Q2 2021 Cheesecake Factory Inc Earnings Call
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Yes.
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Yeah.
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Good day, and thank you for standing by welcome.
Welcome to the Cheesecake factory second quarter fiscal 2021 earnings conference call.
At this time all participants are in a listen only mode day. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star 1 on your telephone keypad.
If you require any further assistance just press star and zero.
I will now turn the call over to your first speaker Ms. Stacy Feit, Vice President of Investor Relations you May begin your conference. Thank.
Thanks Maria.
And welcome to our second quarter fiscal 2021 earnings call.
On the call today are David Overton, our chairman and Chief Executive Officer, David.
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 of 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 1995.
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 investors thought for Cheesecake factory Dot com.
And in our filings with the Securities and Exchange Commission.
All forward looking statements made on this call speak only as of today's date and the company undertakes no duty to update any forward looking statements.
In addition, during this conference call, we will be presenting results on an adjusted basis, which excludes non.
Cash acquisition related contingent consideration and amortization expense and the cost of terminate the companys interest rate swaps and reflects the value potential impact of the conversion of the company's convertible preferred stock into common stock for the period that it was outstanding during the quarter prior to the repurchase and conversion.
On June 15th.
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.
David Overton will begin today's call with some opening remarks, and David Gordon will provide an operational update Matt will then.
And briefly review, our second quarter results and provide a financial update with that I'll turn the call over to David Overton. Thank you Stacey comparable sales at the Cheesecake factory restaurants increased 7.8% relative.
For the second quarter of fiscal 2019.
This performance helped us achieve.
Record revenues of generates $109 million in cash flow from operations in the second quarter.
All of our locations, except Toronto had some level of indoor dining capacity and we continue to see significant pent up demand to dine at our restaurants across the country, notably.
We generated stronger sales of of the Cheesecake factory restaurants, and mother's day father's day. This year versus 2019 in spite of indoor capacity restrictions in fact, we had 1 location.
100000 sales on mother's day, with just 50% indoor dining capacity.
<unk> underscoring the tremendous brand affinity for the Cheesecake factory continued strength in the off premise channel again supported our strong sales performance during the second quarter.
With the lifting of indoor dining restrictions in California, and a number of other markets towards the end of the second quarter.
We saw comparable sales further strengthen into July as nearly all of our locations are operating with no restrictions physical 2021 third quarter to date through July 26 comparable sales at the Cheesecake factory restaurants increased 10% versus 2000.
19.
Again, we have seen consistency in this metric each week this month.
Our operators did a great job managing and leveraging the strong sales levels delivering delicious memorable experiences for our guests and also exceeding our expectations across our key.
Performance indicators, including food efficiency and labor productivity. This.
This performance drove strong restaurant level margin results at the Cheesecake factory restaurants during the second quarter.
For the development front to North Italia of restaurants opened in Miami, and San Antonio and flowers.
I would open at Atlanta during the second quarter, just last week North Italia opened a second location in Nashville in the Nashville area and Franklin.
We remain on track to opened as many of <unk> 14, new restaurants across our concepts. This year internationally, we now expect as.
Flowers to Cheesecake factory locations to opened under licensing agreements as 1 restaurant in the Middle East is now anticipated to opened in 2022.
With that I'll now turn the call over to David Gordon.
Thank you Dave.
When we reflect on where we were a year ago during the depths.
With COVID-19, we are so grateful for our teams who have enabled us to deliver the tremendous second quarter results.
Sustain the sales strength in the July to date period.
Based on the average weekly sales quarter to date of approximately $230 of of the Cheesecake factory restaurants.
This equates to nearly $12 million on average per unit on an annualized basis.
Off premise is comprised of approximately 27% of sales.
Average weekly sales quarter to date of approximately $61000 equating to nearly $3.2 million.
Of off premise sales per unit on an annualized basis at the Cheesecake factory restaurants.
As a reminder summer.
Summer is generally of seasonally softer period for the restaurant industry off premise channel and third party delivery providers.
