Q4 2022 Cheesecake Factory Inc Earnings Call
At this time I would like to welcome everyone to the Cheesecake factory incorporated Q4 2022 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
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Thank you for your patience I'll now turn the call over to Vice President of Investor Relations at <unk>.
In markets you may begin the conference.
Good afternoon, and welcome to our fourth quarter fiscal 2022 earnings call.
On the call with me 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 facts 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 investors that the Cheesecake factory Dot com and in our filings with the Securities and Exchange Commission.
All forward looking statements made on this call speak only as of today's date and the company undertakes no duty to update any forward looking statements.
In addition, during this conference call, we will be presenting results on an adjusted basis.
Exclude impairment of assets and lease termination and acquisition related expenses, an explanation of our use of non-GAAP financial measures 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.
Matt will then review our fourth quarter results and provide a financial update.
Following that we'll open the call up to questions.
With that I'll turn the call over to David Overton.
We delivered another solid quarter sales across our portfolio of concepts, resulting in annual sales exceeding $3 billion for the first time in our company's history.
Average unit volumes of over $12 million for domestic Cheesecake factory restaurants.
Additionally, north Italian fourth quarter comparable sales increase an exceptional 26% over 2019, and a 14 week versus 14 week basis.
Our strong topline performance continues to be driven by our strategy of differentiation through menu innovation service hospitality and operational excellence.
To that end our best in class operators remain intently focused on delivering delicious memorable guest experiences and effectively managing their restaurant.
While our operational performance has been solid as I discussed last quarter, we have been in an exceptionally high inflationary environment, which has resulted in restaurant level margin compression as reflected in our physical 2022 result.
Over the past year, we have endeavored to meet the dual mandate of protecting guest traffic for the long run.
Also recovering margins in the near to medium term.
While our sales results reflect the positive momentum we have sustained topline I recognize that our profit margins have not kept pace given the rapidly escalating inflation.
To address this shortfall, we rolled out an additional menu price increase at the start of December with the objective of exiting the year with Cheesecake factory restaurant level margin at seasonally adjusted 2019 levels based on our December results. We believe we have achieved our objective.
We believe commodity inflation will improve as we move through the year and labor will further stabilize.
Upstream to key general alignment between cost increases and menu pricing in 2023.
Our goal is to also maintain our recent sales and guest traffic trends as both sales and margins are critical to driving shareholder value in the short and long term.
Turning to unit growth.
Successfully opened eight new restaurants during the fourth quarter, including two cheesecake factories to North Italia to flower child, and two of the FRC restaurants.
On the International front, we opened a fifth Cheesecake factory location in Mexico City under a licensing agreement and.
And subsequent to quarter end, we opened adult birds in Nashville.
I believe opening eight new restaurants last quarter demonstrates our ability to execute the acceleration of our unit growth plan and while we continue to experience some delays in opening.
To supply chain challenges and permit approval delays beyond our control at this time, we expect to open as many as 2022 new restaurants.
Year, 2023, including 5% to six cheesecake factories, five to six and RF, Italians and 10, FRC restaurants, including three to four flower child locations.
Additionally, we expect two to three Cheesecake factory restaurants to open internationally under licensing agreement, we remain deeply focused on driving menu innovation.
And temporary designed at the core of our restaurants.
And ensuring our guests receive excellent service.
These pillars form the foundation of our four and a half decades of success and we will continue to pave the way for a bright future.
With that I'll now turn the call over to David Gordon to provide some additional details on our operations and market. Thank.
Thank you David.
Our staffing levels remains solid staffing needs at the start of 2023 down more than 50% compared to the same period the prior year.
During the fourth quarter, we once again drove sequential and year over year improvements in both manager and hourly staff retention.
Our applicant flow continues to be strong in.
In 2022, we had over 1 million applications and as of January applicants available to hire for more than three times, what they were a year ago with approximately 57 applicants for every one need.
We believe retention of stacking levels go hand in hand, with delivering great guest experiences and ultimately comp store sales performance.
To that end.
And net promoter metrics improved sequentially and year over year and.
And our sales trends are off to a promising start in 2023.
Through February 21st quarter to date comparable sales for the Cheesecake factory restaurants on an operating week basis are up nine 5% versus 2022 and up 17% versus 2019.
