Q3 2023 Cheesecake Factory Inc Earnings Call

Good afternoon, My name is Emma and I will be your conference operator today.

At this time I would like to welcome everyone to the Cheesecake factory third quarter 2023 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.

If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad, if you'd like to withdraw your question again press the star one thank you.

T N Marquez, Vice President of Finance and Investor Relations you May begin your conference.

Good afternoon, and welcome to our third quarter fiscal 2023 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 or not based on historical facts and are considered forward looking statements within the meaning of the private Securities Litigation Reform Act of 995.

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 about 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 when discussing comparable sales, we will be referring to comparable sales on an operating week basis, unless specifically stated otherwise.

We will also be presenting results on an adjusted basis, which exclude impairment of assets lease terminations and acquisition related expenses.

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 review our third 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.

Thank you Ed Tien third quarter consolidated revenues increased five 9% over the prior year to $830 million led by comparable sales growth at the Cheesecake factory restaurants of two 4% versus the prior year and 12, 6% versus.

2019, exceeding the Knapp track and black box casual dining indices for both time periods.

Our strategy will always revolve around what we do best delivering exceptional service and hospitality and delicious memorable experiences for our valued guests.

We believe our position as an experiential dining leader, we will continue to differentiate us in the industry and drive profitable sales growth over the long term.

Emma: Good afternoon. My name is Emma, and I will be your conference operator today. At this time, I would like to welcome everyone to the Cheesecake Factory Third Quarter 2023 Earnings Conference call.

And with improved restaurant staffing levels are best in class operators have been able to increase their focus on consistently executing our strategy.

Believe this contributed to third quarter comparable sales at the Cheesecake factory, increasing sequentially. Despite the softening sales environment and importantly traffic at the Cheesecake factory meaningfully outperformed the broader casual dining industry.

Emma: All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star one.

On the development front, we opened two cheesecake factory restaurants to strong demand during the third quarter and subsequent to quarter end to FRC locations.

Etienne Marcus: Thank you. Etienne Marcus, Vice President of Finance and Investor Relations. You may begin your conference. Good afternoon and welcome to our third quarter of fiscal 2023 Earnings call.

Etienne Marcus: I'm a call with me today, our David Overton, a 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 board-looking statements within the meeting of the Private Securities Lidigation Reform Act of 1995. Actual results could be materially different from those stated or implied in board-looking statements as a result of the factors detailed in today's press release, which is available on our website and investors.com.

We continued to make progress against our pipeline and construction is ongoing on all of our restaurants. We had previously planned to open. This year, however, consistent with the trends seen throughout the industry. We continue to experience challenges beyond our control, particularly with permitting delay.

As pushing some of our opening dates to late December.

In order to adhere to our proven development process and ensure new restaurants opened well positioned to succeed we have strategically decided to move some of our openings into the first quarter of next year.

Etienne Marcus: 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 that we're going to be working on today is going to be working on today's committee undertakes no duty to update any forward-looking statements. In addition, during this conference call, when discussing comparable sales, we will be referring to comparable sales on an operating week basis, unless specifically stated otherwise. We will also be presenting results on an adjusted basis, which exclude impairment of assets, these terminations, and acquisition related expenses.

As such we now expect to open as many as 16, new restaurants in 2023 and four to six new restaurants in the first quarter of 2024.

Between 16 openings for this year and four to six for next quarter. We are effectively at the 'twenty to 'twenty two new restaurant openings. We had previously anticipated earlier this year.

The new restaurant openings for 2023 include as many as five cheesecake factories for North Italia.

Etienne Marcus: An explanation of our use of non-gap financial measures and reconcilations to the most directly comparable gap measures appear in our press release on our website as previously described.

Seven FRC restaurants, including one followed flower child locations.

Last week, our fifth location in mainland China opened including this location. We now expect two cheesecake factory restaurants to open internationally under licensing agreements in 2023.

Etienne Marcus: David Overton will begin today's call with some opening remarks, and David Gordon will provide an operational update.

Etienne Marcus: Matt will then review our third quarter results and provide a financial update. Following that, we'll open the call to questions.

Despite the ongoing permitting challenges, we continue to accelerate our development activity and build our pipeline at this time our expectations for 2024 are to take another measurable steps towards achieving our objective of 7% annual unit growth.

David Overton: With that, I'll turn the call over to David Overton. Thank you, Etienne. Third quarter consolidated revenues increased 5.9% over the prior year to $830 million, led by comparable sales growth at the Cheesecake Factory restaurants of 2.4% versus the prior year and 12.6% versus 2019, exceeding the nap track and black box casual dining indices for both time periods. Our strategy will always revolve around what we do best, delivering exceptional service and hospitality and delicious memorable experiences for our valued guests.

I'm also excited to share that last week, we announced plans to develop our third bakery production facility in Charlestown, Indiana. Upon completion the facility will produce the cheesecake factory's cheesecakes and signature bakery products for our restaurants and other retailers in addition to <unk>.

<unk> anticipated distribution efficiencies.

Our vertically integrated bakery is a distinct competitive advantage with our desserts driving strong affinity for the Cheesecake factory brand as illustrated by our industry, leading dessert sales.

David Overton: We believe our position as an experiential dining leader will continue to differentiate us in the industry and drive profitable sales growth over the long term. And with improved restaurant staffing levels, our best in class operators have been able to increase their focus on consistently executing our strategy. We believe this contributed to third quarter comparable sales at the Cheesecake Factory increasing sequentially despite the softening sales environment. And importantly, traffic at the Cheesecake Factory meaningfully outperformed the broader casual dining indices.

Looking ahead.

We will continue to leverage our competitive strengths, including the scale of our business our differentiated brands.

Best in class operators and balance sheet to drive shareholder value and market share gains.

With that I will now turn the call over to David Gordon to provide some additional details on our operations and marketing.

Thank you David.

Start of the year, our operating teams training and development have been firmly centered on the fundamentals of the restaurant industry.

David Overton: On the development front, we open two Cheesecake Factory restaurants to strong demands during the third quarter and subsequent to quarter ends to FRC locations. We continue to make progress against our pipeline and construction is ongoing on all of our restaurants we had previously planned to open this year. However, consistent with the trend seen throughout the industry, we continue to experience challenges beyond our control, particularly with permitting delays, pushing some of our opening dates to late December.

Great.

Great service and great ambiance.

As well as on reinforcing the operational standards. The Cheesecake factory has been built off.

We believe these to be foundational for running successful restaurants and delivering consistent performance.

This year's General Managers' conference content.

The science with these same principles and focus in mind.

A seamless cultivating excellence and we held several informative programs panels speaker led trainings and leadership seminars focused on hospitality leadership executing and performance management with the intent that our general managers take these insights and learnings back to their restaurants to improve.

David Overton: In order to adhere to our proven development process and ensure new restaurants open well position to succeed, we have strategically decided to move some of our openings into the first quarter of next year. As such, we now expect to open as many as 16 new restaurants in 2023 and four to six new restaurants in the first quarter of 2024. Thus, between 16 openings for this year and four to six for next quarter, we are effectively at the 20 to 22 new restaurant openings we had previously anticipated earlier this year.

Operational execution celebrate wins and further develop their people.

As David alluded to earlier, we believe our increased focus on consistent execution and operational excellence is yielding positive results across multiple key areas. Let me just share a couple.

First.

We have seen measurable improvements in guest satisfaction.

Our internally measure net promoter score metrics across both the dine in and off premise are consistently exceeding pre pandemic levels.

David Overton: The new restaurant openings for 2023 include as many as five Cheesecake Factory's four north italias and seven FRC restaurants, including one flower child location. Last week, our fifth location in mainland China opened, including this location, we now expect two Cheesecake Factory restaurants to open internationally under licensing agreements in 2023. Despite the ongoing permitting challenges, we continue to accelerate our development activity and build our pipeline. At this time, our expectations for 2024 are to take another measurable step towards achieving our objective of seven percent annual unit growth.

In addition.

Our volume of reviews on third party sites has not only increased since the start of the year, but the aggregate rating of these reviews has meaningfully improved and continue to trend incrementally more positive.

Second our enviable staffing position continues to improve.

Our industry, leading retention rates are now running above pre pandemic levels.

Furthermore, our already high staff engagement scores improved significantly from a year ago.

These improvements have supported the continued moderation in wage inflation, which is now trending below pre pandemic levels.

David Overton: I'm also excited to share that last week, we announced plans to develop our third Bakery Production Facility in Charlestown, Indiana. Upon completion, the facility will produce the Cheesecake Factory's Cheesecakes and Signature Bakery products for our restaurants and other retailers in addition to providing anticipated distribution efficiencies. Our vertically integrated Bakery is a distinct competitive advantage with our desserts driving the strong affinity for the Cheesecake Factory brand as illustrated by our industry leading dessert sales. Looking ahead, we will continue to leverage our competitive strengths, including the scale of our business, our differentiated brands, best in class operators, and balance sheet to drive shareholder values and market share gains.

As David mentioned earlier, we believe these operational improvements contributed to both comparable sales and traffic outperforming the industry in the latest quarter.

Now turning to sales trends.

The Cheesecake factory off premise sales for the third quarter totaled 21% of sales.

Just below second quarter levels, consistent with historical seasonality of lower off premise mix during the summer months potentially indicating a return to more normal seasonal patterns.

On premise incentive rates remained above 2019 levels with no material change to day part mix.

<unk> incident rates continued to normalize on a year over year basis, as we lap the heightened spending from the prior year.

North Italia third quarter comparable sales increased a solid 8% from the prior year at 28% versus 2019.

David Gordon: With that, I will now turn the call over to David Gordon to provide some additional details on our operations and marketing. Thank you, David. Since the start of the year, our operating teams training and development have been firmly centered on the fundamentals of the restaurant industry, great food, great service, and great art. Alliance, as well as on reinforcing the operational standards that Cheesecake Factory has been built up. We believe these to be foundational for running successful restaurants and delivering consistent performance.

Four wall margin for the adjusted mature North Italia locations was 12, 5%.

Allen from 15, 4% in the previous quarter.

North Italia margins were impacted by seasonally lower sales and higher utility costs, which were exacerbated by record high temperatures in the southwest.