For additional context this off premise average.
<unk> weekly sales level is about double the level that we saw during the same period in 2019.
With the strength of our sales performance, we have shifted our marketing for the Cheesecake factory restaurants, primarily back to ban brand based messaging to raise the profile of the Cheesecake factory brand.
Pre COVID-19 we were.
We're evaluating upgrades and enhancements to our marketing of technology platform.
Including the potential launch of our rewards program to drive our next generation marketing strategy.
The success, we had driving sales and frequency through targeted campaigns during COVID-19.
Reinforce.
Our view that now is the right time to move forward with these initiatives.
We completed a significant amount of consumer research to develop a program that is on brand for the Cheesecake factory and our guests and we are targeting of launch next year.
We plan to migrate our E mail database.
Or start of a more robust CRM system to work hand in hand, with the rewards program as well.
In the interim we are also revamping our website to transition to a more commerce forward platform to deliver a better guest experience with the goal of driving lift in conversion rates and average order value for online order.
At 2 new site is expected to launch by the end of this year.
Turning to staffing we are pleased to share that following our recent recognition on Fortune magazine's 100 best companies to work for list for the eighth consecutive year.
We were also just recognized as the best workplace for millennials.
We continue to believe these accolades demonstrate our position as an employer of choice.
While we have encountered some pockets of staffing challenges as markets fully removed indoor dining restrictions and the labor market remains very competitive this does not meaningfully spiteful of our sales performance at the Cheesecake factory restaurants.
Restaurants.
And we have made good progress towards being fully staffed for the current sales levels.
In fact, we are now above pre COVID-19 staffing and have lower hiring needs versus the time of our first quarter call.
At the same time, we continue to maintain industry leading.
Retention at both the manager and hourly staff levels, which we believe is a key contributor to our positive guest experience.
Notably we saw an increase in guest satisfaction of the Cheesecake factory restaurants during the second quarter relative to the same period in 2019.
We have also seen positive guest satisfaction rates at North Italia, which we believe are contributing to the strong sales performance of that brand.
We are seeing consistency in the sales performance with third quarter to date through July 26 comp store sales up approximately 10% versus 2019 levels with off premise.
<unk> comprising approximately 15% of sales.
With this sales strength, we have shifted our marketing back to primarily brand based messaging with a celebratory tone and our traditional local focus.
We continue to believe north of Italian performance reinforces the long term potential for the brand.
FRC drove stronger sales of margin performance during the second quarter as well and third quarter to date sales have further strengthened.
We are very encouraged by all of our concepts performance during the second quarter and the continued sales strength that we've seen at third quarter to date.
We continue to believe we are well.
Well positioned for the future given the strength of our brands best in class of operators and the breadth of high quality growth vehicles.
And with that I will now turn the call over to Matt for our financial review.
Thank you David second.
Second quarter comparable sales at the Cheesecake factory restaurants increased 105.
Year over year.
Relative to the 2019 period comp sales were up 7.8%.
Off premise represented approximately 31% of total Cheesecake factory restaurant sales during the second quarter.
Revenue.
Contribution from North Italia, and FRC totaled $114.4 million.
North Italia comparable sales increased 182% year over year.
And we're up 10% versus the 2019 period.
Sales per operating week at FRC, including.
Ft per store trial.
For approximately $103000.
And including $15.4 million in external bakery sales total revenues were a record $769 million during.
During the second quarter of fiscal 2021.
As usual I'm going to provide year over year detail on expenses.
But of course note that the significant disparity in revenues given.
Given the impact from Covid in the second quarter last year drove at normal year over year variances.
Cost of sales declined 240 basis points.
Primarily driven by sales mix and pricing leverage.
Labour declined 580 basis points.
Primarily reflecting sales leverage.
Other operating expenses declined 1.5.
520 basis points per.
Similarly, due to sales leverage partially offset.
By higher restaurant level of incentive compensation.
