Q1 2024 Cheesecake Factory Inc Earnings Call
Operator: Good afternoon. My name is Brianna, and I will be your conference operator today. At this time, I would like to welcome everyone to the Cheesecake Factory Incorporated First Quarter 2024 Earnings Conference Call. Please note that this call is being recorded. All lines have been placed on mute to prevent any background noise.
Good afternoon, My name is Brianna and I will be your conference operator today.
Operator: At this time I would like to welcome everyone to the Cheesecake factory incorporated first quarter 2024 earnings Conference call. Please.
Operator: Please note that this call is being recorded.
Operator: All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
Brianna: If you would like to ask a question. Please press star followed by the number one on your telephone keypad.
Operator: To withdraw your question. Please press star one again.
Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question, please press star followed by the number one on your telephone keypad. To withdraw your question, please press star one again. I would now like to turn the call over to Etienne Marcus, Vice President of Finance.
Operator: I would now like to turn the call over to Etienne Marcus Vice President of Finance and Investor Relations. Please go ahead.
Etienne Marcus: Good afternoon, and welcome to our first quarter fiscal 2024 earnings call. On the call with me today are David Overton, our Chairman and Chief Executive Officer, David Gordon, our President, and Matt Clark, our Executive Vice President and Chief Financial Officer. Before we begin, let me quickly remind you that during this call, items will be discussed that are not based on historical fact and are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
Etienne Marcus: Good afternoon, and welcome to our first quarter fiscal 2024 earnings call on.
Etienne Marcus: 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.
Etienne Marcus: 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.thecheesecakefactory.com and in our filings with the Securities and Exchange Commission. All forward-looking statements made on this call speak only as of today, and the company undertakes no duty to update any forward-looking statement. In addition, during this conference call, we will be presenting results on an adjusted basis, which excludes impairment of assets and 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.
Etienne Marcus: Before we begin let me quickly remind you that during this call items will be discussed that are not based on historical fact and are considered forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Etienne Marcus: Actual results could be materially different from those stated or implied in forward looking statements. As a result of the factors detailed in today's press release, which is available on our website at investors that the Cheesecake factory Dot com and in our filings with the Securities and Exchange Commission.
Etienne Marcus: 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.
Etienne Marcus: In addition, during this conference call, we will be presenting results on an adjusted basis, which exclude impairment of assets and lease terminations and acquisition related expenses.
Etienne Marcus: 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.
Etienne Marcus: David Overton will begin today's call with some opening remarks, and David Gordon will provide an operational update. Matt will then review our first quarter financial results and finish up with some commentary on our outlook for the second quarter and full year 2024 before opening the call up to questions. With that, I'll turn the call over to David Overton.
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 first quarter financial results and finish up with some commentary on our outlook for the second quarter and full year 2024 before opening the call up to questions.
Etienne Marcus: With that I'll turn the call over to David Overton.
David M. Overton: Thank you, Etienne. We were pleased with our first quarter results, with revenues finishing near the high end of our expected range and superior operational execution contributing to better than projected profitability, resulting in 20% year-over-year growth in adjusted earnings per share. The Cheesecake Factory restaurants' comparable sales and traffic once again meaningfully outperformed the industry, underscoring the strength of consumer demand for our brand and demonstrating our ability to capture market share. Execution within the restaurant's four walls was outstanding, with our operators delivering better-than-planned results across several key areas. This performance, combined with slightly better-than-expected input costs, resulted in consolidated four-wall margins of 15% and adjusted net income margin of 4% for the quarter, both exceeding expectations.
David M. Overton: Thank you Tien we were pleased with our first quarter results with revenues, finishing near the high end of our expected range and superior operational execution contributing to better than projected profitability.
David M. Overton: Hosting and 20% year over year growth in adjusted earnings per share the.
David M. Overton: The Cheesecake factory restaurants comparable sales and traffic once again meaningfully.
David M. Overton: Performed the industry underscoring the strength of consumer demand for our brand and demonstrating our ability to capture market share ex.
David M. Overton: Execution within the restaurants, four walls was outstanding with our operators delivering better than planned results across several key areas.
David M. Overton: This performance combined with slightly better than expected input costs resulted in consolidated four wall margins of 15% and adjusted net income margin of 4% for the quarter both exceeding expectations.
David M. Overton: On the development front, we successfully opened five restaurants in the first quarter, including two North Italian restaurants, two FRC restaurants, and one Flower Child location. Additionally, subsequent to Quarter End, another Cheesecake Factory restaurant opened in Asia. With the five restaurant openings in the first quarter, we remain on track to open as many as 22 new restaurants in 2024, including as many as 3 to 4 cheesecake factories, 6 to 7 North Italias, 6 to 7 Flower Childs, and 6 to 7 FRC restaurants.
David M. Overton: On the development front, we successfully opened five restaurants in the first quarter, including June North Italia restaurants to FRC restaurants, and one flower child locations.
David M. Overton: And one Cheesecake factory restaurant opened in Mexico.
David M. Overton: Additionally, subsequent to quarter end, another Cheesecake factory opened in Asia.
David M. Overton: With a five restaurant openings in the first quarter, we remain on track to open as many as 22, new restaurants in 2024, including as many as 3% to four cheesecake factory's fixed to seven North Italia fixed to seven flower child, and 67 FRC restaurants.
David M. Overton: Before I turn the call over to David Gordon, I'm proud to share that the Cheesecake Factory has been named one of Fortune Magazine's 100 best companies to work for for the 11th consecutive year. This recognition speaks to our culture and our incredible people, and we believe it should continue to support our ability to attract and retain talent as an employer of choice in our industry. With that, I will now turn the call over to David Gordon to provide an operational update. Thank you, David.
David M. Overton: Before I turn the call over to David Gordon I'm proud to share that the Cheesecake factory.
David M. Gordon: Named one unfortunate magazine's 100 best companies to work for for the 11th consecutive year. This recognition speaks to our culture and our incredible people and we believe it should continue to support our ability to attract and retain talent has an employer of choice in our industry.
David M. Overton: That I will now turn the call over to David Gordon to provide an operational update.
David M. Gordon: Thank you David.
David M. Gordon: Our solid performance for the quarter showcases our operations team's proven ability to execute at the highest levels and effectively manage their restaurants. To this point, our operators have exceeded our expectations in labor productivity, food efficiencies, wage management, and, perhaps most importantly, in both hourly and management retention, which were already industry leading and for the quarter finished at the highest levels in the past five years. As we've said before, we believe our staffing success is a key contributor to the improvement in our guest satisfaction scores. After all, our people are our greatest resource and enable us to deliver delicious, memorable experiences for our guests each and every day.
David M. Gordon: Our solid performance for the quarter showcases our operations team's proven ability to execute at the highest levels and effectively manage their restaurants.
David M. Gordon: So at this point, our operators exceeded our expectations and labor productivity food efficiencies wage management and perhaps most importantly in both hourly and management retention.
David M. Gordon: Which were already industry, leading and for the quarter finished at the highest levels in the past five years.
David M. Gordon: As we've said before we believe our staffing success is a key contributor to the improvement in our guest satisfaction scores. After all our people are our greatest resource and enable us to deliver delicious memorable experiences for our guests each and every day.
David M. Gordon: Supporting this viewpoint, our internally measured Net Promoter Score metrics during the quarter remained near record highs across both Dynet and off-premise channels, including pace of experience, staff service, and food quality. These positive guest satisfaction trends further support the Cheesecake Factory's continued outperformance relative to the industry, with comparable sales and traffic exceeding the Black Box Casual Dining Index by 330 basis points and 440 basis points, respectively. Now turning to sales trends, Cheesecake Factory off-premise sales remain steady at 22% of sales for the first quarter, in line with the 2023 average percentage of sales.
David M. Gordon: Supporting this viewpoint are internally measure net promoter score metrics during the quarter remained near record highs across both dine in and off premise channels, including pace of experience staff service and food quality.
David M. Gordon: These positive guest satisfaction trends further support the cheesecake factory's continued outperformance relative to the industry, but comparable.
David M. Gordon: Sales and traffic exceeding a black box casual dining index by 330 basis points and 440 basis points respectively.
David M. Gordon: Now turning to sales trends.
David M. Gordon: Cake factory off premise sales remained steady at 22% of sales for the first quarter.
David M. Gordon: Line with the 2023 average percentage of sales.
David M. Gordon: North Italia's first quarter comparable sales increased 3% from the prior year, resulting in annualized AUVs of $7.7 million. The restaurant level profit margin for the adjusted mature North Italia locations was 14.2%, up 120 basis points from Q1 of 2023. Other Fox Restaurant concepts annualized AUBs were $7.3 million.
David M. Gordon: North Italia first quarter comparable sales increased 3% from the prior year, resulting in annualized <unk> of $7 7 million.
David M. Gordon: Restaurant level profit margin for the adjusted mature North Italia locations was 14, 2% up 120 basis points from Q1 of 2023.
David M. Gordon: Other Fox restaurant concepts annualized fees were $7 $3 million.
David M. Gordon: Next, I'd like to provide an update on Flower Child. We remain as enthusiastic as ever about Flower Child's potential, with sales continuing to grow nicely across the concept. In fact, Q1 comparable sales for Flower Child were the highest of any of our core concepts, and sales demand in the newer locations continued to trend well. Over the past 18 months, we have successfully implemented several operational and supply chain improvements to enhance the guests' experience and drive cost efficiency. For example,
David M. Gordon: Next I'd like to provide an update on flower child.
David M. Gordon: We remain as enthusiastic as ever about flower childs potential with sales continuing to grow nicely across the concept.
David M. Gordon: In fact Q1 comparable sales for flower child were the highest of any of our core concepts and sales demand and the newer locations continues to trend well.
David M. Gordon: Over the past 18 months, we have successfully implemented several operational and supply chain improvements to enhance the guest experience and drive cost efficiencies.
David M. Gordon: For example.
