Q1 2025 Cheesecake Factory Inc Earnings Call
While effectively managing all facets of their restaurants.
Our efforts led to year over year improvements in labor management, and food efficiencies, resulting in substantially greater restaurant level profitability and.
In fact, the Cheesecake factory four wall restaurant margins increased to 17, 4% up 140 basis points from the first quarter in 2024.
On the development front, we're off to an excellent start with eight restaurant openings in the first quarter, including three North Italia.
<unk> flower child to FRC restaurants.
Subsequent to quarter end, we opened three restaurants, including one flower child, and two FRC restaurants, and we expect to open as many as five more restaurants in the next two months for a total of eight new openings in the second quarter.
This continued development cadence reflects meaningful progress towards our goal of accelerating new unit growth.
Looking ahead, we continue to expect to open as many as 25, new restaurants in 2025, and we anticipate two cheesecake factory restaurants to open internationally under licensing agreements.
Underscoring the strength of our culture and values. We're proud to have been named once again to the Fortune magazine's 100 best companies to work forward with for the 12th consecutive year. This recognition highlights our vibrant culture exceptional training programs and commitment to our employees.
All of which continue to support our ability to attract and retain talent as the employer of choice in the industry.
In summary, we delivered another strong quarter and as we look ahead, we remain steadfast in our commitment to our menu innovation exceptional operational execution and maintaining the contemporary design and ambiance of our restaurant.
These are hallmarks of our more than four and a half decade of etch.
And we will continue to pave the way for future success.
Speaker Change: With that I will now turn the call over to David Gordon to provide an operational update thank.
Speaker Change: Thank you David.
Speaker Change: Strong operational performance and notable results are driven by our talented team and our ongoing focus on staffing and retention.
Speaker Change: During the first quarter.
Speaker Change: Further improvement in our already industry, leading manager and staff retention, which we believe directly contributed to outstanding guest experiences overall restaurant performance and ultimately sales growth.
Speaker Change: In fact first quarter guest satisfaction scores improved both sequentially and year over year.
As David highlighted we.
Speaker Change: We believe a significant driver of our margin expansion was improved operational execution.
Speaker Change: While maintaining the quality of our guest experiences and compelling value perception that are essential in today's increasingly competitive landscape.
Speaker Change: Shifting to marketing.
Speaker Change: <unk>, new menu change, which featured more than 20, new items across a broad range of contemporary cuisines and categories garnered substantial media coverage with over 700 placements and more than $8 billion potential PR impressions.
Speaker Change: Nearly double the coverage from Q1 of 2024.
Speaker Change: This success highlights our ability to effectively leverage social media, along with broadcast print and digital channels to engage with our guests and further elevate brand awareness.
Speaker Change: Turning to Cheesecake rewards, we're pleased with the program's continued momentum member acquisition continues to exceed our expectations and guest feedback remains overwhelmingly positive with member satisfaction over indexing.
Speaker Change: As we progress to the next phase of the program our approach to offer its has shifted from broad large scale testing to a more personalized strategy.
Speaker Change: <unk> offers based on member behavior activity and attributes.
Speaker Change: This shift has driven higher engagement as members respond to offer increasingly relevant to that.
Speaker Change: Now turning to North Italia.
Speaker Change: First quarter annualized <unk> for North Italia increased 1% to $775 million.
Speaker Change: Comparable sales declined 1% with the impact of a Los Angeles fires weighing more heavily on performance due to the concepts smaller comp base relative to the Cheesecake factory.
Speaker Change: We opened three new North Italia locations during the quarter, including one in a new market Salt Lake City.
Speaker Change: All three restaurants opened with above average.
Speaker Change: Enforcing our belief in the strong consumer demand for an on trend contemporary Italian dining experience like North Italia.
Speaker Change: Restaurant level profit margin for the adjusted mature North Italia locations improved meaningfully from the prior year to 16, 6% the margin expansion.
Speaker Change: Spansion was primarily driven by operational improvements as well as more favorable commodity and labor inflation than anticipated.
Speaker Change: Flower child continues on a strong upward trajectory with comparable sales increasing by 5% significantly outperforming the black box fast casual dining index, which declined 1%.
Speaker Change: This sales momentum drove average weekly sales of $88500 for an annualized <unk>.
Speaker Change: Of over $4 $6 million of.
Speaker Change: A 6% increase over the first quarter of 2024.
Speaker Change: We also opened three new flower child locations during the quarter to solid demand with aggregate average weekly sales for the three restaurants, reaching nearly $80500 for an annualized <unk> of nearly $4 $2 million.
Speaker Change: Restaurant level profit margin for the adjusted mature flower child locations rose to 18, 6% for the first quarter, reflecting continued operational improvements.
Speaker Change: In summary, we are encouraged by the strong performance of our portfolio fueled by consistent sales growth operational enhancements and sequential margin expansion.
Speaker Change: We believe we are well positioned to achieve our long term unit growth objectives and with that let me turn the call over to Matt for our financial review.
Matt: Thank you David Let me first provide a high level recap of our first quarter results versus our expectations I outlined last quarter.
Matt: Total revenues of $927 million.
Matt: Finished towards the high end of the range we provided.
Matt: Adjusted net income margin of four 9% exceeded the high end of the guidance range, we provided additionally.
Matt: Additionally, during the first quarter.
Matt: Strengthened our liquidity position and balance sheet through the issuance of $575 million of 2% convertible notes due 2030.
Matt: The proceeds were allocated to repurchase $276 million of our 2026 convertible notes buy back two 4 million shares of our common stock.
Matt: And fully pay down our revolving credit facility balance.
Matt: Total, we returned $153 $8 million to shareholders during the quarter dip.
Matt: Dividends and share repurchases, including the $130 million related to the common stock repurchase concurrently with the instruments.
Now turning to some more specific details around the quarter.