Our operators leveraged the sales strength to drive margin performance with restaurant level margins at the Cheesecake factory restaurants, following the trajectory, we would've expected at the second quarter sales levels.
We saw similar strength of performed.
<unk> at the mature North Italia locations and do want to remind everyone that we had opened 3 new north Italia restaurants year to date through the second quarter and have a number of other newer locations that havent, yet reached steady state operational levels, which impacted aggregate.
Reported margin.
G&A as a percentage of sales declined 580 basis points also primarily due to sales leverage.
Partially offset by higher corporate bonus accrual.
Preopening costs for $2.8 million in the quarter.
Of the $2.1 million in the prior year period.
To North Italia restaurants, and 1 of the flower child locations opened during the second quarter.
Whereas we didn't open any restaurants in the prior year period, but had costs associated with our new unit development Department and restaurant management.
Compared to <unk>.
Second quarter <unk>.
Diluted net income per share was <unk> 37.
Adjusted net income per share was <unk> 80.
Now turning to our cash flow and balance sheet.
The company generated approximately 109.
<unk> million dollars cash flow from operating activities during the second quarter.
Capex totaled approximately $24 million during the second quarter for required maintenance and new unit development.
We ended the quarter with total available liquidity of approximately $400 million.
Including a cash balance of approximately $162 million.
And approximately $240 million available on our revolving credit facility.
Total principal amount of debt outstanding was $475 million.
Including.
$345 million of 0.3, 75% convertible senior notes due 2026.
Issued during the second quarter.
$130 million drawn on our revolving credit facility.
Following for previously announced 1.
At $50 million repayment during the second quarter.
We also completed the offering of 312.5 million shares of common stock during the second quarter.
As previously disclosed we used the net proceeds from a convertible senior note and common stock offerings to fund.
Fund the repurchase of 150000 shares of the previously outstanding convertible preferred stock.
And the conversion of the remaining 50000 shares of convertible preferred stock into approximately 2.4 million shares of common stock.
This simplified our capital.
<unk> hundred and eliminated future convertible preferred dividends.
For GAAP accounting purposes, $13.6 million of the total consideration paid was deemed to be an assumed dividend during the second quarter of fiscal 2021.
Looking ahead.
Given that the operating.
Fitting environment continues to be very dynamic we want to keep you updated on our underlying expectations for 2021.
Following the benign commodity inflation, we experienced in the first half of the year.
We currently expect total cost of sales inflation of approximately 3%.
Structure of the back half of the year.
Given the normal seasonal sales trends for the Cheesecake factory restaurants, and FRC, coupled with anticipated wage inflation in line with our prior commentary.
We believe the labor line could deleverage by up to 25.
5 basis points in the back half of the year from the second quarter level.
With regard to other operating expenses, we expect the second half of the year on average to be slightly higher than the second quarter on a percentage of sales basis as we take the opportunity given the sales strength.
Sent to reinvest in the business and fund costs associated with our rewards program we are building.
We currently have 3% pricing in the Cheesecake factory menu and plan to remain at that level for the second half of the year.
We believe there's a sufficient to cover of inflationary factors currently contemplated.
We continue to expect G&A of approximately $47 million.
For each of the third and fourth quarters.
And we now estimate our tax rate for the full year to be approximately 8%.
With respect of development, we continue to expect to open as many as 14 new restaurants.
This year.
And we anticipate preopening expenses of approximately $9 million in the back half of the year to support the remaining new unit openings.
We anticipate about $65 million in Capex for the second half unit development as well as required maintenance on our restaurants.
At our full year Capex budget now expected to be approximately $95 million.
Looking further ahead, we have solid momentum in the key restaurant financial drivers, including comparable sales.
New unit development.
Margin recapture.
And our balance sheet we.
We believe this momentum will enable us to further accelerate our unit growth for our targeted 7% level in 2022 and continue to take market share. As we also continue to focus on driving sales and leveraging that performance to drive bottom.
Strong salts.
With that said, we'll take your questions.
