Q2 2025 Cheesecake Factory Inc Earnings Call

Hello. And thank you for sending by my name is Tiffany and I will be your conference operator today.

At this time, I would like to welcome everyone to The Cheesecake Factory Incorporated Q2 2025 earnings conference call.

All lines have been placed on mute to prevent any background noise.

If you would like to ask a question during that time, simply press star and send the number 1 on your telephone keypad.

I would now like to turn the call over to aian Marcus, Vice President of Finance and investor relations sir. Please go ahead.

Good afternoon and Welcome to our second quarter fiscal 2025 earnings call.

On the call with me today are David Overton, our Chairman and Chief Executive Officer; David Gordon, our President; and Matt Clark, our Executive Vice President and Chief Financial Officer.

Before we begin, let me quickly remind you that during this call items will be discussed that are not based on historical facts and our considered forward-looking statements within the meeting of the private Securities, litigation Reform, Act of 1995,

Actual results could be materially different from those stated or implied in forward-looking statements, as a result of the factors detailed in today's press release, which is available on our website at investors.the cheesecakefactory.com and in our filings for the Securities and Exchange Commission.

All forward-looking statements made on this cost speak only as of today's date. And the company undertakes. No duty to update any forward-looking statements.

In addition during this conference call, we will be presenting results on an adjusted basis which exclude acquisition related items and impairment of assets and lease termination expenses.

Explanations of our use of non-gaap financial measures and reconciliations to the most directly comparable, gaap measures appear in our press release on our website as previously described.

David Overton will begin today's call with some opening remarks and David Gordon will provide an operational update

Matt will then review our second quarter Financial results and provide commentary on our financial outlook for 4 opening the call up to questions.

With that, I'll turn the call over to David Overton.

Thank you again. Our second quarter results exceeded expectations with Consolidated revenues and adjusted earnings per share setting new milestones for the company.

These solid Financial results are fueled by operational excellence and sustained demand, our differentiated high-quality Concepts.

Second quarter comparable sales at The Cheesecake Factory restaurants increased 1.2%, driving record-high average weekly sales and further elevating our industry-leading annualized unit volumes to nearly $12.8 million for the quarter.

Strategic innovation in our menu has always been a key pillar of our success, reflecting our ongoing focus. We are now introducing our latest menu, which features 14 new dishes across 2 innovative categories.

And tomorrow in celebration for National cheesecake day, we are launching. Our newest cheesecake peach, perfect, with raspberry drizzle.

We believe our continued focus on culinary innovation keeps our menu highly relevant without relying on discounting, and combined with the strength of our best-in-class operators, positions us to stand out in a competitive landscape.

Thanks to the outstanding execution of our operators, we delivered strong flow-through and meaningful improvement in profitability.

In fact, Cheesecake Factory is 4. Wall Restaurant margin increased to 18.5% up, 80 basis points, year-over-year and the highest level recorded in 8 years.

Turning to development, we successfully opened 8 restaurants in the second quarter, including 2 Cheesecake Factory restaurants, 1 North Italia, 3 Flower Child, and 2 FRC restaurants.

Subsequent to the quarter end, we opened one FRC restaurant at one International Cheesecake Factory restaurant in Mexico under a licensing agreement.

We are pleased with the progress we've made on new unit growth so far this year and continue to expect to open as many as 25 new restaurants in 2025.

Additionally, we anticipate 2 Cheese. Factory restaurants to open internationally under a licensing agreement.

As we look ahead the strong demand for our distinct, dining experiences reaffirms our confidence. In the long-term trajectory of our portfolio. Our results, clearly demonstrate the strength of our platform and the effectiveness of our strategy to deliver sustainable growth and value.

Thank you, David.

Our performance, this quarter reflects the operational strength and discipline, execution of our teams who continue to manage their restaurants with precision and excellence.

Notably both hourly and management retention increased year-over-year driving improvements in labor productivity, food, efficiencies, and wage management.

As we've noted previously, our success in Staffing continues to be a key driver behind the Improvement in guest satisfaction scores.

Ultimately, it's our team members who make it all possible bringing our vision to life and delivering exceptional dining experiences every day.

To this point, our internal net promoter score metrics improved across nearly all key areas this quarter, including in both dining and off-premise channels with notable gains in Pace of experience, staff, service and food quality.

Record Cheesecake Factory average, weekly sales in the second quarter or supported by off premise sales of 21%.