Matt: First quarter total sales at the Cheesecake factory restaurants are $673 million.
Matt: Up 1% from the prior year.
Matt: Comparable sales increased 1% versus the prior year supported by 22% off premise sales mix.
Matt: Total sales for North Italia, or $83 4 million up 18% from the prior year period.
Matt: Other FRC sales totaled $87 4 million up 18% from the prior year.
Matt: <unk> sales per operating week or 139000.
Matt: $700.
Matt: <unk> sales totaled $43 5 million up 26% from the prior year.
Matt: And sales per operating week were $88500.
Matt: External bakery sales were $12 7 million now.
Matt: Now moving to year over year expense variance commentary.
Matt: In the first quarter, we continued to realize some year over year improvement across several key line items in the P&L.
Matt: Specifically cost of sales decreased 100 basis points, primarily driven by favorable commodity costs.
Matt: Labor as a percent of sales declined to 30 basis points, primarily driven by the continued improvement in retention supporting labor productivity gains and wage leverage.
Matt: Other operating expenses increased 40 basis points as expected primarily.
Matt: Driven by timing of marketing and rewards costs and slightly higher facility related costs.
Matt: G&A decreased 30 basis points, primarily driven by lower professional fees.
Matt: Depreciation remained relatively flat as a percent of sales pre.
Matt: Preopening costs were $8 1 million in the quarter compared to $5 9 million in the prior year period.
Matt: <unk> eight restaurants during the first quarter versus five restaurants in the first quarter of 2024.
Matt: And in the first quarter, we recorded a pre tax net expense of $17 $3 million related to loss on extinguishment of debt associated with the partial redemption of our convertible senior notes due 2026, FRC acquisition related items and impair.
Matt: <unk> of assets and lease termination expenses.
Matt: First quarter GAAP diluted net income per share was <unk> 67.
Matt: Adjusted diluted net income per share was <unk> 93.
Matt: Now turning to our balance sheet and capital allocation.
Matt: The company ended the quarter with total available liquidity of approximately $501 $9 million, including a cash balance of $135 $4 million.
Matt: And approximately $366 $5 million available on our revolving credit facility.
Matt: Total principal amount of debt outstanding was $644 million.
Matt: Including $69 million and principal amount of convertible notes due 2026.
$575 million and principal amount of convertible notes due 2030.
Matt: Capex totaled approximately $43 million during the first quarter for new unit development and maintenance.
Matt: During the quarter, we completed approximately 141 4 million in share repurchases and.
Matt: And returned $12 $5 million to shareholders via our dividend.
Matt: Now, let me turn 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 Q2.
Matt: And full year 2025.
Matt: Assumptions factor in everything we know as of today.
Matt: Including net restaurant counts.
Matt: Quarter to date trends, our expectations for the weeks ahead and anticipated impacts associated with holiday shifts.
Matt: To that end we are.
Matt: Were updating our total revenue outlook to align more closely with the lower end of previous expectations.
Matt: We believe this to be prudent in light of recent economic growth and real disposable income forecasts, which have been revised downward by approximately 1%.
Matt: Lastly, and importantly, we continue to evaluate the potential impact of the tariffs along with the business levers we control to mitigate the effects.
At this time based on the tariffs as currently outlined we believe we are well positioned to substantially absorbed the impact without changing our adjusted net income margin expectations.
Matt: Specifically for Q2, we anticipate total revenues to be between 935 and $950 million.
Matt: Next at this time, we expect effective commodity inflation of low single digits for Q2.
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 $9 5 million to support the eight planned openings in the quarter and early Q3 openings.
Matt: Based on these assumptions, we would anticipate adjusted net income margin to be about five three to five 4% based on the sales range provided.
Matt: For modeling purposes.
Matt: We are assuming a tax rate of 9% to 10%.
Matt: And weighted average shares outstanding of just above 48 million shares.
Matt: Now for the full year.
Matt: Based on similar assumptions and no material operating or consumer disruptions.
Matt: We anticipate total revenues for fiscal 2025 to be approximately $3 seven 6 billion.
Matt: At the midpoint of our estimates.
Matt: For sensitivity purposes, we are using a range of plus or minus 1%.
Matt: We currently estimate total inflation across our commodity basket.
Matt: Labor and other operating expenses to be in the low to mid single digit range inclusive of the currently proposed tariff levels.
Matt: We are estimating G&A to be about flat year over year as a percent of sales.
Matt: And depreciation to be about $108 million for the year.
Matt: And given our unit growth expectations, we are estimating preopening expenses to be approximately $34 million.
Matt: Based on these assumptions, we continue to expect full year adjusted net income margin to be approximately 475% of sales estimate provided.
Matt: For modeling purposes, we are assuming a 10% tax rate.
Matt: And weighted average shares outstanding relatively flat to 2024.
Matt: With regard to development.
Matt: As David stated earlier, we expect to open as many as 25, new restaurants in 2025.
Matt: With as many as eight openings in the second quarter and the remainder in the back half of the year.
Matt: This includes as many as three to four cheesecake factories six to seven North Italia is.
Matt: 6% to seven flower childs.
Matt: Eight to nine FRC restaurants.
Matt: 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.
Matt: In closing we.
Matt: We are pleased with our first quarter performance, which reflected steady sales trends solid operational execution and continued profitability improvement.
Matt: Our operators executed well across key performance drivers and our new restaurant openings were met with strong demand delivering solid early sales results there.
Matt: Consistency of execution and the strength of our concepts continue to reinforce our confidence as we progress through the year.
Matt: We remain focused on making progress against our long term priorities.
Matt: Growing comparable restaurant sales expanding margins.
Matt: And accelerating new unit development.
Matt: While the broader macroeconomic environment has become more uncertain.