North Italia has a higher level of concentration.

We just rolled out a three 7% menu price increase in October in part to support our margin objectives for this concept.

We remain excited about the potential growth trajectory of various concepts with and frc's portfolio, including culinary dropout.

David Gordon: This year's General Manager's conference content was designed with the same principles and focus in mind. A theme was cultivating excellence and we held several informative programs, panels, speaker led trainings and leadership seminars, focused on hospitality, leadership, executing and performance management, with the intent that our General Manager's take these insights and learnings back to their restaurants to improve operational execution, celebrate wins, and further develop their people. As David alluded to earlier, we believe our increased focus on consistent execution and operational excellence is yielding positive results across multiple key areas.

We just opened our newest culinary dropout and Charlotte North Carolina is a strong demand with average sales of $175000 over the first couple of weeks.

We now have nine locations open averaging over $200000 per week, so far this year.

Culinary dropout strong cash on cash returns positions. This concept is one of the more promising experiential concepts within ferc's portfolio, given the attractive unit economics we.

We are testing the geographic portability and currently have plans to open another location this year in Atlanta as well as another two to three locations a year over the next two years across the southeast, Texas and Southern California.

David Gordon: Let me just share a couple. First, we have seen measurable improvements in guest satisfaction. Our internally measured net promoter score metrics across both the dinin and off premise are consistently exceeding pre-pandemic levels. In addition, our volume of reviews on third-party sites have not only increased since the start of the year but the aggregate rating of these reviews has meaningfully improved and continued to trend incrementally more positive. Second, our enviable staffing position continues to improve.

Before I turn the call over to Matt Let me provide a brief update on our rewards program.

As a reminder, our overarching objective is to leverage data analytics and insights to engage more effectively with our guests and drive incremental sales, while maintaining our restaurant level margins.

While we are just now entering our fifth month of the program. Following the national launch of Cheesecake rewards on June 1st we continue to be encouraged by the level of member activity and engagement we are seeing.

David Gordon: Our industry leading retention rates are now running above pre-pandemic levels. Furthermore, our already high staff engagement scores improve significantly from a year ago. These improvements have supported the continued moderation and wage inflation, which is now trending below pre-pandemic levels. As David mentioned earlier, we believe these operational improvements contribute to both comparable sales and traffic outperforming the industry in the latest quarter.

As we have previously stated we're taking a very deliberate approach as we expand the program and therefore do not anticipate seeing a measurable impact to sales for the first year or so.

That being said early demand continues to exceed our internal expectations and member satisfaction scores are over indexing reinforcing our belief that we're on the right path.

During the fourth quarter, we will be testing additional acquisition tactics and activation campaigns to better understand the key elements of our various strategies that resonate well with rewards members.

David Gordon: Now turning to sales trends. The Cheesecake Factory off premise sales for the third quarter total 21% of sales. Just below second quarter levels consistent with a historical seasonality of lower off premise mix during the summer months, potentially indicating a return to more normal seasonal patterns. On premise incident rates remain above 2019 levels with no material change today part mix. However, incident rates continue to normalize on a year-over-year basis as we lap the heightened spending from the prior year.

And are the most effective and increasing membership enrollment and engagement and driving frequency and we.

With that let me turn the call over to Matt for our financial review.

Thank you David.

Let me first provide a high level recap of our third quarter results versus our expectations outlined last quarter.

Total revenues of $832 million increased five 9% over last year, despite finishing just under the low end of the range.

David Gordon: North Italia third quarter comparable sales increased the solid 8% from the prior year and 28% versus 2019. Forewall margins for the adjusted mature North Italia locations was 12.5% down from 15.4% in the previous quarter. North Italia margins were impacted by seasonally lower sales and higher utility costs, which were exacerbated by record high temperatures in the southwest, where North Italia has a higher level of concentration. We just rolled out at 3.7% menu price increase in October, in part to support our margin objectives for this conference.

Adjusted net income margin of two 3% was also just short of the guidance, we provided predominantly driven by the lower sales.

G&A and depreciation combined as a percent of sales were slightly better than expectations.

And we returned $27 $7 million to our shareholders in the form of dividends and stock repurchases.

Over the past 12 months, our financial results have substantially stabilized performing a foundation, we believe we can build from.

David Gordon: We remain excited about the potential growth trajectory of various concepts within FRC's portfolio, including culinary dropout. We just opened our newest culinary dropout in Charlotte, North Carolina at the strong demand, with average sales of $175,000 over the first couple of weeks. The cash on cash returns, positions this concept as one of the more promising experiential concepts within FRC's portfolio, given the attractive unit economics. We are testing the geographic portability and currently at plants to open another location this year in Atlanta, as well as another two to three locations a year over the next two years across the Southeast, Texas, and Southern California.

Over that period, our total revenues were $3 $4 6 billion.

With adjusted net income margin of three 5% and adjusted EPS of $2 44.

Now turning to some more specific details around the quarter.

Third quarter sales of the Cheesecake factory restaurants were $628 1 million.

Comparable sales increased two 4% versus the prior year and 12, 6% versus 2019.

Sales for North Italia were $62 4, million% to 15% increase over prior year supported by comparable sales growth of 8% versus prior year.

David Gordon: Before I turn the call over to Matt, let me provide a brief update on our rewards program. As a reminder, our overarching objective is to leverage data analytics and insights to engage more effectively with our guests and drive incremental sales while maintaining our restaurant level margins. While we are just now entering our fifth month of the program following the national launch of Cheesecake Rewards on June 1st, we continue to be encouraged by the level of member activity and engagement we are seeing.

Comparable sales versus 2019 increased 28%.

Other FRC sales totaled $58 6 million up 12% from the prior year.

And sales per operating week for 121009.

Dollars.

Flower child sales totaled $32 $2 million up 11% from the prior year and sales per operating week were $80000.

David Gordon: As we have previously stated, we're taking a very deliberate approach as we expand the program and therefore do not anticipate seeing a measurable impact of sales for the first year or so. That being said, early demand continues to exceed our internal expectations and member satisfaction scores are over indexing, reinforcing our belief that we are on the right path.

And external bakery sales were $17 4 million during the third quarter of fiscal 2023.

Now moving to year over year expense variance commentary.

With the cumulative menu pricing, we have implemented over the past 12 months to help offset inflation, we continued to realize measurable year over year improvement across several key line items in the P&L spin.

David Gordon: During the fourth quarter, we will be testing additional acquisition tactics and activation campaigns to better understand the key elements of our various strategies that resonate well with rewards members and are the most effective and increasing membership enrollment. And engagement and driving frequency.

Specifically cost of sales decreased 170 basis points, primarily driven by higher menu pricing when commodity inflation.

Labor decreased 110 basis points predominantly driven by pricing leverage improved staffing levels and slightly lower medical insurance expenses.

Matt Clark: And with that, let me turn the call over to Matt for our financial review. Thank you, David. Let me first provide a high level recap of our third quarter results versus our expectations I outlined last quarter. Total revenues of $830.2 million increased 5.9% over last year, despite finishing just under the low end of the range. Adjusted net income margin of 2.3% was also just short of the guidance we provided predominantly driven by the lower sales. GNA and appreciation combined as a percent of sales were slightly better than expectations. And we returned $27.7 million to our shareholders in the form of dividends and stock repurchases.

Other operating expenses decreased 10 basis points, mostly driven by pricing leverage lapping some elevated utilities and to go costs and partially offset by marketing costs, including the rewards program launch.

G&A increased 10 basis points, and depreciation decreased 10 basis points as a percent of sales.

Pre opening costs were $6 7 million in the quarter compared to $4 3 million in.

In the prior year period.

We opened two cheesecake factory restaurants during the third quarter versus three restaurants in the third quarter of 2022.

Higher pre opening costs for the quarter were mostly driven by delays in opening dates and the mix of concepts.

Matt Clark: Over the past 12 months, our financial results have substantially stabilized, forming a foundation we believe we can build from. Over that period, our total revenues were $3.46 billion with adjusted net income margin of 3.5% and adjusted EPS of $2.44.

And then in the third quarter, we recorded a net expense of $1 5 million primarily related to FRC acquisition related expenses.

Third quarter GAAP diluted net income per share was 37.

Adjusted diluted net income per share was 39.

Matt Clark: Now turning to some more specific details around the quarter. Third quarter sales at the Cheesecake Factory Restaurant were $628.1 million. Comparable sales increased 2.4% versus the prior year and 12.6% versus 2019. Sales for North Italia were $62.4 million. A 15% increase over prior year supported by comparable sales growth of 8% versus prior year. Comparable sales versus 2019 increased 28%. Other FRC sales sold $58.6 million, up 12% from the prior year and sales for operating week from $121,900. For our child sales total $32.2 million, up 11% from the prior year and sales for operating week were $80,000.

Now turning to our balance sheet and capital allocation.

The company ended the quarter with total available liquidity of approximately $305 million.

Including a cash balance of about $64 million and.

And approximately $236 $5 million available on our revolving credit facility.

Total debt outstanding was unchanged at $475 million in principle.

Capex totaled approximately $37 million during the quarter for new unit development and maintenance.

During the quarter, we completed approximately $14 $6 million in share repurchases and returned just over $13 $1 million to shareholders via our dividend.

While we will not be providing specific comparable sales and earnings guidance, we will provide our updated thoughts on our underlying assumptions for Q4, 2023 and full year 2020 for revenue and net income margin.

Matt Clark: And external bakery sales were $17.4 million during the third quarter of fiscal 2023.

For Q4.

Just on a quarter to date performance.

Matt Clark: Now moving to year-over-year expense variance commentary. With the cumulative menu pricing we have implemented over the past 12 months to help offset inflation, we continue to realize measurable year-over-year improvement across several key line items in the P&L. Specifically cost of sales decreased 170 basis points, primarily driven by higher-menu pricing than commodity inflation. Labor decreased 110 basis points, predominantly driven by pricing leverage, improved staffing levels and slightly lower medical insurance expenses. Other operating expenses decreased 10 basis points, mostly driven by pricing leverage, lapping some elevated utilities and to go costs and partially offset by marketing costs, including the reward program launch.

