Q4 2024 Cheesecake Factory Inc Earnings Call
U.S. Department of State U.S. Department of State
Speaker Change: Actual results could be majority 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 and investors at the Cheesecake factory Dot com.
And in our filings with the Securities and Exchange Commission.
All forward looking statements made on this call speak only as of today's date and the company undertakes no duty to update any forward looking statements.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: Matt will then review our fourth quarter financial results and provide commentary on our financial outlook before opening the call up to questions.
Speaker Change: With that I'll turn the call over to David Overton.
David Overton: Thank you Tien.
David Overton: Before I begin I'd like to take a moment to acknowledge the recent devastating wildfires in the Los Angeles area and extend our deepest sympathies to all those affected these events.
David Overton: Highlights the dedication of our firefighters and first responders, who work tirelessly to protect our communities and we are very grateful for their service.
David Overton: Now turning to our results.
David Overton: We ended the year on a high note once again, delivering consistent and dependable results with the Cheesecake factory restaurants comparable sales and traffic outperforming the industry, leading to fourth quarter revenues earnings and unit development exceeding our guidance in fact in 2000.
David Overton: 24th we generated record high annual revenues and adjusted earnings per share. While also opening more new restaurants in a single year than ever before in our company's history.
David Overton: As I've said before our performance is a reflection of our steadfast focus on menu innovation, maintaining the contemporary design and the core of our restaurants and delivering exceptional food quality service and hospitality.
To this point, we are in the midst of rolling out our latest menu, which features more than 20, new items across a broad range of contemporary cuisines categories and price points.
David Overton: <unk> has been well received by our guests with positive feedback highlighting the variety and the quality of our new offerings.
David Overton: Our ongoing menu innovation drives a high degree of relevance without the need for discounting and we believe coupled with our best in class operators, who will continue to set us apart in the competitive landscape.
David Overton: Turning to development, we opened nine restaurants in the fourth quarter to strong consumer demand, including two cheesecake factories, three North Italia has two flower child and two FRC restaurants.
David Overton: Subsequent to quarter end, we opened five restaurants, including North Italia to flower child, and two FRC restaurants.
David Overton: And we expect to open as many as three more restaurants in the coming weeks for a total of eight new openings in the first quarter.
We're looking to build on our development momentum and we now expect to open as many as 25, new restaurants in 2025.
David Overton: Additionally, we anticipate as many as two cheesecake factory restaurants to open internationally under licensing agreements.
David Overton: In closing consumer demand further distinct high quality dining experiences we provide our guests across our experiential concept reinforces our confidence in the long term growth potential of our portfolio and our results demonstrate the power of our larger platform.
David Overton: Revive reinforcing our confidence in our strategy to drive sustainable growth and value going forward.
David Overton: I'll now turn the call over to David Gordon to provide an operational update.
Speaker Change: Thank you David.
Speaker Change: The results, David highlighted would not be possible without our operators exceptional execution and relentless focus on delivering delicious memorable guest experiences of effectively managing their restaurants and once again, we saw improvements across the business, including in our record high guest satisfaction.
Speaker Change: Scores and better than expected profit flow through and labor productivity contributing to higher restaurant level margins to this point Cheesecake factory restaurant level margins for the fourth quarter were 18, 4%, marking the highest level in over seven years.
Speaker Change: Importantly, our industry, leading management and staff retention continued to improve which we expect to support ongoing operational improvements and many of these areas.
Speaker Change: Now turning to sales trends.
Speaker Change: Fourth quarter Cheesecake factory comparable sales increased one 7% from the prior year and importantly traffic once more meaningfully outperformed the industry.
Speaker Change: Exceeding the black box casual dining index by 110 basis points.
Speaker Change: The comparable sales growth contributed to annualized <unk> of $12 5 million.
Speaker Change: Supported by an off premise mix of 21% in line with recent quarters.
Speaker Change: North Italia fourth quarter comparable sales increased 1% from the prior year with annualized fees of $7 9 million.
Speaker Change: In the fourth quarter, we opened three new North Italia restaurants in existing markets to tremendous demand with their aggregate average weekly sales exceeding $193000 for an annualized <unk> of over $10 million.
Speaker Change: This supports our thesis that there is significant demand for an on trend contemporary Italian offerings, such as North Italia.
Speaker Change: Restaurant level profit margin for the adjusted mature in North Italia locations improved meaningfully from the prior year to 18, 8%.
Speaker Change: The margin expansion was predominantly driven by operational improvements and then menu price increase of 2% implemented in October.
Speaker Change: We continue to be highly optimistic about flower challenged growth potential with sales trending substantially higher across the concept.
Speaker Change: This momentum was evident in the fourth quarter.
Speaker Change: Flower child comparable sales increased by 11% significantly outpacing the black box fast casual dining index, which was relatively flat for the quarter.
Speaker Change: The sales improvement resulted in average weekly sales of $83000.
Up 10% from the fourth quarter of 2023.
Speaker Change: Additionally, in the fourth quarter, we opened two new flower childs to solid demand with aggregate average weekly sales for the two locations, reaching nearly $88000 for an annualized <unk> of over $4 5 million.
Speaker Change: Restaurant level profit margin for the adjusted mature flower child locations was 16, 4% for the fourth quarter.
With strong consumer demand and.
Speaker Change: And experienced operations team to <unk>.
Speaker Change: Port infrastructure in place and an attractive unit economic profile, we believe flower child is poised to FERC accelerated growth.
Speaker Change: Other FRC annualized <unk> were $7 $2 million.
In summary, we are very encouraged by the performance of our portfolio driven by sustained sales strength operational improvements and sequential margin expansion across our concepts. We believe we are well positioned to support our unit growth objectives moving forward.
Matt: And with that let me turn the call over to Matt for our financial review.
Matt: Thank you David let me begin with a high level overview of our fourth quarter and fiscal year results.
Matt: Fourth quarter total revenues of $921 million and adjusted net income margin of five 6% exceeded the high end of the guidance we provided.
Matt: For the fiscal year, we delivered total revenues of $3 five 8 billion.
