Q3 2024 Cheesecake Factory Inc Earnings Call
Krista: Ladies and gentlemen, thank you for standing by. My name is Krista and I will be your conference operator today.
Krista: At this time, I would like to welcome everyone to the cheesecake factory incorporated 3rd quarter, 2020 floor earnings conference call.
Krista: All lines have been placed on you to prevent any background noise. After this speaker's remarks, there will be a question and answer session.
Krista: If you like to ask a question during this time, simply press star, follow the number one on your telephone keypad.
Speaker Change: and if you would like to withdraw that question, I again pressed our one. Thank you. I would now like to come to conference over to Etienne Marcus, Vice President of Investor Relations. You may begin.
Etienne Marcus: Good afternoon and welcome to our third order of fiscal 2024 earnings call. On the call with me today, our 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: 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 meeting 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 and today's press release, which is available on our website at investors.thecheescakebacktree.com and in our filings with the Securities and Exchange Commission.
Etienne Marcus: All forward-looking statements made on this call speak only as a 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.
Speaker Change: David Overton will begin today's call with some opening remarks and David Gordon will provide an operational update. Matt will then review our third quarter financial results and provide commentary on our financial outlook before opening a call to questions.
Etienne Marcus: With that, I'll turn the call over to David Overton.
David Overton: Thank you, Etienne. In the third quarter, we once again delivered strong and dependable results with stable revenue, solid operational execution and substantial profitability growth.
David Overton: To this point, Cheesecake Factory Restaurant's comparable sales and traffic again meaningfully outperformed the industry, underscoring the strength and consistency of consumer demand for our brand and our ability to capture market share.
David Overton: Solid sales and exceptional operational execution in the quarter resulted in adjusted earnings per share growth of 49% from the prior year.
David Overton: Over the past four quarters, we have delivered cumulative adjusted earnings per share growth of over 31% versus the prior four quarters.
David Overton: Turning to development, we successfully opened four restaurants in the third quarter, including three FRC restaurants and one Flower Child location.
David Overton: Subsequent to Quarter End, we opened three restaurants in North Italia and a Blanco in Phoenix and our first flower chow in Salt Lake City.
David Overton: With 17 restaurant openings so far this year, we're well positioned to meet our objective of opening as many as 22 new restaurants in 2024.
David Overton: Looking ahead to 2025, we expect to further accelerate our unit growth with the opening of as many as 24 new restaurants across our portfolio of concepts.
David Overton: Before handing it over to David, I'd like to briefly provide some perspective on our approach to value creation. Our focus on delivering value to our shareholders means we're always evaluating opportunities for our concepts.
David Overton: In the restaurant industry, scale and timing are key factors for their consideration in evaluating how to maximize the value creation potential of our company.
David Overton: The results announced today demonstrate the power our larger platform provides, reinforcing our confidence in the future.
David Overton: in our strategy to drive sustainable growth and value going forward. Looking ahead, we will continue to review and optimize our portfolio as we have in the past as we remain committed to achieving our goals and maximizing shareholder value over the long term.
Speaker Change: With that, I will now turn the call over to David Gordon to provide an operational update.
David Gordon: Thank you, David. Our excellent staffing position, supported by strong staff engagement and industry-leading staff and management retention, has enabled our tenured operators to maintain their focus on the fundamentals of the restaurant industry.
David Gordon: Great food, great service, and great ambiance.
David Gordon: as well as on reinforcing the operational standards that the Cheesecake Factory has been built on. And we are seeing these improvements in virtually every key facet of operations.
David Gordon: including record high guest satisfaction scores across all Dine-In and To-Go metrics.
David Gordon: which we believe continues to contribute to both comparable sales and traffic, meaningfully exceeding the Black Box Casual Dining Index by 310 and 380 basis points respectively in the third quarter.
David Gordon: Additional operational benefits include better-than-expected flow-through, labor productivity, overtime and wage management, and lower food waste, which are contributing to improved restaurant level margins.
David Gordon: Cheesecake Factory restaurant level margins for the quarter improved by 180 basis points from Q3 of 2023 and have averaged 16.4 percent over the past four quarters within our long-term margin target of 16 to 18 percent.