Most recent trends.

And assuming no material operating or consumer disruptions.

Dissipate total revenues to be between 870 and $890 million.

This essentially assumes a continuation of the trends since the end of September.

Which notably reflect a meaningful improvement versus 2019 sales levels as compared to our Q3 results.

Next at this time, we expect effective commodity inflation of low single digits for Q4, as our broad market basket continues to stabilize.

We are modeling net total labor inflation of about mid single digits when factoring in the latest trends in wage rates.

Which similar to our commodities continue to normalize.

As well as channel mix and other components of labor.

Based on these assumptions, we anticipate net income margin to be about 4% to 5% at the midpoint of the sales range.

Matt Clark: G&A increased 10 basis points and depreciation decreased 10 basis points as a percent of sales. Free opening costs were $6.7 million in the quarter, compared to $4.3 million in the prior year period. We opened two cheesecake factory restaurants during the third quarter versus three restaurants in the third quarter of 2022. Higher free opening costs for the quarter were mostly driven by delays and opening dates and the mix of concepts. And in the third quarter we recorded a net expense of $1.5 million primarily related to FRC acquisition related expenses. Third quarter gap deluded net income per share was $0.37. Adjusted deluded net income per share was $0.39.

This reflects higher preopening expense to support our planned restaurant openings, which we expect to be approximately $10 million in the quarter.

With regard to development as David Overton highlighted earlier, we plan to open as many as 16, new restaurants this year across our portfolio of concepts with as many as nine openings in the fourth quarter.

And we now anticipate approximately $150 million to $160 million in Capex to support this years and some of next year's unit development as well as required maintenance on our restaurants.

Note the initial cash outlay for the third bakery production facility will be negligible in 2023.

Looking ahead to fiscal 2024 as previously mentioned the macroeconomic backdrop continues to be uncertain. However.

Matt Clark: No turning to our balance sheet and capital allocation. The company ended the quarter with total available liquidity of approximately $300.5 million, including a cash balance of about $64 million and approximately $236.5 million available on a revolving credit facility. Total debt outstanding was unchanged at $475 million in principal.

However, we want to provide some initial perspective for next year.

Based on our year to date performance more recent trends and assuming no material operating our consumer disruptions. We anticipate total revenues for fiscal 2024 to be between approximately $3 6 billion three 7 billion.

Matt Clark: CapEx totaled approximately $37 million during the quarter for new unit development and maintenance. During the quarter, we completed approximately $14.6 million in share purchases and returned just over $13.1 million to shareholders via our dividend.

Total inflation across our commodity baskets and total labor is currently estimated to be in the low to mid single digit range.

Based on these assumptions, we anticipate net income margin to be approximately four to four 5%.

With regard to development.

Matt Clark: While we will not be providing specific comparable sales and earnings guidance, we will provide our updated thoughts on our underlying assumptions for Q4 2023 and full year 2024 revenue and net income margin. For Q4, based on our quarter-to-date performance, most recent trends and assuming no material operating or consumer disruptions, we anticipate total revenues to be between $870 and $890 million. This essentially assumes a continuation of the trends since the end of September, which notably reflect a meaningful improvement versus 2019 sales level as compared to our Q3 results.

As David stated earlier, our expectations for 2024 are to take another measurable step towards our objective of 7% annual unit growth.

Given the dynamic environment, we continue to face we are planning to provide additional details on our next earnings call in February.

And we would anticipate approximately 175 million to $200 million in capex, including required maintenance on our restaurants.

This assumes an evenly distributed mix of restaurant openings across the Cheesecake factory north.

North Italia.

Flower child.

And FRC concepts.

Additionally, the range includes our preliminary estimate for the initial phase of development for the third bakery production facility.

Matt Clark: Next, at this time, we expect effective commodity inflation of low single digits for Q4 as our broad market basket continues to stabilize. We are modeling net total labor inflation of about mid-single digits when factoring in the latest trends in wage rates, which similar to our commodities continue to normalize as well as channel mix and other components of labor. Based on these assumptions, we anticipate net income margin to be about 4.25 percent at the midpoint of the sales range.

As we are still in the early stages of this development I will discuss our initial thoughts.

And we will provide additional detail in the coming quarters as the project plans materialize.

At this time, we do not expect to incur significant outlays for this project in 2023 or 2024 as.

As we anticipate most of the Capex to come in 2025, and 2026 and preparation of opening a facility in early 2027.

To reiterate David's earlier remarks, we are pleased to be moving forward with this differentiated capital investment, which we believe will support the future growth of the bakery.

Matt Clark: This reflects higher pre-opening expense to support our planned restaurant openings, which we expect to be approximately $10 million in a quarter. With regard to development, as David Overton highlighted earlier, we plan to open as many as 16 new restaurants this year across a portfolio of concepts with as many as nine openings in the fourth quarter. And we now anticipate approximately 150 to $160 million in CAPEX to support this year's and some of next year's unit development as well as required maintenance on our restaurants. No, the initial cash outlay for the third bakery production facility will be negligible in 2023.

And enhance our long term profitability.

Yes.

In closing, we remain significant financial and operational progress over the past four quarters coming out of not only the pandemic.

But unprecedented supply chain and labor challenges and the highest level of inflation in 50 years.

Our efforts have resulted in a solid position from which we can continue our trajectory of sales growth and margin expansion moving forward.

Specifically.

The return of predictability to the core operating model and stabilizing guest traffic.

Even inclusive of the macro headwinds and some degree of consumers returning to 2019 behaviors. After lofty spending patterns of the past couple of years.

Matt Clark: Looking ahead to fiscal 2024, as previously mentioned, the macroeconomic backdrop continues to be uncertain. However, we want to provide some initial perspective for next year. Based on our year-to-day performance, more recent trends and assuming no material operating or consumer disruptions, we anticipate total revenues for fiscal 2024 to be between approximately $3.6 billion to $3.7 billion. Total inflation across our commodity baskets and total labor is currently estimated to be in the low to mid-single-digit range.

Gives us confidence in our ability to make meaningful additional steps in 2024 towards our longer term goals and the key areas of value creation.

Growing comparable restaurant sales <unk>.

Expanding restaurant operating margins.

And accelerating accretive unit growth.

That said, we will take your questions.

As a reminder, if you would like to ask a question.

Star and the number one on your telephone keypad.

Matt Clark: Based on these assumptions, we anticipate net income margin to be approximately 4 to 4.5%. With regard to development, as David stated earlier, our expectations for 2024 are to take another measurable step towards our objective of 7% annual unit growth. Given the dynamic environment, we continue to face, we are planning to provide additional details on our next earnings call in February. And we would anticipate approximately $175 million to $200 million in cat-backs, including required maintenance on our restaurants.

We asked today that you limit yourself to one question and one follow up thank you.

Your first question comes from the line of Andy Barish with Jefferies.

Your line is open.

Hey, guys. Good afternoon, just wanted to clarify.

Some of the commentary on.

The same store sales improving.

Financially.

Was that.

Referring to during the quarter the monthly progress or.

As you looked at the full <unk> versus <unk> I was just a little little confused there and then continuing into.

Into October as you mentioned.

Matt Clark: This assumes an evenly distributed mix of restaurant openings across the Cheesecake Factory, North Italia, Flower Child and FRC Contents. Additionally, the range includes our preliminary estimate for the initial phase of development for the third bakery production facility. As we are still in the early stages of this development, I will discuss our initial thoughts and we will provide additional detail in the coming quarters as the project plans materialize. At this time, we do not expect to incur significant delays for this project in 2023 or 2024.

With the.

Quarter to date assumptions driving your <unk>.

Sure. This is.

Matt.

So it will be hopefully clear.

Third quarter, followed roughly the industry trends, albeit better in every period than the indices that most people will track both in terms of comp and I think meaningfully in terms of traffic.

The traffic was pretty darn stable, but but it was sequentially down slightly right from July to August to September and then what we're referring to as Roy from sort of the end of September through the current.

Matt Clark: As we anticipate, most of the cat-backs to come in 2025 and 2026 in preparation of opening the facility in early 2027. To reiterate, David's earlier remarks, we are pleased to be moving forward with this differentiated capital investment, which we believe will support the future growth of the bakery and enhance our long-term profitability.

Period those trends.

Seen a measurable improvement relatively so I think thats also relatively consistent with what you may have heard in the industry as well, but again I think outpacing.

Got it helpful and then.

Just one other on on.

Wage inflation.

I think again, just some clarification on noting.

Matt Clark: In closing, we have made significant financial and operational progress over the past four quarters coming out of not only the pandemic, but unprecedented supply chain and labor challenges in the highest level of inflation in 50 years. Our efforts have resulted in a solid position from which we can continue our trajectory of sales growth and margin expansion moving forward. Specifically, the return of predictability to the core operating model and stabilizing gas traffic, even inclusive of the macroheadlands and some degree of consumers returning to 2019 behaviors of the lofty spending patterns of the past couple of years gives us confidence in our ability to make meaningful additional steps in 2024 towards our longer-term goals in the key areas of value creation. Growing Comparable Restaurant Tales, Expanding Restaurant Operating Margins, and Accelerating Accredive Unit Growth.

Moving below pre pandemic levels.

Sure.

Todd I think incorporates kind of low to mid single digits, how does the move to $20 in California next spring.

Factor into that thinking and.

Is that right.

That number is below kind of the 2018 2019 levels I guess.

Yes, Andy this is Matt again that is correct.

The actual inflation.

And average wages is running below sort of that whole time period, three or four years, leading up to the pandemic.

Obviously, a lot of that was also driven by government mandated pressures as you allude to the California coming legislation and.

EBIT, even inclusive of that I would say the expectations for wages remains relatively stable and probably at or below pandemic.

I think we will evaluate the market dynamics that play out obviously, none of our restaurants will be included in that wage mandate, but obviously there could be some ripple effect.

Etienne Marcus: And with that said, we'll take your questions. As a reminder, if you would like to ask a question, press star to the number one on your telephone keypad. We ask today that you limit yourself to one question and one follow-up. Thank you.

Today in the urban areas, we tend to see that many of the <unk>.