Matt: Adjusted earnings per share of $3 44.
Matt: A 28% year over year increase.
Matt: Adjusted EBITDA of $329 million.
Matt: Now turning to some more specific details around the quarter.
Matt: Fourth quarter sales at the Cheesecake factory restaurants were $669 $4 million up 2% from the prior year.
Matt: Comparable sales increased one 7% versus the prior year.
Matt: North Italia sales were $81 3 million up 21% from the prior year.
Matt: Other FRC sales totaled $85 1 million up 20% from the prior year and sales per operating week or $139300.
Matt: Flower child sales totaled $38 2 million up 25% from the prior year and sales per operating week for $83000 and.
Matt: External bakery sales were $17 1 million.
Matt: Now moving to year over year expense variance commentary.
Matt: In the fourth quarter, we continued to realize improvement across several key line items in the P&L.
Matt: Specifically cost of sales decreased 70 basis points, primarily driven by higher menu pricing and commodity inflation.
Matt: Labor as a percentage of sales decreased 100 basis points, primarily supported by menu pricing leverage relative to wage inflation.
Matt: And labor productivity improvements.
Matt: Other operating expenses were in line with the prior year.
Matt: G&A increased 10 basis points from the prior year.
Matt: Depreciation increased 20 basis points as a percent of sales.
Matt: Pre opening costs were seven $6 million in the quarter compared to $9 6 million in the prior year period.
Matt: We opened nine restaurants during the fourth quarter versus nine restaurants in the fourth quarter of 2023.
Matt: Note. This year's Q4 openings included two Cheesecake factory, relocations, which required lower preopening costs than standard new restaurant openings.
Matt: And in the fourth quarter, we recorded a pre tax net expense of $14 4 million.
Matt: Primarily related to impairment of assets and lease termination expense, partially offset by FRC acquisition related income.
Matt: Fourth quarter GAAP diluted net income per share was <unk> 83.
Matt: Adjusted diluted net income per share was $1 <unk>.
Matt: Now turning to our balance sheet and capital allocation.
Matt: The company ended the quarter with total available liquidity of approximately $341 million, including a cash balance of about $84 million and approximately $257 million available on our revolving credit facility.
Matt: Total debt outstanding was $455 million.
Matt: Capex totaled approximately $40 million during the fourth quarter for new unit development and maintenance.
Matt: During the quarter, we completed approximately $5 million in share repurchases and returned $13 $2 million to shareholders via our dividend.
Matt: Now, let me shift to our outlook.
Matt: While we will not be providing specific comparable sales and earnings guidance, we will provide our updated thoughts on our underlying assumptions for Q1, 2025 and full year 2025.
Matt: The assumptions factor in everything we know as of today, which includes net restaurant counts quarter to date trends, what we think will happen in the weeks ahead.
Matt: <unk> of any impacts associated with holidays.
Matt: Assumes no material operating or consumer disruptions.
Matt: For Q1, we anticipate total revenues to be between 920 and $930 million. This.
Matt: This includes an estimated impact of approximately $7 million in sales due to inclement weather experienced so far in the quarter.
Matt: Next at this time, we expect our effective commodity inflation of low single digits for Q1.
Matt: Our broad market basket remains very stable.
Matt: 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: G&A is estimated to be about $60 million.
Matt: Depreciation is estimated to be approximately $27 million.
Matt: We are estimating preopening expenses to be approximately $10 million to support the eight planned openings in the quarter and early Q2 openings.
Matt: Based on these assumptions, we would anticipate adjusted net income margin to be about four 3% to four 4% based on our sales range provided.
Matt: For modeling purposes, we are assuming a tax rate of approximately 8% and weighted average shares outstanding of approximately 50 million shares.
Turning to fiscal 2025.
Matt: Based on similar assumptions and no material operating or consumer disruptions. We anticipate total revenues for fiscal 2025 to be approximately $3 8 billion at the midpoint of our sensitivity modeling.
Matt: For sensitivity purposes, we are using a range of plus or minus 1%.
Matt: We currently estimate total inflation across our commodity basket labor and other operating expenses to be in the low to mid single digit range.
Matt: Fairly consistent across the quarters.
Matt: 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 $109 million for the year.
And given our growth expectations, we are estimating preopening expenses to be approximately $34 million.
Matt: Based on these assumptions, we would expect full year net income margin to be approximately 475% of the sales estimate provided.
Matt: For modeling purposes, we are assuming a 10% tax rate.
Matt: Weighted average shares outstanding relatively flat to 2024.
Matt: With regard to development as.
David Overton: As David stated earlier, we plan to continue accelerating unit growth this year.
David Overton: As such at this time, we now expect to open as many as 25, new restaurants in 2025 with as many as 15 openings in the first half of the year and the remainder in the back half.
David Overton: This includes as many as three to four cheesecake factories six to seven North Italia.
David Overton: Six to seven <unk> and eight to nine FRC restaurants.
David Overton: 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.
David Overton: In closing we.
David Overton: We delivered strong financial and operational performance for both the fourth quarter and full year.
David Overton: Highlighted by solid sales exceptional operational execution and significant profitability growth.
David Overton: The strength of our concepts and a dedication of our operating teams continue to drive our success.
David Overton: Positioning us well as we move into 2025.
David Overton: As we build on this momentum we remain focused on growing restaurant comparable sales expanding restaurant operating margins and accelerating accretive unit growth to drive meaningful shareholder value going forward.
David Overton: And with that said, we'll take your questions.
David Overton: Thank you we will now begin the question and answer session. If you would like to ask a question. Please press star one on your telephone keypad to raise your hand and join the queue and if you'd like to withdraw that question again press Star. One. We also ask that you limit yourself to one question and one follow up for any additional questions. Please re.
David Overton: Thank you. Your first question comes from the line of David Tarantino with Baird. Please go ahead.
David Tarantino: Hi, good afternoon.
Speaker Change: Just a quick clarification question on your guidance I think you said three 8 billion in revenue at the midpoint and I think last time you might have said 375. So just wondering what changed is it really the unit growth outlook are you did you change your comp assumption I guess, what's driving that I guess minor change.