Consistent with the average of the prior four quarters.

At our newest Cheesecake Factory restaurant in Naperville a suburb of Chicago.

Open to remarkable demand underscoring the strong affinity for the brand and the enduring value of our distinctive dining experience.

As David mentioned, strategic menu innovation remains core to our success, and we're bringing that to life with the launch of two new menu categories: bowls and bites.

Our new bowl selection includes 6 thought-crafted options, such as the Teriyaki Salmon Bowl, Orange Cauliflower Bowl, and the Peruvian Chicken Bowl.

We also introduced the lineup of 8 new bites.

Smaller plates offered at an attractive price point.

These are designed to drive interest and offer new ways to enjoy the menu, with items like New Orleans Cajun shrimp, chicken and biscuits, and meatball sliders.

These new offerings reinforced the relevance of our menu and the strength of our innovation strategy.

And together with our best-in-class, operational execution, they drive sales and traffic and reinforce our leadership and experiential dining.

Moving to Cheesecake Rewards.

The program continues to perform well with strong member growth and high satisfaction.

As we evolve the program, we've shifted from large-scale testing to a more targeted, data-driven strategy, delivery and personalized offers aligned with member behavior and preferences.

This refined approach.

Has driven meaningfully higher engagement and deeper loyalty.

Turning to the north Italia.

In the second quarter, annualized AUVs increased 2%, reaching $8 million.

Comparable sales declined, 1% reflecting some continued impact from the Los Angeles fires. Weighing more heavily on performance due to the concepts smaller comp base relative to The Cheesecake Factory, as well as some sales transfer impact from new restaurants.

We also successfully opened a new North Italia in Boise, Idaho. During the quarter marking our entry into another Market

Early performance exceeded expectations for average weekly sales, trending approximately 40% above the Q2 system average, reaffirming strong consumer demand for the concept.

Restaurant level profit margin for the adjusted mature. North Italian locations, improved 290 basis points from the prior year to 18.2%

The margin expansion was primarily driven by operational improvements as well as more favorable commodity and labor inflation.

Flowerchild continues on a strong upward trajectory, with second quarter comparable sales increasing 4%. This significantly outperforms the Black Box fast casual dining index, which was essentially flat for the quarter.

The improvement resulted in an average weekly sales of 91,400 for an annualized A.W.E. of over $4.8 million, the new milestone for the concept.

We also opened three new Flower Child locations during the quarter, including two in new markets.

Collectively, these restaurants averaged nearly $82,900 in weekly sales, translating to a solid Average Unit Volume (AUV) of approximately $4.3 million annualized.

Quarter.

Our strong portfolio performance, fueled by sustained sales momentum, operational excellence, and margin expansion, positions us well to deliver on our long-term growth ambitions.

And with that, let me turn the call over to Matt for our financial review.

Thank you, David.

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

total revenue is of 956 million and adjusted net income margin of 5.8% both exceeded the high-end of the guidance ranges, we provided

Now turning to some more specific details around the quarter.

Second quarter, total sales at the Cheesecake Factory restaurants, were 683.33 million up 1% from a prior year?

Comparable sales increased 1.2% versus the prior year.

Total sales for North Italia were $90.8 million, up 20%.

From the prior year, period.

Other FRC sales totaled, 90.2 million of 22% from the prior year and sales for operating leak were 136,800.

Flower child sales totaled. 48.2 million up 35% from the prior year and sales for operating week were 91,400.

And external Baker sales were 12.9 million.

Now moving to year-over-year expense variance commentary.

In the second quarter, we continue to realize some year-over-year improvement across several key line items in the p&l.

Specifically, cost of sales decreased 70 basis points.

Primarily driven by favorable commodity costs.

labor as a percent of sales declined, 20 basis points,

Primarily driven by the continued Improvement and retention.

Supporting labor productivity, gains and wage Leverage.

Partially offset by higher group medical costs.

Other operating expenses increased 40 basis points.

Primarily driven by higher facility related costs.

GNA increased 10 basis points from a prior year.

Depreciation remained relatively flat as a percent of sales.

Pre-opening costs were 9 million in the quarter compared to 7 million in the prior year period.

We open 8 restaurants during the second quarter versus 5 restaurants in the second quarter of 2024.

And in the second quarter, we recorded a pre-tax. Net. Expense of 1.2 million related to FRC acquisition related items.

And impairment of assets and lease termination expenses.