David Gordon: Now turning to sales trends, Cheesecake Factory off-premise sales remain stable at 21% of sales for the third quarter, which annualized equates to 2.5 million dollars in off-premise sales per restaurant, nearly double the average of our next closest peer.
David Gordon: North Italia third quarter comparable sales increased 2% from the prior year resulting in annualized AUVs of 7.4 million dollars.
David Gordon: Importantly, restaurant level margin for the adjusted mature North Italia locations was 15%, a 250 basis point improvement from the prior year.
David Gordon: Flower Child average weekly sales were $85,200, up more than 6% from the third quarter of 2023.
David Gordon: Other Fox Restaurant concepts, annualized AUVs were $6.1 million.
David Gordon: and lastly,
David Gordon: We continue to be very pleased with the performance of the Cheesecake Rewards Program.
David Gordon: Demand continues to surpass our internal expectations, and we remain encouraged by the level of member activity and engagement that we are seeing, with guest satisfaction scores for members over-indexing, reinforcing our belief that we are on the right path.
David Gordon: As I have said in the past, and will continue to reiterate, we are developing the program very thoughtfully and deliberately with a long-term perspective.
David Gordon: That said, earlier results have demonstrated we are driving incremental visits from existing guests and attracting new guests. And with that, let me turn the call over to Matt for our financial review.
Matt Clark: Thank you, David.
Matt Clark: Let me first provide a high-level recap of our third quarter results versus our expectations I outlined last quarter. Total revenues of $865 million finished towards the higher end of the range we provided.
Matt Clark: Adjusted net income margin of 3.3% exceeded the high end of the guidance we provided. And we returned $14.2 million to our shareholders in the form of dividends and stock repurchases.
Matt Clark: Now, turning to some more specific details around the quarter.
Matt Clark: Third quarter total sales at the Cheesecake Factory restaurants were $647.8 million dollars.
Matt Clark: Up 3% from the prior year. Comparable sales increased 1.6% versus the prior year. Total sales for North Italia were $71.9 million. Up 15% from the prior year period.
Matt Clark: Other FRC sales totaled $67 million, up 14% from the prior year, and sales per operating week were $116,500.
Matt Clark: Flower Child sales totaled $36.6 million, up 14% from the prior year, and sales per operating week were $85,200.
Matt Clark: and External Bakery Sales for $14.9 million.
Matt Clark: Now moving to year-over-year expense variance commentary.
Matt Clark: In the third quarter, we continued to realize improvement across several key line items in the P&L.
Matt Clark: Specifically, cost of sales decreased 90 basis points, primarily driven by higher menu pricing than commodity inflation.
Matt Clark: Labor, as a percent of sales, decreased 40 basis points.
Matt Clark: primarily supported by menu pricing leverage relative to labor inflation and labor productivity improvements partially offset by higher health insurance costs mostly related to high cost claims in the quarter.
Matt Clark: Pre-opening costs were $7 million in the quarter compared to $6.7 million in the prior year period.
Matt Clark: We opened four restaurants during the third quarter versus two restaurants in the third quarter of 2023.
Matt Clark: Note that last year we experienced some higher pre-opening costs relative to the number of openings due to delays in opening dates.
Matt Clark: And, in the third quarter, we recorded pre-tax net income of $2.5 million primarily related to lease terminations.
Matt Clark: Third quarter GAAP diluted net income per share was $.61. Adjusted diluted net income per share was $.58.
Matt Clark: The company ended the quarter with total available liquidity of approximately $289 million including a cash balance of about $52 million and approximately $237 million available on a revolving credit facility.
Matt Clark: Total debt outstanding was unchanged at 475 million dollars in principle.
Matt Clark: CapEx totaled approximately $54 million during the third quarter for new unit development and maintenance.
Matt Clark: During the quarter, we completed approximately $1.1 million in share repurchases and returned $13.1 million to shareholders via our dividend. Now let me shift to our outlook.
Matt Clark: While we will not be providing specific comparable sales and earnings guidance, we will provide our updated thoughts on our underlying assumptions for Q4 2024 and full year 2025.