David Tarantino: Hi, David its Matt Yes.
David Tarantino: The unit growth went up right, we opened one more restaurant.
David Tarantino: Originally guided to last year and then we increased this year by one as well and then the timing right. So we've got 15 restaurants in the first half of the year. So we're just giving more operating weeks in.
David Tarantino: So that's what's driving the upside our comp assumptions remain consistent.
David Tarantino: Our performance last year, a continuation of that.
David Tarantino: Got it. Thank you and then I guess on the outlook for this year it doesn't seem like you're assuming.
David Tarantino: Much margin expansion, so I'm just wondering.
David Tarantino: After after a year, where you had a really nice improvement in year over year margin performance.
Speaker Change: I guess is your 2025 guidance conservative and that risk factor or are there factors that you are not.
Speaker Change: Anticipating kind of carrying over and the and the momentum that you saw maybe exiting 2024.
Speaker Change: Sure.
Matt: It's Matt again, so there's a couple of dynamics.
Matt: Number one the Preopening spend is probably 15 basis points year over year as we continued to increase and then lap a couple of the cheesecake relocations and plan for even early 'twenty six locations I think with the number of openings as frontloaded.
As it's ever been in our history. We also have some newer unit weeks.
Matt: An increase in that and Thats, probably 10 to 20 basis points. So certainly at the mature level, our assumptions continue to be consistent with where we guided to the last time at the mature level, we'd still expect to see that 30 to 40 basis points of margin expansion and we feel.
Matt: I'm very confident about about that and I also think it's just early in the year right to your point and nobody needs to be a hero coming out of the gate, we want to make sure that we set expectations appropriately and we feel really great about the momentum.
Matt: And everything is still moving forward as we expected it to.
Great. Thank you very much.
Speaker Change: Your next question comes from the line of Brian Vaccaro. Please go ahead.
Brian Vaccaro: Hi, Thanks, and good evening I, just wanted to ask about the fourth quarter margin performance.
Brian Vaccaro: Can you just unpack what some of the upside drivers were in the margins. Thank you noted labor productivity, obviously, some strong labor leverage this quarter, maybe you could unpack that.
Brian Vaccaro: Particularly I guess potentially even getting into cheesecake factory versus north Italia, because each brand saw some nice margin expansion. Thank you.
Brian Vaccaro: Sure. Brian This is Matt I think I think there are two things that I would call out number one obviously it was a strong sales quarter for us.
Brian Vaccaro: <unk>, beating the upside of the guidance and there were some great flow through I think a restaurant's delivered.
Brian Vaccaro: On the extra sales piece of that and you see that specifically by concept.
Brian Vaccaro: Flower child for example had tremendous sales and increased profitability.
Brian Vaccaro: Certainly at Cheesecake factory.
Speaker Change: Continued stability and predictability of our sales trends, coupled with yet again, another sequential quarter of improving retention to an all time high level has major contributions to the financial statements, particularly in the labor category right and so we've just seen a great.
Speaker Change: A trend that continued into the fourth quarter and exceeded the third quarter's productivity levels. So I think it's a combination of the sales piece for all of our concepts and then the retention piece and those two together are really the main drivers and we did see I think exceptional margin performance across the portfolio.
Speaker Change: <unk>.
Speaker Change: Alright, thats helpful and sorry, if I missed it but could you walk through the comp components for both Cheesecake factory in north in the quarter.
Speaker Change: Yes, Super Cheesecake factory.
Speaker Change: The net pricing effective pricing of about four 2% traffic was a negative <unk> four and so the mix was about a negative two so just a little color there because that was probably a little higher than our original guide about negative one five was on premise so a little bit of the off premise.
Speaker Change: Component to it and I think in that as we continue to see normalization of our party size, but we saw a little bit of alcohol component I think thats been pretty common.
Speaker Change: In the industry. So I think we felt pretty good about where the comp came in in total and the pieces are all individually within the ranges that we that we have and I'm going to have to look for the north will come back to you on that we'll find I don't have a quiet in front of me.
Speaker Change: Yes.
Speaker Change: Alright, thanks, very much I'll pass it along.
Speaker Change: Your next question comes from the line of Andy Barish with Jefferies. Please go ahead.
Speaker Change: Okay.
Speaker Change: Your next question comes from the line of Jon Tower with Citi. Please go ahead.
Speaker Change: Hey, great. Thanks for taking the questions maybe first just a clarification, Matt on the guidance for 25 for the net interest margin. It does that contemplate refinancing of the convertible thats coming due in June.
Speaker Change: Yes, that's a great question, John I mean, we've been in active discussions with our board about.
Speaker Change: Looking into that particularly.
Speaker Change: We get in closer to the June.
Speaker Change: Current status if you will the stock moves so we are actively contemplating that.
Speaker Change: And we have some sort of broad stroke assumptions incorporated into that guidance.
Speaker Change: Okay. So it does or does not sorry, just in guidance.
Speaker Change: It does okay great.
Speaker Change: Great.
Speaker Change: And then maybe just in terms of thinking about the rewards program because I think that was last call we discussed it a little bit but.
Speaker Change: I was just expecting perhaps a little bit more color on this call in terms of how it's impacting your business at the core Cheesecake brand and frankly.
Speaker Change: If you see an opportunity for this.
Speaker Change: Spill across the portfolio.
Speaker Change: Being able to leverage it whether it would be at north Italia, or perhaps flower child overtime or I'm. Just curious if you could provide some updates on the platform itself.
David Gordon: Sure Hi, John This is David Gordon Thanks for the question.
David Gordon: We continue to be very bullish on cheesecake rewards specifically at Cheesecake factory.
Speaker Change: <unk> acquisition continues to exceed our own internal expectations throughout Q4, and even into January was positive. So it's great to see our members continue to show very high guest satisfaction scores sort of over indexing on our NPS scores that are already.
David Gordon: An all time high.
David Gordon: And then we're continuing to test acquisition tactics and different activation campaigns to continue increasing enrollment and to drive frequency. We're seeing that are our best guests are coming frequently and thats. The goal of the program to get to one or two more visits out of our average guests and our best guest.