David M. Gordon: We implemented a kitchen display system across all restaurants, resulting in improved order throughput and operational efficiency. The loyalty platform was replaced by a more robust and scalable solution. Our new restaurant opening training teams were expanded to be able to support our accelerated new unit growth objective. Additionally, we are now leveraging the Cheesecake Factory operational reporting platform and deploying operational dashboards to provide improved planning and performance visibility. And Flower Child's purchasing is now integrated into the broader Cheesecake Supply Chain operation to take advantage of our scale and purchasing capability.
David M. Gordon: We implemented a kitchen display system across all restaurants, resulting in improved order throughput and operational efficiencies.
David M. Gordon: The loyalty platform was replaced with a more robust and scalable solution.
David M. Gordon: Okay.
David M. Gordon: Our new restaurant opening and training teams were expanded to be able to support our accelerated new unit growth objectives.
David M. Gordon: We are now leveraging the cheesecake factory operational reporting platform and deploying operational dashboards to provide improved planning and performance visibility.
David M. Gordon: And flower childs purchasing is now integrated into the broader cheesecake supply chain operation to take advantage of our scale and purchasing capabilities.
David M. Gordon: In summary, with strong consumer demand, a robust operations team, and support infrastructure now in place, and an attractive unit economic profile, we believe Flower Child is well positioned for accelerated growth. And lastly, we remain pleased with our Cheesecake Rewards Program advancement. As I've said previously, we're taking a very deliberate approach as we expand the program and therefore do not anticipate seeing a measurable impact on sales for at least the first year or so.
David M. Gordon: In summary, with strong consumer demand a robust operations team and support infrastructure now in place and then a attractive unit economic profile. We believe flower child is well positioned for accelerated growth.
David M. Gordon: And lastly, we remain pleased with our Cheesecake rewards program advancement as I've said previously we're taking a very deliberate approach as we expand the program and therefore do not anticipate seeing a measurable impact to sales for at least the first year or so.
David M. Gordon: With that said, demand continues to exceed our internal expectations, and we remain encouraged by the level of member activity and engagement that we are now seeing. We're continuing to test acquisition tactics and activation campaigns to better understand the key elements that are responding with rewards members and most effectively increasing membership enrollment, engagement, and driving frequency. And with that, I'll turn the call over to Matt for our financial review.
David M. Gordon: That said demand continues to exceed our internal expectations and we remain encouraged by the level of member activity and engagement that we are now seeing.
Matt: We're continuing to test acquisition tactics and activation campaigns to better understand the key elements that are resonating with rewards members and most effectively increasing membership enrollment engagement and driving frequency.
David M. Gordon: And with that let me turn the call over to Matt for our financial review.
Matt: Thank you David.
Matthew Eliot Clark: Let me first provide a high-level recap of our first quarter results versus our expectations I outlined last quarter. Total revenues of $891 million finished towards the high end of the range we provided. Adjusted Net Income Margin of 4% We have exceeded the 3.5% guidance we provided. And we returned $25.3 million to our shareholders in the form of dividends and stock repurchases.
Matt: Let me first provide a high level recap of our first quarter results versus our expectations I outlined last quarter.
Matthew Eliot Clark: Total revenues of $891 million finished towards the high end of the range we provided.
Matthew Eliot Clark: Adjusted net income margin of 4%.
Matthew Eliot Clark: Ceded to three 5% guidance we provided.
Matthew Eliot Clark: And we returned $25 $3 million to our shareholders in the form of dividends and stock repurchases.
Matthew Eliot Clark: Now turning to some more specific details about the quarter. First quarter total sales at the Cheesecake Factory restaurants were $668 million, up 2% from the prior year. Comparable sales declined 0.6% versus the prior year. In line with the industry, our Q1 sales were negatively impacted by inclement weather, predominantly in January, with trends improving thereafter through the end of the quarter.
Matthew Eliot Clark: Now turning to some more specific details around the quarter.
Matthew Eliot Clark: First quarter total sales of logistic factory restaurants were $668 million up.
Matthew Eliot Clark: Up 2% from the prior year.
Matthew Eliot Clark: Comparable sales declined 6% versus the prior year.
Matthew Eliot Clark: In line with the industry. Our Q1 sales were negatively impacted by inclement weather predominantly in January with trends improving thereafter through the end of the quarter.
Matthew Eliot Clark: Total sales for North Italia were $70.9 million, up 12% from the prior year period. Other FRC sales totaled $74.2 million, up 8% from the prior year, and sales per operating week were $140,600. Flower Jowl sales totaled $34.5 million, up 10% from the prior year, and sales per operating week were $83,700, and external bakery sales were $14.9 million, flat from the prior year. Now, moving to year-over-year expense variance commentary. In the first quarter, we continued to realize some year-over-year improvement across several key line items in the P&L.
Matthew Eliot Clark: Total sales for North Italia were $79 million up 12% from the prior year period.
Matthew Eliot Clark: Other FRC sales totaled $74 2 million up 8% from the prior year and sales per operating week $140600.
Matthew Eliot Clark: Flower child sales totaled $34 5 million up 10% from the prior year.
Matthew Eliot Clark: Sales per operating week were 83 seven.
Matthew Eliot Clark: $700.
Matthew Eliot Clark: External bakery sales were $14 $9 million flat from the prior year.
Matthew Eliot Clark: Specifically, cost of sales decreased 100 basis points, primarily driven by higher menu pricing than commodity inflation. Labor as a percent of sales was essentially flat year over year. Other operating expenses decreased 40 basis points, primarily driven by reduced costs in areas such as utilities and to-go related expenses. GNA increased 60 basis points, mostly driven by higher staffing and legal costs.
Matthew Eliot Clark: Now moving to year over year expense variance commentary.
Matthew Eliot Clark: In the first quarter, we continued to realize some year over year improvement across several key line items in the P&L.
Matthew Eliot Clark: Specifically cost of sales decreased 100 basis points, primarily driven by higher menu pricing and commodity inflation.
Matthew Eliot Clark: Labor as a percent of sales was essentially flat year over year.
Matthew Eliot Clark: Other operating expenses decreased 40 basis points.
Matthew Eliot Clark: Similarly, driven by reduced costs in areas, such as utilities and to go related expenses.
Matthew Eliot Clark: G&A increased 60 basis points, mostly driven by higher staffing and legal costs.
Matthew Eliot Clark: Depreciation increased 10 basis points as a percent of sales.
Matthew Eliot Clark: Depreciation increased 10 basis points as a percent of sales. Pre-opening costs were $5.9 million in the quarter, compared to $3.1 million in the prior year period. We opened five restaurants during the first quarter versus two restaurants in the first quarter of 2023. And in the first quarter, we recorded a net expense of $3.2 million, primarily related to impairment of assets and lease termination expenses and FRC acquisition-related expenses. First quarter of GAAP diluted net income per share was 68 cents. Adjusted diluted net income per share was $0.73.
Matthew Eliot Clark: Pre opening costs were $5 $9 million in the quarter compared to $3 1 million in the prior year period.
Matthew Eliot Clark: We opened five restaurants during the first quarter versus two restaurants in the first quarter of 2023.
Matthew Eliot Clark: And in the first quarter, we recorded a net expense of $3 $2 million.
Matthew Eliot Clark: Primarily related to impairment of assets and lease terminations expenses and FRC acquisition related expenses.
Matthew Eliot Clark: First quarter GAAP diluted net income per share was <unk> 68.
Matthew Eliot Clark: Adjusted diluted net income per share was <unk> 73.
Matthew Eliot Clark: Now turning to our balance sheet and capital allocation. The company ended the quarter with total available liquidity of approximately $297 million, including a cash balance of about $60 million and approximately $237 million available on a revolving credit facility. Total debt outstanding was unchanged at $475 million in principal.
Matthew Eliot Clark: Now turning to our balance sheet and capital allocation.
Matthew Eliot Clark: The company ended the quarter with total available liquidity of approximately $297 million, including a cash balance of about $60 million and approximately $237 million available on our revolving credit facility.
Matthew Eliot Clark: Total debt outstanding was unchanged at $475 million in principle.
Matthew Eliot Clark: CapEx totaled approximately $37 million during the first quarter for new unit development and maintenance. During the quarter, we completed approximately $12.5 million in share repurchases and returned $12.8 million to shareholders via our dividend. Now, let me turn to our outlook.
Matthew Eliot Clark: Capex totaled approximately $37 million.
Matthew Eliot Clark: During the first quarter for new unit development and maintenance.
Matthew Eliot Clark: During the quarter, we completed approximately $12 $5 million in share repurchases and returned $12 $8 million to shareholders via our dividend.
Matthew Eliot Clark: Now, let me turn to our outlook.
Matthew Eliot Clark: While we will not be providing specific comparable sales and earnings guidance, we will provide our updated thoughts on our underlying assumptions for Q2 and full year 2024. For Q2, we assume no material operating or consumer disruptions. We anticipate total revenue to be between 890 and 910 million dollars. This essentially assumes a continuation of February and March trends. Next, at this time, we expect effective commodity inflation of low single digits for Q2 as our broad market basket remains very stable.
Matthew Eliot Clark: While we will not be providing specific comparable sales of earnings guidance, we will provide our updated thoughts on our underlying assumptions for Q2 and full year 2024.
Matthew Eliot Clark: For Q2, assuming no material operating or consumer disruptions.
Matthew Eliot Clark: We anticipate total revenues to be between 890 <unk>.
Matthew Eliot Clark: $910 million.
Matthew Eliot Clark: This essentially assumes a continuation of February and March trends.
Matthew Eliot Clark: Next at this time, we expect our effective commodity inflation of low single digits for Q2, as our broad market basket remains very stable.
Matthew Eliot Clark: We are modeling net total labor inflation of mid single digits when factoring in the latest trends in wage rates and minimum wage increases as well as other components of labor.
