medical costs.
Other operating expenses increased to 32% of sales due primarily to sales deleverage.
Increased marketing and costs, such as additional cleaning and PPE associated with Covid.
Our operators manage the business as well as we could have expected during the fourth quarter in light of the abrupt changes in dining restrictions with cheesecake factory restaurants flow through within our expectations at approximately 40% year over year inclusive of COVID-19 related costs and.
Restaurant level management deleverage.
G&A increased 50 basis points also reflecting sales deleverage, partially offset by a lower corporate bonus accrual.
Preopening costs were $2 $8 million on the quarter.
Compared to $6 3 million in the prior year period.
One of the Cheesecake factory and to FRC locations opened during the fourth quarter versus three cheesecake factories, one north Italia and two flower child locations that opened in the prior year period.
In the fourth quarter, we recorded a $14 $6 million impairment charge, primarily comprised of non cash charges for two Grand Lux Cafe of locations, where the leases are expected to terminate in the next year.
We recorded approximately $5 4 million COVID-19 related expenses in the fourth quarter for costs, such as healthcare and meal benefits for furloughed staff members of <unk>.
Additional sanitation and personal protective equipment.
Approximately two thirds of these costs were in the other operating expense line as I referenced.
Of the remaining one third in labor.
A specific breakdown between line items can be found in our related footnote in our earnings release issued this afternoon.
GAAP diluted net loss per share was <unk> 85.
Reflecting the potential impact of the conversion of the company's convertible preferred stock into common stock and excluding the COVID-19 related costs impairment charge as well as other items, including a $5 million and acquisition related costs and contingent consideration.
Adjusted net loss per share for the fourth quarter of 2020.
<unk> was 32.
Now turning to our balance sheet of cash flow.
We ended the year with total available liquidity of approximately $250 million, including a cash balance of approximately $154 million.
At $97 million available on our revolving credit facility.
Total debt outstanding was $280 million.
The company generated approximately $36 million of cash flow from operating activities during the fourth quarter.
Capex totaled $12 $1 million during the fourth quarter for required maintenance at noon.
Of that development.
And we made of $17 $25 million deferred acquisition consideration payment to FRC during the quarter.
A $5 million dividend from the fourth quarter of fiscal 2020 was paid in kind to holders of the company's convertible preferred stock.
While we will not be providing guidance given at the operating environment continues to be very dynamic.
We want to provide some thoughts on our expectations for 2021.
On a program, we continue to expect commodity inflation of approximately 2%.
Based on current governmental roadmaps for minimum wage we continue to expect wage rate inflation to be more favorable in 2021 versus recent years.
For modeling purposes, we are using a normalized tax rate of approximately 10%.
While we still expect some deleverage in the near term given the continued COVID-19 pressures specifically in labor as we continue to think long term with respect to maintaining our restaurant management teams as well as in the other operating expense line.
We would expect to deleverage to EPS as sales continue to recover.
Maybe willing us to continue to work toward recapturing our pre COVID-19 margins.
With respect to development, we believe we could open his menu of 12 to 15, new restaurants. This year based on our current pipeline of sites spread across our portfolio of concepts.
<unk> as many as two to three Cheesecake factory restaurants.
Six north of Italians and.
And four to six FRC restaurants, including one to two flower child locations.
As a reminder, for North Italia retarded at average unit size of 5000 to 6500 square feet and.
<unk> average sales per mature location of approximately $7 million.
We're approximately $200 per interior square foot.
FRC of unit sizes range from approximately 3500 to 15000 square feet in.
From the FRC restaurants targeted sales of approximately $1000 per interior square foot on average.
For modeling purposes based on the FERC pipeline for 2021, we would expect an average unit size of approximately 5500 square feet.
We would anticipate approximately $100 million to $105 million in Capex to support this level of unit development as well as required maintenance on our restaurants.
We will continue to refine these assumptions as more clarity on the operating environment emerges.
In closing while.