David Gordon: And to drive their level of engagement and to make sure that it's margin neutral and we are profitable growth throughout the program. So our plan is for now is to keep it focused at Cheesecake factory.
David Gordon: Not to be moving cross concept with the rewards program to continue to make it something that from a guest perspective is attractive and like we do for most things Cheesecake factory keep it unique and still not a points based program, but more experiential with surprise and delight and then some of the tent poles that have always been part of.
David Gordon: The program with the published rewards.
Guests are also able to access.
David Gordon: And any color in terms of.
David Gordon: Either sign ups in total or percentage of sales that are coming through the rewards are reservation platform.
David Gordon: We actually still are not sharing that information I appreciate you asking again.
David Gordon: But we will see in the future.
Speaker Change: Okay. Then lastly on pricing for 25 with the new menu that just rolled out or is rolling out now are there any incremental expectations for pricing.
Speaker Change: No. John this is Matt it's going to be around about four level effectively at this point in time and so we're just kind of lapping over and then we'll see where we get to in the summertime long time between now and then but pretty consistent.
Speaker Change: Okay. Thank you.
Speaker Change: Your next question comes from the line of Andy Barish with Jefferies. Please go ahead.
Speaker Change: Try that one more time, sorry about that.
Speaker Change: Just on the on the new menu.
Speaker Change: Anything to call out I know this is a regular part of what you guys do but.
Speaker Change: Anything on sort of.
Speaker Change: More of that selection of lower priced menu items or I haven't seen it yet, but anything you'd highlight there.
Speaker Change: Sure Andy This is David Gordon.
Speaker Change: So it's a large menu change obviously with up to 20 items. A few of those are beverages and I think it crosses different price points different cuisines. Some very unique items and then some sort of write up middle of the road Cheesecake factory items like a smash Burger that we put on the menu.
Speaker Change: Also some great vegetarian options and new baby roasted carrots, some Asia cucumbers.
Speaker Change: Some chicken jalapeno Fritters. So you named the type of cuisine. We've always said there is nothing that we can't put on our menu that America My one and I'd say this menu is a great representation of that across all types of cuisine and all types of price points. So I would encourage you to either go out there and try it in a restaurant or feel free to jump on <unk>.
Speaker Change: <unk>.
Speaker Change: Have it delivered.
Speaker Change: Yes, I appreciate that and then.
Speaker Change: On the flower child.
Speaker Change: Comps and.
Speaker Change: Adv is tracking up kind of 10.
Speaker Change: 10% I assume that the fourth quarter comparable 11%. Thank you noted it's kind have been ramping.
Speaker Change: Whats going on there.
Speaker Change: The level of awareness for the brand and end markets as you build out or just kind of help us understand.
Speaker Change: Sort of reaching that those kind of.
Speaker Change: Double digit comp numbers.
Speaker Change: Hey, this is Matt yes. Thanks for that question, we're really happy about the performance there and it doesn't mean that it's going to stay at double digits forever, but we've done a lot of different.
Speaker Change: Pieces to pull that together and youre right that it has been ramping up throughout the year a couple of those levers where the introduction of catering specifically that's been adding to the comp we've been we've been gaining traffic certainly the brand awareness, but also the execution remember that.
Speaker Change: We did quite a bit of work to put in things like Tds.
Speaker Change: Improve the coordination between the on premise in the off premise component of it and certainly the relaunch of their rewards program for flower child.
Speaker Change: Basically at the beginning of 2024 was a contributor so I think it's all one piece, but as an aggregate each one of those pieces continues to contribute a couple of points to the growing comp.
Speaker Change: Yes.
Speaker Change: Thank you very much.
Speaker Change: Your next question comes from the line of Brian Bittner with Oppenheimer. Please go ahead.
Brian Bittner: Thanks, Thanks for taking the question.
Speaker Change: And your long term framework.
Speaker Change: Target average annual revenue growth of 7% to 8% on a 1% to 2% comp.
I look at 2020 side your revenue growth target is about 6% on the 1% to 2% comp. So I'm just curious what.
Speaker Change: <unk> is moving forward to get revenue growth to that 7% to 8% on the underlying comp rates would suggest.
Speaker Change: Better contribution of new units after 2025, or how would you answer that question.
Speaker Change: Yes, Brian it's Matt it's actually really just a simple math going back to last year, where we had those two unplanned closures of Cheesecake factory and then really the two openings or relocations right. So you think about like in a normal world that's about 2% of comp right. There. So.
Speaker Change: If that situation.
Speaker Change: Essentially it was very unique doesn't it doesn't happen we'd be at an 8%. This year. So I think we're already there from a run rate perspective on the opening the contribution from the new units is fantastic is as David Gordon alluded to in our and our planned comments I mean, the north openings.
Speaker Change: The fourth quarter, averaging $10 million out of the gate. So no we feel like we've hit that run rate.
Speaker Change: Feel great about the future in terms of getting about seven or 8% on a consistent annual basis.
Speaker Change: Okay, and you've talked about your 2025 revenue outlook being underpinned by kind of a 1% to 2% comp and within that.
Speaker Change: You've talked about mix, which has been negative flattening out.
Speaker Change: In 2025, obviously thats, a really important component of the comp build is the mix flattening out still something.
Speaker Change: You feel good about that you have visibility into particularly with this new menu that just rolled out.
Speaker Change: Yes, I do I think it was probably a half a percent higher in the fourth quarter, but that's not material in terms of the total guide right. So because traffic continues to be very very consistent so even with that we were still above consensus on the cheesecake comp at one seven.
Speaker Change: I feel like the business is extremely predictable and I do think to your point the new menu will only help with that right. So we have some attractive price points quite a few of them are advertisers or size and we are also focused this year on rolling out some incremental non alcoholic beverages.
Speaker Change: Thats the one category I think that the industry is seeing a little bit of pressure and so we certainly are addressing all of that and we feel like the business continues to be predictable and that comp range is definitely attainable.
Speaker Change: Okay. Thank you.
Speaker Change: Your next question comes from the line of Jim <unk> with Stephens. Please go ahead.