As I've shared previously given the strength of our sales performance, we've shifted our marketing for the Cheesecake factory restaurants, primarily back to brand based messaging to raise the profile and awareness of the Cheesecake factory concept.
However, we continue to support the off premise channel with some on brand promotional activity.
For example in <unk>.
Celebration of our 45th anniversary, starting next Monday guest ordering online or through a door dash will receive a complimentary slice of cheesecake.
Spent $45 or more.
This promotion will run Monday through Friday March 3rd and is designed to drive sales during the days of the week in which we have more available capacity.
We continued to see stable guest purchasing behaviors.
Take factory off premise sales for the fourth quarter totaled 23% of sales for the second consecutive quarter.
Additionally, we have not seen any material changes in on premise internet rates over the past three quarters with engine of rates remaining above 2019 levels.
Now turning to North Italia fourth quarter comparable sales grew a solid 9% versus 2021 and 26% versus 2019, both on a 14 week versus 14 week basis.
These positive sales trends have continued into the new year.
Through February 21.
To date comparable sales on an operating week basis increased approximately 13% year over year and 31% as compared to the same period in fiscal 2019.
Four wall margin for the adjusted mature North Italia locations improved to 13, 3% for the fourth quarter supported by a menu price increase implemented mid fourth quarter.
FRC also drove some strong results with annualized <unk> of $7 $6 million reinforcing our belief that the differentiated and emerging concepts RC continues to develop we will drive meaningful growth going forward.
Before I wrap up I want to thank our staff members and managers for their continued dedication to absolute guest satisfaction and maintaining our culture across our concepts, while continuing to navigate the dynamic operating environment.
And with that I will now turn the call over to Matt for our financial review.
Thank you David.
Let me begin by reviewing our progress against the primary financial objectives, I outlined last quarter for fiscal 2022.
Total revenue was $3 3 billion for the year.
The Cheesecake factory.
Exceeded $12 million.
Following the latest menu price increase cheesecake factory or wall margins for December exceeded December 2019 margins.
The year G&A depreciation and Preopening expenses combined were 60 basis points lower than the prior year.
Finally, we returned over $105 million to our shareholders in the form of dividends and stock repurchases.
Now turning to some more specific details around the quarter.
Total revenues at the Cheesecake factory incorporated for the fourth quarter of 2022, which as a reminder included an additional operating week or.
$892 8 million.
The additional week contributed approximately $78 $4 million of sales.
Fourth quarter comparable sales at the Cheesecake factory restaurants increased 4% versus the prior year.
11, 4% versus 2019.
Both on a 14 week versus 14 week basis.
Revenue contribution from North Italia, and FRC totaled $161 $4 million.
Sales per operating week at FRC, including flower child for approximately $109000.
And external bakery sales were $21 $5 million during the fourth quarter of fiscal 2022.
Now moving to expenses.
Cost of sales increased 170 basis points versus Q4 of the prior year, principally driven by significantly higher commodity inflation and menu pricing.
Labor decreased 140 basis points over 2022, primarily driven by lower medical insurance expenses and pricing levels.
Other operating expenses decreased 40 basis points, largely driven by lower restaurant level incentive payout.
Sales leverage.
G&A as a percentage of sales increased 20 basis points, mostly driven by higher legal fees.
Preopening costs were $7 $8 million in the quarter compared to $3 9 million in the prior year period.
<unk> eight restaurants during the fourth quarter versus four openings in the fourth quarter of 2021.
And in the fourth quarter, we recorded a pre tax charge of $41 $5 million related to asset impairments and FRC acquisition related items.
Fourth quarter GAAP diluted net loss per common share was <unk> <unk>.
Adjusted net income per share was <unk> 56.
Now turning to our balance sheet and capital allocation.
The company ended the quarter with total available liquidity of approximately $354 million.
Including a cash balance of about $115 million at approximately $239 million available on our revolving credit facility.
Total debt outstanding was unchanged at $475 million in principle.
Capex totaled approximately $34 million during.
During the fourth quarter for new unit development and maintenance.
And we completed.
$22 million in share repurchases and returned just under $14 million to shareholders via our dividend during the quarter.
While we will not be providing specific comparable sales and earnings guidance given the operating environment continues to be very dynamic.
We will provide our updated thoughts on our underlying assumptions for the first quarter and full year 2023, where revenue.