While COVID-19 related dining restrictions impacted our sales performance at the end of the year I am very pleased with how our team has pivoted from protected margins and cash flow.
We've had a solid start to 2021 and are very encouraged by our first quarter to date sales performance at the Cheesecake factory restaurants.
Given the continued capacity restrictions.
We believe that our concepts are well positioned for a recovery as vaccination continues dine.
Dining restrictions ease and we head into spring.
With the strength of our balance sheet and operations team. We believe we will be able to further accelerate growth for our targeted 7% level and take market share.
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.
Later.
As a reminder to ask a question you will need to press star one on your telephone and your first question comes from the line of Sharon Zackfia from William Blair. Your line is open.
Hey, good afternoon, thanks for all of the detail.
Go ahead of that.
Question of coupons, but Theyre related you mentioned that 24 locations I think had positive comps in the fourth quarter.
Just wondering if there's any commonality between those locations other than the fact that thank you.
You all had on premises dining and then a related question is just.
The streets at a net positive comps for the first quarter, you got a bit of a hole to dig out of it.
From January just given how restrictions were.
We're kind of evolving throughout that month, I mean, how do you feel of that your line of sight to regaining positive.
Hey, Sharon it's Matt how are you. Thanks for the questions I think.
On the first one.
Probably nailed it.
Commonality of that there was.
Mostly on premise indoor dining available.
But certainly we've seen some pretty good trends throughout the country, where that's available. So it wasn't like it was predisposed to of certain geography.
The second question is an important one and certainly for I think for our company.
Maybe compared to some others with the exposure to California, and the West coast, where the restrictions really lift.
<unk>, even for patio dining to return until the end of January and so certainly with those sorts of restrictions still in place for <unk>.
Third to half of the quarter, depending on if and when California of any.
In dining room availability again, it would be at will be hard to sort of posted a positive comp I think that being said it feels like.
Things are sort of book ending.
The quarter from the beginning of the fourth quarter to now.
0.2 in October the.
Cheesecake factory was a was a negative 8% <unk> with less than 50% available on premise dining we're starting to get basically back to that place.
There's a lot of noise still with the weather and the holidays, but just looking at yesterday's comp we were pretty pretty much in line with that right. If you take out the closures in Texas and so it feels like we've gotten full circle and it should continue to improve as the capacity continues.
To get better and certainly we are very encouraged by having the 40% off premise maintain and sort of.
You've got to believe that as long as we keep some of that between where we were and where we are now in the capacity of returns that we're going to be in a really good position for sales once that happens, but we can't really predict too much going forward because of the capacity is controlled by the government if that makes sense.
Thank you.
Your next question comes from the line of Brian <unk> from Deutsche Bank. Your line is open.
Hey, Thank you a question on off premise it looks like your average weekly sales.
Principally this were about flat sequentially. Despite another increase.
On the sales pretty impressive I know you've touched on this a bit in your prepared remarks.
Can you just elaborate on maybe why do you think that is why the retention is better.
Periods as Theres, nothing, particularly unique about the brand on.
Strategies your employee of this business and then maybe any updated thoughts on what you think.
Retention could look like here close Tobey once a day on home all the way back.
Sure. Thanks, Brian This is David Gordon.
Cheesecake factory number one is known for our menu and the breadth of menu items available for our guests at.
Long with the value of price points in the range of price points at <unk>.
At pretty compelling for an off premise occasion.
And as a family you certainly can order easily one two or three times a week. If you wanted too much less a month.
And have varied options at varying price points. So I'd say number one of the quality of our product of the menu of has always been a differentiator and there continues to be in the off premise and of course, the cheesecake or a big part of that as well.
And.
A portion of the marketing that we've done throughout Covid and certainly in the fourth quarter and moving into the first quarter of this year I have seen some successful campaigns around the cheesecake.
And we also see that we are of a certain percentage of new guests that of ordering on.
Our premise and our delivery for the first time from door Dash and.