Matthew Eliot Clark: G&A is estimated to be about $58 million and depreciation is estimated to be approximately $25 million.
Matthew Eliot Clark: Based on these assumptions, we would anticipate net income margin to be about $5 two 5% at the midpoint of the sales range.
Matthew Eliot Clark: We are modeling net total labor inflation of mid-single digits when factoring in the latest trends in wage rates and minimum wage increases, as well as other components of labor. DNA is estimated to be about $58 million, and depreciation is estimated to be approximately $25 million. Based on these assumptions, we would anticipate net income margin to be about 5.25% at the midpoint of the sales range. Now for the full year. Based on similar assumptions and no material operating or consumer disruptions, we would anticipate total revenues for fiscal 2024 to be approximately $3.6 billion. For sensitivity purposes, we are using a range of plus or minus 1%.
Matthew Eliot Clark: Now for the full year.
Matthew Eliot Clark: Based on similar assumptions and no material operating or consumer disruptions.
Matthew Eliot Clark: We would anticipate total revenues for fiscal 2024 to be approximately $3 6 billion.
Matthew Eliot Clark: For sensitivity purposes, we're using a range of plus or minus 1%.
Matthew Eliot Clark: We currently estimate total inflation across our commodity baskets, labor, and other operating expenses to be in the low to mid-single-digit range and fairly consistent across the quarters. We are estimating G&A to be about 10 basis points higher year over year as a percent of sales, and depreciation to be about $100 million for the year. And given our unit growth expectations, we are estimating pre-opening expenses to be approximately $28 million, which includes support for some early 2025 openings.
Matthew Eliot Clark: We currently estimate total inflation across our commodity baskets labor and other operating expenses to be in the low to mid single digit range and fairly consistent across the quarters.
Matthew Eliot Clark: We are estimating G&A to be about 10 basis points higher year over year as a percent of sales and depreciation to be about $100 million for the year.
Matthew Eliot Clark: And given our unit growth expectations, we are estimating pre opening expenses.
Matthew Eliot Clark: Approximately $28 million.
Matthew Eliot Clark: Which includes support for some early 2025 openings.
Matthew Eliot Clark: Based on these assumptions and assuming consumer trends remain consistent and there are no. Other material exogenous factors, we would expect full year net income margin of approximately $4 two 5% at the revenue level I provided.
Matthew Eliot Clark: Based on these assumptions, and assuming consumer trends remain consistent, and there are no other material exogenous factors, we would expect a full year net income margin of approximately 4.25% at the revenue level I provided. With regard to development, as David Overton highlighted earlier, we plan to open as many as 22 new restaurants this year across our portfolio of concepts. With five openings in the first quarter and as many as five openings slated for the second quarter, we anticipate our development pipeline of new openings to be relatively balanced across the quarter. And we would anticipate approximately $180 million to $200 million in CapEx to support this year's and some of next year's unit developments, as well as required maintenance on a restaurant.
Matthew Eliot Clark: With regard to development.
Matthew Eliot Clark: As David Overton highlighted earlier, we plan to open as many as 22, new restaurants this year across our portfolio of concepts.
Matthew Eliot Clark: With five openings in the first quarter and as many as five opening slated for the second quarter, we anticipate our development pipeline of new openings to be relatively balanced across the quarters.
Matthew Eliot Clark: And we would anticipate approximately 180 million to $200 million.
Matthew Eliot Clark: And Capex to support this years and some of next year's unit development.
Matthew Eliot Clark: As well as required maintenance on our restaurants.
Matthew Eliot Clark: In closing, we were pleased with our financial performance for the first quarter, with Topline Trends stabilizing and profit margins expanding. Infocost Normalizing and Solid Operational Execution. With these positive results, we believe we are well positioned to once again generate our historically consistent operational and financial results and to continue making progress towards our longer-term goals in the key areas of value creation. Growing restaurant comparable sales, expanding restaurant operating margins, and accelerating accretive unit growth. And with that said, we'll take your questions.
Matthew Eliot Clark: In closing we were pleased with our financial performance for the first quarter.
Matthew Eliot Clark: With topline trends stabilizing.
Matthew Eliot Clark: But margins expanding.
Matthew Eliot Clark: Input costs, normalizing and solid operational execution.
Matthew Eliot Clark: With these positive results. We believe we are well positioned to once again generate our historically consistent operational and financial results.
Matthew Eliot Clark: And to continue making progress towards our longer term goals and the key areas of value creation.
Matthew Eliot Clark: Growing restaurant comparable sales.
Matthew Eliot Clark: Expanding restaurant operating margins and.
Matthew Eliot Clark: And accelerating accretive unit growth.
Matthew Eliot Clark: And with that said, we'll take your questions.
Operator: We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star followed by the number one on your telephone keypad. To withdraw your question, please press star 1 again. We kindly ask that you limit yourself to one question and one follow-up. If you would like to ask additional questions, please rejoin the queue. Our first question comes from David Tarantino, with Baird. Please go ahead.
Speaker Change: We will now begin the question and answer session.
Operator: If you have dialed in and we'd like to ask a question. Please press star followed by the number one on your telephone keypad.
Operator: To withdraw your question. Please press star one again.
Operator: We kindly ask that you limit yourself to one question and one follow up.
David E. Tarantino: I would like to ask additional questions. Please rejoin the queue.
Operator: Our first question comes from David Tarantino with Baird. Please go ahead.
David E. Tarantino: Hi, Matt. Matt, just first a quick clarification question related to your assumptions. You mentioned that you're assuming that the trends you saw in February and March would be the kind of run rate you're assuming in the guidance, so could you just elaborate on what you saw in February and March, and then I have a follow-up.
David E. Tarantino: Hi, Good afternoon, Matt just first a quick.
David E. Tarantino: Clarification question related to your Euro assumption, you mentioned that Youre.
David E. Tarantino: Youre assuming that the trends you saw in February and March would be the kind of run rate youre assuming in the guidance. So could you just elaborate on what you saw in February and March and then I, then I have a follow up.
Matthew Eliot Clark: Sure, David, this is Matt. So if you think about the quarter and Cheesecake Factory comps were negative 0.6, and what we had said on the last call was the impact from those two, two and a half weeks of weather in January was about one and a half to two percent for the entire quarter, right? So the net of those two things being kind of what we saw in the back half of the quarter, so low single-digit positive.
David E. Tarantino: Sure.
David E. Tarantino: David It's Matt. So if you if you think about the quarter and Cheesecake factory comps were.
David E. Tarantino: Got it. Okay. Thank you for that.
David E. Tarantino: The negative <unk> six and what we had said.
David E. Tarantino: On the last call was the impact from those two two and half weeks of weather in January it was about one 5% to 2% for the entire quarter right. So the net of those two things being kind of what we saw.
David E. Tarantino: In the back half of the quarter, so low single digits.
David E. Tarantino: Positive.
David E. Tarantino: And so that, you know, is what you'd be embedding in your second quarter guidance. Correct. I got it. Okay. And then I guess, you know, a lot of companies recently have been talking about consumer softness, and I just wanted to get your thoughts on what you're seeing from a consumer perspective. I know you saw improved trends at the end of the quarter, but as you kind of step back and look at where you are year to date and what you're seeing on the transaction side, or however you want to look at it, could you talk about the strength of the consumer spending environment and any observations on that front would be helpful.
Speaker Change: Got it okay. Thank you for that and so that is why.
David E. Tarantino: You would be embedding in your second quarter guidance.
David E. Tarantino: Correct.
Speaker Change: Got it okay.
David E. Tarantino: And then I guess a lot of companies recently have been talking about.
David E. Tarantino: Consumer softness and I just wanted to get your thoughts on what Youre seeing from.
David E. Tarantino: From a consumer perspective.
David E. Tarantino: I know you saw improved trends at the at the end of the quarter, but as you kind of step back and look at where you are year to date and what you know what youre seeing.
David E. Tarantino: On the transaction side or however, you want to look at it can you talk about kind of the strength of the consumer spending environment.
David E. Tarantino: And.
David E. Tarantino: Any observations on that front would be helpful. Thank you.
Matthew Eliot Clark: Sure, and I'll just preemptively answer the next question around the specifics on pricing, traffic, and mix because it's part of, I think, that answer, right? So, pricing leveled down for us because we dropped off that one-time incremental pricing from December 22. So, pricing was at 5.2. The mix was a negative 4.3, which showed a slight improvement over the fourth quarter, but, as we predicted, was still a piece of the equation, and so that left traffic at a negative 1.5.
Speaker Change: Sure and I'll, just preemptively answer the next question around the specifics on pricing traffic and mix because it's part of I think that answer right. So pricing level down for us because we we dropped off at one time incremental pricing from December of 'twenty. Two so pricing was up five two.
Matthew Eliot Clark: The mix was a negative four three which showed a slight improvement over the fourth quarter, but as we predicted was still a piece of the equation and so without enough traffic at a negative one five all of that traffic piece was related to the January weather.
Matthew Eliot Clark: All of that traffic piece was related to the January weather. So, you know, effectively, we've been running flat traffic now for two quarters, and so to answer the question, we see the consumer that's coming into our restaurants being very steady. You know, we haven't really veered off of that trajectory for a while, and, you know, week to week, it's kind of, predictable. So, you know, wherever that is, it's not a bad place at all for us.
Matthew Eliot Clark: So effectively we've been running flat traffic now for two quarters.
Matthew Eliot Clark: And so to answer I think the question do we see the consumer that's coming into our restaurants being very steady, we havent really veered off of that trajectory for a while and.
Matthew Eliot Clark: Two week, it's kind of.
Matthew Eliot Clark: It's been predictable.
Matthew Eliot Clark: Wherever that is it's a it's.
Matthew Eliot Clark: It's not a not a bad ways at all for us.
David E. Tarantino: Great, thank you very much.
Speaker Change: Great. Thank you very much.
Katherine Anne Griffin: Your next question comes from Katherine Griffin with Bank of America. Please go ahead.