Speaker Change: Hey, guys. Good afternoon, thanks for taking my questions.
Speaker Change: I wanted to ask maybe a clarifying point on the FRC restaurants for the year you guys call for eight to nine and I believe you said.
Speaker Change: <unk> already opened in <unk>, but the size of the boxes varies pretty drastically.
Speaker Change: Just trying to think about the contribution.
Speaker Change: All of those new units for the full year can you just give us some color around.
Speaker Change: Average size of the restaurants, you expect to open.
Speaker Change: FRC portfolio this year and then.
Speaker Change: When we should expect that they're going to be more front half.
Speaker Change: Throughout the year.
Speaker Change: Yes, Jim this is Matt so pretty spread out although I would say for the FRC specific think about it like three in the first second and third quarters probably.
Speaker Change: Maybe near the end of the third early fourth.
Speaker Change: Average size pretty much around five to 6000 square feet, an average contribution of about $6 million, which is kind of what they are doing so we don't see in aggregate that there'll be any any difference than what the trend has been for them. So thats kind of a mathematical way to model them in.
Speaker Change: Okay, Great and then maybe shifting gears a little bit.
Speaker Change: I believe you talked in the past.
Speaker Change: Average seascape guest visits one to two times per year, but the best guess.
Speaker Change: Significantly more frequently.
Speaker Change: Maybe even double digit times per year.
Speaker Change: How do we think about the other.
There are concepts North Italia flower child, the frequency between.
Speaker Change: Really strong guess versus people that have just been introduced to the brand and how do you expect that.
Speaker Change: Frequency to kind of expand as you get more density with some of these concepts building out more units.
David Gordon: Sure. Jim This is David Gordon I think the average cheesecake is little more like four to five a year.
David Gordon: Our aspirational guests to Cheesecake, maybe coming for a celebration is more like the one to two but when you look across the breadth of other concepts certainly flower child being a SaaS casual you have a use case, where people could becoming very frequently few times a week using it in a completely different way.
David Gordon: Primarily especially for lunch considering.
David Gordon: Considering the lunch mix is probably more like 65 launched 35 dinner and is 55% off premise versus the other concepts. So it has probably a different unique profile of frequency the other FRC concepts and north very similar to the Cheesecake factory.
David Gordon: I think what we've seen thus far and the data that we can look at whether thats. It reservations through open table.
David Gordon: Which is a good source of data for all the other concepts at FERC and for North.
Speaker Change: Okay. Thanks, Bob.
Speaker Change: Your next question comes from the line of Jeffrey Bernstein with Barclays. Please go ahead.
Jeffrey Bernstein: Great. Thank you very much.
Jeffrey Bernstein: My second question is just on the more recent trends.
All of our industry.
Jeffrey Bernstein: We see improving trends for most.
Jeffrey Bernstein: Fourth quarter things slowed a little to close the fourth quarter here.
Jeffrey Bernstein: That continued to strong first quarter.
Jeffrey Bernstein: And then you talked about weather and holiday shifts I think you noted.
Jeffrey Bernstein: $1 million or weather hit.
Jeffrey Bernstein: I'm just trying to get a sense to what he believes is anything else to the past couple of months, if you've seen that at all maybe you have and whether you've seen any change underlying consumer behavior will be your conference and stable through the fourth quarter almost as far in the first quarter and then I had one follow up.
Jeffrey Bernstein: Hey, Jeff This is Matt I think when you model in even the range that we've now provided.
Speaker Change: It shows that there is pretty steady comps from quarter to quarter. So I think cheesecake factory and other concepts are.
Speaker Change: Incredibly resilient.
Speaker Change: We've been through these weather cycles before and so it's pretty easy to see in the data the differentiation when there's two feet of snow in Pittsburgh.
Speaker Change: You have an impact to sales right because we're not really we're not talking about just some of the coming and going of temperature or whatever those weather events and so even despite that we feel very confident that our comps have been consistent and thats what.
Speaker Change: The guide.
Lays out so.
Speaker Change: I do feel like we're in a good spot overall.
Speaker Change: That's great and just.
Speaker Change: A follow up from months Italia, and smaller trials I know, you're talking about 20% type annual unit growth.
Speaker Change: And most companies people are always asking.
Speaker Change: Accelerated what's the gating factor to go faster.
Speaker Change: Are you guys doing that 20% plus.
Speaker Change: Versus an older I'm just wondering.
Speaker Change: Comfort level and managing that degree of growth whether it's at the manager level stance in real estate, just looking back and then cheesecake hasn't had that level of growth.
Speaker Change: 20 years, so just trying to get it.
Speaker Change: Thanks for your confidence in being able to sustain that 20% type of unit growth.
Speaker Change: Again, multichannel and Softgel brands. Thank you.
Speaker Change: Great question, Jeff. This is David Gordon I think for the past few years, we have been working hard on.
Speaker Change: Retention and manage our development and growth specifically at north and flower child.
Speaker Change: Because we want to ensure we have the talent in place to be able to grow at that 20% rate. So some of the benefits that we've seen a cheesecake factory with improved management retention. We've also seen the north so.
Speaker Change: So we feel really good about the pipeline of management talent to enable execution that we need for a new restaurant openings with a highly talented general managers and executive chefs across all of the concepts certainly on the infrastructure side, we have very strong opening teams across all of our corporate center that helped US open all the rest.
Speaker Change: France make sure that they are planned for a properly and opened on time and on the construction design real estate team working on these pipelines now for years and feel very confident that we have the right talent in the right place to be able to hit those targets.
Speaker Change: And does it feel like the North Italia units are generally located.
Speaker Change: In reasonable proximity to Cheesecake factory I feel like they're similar big box.
Speaker Change: Affluent than the average it seems like you'd have a competitive advantage. If you already knew the market go into like what percentage of the North Italia units being.
Speaker Change: Being close proximity to cheesecake.
Probably the majority of them depending on what you would consider close proximity, but if youre, saying within 10 miles probably all of them.
Speaker Change: Because those are the right demographics, the right cost profile that we would look for in the north very similar to a cheesecake factory.