And increased take rates over the quarter. So we think the offering at the number one reason I would also give credit to our ops team for continuing to do a good job of execution.
If youre going to do continued strong sales in off premise you cant disappoint guests you have to get a right of first time and I think our teams have continued to do an excellent job there and some really really challenging environments and.
So as we've seen increased guest satisfaction scores for our premise that also is a reason why I guess would come back and order again.
So we feel that a good portion of what we've seen is going to continue to remain on I think in some of the opening comments that 90% of the off premise growth.
We still see that in the restaurants that are at 50% indoor dining capacity. So there's no reason for us to believe that we wouldn't continue to see that to some extent at least the majority of it when dining rooms reopened at even greater capacity.
Thank you.
Your next question comes from the line of David Tarantino from Baird. Your line is open.
Hi, good afternoon.
David I wanted to follow up on that very last question.
Perhaps.
Get your thoughts on that.
On the durability of the off premise channel at.
It seems like a lot of the casual dining industry seeing elevated off premise sales.
And most are saying they think it will stick post the pandemic I guess.
What's your consumer feedback or data thing related to the behavioral aspect of that I guess.
It seems.
Seems like.
Optimistic to think of a lot of these sales of the.
When dining room traffic return, but is at a different occasion or is that at replacing something else Thats very clear on according to your your database I guess what are your thoughts on a broader macro trend for the industry.
Related to that.
Well to some extent people that werent, perhaps exposed to an off premise tiny tiny indication before have been forced to be expense and I think some of that behavior is going to stay on.
My parents always as an example, they never ordered to go food ever before the pandemic and now they order at all the time and find at convenient at useful.
And along with continuing to go out to eat I think they're going to be more on client that continues to order to go.
Once things get back to quote unquote normal when we look at our own restaurants today of the ones that are even at at 75% capacity.
And maybe on a short wait at times throughout the week those restaurants are maintaining that off premise. So people are still going to be continue to be pressed for time, theres still going to be looking for convenience and a lot of on the technology that has enabled off premise to be executed at a much more seamless way for guests I think is what's.
Changing a lot of that behavior, and we will continue to be changing that behavior of people. We will continue to be pressed for time theyre going to have still two people working on the household.
So some of those behaviors they've learned I don't see any reason why they want to take and I think that those brands that as I said earlier executed well and have a great offering will be the ones, where perhaps an additional occasion of along with coming to dine in and additional occasion at home will continue to be part of the course I think.
Just from a pure data perspective, David This is Matt.
There is also some support for that right. So if you look at our ability to specifically target day parts like one should think it's very impressive that our overall off premise sales are similar to what our historical on from a sales or by day part I mean, we wouldn't have thought that Ryan youre thinking at.
Casual dining at is going to be much more at the dinner hour, but by doing activities that actually bring awareness to how great of a cheesecake factory Burger as people realize the value premise there of course.
The same as if you go too fast casual right and so I think and you've got a lot more choices. We also see that for example, the average delivery of guest their order rate in the quarter was twice what our historical average on premise customers coming in for Brian and sort of the stickiness there.
There is also a clear I mean thats of between two times the level is pretty strong. So I think that we are seeing data points again.
Not saying that we keep all of it but there is definitely a stickiness to a good percentage of it.
That's helpful and one more quick one on the subject.
The consumer feedback of our desk scores are and particularly at the value scores.
There are difference between your on premise or in your off premise store and.
So what's different.
Well, we actually get a lot more feedback and our off premise Chan.
Channel because of the amount of surveys that we're able to give out and the response to those surveys is much greater they're relatively similar.
And the value of question is relatively similar of Theres not great disparity as I said earlier, we've seen the improvement on the NPS score for off premise grow over time, we added an NPS survey to our online ordering platform and of.
Slowly seeing that number increase over time, so they're not that different from each other we just have a much higher volume of actual surveys on the off premise channel.
Great makes sense. Thank you very much.
Your next question comes from the line of Jon Tower from Wells Fargo. Your line is open.