David E. Tarantino: Your next question comes from Katherine Griffin with Bank of America. Please go ahead.
Katherine Anne Griffin: Oh, hi, thank you. Thanks for the question.
Katherine Anne Griffin: Oh hi, Thank you. Thanks for the question I wanted to ask first about the about the four wall margin.
Katherine Anne Griffin: Little bit better than expected.
Katherine Anne Griffin: As you said so I was wondering if you could just further clarify I think you mentioned input costs, but sort of where where the upside came from and then second part of the question is just is this kind of the right level, we should be thinking about.
Katherine Anne Griffin: For the remainder of the year.
Matthew Eliot Clark: I wanted to ask first about the four-wall margin, which is a little bit better than expected, as you said. So I was wondering if you could just further clarify. I think you mentioned input costs, but sort of where the upside came from. And then the second part of the question is just, is this kind of the right level we should be thinking about for the remainder of the year?
Katherine Anne Griffin: Sure Kevin It's Matt So I think just going back to the last answer for David on the sales trends I mean, I think having that steady predictable historical cheesecake pattern.
Speaker Change: Our operators did a fantastic job.
Matthew Eliot Clark: Flow through on the sales so a lot of it just goes to the ability to execute in a normalized environment we saw commodities.
Matthew Eliot Clark: Roughly flat.
Matthew Eliot Clark: The predicted range utilities were slightly better I mean natural gas obviously is.
Matthew Eliot Clark: Sure, it's Matt. So, you know, just going back to the last answer for David on the sales trends, I mean, I think having that steady, predictable historical cheesecake pattern, you know, our operators just did a fantastic job delivering flow through on the sales. So a lot of it just goes to the ability to execute in a normalized environment. You know, we saw commodities were, as in, roughly flat-ish, but, you know, within the predicted range, utilities were slightly better. I mean, natural gas obviously is low, but I think that the most important part of that is just execution. And, you know, being able to manage the business with a very predictable sales pattern. So that helped a lot.
Matthew Eliot Clark: Is low but I think the most important part of that is just execution.
Matthew Eliot Clark: Being able to manage the business with a very predictable sales pattern. So that helped a lot. So if you think about the rest of the year every quarter is a little bit different right, there's seasonality and things. So those those numbers might not be the absolute.
Matthew Eliot Clark: Same quarter to quarter typically you do see a little bit of a pick up in the absolute number for Q2 and then it comes back down in Q3 and goes back up a little bit.
Katherine Anne Griffin: You know, so if you think about the rest of the year, every quarter is a little bit different, right? There's seasonality and things. So those numbers might not be absolute, you know, same quarter to quarter. Typically, you do see a little bit of a tick up in the absolute numbers for Q2. And then it comes back down in Q3 and goes back up a little bit in Q4. So it fluctuates, but I think on a full year basis, it's probably close to it somewhere in that ballpark.
Katherine Anne Griffin: In Q4, so it moves around but I think on a full year basis is probably close to it somewhere in that ballpark.
David M. Gordon: Okay, thank you. And then I was curious about the flower child purchasing and being integrated with the cheesecake supply chain. Can you quantify or just maybe frame what the margin savings from that are?
Speaker Change: Okay. Thank you.
Katherine Anne Griffin: And I was curious about the.
David M. Gordon: The flower child.
David M. Gordon: <unk> being integrated with our with the Cheesecake supply chain can you quantify or just maybe frame what the margin savings from that.
David M. Gordon: Sure.
David M. Gordon: Okay.
Katherine Anne Griffin: You know, it's meaningful. I don't know that we are going to give a specific answer. But, you know, we've done a lot of work in the protein area, which is, you know, high cost. And we feel really good that the contributions from that are, you know, it's a little bit of a tricky answer, because we've done so many other things, like David talked about, you know, putting in the kitchen system, some of the other efficiencies, they're kind of all blended together. But certainly, the margins have moved measurably higher. And, you know, we feel very good about accelerating that growth based on the results that we're seeing.
David M. Gordon: Yes.
David M. Gordon: It's meaningful I don't know that we are going to give a specific answer but we've done a lot of work in the protein area, which is high cost and.
Katherine Anne Griffin: And we feel really good that the contribution from that.
Katherine Anne Griffin: A little bit of.
Katherine Anne Griffin: A tricky answer because we've done so many other things like David talked about.
Katherine Anne Griffin: Putting in the kitchen, just some of the other efficiencies that are kind of all blended together.
Katherine Anne Griffin: But certainly the margins have moved measurably higher.
Katherine Anne Griffin: And we feel very good about accelerating our growth based on the results that we're seeing.
Speaker Change: Great. Thank you.
Brian Hugh Mullan: Our next question comes from Brian Mullan with Piper Sandler. Please go ahead.
Katherine Anne Griffin: Our next question comes from Brian Mullan with Piper Sandler. Please go ahead.
Brian Hugh Mullan: Hey, thank you. I actually wanted to follow up on Flower Child and some of the encouraging stuff you just mentioned. Could you just remind us what kind of AUVs and maybe soil level margins you're targeting there on the new development, if you could incorporate some of the good work you've done and just give us a reference? And then is there a long-term target you'd be willing to discuss in terms of the long-term opportunity? Can this be a national brand one day if things break right?
Brian Hugh Mullan: Hey, Thank you just actually wanted to follow up on flower child, some encouraging stuff.
Brian Hugh Mullan: You mentioned could you just remind us what kind of Suvs and maybe.
Brian Hugh Mullan: Margins Youre targeting there and the new development and if you could incorporate.
Brian Hugh Mullan: Some of the good work you've done just referenced and then is there a long term target that you'd be you'd be willing to discuss in terms of.
Brian Hugh Mullan: The long term opportunity and can this be a national brand one day, if things break right.
David M. Gordon: Sure, Brian, this is David Gordon. I think I'll answer your last question first, and that is, yes, we believe that it can be a national concept. Part of the reason that we've taken it more fully under our umbrella and leveraged things like the supply chain team is that we have a very strong belief in the concept. You know, Q1 AUVs, the run rate of those is $4.4 million, average unit volume, so they've been very, very strong.
Brian Hugh Mullan: Sure. Brian This is David Gordon I think I'll answer your last question first and.
David M. Gordon: And that is yes, we believe that we can be a national concept part of the reason that we've taken a more fully under our umbrella and leverage things like the supply chain team is because we have a very strong belief in the concept of.
David M. Gordon: Q1, <unk> the run rate of those are $4 $4 million.
David M. Gordon: Average average unit volume so they've been very very strong the new markets have been very strong just opened a new flower child in Plano, Texas, which is an existing market, but very happy with the sales there. Thus far so we think it's very promising we're excited to open up the six to seven more this year.
David M. Gordon: The new markets have been very strong; we just opened a new Flower Child in Plano, Texas, which is an existing market, but we're very happy with the sales there thus far. So we think it's very promising. We're excited to open up six to seven more this year and continue that continued growth
David M. Gordon: And that continued growth moving into next year and the years beyond.
Brian Hugh Mullan: And then just a question on California with the implementation of the new legislation on April 1. I know it's a different sector, a segment of the industry, but just wondering if you've observed anything worth calling out at all on the labor side whatsoever, if you'd or if you'd expect to. Yeah, thanks again, Brian. This is David.
Speaker Change: Okay. Thank you and then just.
David M. Gordon: Question on California, with the implementation of the new legislation on April 1st I know, it's a different sector or segment of the industry, but just wondering if you have observed anything worth calling it all worth calling out at all on the labor side whatsoever.
David: You would expect too.
David M. Gordon: Yeah, thanks again, Brian and David. I think it's still early, but we haven't seen anything thus far. I think we continue to remain an employer of choice and are able to continue to pay the wages and see the same wage trends in Q1 that we saw at the end of last year, which is a very stable staffing environment. We think that our employee value proposition is very strong. So we're going to monitor it as we have been, and we'll see what happens throughout the next quarter. But more likely, it's going to have an impact on QSR and not so much on certainly Cheesecake Factory and even a fast casual like Flower Child at this point.
Brian Hugh Mullan: Yeah. Thanks again, Brian this is David.
David M. Gordon: It's still early but we haven't seen anything thus far I think we continue to remain an employer of choice.
David M. Gordon: To continue to pay.
David M. Gordon: The wages and see the same wage trends.
David M. Gordon: Q1 that we saw at the end of last year, which is a very stable staffing environment, we think that our employee value proposition is very strong.
David M. Gordon: So we're going to monitor it as we as we have been and we will see what comes throughout the next quarter, but more likely it's going to have an impact on <unk> and not so much on certainly cheesecake factory and even SaaS casual like flower channel at this point.
Speaker Change: Thank you.
Brian Michael Vaccaro: Our next question comes from Brian Vaccaro with Raymond James. Please go ahead.
David M. Gordon: Our next question comes from Brian Vaccaro with Raymond James. Please go ahead.
Brian Michael Vaccaro: Hi, thanks, and good afternoon. I'm just going to circle back on the comp components at Cheesecake Factory, Matt. I think you said the mix was down in the low fours, obviously a much larger drag versus your peers and what we're typically hearing. Can you just remind us what the pieces of what's driving that are, kind of what the underlying dynamics are there, and then how you see that playing out or normalizing over the next few quarters?
Brian Michael Vaccaro: Hi, Thanks, and good afternoon, just circling back on the comp component at Cheesecake factory, Matt I think you said the mix was down in the low fours, obviously, a much larger drag versus your peers and what will typically here can you just remind us what the pieces of what's driving that kind of what the underlying dynamics are there.
Brian Michael Vaccaro: And then how you see that playing out are normalizing over the next few quarters.
Matthew Eliot Clark: Sure, that's right; it's in the low four. About 1% of that is just the optics of the to-go and how we count that, so you know you're about 3%. And just as a reminder for everybody, that's about half of what it was really nine months ago. So what you know, what we saw is really outsized purchasing, things like alcohol and attachments in 21 and 22. So we're still currently running, we call them incident rates, right? It's how much of each type of product the guests are buying slightly above 2019 levels.