Occasions are already paying in that range.

And people are making choices based on that certainly more in the deep suburbs, there's probably going to be some increases, but we have fewer restaurants. There. So I think we will look at it Holistically and then see what makes sense.

Andy Barish: Your first question comes from the line of Andy Barish with Jeffries. Your line is open. Hey guys, good afternoon. I just wanted to clarify some of the commentary on the same store sales improving sequentially. Was that referring to during the quarter of the monthly progress or as you looked at the full 3Q versus 2Q? I was just a little confused there and then continuing into October as you mentioned with the quarter to date assumptions driving your 4Q estimates.

We have to address that as part of our overall inflation basket.

We'll certainly have to consider that with respect to pricing decisions.

Great. Thank you very much.

Your next question comes from the line of Sharon Zackfia with William Blair.

Your line is open.

Hi, good afternoon.

I guess two questions just quickly if you could give us.

Hi, Nick.

Yes.

Traffic for the quarter that would be helpful. And then secondarily on developments.

Matt Clark: Sir, Andy, this is Matt. To be hopefully clear, the third quarter followed roughly the industry trends albeit better in every period than the indices that most people track both in terms of comp and it meaningfully in terms of traffic. The traffic was pretty darn stable but it was sequentially down slightly from July to August to September. And then what we're referring to is really from sort of the end of September through the current time period.

I mean can you give us.

It sounds like you wanted to further Nathan Nomura, what's kind of embedded in that initial look at 24 and I know, it's a wide range, but when you talk about kind of what you're doing internally.

I guess better.

The <unk>.

The outlook on development.

That is given the question.

Steven go ahead.

Difficult to execute environment, where.

<unk> has so many other things seem to be much more challenging than just wanted to thank you.

Sure sure good questions. Both of them. This is Matt I'll take the first and then David Gordon can touch on the development side. So specifically pricing was at nine five.

Matt Clark: Those trends have seen a measurable improvement relatively. So I think that's also relatively consistent with what you may have heard in the industry as well. But again, I think outpacing. That's helpful. And then just one other on wage inflation, I think again just in clarification on noting it's moving below pre-pandemic levels and then your guide I think incorporates kind of low-to-mid single digits. How does the move to $20 in California next spring kind of factor into that thinking and is that right that number is below kind of the 2018-2019 levels I guess?

Mix was a negative $6 one and then traffic was a negative 1.0. So the traffic piece represented a pretty good improvement over last quarter, and I think about 200 basis points better than what we saw in the industry and pretty stable as I noted in my response to Andy It was very very stable throughout.

The quarter so.

Gives us a good baseline and David Gordon will touch base on the development.

Sharon This is David.

As we've talked about previously a lot of the earlier COVID-19 issues on development, where more around supply chain and getting heavy large pieces of equipment into the restaurants et cetera that really has abated and as you said most of the issues today are more around permitting and dealing with local municipalities in there.

Matt Clark: Yeah, Andy, this is Matt again. That is correct. The actual inflation in average wages is running below sort of that whole time period three, four years leading up to the pandemic. Obviously a lot of that was also driven by government mandated pressures as you allude to the California coming legislation. And even inclusive of that I would say the expectations for wages remains relatively stable and probably at or below pandemic. And I think we'll evaluate the market dynamics that play out.

Pace is not what it once was a lot of new people in new positions. So what we've tried to do is increase our funnel and have more sites in the pipeline to be able to maneuver around that and hit the targets that we are planning to set for next year I think we feel good about what we said to continue towards that path to the 7% unit growth.

And we have a good funnel for next year and hopefully.

Municipalities, we will get a little bit better.

And we will see permitting start to increase it a little bit faster pace because at this point, that's really the only thing that's slowing us down I think this was a good business decision for us to decide to push some of these to Q1.

Matt Clark: Obviously none of our restaurants will be included in that wage mandate, but obviously there could be some ripple effect. Today in the urban areas we tend to see that many of the QSR locations are already paying in that range and people are making choices based on that. Certainly more in the deep suburbs there's probably going to be some increases, but we have fewer restaurants there. So I think we'll look at it holistically and then see what makes sense. And if we have to address that as part of our overall inflation basket, we'll certainly have to consider that with respect to pricing.

To ensure that we hit the timely but also that operationally they are able to open at a good cadence don't put too much negative pressure on the business.

And then we're really opening as a cadence that's best for the operators.

Thank you.

Your next question comes from the line of Joshua Long with Stephens. Your line is open.

Great. Thank you for taking the questions Matt curious Paul as a follow up on that pricing comment was nine 5% price.

In the quarter and then what appears to be some stabilization on the food costs and labor costs.

Andy Barish: Congratulations. Great, thank you very much.

The equation curious if you could talk about your forward pricing plans and kind of how you think about maybe the comp construct from a pricing perspective, as we go forward into <unk> and <unk>.

Sharon Zackfia: Your next question comes from the line of Sharon Zackfia with William Blair. Your line is open. Hi, good afternoon.

Matt Clark: I guess two questions, just quickly if you could give us the price, make traffic for the quarter that would be helpful. And then secondarily on development. I mean, can you give us something you want to defer to mean it's a number of what kind of embedded and that initial look at 24. And I know it's a wide range. But can you talk about kind of what you're doing internally to kind of, I guess, better buffer the outlook on development that is given versus what can move and achieve and kind of the difficult to execute environment where you know permitting and so many other things to be much more challenging than 2019.

Sure Josh I think it is relevant and certainly as we see it.

Inflation stabilizing our objective is to return to a more normal.

Level and cadence of of the pricing that we take which is typically two times a year or one 5% to 2% each time, so notably in the third quarter.

For Tuesday factory, we took 2%, but that was lapping over as Jen I believe 4.25%. So on a run rate basis, we dropped off two in a quarter point to keep in mind for the fourth quarter, we're going to lap the incremental catch up.

Matt Clark: Sure, Sharon good, good questions both of them. This is Matt. I'll take a first and then David Gordon can touch on the development side. So specifically pricing was at 9.5. Mixed was a negative 6.1 and then traffic was a negative 1.0. So the traffic piece represented a pretty good improvement over last quarter. And I think about 200 basis points better than what we saw in the industry. And pretty stable. As I noted in my response to Andy it was very, very stable throughout the quarter. So you know that gives us a good baseline. And David Gordon will touch base on the development.

That we did at the beginning of December so the weighted average for the fourth quarter of Gen. Seven to seven 5%, 7% and then going into next year, it's going to be more in the range of about 4% right and so and then we will see how all the pieces come together, but it feels like that's going to.

In a more normal range at that point and again, our objective is really only to take enough pricing to offset inflation.

Got it that's helpful. I appreciate that and then as a follow up I appreciate the volatility in the underlying industry trends. It seems like that's normalized viewpoint and from what we're hearing from peers, which is encouraging but curious if you think about just the operational muscles.

David Gordon: Hi Sharon, this is David. I think as we talked about previously a lot of the earlier COVID issues on development were more around supply chain and getting heavy large pieces of equipment into the restaurant et cetera. That really has made it. And as you said, most of the issues today are more around permitting and dealing with local municipalities and their pace is not what it once was. A lot of new people and new positions.

Execution capabilities, you and your team can you talk a little bit more about just how that kind of.

The volatility plays out through the quarter in terms of our played out through the quarter in terms of restaurant level margins I mean, that's been our overarching goal of yours as you execute against that but just curious what can you adjust or make makeup.

<unk> appointed improving upon despite the volatile.

David Gordon: So what we try to do is increase our funnel and have more sites in the pipeline to be able to maneuver around that and hit the targets that we are planning to set for next year. I think we feel good about what we said to continue towards that path to the 7% unit growth. And we have a good funnel for next year. And hopefully the municipalities will get a little bit better.

Operating environment that maybe just get captured in the consolidated number that we see I mean, you mentioned traffic was relatively steady is that a piece that helps out at all just looking for some additional color there.

Yes, that's an interesting question and I think it's actually really helpful to understand kind of the consistency of the business I mean, I think I may have alluded to this before but week to week.

David Gordon: And we'll see permitting start to increase at a little bit faster pace. Because at this point that's really the only thing that's slowing us down. And I think this was a good business decision for us to decide to push some of these to Q1 to ensure that we hit the timeline. But also that operation, they're able to open at a good cadence. Don't put too much negative pressure on the business. And then we're really opening at a cadence that's best for the operators.

Sharon Zackfia: Thank you.

The P&L the pro forma from the Cheesecake factory at all of our concepts looks like it's supposed to write all of the elements of that are much more predictable.

Whether the the revenue lines are up or down the level of flow through from the concept is at or better than we would've expected to be.

As noted the wage inflation continues to run slightly better than plan. The commodities that we have been able to secure with our supply chain continued to run slightly better than planned. So we monitor all of that week to week and that volatility has significantly decreased right. So all of those trends point to there.

Joshua Long: Your next question comes from the line of Joshua Long with Stevens. Your line is open. Great. Thank you for taking the question. Matt curious as a follow up on that pricing comment with 9.5% price in the quarter. And then what appears to be some stabilization on the food costs and labor costs by the equation curious if you could talk about your forward pricing plans and kind of how you think about maybe the comp construct from pricing perspective as we go forward into 4Q and in 1Q.

Ability to manage the business better we're seeing overtime and training return back to pre pandemic levels are slightly better. So those are underpinnings of financial progress and improvements and I think sort of notably.

If you think about the third quarter and the revenue piece. It was probably 1% to 2% of mix that was the gap we had anticipated a return to normalization it was slightly more than anticipated, but not material and really the difference in the profitability is just a flow through on that we have adjust.

Joshua Long: Sure, Josh, I think it is relevant. And certainly, as we see inflation stabilizing our objective is to return to a more normal level and get into the pricing that we take, which is typically two times a year or one and a half to 2% each time. So notably in the third quarter, Cheesecake Factory, we took two percent, but that was lapping over, as I believe, four and a quarter percent. And so on a run rate basis, you know, we dropped off two and a quarter points.

Our Q4 outlook for that appropriately and yet if you do the math, we're probably right in line with where we thought we would be from a profitability standpoint. So I think that really speaks to the levers that we're pulling and ability to execute at these sales levels and still get to the profit margin targets that we're expecting Q4 works.