Speaker Change: Great.
Speaker Change: Your next question comes from the line of Christine Q with Goldman Sachs. Please go ahead.
Christine Q: Hi, Thank you so much.
Christine Q: I just wanted to follow up on the labor efficiency I know in 2020 for the stable labor market has been a huge tailwind for you.
Speaker Change: Do you expect this to continue into 2025 and what are some of the key variables here.
Speaker Change: Do you see some room for further improvement here, even from Aesop off thank you.
Speaker Change: Sure Hi, Kristina This is David Gordon again.
Certainly one of our goals for this year is to maintain the levels that we were able to achieve last year as Matt stated earlier. These are all time lows and nutrition for the company. So we've talked to the operators and set some goals around ensuring on the management and staff side that the programs, we have in place and the execution we.
Speaker Change: <unk> in place remains solid because they know that that's been a key contributor to.
Everything across the restaurant from profitability of the sales just to guest satisfaction. So we think we can maintain those levels.
Speaker Change: The macro world seems to be relatively stable so far even in January we saw some really terrific numbers around attrition.
Speaker Change: When it comes to the people side of the business. We think it's one of the things that we are best Stat, we continue to be.
Speaker Change: First in class employer people want to come work for us because of the stability and the hours and the culture I think we've done a good job of spreading that culture across the other concepts now as well and they've seen increased improvement in retention. So I think we feel good about it and have the programs in place to maintain where we are for this year.
Speaker Change: Sure.
Speaker Change: Great. Thank you.
Speaker Change: And it does feel like the stepped up value narrative across the space.
Speaker Change: Okay.
Speaker Change: So are you approaching your key messaging.
Speaker Change: Can you guess any differently versus prior years in turn you did mention VSAT scores a record high but what is your consumer intelligence, telling you about kind of cake relative.
Speaker Change: Relative value proposition relative to peers. Thank you.
Speaker Change: Well certainly this is David again, we I think our guestbook value a few different ways. One is definitely price points and as we talked about earlier. This new menu is a great range of price points everything from 12, 95% to $31. So if you are looking for value at a lower price point with an appetizer, it's there or if you want some of the best stake free.
Speaker Change: So we've ever added $31, which is a great value. If you compare that to a high end steakhouse when it comes to what our offering is.
Speaker Change: We are meeting all of those different price points. So I think cheesecake has always played well on the price point because of so many different options for guests and of course the value proposition of the experience the experience of the size of the portions that allows people to share and have leftovers for the next day and the overall experience of dining at a cheesecake is.
Speaker Change: A large part of the value proposition that people are looking for today.
Speaker Change: Yeah.
Speaker Change: Your next question comes from the line of Katherine Griffin with Bank of America. Please go ahead.
Katherine Griffin: Hi, Thanks for the question I wanted to ask about North Italia times I just wanted to make sure.
I can contextualize and given that for the last several quarters growth has outpaced core cheesecake pretty meaningfully and this is the first quarter where that trend didn't happen. So.
Katherine Griffin: Is there anything like in the monthly cadence that's worth calling out in terms of.
Katherine Griffin: Or if there's anything like period over period comps just a comparison just to think about why you might have seen slower growth at north Italia versus cheesecake in the quite quickly.
Katherine Griffin: Catherine This is Matt I'm glad you brought that up because it gives me the window to get back to Brian's question. So the traffic for North was very similar to the Cheesecake factory was just slightly negative the pricing was similar to as it was in the mid fours. The mix was a little bit of a heavier impact for nor is it has been kind of for the past.
Katherine Griffin: Two to three quarters, and really again thats in the alcohol category. If you think about north has just a heavier component there.
Katherine Griffin: But we feel we feel really good it was very very consistent and very stable and you could see with the north margins. David Gordon commented on the mature margins were up very strong very very similar to Cheesecake factory. So we feel like everything is really very consistent at this point in time.
Katherine Griffin: Just a little bit of a differential in the alcohol mix component.
Speaker Change: Okay. Thank you and then in the past you've spoken about the new unit inefficiencies at I think it was north Italia, specifically that it takes a few years for <unk> to build up so that you can leverage your costs I'm curious if that trend is also something you see flower child.
Speaker Change: Or if maybe there is more of a honeymoon narrow versus versus north Italia.
Speaker Change: Christina.
Speaker Change: Catherine It's Matt again, I think it depends on the market, but until when we go into existing markets for both north and flower, we see the sales ramp up faster because of the brand awareness, but when you think specifically about the margin profile.
Speaker Change: Flower child has a different level right is fast casual and they were able to get up to the targeted margins faster, regardless and so either way.
Speaker Change: Sure.
Speaker Change: That period of time is probably more like one year to one five versus the three years. So it's a much shorter period of time, even though the different sales volumes, whether it's a new or existing market just faster for that team to be able to get up to speed overall.
Speaker Change: Alright, thank you.
Speaker Change: Your next question comes from the line of Jeff Farmer with Gordon Haskett. Please go ahead.
Speaker Change: Thanks, just following up on Jeff's earlier question.
Speaker Change: A couple of restaurant management teams, including one today.
Speaker Change: Knowledge that theyre seeing an increasingly anxious consumer in recent weeks. So this is sort of beyond weather and some calendar shifts I'm. Just curious how you guys are seeing this sort of what's your thinking about an increasingly anxious consumer whether or not that's happening for your concepts.
Speaker Change: Yeah.
Matt: Jeff This is Matt.
I wouldn't say that we see that in the data today.
Think that we would be able to parse it out I mean, the weather impacts have been very very clear to us.
Matt: We had a tremendous valentines day, I think people still want to go out and have experiences regardless, if they're cutting back it might be more on the quick serve side or those types of things but.
I mean.
Matt: I think we're off to a good start and we have optimism for the year.
Matt: The Cheesecake factory brand, particularly shows incredible resilience throughout cycles, and I think you saw that I know people are talking about interest consumer I feel like that's been talked about for two years right. It was becoming recession that never happened.
Matt: And so we I think we weather the storm and people see Cheesecake factory is being a very unique.