Matt: Sure, but that's right. It's in the low fours about 1% of that is just the optics of the to go and how we count that so even though youre about 3%.
Matthew Eliot Clark: So what we saw is really outsized purchasing.
Matthew Eliot Clark: Things like alcohol attachments in 'twenty, one and 'twenty two so we're still currently running we call them into their rates right. It's how much of each type of product that guests are buying.
Matthew Eliot Clark: Slightly above 2019 levels. So people are really regressing theyre, just returning to I think normal behaviors.
Matthew Eliot Clark: So people aren't really regressing, they're just returning to, I think, normal behaviors. So we anticipated that it would be at this level in Q1, so it's pretty predictable, so we feel good about our estimates going forward. Q2 will probably come down even a little bit more, Q3 a little bit more, by the time we get to Q4 it's going to be pretty close to normal in our models today.
Matthew Eliot Clark: Anticipated.
Matthew Eliot Clark: We'd be at this level in Q1, so it's pretty predictable. So we feel good about our estimates going forward Q2 will probably come down even a little bit more Q3, a little bit more by the time, we get to Q4, it's going to be pretty close to normal.
Matthew Eliot Clark: Our models today.
Brian Michael Vaccaro: Okay, thank you for that. And on the margin front, you know, I want to ask about labor. Labor per operating week, at least on our map, was down between 1% and 2% year on year, it looks like. Can you speak to some of the efficiencies? Is there any way to quantify some of the efficiencies you're seeing? I know sometimes that can be difficult. And then within other OPEX, there is also some pretty nice leverage, despite some of the rewards marketing in that line, too. So is there anything worth pulling out or highlighting in that line? Thank you.
Speaker Change: Okay. Thank you for that and on the margin front I wanted to ask about on labor.
Brian Michael Vaccaro: Labor per operating week at least on our math was down between 1% and 2% year on year. It looks like can you can you speak to some of the efficiencies is there any way to quantify some of the efficiencies that you're seeing I know, sometimes that can be difficult and then within other opex also some some pretty nice leverage despite.
Brian Michael Vaccaro: Some of the rewards marketing in that line too. So is there anything worth calling out or.
Brian Michael Vaccaro: Or highlighting that line. Thank you.
Matthew Eliot Clark: On the labor part, Brian, this is Matt. We are seeing extremely good retention levels at the hourly level as well as at the management level, and so that does drive productivity but also, you know, very specific areas like overtime, like training, where we're seeing year-over-year improvements that are meaningful. I think on the other operational line, as we noted, natural gas certainly is a little bit of it, and I think that, you know, where we have some savings that we've been driving through our supply chain and some of the to-go supplies and things like that, so it's been a focus. Obviously, the other op-ex was a little bit bumpy, so, you know, we've been paying attention to that, and I think our efforts are paying off.
Brian Michael Vaccaro: On the labor part Brian. This is Matt we are seeing extremely good retention levels at.
Matthew Eliot Clark: At the hourly level as well as the management level and so that does drive basically productivity, but also.
Matthew Eliot Clark: Various specific areas like over time.
Matthew Eliot Clark: I'd like training, where we're seeing year over year improvements that are meaningful.
Speaker Change: On the other offline.
Matthew Eliot Clark: Noted I mean natural gas certainly is a little bit of it.
Matthew Eliot Clark: And I think that we have some savings that we've been driving through our supply chain and some of it to go supplies and things like that so it's been a focus obviously the other opex was a little bit bumpy. So we've been paying attention to that and I think our efforts are paying off.
Brian Michael Vaccaro: All right, I'll pass it along. Thank you.
Speaker Change: Alright, I'll pass it along thank you.
Jim Salera: Our next question comes from Jim Salera with Stevens. Please go ahead.
Brian Michael Vaccaro: Our next question comes from Jim <unk> with Stephens. Please go ahead.
Jim Salera: Hey guys, good afternoon. Thanks for taking our question. I wanted to drill down a little bit on North Italia. Can you just walk through the daypart trends, maybe how customers are interacting with the brand, you know, lunch, first dinner, daypart?
James Ronald Salera: Hey, guys. Good afternoon, Thanks for taking my question.
James Ronald Salera: I wanted to drill down a little bit on North Italia.
Jim Salera: <unk> walked through the day part trends, maybe how customers are interacting with the brand lunch versus dinner day part.
David M. Gordon: Sure. Jim, this is David.
Jim Salera: Sure.
Jim Salera: Jim This is David I think that it's been pretty steady and stable.
David M. Gordon: It's probably about a $35 65 mix lunch to dinner at north.
David M. Gordon: I think that it's been pretty steady and stable. It's probably about a 35-65 mix lunch to dinner at North, and it has been that way even prior to our acquisition. One of the areas of growth at North that I think is interesting to point out is just the off-premise growth over time. Off-premise sales at North were 14% in the quarter, which I think is the highest quarter that we've had, so we're pretty excited to see that. I think our partnership with DoorDash, some of the marketing benefits we get, has been helpful to North, but as far as daypart mix is concerned, it's been pretty steady and remains very steady.
David M. Gordon: And it has been that even prior to our acquisition.
David M. Gordon: One of the areas of growth at North I think thats interesting to point out is just the off premise growth overtime.
David M. Gordon: Off premise sales at North <unk>.
David M. Gordon: <unk>, 14% in the quarter, which I think is the highest quarter that we've had so we're pretty excited to see that I think our partnership with door dash some of the marketing benefit we get it's been helpful. The north but as far as day part mix has been it's been pretty steady and remains very steady.
David M. Gordon: Okay, that's great. And if I can ask you a follow-up question just on the new units, I believe a slight beat versus street plus reiterated guidance, which is all great. Are you seeing the permitting environment improve or anything behind the scenes? Maybe you guys have kind of extended your expectations.
Speaker Change: Okay, that's great.
Speaker Change: And if I could ask you a follow up just on the new units.
David M. Gordon: I believe slight beat versus street was reiterated guidance. This is all great.
David M. Gordon: I know when we've talked with other operators, some of them still have some permitting issues, and other ones seem to have gotten around that. So any color there would be helpful.
David M. Gordon: Are you seeing the permitting environment improve or anything behind the scenes. Maybe you guys are kind of extended out expectations I know when we've talked with other operators some of them still have some permitting issues and other ones you can do.
David M. Gordon: Around that so any color there would be helpful.
David M. Gordon: Sure, I think we feel confident in up to 22 restaurants this year, and permitting, you know, in some cities, maybe still a slight challenge, but nothing like it was 12 months ago. The latest update was we had a restaurant in Houston that was having permitting challenges, but those are moving quickly. So some of those tougher cities maybe are still a little bit of a challenge, but nothing that's going to keep us from hitting the target for this year. And certainly so much more stable than they were even 12 months ago, from permitting to equipment, supplies, et cetera, and even the labor force to actually work on construction. We feel pretty confident.
Speaker Change: Sure I think we feel confident in the up to 22 restaurants, this year and permitting in some cities may be still a slight challenge, but nothing like it was 12 months ago.
David M. Gordon: <unk> update was we had a restaurant in Houston that was having permitting challenges, but those are moving quickly. So some of those tougher cities, maybe you're still a little bit of a challenge, but nothing thats going to keep us from hitting the target for this year and certainly so much more stable than they were even 12 months ago from permitting to equipment.
David M. Gordon: Applies et cetera, and even labor force to actually work on construction, we feel pretty confident.
David M. Gordon: Okay, that's great. Thank you guys. I'll be back in the queue.
Speaker Change: Okay, that's great Hey, guys call back in the queue.
Jon Michael Tower: Our next question comes from John Tower with Citigroup. Please go ahead.
David M. Gordon: Our next question comes from Jon Tower with Citigroup. Please go ahead.
Jon Michael Tower: Great, thanks for taking the question. Maybe I'll just start on the marketing side. I know as a percentage of your total revenue, it stepped up by about 30 basis points in 2023, or about $10 million in total. And I think some of the 10K suggested rewards were a big driver of that, but I'm just curious to hear your thinking around the spend in 2024. And, you know, do you feel like there's any sort of need to respond in terms of building up your brand awareness in front of consumers in the face of what's going on across the industry, with many other, you know, casual dining concepts out there blasting the airwaves right now with kind of price point promotions and building brand awareness that way?
Jon Michael Tower: Great. Thanks for taking the question.
Jon Michael Tower: Maybe I'll just start on the marketing side.
Jon Michael Tower: As a percentage of your total revenue and stepped up by about 30 basis points in 2023 were about $10 million in total and I think for some of the.
Jon Michael Tower: 10-K suggested rewards is the big driver of that but I'm, just curious to get your thinking around the spend in 2024.
Jon Michael Tower: Do you feel like there's any sort of need to respond in terms of building up your brand awareness in front of consumers in the face of what's going on across the industry with many other.
Jon Michael Tower: Casual dining concepts out there lasting the airways right now kind of price point promotions and building brand awareness that way.
David M. Gordon: Well, I think I'll just start by addressing the, again, the second half of your question. This isn't the first time that we've seen our competitors have a heightened promotion environment. And we are pleased with our performance historically during those times. And even if we look at, as Matt said, towards the end of the quarter, how strong our traffic was, we certainly are not going to change our promotional environment and become the concept that's doing more discounting because of what we see in the marketplace.
Speaker Change: Well I think I'll just start by addressing the again in the second half of your question. This isn't the first time that we've seen our competitors have a heightened promotional environment.
David M. Gordon: And we are pleased with our performance historically during those times and even if we look at what as Matt said towards the end of the quarter. How strong our traffic was we certainly are not going to change our promotional environment.
David M. Gordon: Become the concept, it's doing more discounting because of what we see in the marketplace.