Great. Thank you for taking the questions just a few from me first when you talk about the.
Returning to pre crisis levels of of store margins can you kind of help pinpoint exactly what that's referring to are you talking about aggregate or you're talking about cheesecake factory specifically at.
It's hard to tell based upon the acquisition what the number of might be there and then have a couple of follow ups.
Yes, Jon that's a fair question.
I would say.
At kind of comes back to both interestingly enough and so we would kind of look at 2019 end and we would target Cheesecake factory of four wall margins being the equivalent on equivalent sales volumes and in roughly north and FRC would be very very similar in margin.
<unk> when the growth rate has kind of moderated because they were at in hyper growth. So so from a.
In aggregate number it would look very similar also so it's kind of at the same answer but for different reasons.
And I think if you look at the flow through for the fourth quarter.
Cheesecake factory was who is approximately 40% at the four wall margin. The total company was approximately 40% if you back out things like impairments on right. If you really look sort of just at the pure margin. So thats sort of of bears out when we're talking about and keep in mind that that flow through included the.
Covid costs and keeping our full management teams and so we ought to be able to flex back up better than that because we would assume that we already have the management teams in some of the Covid expenses go away. So I think just mathematically you can get back to equal or better margins.
If you get back from the same sales level.
Great. So just to clarify and ensure we're on the same page 15.
<unk> seven or so that was reported in 2019 as at the reference point that we should be thinking about yeah, yeah, Okay and then.
On top of that just in terms of thinking about the marketing it seems like that's changed quite a bit.
Relative to where you've been pre crisis, I think pre crisis level of spend with about under 30 basis points of sales.
Marketing was.
Just kind of curious what are you thinking that can go over time I know your presence on social media has certainly stepped up and it's part of the reason why the off premise business has is growing so well.
During the crisis, but where can that move to over time.
We don't think its going to be of significant like some of our peers, 3% of sales or that I mean, we still look at it on a value add basis, and we run rois to make sure that.
Any of the promotions, we're doing are things like that are going to drive incremental <unk>.
I don't think that we want to be in that sort of promotional game forever.
It is and how the brand grew but at this environment is appropriate for it. So we'll have to see I think if you again go back to kind of pre COVID-19.
Levels, maybe it goes a little bit up from there, but not meaningfully.
Okay and then just lastly from me in terms of of hitting that 7% unit growth rate I think 'twenty, one youre targeting roughly about 5% or so year over year growth. How should we think about that ramping of the 7% overtime that is going to be at.
2024 can be five type of level or maybe even sooner than that.
Well I mean, I think we're going to look at the operating environment.
The capacity restrictions are essentially lifted by the middle of this year because of vaccination whatever all of those drivers are.
We're looking at sites right now to get there for 2022.
We wanted to be prepared to get there in 2022.
We will probably wait to pull the trigger of 100% until we see that but we'll be ready to do it if the environment is appropriate.
Thank you.
Your next question comes from the line of John Glass from Morgan Stanley. Your line is open.
Thank you very much just Glenn sorry, one more question on the on premise business, but.
What are the next question is from a capacity standpoint, it's easy to say well you could add 30 of 40% of volume is based on your experience, but you are of high volume restaurants, maybe what is the upside capacity for your kitchen of the things you're doing to believe that technology.
Technology of cooking equipment, how do you think about how your ability to handle that incremental layer of sales given a full of copy of the documents.
Thanks, John This is David I.
I think as you know with the breadth of on any of our kitchens are already very large and able to handle pretty high capacity.
Some of the things that we're going to continue to put in place maybe so on lean mechanism to ensure that at <unk>.
Busiest time on a Saturday night on our busiest restaurants that we can manage the amount of throughput thats coming in through our online ordering channel if we needed to.
As of now we're able to handle that capacity and as I said earlier, the restaurants that are even at 75% of indoor dining and maybe have a few extended patios are able to handle the impact of the majority of the off premise. So I don't really think that there's any inhibitor to us getting too.