Net income margin.
For Q1 based on our quarter to date performance.
Most recent trends and assuming no material operating our consumer disruptions, we anticipate total revenues to be between 850 and $880 million.
This includes a menu price increase of approximately three 5% we are deploying at the Cheesecake factory restaurants during the middle of the quarter.
This menu price increase is replacing the 325% menu price increase we took in the first quarter of last year.
Next at this time, we expect the effective commodity inflation of about 10% to 12% for Q1.
We are modeling net total labor inflation of about 6% when factoring in the latest trends in wage rates channel mix.
As well as other components of labor.
We anticipate net income margin of approximately 3% to three 5% for the first quarter of fiscal 2023.
Based on the revenue range I previously outlined.
<unk> year over year commodity.
Now for the full year.
Based on our year to date performance more recent trends and assuming no material operating our consumer disruptions.
Anticipating total revenues for fiscal 2023 to be between approximately $3 5 billion to $3 6 billion.
We currently estimate total inflation across our commodity baskets.
Total labor and.
Other operating expenses to be in the mid single digit range moderating throughout the year.
And given our unit growth expectations, we are estimating preopening expenses to be approximately $24 million.
As we have said earlier, our goal is to effectively offset inflation with menu pricing to support our margin objectives.
We do so when consumer trends remain consistent and there are no other material exogenous factors.
Full year net income margin of approximately 4% at the midpoint of the revenue range I provided.
With regard to development as David Overton highlighted earlier.
To open as many as 20 to 22, new restaurants, this year across our portfolio of concepts.
With approximately 80% of openings occurring in the second half of the year.
And we would anticipate approximately $165 million to $175 million in Capex.
To support this years and some of next year's unit development as.
As well as required maintenance on our restaurants.
In closing we remain pleased with the top line results across our portfolio of concepts. However towards 22 was undeniably an extremely challenging year with respect to our margin performance.
And clearly the cost environment remains heightened relative to historical standards and there can be no guarantees it will abate in 2023.
That said in December our pricing actions appear to have caught up with our costs.
And while some degree of volatility and uncertainty should still be expected quarter to quarter. It is our goal to keep a tighter correlation between pricing and the inflationary experience going forward.
As we continue to work to recapture restaurant level margins in the <unk>.
Further leverage our G&A and depreciation expenses, our objective is to unlock the earnings and cash flow potential, but our strong sales results and continued momentum provided.
Combined with our re accelerated unit growth and capital returns programs. This will provide for a meaningful shareholder value creation platform going forward.
With that said, we'll take your questions operator.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
Our first question comes from Joshua long with Stephens.
Great. Thank you for taking my question.
Just curious if you can share how consumer trends.
We're across the system by day part geography channel mix and then as we think about the pricing decision that we've been talking about for the last quarter or two can you sort of see.
Feedback read through in terms of how those have been handling it seems like they've been accepted well, but just curious what you're seeing at the restaurant level from from the consumer as we continue on the current environment.
Sure Josh This is Matt thanks for the question.
I think.
Typical to historical Cheesecake performance, it's been extremely consistent.
Geographies have been consistent I was literally just before the call looking at our stack for the quarter. The dinner day part the lunch day part extremely consistent to historical performance, both pre and post pricing actions, whether that was the summer or the most.
Recent one we've seen the on premise dining incident rates be almost the same as they've always been so we've really been pleased.
The consistency of the brands is held up.
And I think part of that is while we have been taking the incremental pricing to recapture margins remind everybody that at least when we look at the data food away from home versus our menu pricing since 2019, we're still four percentage points below what the rest of the market has been so the valley.
<unk> proposition for Cheesecake is still there and I think that the guests are using it the way that they always have been.
Great. That's helpful. When we think about some of the.
The guidance or the guidance.
Guidance, but some of the visibility you have into the <unk> trends when we talked coming out of the third quarter can you talk about maybe some of the pushes and pulls there in terms of just what drove the full quarter <unk> revenues.
Pricing timing were there any sort of other pieces in terms of digging into the portfolio that kind of inform that $293 million in total revenues from <unk>.
Sure I think looking at the biggest piece of it there is two parts number one the end of the year was extremely strong. So our best performance really came in the last couple of weeks. So just to highlight that there has been some ups and downs in the marketplace, but certainly the consumer resiliency of the holiday.