Matt Clark: The assumptions factor in everything we know as of today, which includes net restaurant counts,
Matt Clark: quarter-to-date trends
Matt Clark: What we think will happen in the weeks ahead and the effect of any impacts associated with holidays and assumes no material, operating, or consumer disruptions.
Matt Clark: For Q4, we anticipate total revenues to be between $905 and $915 million. Next, at this time, we expect effective commodity inflation of low single digits for Q4 as our broad market basket remains very stable.
Matt Clark: We are modeling net total labor inflation of low to mid-single digits when factoring in the latest trends in wage rates and minimum wage increases, as well as other components of labor.
Matt Clark: G&A is estimated to be about $58 million. Depreciation is estimated to be approximately $26 million.
Matt Clark: Based on these assumptions, we would anticipate adjusted net income margin to be about 4.8 to 4.9 percent based on the sales range we provided.
Speaker Change: With regard to development, as David Overton highlighted earlier,
Speaker Change: We plan to open as many as 22 new restaurants this year across our portfolio of concepts, with as many as eight openings in the fourth quarter. This includes as many as three Cheesecake Factories,
Speaker Change: Six North Italias, six to seven Flower Childs, and eight FRC restaurants.
Speaker Change: And we continue to anticipate approximately $180 million to $200 million in cash CapEx to support this year's and some of next year's unit development.
Speaker Change: as well as required maintenance on our restaurants. And for clarity, with approximately 20 to 25% of these expenses reflected in operating lease assets in the cash flow statement. Turning to fiscal 2025.
Speaker Change: Based on this year's performance, and assuming no material, operating, or consumer disruptions,
Speaker Change: We anticipate total revenues for fiscal 2025
Speaker Change: to be approximately $3.75 billion at the midpoint of our sensitivity modeling. We currently estimate total inflation across our commodity basket, labor, and other operating expenses to be in the low to mid-single-digit range.
Speaker Change: and fairly consistent across the quarters.
Speaker Change: We are estimating G&A to be about 10 basis points lower year-over-year as a percent of sales and depreciation to be about 106 million dollars for the year and Given our unit growth expectations. We are estimating pre-opening expenses to be approximately 30 million dollars
Speaker Change: Based on these assumptions, we would expect full-year net income margin to be approximately 4.75% of the sales estimate provided.
Speaker Change: For modeling purposes, we are assuming a 10-11% tax rate and weighted average shares outstanding relatively flat to 2024.
Speaker Change: With regard to development
Speaker Change: As David stated earlier, we plan to continue accelerating unit growth next year. As such, at this time, we expect to open as many as 24 new restaurants in 2025.
Speaker Change: And we would anticipate approximately $190 million to $210 million in cash capex to support unit development as well as required maintenance on our restaurants.
Speaker Change: This also includes our preliminary CapEx estimate for the initial phase of development.
Speaker Change: for the 3rd Bakery Facility.
Speaker Change: Note that the total CapEx estimated range assumes a similar mix of new restaurant openings by concept as 2024.
Speaker Change: In closing, we have delivered four consecutive quarters of strong results, including stable sales, solid operational execution, and excellent performance.
Speaker Change: and significant profitability growth. We are looking to build on this momentum to continue generating our historically consistent operational and financial results and to make further progress towards our goal of shareholder value creation. With that said, we'll take your questions.
Speaker Change: Thank you. If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. And if you'd like to withdraw that question, again press star 1.
Speaker Change: and please limit yourself to one question and one follow-up. Your first question comes from the line of Jim Salera with Stevens. Please go ahead.
Jim Salera: Thank you.
Jim Salera: Hey guys, thanks for taking our question.
Jim Salera: I really wanted to drill down on, maybe first of all, the components of same-source sales, just given that you guys continue to post really solid results in a
Jim Salera: more strained environments. So if you could just give like the breakdown for traffic mix pricing and how that kind of comes together.
Matt Clark: Sure, this is Matt. Pricing in the quarter was four and a half.
Matt Clark: Mixed was a negative 2.1 so continues to...