Matt: Our experience and success operating through a variety of economic cycles underscores the durability of our business with the strategy that has delivered consistent results.
Matt: And enhanced financial flexibility, we believe we are well positioned to manage near term uncertainty and continue delivering sustainable long term value.
Matt: With that said, we'll take your questions.
Matt: And thank you we will now begin the question and answer session.
Matt: If you have dialed in and would like to ask a question. Please press star one on your telephone keypad to raise your hand and join the queue.
Matt: If you would like to withdraw your question simply press Star one a second time.
Matt: If you are called upon to ask your question and our listening via Speakerphone on your device. Please pickup your handset and ensure that your phone is not on mute when asking your question.
Matt: To be able to take as many of your questions as possible. We ask that you. Please limit yourself to one question and one follow up again.
Matt: Again.
Matt: It is star one if you would like to join the queue.
Speaker Change: And your first question comes from the line of David Tarantino with Baird. Your line is open.
David Tarantino: Hi, good afternoon.
David Tarantino: Matt I think you mentioned in your guidance.
David Tarantino: <unk>.
David Tarantino: You are assuming or at least factoring in the uncertain macro environment and I guess my question is is that something you're actually seeing in your business.
David Tarantino: Have you already seen that kind of creep in at the end of Q1 and early Q2 like we've heard from some others or just the projection that it might creep and as the year goes on.
David Tarantino: Yes, David This is Matt I mean, I think it's an understatement to say that theres been a lot of noise in the first four months of this year.
David Tarantino: Talking about unprecedented weather the fires in Los Angeles.
David Tarantino: The holiday shifts.
David Tarantino: Potential of it.
David Tarantino: Theres a lot of pull forward of spending into March.
David Tarantino: From consumers, so I would say, it's a little bit of both.
David Tarantino: Really we hit the number in the first quarter of the business remains very stable very predictable, but the environment doesn't feel as robust as maybe.
David Tarantino: Three months ago, and so it seems like a pretty prudent perspective to assume that continues throughout the balance of this year and we feel good about where we're where our managing it exceptionally well our flow through is excellent and so we built a lot of credibility over the past.
David Tarantino: Last year, and a half with our results and Thats, our intention to continue to build on that.
Speaker Change: Makes sense and then just a clarification I think your your prior revenue range.
Speaker Change: I believe assume comps up 1% to 2% like you've been running for most of 2024 and it looks like it.
Speaker Change: Total revenue came down by about a point.
Speaker Change: Right way to think about it that the new guidance then.
Speaker Change: It may be flat to up one instead of up one to two.
Speaker Change: I think the math is pretty straightforward as you indicated and that aligns with our overall perspective of where GDP and disposable income is likely to fall out and so it's reflected similarly in Macau.
Speaker Change: Got it thank you very much.
Speaker Change: And your next question comes from the line of Sharon Zackfia with William Blair. Your line is open.
Sharon Zackfia: Hi, good afternoon.
Sharon Zackfia: The comments on tariffs I guess, if you could help quantify kind of where you would expect to see tariff to hit your P&L and kind of the magnitude and when youre talking about absorbing as that through incremental efficiencies is that through price.
Sharon Zackfia: If you could kind of walk us through your thoughts.
Sharon Zackfia: Sure Sharon this is Matt. Thanks for that question I think it's an important topic to cover.
Sharon Zackfia: Certainly as we're talking about it it's really reflective of where things are at today.
Sharon Zackfia: As everybody knows it's an uncertain future with respect to that.
Sharon Zackfia: But probably the biggest impact we would see.
Sharon Zackfia: Particularly as as a percentage of the actual spend would be in other operating expenses. Obviously, we're importing a preponderance of our small we're going to go packaging and things like that whereas really if you think about on the true commodities for the cost of goods for the food side of that most of that is coming from from the United.
Sharon Zackfia: States and so it's probably going to taper in because a lot of the items were either brought in in advance or on ship for the for the second quarter and then it will probably build a little bit into the third and then will be a sort of a steady state at that point in time as we said we're not.
Sharon Zackfia: We're not going to change our margin outlook, regardless of that or the sales piece, we've been running favorably in labor and cost of sales. Some of those pieces are offsetting it naturally so I think that that would benefit I do think we will look for <unk>.
Sharon Zackfia: <unk> reduction in costs in other areas, if we have to implement a little bit of pricing in the future.
Sharon Zackfia: Somewhere in the 50 to 75 basis points, we'll evaluate that as well will also just continue to work with our vendors. We have very strong long term relationships, we'll evaluate whether there can be some offsets on their end of support.
Sharon Zackfia: Or if there needs to be a different supply options for us in the more medium to longer term. So it's just it's all on the table, we have a pretty good.
Sharon Zackfia: Book here from the Covid years on how to navigate challenging supply chains work.
Sharon Zackfia: Pretty confident that everything will be.
Sharon Zackfia: Pretty seamless in the in the near term.
Speaker Change: I wanted to touch two upon Michael loyalty and marketing because those are certainly loyalties, Nathan and marketing and I feel like I've never been a huge part of the Cheesecake factory story, historically, but you kind of got my attention with the media impressions comment that you made.
Speaker Change: For the first quarter and then loyalty maybe gives you a new lever if you can get more segmented.
Speaker Change: Driving consistency in a more volatile environment can you kind of talk through how important you think these could be for you in 25 or is it more still learning an iterative and more like a 26 and beyond driver.
Speaker Change: Sure Sharon Hi, This is David Gordon that's a great great question and we certainly got some great PR around the new menu that has been rolling out for the past couple of months.
Speaker Change: A lot of publicity around the types of cuisines and the fact that we added roughly 20 new menu items.
Speaker Change: And thus far guest reception to that new menu has been really terrific. So anytime we can get that type of PR around menu innovation, which is a key component and competitive advantage for us we're going to look to continue to garner that as we work on the next menu change that will be coming up in summer.