What we stated earlier as the majority of those sales and really the design of our restaurants, our ability to have the bakeries set up where they are with two cash registers to allow for ease of ordering and east for pickup per guest we haven't had to do much when it comes to changing of design of our restaurants to be able to meet the demand.
So.
And if we need to we needed to add any capacity in any way or move something from one station to another we've been doing that for over 40 years, because we changed the menu at on an ongoing basis and we can continue to evolve on that way too and our operators are able to handle on anything that I've thrown at them. So I wouldn't anticipate that the capacity is going to be of restriction.
On keeping those sales.
Non of matches to add again to some data to that if you go back historically kind of pre recession.
On sort of what's happening in casual dining or just from a traffic perspective.
We probably could handle of 15% more compared to where we were back of them.
Pricing right, Joe if we get to those levels it'll be at really good problem to have and David on the team will figure it out.
Thank you.
Your next question comes from the line of Jeff Farmer from Gordon Haskett. Your line is open.
Thank you just two quick follow ups from on the earlier questions on the margin front can you provide an update on the relative margins across really all three ways, you're selling food so on covenants.
<unk> side to go and delivery sales so margins across those three end any efforts to narrow the gap that would be helpful.
Hey, Jeff It's Matt.
And of normalized World variety of if you think of where we're trying to get your margin was at.
They are really very very close.
We have done.
A lot of things overall to support that but if you think about the specific drivers.
There is no difference really from velocity I think in that.
Delivery is probably 1% to 2% dilutive the online ordering are calling is probably 1% to 2% accretive on both of those are to on on premise and so net net it's you know.
The way it sits today, because roughly 60% of two thirds, depending on the period or the online ordering and column versus delivery. It's a net slight positive, but it's pretty much a wash.
And that's why we like it really we're thinking about it so that it's agnostic. However, we can drive the business is how we wanted to do at thank you.
Your next question comes from the line of John <unk> from Jpmorgan. Your line is open.
Hi.
A follow up and then I guess.
Another question Firstly, I mean, you did mentioned overall breadth of the menu and I think we would all agree with that as one of the.
The key reasons why your off premise business has been so successful, but even with that having been said is there any change in terms of how the consumer is using the menu of certain items measuring very very high end preference that might suggest that you'd have an opportunity to scale back some of the menu whether just.
In terms of the consistency of simplicity cost.
Speed and then I have a follow up as well.
Hi, John Thanks for the question, it's been an ongoing question for years, even before Covid. So I think we see the ordering patterns continue favorites will always be favorites, but no no veto vote is really I think what's continuing to help us grow the sales of that there's so many choices. So many options.
I appreciate the desire for simplicity certainly our operators.
Half of that just higher for simplicity, but that's our differentiator and will continue to be so we came out with a timeless classics menu at the end of last share and Theyre just about now completing two more weeks of of new menu rollout that's happening.
Currently.
And I wouldn't anticipate that we're going to be looking to shrink the size of the menu for any short term game we're at.
Here for the long run and will continue to leverage the menu is on the grain marketing tool.
The ability for guests to be able to get whatever they want.
Understood. Thank you and then.
Secondly for that I guess David.
The original question.
<unk>.
The competition that you have in your specific trade areas what type of change have you seen whether you're on the malls or lifestyle centers or in a very near end radius to your.
To your existing existing stores have you seen what kind of change have you seen certainly we can see.
National and state level of data at least somewhat see state level data, but what type of a change of effective competition do you see is coming out.
Post COVID-19 at least on the near and medium term basis.
Well I think at <unk> at the National numbers, obviously are out there I think when we talked to our operators and the boots on the ground at least 70% of our locations have a few I would say restaurants nearby or near them within close proximity of that are closed.
Haven't reopened whether or not those spaces are reopened at some point with the previous tenant or more likely will then be we released here sometime in the next 12 months I would anticipate that.