David M. Gordon: Gives me in the marketplace. So our plan is to stick to our knitting and continue to learn from the rewards program.
David M. Gordon: So our plan is to stick to our knitting, continue to learn from the rewards program, continue to look at all three phases of that program, the published offers, the unpublished offers, and the marketable offers throughout time, and leverage the data as we continue to gather it to be as strategic as possible with our marketing to build on the one-to-one relationship that we're hoping to continue to have with our guests to drive some incremental revenue throughout that the rewards program and do it at a level that's margin neutral for us.
David M. Gordon: To look at all three phases of that program. The published offer as the Unplugged. This published offers and the marketable offers throughout time and leverage the data as we continue to gather it to be a strategic as possible with our marketing.
David M. Gordon: Hold on the one to one relationship that we're hoping to continue to have with our guests to drive some incremental revenue.
David M. Gordon: Throughout that the rewards program and do it.
David M. Gordon: Level Thats margin neutral for us.
Jon Michael Tower: Got it. In terms of thinking about the rewards program itself, I know you mentioned it's early days, and you're not necessarily, or at least you had talked about the idea of having relatively low expectations for it. However, it seems to be exceeding expectations in terms of signups and such. Can you just talk about, perhaps, how it might be impacting them? Are you seeing greater frequency of use from these consumers early on in the program, or are you seeing greater spend when they come in versus what you were anticipating?
Speaker Change: Got it.
David M. Gordon: In terms of thinking about the market.
Jon Michael Tower: Rewards program itself I know you had mentioned, it's early days and you're not necessarily or at least you had.
Jon Michael Tower: Talked about the idea of having relatively low expectations for it however, it seems to be exceeding the expectations in terms of sign ups and such can you just talk about perhaps how it might be impacting that are you seeing greater frequency of use from these consumers.
Jon Michael Tower: Early on in the program.
Jon Michael Tower: Okay.
Jon Michael Tower: Or are you seeing greater spend when they are coming in versus what you were anticipating.
David M. Gordon: Sure, without getting into too much detail, I can tell you that our early results certainly show some incremental visits and see some new guest visits. So we find that to be very promising. We have a high email opt-in rate, well above 90% for those guests that are engaging with the program. We see our NPS scores for guests that are in the program being even better than our already highest NPS scores that we've seen historically. So everything about the program thus far seems to be trending in a very, very positive fashion, and we're excited to be able to share more once we decide to do so in the coming quarters.
Speaker Change: Sure without getting into too much detail I can tell you that.
David M. Gordon: Our early results certainly see some incremental visits and see some new guest visits so we find that to be very promising.
David M. Gordon: We have a high.
David M. Gordon: E mail opt in rate well above 90% for those guests that are engaging with the program. We see our NPS scores for guests that are in the program.
David M. Gordon: Being even better than our already highest NPS scores that we've seen historically, so everything about the program. Thus far seems to be trending in a very very positive fashion and we're excited to be able to share more once we decided to do that in the coming quarters.
Jon Michael Tower: Got it. Thank you. And then just last one for me, maybe Matt, you can touch on what was going on with G&A in the quarter. I think you guided at the higher end of the range of 58 million, and it came in closer to 60. You know, what might have hit that during the period?
Speaker Change: Got it. Thank you and then just last one for me maybe Matt you could touch on what was going on the G&A in the quarter. I think you had guided at the higher end of the range of $58 million and came in closer to 60.
Jon Michael Tower: What might hit that during the period.
Matthew Eliot Clark: Yeah, really, John, as I said, we had some legal settlement, it was about half of that delta, and then there's a little bit of timing. I think we're going to be fine for the year, we'll make that back up, but just a few things that came in that we anticipated at different periods during the year, so it was really non-core spending.
Matt: Yes, really John is that we.
Matthew Eliot Clark: We had a legal settlement that was about half of that Delta and then theres a little bit of timing I think we're going to be fine for the year will make that back up but just a few things that came in that we anticipated at different periods. During the year. So it was it was really non core spending.
Jon Michael Tower: Okay, thanks for taking the question.
Speaker Change: Okay. Thanks for taking the questions.
Jeffrey Andrew Bernstein: Our next question comes from Jeffrey Bernstein with Barclays. Please go ahead.
Jon Michael Tower: Our next question comes from Jeffrey Bernstein with Barclays. Please go ahead.
Jeffrey Andrew Bernstein: Yeah.
Jeffrey Andrew Bernstein: Great, thank you. The first question is on the Unigrowth Outlook. Great to hear that you did five in the first quarter, five in the second, hopefully, and pretty steady in the back half. That's quite an anomaly.
Jeffrey Andrew Bernstein: Great. Thank you.
Jeffrey Andrew Bernstein: First question is just on the unit growth outlook, it's great to hear that you did five in the first quarter five in the second hopefully in pretty steady in the back half that's quite an anomaly.
David M. Gordon: Just wondering, as you think about going into next year. Not looking for guidance per se, but would you expect that you could accelerate the number of openings next year? And if so, which brand do you see having the strongest demand and whether you have more of a portfolio to choose from? Just wondering which brand you see as having the greatest upside as we think going into next year.
Jeffrey Andrew Bernstein: I'm just wondering as you think about going into next year.
David M. Gordon: Not looking for guidance per se, but would you expect that you could accelerate the number of openings next year.
David M. Gordon: So which brand do you see having the strongest demand now that you have more of a portfolio to choose from just wondering which brand you see as having the greatest upside as we think going into next year.
David M. Gordon: Thanks Jeff, this is David again. Well, we're certainly not going to get too far ahead of ourselves and talk about how many we might have for next year, but I think what's most important is that, whether it's North Italia, Flower Child, or Cheesecake Factory, the demand for those concepts from landlords remains very, very high. So we're still getting real estate opportunities, and we have enough brands, including Culinary Dropout, to be able to fit the needs of those landlords, everywhere from 3,500 square feet all the way up to 10,000. So that's why we have such a positive outlook on the potential for next year and certainly still feel pretty good about our unit growth target of 7%.
David M. Gordon: Thanks, Jeff This is David again, while we're certainly not going to get too far over our skis and talk about how many we might have for next year, but I think what's most important is that whether its north Italia flower child or Cheesecake factory the demand for those concepts from landlords remains very very high so we're still getting a site.
David M. Gordon: Real estate opportunities and we have enough brands, including culinary dropout.
David M. Gordon: You're able to fit the needs of those landlords everywhere from 3500 square feet, all the way up to 10000.
David M. Gordon: That's why we have such a positive outlook on the potential for next year and certainly still feel pretty good about our unit growth target of seven 7% annual unit growth.
Jeffrey Andrew Bernstein: And then just, Matt, you gave that low single digit; I think the mid single digit blended inflation for the full year. I was wondering if you could share specifically on the first quarter and the second quarter for both commodities and labor, just kind of where that settles out or where you're expecting it to settle out within that broad range that you gave for the full year and the pricing, I guess, to offset that. Yeah, yeah, sure, Jeff.
David M. Gordon: Understood.
Speaker Change: And then just Matt you gave that low single digit I think mid single digit blended inflation for the full year.
Matt: Just wondering if you can share specifically on the first quarter.
Jeffrey Andrew Bernstein: In the second quarter for both commodities and labor, just kind of where that settles out or what you're expecting it to settle out within that broad range that you gave for the full year.
Matt: Sure I guess to offset that yes, yes.
Matthew Eliot Clark: So in the first quarter, commodities were like zero to one, and labor was around the mid-fours. And I would say commodities for the second quarter were probably one-ish, so just maybe a half a percent more, something like that. I mean, it's obviously a little bit of an illusion of precision here, but, and I would say, you know, labor is probably in the four to five range as well, and the pricing that you'd expect. So we're
Matt: So first quarter or the commodities were like zero to one.
Matthew Eliot Clark: And labor was around the mid fours.
Matthew Eliot Clark: And I would say commodities for the second quarter, probably one ish. So just maybe I'll have a present more something like that I mean, it's obviously a little bit of illusion of precision here, but and I would say labor is probably in the four to five range as well.
Matthew Eliot Clark: The pricing that you would expect.
Jeffrey Andrew Bernstein: So, we're going to run, probably about four-ish.
Matthew Eliot Clark: So we're going to run probably about four ish.
Jeffrey Andrew Bernstein: Okay.
Jeffrey Andrew Bernstein: Great, thank you very much.
Speaker Change: Great. Thank you very much.
Jeffrey Andrew Bernstein: Okay.
Brian James Harbour: Your next question comes from Brian Harbour with Morgan Stanley. Please go ahead.
Jeffrey Andrew Bernstein: Your next question comes from Brian Harbor with Morgan Stanley. Please go ahead.
Brian James Harbour: Yeah, thanks. Good afternoon.
Brian James Harbour: Yes, thanks, good afternoon.
Matthew Eliot Clark: Matt, I'm kind of a four-wall margin guy. You know, you had a nice year over year improvement, right? Kind of in excess of, I think, what you'd previously hoped for for this year, and it sounds like some of what you're seeing are, you know, structural drivers that could be sticky. Do you think, you know, do you think that could continue in the coming quarters? You know, maybe commodities will pick up a bit, but what are some of the puts and takes on four-wall margins, just the bigger picture? Yeah.
Brian James Harbour: Matt.
Brian James Harbour: And kind of four wall margins.
Matthew Eliot Clark: You had nice year over year improvement kind of in excess of I think.
Matthew Eliot Clark: What you had previously hoped for for this year and it sounds like some of what Youre seeing or.
Matthew Eliot Clark: Structural drivers that could be sticky do you think.
Matthew Eliot Clark: Do you think that could continue and in coming quarters, maybe commodities pick up a bit but what are some of the puts and takes on four wall margins just bigger picture.