And at this time to ask a question you will need to press star 1 on your telephone keypad Covid.
On your question you expressed at that.
We will foster user momentum from Baltic Haney Ross.
<unk>.
Yes.
And your first question comes from the line of Nicole Miller from Piper Sandler Your line is open.
Good afternoon, and thanks for the update just for the first question.
It's great to see net net things.
Of 2019.
With that kind of.
Kicking in.
Maybe youre not quite made whole on the end.
Person in dining room component of channel so.
So how do you think about reaching that equilibrium at.
And how you get back to capacity in the dining from giving the behaviors that you're seeing.
<unk>.
Hey, there at all this is Matt thanks for for the question.
Good 1 it's interesting when we look at the current run rate in Q3 from a sales basis, we're almost back to the sales that we had on premise in 2019 with the over is really coming from.
Today that.
Off premise piece of you mentioned, so I think we still actually have capacity to go because of as similar to everybody else in the industry of those sales are driven on premise by a little bit more check average than historical so I think we still have room to grow both components frankly and.
So.
As at a equilibrium if you will.
There is opportunity to drive both channel still as we go forward.
And then just 1.
Last clarifying point on of store level margins for the back half.
Got the pieces like 3% Cogs inflation.
<unk> wages might be at.
Excuse me you might Delever 25 basis points at modest.
Operating might be up percentage wise, and then you made the comment 3% kind of kick menu sufficient to cover for all of our margin I guess I'm just kind of ask.
So does that mean store level margin.
Net net can look like to queue, but are we still with that price of we still need to modify a little bit for of stepped down just so we get that modeling right.
Yes.
I think I wouldn't say at a.
A step down I think we're trying to make sure that everybody remembers since last year.
<unk> was at a good guidepost than it's been so many ups and downs, but there is some modest seasonality to the business right. So Q2 is never looked like Q3 margins right and so looking at Q2, Okay, Yes storage really has been.
Margin for the Cheesecake factory brand every year, so there's just going to.
Humans out of Q2, you could also look at at on a year over year basis that might be more of applicable for the inflation commentary, but less applicable because last year was so different right and so we're just trying to hone in and I think when you look at the totality of at for the back half of the year, we're still looking.
Be moved solid margin improvement as a company over 2019, but it may just not be a smooth pace because of seasonality.
Okay, we can come back to that thank you very much appreciate it.
And your next question comes from the line of Jon Tower from Wells Fargo.
At your line is open.
Yes, just a couple of ones for me hopefully you can hear me okay.
Following up for that last point at just to clarify.
Mentioned at the company margin better versus 2019 are you, referring specifically to.
EBIT margins on that Matt.
Yes, correct, okay, Okay great.
And then so just digging a little bit into some of the investments here for some of the comments.
You had mentioned that some of the new stores are acting as a bit of a drag on the aggregate store.
For level margins, mostly because they are not up to maturity yet is there a way that you can potentially quantify that.
Thank you for us so that we can kind of blend it into our expectations going forward Thats 0.1, and then second.
You'd also mentioned the idea of that in the back half of this year. Other opex is going to see some investments in that line, which will move up relative to the second quarter.
Tied to the rewards program and investment in technology.
Technology.
It must be ongoing spend or is that something thats purely 1 time back half 'twenty 1 index.
Only.
Hey, John it's Matt So on the first 1.
Specifically referencing north Italia and we did.
Provide some context.
Context of net.
For mature margins there are pretty much right in line with the Cheesecake factory margins right. So the difference is just the timing of the buildup of the newer restaurants. So in totality of that brand is seeing pretty much the equivalent margin and thats. What we would expect to see is as all of our stores ramp up over time.
With respect of the investment it's really specific to the back half of this year right. There are some upfront costs that we have to incur to get the program going but then on an ongoing basis, we would expect it to be accretive right. It's going to provide the revenue, but that doesn't happen until until we launch at so it's really specific.
<unk> for the back half of this year.
Yeah, and then just kind of following up on that point, how should we think about this program itself is going to be similar to like other programs where at spend base and.