Speaker Change: In regards to rewards we continue to be very pleased with <unk> acquisition continues to exceed our own internal expectations member guest satisfaction scores average check and frequency continue to be very very promising we spend a good amount of time.
Speaker Change: In Q1, working with our marketing and it teams to collaborate to be able to enable very specific day part offers and thats something that as we move into the second quarter. We think we're going to be able to do and throughout the remainder of this year be much more targeted with rewards members we certainly.
Speaker Change: See that when we're able to personalize those behavior personalize those offers that's.
Speaker Change: Thats the behavior of those guests have higher redemption rates than just broad based rewards only when we have launched them throughout last year. So I think it is a promising lever for us moving forward I think we're set up really well internally to continue to pull that lever and drive some incremental.
Speaker Change: Ali if we need to to specific day parts.
Speaker Change: And two specific parts of the check so that's a lever we haven't historically had we've worked hard for the past few years to get to the point. We're at today and we're excited to be able to launch a lot of it throughout the remainder of the year.
Speaker Change: Okay. Thank you.
Speaker Change: And your next question comes from the line of Andy Barish with Jefferies. Your line is open.
Andy Barish: Hey, guys.
Speaker Change: I was wondering if you could just give.
Speaker Change: Give us the quick same store sales components at the Cheesecake and your gap versus Black box and then you mentioned some of the account the calendar stop I assume.
Speaker Change: The later Easter was a little bit of a headwind in the <unk>, but then helps in the <unk> am I remembering that correctly.
Andy Barish: Yes, Andy.
Andy Barish: That is correct.
Andy Barish: So specifically for <unk>, we were at about 4% effective pricing traffic was negative one point too in some mix was the difference on that.
Andy Barish: It was about where we expect it to given the weather and we've given that number in the prior call and Thats. The primary impact on traffic the mixed piece keeping in mind. The large menu change that David Gordon mentioned, we've put a lot of newer items with lower price points on it we actually took some higher price.
Andy Barish: Point items off and so there was a little bit of a rollover here that that is continuing that but we think that's important to stress the value and to drive the long term for the gas and so so we will continue to lean into that we don't necessarily see that as an impediment to bringing in new lower priced items.
Andy Barish: And generally speaking I think the trends have been very very consistent absent some of those those pieces I don't have the.
Andy Barish: The Blackhawks right in front of me I know, we're looking at it both on a one and a two year because of the whole calendar shift, but I think.
Andy Barish: A two year basis, we're still pretty favorable.
Andy Barish: Got it and then.
Andy Barish: Just on north.
Andy Barish: I assume.
Andy Barish: Beverage alcohol.
Andy Barish: Still a little bit of a headwind as consumers of gas and maybe it's a little bit of a secular thing so.
Andy Barish: Is that kind of what youre seeing along with you know.
Andy Barish: Our small comp base in that in that brand.
Andy Barish: Yes, I mean, there are a couple.
Andy Barish: Of things right. The fires were more impactful as David Gordon mentioned, if you look at the the fire and the weather combined it would have been basically the same comp as it was in the fourth quarter. So yes, there is a little bit of that alcohol piece, a little bit of the idiosyncratic, but it was also much more stable than maybe that number looks like right.
Andy Barish: And predictable and I think you can also see that in the margin improvement obviously, when you've got sales trends that the operators are able to see and to manage too. That's one of the ways that you get a significant boost in the four wall margins that we saw in the first quarter for north which is a really promising sign.
Speaker Change: Got it thank you very much.
Jon Tower: And your next question comes from the line of Jon Tower with Citigroup. Your line is open.
Jon Tower: Hey, Thanks for taking the question.
Jon Tower: Maybe just on the labor productivity side, you guys have obviously done a great job of.
Jon Tower: Levering that line.
Jon Tower: Overtime and sales have held in there nicely.
Jon Tower: I'm, just curious down I think on a per store week basis, another roughly 2% this quarter year over year.
Jon Tower: And then just thinking about it going forward are you anticipating this kind of level of Av.
Jon Tower: Continued improvement going forward it sounds like youre, not anticipating much by way of inflation ticking higher or.
Jon Tower: There anything in the horizon with respect to initiatives that we should be aware of that would alter kind of the path on a per week spending basis.
Jon Tower: Im just trying to make sure we're not.
Jon Tower: Missing anything going forward.
Jon Tower: Yes, John This is Matt I would just give the operators all of the credit really with the retention and the focus on back to basics over the past 18 months as well we've seen productivity improvements production.
Jon Tower: And training expenses reduction in overtime I think it was a 7% sequential improvement in retention in and so I don't know that we get better I mean, thats, where we are by far leading the industry, but certainly we will continue to lap over if we just hold the line right and so I think that.
Jon Tower: Youll continue to see some benefit in that metric, but it may be tapering a little bit over the course of the <unk>.
Jon Tower: <unk> of the year.
Jon Tower: Okay, Great and then.
Jon Tower: I know you had.
We discussed a little bit earlier, the rewards program.
Speaker Change: Marketing just curious maybe if you could provide a little bit more by way of metrics actual numbers in terms of.
Speaker Change: How many members you have got signed up and perhaps I know you also spoke to it being a bit of a drag on the P&L This quarter I think.
Speaker Change: That line the other Opex line was up about 40 basis points year over year can you quantify how much of a drag that actually was.
Speaker Change: At this point basis.
Speaker Change: Yes, Joe this is Matt I'll start with that.
Speaker Change: It was probably about 15 for sort of the marketing slash rewards piece of it so not significant and then as we had talked about before the facilities related and there might be some of the.
Speaker Change: Utilities in the.
Speaker Change: The noncash rent that hits that Joe It was pretty much right, where we thought it would be and then from a technical perspective. The number of members that we have is a lot.