Matt Clark: Come down pretty much in line with what we've been expecting all year and then traffic was a negative 0.8 But really that was I would say related to July. I think what everybody saw we were Improving throughout the quarter flattish in in August and then positive traffic in September
Speaker Change: Okay, great. And I guess, you know, building off that, what do you think is driving the traffic trends, just given some of the softness that other full-service peers are experiencing? If you can just kind of touch on what you're seeing at your concepts relative to the broader industry.
Speaker Change: Hey Jim, this is David Gordon. I think number one, the stability of our staff retention and management retention and the restaurants has led to
Speaker Change: whether that's dine-in or in-off premise.
Speaker Change: So I think we're taking some market share just through execution. Our food quality is as good as it's ever been. Hospitality is as strong as it's ever been.
Speaker Change: I think we're seeing a little bit of incremental lift maybe from our rewards program, which has been good to see since we're still really in the first full year of executing that program.
Speaker Change: So I think some of our strategic marketing through the program is paying off. So probably those two things are the biggest attributes that has remained helping us see some consistent outperformance to the rest of the industry.
Speaker Change: That's great. Appreciate all the telecasts. I'll hop back into the queue.
Speaker Change: If you like that, I'm sorry, your next question comes from the line of Jeffrey Bernstein with Barclays. Please go ahead.
Speaker Change: Hi, this is Anisha Dat on for Jeff Bernstein. I wanted to ask about the consumer and if you've seen any change in behavior in recent months, whether that be by income cohort or any mixed changes. Thanks.
Speaker Change: Yeah, listen, Matt, you know, I think...
Speaker Change: Based on the sales commentary it's been
Speaker Change: Very consistent.
Speaker Change: I think across all of our concepts and certainly at the namesake Cheesecake Factory, really looking at day part or day of the week or attachment, I think everything has been pretty much as expected and, you know, slightly better in Q3 than in Q2, right? So I think all in all, the trends are stable, predictable, and improving.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of Drew North with Baird. Please go ahead.
Drew North: Great, thanks for taking the question. It was just regarding your portfolio approach to the business and your comments related to evaluating opportunities to maximize shareholder value.
Drew North: We've seen the media reports that one of your shareholders is pushing for you to possibly separate some of the growth brands from the core cheesecake factory business.
Drew North: and appreciate your proactive comments on the call but was wondering if you could expand on if you'd be willing to consider such a plan currently or in the future and maybe how that would work if it were a consideration.
Drew North: Drew, this is Matt. Thanks for the question. You know, certainly we're happy that our investors like our concepts and think that they have great potential. So I think first and foremost, I think that's important to note. I think the board...
Drew North: regularly reviews the portfolio and other strategic options to maximize shareholder value, so I don't think that's new, notwithstanding the recent media. That's something that happens on an ongoing basis.
Drew North: You know, as David Overton noted in the prepared remarks,
Drew North: We think we're doing a great job incubating these concepts.
Drew North: That there could be a time or place for further strategic assessments for them, but there's probably a little bit more development work that needs to go on. You're talking about concepts that have, you know, between 30 and 40 locations and $100 to $300 million.
Drew North: in sales. And so the ability of the Cheesecake Factory ecosystem to benefit those concepts at this point in time can't be underestimated. So we'll see what the future holds. But we will be open to reviewing and drive shareholder value and
Drew North: and believe that these concepts will continue to grow profitably and support our shareholders one way or another.
Speaker Change: Thanks for that perspective. And then one more, if I may, on the 2025 outlook. As it relates to unit development, where could we see the incremental openings as we think about 24 versus as many as 22 this year? And is there opportunity for a more balanced cadence of openings in 2025 relative to the back-weighted openings we've seen in recent years?
Speaker Change: Thanks Drew, this is David. Actually this year has been more balanced than it had been in previous years, so we're pretty enthused by that.
Speaker Change: And we do have some openings in the first quarter of next year, so we're hoping to continue to have a more balanced approach wherever we can.
Speaker Change: And as far as the actual concepts, it'll be very similar to this year.
Speaker Change: as far as how many Cheesecake Factories North, Flower Child, and FRC.