Time.
Fuel that and as David Gordon mentioned in his comments, we've seen a very strong start to sales in this year as well. So two things I would say in terms of what may have been different to what we saw number one there was some weather impact I know that other concepts, we've talked about that it was probably about a half a percent about 40.
The 50 basis points. The other thing I would say is November was slightly below our internal estimates and I would I would personally chalk it up to the fact that last year November was exceptionally strong and I'd just remind the analysts and investors are just looking at the year over year continues to be only <unk>.
One metric and really going back to see where we were in 2019 because of the sort of the waves of the ups and downs and so I think there was just a little bit of a gap in November but just based on the 2021 results versus 2022.
That's helpful and maybe last one for me and then I'll hop back in the queue and we think about.
The kind of the margin goals that you've put out.
And over the last couple of quarters and in your prepared comments you talked about how the December margin.
All of the pricing was in place were above 2019 levels sort of additional commentary or color you can share there in terms of what the.
Number four wall margins were back in 2019, just so we can kind of level set this.
Progression in terms of getting back to pre COVID-19 levels.
Sure, we don't actually report on monthly margin levels right.
There are differences based on seasonality and things I don't Im not sure that that specific metric would be helpful. I mean, I think our goal was to be above 2019, we accomplished that in December . So I think thats a positive there was a little pressure again kind of just explaining that.
Quarter, and our four wall margins really driven by the sales that we talked about right. So absent that the overall four wall. It was the best most consistent performance that we've had all year, we hit core costs labor and commodities came in on plan or better right. So I think that the momentum on the margin side is.
Has been achieved there is a little bit of noise below the four wall level and a little pressure in G&A and so overall that combined for the total result, but I think that we set ourselves up to move forward appropriately.
The thing that we want to make sure to that is clear is that the first quarter and I've heard some other companies talk about this when you come into the year and you've caught up from the past year on January one two or whatever that time is minimum wage set and you do have some of your new contracts for commodities rolling over so.
In the first quarter, we've got to catch up again, a little bit that would normally be the case, we just see outsized seasonality given the environment right. So we talk about the 10% to 12% commodity inflation for the first quarter moderating really being more like 4% in the back half, Brian and so that is an important distinction.
<unk> in terms of the cadence of the margin recovery and sustainability, particularly the four wall margin level.
That's helpful and understood in the December margin Amin, who simply that.
Makes sense when we think about that comment holistically that would exclude any sort of benefit from the extra week, which we would typically think would be accretive.
Is that right.
And that was the intention of the language seasonally adjusted right. So we did attempt to factor that in and got it correct.
Thank you.
At this time. Please ask one question along with the follow up our next question.
Comes from Brian Vaccaro with Raymond James.
Hi, Thanks, and good evening.
Just back to the margin recovery.
Targets.
Discussed previously in previous calls kind of getting back to mid teens margins I. Just wanted to confirm is that a cheesecake specific comment and I'm, just asking because north Italia is still running in sort of that 10% to 11% range, yes, theres definitely understand that theres, new unit inefficiencies burdening that but.
I would imagine that that's going.
Going to likely continue given the new unit growth of that brand. So any commentary on that would be helpful.
Brian This is Matt Yeah. That's great. Thank you for asking that specific question again trying to provide as much clarity. So that is a specific cheesecake objective and I think what we've talked about is there could be you know.
Depending on the.
The staged a quarter all the other seasonality, but in terms of the growth brands. Another 25 to 50 basis point overall company waiting on that right Joe.
Cheesecake goal is the mid Fifteens, and then that would put the company goal around 15.
Based on all of the growth factors.
Okay, great. Thank you for that and then on the.
The comps, yes, sorry, if I missed it but can you provide cheesecake factory traffic price and mix in the fourth quarter.
Sure and you did not miss it.
Pricing was eight 5% traffic.
Traffic was a positive <unk>, 3% and.
And the mix was a negative four 8% of the mix just as a reminder, the vast preponderance of that is associated just with the off premise channel and the way we counted in the purchasing behaviors of the off premise beyond premise as I answered in.
On a previous question.
And to the right and the check capture was virtually on par with pricing.