Second quarter Gap, diluted. Net income per share was $1.14.

Adjusted diluted net income per share.

Was $1.16.

Now returning to our balance sheet and capital allocation.

The company ended the quarter with total available liquidity of approximately 515.3 million.

Including a cash balance of 148.8 million and approximately 366.5 million available on a revolving credit facility.

Total principal amount of debt outstanding was 644 million.

Including 69 million in principal amount of convertible notes due 2026.

And 575 million in principal amount of convertible notes, due 2030.

CapEx, Donald, approximately $42 million during the second quarter for new unit development and maintenance.

During the quarter, we completed approximately $0.1 million in share repurchases and returned $14.3 million to shareholders via our dividend.

Now, let me turn to our outlook.

What we will not be providing specific comparable sales and earnings guidance.

Our assumptions factoring everything. We know as of today,

Including net restaurant counts.

Quarter to date trends.

Our expectations for the weeks ahead.

And anticipated impacts associated with holiday shifts.

Specifically for Q3, we anticipate total revenues to be between $905.

And 915 million.

next, at this time, we expect effective commodity inflation of low single digits for Q3

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.

GNA is estimated to be about $61 million.

Depreciation is estimated to be approximately $28 million.

We are estimating pre-opening expenses to be approximately $7 million to $8 million to support the Q2 and early Q4 openings.

Based on these assumptions, we would anticipate adjusted net income margin to be about 3.25% at the midpoint of a sales range. Provided

For modeling purposes, we are assuming a tax rate of approximately 10% and weighted average shares outstanding of 48.5 million.

now, for the full year,

Based on similar assumptions and no material operating or consumer disruptions.

We anticipate total revenues for fiscal 2025 to be approximately 3.76 billion dollars at the midpoint of our estimates.

We currently estimate total inflation, across our commodity basket, labor, and other operating expenses to be in the low to mid single. Visit range. Inclusive of the currently proposed tariff levels.

We are estimating GNA to be about flat year-over-year as a percent of sales and appreciation to be about 109 million for the year.

And given our unit growth, expectations for your estimating pre-opening expenses to be approximately 34 million.

Based on these assumptions. We now expect full year adjusted, net income margin to be approximately 4.9% at the sales estimate provided

for modeling purposes. We are assuming an 11.5% tax rate and a weighted. Average share count approximately 50 basis points lower than 2024.

To help with modeling this implies, a Q4 tax rate of 11 to 12% and weso of 49 million.

With regard to development, as David stated earlier, we expect to open as many as 25 new restaurants in 2025.

This includes as many as 4 Cheesecake Factories.

6, North Italians 6, flower Childs and 9 FRC restaurants.

And we would anticipate approximately 190 to 200 million in cash app access to support units, as well as required maintenance on our restaurants.

In closing.

we delivered another quarter of strong financial and operational performance with record Revenue,

Continued, margin expansion and earnings growth.

Our restaurant teams continue to execute at a high level.

And our differentiated experiential concepts remain well positioned to consistently deliver the delicious, memorable dining experiences our guests expect.

As always, we remain focused on making steady progress toward our long-term value creation priorities.

Growing comparable restaurant sales.

Expanding operating, margins and accelerating accreted unit development.

With a stable Foundation.

A resilient business model.

And a clear strategic Focus.

We believe we are well positioned to continue generating consistent results and driving meaningful long-term shareholder value.

With that said, we'll take your questions.

Ask a question, simply press star, then the number 1 on your telephone keypad.

To withdraw. Your question. Press star 1 again.

We kindly ask that questions are limited to one and one follow-up for today's call.

We will pause for just a moment to compile the Q&A roster.

Your first question comes from the line of Brian Bittner with Oppenheimer. Please go ahead.

Thank you. Um, good afternoon, as it relates to the increase in the uh net income margin for 2025. From 4.75 to 4.9, is this primarily operationally driven at the store level? Do you basically, do you have a different assumption for the 4-wall margin expansion in 2025 versus I think 15 to 25 basis points of increases is what you had previously assumed

Hey Ryan. It's it's Matt, thanks for the question. Uh, that that's true. I think the 4 wall our expectations, now are that it will be uh better than we originally expected. I mean clearly demonstrated by our Q2 results being above our expectations. And so I think we, we are committed to continuing to take a 1 quarter at a time. But, uh, but our Outlook has definitely increased based on operational excellence. And uh, overall sales trends

Thanks for that. And just lastly as it relates to the third quarter, the revenue Outlook you provided. There's a lot of moving pieces, witth within the model these days is that basically assume a base case for Cheesecake Factory, same store sales, that that's relatively similar to the second quarter.