Speaker Change: So, similar cadence, similar amount of each one of the concepts to this year's numbers.
Speaker Change: Thank you. I'll hop back in the queue.
Speaker Change: Thank you. Thank you.
Speaker Change: Your next question comes from the line of Catherine Griffin with Bank of America. Please go ahead.
Catherine Griffin: Hi, thank you. My first question is on Flower Child. Last quarter, you gave some color on the directional performance of that business versus North Italia and Cheesecake, so I was curious if you could give an update there, and then maybe if you could contextualize the performance of Flower Child, just given its
Catherine Griffin: geographic skew. I'm curious if that region is kind of outperforming the, you know, the Southeast region. And then also if, you know, if our child is taking share in its category, kind of where you think it's taking share from. Thank you.
Matt Clark: Sure, Kathleen, this is Matt.
Matt Clark: Yeah, the fire child comps continue to be the strongest in our system
Matt Clark: Running mid single digits and we feel like with room to accelerate a little bit here
Matt Clark: into the fourth quarter.
Matt Clark: The geography is pretty national, maybe it's the smile shape, you know, because we do go up into the D.C. area and then kind of down around and all the way into California, and it's been
Matt Clark: pretty consistent.
Matt Clark: across the board, we've seen some really nice gains.
Matt Clark: in all of our locations and, you know, positive traffic, certainly. And it would look like, based on the data we've seen in BlackBox, that we are well ahead of
Matt Clark: The overall fast casual category and I think part of that is the breadth
Matt Clark: of the Flower Child offering. We like to talk about it, it's fast casual, but it's maybe a little bit higher in fast casual and kind of like cheesecake has a little bit of a moat.
Matt Clark: Given the breadth of the offering it balances really well It's slightly above 50% to go but it you know, that means it's almost 50% on-premise. Certainly that's very differentiated
Matt Clark: in fast-casual space, and probably a little bit more balanced on lunch and dinner. So we think the execution is probably a big driver of that as well, with all of the things we did to continue to incubate it, but overall pleased with the trajectory of the concept.
Speaker Change: I think I would just add, Catherine, that the two new markets that we entered into this year, as David mentioned earlier, in Salt Lake City and Utah just a couple weeks ago, have been outperforming our expectations.
Speaker Change: and in the suburbs in St. Louis earlier this year also a brand new market really outperforming so we're really happy as we've moved into new markets as well.
Catherine Griffin: That's great. Thank you. And then I wanted to just ask another question on the the you know portfolio approach
Speaker Change: at Cheesecake Factory has. Can you remind me sort of what the benefits are of having these growth concepts like we can maybe speak just to Flour Child in the Cheesecake Factory portfolio, sort of how these brands are better positioned as it relates to integrating supply chain and deploying things like reporting platforms and operational dashboards. Just any, you know, color you can give there as far as how you're thinking about, you know, the opportunities to leverage costs with the growth concepts, you know, part of the portfolio. Thank you.
Speaker Change: Sure, Kevin. This is Matt. I'll start off again and then David will add some additional color. But certainly you touched on one of the big areas. I mean, I think just really the scale benefit overall is very important still at this stage.
Speaker Change: certainly being able to leverage GNA.
David: Most of the high-growth concepts that are smaller are in the mid-teens for GNA, right? So you're just out of the gate. That is a benefit. Supply chain is certainly one of the larger areas. And that's with commodities, but it's also with other types of purchasing, whether that could be insurance.
David: or construction-related, there are benefits that go directly to the P&L that are very meaningful at this point as well. And then I think from the people side, there's a lot of best practices that the Cheesecake Factory has that we're able to deploy. And you mentioned the dashboards for operations, etc. So we feel like we're doing exactly what we thought.
David: When the board decided to make this acquisition, the thesis was that we could provide a great way to grow them and add shareholder value, and we continue, I think, to do that very effectively.
Speaker Change: Yeah, I guess I would I just had a few items
Speaker Change: One would just be our 45-year history of...
Speaker Change: running great high-volume restaurants and just our operational expertise that we're able to add to any of those concepts in any way.