You guys plan on focusing solely on the Cheesecake factory brand or is it something thats going to be utilized across the portfolio.
Hi, Jonathan.
John This is David Gordon.
We as you might anticipate it won't be necessarily similar to what's happening across the industry. It will definitely be on brand for the Cheesecake factory.
And certainly as we have more details to share as we get towards next year. We will end it will only be for Cheesecake factory at.
At this point in time.
Our credit strategy.
Okay I'll yield.
Before thank you.
And our next question comes from Jeff Farmer from Gordon Haskett. Your line is open.
Thank you all of it looks like for several months into the return of indoor dining on whats almost of national.
So I'm just curious what your thinking is right now in terms of the updated numbers youre seeing on the sustainability and incremental <unk> of those off premise sales.
Well I think as we said looking at where we are so far quarter to date as off premise at 27% of sales.
They continue to remain.
<unk> been very solid at the end of.
Q2, they were at 31% and as we look at the restaurants that have been opened longer in those more mature states of had a 100% seating capacity, Georgia, Florida et cetera, They too are maintained.
At mid to high 20%. So there is we still feel.
<unk> very bullish that our ability to execute off premise very well along with the value of the menu and the offerings of the menu.
We will continue to hold a good a good portion of the off premise growth.
Thanks to all of it the other way to think about Jeff. This is Matt is just that.
We're up almost.
All of <unk>, where we were in 2019 and so 1 of the things we've always talked about it at the percentages will move a little bit as we continue to re grow beyond premise, which is which is great right I mean, youre tracking right now at a $12 million.
Level and were still at $1.6 million on.
Host governments right. So I think that's an important piece also right. We've always talked about if we could even keep of $1 million of it and yet with fully reopened dining rooms for the past month, we're still keeping $1.6 million of it.
That's very helpful to hear that in 1.
Unrelated question so.
A little bit premature here, but.
But just in terms of markets that have seen some pretty material jumps in COVID-19 case counts it looks like Florida, Missouri, Oklahoma, where at Cheesecake dose of restaurants, and any sort of early read on how consumer behavior has changed or has it not.
I think share of point, Jeff it's early.
Too early to say certainly here in la.
From where no mass mandates went back into effect and of Lake County at didn't really seem to have much of an impact of effect, who knows long term, but will happen across the country. I think it's a little too soon to tell people certainly right now appear just don't want to get out there.
And David next question comes from the line of Brian Vaccaro.
From Raymond James Your line is open.
Hi, Thanks, and good evening.
Appreciate the quarter to date comments in the 230000 of weak at the Cheesecake factory brand net.
Can you remind us what the seasonality looks like in 2019, moving through the third quarter kind of comparing July.
Maybe towards August and September.
Have a good base.
Sure sure.
Sure and it's not just 2019 I would say at every 1 of the years that I've been here prior to Covid. The seasonality is very predictable. So August looks a lot like July.
And then when you hit the back to school month of September there was a pretty meaningful drop in average weekly sales is pretty similar to January.
To say, it's in the 15% to 20% range. So we're joined up with us.
<unk> sales on an average weekly basis are pretty.
Pretty equivalent across each of the 4 quarters Q3 is just slightly lower than Q2 because of that September movement.
Alright, Thats helpful and on North Italia, I think you said noises in the quarter to date period running up 10% just to make sure. We're all at the same page since we don't have sort of the historical context back to 19.
<unk> can you can you provide where AWS are at north in the quarter to date period.
Yes, we are running approximately 6.8 million.
<unk> be sort of morphing for that.
We scale level here.
I'd have to do the math, but it is virtually the same as it was in the third quarter, which was at $6.9 million. So it's about $100000 changed and that's a little bit of the seasonality, we're referencing too because of the focus that.
Historically some of those restaurants had been in Arizona.
If you take the $8.52.
Got it.
Okay.
Right.
Sure.