We're still going to be money coming into the market for our restaurants to continue to grow post COVID-19, but currently it's probably a few restaurants in each market.
When some of those could be of fast casual.
Two of full service restaurant, but thats, what we see probably in the majority of those geographies.
Thank you.
Your next question comes from the line of Jeffrey Bernstein from Barclays. Your line is open.
Great. Thank you very much.
One follow up and then a question just following up on the margin commentary.
I appreciate your ultimate objected to get back to former levels, but maybe if you can give any kind of directional thoughts as we think about 2021, whether at some sort of sensitivity or <unk>.
Directional guidance and I guess, we're already halfway through the first quarter of any kind of color when youre running comps down at 9% you mentioned or anything along those lines any sensitivity you can share as we look through 2021, and then I had one follow up.
Hey, Jeff This is Matt I think I would I would use.
For.
Modeling purpose of.
The year over year of flow through on the sales that we saw in the fourth quarter of would use the equivalent metric on the upside.
I think we're all looking to try to figure out with the sales environment is but once you come up with your best estimate there I would use that flow through metric.
For each of the subsequent quarters and I think you could go back to like two.
2019 version of that to get better comparability of problem.
Okay, and then Mike.
Question is just on the labor outlook I think you reiterated that you expect inflation to be perhaps a little bit less onerous than you had seen in the past few years, which I know had been on the mid single digit range.
Just wondering if you could talk a little bit about.
Maybe the opposing forces, but obviously you have national minimum wage going up.
At the same type of unemployment higher which would imply perhaps maybe a little bit more available labor. So just wondering your outlook on the labor cost and availability youre seeing.
What do you have the ability to offset some of those pressures with cost savings or pricing or any kind of color. You can provide in terms of how you think about at from a minimum wage perspective, especially as you have such great color in California, we are already dealing with these elevated wages.
Sure I think of it.
Just to think about the math for a minute.
If we look at while you do have some minimum wage going up but I don't remember the number of states, but it's usually between 20 and 30 states at this point in time.
At the levels that they are increasing off of the current base is just a smaller percentage of dry so, California, taking of dollar at this point of like 6%.
<unk> two years ago, taking of dollar was 8% and so just mathematically those increases as a percentage keep getting less and more of them are being tied to more of a cost of living adjustment, which has been relatively low too right. So I think that thats helpful. So mathematically of that piece of.
That.
Just as weighted down somewhere in the one to one five per cent of less than it was previously and we have been running just for context.
And a half percentage of sometimes six of those five but somewhere in that ballpark.
I think that.
At availability is a good question.
I think partly it's kind of dependent upon people coming back to the workforce.
Unemployment rate is relatively high margin of a lot of people that have exited too. So I think it's key to be an employer of choice and to do things for your staff I mean at sort of like with David Gordon was talking about in terms of putting in new air filtration systems things like that.
Where we pay per staff benefits when they are on off from our former I think those are important because.
Wages were one piece, but making sure you're fully staffed with a great operations team is probably equally important and that's not going to give necessarily easier even if it appears to confirm from a topline that unemployment is higher we think it's still going to be a very critical component.
Do you have of share ranges of price points I know you have different tiered structures, presumably in your highest wage of highest cost state versus lowest GP of kind of a range of standard products kind of what youre of different pricing structure might be.
We know we haven't.
To date.
It sort of certainly if industrial work out there, but look forward information.
People, probably two dozen of our of our competitors nationally.
We picked at that and see it but we haven't published just because it can be a low of a moving target every six months and so we don't want to of steel data out there.
Thank you.
Your next question comes from the line of Gregory Frankfurt from Bank of America. Your line is open.
Hey, Thanks. Thanks for the question I had just a clarification of the question.
On the guidance for the full margin recovery at 90% to 100% of <unk> is that still the.
The right way to think about it and then my question is.
You guys non operated in California and of the Big a portion of your stores in California than.