Okay, Great and then last one if I could just squeeze it in on the other operating costs I know, it's a line that a lot of moving pieces and a lot of volatility in that line, it's been difficult to sort of guide and manage through 2022, but.
In the fourth quarter, what was it that moved against us specifically that.
I think you had guided mid 'twenty sides. If my notes are right.
Any color on that would be great. Thanks, Pat.
Sure the biggest pieces I think versus our expectations, one utilities continued to be significant pressure points and a lot of the.
The natural gas again, the timing of the way that rolls through and it hits the energy still ended up above.
Where we had anticipated we attempt to use the forward curve provided by the department of energy, but I guess the government can only do so well with their forecasts.
That hurt us a little bit.
We saw particularly in.
October November are still a little bit of run off on the higher R&M.
I think that that was a challenge and then and then ultimately we had a little bit of pressure on insurance to the.
The one thing.
We did price for all of that really when we looked at what we needed to do for December and.
And just early commentary so far this year it looks like the those higher cost of continued but that they're not getting worse.
Okay understood and then is there any light at the end of the tunnel or green shoots.
As it relates to some of these inflationary pressures, whether it be utilities R&M or other things that have been pressuring you in 'twenty two in that line.
Aiding and any way to ballpark kind of what what inflation level you might see in that other opex line in 2023.
Yes, I mean, it definitely like I said I think when you look at the summer and even in January we haven't seen it escalate higher so it definitely has stabilized.
Some of the contractual components of that are more in the normal 3% to 4% range that you would have seen and eventually the capitulation in the natural gas market I mean, it's trading in the low twos today.
During the summer and had nine so that that will ripple through it will be different by geography, and then timing and so I think there will be some relief in that period, but I think generally speaking when we think about the P&L other opex probably remains somewhat high relative to our.
Rolls, but below where we were in 2022.
Going forward, because the inflation should be less than our pricing for the year.
That's great thanks very much.
Yeah.
Our next question comes from Dennis Geiger with UBS.
The margin focus clearly a major focus for the year that the margin recovery I think that's clear, but wanted to get a sense, maybe matter or team for how youre thinking about pricing in the event the macro becomes tougher in the event the your competitors in the industry.
A bit more promotional can you just speak to that focus on price versus margin a little bit more and how you would kind of think two to balance that in the event that that scenario kind of starts to play out.
Sure Dennis I think I think one of the things to keep in mind in an environment like that typically what's associated is that there is on the cost side as well right so and when we've seen.
Economies slowed down.
And some of those other pieces that you are talking about we also typically see the lower demand brings the commodity prices down and stabilizes labor and it requires less pricing right. So thats what people end up doing.
In prior times, where it's been significant.
If you look at the minute menu innovation and rolling out some some price points that are attractive to guests. We don't I don't think that we would ever discount by traditionally we've never have I don't think restaurants, typically don't rolled back pricing. So just want to make sure that the guest sees the value and like I said I think we're positioned well given that we're still.
Four points below the industry over the past couple of years. So I think we've tried to stay in a position that is already a little bit defensive.
Great. Thanks, Matt and quick follow up I know you guys touched on staffing levels.
I missed the exact comment but as it relates to.
Staffing relative to where you want it but can you just quickly touch on that given the demand. That's out there right now were where you are staffing versus where you want to be if you could just highlight that thank you very much.
Sure Dennis This is David Gordon.
Our staffing levels are basically where they were in 2019. So we're happy that they've recovered to the extent that they have we have roughly 60 applicants for every hire needs that we have out there today.
The other positive is that the quality of applicants continues to get better we're able to hire people with more experience than we were 12 months ago.
So only positives on the staffing front and we continue to not have any issues were challenged with staffing and might be limiting operations at all or are stifling sales. So we feel really good about where we are we continue to be an employer of choice.
And continue to have industry, leading retention at the staff and manager level, which will also help us as we continue on throughout the year.
Great. Thank you guys.
Our next question comes from Jon Tower with Citi.
Great. Thanks for taking the questions.
Well take a follow up and then a question on the <unk>.
Net interest excuse me the net interest margin guidance you offered in the quarter and the first quarter of the year.
Can you offer what the implied tax rate would be for both the quarter and the year.
Yes.
Low teens John .
In that ballpark.
Okay great.
And then just I guess on the unit growth side.
I think today picked down a number slightly relative to what.