Joshua Long: And then keep in mind for the fourth quarter, we're going to lap the incremental catch up that we did at the beginning of December. So the weighted average for the fourth quarter, 10, what is seven to seven and a half percent? Okay, seven to seven and a half. And then going into next year, it's going to be more in the range of like four percent, right? And so that, and then we'll see how all the pieces come together, but it feels like that's going to be in a more normal range at that point.

<unk> that our profit margins relative to year over year are going to expand we would expect Q1 to expand on top of that so the trajectory reflects that underlying consistency and operational execution quarter to quarter.

Helpful. Thank you so much.

Your next question comes from the line of John Taylor with Citi. Your line is open.

Great. Thanks for taking the question maybe just following up on the mix conversation I'm curious if you could elaborate a little bit more on what's going on there I believe it might have to do a little bit with.

Joshua Long: And again, our objective is really only to take enough pricing to offset inflation. Got it. That's helpful. I appreciate that in this as a follow-up. Can appreciate the volatility in the underlying industry trends. It seems like that's normalized to your point in from what we're hearing from peers, which is encouraging, but curious is you think about just the operational muckles and execution capabilities in your team? Have can you talk a little bit more about just how that kind of how the volatility plays out through the quarter in terms of or played out through the quarter in terms of restaurant level margins?

The delivery business relative to the on premise business shifting around a little bit.

If you could elaborate and then I've got a follow up as well.

Sure John It's Matt about 2% give or take is associated with the to go business, which continues to be stable, but down slightly on them.

Mix percentage compared to last year and the other thing that we're seeing I think is very consistent with.

With the others in the industry.

Joshua Long: And then overarching goal of yours as you execute against it, but just curious, what can you adjust or make, you know, make a point at improving upon despite the volatile operating environment that maybe just gets captured in the consolidated number that we see. I mean, you mentioned traffic is relatively steady. Is that a piece that helps out at all just looking for some additional color there? Yeah, that's an interesting question. And I think it's actually really helpful to understand kind of the consistency of the business.

<unk> two last year, just slightly less alcohol attachment, maybe a little bit less.

Appetizer attachment, but compared to 2019, it's still at or above every one of our categories. We look at.

And I think also from a day part perspective, and a mix of Czech it's very consistent right. So those those attributes of sort of a guest performance looks and feels a lot like 2019 to us.

Joshua Long: I mean, I think I may have alluded to this before, but week to week, the PNL, the pro form from the cheesecake factory and all of our concepts looks like it's supposed to write all of the elements of that are much more predictable. You know, whether the revenue lines are up or down the level of flow through from the concept is at or better than we would have expected it to be.

Got it Okay, and then just going back to the.

A discussion earlier regarding loyalty and the plans for that.

Felipe.

There are some plans you have to increase customer acquisition strategies in the fourth quarter here just curious if you could delve a little bit deeper into that.

Dissipating, perhaps getting a little bit more promotional or or.

Joshua Long: As noted, the wage inflation continues to run slightly better than plan the commodities that we've been able to secure with our supply chain continue to run slightly better than plan so we monitor all of that week to week. And that volatility is significantly decreased right to all of those trends point to the ability to manage the business better. We are seeing overtime and training return back to pre-pandemic levels are slightly better so those are underpinnings of financial progress and improvements.

Giving away more sites in the cheesecake to Incent people to jump into the program I'm just curious to hear how you're thinking about going gone about getting folks into the program.

Sure Jon Hi, This is David this is David Gordon while.

Well the good news is when it comes to acquisition.

We really have seen a high level of activity and guests to very encouraged to join the program to begin with just as a reminder, it's made up of published offers which everybody gets when they joined and that would be access to reservations a slice as you mentioned a complimentary slice on their birthday and originally there was a complimentary slice upon.

Joshua Long: And I think sort of notably, if you think about the third quarter and the revenue piece, it was probably one to two percent of mix that was the gap. We had anticipated a return to normalization. It was slightly more than anticipated but not material and really the difference in the profitability is just to flow through on that. We've adjusted our Q4 outlook for that appropriately and yet if you do the math, we're probably right in line with where we thought we would be from a profitability standpoint.

Hanging up we ended that part of the promotion at Labor Day and then.

Theres unpublished offers and Thats a little bit more about what you are talking about was we looked at the fourth quarter.

Doing some segmentation and trying to understand if we can drive guest behaviors to certain day parts certain days of the week with potential promotion and that might be a slice of cheesecake on our protect potential order basket of a certain size or it could be a small discount for our lunch offering those are all the things we're going to test in Q.

Joshua Long: So I think that really speaks to the levers that we're pulling and the ability to execute at these sales levels and still get to the profit margin targets that we're expecting. Q4, we're expecting that our profit margins relative to year over year are going to expand. We would expect Q1 to expand on top of that so the trajectory reflects that underlying consistency and operational execution quarter to quarter. Thank you so much.

Four.

And measure their effectiveness to ensure that as we work towards next year that we're spending our marketing dollars in a very targeted way and getting the best ROI on each one of those promotions.

I know it's early in the program, but can you comment on any sort of changes in frequency for the customers that have jumped into the program. So far.

We haven't we haven't talked about any of those numbers yet.

We feel good on continue to expand the program I think that says something and.

Joshua Long: Your next question comes from the line of Jon Tower with City. Your line is open. Great. Thanks for taking the question and maybe just following up on the mixed conversation. You're curious if you can elaborate a little bit more on what's going on there. I believe it might have to do a little bit with the delivery business relative to the on-premise business shifting around a little bit, but if you could elaborate then I've got to follow up as well.

We're also very happy we were able to measure NPS sentiment for rewards members versus non reward members and we see between 10% to 20% higher score and overall NPS on rewards members. So that would lead to promising results of guests wanting to come back feeling good about the hospitality and the service they're getting.

As it rewards member to hopefully drive Incrementals, there as well.

Joshua Long: Sure, Jon's mad. About 2% I mean give or take is associated with that to go business which you know continues to be stable but down slightly on a mixed percentage compared to last year. And the other thing that we're seeing I think is very consistent with the others in the industry. You know compared to last year just slightly less alcohol attachment, maybe a little bit less appetizer attachment but compared to 2019 it's still at or above every one of the categories we look at.

Got it thanks for taking the questions.

Your next question comes from the line of Lauren Silberman with Deutsche Bank. Your line is open.

Thank you very much I wanted to follow up on the commentary regarding the improvement in trend exiting Cambrian in October relative to 19, what do you think is driving the improvement.

Lauren This is Matt I think some of it has to do with seasonality.

<unk> done that in the script others have commented on that.

Do think that sort of the mix of on premise off premise was shifted slightly right. So you see seasonally the summer is a little bit lower and off Prem that comes back in the fall. So I think youll get a little bit of a pickup there I think school calendars have shifted right I mean, we actually.

Joshua Long: And I think you know also from a day part perspective and a mix of check it's very consistent right so those attributes are sort of the guest performance looks and feels a lot like 2019 to us. Yeah, okay. And then just going back to the discussion earlier regarding loyalty and the plans for you know I believe there's some plans you have to increase customer acquisition strategies in the quarter year. If you could tell a little bit deeper into that you know are you anticipating perhaps getting a little bit more promotional or or you know giving way more size to the cheesecake to and 10 people jump into the program and just curious to hear how you're thinking about going about getting folks in the program.

So all of this trend starting to develop pre pandemic.

This sounds cliche, but everybody my age remembers going back to school the day after labor day and today I think half the country goes back August one.

I really think a lot of what you're seeing now is with schools back to normal whenever their schedules are with the off premise on premise all of those factors and frankly, I think too we're executing at a high level I mean, I think some of it is just our performance as David Gordon touched on you know we have very strong <unk>.

Joshua Long: Sure, Jon. Hi, this is David Gordon. Well, the good news is when it comes to acquisition we really have seen high level of activity and guests are very encouraged to join the program to begin with. Just as a reminder it's made up of published offers which everybody gets when they join and that would be access to reservations a slice as you mentioned a complimentary slice on their birthday and originally there was a complimentary slice upon signing up we ended that part of the promotion at Labor Day.

Our operators are fully staffed so I think we're able to turn tables I think we are able to do the things that we need to do if it's incrementally a couple percent makes a difference but I think those are the two things that I would I would call out.

Thank you that's helpful and then just shifting to margin.

Does it how youre thinking about recapturing restaurant margin does we think that 2024, what are you embedding for restaurant margin relative to pre COVID-19 and any puts and takes we should consider.

Joshua Long: And then there's unpublished offers and that's a little bit more about what you're talking about was we look at the fourth quarter and doing some segmentation and trying to understand if we can drive guest behaviors to certain day parts. Certain days of the week with potential promotion and that might be a slice of cheesecake on a potential order basket of a certain size or it could be a small discount for lunch offering those are all the things we're going to test in Q4 and measure their effectiveness to ensure that as we work towards next year that we're spending our marketing dollars in the very targeted way and getting the best ROI in each one of those promotions.

Yes.

We've said our objective.

The Cheesecake factory back to 2019 to begin with we obviously.

Obviously, you've had some headwinds in that journey outside of <unk>.

Our four walls.

We've made very good pragmatic long term decisions to to recapture it over time.

Other than all at once I feel like the journey that we're on.

It will get us there right our objective is.

As to continue to expand the four wall margins as I said I think Q4 over Q4 is going to be better I think Q1 over Q1 is better and so continuing that progression will get us there it's hard to put a specific timeframe on it obviously, we gave a range of net income so implies essentially a range.

Joshua Long: I know it's early in the program but can you comment on any sort of changes in frequency for the customers that have jumped into the program so far. We haven't we haven't talked about any of those numbers yet. I think that you know we feel good on continue to expand the program I think that says something and we're also very happy we're able to measure NPS sentiment for rewards members versus non-remort members.

Joshua Long: And we see a between a 10 to 20% higher score and overall NPS on rewards members so that would lead to promise and results of guest wanting to come back feeling good about the hospitality and the service they're getting as a rewards member to hopefully drive income mentality there, as well.