Okay, Great and then last 1 I just wanted to ask you about the cash flow and the balance sheet for a second I think you were expecting to get a tax refund at some point under the cares Act in 2021 was that reflected in that cash from ops.
Youll get a balance of cash from ops performance in Q2, I think you said 108 spot 8 if memory serves.
It has not been reflected yet we've adjusted the timing of filing some of our tax returns to reflect some of the changes in the business from some of the decisions.
So.
We've pushed that out a little bit obviously not meeting at at this point in time are reflecting on the best way to approach that and then also there's a little bit of of repayment of some of the cash benefits from the payroll tax deferrals that will come up also so none of those are reflected in our current.
<unk> ounces.
Okay, Okay great.
The posture on the balance sheet net of 160 million of.
Cash and end the $4.75, I think of of total debt whats historically the company has not had much in the way if any debt.
Whats the.
Cash but longer term view.
Exiting COVID-19 is there a targeted leverage ratio youre thinking about internally or just how are you prioritizing capital allocation, but beyond new unit growth and obviously investing in the core and technology et cetera.
Thanks.
Sort of that's a great company, Great question, Matt and I would say.
Our intention would obviously be too with the great cash flow that we're generating paydown. The revolver as we go I don't see any reason that we would honestly do anything with the new convert.
Which is unbelievably effective capital so once we clear through the revolver I am sure that the board will be very interested in re starting some of the capital return programs.
Including the dividend at some form of share repurchase because I would foresee that we will have.
Excess capital that would probably be in the early parts of next year right. We're still at an amendment for the revolver and that will go through this year, assuming we clear all of the hurdles, which I think we already have for the second quarter. So that will will be of problem. So I would imagine we would be there early part of next year towards that balanced allocation.
<unk> again.
Alright, Thank you I'll pass it along.
And your next question comes from the line of <unk> <unk> from Baird. Your line is open.
Great. Thanks for taking the question I wanted to follow up on the unit development pipeline at discuss the target of 7% unit growth in 2020.
And now you're at about 18 months out from that period. So I wanted to get a sense of how the development pipeline is shaping up I guess is there any color you could provide in terms of the pipeline for cheesecake or the other brands and the visibility to hitting that 7% unit growth target for next year and then just as a follow up as you've rebuilt. This pipeline has there been any change in the thinking or the process.
And on the company as real estate strategy going forward. Thanks.
Thanks True. This is David I think we feel good about that 7% intelligent growth for pipeline looks strong and across Cheesecake factory north end as well as some of the other FRC brands.
The good news is.
For real estate strategy continues to be just looking for great day sites and we see some good availability out there whether that is in a traditional mall location or for some of the other brands of a lifestyle center or even smaller centers when it comes to flower child as an example, so.
We really are pretty bullish on that 7%.
Our end 2022 appears to be looking good thus far.
And this is Matt just from where we've said that split may come out I think we're pretty much tracking to how we've described at Cheesecake factory sort of in the 2% to 3% total growth from a unit build of then pretty equally distributed between FRC.
And north.
I think that we're probably farther ahead in the pipeline than we were pre COVID-19 in terms of being able to meet at because we have of diversification, but obviously theres more opportunities that are coming up.
Thank you very helpful.
And your next question comes from the line of Michael <unk> from Goldman Sachs. Your line is open.
Hi, Thanks for taking the question.
Just had a quick 1 on June and Labor did you guys have what does the cadence look like in terms of adding labor back to the stores when.
Something like California reopened in June and could you talk.
A little bit about the average weekly sales progression coming from your update at the end of May going through June and then obviously, you know running pretty well quarter to date.
Sure. Michael This is Matt for the cadence perspective, I mean, I think it played out almost exactly like we would have predicted in describing the reopening.
Openings scenario associated particularly with California as you mentioned, so our business update when we did the refinancing we were at a 7% versus 2019 comp, but we ended the quarter at of 7.8 and we're running at a 10.
We had talked about the delta between 50.
<unk> 75, and no restrictions in California, being about a 10% there are 20 of 25% of our business and so if you do the math of it actually played out exactly.