Where you had originally anticipated it for 2023 now its 'twenty to 'twenty two versus 21% to 24. So can you just explain what's going on but there are you still see issues.
Issues with securing whether it's equipment.
Equipment or permitting I'm, just curious if you could add some color there.
Sure. John This is David Gordon against certainly things are much better than they were last year.
We feel really good about that 20 to 22 number theres still maybe parts of the country, where permitting is moving a little bit slower or as an example, we have a location where we're still waiting for the power company to show up and give us all the power that we need so we have just some one off situations.
That we wanted to make sure that we understand fully why we pulled down the number of tiny bit, but it doesn't take us off of our overall plan of that continued 7% unit growth most of the openings. This year will be happening in the second half of the year, but.
But we feel very confident about that 20% to 22.
Got it and then just lastly on delivery can you just talk about how that mix then during the quarter you have seen any softness in that piece of the business at all and certainly starting 2023. It seems like there is quite a bit of a lift in demand on the on premise channel across the industry curious if you're seeing similar type of lift in your business or for <unk>.
Shift away from off premise towards on premise.
Yes. Thanks, John This is David again, our total off premise was in line with Q3 at 23%, which is where we finished the quarter and that mix is very very stable and remains about 40% of it being delivery, 35% is still phone or guests were walking up and then about 25% of our guests who are used.
In our online ordering platform. So I think from the beginning we've said that we feel that our offering really continues to work well in the off premise channel whether thats the menu variety and a variety of price points, along with the quality that our ops team has been able to continue to deliver so we don't think that that is going to change.
As we move into the new year, we've seen it be very stable and in the new year.
And I feel great about the off premise business.
Thank you.
Our next question comes from Brian <unk> with Morgan Stanley .
Yeah.
Yes. Thank you good afternoon.
It's a smaller piece of the mix you just comment on some of the other FRC brands.
And how those have been performing just from a sales perspective, and also which ones you think will be kind of it can be bigger perhaps overtime.
Sure well I think as we stated before our plans for North Italia continues to be about a 20% unit growth and North continues as you can see from the sales that we reported to be very very strong consumer demand as great. As we moved into new geographies. It continues to be accepted by those guests.
Very very well so we feel great about the continued growth at north.
Flower child was now up to 30 restaurants.
Across the country and moving into some new geographies as well and having that same success on the sales side. So we would anticipate the flower child is going to be the next concept that we will bring under our umbrella of those more closely.
And help continue to launch nationally we're excited to get that going this year.
The.
Three to four flower child, this year and the total number of 10 restaurants that FRC will be opening.
And then past that Theres some other concepts like culinary dropout that we're very very excited about.
Block those a Mexican concept that we like a lot we will continue to evaluate the other FRC concepts to make sure. We feel like they can have a national presence and make sure that they are hitting the margin profile that we need before we decided that we would scale them up and triangle grow them. The way that we are for north and for flower child.
Okay what were the.
Asset impairments related to or I guess, how much of that was lease impairment and how much of it was other types of impairment what was that from.
Yes, Brian this is Matt.
Predominantly.
Lease impairments and essentially.
We hit the the Covid pandemic and there were.
Several urban locations, while we continue to operate in a recovering havent fully recovered right and so this is an accounting exercise that you have to go through and the real driver today, which is just weird compared to five years ago.
Can remember back when the lease accounting change right until we actually have to gross up the balance sheet with the right of use assets. So that number by over 50% of it is just the lease side of it not even the investments that were made.
Thank you.
Our next question comes from Nick <unk> with Wedbush Securities.
Yeah.
Hi, This is actually Michael on for Nick just wondering what labor expense and other Opex would have been as a percent of sales. If you guys were to back out that extra week.
Well, Michael as matter be pretty darn much the same because.
Those are fully accrued and we can track the hours worked by week and so.
Those actually go hand in hand, with the weeks that we operate in so shouldnt shouldnt have been too much different a little bit it's probably slightly better just because it was a bigger week relative to the rest of the quarter, but it wasn't meaningful.
Got it thank you very much.
Our next question comes from Lauren Silberman with credit Suisse.
Thank you very much.
Does that.
Obviously really strong trends quarter to date, what's your sense of what's driving the ongoing acceleration broadly looking versus 19 are you seeing relative consistency week to week and over that period.