Speaker Change: That's the number we're going to give you this fall.
Speaker Change: Which is a little more than we gave you on the last call.
Speaker Change: Alright, I appreciate it thanks for taking the questions.
Brian Vaccaro: And your next question comes from the line of Brian Vaccaro with Raymond James Your line is open.
Brian Vaccaro: Hi, Thanks, and good evening.
Brian Vaccaro: Just a question back on the commodity inflation piece.
Brian Vaccaro: The inflation in the first quarter are there any savings or other initiatives that are worth quantifying playing out and then how do you expect Q2 second half inflation on the commodity side to play out.
Brian Vaccaro: Yes, Brian This is Matt it was pretty close to breakeven.
Brian Vaccaro: The commodities and the.
Speaker Change: First quarter overall, and and I think also related to the retention. The teams are doing a great job with food efficiencies and so it remains again with our broad market basket very very stable relative to all the puts and takes right all of the kind of ups and downs of eggs and everything.
Brian Vaccaro: All of that.
Brian Vaccaro: Looks pretty decent in the second quarter as well, maybe a tick up from that still low single digits and certainly there is an anticipation of a little bit of pressure.
Brian Vaccaro: With the tariffs going into the back half of the year, specifically, but even even with all of that is still low single digits in our model at this point in time.
Speaker Change: Okay. That's that's helpful. And then I wanted to ask I think Theres, a cheesecake factory closure happening this week maybe.
Brian Vaccaro: Saw some headlines can.
Brian Vaccaro: Can you confirm that but then also are there any other closures, we should be mindful of as it relates to your annual guidance.
Brian Vaccaro: That is correct. We had mentioned on the last call that we had a mid Q2 cheesecake closure.
Brian Vaccaro: The location is Seattle and there are no other planned or forecasted at this point in time to make people aware of.
Speaker Change: Okay, and then last one for me, maybe just on the flower child side.
Speaker Change: Obviously, you mentioned the continued strong comps up 5%.
Speaker Change: In a slowing environment softer maybe just talk about what you think is differentiating that brand's performance.
Speaker Change: Maybe just some color context.
Speaker Change: Sure.
Speaker Change: Great. Thank you.
Brian Vaccaro: Sure. Brian This is David Gordon, we continue to be very pleased with the performance of the flower child. So we opened in new markets in the quarter in Indianapolis and saw guests standing in line for that opening so new markets and existing markets I think that the concept continues to resonate because of the food quality.
Brian Vaccaro: City because of the offerings and I think the stability of the operations team there.
Brian Vaccaro: Our restaurants are running very very well.
Brian Vaccaro: We did have the same stable team in place now for a while and they've been able to open new restaurants, well and maintain things like productivity ramp up the restaurants quickly.
Brian Vaccaro: Really a focus on retention the same type of focus on people that we have a cheesecake factory is spread.
Brian Vaccaro: Two flower child, North and all of the FRC concepts and I think that's given them a bit of a competitive advantage.
Brian Vaccaro: It's a tough staffing market in the fast casual segment, the flower child being a little bit more like a full service restaurant I think it offers a good employment opportunity for people and so that stability has helped operations, but most importantly, thank the delicious food the experiential element of flower child, the design of the restaurants.
Brian Vaccaro: Attractive to today's consumer along with the price points and it's just really continuing to resonate.
Brian Vaccaro: We're really happy about that and looking forward to the continued growth this year.
Brian Vaccaro: Alright, thanks very much.
Speaker Change: And your next question comes from the line of Brian Harper with Morgan Stanley. Your line is open.
Brian Harper: Yeah, Hey, guys good afternoon.
Is.
Speaker Change: It is 4% still your pricing expectation for this year I guess did anything change with with the new menu you just released.
Speaker Change: Brian This is Matt no thats, our expectation and as you know we will change our menu twice a year, we will evaluate pricing at each of those turns based on all of the factors that we know at that point in time, but I would say for modeling purposes.
Speaker Change: Good estimate to use for the balance of the year.
Speaker Change: Okay cool.
Speaker Change: <unk>.
Speaker Change: I had a curiosity I don't remember if you talked about this before but do you do.
Speaker Change:
Speaker Change: The other cuts the other concepts besides cheesecake have sort of like.
Speaker Change: Like a different margin structure in terms of what cost of sales versus labor versus opex looks like and I guess like as it does grow.
Speaker Change: We see a.
Speaker Change: A different food cost ratio or a different labor cost ratio I don't know if thats played into any of what's going on recently, but I'm.
Speaker Change: Curious about that longer term too.
Speaker Change: Yes, Brian Thats, a really interesting question and I appreciate that because it does add a little bit of context, particularly how the P&L might look today versus say 2019, and if people were kind of modeling over time, certainly when we look at the other costs, that's coming from FERC, whether it's a north of a flower or any of the others.
Speaker Change: Have a little bit more than the other opex line I think that that's where you're seeing a little bit of that creep and we talked about that being permanent some of that has to do with the rent and the way that the lease accounting works and some other components, but by and large it's close enough its really not that different just a little bit different there.
Speaker Change: Maybe a little bit different on the cost of sales and sort of netting out on labor each of those maybe only the 10 20 basis points often so overall using cheesecake is a baseline youre going to get pretty close.
Speaker Change: Okay. Thanks.
Speaker Change: Your next question comes from the line of Brian Bittner with Oppenheimer. Your line is open.
Brian Bittner: Thanks, I think that's in that three Brian's in a row and I think this has happened before actually.
Speaker Change: Matt I wanted to ask you gave specific revenue guidance for <unk> just to level set is that.
Brian Bittner: Just quick.
Brian Bittner: Math on my end, so I could be wrong is that just like kind of flat to down one comps for for Cheesecake, North Italia to get there.
David: Thank you no it's pretty similar to the whole guide that David.