At the consistency that we would have anticipated I think from a labor perspective.
Our approach is to try to add at commensurate.
For reopening.
David Gordon mentioned, our staffing levels are now above where they were pre COVID-19 certainly with the sales strength, we want to continue to be able to support that but we have slightly fewer needs now than we did at the time of our last call. So we've done a good job it's just that.
We're sort of gaining popular we have to keep up.
Great. Thanks, and 1 other quick 1 on those 100% capacity States like Florida is Missouri, Georgia for Youre still seeing that mid to high 20% off premise mix what do the on premise AWS look like there or is that more in line with history or are those also running a little.
With.
So if you breakdown just using the average.
We're running at were running $12 million on average in our geographies tend to work out in total pretty close to the averages if you group them big enough.
All of Florida versus of California, it's not that different.
So.
Little bit how we're doing that we're doing $3.2 million on and off premise basis. I think you can back into kind of where the on premise would be at.
Like we said, it's running pretty much in line with the pre COVID-19 on premise. So just want maybe at a little bit below that.
Great. Thanks.
And your next question comes from the line of James or further forward from Stephens. Your line is now open.
Hey, Thank you I wanted to just start with flower child, if I could it looks like sales have rebounded very nicely with that business.
Up over about 108% year over year I'm, just curious your latest thoughts about the.
And potential of that brand and your priorities at scaling that nationally.
I think we still feel really great about flower child or sitting at 27 restaurants today and 10 states at continues to perform well in just about every state every different type of geography.
It's going into so.
A long time, we feel good about it at did perform well and has performed well through COVID-19 if they do.
Great job with off premise execution.
Do a great job of speed and throughput and it's just a very high quality.
Food so.
We're just as bullish maybe more than we were pre COVID-19 at this point and we'll continue to have.
Our team members involved in flower child for Sam and his team continue to grow at here in the short term and we will evaluate as we move into next year, when we might completely take overall operational aspects.
Okay. Thanks for that and then I wanted to ask another 1 on margins I know, we've talked about at several times here, but just from a different angle.
If I look at your restaurants in total you've you're running here in the quarter at sales levels higher than 2019.
Yet total restaurant margins are down about 50 basis points from that 2019 level in <unk> I think most of the variances and other operating costs I'm. Just curious if you can talk about.
Maybe the puts and takes there.
On other operating and how we should think about kind of the go forward on that thank you.
Sure I think there is also of course, there are some movements right because the 2019 was pre acquisition. So there's just some reorganization of little bit maybe in there I think the.
Other operating expense piece, obviously includes also increased marketing <unk> <unk>.
<unk> is around delivery rates of Theres been a significant move up in that side of things and so when we look at that on a go forward basis like we said for the back half of the year, we would expect it.
To be.
At slightly higher as a percentage of sales just for the third and fourth quarter as we invest in our rewards program and by that we mean 10 to 20 basis points sort of in that line, but I think in general if you look across the other line items obviously.
Sales of labor, both leveraging on those sales piece and I think it's just the dynamic of the acquisition and investment in the delivery channel.
Thanks very much.
Your next question comes from the line of Lauren Silberman from Curt.
Credit Suisse. Your line is open.
Cost of thank you on the aggregate of T cell that quite at 30000 timeframe of daily failure of covered off premise to tax pre COVID-19, what's your confidence in being able to maintain at 230000 average weekly sales volumes go ahead or is there any reason we should expect the PD volume has come down at the rest of the year.
With the exception of seasonality that you pointed out.
In the context of perhaps an on premise transactions aren't fully recovered and then I'll kind of just come down a bit just from seasonality some of their opportunities and above the $2.30.
Hey, Laura it's Matt.
Its still of a wildcard question for Brian It's a good 1.
I think that we feel very good about the stability of the comp trend and so that will play out as you know across September and October might be a little bit different on the average weekly sales and then typically.
December you can have really really high average weekly sales, but I think we feel.