A four wall margin performance, but that remains I think a very achievable near term goal for Cheesecake factory.

Thank you very much.

Your next question comes from the line of Brian Mullan with Piper Sandler Your line is open.

Hey, Thank you just another one on on restaurant margins, but just take North Italia is now on the last call you had talked about plans to drive it and seeing the opportunity to drive improvements. There can you just remind us what some of those initiatives are and where you are in that process I know in the prepared remarks, I think you just referenced taking price, but put anything on the operation side.

Joshua Long: Thanks for taking the questions.

Lauren Silberman: Your next question comes from the line of Lauren Silberman with Deutsche Bank. Your line is open. Thank you very much. I wanted to follow up in the commentary regarding the improvement and trend exiting September and October relative to 19. What do you think is driving the improvement? Lauren, this is Matt. You know, I think some of it has to do with seasonality. You know, we touched on that in the script. Others have commented on that.

To consider as well.

Sure. Brian This is Matt I think a couple of things that we're really focused on I mean, you did note price for us that is part of that plan.

We look at being about one cycle behind Cheesecake right. So this would probably be the last notable price increase.

Lauren Silberman: You know, I do think that the sort of the mix of on-premises shifted slightly, right? So you see seasonally, the summer is a little bit lower and off-prem. That comes back in the fall. So I think you get a little bit of a pick up there. I think school calendars have shifted, right? I mean, we actually saw this trend starting to develop pre-pandemic. You know, I mean, this sounds cliche, but everybody, you know, my age, remember, is going back to school the day after Labor Day.

Certainly we think that's actually going to close the gap in totality, but aside from that we remain focused on a couple of key areas operationally one of those being food efficiencies. So thats an area that Cheesecake factory best practices and systems have been deployed over time to north of <unk>.

And we see a really good opportunity to lower food costs over time by bringing those standards up to where the Cheesecake factory is in implementing the systems that we have there. The second one that we're focused on is really bringing new restaurants up to speed over time, a little bit more faster right. So the mature margin.

Lauren Silberman: And today, I think half the country goes back August 1st. So I really think a lot of what you're seeing now is with schools back to normal, whatever their schedules are, with the off-premise on-premise, all of those factors. And, you know, frankly, I think too, you know, we're executing at a high level. I mean, I think some of it is just our performance as David Gordon touched on. You know, we have very strong NPS, our operators are fully staffed. So I think we're able to turn tables. I think we're able to do the things that we need to do. And, you know, if it's incrementally, a couple of percent makes a difference.

As one bank, but if you can bring the the early stages of the restaurants are faster it sets up for success in the longer term as well and the third one is really doing a lot of side by side restaurant comparisons.

Now that.

The portfolio or the fleet. If you will is in the low <unk> for north we have a much better idea of looking at sales volumes in geographies and understanding what the appropriate operating metrics can be and comparing those in our field leadership team is really laser focused.

Matt Clark: But I think those are the two things that I would call out. Thank you, that's helpful.

On the ability to do that and I think actually a fourth one that ive mentioned is not direct but it's an indirect margin driver, which is sales. If you look at the north <unk> comp store sales they remain exceptionally strong or growing traffic, we're growing our off premise business. So theres really no better way to improve margins into grocery mills.

Matt Clark: And then just shifting to margins. I already did it how you're thinking about recapturing restaurant margins as we think to 2024. What are you embedding for a restaurant margin relative to pre-COVID and any fits and tastes we should consider? Yeah, as we said, our objective is to get cheesecake factory back to 2019 to begin with. We obviously have had some headwinds in that journey outside of our four walls. And I think we've made very good pragmatic long-term decisions to recaptured over time rather than all at once.

And that May go without saying, but I just wanted to add it on Bryan. This is David I would just add two things to mats terrific answer there. One is that we continue to leverage our scale of supply chain and look for opportunities to purchase products that perhaps are in our broader basket that we can also use and north Italia, while still keeping it unique and special and that we've had some good gains.

Matt Clark: I feel like the journey that we're on will get us there, right? And, you know, our objective is to continue to expand the four-wall margins. As I said, I think Q4 or Q4 is going to be better. I think Q1 over Q1 is better. And so continuing that progression will get us there. You know, it's hard to put a specific time frame on it. Obviously, we gave a range of net income so it implies there's essentially a range of four-wall margin performance. But that remains, I think, a very achievable near-term roll for cheesecake factory. Thank you very much.

Is there and just back to the sales point I think the team has done a terrific job on understanding of maximizing reservations for sales.

And part of that has been the expertise. The cheesecake has brought over the past four years to north and our ability to ensure that we're not just turning tables fast, but we're maximizing the tables that are in the restaurants as much as we can to get the most productivity out of them. So I guess, Brian the answer is we're doing a lot.

We have high expectations for the concept going forward.

Thank you. Thank you both and maybe a good segue just flower child and the plan is still to bring this brand under the Cheesecake factory umbrella by the end of the year and if yes can you talk about some of the benefits of doing that and do you expect that.

Brian Mullin: Your next question comes from the line of Brian Mullin with Piper Sandler. Your line is open. Hey, thank you. Just another one on on restaurant margins, but just at North Italia, you know, on the last call you talked about plans to drive, seeing an opportunity to drive improvements there. Can you just remind us what some of those initiatives are and where you are in that process? You know, I know in the prepared march, I think you just referenced taking price, but put anything on the operation side to consider as well.

Impacted growth trajectory and maybe over what time period would we start to see that accelerate.

Sure Brian we are on track with flower child, bringing that fully under our umbrella for this year.

We're looking forward to accelerating the pace of openings next year, we would anticipate over time that it too would be a 20% grower year over year.

Matt Clark: Sure, Brian, this is Matt. I think a couple of things that we're really focused on. I mean, you did note price for us that is part of that plan. And, you know, we look at being about one cycle behind Cheesecake, right? So this would probably be the last notable price increase. And certainly, we think that's actually going to close the gap in totality. But aside from that, we remain focused on a couple of key areas operationally.

Portability of the concept continues to be very promising it's doing well in new markets very strong infrastructure and the teams. There that's very focused on developing management to enable that growth.

We anticipate some of the same scale advantages that we have with the other concepts with flower child, whether that's supply chain some of our HR infrastructure et cetera, but.

Thus far we've seen good available availability of sites landlords are excited about the concept we continue to feel it's differentiated in its space.

Matt Clark: One of those being food efficiencies. So that's an area that Cheesecake Factory best practices and systems have been deployed over time to North Italia. And we see a really good opportunity to lower food costs over time by bringing those standards up to to where the Cheesecake Factory is and implementing the systems that we have there. The second one that we're focused on is really bringing new restaurants up to speed over time a little bit more faster, right?

Certainly the guest demand and the traffic has been fantastic.

Brian just one piece of this is Matt in addition to a key initiative for us for this year, although we don't carve out the segment yet for flower child.

Matt Clark: So the mature margin is one thing, but if you can bring the early stages of the restaurants up faster, it sets up for success in the longer term as well. And the third one is really doing a lot of side by side restaurant comparisons. You know, now that the portfolio or the fleet, if you will, is in the low 30s for North. We have a much better idea of looking at sales volumes and geographies and understanding what the appropriate operating metrics can be in comparing those in our field leadership team.

We are on track to get to the margin target that we need.

We need to be at to make it a growth vehicle, which is.

That mid teens level. So we feel really good overall about the trajectory of flower child.

Thank you.

Your next question comes from the line of Jeff Farmer with Gordon Haskett. Your line is open.

You guys did touch on it but when it comes to menu price increases in 2024, and what you guys are contemplating.

How are you looking at the trade off between either protecting or growing margin and any potential traffic headwinds that could come with that pricing.

Matt Clark: It's really laser focused on the ability to do that. And I think actually a fourth one that I've mentioned, it's not direct, but it's an indirect margin driver, which is sales. If you look at the North comms or sales, they remain exceptionally strong or growing traffic, we're growing our off premise business. So there's really no better way to improve margins than to go to Hills. And you know, that may go without saying, but I just wanted to add it on.

Okay.

Jeff It's Matt it's always the art and science right I mean, I think we're.

Looking at what the industry is doing.

We tend to want to be in the middle of the pack with pricing that's been our historical perspective.

Typically we only price to protect against inflation.

If you take the average in the industry. They are inflation similar to ours. So that's going to kind of mean the same answer right. So we're not going to be way off path either way I think we've seen better than industry traffic. It feels like a relatively normal year, we have great operational execution.

Matt Clark: Brian, I just gave them just had two things to match terrific answer there. One is that we continue to leverage our scale with supply chain and look for opportunities to purchase products that perhaps are in our broader basket that we can also use in North Italian will still keep in it unique and special that we've had some good gains there. And just back to the sales point, I think the teams done the terrific job of understanding and maximizing reservations for sales.

<unk> Alright, NPS is typically a leading indicator in our industry of where we're going.

And I think Thats, why we launched rewards right as a means to drive incremental visitation. So it's always going to be a balancing act.

Matt Clark: And part of that has been the expertise that cheesecake has brought over the past four years to North. And our ability to ensure that we're not just turning tables fast, but we're maximizing the tables that are in the restaurants as much as we can to get the most productivity out of them. So I guess by the answer is we're doing a lot and we have high expectations for the concept going forward.

David Gordon: Thank you.

It feels like next year could be more normal with respect to pricing.

We've commented before.

Thank you for that and just a quick bookkeeping I think qualitatively called it out or mentioned it but could you just provide the commodity and wage inflation levels you saw in Q3.

Brian Mullin: Thank you both.

Brian Mullin: And maybe a good segue just flower child is the plan still to bring this brand under the cheesecake factor umbrella by the end of the year. And if yes, can you talk about some of the benefits of doing that. And do you expect that to impact the growth trajectory and maybe over what what time period we start to see that accelerate? Sure, Brian, we are in track with flower child bringing it fully under our umbrella for this year.

As there was a specific commodity I think I think wages were around 4% to 5% or five and then we saw 2% to 3% on the commodities.

Alright, thank you.

Yeah.

Your next question comes from the line of Jim Sanderson with Northcoast Research. Your line is open.