At the highest.

That's right. So I would say we really didn't. Uh, we've seen very, very stable sales and so we continue to have that. That stable Outlook. Uh, but I did, I still think there's no reason to get out ahead of our skis and and try to forecast, something greater until we see it happen,

Great. Thank you.

Your next question comes from Drew North with Barrett. Please go ahead.

Thanks. I wanted to follow up on the topic of labor, and my question is focused on labor retention, which has continued to be a good topic and positive for your business and the broader industry. But I was wondering if you could provide some perspective on where retention levels or turnover levels are, maybe relative to pre-pandemic or prior peaks, to help us understand how much further improvement could be made. Or I guess, higher level, how you're thinking about the opportunity to continue to leverage labor across in the back half of the year here.

Sure, hi Drew. This is David Gordon. Uh we continue to be very pleased with our progress, around staff and management. Retention our staff. Level retention today is as good as it's been historically in the company. So even exceeding pre-pandemic levels and the same thing uh, for management retention and best-in-class across the industry, and we continue to believe. That's because of the culture. The enduring culture of Cheesecake Factory and how we care for our staff and managers uh the opportunities for them to continue to promote uh, within the concept. Whether that's to be more productive as an hourly staff member and learn new stations, which improves productivity in the long run for us over time. Uh, we think we'll continue to see the benefits of this ongoing retention, whether that's in lower overtime, lower training costs. Um we we don't see why that's going to change in the

Near term.

Based on the current environment. Certainly if things change in the macro environment that we don't have control of, we'll see what happens. And on the management side, uh, I think we continue to offer terrific career opportunities for people, uh, for them to progress their career to work in a company that has, uh, really leading unit growth today and giving them lots of opportunities, to, to grow in each level of management, uh, to go as high as they potentially want to go. Uh, and we continue to be an employer of

Choice on the selection side because of the stability of the restaurants. The stability of the sales hourly staff members know they're going to get their hours. The tip staff members know they're going to get good, consistent tips. We have best-in-class benefits. So, our challenge to the operators is to keep this up and to ensure that we make it through the second half of the year maintaining the type of retention that we've seen thus far.

Traffic, I guess. And then how we should think about the cadence of pricing as we think about the second half.

Sure, Drew's Matt, the net effective pricing in Q2 is about 4% for cheesecake.

Traffic was a negative 1.1 and then mixed was the balance and uh you know effectively that's what's encompassed in the guidance for for the back half, we do anticipate uh with the the value that we're putting on the menu that we might continue to see that level of mix continue, but we're really focused on getting that traffic back to the positive side of The Ledger. Uh so very, very stable sales throughout the quarter and predictable and I think that's helped our operators deliver on the margins. And so that's what we're forecasting at the back half right now.

Thank you. I'll pass it on.

If your next question comes from Jeff Farmer with Gordon Haskett, please go ahead. Um, thanks. You guys touched on it, but with that February menu update, you did shine a brighter marketing light on the new menu items. So I guess the question would be.

Did you guys see a customer response to that in terms of just in terms of the innovation aspect of the new menu?

Hey Jeff, this is David.

Again.

Um, certainly our approach with this next menu is very similar to the last menu change. We are taking all the new menu items and putting them on a separate card to ensure that guests see them and they don't get lost in the menu early on in their life. Uh we feel good about the stickiness of the menu items that we put on at the previous menu change that you mentioned in February. Uh and as a matter of touched on, we think that this new menu uh from a price point value perspective. And also from flavor profile perspective uh should be as successful as if not more successful than the roll out that we had in February.

Okay. And then just as a follow-up to that, as it relates to sort, some of the lower price point menu items you put out there. Do you think...

Two things that the consumer is aware of: the lower prices or the lower price points, and are they responding to those lower price points?

