Operator: Hello, everyone. Thank you for joining us, and welcome to The Cheesecake Factory Incorporated Earnings Call for Q3 of 2026. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Etienne Marcus, VP of Finance and Investor Relations. Etienne, please go ahead.
Etienne Marcus: Good afternoon, and welcome to our third quarter fiscal 2026 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 based on historical facts and are considered forward-looking statements within the meaning 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.thecheesecakefactory.com and in our filings with the Securities and Exchange Commission. All forward-looking statements made on this call speak only as of today's date, and the company undertakes no duty to update any forward-looking statements.
Etienne Marcus: In addition, during this conference call, we will be presenting results on an adjusted basis, which exclude acquisition-related items, impairment of assets, and lease termination expenses and other items. Explanations of our use of non-GAAP financial measures and reconciliation 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 third quarter financial results and provide commentary on our financial outlook before opening up the call to questions. With that, I'll turn the call over to David Overton.
David Overton: Thank you, Etienne. We delivered an outstanding Q3 with revenues once again exceeding $1 billion. This marked our second consecutive quarter of record revenue, while margins and earnings also finished well above our expectations. The Cheesecake Factory restaurants led our performance, delivering comparable sales growth of 15.2%, and annualized unit volumes of more than $13.9 million. Comparable sales and traffic growth meaningfully outperformed the broader casual dining industry, underscoring healthy demand for our brand and continued market share gains. Culinary innovation continues to be an important contributor to our sales growth and a key point of differentiation. Bowls and Bites are performing well and helping increase frequency. Our broad made-from-scratch menu allows us to respond to changing guest preferences and offer compelling choices across a wide range of price points.
David Overton: Our Rewards program app and broader marketing efforts are also driving awareness and engagement across the digital and social channels. We are especially encouraged by the traction we are seeing with our younger guests. The Cheesecake Factory has always had broad appeal, and our ability to attract the next generation of guests reinforces the enduring relevance of the brand. Our impressive sales performance, together with exceptional operational execution, drove solid flow-through and margin expansion. The Cheesecake Factory restaurant level profit margin increased 240 basis points year over year to 18.7%. Turning to development, we opened six restaurants during the Q3, including two Cheesecake Factories, one North Italia, one Flower Child, and two FRC restaurants. Subsequent to quarter end, we opened two Flower Child restaurants and one Henry. With 16 restaurant openings so far this year, we remain on track to open as many as 26 new restaurants in 2026.
David Overton: Looking ahead to 2027, we plan to open as many as 27 new restaurants across our portfolio. In summary, we are extremely pleased with the quarter and performance of The Cheesecake Factory. At the heart of this success is what has always set us apart, delicious, made-from-scratch food, exceptional hospitality, and memorable dining experiences. We are excited about the opportunities ahead and remain focused on delivering profitable growth and long-term shareholder value. With that, I will now hand the call to David Gordon to provide an operational update.
David Gordon: Thank you, David. Our remarkable sales results this quarter once again demonstrate the strength of our best-in-class operators and their ability to consistently execute at a high level and capture incremental sales, resulting in another record for annualized unit volumes in what is typically our slowest quarter of the year. Importantly, our sales growth was driven predominantly by outstanding traffic growth of 9.5%, outperforming the Black Box Casual Dining Index by an impressive 940 basis points. Additionally, the improvement has been broad-based across geographies, day parts, days of the week, and channels, with off-premise remaining stable at approximately 21% of sales. This performance reinforces our conviction in our strategy and reflects our continued focus on several key priorities. Best-in-class operational execution supported by industry-leading retention, menu innovation, and the ongoing growth and evolution of our Cheesecake Rewards and marketing efforts.
David Gordon: The Cheesecake Factory is a highly differentiated brand, and the breadth and visual appeal of our menu naturally lends itself to engaging in shareable social content. We are increasingly leveraging these attributes to create culturally relevant moments, amplifying organic engagement and discovery, and extending the reach of the brand beyond our existing guest base. This provides a meaningful opportunity to introduce The Cheesecake Factory to new audiences and ultimately drive incremental restaurant traffic. Taken together, we believe these efforts create a powerful combination. Our marketing initiatives are bringing guests through our doors while our operators are executing at a high level to deliver the distinctive Cheesecake Factory experience that drives repeat visits and builds long-term guest loyalty. Our latest Cheesecake Factory opening in Wichita is another great example of the affinity for the brand.
David Gordon: The restaurant generated tremendous guest enthusiasm, delivering impressive sales during its first operating weeks, reinforcing the opportunity we see to continue expanding The Cheesecake Factory successfully into new markets. Now turning to our other concepts. North Italia Q3 annualized AUVs totaled $7.2 million, and comparable sales declined 3%. Restaurant level profit margin for the adjusted mature North Italia locations was 13.2% for the quarter versus 15.7% for the prior year. The change was primarily driven by sales leverage. As I outlined on our last earnings call, we are advancing a number of targeted initiatives aimed at improving sales performance and positioning North Italia for sustainable long-term growth. Our new menu, which was recently rolled out, includes new offerings and more accessible price points designed to enhance value and make North Italia more approachable to a broader range of guests.