Speaker Change: Part of that is our ability to have strong analytics.
Speaker Change: and operating performance dashboards to give more insight into each one of the concepts, whether that's an opportunity for more throughput or an opportunity to be more effective when it comes to productivity or food efficiencies, all areas that we have a lot of view into.
Speaker Change: We also are able to leverage our DoorDash relationship, so when it comes to off-premise sales.
Speaker Change: The deal we have with DoorDash covers all of the different concepts, so certainly financially, if you think about flower travel as an example.
Speaker Change: As Matt stated earlier, with over 50% off-premise sales and a portion of that coming through DoorDash, that's a direct cost benefit to the total company and to those other concepts as well.
Speaker Change: Thank you, appreciate it.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of Jeff Farmer with Gordon Haskett. Please go ahead. Thank you. You pointed over the last couple of quarters to a steady moderation of the mixed headwinds that you've been seeing.
Jeff Farmer: So I assume as you move forward you do expect that to happen, but can you give us some color on some of the factors that would contribute to that smaller mixed headwind as you move forward?
Jeff Farmer: Yeah, sure Jeff, this is Matt. I mean really it comes down to predominantly lapping around the party size
Jeff Farmer: That's helpful and then just as a quick follow-up, anything you can offer on menu pricing over the next couple of quarters? Are you guys are more sort of high-level thinking about pricing as you move into 2025?
Speaker Change: Well, our objective would be to take only the amount of pricing that we need.
Speaker Change: Dawson Employeeship
Speaker Change: We are seeing labor inflation become a little...
Speaker Change: bit more manageable, I think, in the industry as well. So we're right now in the process of reviewing our commodities outlook and engaging with our suppliers on contracts for next year. So that will give us a lot to inform.
Speaker Change: pricing decisions, but I would suspect it would be coming down.
Speaker Change: From this year's level, which has been, you know, between four and four and a half percent and, you know, migrating back more towards our historical three, but but it will really depend on on those factors as we see them play out in the next couple of months.
Speaker Change: Sorry, just one quick follow-up. The Q4 expected pricing. What's that number? 4.5. Same exactly as Q3. All right. Thank you, Matt. You're welcome.
Speaker Change: Your next question comes from the line of John Tower with Citi. Please go ahead.
Speaker Change: One quick model cleanup, but I have an actual question. Sorry, this is Karen Holt House, on for John. What was commodity inflation in this past quarter?
Speaker Change: It was 1%, about 1%. Good to hear. Good to hear from you, Karen.
Speaker Change: And then, you know, great to hear about your rewards engagement and that you think the program is, you know, doing what it's supposed to with both new and existing customers.
Speaker Change: Yeah, is there any more color you can give on kind of how people are engaging with it? And what I'm really trying to get at is kind of how important the access to reservations has been in terms of driving, you know, interest and uptake.
David Gordon: Sure, Karen, this is David. Certainly we see a high level of usage of reservations, so that would tell us that
David Gordon: People are enthusiastic about reservations being part of the program.
David Gordon: We definitely...
David Gordon: Thus far are happy that the guests we're seeing are moderate and frequent guests and you know That's really our goal. The program is to drive moderates and frequent one or two more visits a year And that the guest satisfaction scores of those guests are even higher than guests that are not members, so
David Gordon: That tells us that they're enthusiastic about the program overall. Reservations appear to be working.
David Gordon: some of the unpublished rewards that we've been using over the past.
David Gordon: Hugh Quarters are also.
David Gordon: have also been meaningful, and that's somewhere where we will continue to test and learn and try and be even more pinpointed with the offers that are out there to continue to drive incrementality with the right guests.
David Gordon: so that it remains margin neutral for us and could be a powerful tool to drive traffic in the long run.
Speaker Change: Okay, great, thank you. I'll pass it on.
Speaker Change: Thank you very much. Thank you.
Speaker Change: Your next question comes from the line of Jim Sanderson with North Coast Research. Please go ahead.
Jim Sanderson: Hey, thanks for the question. Just wanted to get a little bit more feedback on, I believe, the closure of some cheesecake stores in the quarter, and if you can affirm what the net unit growth count will be for the end of the year, and then the same question for 2025.