I like the business as it's progressed really from the middle of March until now has taken on the characteristics that are hallmarks of the Cheesecake factory, which are really predictability and dependability and as I noted earlier, we still have plenty of capacity. So I still think that there are.
Feel opportunities in both of those channel to continue to drive sales going forward. So, we'll see where it goes but we're happy with the trajectory as it stands today.
Great. Thanks, and then just a bigger picture question on Cheesecake factory brands I believe historically, you've talked about of 300 potential otherwise.
There are 18 months or so has it changed anything in how youre thinking about the unit potential for the brand.
Hi, It's David Gordon.
It has not changed I think that our flexibility and ability.
He didn't have different sizes of cheesecake factory's.
It gives us probably at even a little more confidence that we can hit that 300 number.
We have the new Cheesecake factory built here in Oxnard, that's close to 6000 square feet is performing very very well with some great margins all the way up to large size cheesecake. So we think Thats 300 target is still very realistic for us overtime.
Great. Thank you guys.
And again, if you would like to ask.
Ask any questions just press star 1 on your telephone keypad. Your next question comes from the line of John <unk> from Wells Fargo. Your line is open.
Hey, Thanks again for taking my question just wanted to circle back on the margin thing again, I hate to beat a dead horse, but I am curious I think previously you've talked about the idea of.
Potentially seeing 30% of course, so incremental margins on volume roughly above 2019 levels clearly this quarter wasn't necessarily the case it didn't tie out I think to that that at level, nor I mean, obviously with the investment net net.
Third and fourth quarter around.
The rewards program.
Brandon It sounds like that's going to be the case of either so I'm curious if that can hold again into 2022 and beyond or.
Other inputs like labor inflation going to impede that incremental flow through level.
I mean, if we hearken back.
A lot of movement between them.
I think when we look at sort of the run rate of the company at.
5% EBIT level.
For the back half of 2019, certainly everything we're doing right now is going to be exceeding that at that 30% for the 3 quarters second third.
Fourth quarter combined for this year, so I still think in totality.
It does make sense I think it's always tough when you look at 1 quarter in some of the pieces within that versus looking at at over maybe a little bit more of an extended period of time.
Okay.
That's it for me.
Several of these.
Later, thank you.
And again, if you would like to ask any questions. Please press star 1 on your telephone keypad at your next question comes from <unk> <unk> from Jpmorgan. Your line is open.
Hey, guys. Thanks for taking my question. This is at all Hogan from from.
John Island Gold.
2 part question on the marketing.
Start at the end of the G&A here.
Can you expand a bit more on the next generation marketing start to show you just touched upon in the initial of comment specifically for you have to start to hear on the off premise marketing. Given this is the layout of you would want to be stickier over time.
The second part of what would this mean for the G&A expectations for long.
Tom I know you best on day, 1 does it kind of person for this year and 6 points for sometime next year.
Is there any long term target.
At this could change in the context of this new spending.
Sure. This is David I'll turn it over to Matt on the <unk>.
G&A front.
On the for longer term rewards while we.
We won't go into any details again today, there's no reason why we won't be able to use your rewards in a targeted way and if we make a decision that we wanted to target off price.
Emmis opportunities as we did throughout Covid will have the flexibility to do that as we learn more about those guests, which will be a key component of the overall strategy is to understand.
Stand a little bit more about our guest generally.
Whether thats, our ordering and preferences.
Or are there spend habits and how we can continue to grow that spend over time and that could be done through off premise channel and also hopefully will be done by driving traffic back into the restaurants.
At <unk>.
It doesn't.
At our G&A expectations at all.
No change for Bose.
Thanks, guys and for that day.
And that's our last question.
Speakers do you have any closing remarks.
No. Thank.
The impact during the call we look forward to connecting with you next quarter.
And this concludes today's conference call. Thank you for participating you may now disconnect.
Yes.
Right.
[music].
You for joining us.
Okay.
True.
David.
Thanks.
On expenses.