And then the rest of the industry for a long time can you maybe talk about how you think of move and minimum wage to $15 will impact the restaurant industry and your business and how you will operate through that.
End of.
I don't know at this price elasticity, just you experienced in California of what that tells us at out how cheesecake might handle that environment going forward. Thanks.
Sure. Greg This is Matt I'll speak first to the margin question.
As we noted the 90% to 95% ultra depends on lot of other things exactly how much the wage rate inflation goes up what commodity inflation actually ends up being but I think it's going to be roughly in that ballpark. If you just do the reverse math again on our on our fourth quarter I think gives that good illustration.
We were at.
40% of flow through on the downside of inclusive of Covid and the extra management price deleverage and so we ought to be able to flex back up of better than 40% would be our target, but we would not have those other items. So I think that somewhere in that range is still appropriate and we will just have to see what are the other big drivers commitment.
Here to know kind of where exactly that would be.
I think on the second part on the minimum wage piece in California.
It certainly changes the competitive environment, we've seen that.
Most competitors I mean labor input is just a.
Cost input.
You can try to put some technology around it to improve efficiencies et cetera, but at the end of the day most competition prices for us and I think about the necessity to maintain margin structures that are <unk>.
Competitive and attractive for continued investments that being said.
I think it also does drive some competition out and ultimately the stronger survive and take market share because you see.
Those of that can handle the increased pricing.
The increased labor costs.
Some of those cities like San Francisco or Seattle, probably good examples of how that's actually happened and people who decided not to compete there.
You end up being able to take the pricing because there is lots of competition I think is how it ends up I would just add on that it goes back also of the breadth of the menu allows us to of a very wide range of price points. So even as we're taking more price maybe in California on the state of Washington on our city of San Francisco.
You can still.
At great value across the menu of what do you want to spend $31 or you still want to spend of 12 95 or $13 95.
And get a hamburger on our sandwich of ourselves so the breadth of the menu at gives us a competitive advantage from a pricing perspective as well.
Thank you.
Your next question comes from the line of Brian Bittner from Oppenheimer <unk> Company. Your line is open.
Thanks, Good afternoon guys.
Again, just question on the margin.
Sure.
On the reopened stores that are trending down 9% year to date, I mean, I guess basically you've recaptured 90% plus same.
Sales in that control group and I know at such a short window.
Tons of noise with winter and rolling over the holidays, but what are your learnings from the margin recapture so far year to date on those stores is it just kind of Reconfirming everything you've said about the margin recapture path what you've seen in those stores and is it just kind of reconfirmed at.
Path as well.
Hey, Brian This is Matt I would say, yes, I'd highlight of what you said that I think of Reconfirms and supports the aspirations of we're making.
The operators and the beginning of the pandemic.
On our teams came up with the way that we're going to run on each of the different business models.
It is predicated on that flow through perspective and David.
Sales at every time I mean, I think we have pretty good measurement of controls but at the.
Sales of environment, just keeps changing because they change the capacity of restrictions et cetera, but nothing really has changed about our business model all of those levers that would tell us anything different.
Okay. Thank you.
Your next question comes from the line of Jared Garber from Goldman Sachs. Your line is open.
Hi, Thanks very much.
On to quickly clarify on the.
Air filtration systems that you guys had should be completed by the end of the month is that something that can help accelerate the reopening of dining rooms at you understand.
Laws that are or regulations that are being put out by inhibitor from stay at or is that something at just a longer term.
Sort of thought process around how point of protecting your employees and guests going forward.
Thanks, Sharon this is David.
So certainly its number one to protect our guests now and going forward on our staff now and going forward.
There haven't been many jurisdictions that have any type of restrictions around.
Air quality, there could be moving forward I think of the city of Philadelphia actually at just come out with some compliance regulations. So this may help us.
While there is more compliance regulation around reopening of dining rooms to greater capacity only if you have certain standards of air filtration, but as of now Thats end.
Only one or two places that I know.