Speaker Change: I think experience and value proposition as David Gordon highlighted we feel like our business is still pretty predictable.
Speaker Change: Alright. Thank you for that does makes sense, and then somewhat related and again, a little bit of a follow up but.
Speaker Change: Again in terms of listening to management teams through the first let's call. It two thirds of this earning season desk.
Speaker Change: Definitely a lot more cautious sort of commentary around menu pricing across 2000 2025.
Speaker Change: Implying that there is some heightened price sensitivities out there you're sort of acknowledged that but I'm. Just curious curious what youre seeing that at the core cheesecake, specifically as it relates to price sensitivities.
Speaker Change: Well <unk>.
Speaker Change: Regarding like say attachments rates, if you will we're still above 2019 levels and so through all of the inflation and the waves and pricing that we've needed to take rate to support the business I think we've really straddle that line very well you know, we always talk about the dual mandate to protect guest traffic.
Speaker Change: And to protect the margin, but I think we've been very effective.
Speaker Change: About distributing across the menu.
Speaker Change: Preserve that value proposition, we never get into the discounting wars, right and I think thats, where some of the challenges come in that people that are looking for that and they're trading off of that and that's not what the cheesecake factory does to drive traffic.
Speaker Change: So we will continue to monitor the pricing.
Speaker Change: I mean, I think in the full service space, we're still pretty much within the middle of the range I think a lot of those discussions because most of the first half of the earnings calendar frankly is centered around quick service.
Speaker Change: So that wouldn't surprise me that commentary was coming from from that side of the fence.
Speaker Change: Okay. Appreciate it thank you.
Speaker Change: Yes.
Speaker Change: Your next question comes from the line of Jim Sanderson with Northcoast Research. Please go ahead.
Jim Sanderson: Hey, Thanks for the question I, just wanted to clarify as far as 25 guide for unit growth.
Jim Sanderson: <unk> are embedded in that if at all.
Oh right right now we do anticipate.
Jim Sanderson: One closure with Cheesecake factory, we haven't specified that but so we would have the 25, new and we'd have one closure around the middle of the year for Cheesecake and Thats included in the revenue outlook.
Jim Sanderson: Very good thank you.
Speaker Change: Just wanted to talk also a little bit more about the margin potential for North Italia and flower child, given your mature locations have reported pretty strong margins is there maybe some texture you can provide on what you see as far as potential.
Jim Sanderson: Long term margin of those banners or brands.
Jim Sanderson: Sure I mean, we talk about the full service category.
Jim Sanderson: Charge offs fast casual, but it's a little bit hybrid really operating between 16 and 18%.
Jim Sanderson: On a regular basis, depending on the business cycle and certainly for Cheesecake factory.
Jim Sanderson: We're right there for the full year already and I think still improving.
Jim Sanderson: And so as long as the environment remains supportive I think we can continue to push that towards the higher end and I would think that north mature would look and feel and operate a lot like cheesecake factory right and so that is what we saw in the fourth quarter and certainly.
Jim Sanderson: There is always going to be the drag from the new units, but the mature we feel like we'll operate very similar to the cheesecake and the same for flower child right. So for the full year flower child mature were 17% same as cheesecake factory, so pretty consistent Jim I think overall, our business model has kind of worked similarly.
Speaker Change: Lee and we target similar returns.
Jim Sanderson: We think the margin profiles are lining up pretty equivalent.
Speaker Change: Very good thank you very much.
Speaker Change: Yeah.
Speaker Change: Your next question comes from the line of Lauren Silberman with Deutsche Bank. Please go ahead.
Lauren Silberman: Thanks, guys.
Speaker Change: I just wanted to follow up on I think Bolton, Jeff a question a lot of noise exiting 'twenty four and start the year can you give some color on the cadence of trends that you saw throughout the quarter.
Speaker Change: And I think it looks like 100 basis point headwind that youre talking to Hawaii.
Speaker Change: Do you expect to be in that 1% to 2% range on comp in.
Speaker Change: In the first quarter.
Speaker Change: Our business is pretty steady and predictable through the fourth quarter.
Speaker Change: I think that there wasn't a lot of noise and.
Speaker Change: We talked about those a little blip around the election that was kind of.
Speaker Change: Assumed in our guidance and that came through and then a little bit of the holiday shifts, but those are all as pretty much spot on unexpected it was really consistent with our own expectations there.
Speaker Change: Then I think if you if you or if you look at the guide the answer would be yes, we're not giving specific comps, but we feel like even inclusive of the weather, we're experiencing consistent trends similar to what we did all of last year.
Speaker Change: Great. Thanks, and then a follow up on the prior question really impressive Cheesecake, where all margins I think you mentioned 18, 4% this quarter or.
Speaker Change: Seven years is there a restaurant margin level, where do you think about reinvesting in price or.
Speaker Change: Alright, Thank you Silvia room to get there I guess.
Speaker Change: The high end of 16% to 18%, how youre thinking about it.
Speaker Change: Yes, two things on that Ryan keep in mind that Q4 tends to be a higher margin for us given the seasonality effect and the flow through so we is a great question and we were thinking about it more on annual basis, though because you kind of have a little bit Q1 tends to come back down because of the.
Speaker Change: Sales volumes in Q2 goes back up.
Speaker Change: But so we were 17% for cheesecake for the full year. So it feels good right that feels like we're in a good spot.
Speaker Change: Or minus a few basis points is right in the middle of the range. We targeted so we'll continue to watch that.
Speaker Change: And monitored and Theres also other ways of sort of reinvesting I mean, we're certainly not cutting back on any of the training that we do with our teams the menu development all of the other components of the business, we've never taken portion sizes down or taken anything away from the guests that many of our competitors did that get their margins up in the first.
Speaker Change: Place and so part of the reinvestment I will say is keeping it the same.
Speaker Change: Great. Thanks, so much.
Speaker Change: Your next question comes from the line of Brian Harper with Morgan Stanley. Please go ahead.
Speaker Change: Okay.
Brian Harper: Thanks, Good afternoon guys.
Speaker Change: Matt just on.
Speaker Change: The margins as we think about.