Sure, well, certainly again the fact that they're outside of the menu, if you're a guest that's already coming in the restaurant, you're going to see that lower price point right away. And uh, we can see in the order rates from the previous new menu that guests are responding to that and as Matt touched on the mix, we're anticipating that. There'll be some impact to the mix that we're we're we're planning on. Um, so we do think that we will continue to resonate and it's the right strategy. Uh, and if people want to come in and add a bite to

To their, um, their meal, right? Just like they did when we rolled out small plates and snacks, right? We had guests who were actually introduced to a new category, and instead of leaving cannibalizing from previous sales, they were just adding something that perhaps they weren't planning on ordering. We think this will happen with the bites, perhaps, as well. Somebody will add something like chicken and biscuits along with an appetizer and an entrée, whereas before, perhaps they were just going to get an appetizer and entrée. So it'll be interesting to study, uh, here in the next few months.

Okay, thank you.

Your next question comes from Sarah Senator with Bank of America. Please, go ahead.

Oh, thank you. Um, a quick follow up and then a question on flower child. So just on the the follow-up, I just wanted to make sure I understood I know at the beginning of or the end of when you were reported last quarter, you know, you would say you did some caution just to be given given the operating, um, environment and um, it sort of seems like that didn't materialize. I just want to make sure, you know, is, is that the right read that the operating environment? Perhaps is a little bit healthier than you might have initially thought given some of the headlines. Um, so that's the clarification and then on, on flower child, is there any kind of color you can give on profitability or unit economics? Um, you know, that certainly seems to be a very successful concept. The comps are very strong and I think, you know, you're, you're adding units at a nice clip. So as you think about kind of the, the return profile of the company as a whole

You know, anything you can say about how that might shift it in one direction or another?

And sort of the the unit economics is has David Gordon mentioned in the prepared remarks, we're seeing exceptional performance, the the mature unit margins. Cresting over 20% at 20.4 is is a high Mark for our, our company, at the moment and the auvs getting up to in the quarter of 4.8. So we're, you know, we're looking down at at 5 million dollars up there maybe in the near term future. Uh, so certainly the returns that we're getting to today are are in the mid-30s and we feel really positive about that and look forward to continuing to grow the concept. And it seems to be working everywhere that we've been opening.

Oh, oh, okay. I apologize. I missed the, the prepared remarks on that but just, um, as you think about it, it is potentially a driver, you know. Do you see in like an inflection point in terms of it, as moving the needle on your results? Just because you you haven't broken it out yet and yet it seems very very attractive. Yeah, it's a it's a little small you know, from a from an accounting perspective, in terms of segments of reporting for sure. But you know, our intention when we started this journey about 6 months ago, was to continue to provide a little bit more information every quarter. So we're continuing to add data to, to the ability for people to see the progress. And certainly we would continue to expect to uh provide even more information. And and and certainly the performance, you know, it has inflected over the past 18 months with

Work that the team has done. Uh, you know, whether it's with the KDs system or or, you know, the the operational dashboards or the catering, right? Has all come to fruition. And really, it is on a very strong trajectory, and I would suspect that it will play a bigger and bigger role as we go forward.

Thank you.

Your next question comes from Jim Solera with Stevens. Please go ahead.

Hey, you guys. Good afternoon. Thanks for taking our questions. Uh, to ask a couple on North County if I could uh first, just some housekeeping. If you could give us the the comp write down their price uh volume and mix for north side for the quarter. And then if I recall correctly in 1 Q, There were some headwinds from the fires in LA and some Regional whether uh, and so I believe the the comp was similar if not maybe down or up up a little bit, but just any comments on on kind of what's continuing to

Contribute to this office there for North.

Hey Jim, this is Etienne. I'll just give you the breakdown here. So, price was up 4% in the second quarter. Mix was negative 1%, and traffic was down 4%.

So, let me just give some extra color there, Jim, because I think it's important for everybody to understand the, the, the performance at North uh, is is actually very, very strong. You look at the auvs of of 8 million dollars actually outpacing. The comps. That's because the new units are coming on that much stronger. And we delivered, uh, 18.2% on the, on the mature margins, right? And so the higher sales and the higher margins are making for great returns. But what we are seeing is there, there is a little bit of sales transfer and some markets. Uh, and and that's really what's Weighing on it. So if you take Charlotte as a good example, and it talks to our ability to penetrate markets at the pace that we expected. So, we have 2 Cheesecake Factories in Charlotte, though, they're doing 25.26 million, right? You know, near the, the system average, we just opened our third North in that market. Uh, and this first full quarter was Q2 and it did, uh, on an annualized basis, 10 minutes.