Thanks, that's helpful. And then one follow up on the off from our side of the business. Obviously the stickiness. There has been really impressive I'm wondering how you guys are thinking about the physical asset base of these restaurants and diners to reopen and hopefully we all get back to you now.
Coming to restaurants.
Youre thinking about managing sort of at the actual operational challenges at <unk>.
People available for pickup people waiting for delivery on areas plus.
We all know accurate visiting restaurants at sometimes some long wait times in the front of the restaurant. So just wondering how youre thinking about the actual the glass net as it relates to kind of maintaining some of those higher level of off premise sales on the world normalizes.
Well the good news is that the <unk>.
Restaurants were already at designed originally to be doing if you go way back eight 910% off premise sales.
So as I had mentioned earlier, having a cashier already of two cashiers working in the bakery, where we've always executed our to go business has really helped us throughout the pandemic. We have also continued to leverage technology, where we can so things like tax gene of guest when their order is ready so they can wait in their car and not even have to come in.
The restaurants allows us to ease some of the pressure you might have on the physical ability ensuring that store desk drivers are stationed in a particular part outside of the restaurants of malls actually give us. Some some good availability of their for more places for people to wait that arent necessarily inside of the physical building. So the good news at the size of our restaurants.
I think already allows us to be able to execute the high on premise. We have today and that will only continue and we will look for other ways to leverage any technology that we can to make that execution, even more seamless from the guests and not impact the <unk>.
Restaurant dining experience at any negative way.
This is Matt in fact, we're already managing to accomplish that as we pointed out a.
A few dozen locations that comped up in the fourth quarter, but they are already dealing with a situation right. So there won't be anything new I think the operations teams have done some learnings of put in best practices and we're executing those right now so that we're prepared for that volume.
Yes.
Great. Thanks for the color.
Our next question comes from the line of Lauren Silberman from Credit Suisse. Your line is open.
Hey, Thanks, so another one related to on premise RBC that youre doing exceptionally well I believe all from sales by 5 million per restaurant operating up from the linked quarter.
Thank you that $6 million annualized quarter good day.
Hi.
So as you think of the future unit growth potential would you explore smaller from itself.
Bachman at expanding addressable market for the brand how are you thinking about the opportunity from new format.
I'm not sure.
More on those Nymex makes sense I mean part of.
The beauty of the economic model is to capture on and off premise.
There is a fixed component of at Cheesecake factory, because as we've noted we have bigger kitchens, we don't really want to limit the offering because thats part of the magic. So I think we'd have to look long and hard to see if it actually made sense I think we'd rather we have of 6000 square foot low.
<unk> I think we like that.
That can do the blend of business I think that would be more interesting to us define.
Ways to get into more markets, maybe because the off premises become permanently elevated but we would still tend to want to have the full offering the full kitchen et cetera.
Okay. That's really helpful. And then just a quick one on the labor would you mind you of any color on your staffing level in terms of of what portion of hourly employees are kip. Thank you John.
As we think about potential labor form.
Yeah.
We would be so you said you have.
This is about 33% roughly.
Okay. Thank.
Thank you.
Our next question comes from the line of Brian Vaccaro from Raymond James Your line is open.
Hi, Thanks, and good evening, just two quick ones from me.
Set off premise was 43% of sales in the quarter, what was the delivery mix embedded within that.
It was about 40% of that 43, and on 30% of online ordering and 30% voter or walk up.
Alright, Great and then Matt can you ballpark, where you'd see G&A settling out in a post COVID-19 world and there is a lot of moving pieces layering in the acquisition normal bonus et cetera, but could you help level set that for us.
Well on user word riots of ballpark.
That's a fair word we believe that with normalized volumes, we can be slightly below six 5%, which would be our objective is to be improving by a 10th of the year end I think that we would be.
At 64 ish six <unk> range. It would normalize volumes. So that's kind of our objective. If you think about that for the back half of the year.
All right I'll pass it along thank you.
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.
Okay.
Thanks.
[music].
Okay.