Brian James Harbour: Yeah, I mean, I think a lot of it is structural. We fully caught up with pricing last year, and so you're seeing some of that just benefit, like cost of sales where the commodities have normalized and it's lapping, but a lot of it is operational execution, the stability of the labor force really driving productivity and flow through the four walls, and that certainly should be sticky. You know, I think our outlook expects that we will continue to have year-over-year margin gains throughout the balance of this year.
Matt: Yes, I mean, I think a lot of it is structural certainly.
Brian James Harbour: We fully caught up with pricing last year, and so youre seeing some of that just benefits like cost of sales, where the commodities have normalized it's lapping.
Brian James Harbour: But a lot of it is operational execution.
Brian James Harbour: Ability of the Labor force really driving productivity and flow through in the four walls.
Brian James Harbour: That certainly should be sticky.
Brian James Harbour: I think our outlook.
Brian James Harbour: <unk> expects that we will continue to have year over year margin gains throughout the balance of this year.
Brian James Harbour: And how.
Matthew Eliot Clark: How much of it was... How much did it kind of differ by brands? Did you, you know, see more of a swing for some of the non-cheesecake brands? Are some of those kind of starting to perform better, or how should we think about brands? I think it was pretty consistent.
Brian James Harbour: How much of it was.
Matthew Eliot Clark: How much does it differ by brand did you see more of a swing for.
Matthew Eliot Clark: Some of the non cheesecake brands or some of those kind of starting to perform better or how should we think about brand mix in that.
Brian James Harbour: I think it was pretty consistent with our expectations, you know, where we saw just everywhere a little bit better. Right?
Matthew Eliot Clark: I think it was pretty consistent to our expectations, where we saw.
Brian James Harbour: Everywhere, a little bit better right, certainly cheesecake is 75% to 80% of the business and so thats. The single biggest driver in those margins provide the most incremental dollars, but as David Gordon mentioned flower child had very strong sales and deliver great margins in the quarter too.
Matthew Eliot Clark: You know, certainly Cheesecake is 75 to 80 percent of the business, and so that's the single biggest driver, and those margins, you know, provide the most incremental dollars. But, you know, as David Gordon mentioned, Flower Child had very strong sales and delivered great margins in the quarter, too. So, you know, we're pretty pleased with the whole portfolio at this point.
Matthew Eliot Clark: So we're pretty pleased with the whole portfolio at this point.
Matthew Eliot Clark: Thanks.
Lauren Danielle Silberman: Our next question comes from Lauren Silberman with Deutsche Bank. Please go ahead.
Matthew Eliot Clark: Our next question comes from Lauren Silberman with Deutsche Bank. Please go ahead.
Matthew Eliot Clark: Thanks for the question and congrats on the quarter. Can you talk about whether you're seeing any differences across regions? And then, specific to California, a lot of the restaurant industry raised prices in response to the wage raise. Are you seeing any benefits from that or any pressure in the market at all?
Lauren Danielle Silberman: Thanks for the question and congrats on the quarter can you talk about whether youre seeing any differences across regions and then does it make the California, a lot of the restaurant industry raised prices in response.
Matthew Eliot Clark: Yes.
Matthew Eliot Clark: Are you seeing any benefit from that or incremental.
Matthew Eliot Clark: And the market at all.
Lauren Danielle Silberman: Hey, everyone, this is Matt. I mean, I don't think we've seen very big differences geographically, other than the weather, you know, because that can certainly impact sectors for the temporary. But, you know, it's pretty consistent. In California, specifically, I don't think we've noticed a real difference. Again, I think, as David Gore mentioned, it's pretty early. So we'll see, you know, if that plays out. But, generally speaking, I think business has been pretty consistent and predictable.
Matthew Eliot Clark: Hey, John this is Matt.
Matthew Eliot Clark: I don't think we've seen very big differences geographically other than the weather because that can certainly impact.
Lauren Danielle Silberman: Sectors for temporary but.
Lauren Danielle Silberman: It's pretty consistent.
Lauren Danielle Silberman: In California, specifically I don't think we've noticed a real difference again I think as <unk>.
Lauren Danielle Silberman: Gordon mentioned, it's pretty early.
Lauren Danielle Silberman: So we will see.
Lauren Danielle Silberman: If that plays out but.
Lauren Danielle Silberman: But generally speaking I think business has been pretty consistent and predictable.
Lauren Danielle Silberman: Great, thanks. And then on just the North Italian margin, how do you feel about the path to close the margin gap to Cheesecake?
Speaker Change: Great. Thanks, and then on just the North Italia Morgan how are you feeling about the path to close the margin gap to cheesecake.
Matthew Eliot Clark: Thank you. Sure. Yeah, I think we feel good about that.
Lauren Danielle Silberman: Yeah.
Speaker Change: Sure, Yes, I think we feel good about that if you kind of look at.
Matthew Eliot Clark: Where it does.
Matthew Eliot Clark: It doesn't always sync up quarter to quarter because of the pricing actions are different between the brands and so.
Matthew Eliot Clark: Sometimes it can just be off a little bit and certainly on the total margin.
Matthew Eliot Clark: Sure, yeah, I think we feel good about that. You know, if you kind of look at where it's at, it doesn't always sync up quarter to quarter because the pricing actions are different between the brands. And so sometimes they can just be off a little bit. And certainly on the total margin, we basically had four brand new restaurants in the quarter, two from really late in December and two that we opened.
Speaker Change: We basically have four brand new restaurants in the quarter to two from really late in December and through that we opened in so.
Matthew Eliot Clark: And so, you know, as we've always said, the gap from the mature to the total with North can be three or 4% different just based on the cadence of the openings. So we feel like it's basically right on track and, you know, normalizes over the course of a full year.
Matthew Eliot Clark: As we've always said the gap from the mature to the total with more of it can be three or four present different just based on the cadence of the openings. So we feel like it's basically right on track and normalizes over the course of a full year.
Speaker Change: Thank you very much.
Dennis Geiger: Our next question comes from Dennis Geiger with UBS. Please go ahead.
Matthew Eliot Clark: Our next question comes from Dennis Geiger with UBS. Please go ahead.
Dennis Geiger: Great. Thank you. I just wanted to ask another question on pricing and sort of anything you'd call out that you're seeing from a pricing perspective and any sort of resistance from the customer at all. And then, Matt, if you gave the two clues, as we think about the rest of the year on the pricing side, do we just kind of assume continued moderation in that pricing level over the balance of the year?
Dennis Geiger: Great. Thank you just wanted to ask another on pricing and sort of anything you'd call out that youre seeing from a pricing perspective, and any sort of.
Dennis Geiger: Resistance from the customer at all and then Matt I think you gave the <unk> as we think about rest of year on the pricing side, we just kind of assume continued.
Dennis Geiger: Moderation in that pricing level over the balance of the year.
Matthew Eliot Clark: Yeah, I mean, I would still just use about 4%, you know, we take it twice a year. We haven't finally decided, you know; that's still in the process. But I think just for modeling purposes, that's probably a good number.
Matt: Yes, I mean, I think just I would still just use about 4%.
Matthew Eliot Clark: I mean, we take it twice a year, we havent finally decided that's still in process, but I think just for modeling purposes, that's probably a good a good number.
Matt: From our perspective.
Dennis Geiger: And, you know, I mean, from our perspective, with flat traffic, obviously, the guests are coming in the door the same as they were before, despite the pricing. And so I think that's a positive. We understand the mix; it's behaving like we thought it would. So, you know, they're not changing their behaviors; it's kind of just normalizing. So, you know, overall, I think that we think that, you know, our guests appreciate the value of Cheesecake Factory and North and all of our brands, based on the quality, the portion sizes, all of the things that have endured for nearly 50 years, and people come back to their favorites, you know, and so I think that's what it is
Matthew Eliot Clark: With flat traffic obviously, the guests are coming in the door the same as they were before.
Dennis Geiger: Despite the pricing and so I think that's a positive we understand the mix, it's behaving like we thought it would be so.
Dennis Geiger: They're not changing their behaviors, it's kind of just normalizing.
Dennis Geiger: So overall I think that we think that our guests appreciate the value of Cheesecake factory in northern all of our brands based on the quality portion sizes all of the things that have endured for nearly 50 years and people come back to their favorites and so I think that's what's happening.
Dennis Geiger: That's great! And one quick follow-up, I guess, just on that point, Matt, and I think you talked to Mix earlier, where I think both the alcohol and sort of broader attachment, you know, it's a little bit more lapping the exuberance from prior years, and you're still above 19, so essentially, really not seeing any observable trade-down behavior, you know, from any cohort of guests, forget alcohol, even sort of on sides No, I would say we're not. Yeah, that's correct.
Speaker Change: That's great and one quick follow up I guess, just on that point, Matt and I think you talked to mix earlier, where I think both the alcohol and sort of broader attach.
Dennis Geiger: It's a little bit more lapping the exuberant from prior years and Youre still above 19, essentially really not seen any.
Dennis Geiger: <unk> trade down behavior.
Dennis Geiger: From any cohort of guests forget alcohol, even sort of on site et cetera.
Dennis Geiger: Not seeing that basically.
Speaker Change: No Thats fair.
Dennis Geiger: I would say, we're not yes, that's correct.
Speaker Change: Okay. Thanks, Matt appreciate it.
James Jon Sanderson: Our next question comes from Jim Sanderson with North Coast Research. Please go ahead.
Dennis Geiger: Our next question comes from Jim Sanderson with Northcoast Research. Please go ahead.
James Jon Sanderson: Hey, thanks for the question. I wanted to follow up a little bit more on G&A spending. I think the way Guide is looking, that's going to outpace revenue growth for this year, but maybe you could talk a little bit more about how you're managing that line item, and what we should expect as far as potential for leverage going forward.
James Jon Sanderson: Hey, Thanks for the question I wanted to follow up a little bit more on G&A spending I think.
James Jon Sanderson: The way guide is looking thats going to outpace revenue growth for this year, but maybe you could talk a little bit more about how you're managing that that line item, but we should expect as far as.