David Tarantino: Tarantino, it's closer to zero to one the other factors in there obviously would be Seattle, and we ended up closing that a little bit earlier than we saw some of the trends on the third party third party bakery sales.
David Tarantino: For us the fourth of July weekend is a negative so with all of that is being factored in and that's closer to that range.
Speaker Change: Okay. That's helpful.
Speaker Change: And just on your financial guidance initially I think the implied restaurant margins were around 15% to 25 basis points of expansion.
Speaker Change: Obviously in the first quarter, you put up 80 basis points of expansion overall in that line item. So youre well ahead, and I realize cogs were a helper with that flat food costs.
Speaker Change: You didn't change the net income margin gains or are you still expecting kind of 15 to 25 bps of restaurant margin expansion is you're just building in some conservatism there now with the tariff talk and all the rest of it.
Speaker Change: Yes, Brian.
Speaker Change: Brian we are still expecting that for the four wall and Youre right.
Speaker Change: The part of the difference from where we ended up in Q1 versus the outlook is that we have assumed the tariffs as they are right now and our expectations right and so we are absorbing quite a bit.
Speaker Change: Of that expense in that all sits in the four wall perspective, and so certainly we feel we feel good about being able to do that and leverage the underlying fundamental momentum that we have and not have to either pass it onto consumers or pass it onto our shareholders. It's kind of a win win given our.
Speaker Change: Our situation.
Speaker Change: Okay. Thank you.
Speaker Change: And your next question comes from the line of Jim <unk> with Keybanc. Your line is open.
Jim: Hey, guys. Good afternoon, Thanks for taking my question.
Speaker Change: I apologize if I missed this earlier you guys gave.
Speaker Change: Same store sales composition for <unk> could you give us the north as well just the break between.
Speaker Change: Ticket and traffic.
Speaker Change: Yes, Jim This is Ed Im sure.
Speaker Change: The North Italia mix is negative 2%.
Speaker Change: A slight improvement from where it was last year prices between four 5% and 5% traffic.
Speaker Change: Traffic was negative 4% just note as Matt mentioned earlier that was affected by the fires and the weather impact was a little greater just given our concentration in Texas.
Speaker Change: Okay, Great and then if I think about you know the.
Speaker Change: The.
Speaker Change: Outlook for the rest of the year and the consumer.
Speaker Change: Can you maybe talk through.
Speaker Change: Our same store sales progressed through the quarter and then any color you could give on the exit rate in April.
Speaker Change: Trying to parse is it that youre seeing.
Speaker Change: Some of the trends actually materialize or pretty consistent trends through <unk> and you guys are just kind of being given a lot of the uncertainty.
Speaker Change: Things stay as they are in terms of a run rate basis, it would actually imply that you're a little bit better than that.
Speaker Change: Flat to 100 basis points.
Matt: Yes, Jim This is Matt I mean, I think as you know.
Matt: There is a couple of factors one is as I noted just a lot of noise. So.
Matt: Being able to triangulate between the weather the fires the holiday shifts the retail pull forward in March.
Matt: Thats a lot to parse out over the first four months, probably more dynamic than it has been in five years on the sales front really.
Matt: And I think <unk>.
Matt: Obviously, we finished near the high end, but it wasn't at the high end.
Matt: Of our guide.
Matt: Sales are very predictable and stable, but I would say that the environment overall feels not quite as robust as we expected and then all of the news and all of the economists are saying expect a 1% or so impact in the back half of the year. So I think combining those two components. It just seems prudent.
Matt: Okay. Thanks.
Matt: I appreciate that I'll hop back in queue.
Speaker Change: And your next question comes from the line of Lauren Silberman with Deutsche Bank. Your line is open.
Matt: Thank you very much just a bit of a follow up if we could dissect the comps a little bit more.
Matt: Any differences that you're seeing in performance across regions or days any discernible changes in consumer behavior.
Matt: Lauren This is Matt I was just looking at all of that this morning in anticipation of your question.
Matt: The day parts remain incredibly consistent the days of week remain consistent I think any of the regional discrepancies that we've seen can be substantially attributed to weather or holiday shifts.
Speaker Change: Spring breaks that each of the areas observe can be significantly different.
Speaker Change: Particularly for Cheesecake factory that can be a major influence and so the.
Speaker Change: The good news is while the environment isn't as robust as I think any of us would like the predictability and the consistency of our sales patterns that remains.
Speaker Change: Great.
Speaker Change: On that mix.
Speaker Change: Dynamic.
Speaker Change: Now that we've talked about alcohol like over the past several quarters you spoke to the menu change component. This quarter I guess, how do you expect mix to trend as we move through the rest of the year.
Speaker Change: I would say that given the menu change that we did and I think our anticipation of continuing to lean into the value with the future menu changes in this environment, which has been our historical norm and consumer preferences, moving from particularly alcoholic and non alcoholic <unk>.
Speaker Change: We've seen a significant bump up in attachment, but obviously at a lower price I would continue to expect the mix to be negative for us.
Speaker Change: Exact number but that 1% to 2% range for modeling purposes, its probably pretty good.
Speaker Change: Great and then just last one on the off premise channel are you seeing any differences in terms of demand and delivery.
Speaker Change: Alright.
Speaker Change: Thank you yeah.
Speaker Change: Hi, Lauren this is David again.
Speaker Change: Incredible consistency and off premise Cheesecake factory was a 22% total off Prem which was exact same as.
Speaker Change: Q1 of 2024 and up 1% sequentially from last quarter. So the consistency is really remarkable cheesecake in the mix.
Speaker Change: That is about 10% delivery, 7% phone and walk up and 7% digital ordering.
Speaker Change: And in North sits about 14% total off Prem.
Speaker Change: Also right in line with where they were in Q1 of 2024.