Brian Mullin: We're looking forward to accelerating the pace of openings next year. We would anticipate over time that it too would be a 20% grower year over year. The portability of the concept continues to be very promising. It's doing well in new markets. Very strong infrastructure in the teams there that very focused on developing management to enable that growth. And I think we anticipate some of the same scale advantages that we have with the other concepts with flower child, whether that's supply chain, some of our HR infrastructure, et cetera. But thus far we've seen good availability of sites landlords are excited about the concept. We continue to feel it's differentiated in its space. And certainly the guest demand and the traffic is. And it's fantastic.

Hey, Thanks for the question I wanted to talk about unit growth.

If you could provide some more feedback on how to look at store closures to net against the new unit openings for the 7% growth rate you mentioned for 2024 and then the.

16, new units for 2023, thank you.

Jim This is Matt.

So typically we evaluate restaurants on an annual basis for where their cash flow is the life of the lease all of the normal <unk>.

Tributes and I think we've probably averaged about one closure a year.

So I just don't think Thats, a significant driver of where we think.

Aggregate unit growth will be in.

If we are closing a location that's going to be net accretive to us.

Matt Clark: Brian, just one piece on that. This is Matt. In addition to a key initiative for us for this year, although we don't carve out the segment yet for Flower Child, you know, we are on track to get to the margin target that we need to be at to make it a growth vehicle, which is, you know, in that mid teens level. So we feel really good overall about the trajectory of Flower Child. Thank you.

In any event and so.

I would just kind of say, 7% is going to be gross and net roughly the same give or take a unit a year kind of thing.

Alright. Thank you just a quick follow up could you provide.

A little bit more detail on the same store sales trend for north Italia, breaking it out by traffic and mix and pricing going into the fourth quarter.

Jeff Farmer: Your next question comes from the line of Jeff Farmer with Gordon Haskett. Your line is open. Thank you. You guys did touch on it, but when it comes to menu price increases in 2024, when you guys are contemplating, how are you looking at the tradeoff between either protecting or growing margin and any potential traffic headwinds that could come with that pricing? Jeff, it's mad. It's always the art and science, right? I mean, I think we're looking at what the industry is doing.

We haven't done.

<unk>.

Mix versus driving versus anything, but we do provide the price it Jim that we're sitting on about 8%, so about 8% of 80% comp.

Excellent. Thank you very much.

Your next question comes from the line of Brian Vaccaro with Raymond James Your line is open.

Hi, Thanks, just two quick ones for me Im sorry, if I missed it but what was the off premise sales mix at Cheesecake factory in the quarter.

Jeff Farmer: We tend to want to be in the middle of the pack with pricing. That's been our historical perspective. Typically, we only price to protect against inflation. If you take the average in the industry, their inflation similar to ours, so that's going to kind of mean the same answer, right? So we're not going to be way off path either way. I think we've seen better than industry traffic. It feels like a relatively normal year.

Brian This is David Warner was 21% same as the one last question.

Okay, great. Thank you David and then Matt can you just on the menu pricing comments at Cheesecake factory did I hear correctly, you plan to take around 2% in February so you'd be settling into the four range basically moving into the early part of 'twenty four.

Wanted to clarify Brian This is Matt we haven't finalized that number but we do feel like.

One five to two on a regular basis is kind of where its heading back to.

Jeff Farmer: We have great operational execution, right? NPS is typically a leading indicator in our industry of where we're going. And I think that's why we launch rewards as a means to drive incremental visitation. So it's always going to be a balancing act. Certainly it feels like next year could be more normal with respect to pricing as we commented before. Thank you for that. Just a quick bookkeeping. I think you qualitatively called it out or mentioned it, but could you just provide the commodity and wage inflation levels we saw in Q3? What was the specific commodity? I think wages were around four to five percent. And then we saw two to three percent on commodities. All right. Thank you.

The only thing I would say is it depends on geography right. As we've noted I just to carve out I think some others have done this we're going to look at California, and with the fast Act impact is right. So it may not be the same everywhere and I may not add up exactly that way, where we feel like those are some guardrails for used to that.

Alright, great ill pass it on thank you.

Your next question comes from the line of David Tarantino with Baird. Your line is open.

Hi, good afternoon.

Matt I think your guidance for next year as you gave it assumes margin expansion and maybe I missed this but could you.

Maybe explain how youre going to deliver that margin expansion.

I think I know your comments suggested pricing and inflation should be roughly match. So I guess what is the key.

Jim Sanderson: Your next question comes from the line of Jim Sanderson with North Coast research. Your line is open. Thanks for the question. I wanted to talk about unit growth. And if you could provide some more feedback on how to look at store closures to net against the new unit openings for the seven percent growth rate you mentioned for 2024. And then the 16 new units for 2023. Thank you. Jim, this is Matt.

Key driver of the margin expansion in that scenario.

Jim Sanderson: So typically, you know, we evaluate restaurants on an annual basis for where their cash flow is, the life of the lease, you know, all of the normal attributes. And I think, you know, we've probably averaged about one closure a year. So I just don't think that's a significant driver of where we think, you know, aggregate unit growth will be. And if we are closing a location, it's going to be net, you know, a creative to us in any event.

Yes, so a couple of things one I think that it does.

<unk>, we think we'll be in positive territory for comps and we think there could be some leverage opportunity.

In the Q1 specific scenario certainly we're lapping really heightened commodity inflation, there too as well so I think that Theres, just a natural progression right now on a sequential basis just from a pure operational standpoint, we're driving some incremental profitability.

And the range of 25 to 50 basis points. So so theres some of that is the four wall.

We targeted getting a little bit of leverage off of G&A as well. So I think within that range. David is particularly at the high end of the sales range youre going to get a little bit more from a four wall piece a bit then at the low end, which is relatively close to where we are today. So it's a combination of those fab.

Jim Sanderson: And so I think I would just kind of say seven percent is going to be gross and that roughly the same, you know, give or take a unit a year kind of thing. All right, thank you. Just a quick follow up. Could you provide a little bit more detail on the same store sales transfer on North Italia, breaking it out by traffic and mix and pricing going into fourth quarter? We haven't done the mix versus traffic versus anything, but we do provide the price at Jan. We're setting out about 8%. Okay, so about 8% and about 8% calm. Excellent. Thank you very much.

<unk>.

Great and.

What sort of traffic assumption are you, making for next year. When you when you set the either the revenue or the margin targets.

Well I think we're kind of looking at a combination.

Traffic and mix right, because they're sort of they've been growing a little bit in hand in hand, and I think it is important to accommodate for both of that looking at some of the.

Industry outlooks that we've that we've gotten from some of our advisers as well as some of the other guidance.

Brian Vaccaro: Your next question comes from the line of Brian Vaccaro with Raymond James. Your line is open. Hi, thanks. So just two quick ones for me. I'm sorry if I missed it, but what was the off-premise sales mix at Cheesecake Factory in the quarter? Brian, this is David Gordon. It was 21%. Same as it was in the quarter.

It feels prudent today to expect that those two combined are negative.

<unk> in the low single digit range.

Got it thank you very much.

Your next question comes from the line of Brian Bittner with Oppenheimer. Your line is open.

Matt Clark: Okay, great. Thank you, David. And then Matt, can you just on the menu pricing comments at Cheesecake Factory? Did I hear correctly you plan to take around 2% in February? So you'd be settling into the four range basically moving into the early part of 24? Just want to clarify. Brian, this is now we haven't finalized that number, but we do feel like one and a half to two on a regular basis is kind of where it's heading back to.

Thanks.

I wanted to ask about net income margin guidance, specifically for the fourth quarter.

I think you said net income margins in 4% to 5% range.

I'm just wondering the path to get there because I think if you assume a normalized tax rate. It would suggest like 200 basis points of operating margin improvement then that would be against that comp.

Matt Clark: And the only thing I would say is it depends on geography, right? As we noted, I just to carve out and I think some others have done this. You know, we're going to look at California and what the past act impact is, right? So it may not be the same everywhere and it may not add up exactly that way, but we feel like, you know, those are some guard rails for use today. Alright, great.

That I think is implied to be like two percentage at the midpoint of your revenue range. So.

That the right way, you're thinking about <unk> is there or is there a bit.

<unk>.

Tax benefit coming into <unk> that we should be modeling.

No I think this is where we Brian this is Matt.

Brian Vaccaro: I'll pass it along. Thank you.

David Tarantino: Your next question comes from the line of David Tarantino was spared. Your line is open. Hi, good afternoon.

And this is where the sequential modeling with the year over year pricing I think always gets a little bit hung up in the modeling right because.

Matt Clark: Matt, I think your guidance for next year as you gave it assumes margin expansion and maybe I missed this, but could you maybe explain how you're going to deliver that margin expansion? And I think I think your comments suggested pricing and inflation should be roughly matched. So I guess what is the key driver of the margin expansion and that scenario? Yeah, so a couple of things. One, I think that it does imply that we think we'll be in positive territory for comps and we think there could be some leverage opportunity.

Think about the components, we're talking about.

Thats in noted the pricing for the quarter is going to be 7% to seven 5% and yet.

The inflation for wages are going to be low to mid single digits and the inflation for commodities or low single digits right. So effective pricing over effective inflation in our key categories creates a pretty significant margin pickup for four wall.

And remember that because we were really behind on pricing last year. So we ended up taking that 3% roughly on December one and so we're lapping that benefit that we didn't get in the fourth quarter of last year and I think that's the big difference.

Matt Clark: I think in the Q1 specific scenario, certainly we're laughing really heightened commodity inflation there to as well. So I think that there's just a natural progression, you know, right now on a sequential basis, just from a pure operational standpoint, we're driving some incremental profitability in the range of 25 to 50 basis points. So there's some of that's the four wall. You know, we target getting a little bit of leverage off of GNA as well.

And when we think about next year, the four to four 5% net income guidance.

David Tarantino.

Right.

Margin expansion, but can you shed some light on slide.

The tax rate assumption is in that range. So we can think about.

Yes.

Normalized.

Matt Clark: So I think within that range, David, that's particularly the high end of the sales range. You know, you're going to get a little bit more from the four wall piece of it than at the low end, which is relatively close to where we are today. So it's a combination of those factors.