Million dollars, right? And so as the third 1 there in total, the 3 of them are averaging around the 8 million dollars and the mature margins. There are in the low 20% and so they're great Investments. But when you open up that strong you're just moving a little bit of sales from 1 existing to another. Uh and and that's really the major Drive, uh, towards the the comp there if we net that out, it's performing pretty much in line with GSK Factory. Like when we net out the

Sales transfers are probably a 1% comp with a negative 1 traffic. And so we're actually really, really pleased. They're just opening faster and bigger than we expected.

No that's super helpful and maybe if I can just have 1, quick follow-up there just any color that you guys have on North in terms of Trends by you know income bracket. You know if there's anything that you've noticed in front of the locations with you know lower end consumer to the extent that like an aspirational consumer would would go to North as as kind of a you know elevated experience.

Yeah, I mean, I think it's similar to Cheesecake Factory's, but maybe it's just a little more narrow.

Aspirational, uh, uh, gas can still can still go to North and and and use the menu. However, they see fit, right? I mean, they can get pizza and pasta and salads all in the low 20s. And so, I think that there's opportunity there and every Market that we're going into now, we're seeing really strong demand. Uh, we, we noted, uh, the the opening in Boise being 40% above the system average, right? And so that's telling us that guests of all walks of life of all income. Brackets of all demographics are are going to North and you don't open up doing 10 million dollars and and 6,500 square feet. You know, if if that's not the case,

Great. I appreciate all the thought. I'll hop back to you.

Your next question comes from Brian Vacarro with Raymond James. Please go ahead.

Hi, thanks and good evening. Um, I wanted to ask about menu pricing at Cheesecake Factory and I think you've been running. You said around 4% maybe the low fours. Uh, margins have obviously exceeded your expectations and it still seems to be a pretty intense value environment, just broadly thinking about the consumer. So, I guess how does that feed into your current thinking on your fall menu? Roll out and, and I, I guess why not let here on your pricing roll off a bit given these Tailwinds that you're seeing

Yeah Ryan this is Matt. So so in fact it will we are we are taking less pricing going into the back half of the year but also we're we're introducing some items that have some some inherently lower prices. So the effective pricing that we're taking is actually going down quite a bit more. And Dave, David Gordon mentioned, the Bulls and the bites, the the the biker predominantly items that are under 10 dollars in the Bulls are in the 15- 16 dollar range with Cheesecake Factory portions. So when we look at what we're doing from a value perspective, on a on a really in an effective pricing, I think it's going to be well below where the industry is at. We're driving significant value for the consumer.

Okay. Sorry, I might have misunderstood a previous, uh, comment on the pricing, but what type of gear on your pricing at Cheesecake would be reasonable for the second half?

3 and a half, probably on a, on a headline basis. But again, I would just reiterate that with the new menu items. There's probably another 100 basis points of negative mix inherently built into that. So so right. So the real pricing is probably going to be more like 2 to 2 and a half in terms of what the consumer feels.

Okay, that is, uh, that's super helpful. Um, I wanted to ask about margins as well and and maybe dial in on on the North Italia margin. Certainly, encouraging Improvement. I think you you or, or segment margin was nearly 15% if I did the rough math uh, quickly. Um I guess, can you just elaborate a little bit on what drove that Improvement in a in a slightly negative component? And I saw the other Opex line in particular, maybe a 100 130 basis points here on year. Maybe just some some broader comments on on those margin Dynamics.

You're seeing at North?

Sure. Brian, this is Matt. I think generally it's...

The stability of the business and operational execution we did. If you remember, we kind of caught up on pricing equivalently to Cheesecake at the end of last year. So, some of that is flowing through at this point in time. Uh, but we've also seen some of the favorable commodities that we've had for the entire company. Uh, and really, if you think about the total sales, I mean, $8 million AUV were leveraging those sales and driving profitability in Q4.

Great. And then just last, quick clarification on North Italia. Comps you mentioned, uh, the negative impact of it on the LA units. Is it possible to quantify that and kind of what the comp would have been excluding LA?

It would have been flat without La Flat. Okay, perfect. Thanks very much.

You're welcome.

Your next question comes from Andy Bearish with Jefferies. Please go ahead.

Business.