Speaker Change: And the consistency there is very similar to the cheesecake, 10% of that mixes delivery.
Speaker Change: And phone and walk up make up the rest of it. So it's a part of our business. It has remained very very stable I think guests continue to use cheesecake factory for off premise.
Speaker Change: Number one for food quality and variety, but also for value and the operators doing a great job of consistent performance in the off premise channel.
Speaker Change: Great. Thank you so much.
Speaker Change: And your next question comes from the line of Jim Sanderson with Northcoast Research. Your line is open.
Jim Sanderson: Hey, Thanks for the question I wanted to go back to development asking you. If you were noticing any impact on build costs materials costs related to tariffs on Chinese goods or if theres any impact youre noticing on your ability to procure and to sustain your development targets for the next one to two years.
Jim Sanderson: Hi, Jim This is Matt. It's good question, it's an important part of our growth.
Speaker Change: Certainly we continue to target that 25 openings. This year will target for the first half 16, So I think that that's a really good cadence for us.
Speaker Change: We're ahead of schedule for this year the preponderance of those orders have already been made and shipped and so we're not really anticipating any significant tariff impacts to construction costs, which have by the way come back really nicely in line with our long term expectations following the COVID-19.
Speaker Change: So we're feeling really good about where all of our Capex is coming in for this year.
Speaker Change: With respect to the longer term.
Speaker Change: We'll see where the tariffs play out in <unk>.
Speaker Change: We will adapt as we always have but I don't have any 12 or 18 month prognosis on that really but it would be dependent on the policy at the government level.
Speaker Change: No understood as your supply chain built such that you won't really see an impact until sometime in 2026, because you've already procured enough.
Speaker Change: As you look at it that's exactly right.
Speaker Change: Exactly right, so who walked right now and see how things play out.
Speaker Change: We're constantly on a rolling ordering schedule for large pieces of equivalent.
Speaker Change: For all of those pieces on <unk>.
Speaker Change: Speaking to our development team, we haven't seen any any impact on the construction front or the construction labor Franco.
Speaker Change: Or any of those components that would keep us from hitting our goals.
Speaker Change: Okay, and a quick follow up any change in sentiment youre picking up from real estate developers as you discuss longer term projects and building out on a multiyear basis.
David: Hi, Jim This is David no actually things continue to look promising.
David: Our portfolio of brands continues to attract landlords that want experiential dining and their projects, whether thats Cheesecake factory, North Italia or fast casual like flower child. So we're sitting in a really good place.
David: We continue to feel as Matt said really good about the growth moving forward and our ability to hit the targets that we've talked about.
David: Alright, I'll pass it on thank you very much.
Speaker Change: And your next question comes from the line of Jeffrey Bernstein with Barclays. Your line is open.
Jeffrey Bernstein: Great. Thank you very much.
Jeffrey Bernstein: First question was just a follow up on the comps with all the data you have on your consumer just wondering whether there is any noticeable change by income level or by ethnicity or.
Jeffrey Bernstein: The mix changes towards value I know you mentioned do you have a new menu, which has more value friendly, but I'm wondering whether there's any conscious shift you're noticing.
Jeffrey Bernstein: I know your core customer tends to be more affluent than the average, but it does seem like no. One is immune so just trying to get your sense for based on the data you have what trends you've seen and then I had one follow up.
David Tarantino: Sure. Jeff. This is David again are our consumer remains incredibly consistent we really have not seen a change in ordering patterns. If you look at dessert sales for Cheesecake factory Theres still sitting at 17% of total sales we've talked a lot about the dip in alcohol sales, but if you really go back and look at the past four quarters now.
David Tarantino: It's not like that's taken another step down it's very consistent to where it was in Q1 of last year. So.
Speaker Change: We're not seeing a real change in any consumer behavior other than the mix shift that Matt talked about earlier, we don't see incident rate changes in any dramatic way.
Speaker Change: So I think our consumer thus far has been really really resilient and we'll see what happens throughout the remainder of the year.
Speaker Change: Got you that's good to hear.
Speaker Change: And then my follow up is just just.
Speaker Change: More curiosity sake, obviously, you have a lot of international units and I would think Cheesecake factory is well recognized as a U S brand. So I'm wondering whether there's any sign of pressure or change in behavior and there's a lot of it.
Speaker Change: Talk about geopolitics and anti American sentiment. So just curious as you have stores in so many different markets and you are kind of a U S brand any thoughts there would be great. Thank you.
Jeff: Sure, Jeff certainly Theres a lot of turmoil out there in the world I think.
Speaker Change: Really pleased with the performance in all of our international locations. They are comp positive in the first quarter.
Speaker Change: And all of those different geographies. So the brand continues to resonate.
Speaker Change: Everywhere around the world and we will see obviously went unfolds throughout the rest of this year, but there was certainly nothing in Q1 that would give us pause that people are pulling back from joining all the benefits of eating of the cheesecake factory around the world.
Speaker Change: Positive comps in all your international units that's incredible thank you.
Speaker Change: Your next question comes from the line of Christine Cho with Goldman Sachs. Your line is open.
Christine Cho: Thank you for taking my question. So I wanted to tap into your four decades of Cheesecake factory experience.
Speaker Change: Historically casual dining demand has had more macro sensitivity versus kind of the <unk> sorry.
Speaker Change: With some recent surveys seem to suggest that it is actually holding up relatively better this time around.
Speaker Change: Firstly would you agree with this observation and if so are there any structural or behavioral changes that youre seeing that might explain why this time it could play out differently. Thank you.
Speaker Change: Hi, Christine this is Matt I do think that that's true and I think our data what would support that.
Speaker Change: Some of the components of that that are that are possibly different now than than 10, or 20 years ago number one overall consumer behavior has shifted more towards eating away from home than eating at home and that has been driven much more by full service right. So.