It would be low double digits 10 to 12.

Matt Clark: Great.

What we would expect that's what's in our model right now.

Perfect.

Youre welcome.

Your next question comes from the line of Katherine Griffin with Bank of America. Your line is open.

Matt Clark: And what sort of traffic assumption are you making for next year when you.., when he's up to eat at the revenue or the margins target? Well, I think we're kind of looking at a combination of traffic and mix, right? Because they sort of, they've been going a little bit in hand in hand and then I think it's important to accommodate for both of that, you know, looking at some of the industry outlooks that we've gotten from some of our advisors, as well as some of the other guidance, you know, I think it feels prudence today. To expect that those two combined are negative, probably in the low single-digit range. Got it.

Thank you I wanted to just follow up on some of the commentary about kind of normalizing spending patterns normalizing seasonality are you seeing any anything discernible among higher income cohorts you since I think we've heard from a couple of players that.

Matt Clark: Thank you very much.

Youre seeing higher income, maybe a little bit more sensitive on alcohol mix in expressing check management that way. So just curious sort of how you can contextualize.

Anything on income cohorts as it relates to your comments on normalizing pattern.

Hi, Kevin This is Matt and welcome to the call.

Thank you.

We don't we don't track like on a week to week or month to month in terms of the research that we're doing we do see on an annualized basis that our relative cohort distribution and spending patterns are pretty stable I mean, we have such a broad demographic appeal.

Brian Bittner: Your next question comes from the line of Brian Bittner with Oppenheimer. Your line is open. Thanks. I wanted to ask about net income margin guidance, specifically for the fourth quarter, I think you said net income margins in a 4.25% range. And I'm just wondering the path to get there because I think if you assume a normalized tax rate, it would suggest like 200 basis points of operating margin improvement. And then that would be against a comp that I think is implied to be like 2%ish at the mid-point of your revenue range. So is that the right way you're thinking about 4Q? Is there a big tax benefit coming in 4Q that we should be modeling?

I don't think we have the sort of same approach or a thought pattern.

As I think maybe some other segments that are more narrow in our industry. So we don't look at it quite the same way as the others do in that regard.

Okay. Thank you and then I wanted to ask a little bit just about some of the other concepts.

Given your comments on culinary dropout I guess I'm curious if you can add a little bit more color on the.

The components of the unit economics that are attractive enough to give you confidence to move forward with with growing that brand and if there's anything unique about customer profile on just given your comments on sort of where you see geographic portability.

Matt Clark: No, I think if this is where we, Brian, this is Matt. This is where the sequential modeling with the year over your pricing, I think always gets a little bit hung up in the modeling, right? Because think about the components we're talking about, as Etienne noted, the pricing for the quarter is going to be 7 to 7.5%. And yet, the inflation for wages are going to be low to mid-single digits, and the inflation for commodities are low single digits, right?

Sure. Kevin This is Matt I'll give you a little bit on the numbers and then David Gordon can touch on sort of the attributes of the concept, but we think it can deliver roughly two to one sales to capex I mean thats been the historical performance and continues to be close to what we're achieving today.

Matt Clark: So effective pricing over effective inflation in our key categories creates a pretty significant margin pickup for 4Wall. And remember that because we were really behind on pricing last year, so we ended up taking that 3% roughly on December 1st. And so we're laughing that benefit that we didn't get in the fourth quarter of last year. And then I think that's the big difference. And when we think about next year, the four to four and a half percent net income guy and said, David Tarantino said it might, you know, margin expansion, but can you shed the light on what the tax rate assumption is in that range so we can think about how we're going to understand. We'll be low double digits, 10 to 12. We'll be what we would expect. That's what's in our model right now.

And the margin profile has been in the mid to upper teens.

Today coming out of the pandemic so.

Matt Clark: Perfect. Thanks. You're welcome.

Putting those together youre definitely going to be above 30%.

Hopefully much better than that on a sort of four wall margin returns. So we feel we feel good about the overall economics and it's been pretty consistent also across the portfolio. So far so as he noted we will test that portability, but very strong sales and very solid margins.

Right exactly what to look forward, yes, I don't know if that much much to add I think the sales are really make it the most promising and as we have moved into new geographies. We've seen to see those same consistent high levels of sales.

And again, it's our made from scratch concept that has a bit of a higher bar mix than we would traditionally have a cheesecake factory, maybe skews to a little bit younger demographic.

His broadest Cheesecake factory.

Catherine Griffin: Your next question comes from the line of Catherine Griffin with Bank of America. Your line is open. Hi. Thank you. I wanted to just follow up on some of the commentary about kind of normalizing spending patterns, normalizing seasonality. Are you seeing anything discernible among higher income cohorts? Just since I think we've heard from a couple players, but you know, you're seeing higher income and maybe a little bit more sensitive on on alcohol mix and expressing check management that way.

But we think it has great appeal and is a terrific concept and thus far.

We'll continue to monitor closely as <unk> moves into some of those new markets next year.

Great. Thank you so much.

Your last question today comes from the line of Brian <unk> with Morgan Stanley. Your line is open.

Thanks, Good afternoon, just on your comments about inflation next year.

Do you think.

Do you think that labor inflation is sort of like higher end of that maybe commodities are bit lower how would you handicap that.

Catherine Griffin: So just curious sort of how you can contextualize anything on income cohorts, you know, as it relates to your comments on normalizing pattern. Hi, Gavin. This is Matt and welcome to the call. We don't track like on a week-to-week or month-to-months in terms of the research that we're doing. We do see on an annualized basis that our relative cohort distribution and spending patterns are pretty stable. I mean, we have such a broad demographic appeal that I don't think we have that sort of same approach or thought pattern as I think maybe some other segments that are more narrow in our industry. So, you know, we don't look at it quite the same way as the others do in that regard.

Prospects for combined inflation to be.

Low single digit if it were in fact to be more favorable within your range.

Brian This is Matt I think.

There is still some work to be done on the commodity front I mean, as you know beef remains a little bit challenging some ups and downs recently, but.

Definitely a pressured headwind going into next year. So I think we want to see where we can get with that before being too specific.

Certainly the labor environment is promising today.

And I think our brand reputation helps quite a bit with that and our ability to attract and retain employers employees are getting their hours.

Matt Clark: Okay, thank you. And then I wanted to ask a little bit just about some of the other concepts given your comments on culinary dropout. I guess I'm curious if you can add a little bit more color on the components of the unit economics that are attractive enough to give you confidence to move forward with growing that brand. And if there's anything unique about customer profile, just given your comments and sort of where you see geographic portability.

Their tips and all of those kinds of things so.

I think we put them together on purpose because there are moving parts.

And there is still some time before we get there. So you know we.

We feel good about that low to mid range and we'll see where it plays out in the next three to four months.

Okay, Thanks, and just North Italia.

Was your comment that the pricing you just took.

Matt Clark: I'll give you a little bit on the numbers and then David Gordon can touch on sort of the attributes of the concept. But, you know, we think it can deliver, you know, roughly two to one sales to CapEx. I mean, that's been a historical performance and continues to be close to what we're achieving today. And the margin profile has been in the mid to upper teams today coming out of the pandemic.

You think where are you behind on pricing there and so essentially you were you, saying that that will put margins at a level, that's somewhat comparable to cheesecake as we get into <unk> and beyond.

Yes, Thats right Bryan I mean, basically there one cycle behind Cheesecake factory and so when we just look at sort of a cumulative pricing versus cumulative inflation. We were just two five points behind.

Matt Clark: So, you know, putting those together, you're definitely going to be about 30% and hopefully much better than that on a sort of poor wall margin returns. So, we feel we feel good about the overall economics. And it's been pretty consistent also across the portfolio so far. So, as he noted, we'll test that portability, but very strong sales and very solid margins, right, which exactly what you look for. Yeah, I don't know much that I think the sales are really big at the most promising and as we have moved into new geographies, we seem to see those same consistent high levels of sales.

What we needed to do to catch up that's correct.

Okay. Thank you.

This concludes our Q&A and today's conference call. Thank you for attending you may now disconnect.

Okay.

Matt Clark: And again, it's a made from scratch concept. It has a bit of a higher bar mix than we would traditionally have a cheesecake factory, maybe skews to a little bit younger demographic, not as broad as cheesecake factory. But we think it has has great appeal and there's a terrific concept. And thus far, we'll continue to monitor closely as I'm losing to some of those new markets next year.

David Gordon: Great.

Catherine Griffin: Thank you so much.

Brian Harbour: Your last question today comes from the line of Brian Harbour with Morgan Stanley.

Brian Harbour: Your line is open. Thanks.

Matt Clark: Good afternoon. Just in your comments about inflation next year. Do you think that labor inflation is sort of like higher end of that, maybe commodities a bit lower? How would you handicap, you know, the prospects for combined inflation to be low single digit if it were in fact to be more favorable within your range? Brian, this is mad. I think. Thank you. There's still some work to be done on the commodity prompt.

Matt Clark: As you know, beef remains a little bit challenging. Some ups and downs recently, but definitely a pressured headwind going into next year. So I think we want to see where we can get with that before being too specific. Certainly the labor environment is promising today. And I think our brand reputation helps quite a bit with that in our ability to attract and retain employers, employees that are getting their hours and their tips and all of those kinds of things.

Matt Clark: But you know, I think we put them together on purpose because there are moving parts and you know there's still some time before we get there. So you know, we feel good about that low-to-mid range and we'll see where it plays out in the next three or four months. Okay, thanks. And just North Italia, was your comment that the pricing you just took, you think that were you behind unpricing there and so essentially were you saying that that will put margins at a level that's somewhat comparable to Cheesecake as we get into 4Q and beyond?

Matt Clark: That's right, Ryan. I mean, basically they're one cycle behind Cheesecake Factory. And so when we just look at sort of cumulative pricing for cumulative inflation, we were just two and a half points behind what we needed to do to catch up. That's correct. Okay, thank you.

Etienne Marcus: This concludes our Q&A and today's conference call. Thank you for attending. You may now disconnect.

Etienne Marcus: Thank you.