Matt Clark: Sure, Jim, this is Matt. Just on the cheesecake locations.
Matt Clark: One of them was actually a site condemnation.
Matt Clark: I've never had that happen in my career before, but...
Matt Clark: The entire facility was condemned and so we had no choice but to close.
Matt Clark: The other one was a lease exit opportunity in a location that was underperforming and had some safety concerns. So very unique for us to have that situation, particularly twice in one quarter. But Etienne, do we have an estimated number of total?
Etienne Marcus: Net in total will be about plus 20
Etienne Marcus: All concepts included.
Etienne Marcus: and for 2025.
Etienne Marcus: We said as many as 24 with about the same mix as this year so you know roughly speaking you could take this year's and maybe there's one more cheesecake and one more flower child you know for modeling purposes.
Speaker Change: Okay, okay. I just wanted to make sure there wasn't any expectation of incremental closures beyond what we've seen so far.
Speaker Change: All right, just to make sure is we we always qualify that there could always be one here or there for unforeseen reasons right so I think it will keep people abreast of that but
Speaker Change: Those are our plans at the moment.
Speaker Change: Is there any increase in G&A spending expected with the acceleration in unit growth for 2025 or should that keep pace or kind of lag revenue growth?
Speaker Change: Yeah, our objective would be to scale a little bit. So even though we're opening a couple more units, we're targeting to have G&A as a percentage of sales decreased by a tenth.
Speaker Change: And then last question for me, just wanted any feedback you had on perhaps advanced bookings or retail activity, what your exposure is to shopping centers and how you're looking at the holiday season this quarter.
Speaker Change: You know we
Speaker Change: do a lot of private dining in some of our smaller concepts. It seems to be going consistent with historical patterns. So far, we haven't seen anything too different. You know, our outlook is for a very consistent and predictable trend like we've seen the last couple of quarters. So nothing new or different than what we've seen recently.
Speaker Change: All right, no concern with the shortened shopping season between Black Friday and Christmas.
Speaker Change: Yeah, I think it's much more of a retail consideration than a restaurant consideration, at least that's what I've read. It doesn't seem to be as much of an issue when we've studied it in our past results.
Speaker Change: Understood. Thank you very much. I'll pass it on.
Speaker Change: And as a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Your next question comes from the line of Andy Barish with Jeffries. Please go ahead.
Andy Barish: Hey guys, just taking the holiday step in a slightly different direction. The bakery business, any signs of, you know, kind of stabilization in some channels and maybe, you know, maybe the holiday season bookings in that business looking a little bit better than, you know, than where things have been heading recently?
Andy Barish: Andy, this is Matt. What I would say is we're moving forward in some new channels.
Andy Barish: that I think have some good promise to backfill.
Andy Barish: Of course, in that segment, it does take a little bit longer, but we did just close a pretty good...
Andy Barish: long-term agreement with a prominent grocery chain.
Andy Barish: that has about 2,000 locations. And it's for a slightly smaller, lower-priced.
Andy Barish: So we think that's part of, you know, what you need to do to compete in CPG today. We're also seeing some green shoots internationally.
Andy Barish: and have signed two master distribution agreements in the first half of this year, but so I think, you know, we'll see some improvement and return to growth in 2025, but it's just a longer tail for that category.
Speaker Change: Great, appreciate it. And then on the development side, nice to hear
Speaker Change: quantitatively, the number's going up. Qualitatively, how do you kind of see the pipeline in 25 and the things that have been challenges in terms of permitting and utilities? Where on the spectrum are we in terms of returning to some level of new normalization there?
Speaker Change: Hi, Andy, this is David. I think that we're feeling pretty confident about next year, you know, finishing this year right on target. We haven't had any hiccups here as we're coming into the fourth quarter. Permitting has gotten easier on the equipment side. We're very, very confident. We really feel great about the markets we're moving into next year, whether they're existing or new markets.
Speaker Change: So it's, you know, full steam ahead for 2025 with a lot of confidence.
Andy Barish: Good to hear. Thank you.