Sure Andy. Hey this is this is David. Um, I think that people want their dollars spent uh and the most productive way possible you mentioned experiential dining. Like we we believe that we will continue to be leaders and experiential dining and uh people want to go out to eat um, for great wonderful, delicious food, but also as an experience, they want to be in an environment that has a lot of energy. We think we provide that all of our Concepts from Cheesecake Factory to a higher-end fast, casual, uh, at flower child, which very much is an experience, uh, not just a transaction. So as people, maybe move away from, especially younger people, move away from transactional purchases, uh, want to spend time together our restaurants highly designed high-touch Hospitality, uh, today's consumer appreciates that I think more than ever the more sophisticated than they've ever been about food. Uh, and we're making all of our food from scratch every single day and every single concept,

Uh, we believe we can take market share and have been taking market share because of that sustained quality. I think this sustained level of great operations, um, and all the way leading back to the retention numbers that we see at Cheesecake have led to, you know, all-time high NPS numbers, which show consistency, uh, and people appreciate that consistency as well.

Got it. And then, um, just if you're willing to share, I guess an early look at the 26th, um, development pipeline, um, at least directionally I'm assuming you're going to open more units. Is that something that, um, you're honing in on is, you know, we sit here, um, you know, um, with only 4 or 5 months to go in in 2025,

Yeah, we certainly anticipate opening more units and the 25th this year's 1, that we're going to continue to be able to hit moving forward.

Thank you.

Your next question comes from Sharon Zakia with William Blair. Please go ahead.

Sharon Zakia. Your line is open.

Sorry, we have new phones. Can you hear me now?

We can turn. Yeah. Okay. I have to learn to unmute. It's 2025, so, uh, sorry. Sorry. If you mentioned this, I was on another call and then hopped on here, but I wanted to ask about the rewards program for Cheesecake. I think you mentioned it, but I was hoping to get some more kind of meat on the bone, in terms of kind of.

What you're seeing there, in terms of the percent of transactions involving rewards or incremental lifts on spend for rewards members versus non-rewards members, is significant. If you have any data on frequency, it would be interesting to see how that customer is visiting Cheesecake Factory before they joined rewards compared to now, or just versus the overall non-rewards population.

Sure. Sharon, this is David. Um, I think we're going to still continue to keep things at a pretty high level. What I will share is that we continue to see our month-over-month acquisition exceeding our internal expectations. So, that's good to see people who are still enthused about the program and continuing to sign up at a higher level than we anticipated.

Members continue to have higher frequency, higher check averages, and higher NPS scores than non-members, which are all very positive signs. As we've moved from the broader approach that we took in 2024, which had about a 1% redemption rate across a very large swath.

Of audiences. You know, very broad reaching everybody with the same type of offer. As you know this year we've moved to more personalized offers that are more Behavior based based on the data we have about rewards members and timing based uh we're seeing those Redemption rates uh of about 4% or higher. So significantly better than that. The broad-based approach that we were taking before, uh, we now

Have our internal team fully intact. We we brought on board a director of rewards who's leading our team to continue to do analysis, to make sure we have the right to have a data to ensure that the Redemption rates. Moving forward, are positive, a creative, um and uh very much in line with the margin profile around what we want to spend with the program overall.

Differences that you would point out between how the customer kind of interacts with the Flower Child rewards versus Cheesecake.

Yeah, flower child is much more of a traditional Rewards program. Um, it's an app-based program that has points, uh, for visitation and for spend. So, uh, we're really not comparing them because they are so different. We're very happy with with the program at flowerchild and I believe it is driving Behavior. Uh, for guests that that are in the program, you can order within the app, you can order a head. All the typical things that you'd be able to do at a fast casual, um, and thus far it's had a pretty positive response from guests, but completely different than the cheesecake program, which is more of that, you know, published unpublished non-points program

Okay, thank you.

Your next question comes from Jim Sanderson with North Coast Research. Please go ahead.

Hey, thanks for the question. I wanted to follow up a little bit more on Flower Child. I was wondering if you could give us a sense of where you think the, uh, store capacity could end up, given your success on average weekly sales growth. I think you've more or less doubled sales volume over the past seven years, but, uh, I'm wondering where you think this brand can actually end up, given the opportunity for catering.

Interop premises.

Uh, hey, Jeremy, it's Matt. It's a really interesting question. Uh, I I don't think we know a 100%. And, and the reason I say that is because the operating team just keeps getting better and they're able to drive more throughput. And and you mentioned 1 of those reasons which is, which is definitely catering, uh, they've they they figured out a way to, to squeeze those sales in, you know, early. Uh, but before the store opened sometimes and, you know, maximize the total throughput. I can tell you we we have locations doing between 6 and a half and 7 million dollars. And so we, we know that there's a pretty good Runway still for the overall brand to, to continue to grow. Its auv on an organic basis right from from traffic and transactions. You know, that that that's not from pricing, that's just from volume. So, hopefully, we'll continue to increase that capacity. But we, we know we've got a long Runway, uh, in in the overall footprint, here to go.