James Jon Sanderson: Angel for leverage going forward.
Matthew Eliot Clark: Sure. Like I said, for the quarter, we had a couple of items that were sort of out of pocket. But I think, generally, our goal is to try to get back towards a 6% level. And sometimes just the timing of the spend versus the timing of openings or revenue can just be, you know, a little bit different on the margin side.
Speaker Change: Sure like I said for the quarter, we had a couple of items that were sort of out of pocket, but I think generally our goal is to try to get back towards the 6% level and sometimes it's just the timing of the spend versus the timing of openings of revenue can just be a little bit different on the margin side. So.
Matthew Eliot Clark: That's still our goal I think we do a good job of managing the core functions of the business.
James Jon Sanderson: So that's still our goal. I think we do a good job of managing, you know, the core functions of the business. And I'm, you know, pretty confident that we'll get that aligned in the next year or two.
James Jon Sanderson: I'm pretty confident that we will get that aligned in the next year or two.
James Jon Sanderson: All right, a quick follow-up question on North Italy. Could you provide traffic and check mix or traffic checks?
Speaker Change: Alright and quick.
Speaker Change: Follow up question on North Italia could you provide.
James Jon Sanderson: Traffic and check mix or traffic.
James Jon Sanderson: Traffic.
David M. Gordon: As in, do you have that? I do. Okay.
James Jon Sanderson: Okay.
James Jon Sanderson: And then do you have.
Speaker Change: Okay traffic was negative 1% for the first quarter price was 8% and mix was negative 4% alright. Thanks, everybody. We would add the same comment where they were also impacted just like cheesecake. So I think we would've been in positive traffic territory for work for the weather.
David M. Gordon: Traffic was negative 1% for the first quarter. Price was 8%, and mix was negative 4%. And I would say we would add the same comment where, you know, they were also impacted, just like Cheesecake. So, you know, I think we would have been in positive traffic territory if it weren't for the weather in January.
Speaker Change: Yep understood Alright.
David M. Gordon: Okay.
Rahul Kuthrapalli: Our next question comes from...
James Jon Sanderson: Yep, understood. All right. Thank you. Our next question comes from Rahul Kuthrapalli with J.P. Morgan. Please go ahead. Hey guys, um, I just wanted to ask about the kitchen displays.
David M. Gordon: Our next question comes from Robert <unk> with Jpmorgan. Please go ahead.
Rahul Kuthrapalli: Hey, guys.
Rahul Kuthrapalli: Just wanted to ask on the kitchen display system can you discuss sort of quantify to the extent possible how much of the thorough but ops efficiency impact third yet earnings this quarter.
Rahul Kuthrapalli: Is this something new or did you have something in place for a while on the lines of kitchen management system.
Rahul Kuthrapalli: If this is just a fully blown up Greg.
Rahul Kuthrapalli: What does the pace of rollout.
David M. Gordon: Hi, Raul. This is David.
James Jon Sanderson: Hi, Ross this is David just for clarity the kitchen display system as it flower child is where we rolled that out we have had a kitchen display system at Cheesecake factory for numerous years.
David M. Gordon: Just for clarity, the kitchen display system at Flower Child is where we rolled that out. We have had a kitchen display system at Cheesecake Factory for numerous years. So the full rollout was probably done at the beginning of the quarter at Flower Child. And we're not sharing any of the data at this point, but we do know that it's made some good strides and benefits for the guest experience with throughput, the dining experience being faster than it was previously, and really allowing them to manage the throughput of off-premise and dine-in.
David M. Gordon: So the full rollout was probably done at the beginning of the quarter.
David M. Gordon: <unk> and we're not sharing any of the data at this point, but we do know that it's made.
David M. Gordon: Some good strides of benefits for the guest experience with throughput the dining experience being faster than it was previously and is really allowing them to manage the throughput of off premise and dine and because at flower child, Youre talking about a 55% off premise mix and one of our goals is to ensure that that high up time.
David M. Gordon: Because at Flower Child, you're talking about a 55% off-premise mix. And one of our goals is to ensure that that high off-premise mix does not extend the dine-in time for any guests that are coming in and dining with us. So it's been very beneficial to this point.
David M. Gordon: This mix does not extend the dine in time for any guests that are coming in and dining with us. So it's been very beneficial to this point and is fully rolled out at all the flower childs that we're including it in all of the new restaurants, as we opened them as well.
Speaker Change: That's helpful. Thanks, a lot.
Brian John Bittner: Our next question comes from Brian Bittner with Oppenheimer. Please go ahead.
David M. Gordon: Our next question comes from Brian Bittner with Oppenheimer. Please go ahead.
Brian John Bittner: Thanks. I apologize that this has already been addressed.
Brian John Bittner: But I'm going to ask it anyway, just on the margins, you know, the margin expansion was very impressive in light of a choppy sales environment out there. And I know you've talked a lot about some wins in the quarter that helped you outperform on the margin. But on that other operating expense line, you know, the leverage there was pretty unexpected and positive. And I think you mentioned utilities, and I think you mentioned to-go item packaging.
Brian John Bittner: Thanks.
Brian John Bittner: I apologize if this has been addressed.
Brian John Bittner: I'll ask it anyway, just on the margins.
Brian John Bittner: Margin expansion was.
Brian John Bittner: Very impressive.
Brian John Bittner: In light of a choppy sales environment out there and I know you've talked a lot about.
Brian John Bittner: Some wins in the quarter that helped you outperform on the margin, but on that other operating expense line.
Brian John Bittner: The leverage there.
Brian John Bittner: Was pretty unexpected and positive.
Brian John Bittner: And I think you mentioned utilities and I think you mentioned.
Brian John Bittner: To go item packaging are those pretty structural new.
Brian John Bittner: Are those pretty structural new opportunities that you are driving in that other OPEX line? And should we continue to expect this type of leverage in that line, because if you got it with sales slightly negative, and now sales are going to be, you know, better than that, I'm just curious if we're still going to get a lot of margin expansion from other operations.
Brian John Bittner: Opportunities that you are driving in that other opex line and should we continue to expect this.
Brian John Bittner: These type of leverage.
Brian John Bittner: And that line because if you got it with sales slightly negative and now sales are going to be better than that I'm. Just curious if we're still going to get a lot of margin expansion from other operating expenses.
Brian John Bittner: So, Brian, I think you got most of that right. But I think we would say, you know, look, the utility costs can vary outside of the control of the company, so that's not necessarily a permanent structure. You know, we'll see where that goes. Certainly, the supply chain savings will continue, but we're not factoring in any continued leverage in that line item at this point in time. If we can manifest and improve it, that'll be great, but I think, you know, we'll see how each quarter plays out. Certainly, we expect the cost of sales benefits to continue at a very meaningful rate, and we probably expect labor to be about equal, just like it was, so just kind of running through the P&L there.
Speaker Change: So Brian I think you got most of that right I think we would say.
Brian John Bittner: Look the utility costs can vary outside of the control of the company. So that's not necessarily a permanent structure, we will see where that goes to certainly the supply chain savings will continue but we're not factoring in any continued leverage in that line item at this point in time.
Brian John Bittner: If we can manifest and improve that that'll be great.
Brian John Bittner: But I think we will see how each quarter plays out certainly we expect the cost of sales benefits to continue at a very meaningful rate and we would probably expect labor to be about equal just like it was so I'm just kind of running through the P&L.
Brian John Bittner: And just on this flattish underlying traffic trend that you're speaking to, obviously, That's way better than the industry data. In this quarter, your same store sales were in line, while many are missing.
Speaker Change: And then just on this flattish underlying traffic trend that youre speaking to obviously.
Brian John Bittner: That's way better than the industry data.
Brian John Bittner: In this quarter.
Brian John Bittner: Your same store sales were in line.
Brian John Bittner: While many are missing.
Brian John Bittner: And I guess it just begs the question, you know, what do you think is setting you apart from your peers? Is it just simplicity? Your lack of exposure to that may be lowering your consumer appeal because obviously, as you know, most management teams are citing the low end consumers. Is it just that your portfolio position is such that that doesn't affect you as much? Or how would you unpack why you're driving such outperformance in the traffic? Well, well, you know, just in a
Speaker Change: And I guess it just begs the question.
Brian John Bittner: What do you think is setting you apart from your peers is it simply.
Brian John Bittner: Your lack of exposure to that maybe lowering consumer because obviously as you know most management teams are exciting the low end consumers or is it just is your portfolio positioned such where that doesn't affect you as much or how would you.
Brian John Bittner: Unpack why you're driving such outperformance on the traffic.
Matthew Eliot Clark: Well, you know, just an opinion. David Gordon touched on it earlier when he was talking about, you know, the environments that we've seen in 50 years come and go with advertising and consumers or whatnot. And I think the reality is that if you execute really well with a really great product, people are going to pick you over your competitor. And so that's what you tend to see is a flight to quality, right?
Brian John Bittner: Well.
Brian John Bittner: And opinion, I mean, David Gordon touched on it earlier.
Matthew Eliot Clark: He was talking about the environments that we've seen in 50 years come and go with advertising and consumers or whatnot and I think the reality is that if you execute really well with a really great product people are going to pick you or your competitor.
Matthew Eliot Clark: So that's where you tend to see is a flight to quality right. So if youre going out maybe a little bit less but you're going to want that to be really great.
Matthew Eliot Clark: So if you're going out, maybe a little bit less, but you're going to want that to be a really great, you know, experience. And so I think that's what we deliver, and I think that's the big difference.
Matthew Eliot Clark: Experience and so I think thats, what we deliver and I think that's the big difference.
Matthew Eliot Clark: Thanks.
Operator: There are no further questions at this time. This will conclude today's conference call. Thank you all for your participation. You may now disconnect.
Speaker Change: There are no further questions at this time this will conclude today's conference call. Thank you all for your participation you may now disconnect.
Operator: Yeah.
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Operator: Yeah.