Speaker Change: Consumers have become more accustomed to getting a meal replacement or an experience in going out to a full service restaurant. If you look at percentage of wallet share over time. It has grown so I wont say theres a dependency, but I think there is an expectation and the American consumer today is to go out to eat to full service.
I think <unk> has been more ubiquitous for longer I think there's also a little bit more sensitive to the lower income cohort, whereas.
Speaker Change: <unk> cohort and the income it depends on the slowdown, but but incomes aren't slowing down right. So our income of a 100 plus K those jobs are going away. There is unmet mass layoffs. So if you look at the reasons for slowing down I think I would also be a structural reason to say that theres a lot of potential.
Speaker Change: Here for resiliency.
Speaker Change: And I think really people are different today to having grown up watching the food network and all of those other attributes.
Speaker Change: Of their everyday routine. So I do think that structurally things are different today than they were and that helps support stability in our business.
Speaker Change: Thank you so much.
Speaker Change: And your next question comes from the line of Jeff Farmer with Gordon Haskett. Your line is open thank.
Speaker Change: Thank you just have one question.
Speaker Change: Proved retention has come up several times. This afternoon. So Matt was just hoping you could level set us meaning how much retention has improved year over year. However, whatever metric you might use to sort of demonstrate that and then moving forward is there still a pretty sizable incremental retention opportunity. Thanks.
David: Hi, Jeff This is David.
David: The retention and the restaurants at the management level and staff level continues to be incredibly consistent over the past six quarters now our management attrition in Q1 was in the mid teens.
David: Which is as low as it's been historically, our staff level attrition range between 60 and 70%.
David: In class in the industry.
David: And our.
David: Our outlook for the rest of this year is to maintain those levels, that's sort of what we've set for the operators certainly we'll see what happens with the macro labor for us, but I think we're set up to continue to be able to retain that.
David: Same amount of.
David: Attrition.
David: Moving forward our operators are very focused on ensuring that the culture in the restaurant continues to be as strong as it's been historically being on the Fortune 100, Best places to work for list now for 12 years in a row.
David: Meaningful to the people that work for us today.
So it's given us a competitive advantage and our goal is to continue to maintain where we are thus far throughout the remainder of the year.
Speaker Change: Thank you appreciate it.
John: Question comes from the line of John <unk> with Jpmorgan. Your line is open.
Speaker Change: Hi. Thank you. The question is on the Cogs and it really is a percentage of sales.
Speaker Change: Where do you think that should land longer term I know years ago. If we would have talked about sub 22% Cogs.
Speaker Change: I'll, probably would have looked in a teller funny. So it's obviously, a very low number relative to the history of the industry I understand all the reasons for it but when you kind of think about that number and look at things like Burger combos that are passing 20 and past those that can be in the mid twenties.
Speaker Change: Nearing certain breakpoints on the menu that you really don't want to get above I mean, I understand it's a lot of value of cheesecake outside of just that price clearly in terms of the total experience, but are you sensitive in terms of where some of the absolute price points are.
Speaker Change: Any unwillingness to go above those.
Matt: Hey, John It's Matt It's a great. It's a great question totally fair and absolutely.
Matt: I mean, David and David and the culinary team they pour over that menu and the agonize over all of the pricing right because.
Matt: It really is the dual mandate in here over and finance I'm pushing for the margins and they're pushing for the guests.
Matt: We have to find the middle ground I mean, we really do look at it as sort of the core cost I know you've talked about it that way as well and if you think about there hasn't been a transition over time to heavier labor because of the wages and probably a lower cogs in the industry in general certainly for us.
I think we have a competitive advantage when it comes to that because of the fact that we bring in everything fresh into our restaurants, and so we're bypassing a component of labor and delivery costs that some of our competitors have when they use the commentary so thats an initial savings but longer term. It also.
Matt: Emboldens our.
Matt: Burdens with these incremental components necessarily arent as flexible when you see the benefit <unk>.
Matt: Commodity inflation was flat right and so I think we're getting some benefit but we'll continue to make sure that we have price points across the menu so overtime.
Matt: Who would have thought that we would ever have burgers over $15, while the industry crossed that line five years ago, and we're not going to look back, but we want to make sure that we continue to have it on both sides of the ledger and so we will always focus on bringing new items in a very attractive price points to offset the need to take up price.
Matt: It's that art and science overtime.
Matt: And let me ask this I think it's related.
Matt: I've had only stall that new menu I think I have had all the new menu and obviously.
Matt: A real focus on vegetables.
Matt: Maybe more so than what ive seen before and it's actually become.
Matt: Pretty noticeable on the menu.
Matt: Is your relationship with flowers flower child, informing any of that I mean is it just overall consumer consumer trends.
Matt: It's maybe the ticket isn't it isn't as high in certain vegetable type of vegetarian type of items, but the margin can be quite tell.
Matt: Tell me if I'm right.
Matt: And kind of seeing that shifts and maybe what drove some of that and whether there is even greater future direction.
Matt: And the menu and that way.
Matt: Sure John I think we've always been known for the <unk> alright, so as vegetarian dining options have become more popular and more prominent we wanted to be able to put those on the menu. So I don't know if thats necessarily informed by anything we see a flower child I think it's following consumer trends and what we know people want and certainly ensuring that we're tracking every single.
Matt: Guest not only at every price point, but every type of cuisine, which is something we have always done every demographic every age demographic and I think this menu we were really strategically trying to go after that and do it and it's something we'll continue to do.
Matt: Whether thats, putting on different types of ethnic cuisines menu has a few more Mediterranean items on it and thats become more popular in the past few years, it's a strength of Cheesecake factory and we'll continue to lean into menu innovation.
Matt: And being able to put on what we believe people want to eat today.
Matt: Thank you.
Speaker Change: And ladies and gentlemen.
Concludes our question and answer session and today's conference call.