Speaker Change: This year I mean, obviously in 'twenty four you had quite a bit of favorability on the food line.
Speaker Change: <unk> it looks like you had very good favorability on the labor line.
Speaker Change: Is.
Speaker Change: How should we think about that in 25 I mean do you think there is still food favorability is this more of sort of a labor opportunity and it does seem like your stores and are very focused on that could.
Speaker Change: Could you talk about some of those those different pieces of the cost side.
Speaker Change: Yes, Brian Great. Great question, just to give some color for everybody here I do think there is a little bit of room in both of those I think again. This is this is consistent with what we said on the <unk>.
Last call and the Great News is the business continues to be predictable and consistent so I think theres some room on both Cogs and labor, although not as much right I mean, we captured quite a bit.
But I do think that we will see you know 20 basis points to 30 in each of those for a full year, but maybe a little bit of pressure in other opex and we've seen that.
Speaker Change: The cost of utilities has gone up a little bit faster, possibly so maybe a slight offset on the other opex and then certainly the preopening costs that we've talked about are the other kind of key components, there, but as we've seen retention continued to improve even into January of this year, we should lap around.
Speaker Change: Some of those benefits on the labor line, regardless of any of the other pieces and on the commodities. It continues to be fairly benign outside of <unk> of course, I mean, that's a huge flash point for everybody and we're watching that but any one piece isn't going to I think derail our momentum and that give.
Speaker Change: The broad market basket.
Speaker Change: Okay makes sense. Thanks.
Speaker Change: Quickly could you just comment on what the impairment was related to for the other FRC segment.
Speaker Change: Yes, we did.
Speaker Change: And already reminded me here for Jim's question on the closures, we did actually have one culinary dropout and <unk>.
Speaker Change: <unk> that we did have to close and to impair.
Speaker Change: In a market where there was like 15 restaurants are close on basically this one street at kind of the development just didn't didn't happen and so we wanted to continue to focus on the other areas of positivity. So that was the that was like 80% of everything right there Brian.
Brian: Okay. Thanks.
Speaker Change: Your next question comes from the line of <unk> growth with J P. Morgan. Please go ahead.
Speaker Change: Hey, guys I wanted to dig in more on the flower child.
What would be the potential.
Speaker Change: Average volumes for a fully mature bulks and what kind of margin profile, where do you get to over time, because I think the format looking at the fast casual boxes out there that seems to be a lot more opportunity than the 17% and I'm also looking at the slide 31, you don't seem to model a lot of <unk>.
Speaker Change: It could go up from here and I look at the revenue potential. So I'm curious have you guys like to think about this and also any comments on the sales to investment ratio today on how you can improve that'll be helpful.
Speaker Change: Sure. It's good good questions.
Speaker Change: We've said, we're super happy about the performance of a flower child, and you're right we didn't model out.
Speaker Change: <unk> growth I think just to be conservative there and certainly there are upside potential associated with that we have we have units in the system that are doing in excess of $6 million right. So there is significant capacity potential and the build out.
Speaker Change: But I think there's again no reason to overshoot. This early stage, we feel great about the mature margins being being at 17%. They do continue to accelerate I don't think that we're ready to give sort of a definitive answer but when we think about the returns and we're comparing to say fast casual and <unk>.
Speaker Change: Think about a $4 5 million.
Speaker Change: The dollar contribution is very very significant coming out of 33 to 3400 square feet relative to a lot of fast casuals that are in the two $5 million AAV right. So it's a little bit of a unique.
Play and we think that's the competitive moat right I mean, nobody is doing what we're doing there. So we're super.
Speaker Change: Excited about the accretive returns that it can bring and the magnitude of the business that we think it can become and I think this is just the first sort of salvo as we as we grow that brand.
Speaker Change: Do you mind shedding the off premise mix, but this Brad sure. It's about 50 50, roughly speaking so we're about 50% on premise 50% off premise again, we think that's incredibly unique right because standard fast casual it's much higher off premise of your stand.
Speaker Change: <unk> full service with much lower off premise and so we don't think anybody is really doing the business the way that we're doing at a flower child today.
Speaker Change: Thanks for all the color.
Speaker Change: Our final question today comes from.
Speaker Change: Brian Vaccaro with Raymond James Please go ahead.
Brian Vaccaro: Hi, Thanks, I just wanted to squeeze one quick one on <unk>.
Speaker Change: North Italia.
Speaker Change: It's a very strong new unit openings there for the brands recently are there any comments you highlighted there that are driving those higher volumes.
Speaker Change: Well, Brian they were certainly in great markets.
Speaker Change: We look at the busiest one was in Cerritos out here in California, where we have one of our busiest cheesecake factories.
Speaker Change: There wasn't Henderson. So they are in markets, where we currently have a good presence with north so as Matt mentioned earlier, when we go into not necessarily an infill situation because there's only two now in Nevada, but when we have that awareness, we certainly see those heightened sales.
Speaker Change: And that was part of the benefit in Q4.
Speaker Change: Okay, great and the margins also.
Speaker Change: Sure March 18, a quite a nice improvement, especially.
Speaker Change: Constant right.
Speaker Change: Could you just elaborate a little bit on what drove that specifically and European brand starting to hit sort of a higher gear, where you'd expect the store margins on our mature stores to be in that 16% to 18% going forward. Thanks for all the time.
Speaker Change: Yes, Brian This is Matt I think so again, there's seasonality right. So certainly north Italia plays well in the holiday season.
Speaker Change: Special occasion, and drove really strong volumes at the mature level.
Speaker Change: So we would anticipate that the mature store would continue to be on an annual basis between 16 and 18% at this point in time.
Speaker Change: As we said during last year, we got a little behind on pricing as noted in the commentary we caught that up finally.
Speaker Change: So I think it's a combination of greatest great operations.
Speaker Change: Improving brand awareness, and then being sort of fully stable on the pricing versus inflation.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen that does conclude our question and answer session and that does conclude today's conference call. Thank you for your participation and you may now disconnect.
Speaker Change: Okay.
Speaker Change:
Speaker Change: Yeah.