Hi, Lauren it's Matt Yeah, I think that's a good metric we like to balance that with like I said between 2019 and year over year and it's been very stable against the 2018 I think we are seeing.
Maybe maybe a return to more normalcy in terms of seasonality patterns. If you will I think there was a little bit of talk in January about some positive.
<unk>.
I don't know certainly a little bit of the strength in the first week or two was the <unk> lapping on a year over year, but that wouldn't account for the 2019 data right, which why we think that's important.
Look I just think in general we're seeing a normalization of the consumer trends and our brands resonate and so the utilization is similar to what we might've expected prevent stomach.
Great. Thank you for that and then just another follow up on consumer behavior.
You mentioned that Theres, no real signs in tech management or attachment rates and.
Also doing I think its fifth anniversary weekday promotion is this in any response to what Youre seeing.
And to understand if theres any type of ship that is discernible.
Okay.
Lauren This is Matt we do the marketing and that type of offer is really off premise driven and we do that on occasion, I think frankly, it would've been the opposite right because what we're seeing a really strong trends, which would say Oh you know maybe you don't need to do the offers but but I think we just flight to.
Keep a regular cadence remind the guests I think particularly in the off China channels from a sales staying a little bit more top of mind, because theres. So much promotional activity I think thats important regardless of whether we have strong trends right now, which we do or not.
And certainly celebrating its pretty much anniversary garners us additional PR, we've always had very strong concept PR and there's just another way for people to celebrate the anniversary with us.
Great. Thank you guys.
Our next question comes from Jeffrey Bernstein with Barclays.
Great. Thank you very much.
Two things first just as we think about 2023 margin I think you said the restaurant margin should be at that 15% level.
Overall corporate.
I know in the past you had talked about operating margins.
That you are looking back to 19, and you wanted to get them back to that five 2% range.
Lee G&A being the big driver between the restaurant and the operating margin. So I'm just wondering how we should think about that operating margin.
And whether on G&A, whether you look at it on a dollar spend or growth relative to revenues how should we think about that in 'twenty three and then one follow up.
Sure Jeff This is Matt I think generally.
All of that still holds right I mean, when I look at sort of what's out there in terms of the estimates and expectations are pretty much surrounds that.
General approach I mean, our goal with G&A is to continue to move it equal or better as a percentage of sales every year right until we get to that 6% level I think the other piece is kind of below.
The four wall level.
<unk>, probably be pretty similar year over year pre.
Pre opening will be up a little bit year over year. So I think those are kind of where things would shake out.
Got it and then just on the value scores I think you mentioned that your pricing is 400 basis points below food away from home.
I know you're off a note being better insulated.
Presumably you target a slightly higher income consumer at least at your core brands. I know there are some that are concerned that maybe the higher income might be more vulnerable.
Yeah.
Based on the current factors at play here I'm, just wondering how you measure your value scores and determined price above and beyond kind of the government data is there.
Tim that you do or survey work I'm, just trying to get a measure for your confidence that your value scores hold up in the event of a slowing macro thank you.
Yes, a couple of things just on the pricing right, it's a little bit <unk> science.
In addition to the government data we track our peer set right I mean, I've said this many times, but it's true we look at <unk>.
<unk> 50 different markets two dozen national competitors.
And we try to assess whether or not were either at or slightly below the midpoint. There so from a.
An alternative approach for consumers to be looking at we're taking no more.
Not less pricing than the competitors, which I guess goes hand in hand with the government data right. Because these are the biggest the biggest change.
I think we look at price elasticity, so we do our own internal analytical evaluation and we evaluate whether we're seeing tradeoff and market basket or not and check attachment and I think as we said so far we're seeing very consistent patterns there as well.
And we do do research qualitative research that we're constantly monitoring what our guests are saying about our value and making sure that that score is consistent.
I think.
The last thing I would say is that if the top end of consumers really does feel pressure, we're likely to actually benefit some from because they typically move down off of the steakhouses in the expensive independence. The one offs in the Cheesecake factory and then into our brands because.
We're still very very accessible so.
I don't think that that type of economic slowdown.
Would be material for us.
Understood. Thank you.
Our final question comes from drew North with Baird.
Yeah.