Speaker Change: Your next question comes from the line of Sharon Zaksia with William Blair. Please go ahead.
Sharon Zaksia: Hey, thanks for taking the question.
Sharon Zaksia: I guess I wanted to kind of come back to the unit level margins of Cheesecake Factory and North Italia. I think if I got them right, they were 16.4.
Sharon Zaksia: for the last four quarters for CAKE, and I think the discussion around North Italia was 15 at maturity. And, you know, I have been around long enough. I remember when CAKE used to be in the high teens, and I know things have kind of...
Sharon Zaksia: changed in a lot of ways.
Speaker Change: But is there a path, you know, for cake getting back to the high teens, and can you kind of walk us through that? Is it just a matter of more sales? Is it that easy? And then on North Italia, is 15 a good number? I just give an alcohol mix there. Do you think that's something that can get closer to kind of a cake over time?
Matt Clark: Yeah, Sharon, this is Matt too. First on North, our target there is similar to Cheesecake. We believe it should be a business that operates in the 16 to 18 percent range. We have been, you know, more cautious.
Matt Clark: Over the past couple of years catching up on the pricing and so, you know, we've been pretty open about cake
Matt Clark: being behind, but North as well. And so I think we're pretty confident in the initiatives that we have in place and and that concept sales to be able to leverage that into the same level as CAKE. And then sort of to that point, you know, we probably peaked
Matt Clark: and the high teens are almost 20. There have been some accounting changes that basically put our range, what we say 16 to 18% now, takes into consideration things like lease accounting, right? So when we had to adopt that, I don't know if anybody remembers at this point because it was pre-COVID, but that was about 100 basis points swing between the depreciation and operating lines, right? So we're just taking all of those things into consideration. We do feel like we can still move it higher.
Matt Clark: ability to have best-in-class and best-ever retention rates for our staff, right? So there are other factors. I think supply chain is another one that we continue to benefit on the increasing scale of our company and leveraging that a little bit. So we feel really good about the trajectory, and it's still moving in the right direction.
Speaker Change: Thanks for that. And then on the reservations, I assume you guys aren't holding tables, right? Is this just kind of giving people priority seating when they come in so you're not losing any kind of productivity on the tables?
Speaker Change: Yes, certainly productivity is always a goal. We don't want to have any open tables for any length of time. We do want a reservation actually.
Speaker Change: So we have very strong parameters, excuse me, for the restaurants. You know, nobody should be waiting more than five minutes if they do have a reservation, but in no way are we holding tables. And they're very limited reservations that are actually available within each hour, so that we, even if somebody wasn't operating within our parameters, it wouldn't impact throughput in our ability to drive sales.
Speaker Change: Okay, thank you.
Speaker Change: Your next question comes from the line of Brian Vaccaro with Raymond James. Please go ahead.
Brian Vaccaro: Hi, thanks and good evening, and sorry if you covered this earlier, I jumped on a little bit late, but Matt, the 2025 net margin guidance, can you just walk us through the puts and takes as you see it today as it relates to what that looks like for cheesecake factories, segment margins, and what your expectations at North Italia might be?
Speaker Change: Yeah, I would say just to simplify it, I think the general direction is for company level four wall to improve.
Speaker Change: 25 to 35 basis points.
Speaker Change: I think we'll still see a little bit of leverage on
Speaker Change: the commodity side, a little tailwind on labor, other aspects as you know we've been guiding to relatively flat-ish.
Speaker Change: And then maybe a little, you know, 10th on GNA. I think there's a little bit more room for North and Cheesecake, obviously, where they're positioned today. But Cheesecake makes a bigger swing because of the size of it, so a little bit less.
Speaker Change: on Cheesecake, a little bit more on North to get to those weightings.
Speaker Change: Okay, and then the North Italia segment margins, did you say what the mature units were within that?
Speaker Change: Well, we did what was 15% for the third quarter, 15%. Okay, great. Thank you. I'll pass it along.
Speaker Change: We currently have no more questions in our queue at this time. I would now...
Speaker Change: I'd like to...
Speaker Change: And that's it.