You mentioned those UM locations doing 6.5 to 7. Are those the most mature locations, or is there anything specific about those?

Sites that might be. Yeah, they they are some of the more mature locations and um, and so they they've been building business for for a longer period of time. Um you know, and sometimes they can just be the idiosyncratic nature of the of the site just works particularly well. But in general, the business keeps growing and so yeah. The longer that the sites have been around typically. The more traffic they have

All right, just a couple of questions on traffic trends. I think in the past you’d mentioned sometimes your patio capacity is at risk when you have heat waves, things like that. Is there any change in traffic trend you noticed in the second quarter or in July to date related to weather or something unexpected?

No, it's been a very steady, uh, across uh, across our company. Um, you know, certainly do we do, we do watch the weather and and, you know, you could have some Pockets where it can impact if we're a period of time a week here or there. But but really, uh, if you take the, the bigger picture it's been very steady and and predictable

All right. Thank you very much.

Your final question comes from John Tower with City.

Please go ahead.

Great, thanks for taking the questions. Um, just curious. I, I know it sounds like, um, new menus coming now or or hearing now, um, and it does sound like the the bowls and um, the bikes lower price points 1015 or so it, you know. It, it sounds like those kind of would work well, particularly around lunch. So are you doing any sort of social marketing or just Marketing in general? To kind of hit that day part? Um, particularly during the weekdays when maybe your volumes aren't as robust as you know, your your bigger weekends.

So we're going to be excited to do it after the rest of the year. It's really John 1 of the things, too. It's at lunch, but it's also channels, right? We think that the bowl category will work really well for delivery. And, uh, as you know, we really don't take incremental pricing. So we have a $15 or a $16 cheesecake portion bowl. We think that stacks up pretty well in this environment to be delivered.

Yeah, no, that's great. Um, maybe just pivoting back to the Flower Child brand. Obviously, you guys are the brand itself sounds like it's hitting on all cylinders today, and you're opening up at a fairly healthy, I think mid-20s percent growth clip in terms of new stores, and the returns sound like they're justifying this. Is there a threshold at which you won't bump up against in terms of the new store opening cadence? You know, are you guys not going to bump above 30% a year, given human capital constraints or anything like that?

Sure. John. That's that's a great question. You've probably heard us talk about that before. And right today, we're comfortable with that. 20% number, we could probably be a little bit higher than that. That team is very focused today on manager development and ensuring that we have the right, general managers and executive chefs to open those restaurants and open the well, especially because so many of them are opening at such high volumes. Uh, and we want to make sure that that gets experience is perfect from from the get-go. So, uh, manager development is a key Focus for the team. We're comfortable with where we are today.

You know, 20% or a little bit higher, as we continue to build that pipeline, we certainly have the capacity, from a company standpoint, to build more and to do it faster. But we're going to be cautious and careful and make sure we can execute as well as we want to.

Great. Thanks for taking the questions.

We have a question from Raul Crow with J.P. Morgan. Please go ahead.

Good afternoon, guys. Can you help us understand the dynamics around the $500 million converts? It looks like we are not far off from the conversion price here, and should we see this elected ahead? What kind of dilution would you anticipate? Are we expecting to pay a portion through cash? Also, can you remind us how much of this is hedged through call options?

Yeah, so this is Matt that's a great question. So, um, right. The, the, the price, uh, the strike prices are are 7071 sort of write, right in that that zone certainly, um, with the stub, the 69 million, you know, we, we would watch and sort of decide to do something on that, based on economics. And um, it would have to be around 80 for the sort of cost of carry to net out for us to to decide to extinguish those. Um, and on the others really, what I can remember on the 575 million is um at say, $80, a ten dollar increase over over

For the strike price there, you're talking about 1 and a half percent dilution. It's it's not that meaningful in the bigger picture for us and so certainly that'd be a high class problem. I think all all investors would be happy if we were at eighty dollars and there was a you know, 1 and a half percent dilution at that point in time.

Thank you.

There are no further questions at this time, ladies and gentlemen. This concludes today's call. We thank you all for joining. You may now disconnect.