Great I had a quick follow up on the commodity outlook and then one on development what percent of your basket do you currently have locked for 2023 at this point just trying to get a sense of the visibility you have on <unk>.
The guidance there.
This is Matt.
About 60%, which is pretty close I mean, this time of year, we might want to be closer to 65 or so the category.
There is still a little bit tricky, obviously as ground beef harder to get a long term contract there and then Theres a couple of categories that we're kind of watching where we booked the first half, but we think that there is an opportunity is still in the second half bump up pretty close to where we would we would normally be at this time.
Great. That's helpful. And then I was hoping you could provide an update on the investment costs you are anticipating for each of your major brand from a development standpoint.
Elevated construction content, it's clearly been a theme across the industry in 2022, but are you seeing any green shoots there. If you look ahead.
Just an update on the performance of new openings in the unit level returns you achieved for your recent openings relative to your internal expectations.
Sure there is.
A lot of variability in the marketplace today drew one thing I would say right depending on the marketplace that you're in you're seeing either moderate inflation or outsized inflation right. So I think everybody would know on a relative basis, South Florida tough place to build right now because theres so much demand.
Certainly the hurricane last year it didn't help that at all I think the good news front, while we would say we are seeing increases in our in our capex that they are really not outpacing significantly the volumes that we're achieving partly because of the pricing that we're taking right. So if you think about <unk>.
Italia mature location and.
The Capex may have moved up from three $5 million to $4 million will the sales there are about $8 million and so we're still building the two to one sales to capex. So I don't think our margin profiles have changed materially so long as we can get back to that so our returns profile. So long as we can get back to them.
Margins that we're targeting right I think thats. The most important thing overall for the returns we've seen great sales performance of the new locations that we've opened and.
And better and better in terms of a staffing perspective, which is really important which will help on the execution. So we wouldnt be moving forward with the 'twenty to 'twenty two locations. If we didn't feel we'd be hitting the returns and so we're confident that we'll get those margins back in the sales to capex will be about the same as it has been historically.
Thanks for all the color.
Our final question comes from Rahul <unk> with J P. Morgan.
Yes.
Mr. <unk> your line is live.
Okay.
Step back from a very high level is there any thought process of like increasing the focus on intensity on the court.
Cheesecake business to improve margins to the fullest potential of the business for the macro we are currently dealing with.
Like boxing ourselves within like say like comparing to 2019 modern insulin anything is there like any flood that opportunity had beyond like.
Things that have already been done just curious from your seat what other things can be done.
Maybe like maybe getting a little more focus on it from the smaller concepts, but again I understand like something like Fox is more or less independently operate there. So just curious.
On your thoughts here going into this year sure sure. This is Matt I think it's.
It's a multi step thought right certainly we're not going to be done or we're not going to only look for a recovery to say the 2019.
It's a benchmark the volatility that we've obviously seen with pretty much two black Swan events in three years between the pandemic and then the war in Europe that caused the inflation I think we're just trying to provide some benchmarks and really say, what's a reasonable starting point then when we see stability in the mall.
<unk> I think it'll be a little bit more timely to talk about next steps right. I mean, we need to see stability and staffing we need to see stability in supply chain really before you were talking about unlocking material additional margin opportunities since core costs in restaurants make up about 60% anyway. So I hear you I think.
That that is top of mind, but I think for us, let's get to a starting point, let's see the environment stabilized a little bit.
Then, let's pull some levers and not having sort of a knee jerk reaction if you will.
Really appreciate that as points, Matt. Thanks, so much.
Our next question comes from Brian Vaccaro with Raymond James.
Thanks for the quick follow up.
I was just going to ask you in terms of your high level margin guidance. The comments you made around 2023 and I apologize. If you said this but does that assume you take additional pricing moving through the year or does that assume no more from here. This three and a half youre, taking I guess in February I wasn't clear on that.
I do think that.
We're hopeful to return to kind of a normal pricing cadence in the summertime, we'll be looking at what the trends are between now and then I think the key for US is we're going to try to keep up with inflation hopefully, we see inflation down and we don't have to take as much but we would anticipate theres something.
At this point in time, we don't we don't have a definitive number to give you, but it will it will depend on the environment really.
Understood. Okay. Thanks again.
There are no further questions at this time with that said concludes today's conference. Thank you for attending today's presentation. You may now disconnect.
Yes.
Okay.