David Gordon: We have also refreshed our happy hour program with more attractive price points, new shareable dishes, and an expanded selection of beverages to deliver compelling value while building on the atmosphere, hospitality, and energy that make North Italia special. We are meaningfully increasing our media investment in two markets to expand the brand awareness and introduce North Italia to a broader audience. These efforts will allow us to test our ability to translate increased awareness into guest trial and conversion. Lastly, we are beginning to implement a kitchen management system designed to improve kitchen throughput, order coordination, and execution, supporting a more consistent and efficient guest experience. Collectively, these initiatives address the areas where we see the greatest opportunity at North Italia. We believe they provide the right framework to support improved performance over time and strengthen the brand for the long term.
David Gordon: Flower Child performed extremely well and once again, meaningfully outpaced the fast-casual segment. Q3 comparable sales increased 11%, with two-year comp sales growth accelerating to 18%. The sales performance drove annualized AUVs of $5.1 million. Restaurant level profit margin for the adjusted mature Flower Child locations was 20.2% in the quarter, an improvement of 280 basis points from the prior year. Given the strength and consistency of Flower Child's performance, we believe the concept is well-positioned for a meaningful acceleration in unit growth. Over the past year, we have invested in the real estate pipeline, leadership team, and operating infrastructure needed to support the brand's next phase of growth. With that foundation increasingly in place, we expect to further accelerate development beginning next year. Lastly, we expanded the FRC portfolio with two Culinary Dropouts, one in Omaha and the other in Salt Lake City.
David Gordon: With that, let me turn the call over to Matt for our financial review.
Matt Clark: Thank you, David. Let me first provide a high-level recap of our Q3 results versus our expectations I outlined last quarter. Total revenues were over $1.033 billion, meaningfully above the high end of the range we provided. Adjusted net income margin was 5.1%, and adjusted diluted earnings per share was $1.02, both finishing well above our expectations. We also returned $16.6 million to our shareholders in the form of dividends and stock repurchases. We also generated quarterly net income of $61.3 million, and adjusted EBITDA increased 38% from the prior year to $98.7 million, marking another quarter of strong earnings growth. Now, turning to some more specific details around the quarter. Q3 total sales at The Cheesecake Factory Restaurants were $754.4 million, up 16% from the prior year. Total sales for North Italia increased 11% to $93 million.
Matt Clark: Other FRC sales totaled $90.3 million, up 16%, and sales per operating week were $120,100. Flower Child sales totaled $56.5 million, up 17% from the prior year, and sales per operating week were $97,500. External bakery sales were $12.6 million. Now, moving to year-over-year expense variance commentary. in Q3, we realized year-over-year improvements across several key line items in the P&L. Specifically, cost of sales declined 60 basis points, primarily driven by lower dairy costs and sales mix related to lower external bakery sales, partially offset by higher beef and seafood costs. Labor as a percent of sales declined 80 basis points, primarily driven by sales leverage. Other operating expenses decreased 50 basis points, primarily driven by sales leverage and lower insurance, partially offset by higher incentive compensation and electricity costs.
Matt Clark: G&A declined 10 basis points from the prior year, primarily driven by lower professional fees, partially offset by higher stock-based compensation expense, incentive compensation, and relocation costs. Depreciation declined 20 basis points from the prior year. Pre-opening costs were $11.2 million in the quarter, compared to $6.6 million in the prior year period. We opened six restaurants during Q3 versus two restaurants in Q3 2025. In Q3, we recorded a pre-tax net income of $12.9 million, primarily driven by the final true-up of contingent consideration associated with the FRC acquisition. Q3 GAAP diluted net income per share was $1.19. Adjusted diluted net income per share was $1.02. Now turning to our balance sheet and capital allocation.
Matt Clark: We ended the quarter with total available liquidity of $585.3 million, including a cash balance of $249.3 million and $336 million available on a revolving credit facility. Total principal amount of debt outstanding was $575 million, representing the principal amount of the convertible senior notes due 2030. CapEx totaled approximately $58 million during the Q3 for new unit development and maintenance. During the quarter, we completed approximately $2.4 million in share repurchases and returned $14.2 million to shareholders via our dividend. Now let me turn to our outlook. While we will not be providing specific comparable sales and earnings guidance, we will provide our updated thoughts on our underlying assumptions for Q4 2026 and the full year 2027. Our assumptions factor in 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.
Matt Clark: Specifically, for Q4, we anticipate total revenues to be between $1.04 billion and $1.05 billion. Next, at this time, we expect effective commodity inflation of low single digits for Q4 as our broad market basket remains stable. 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. G&A is estimated to be approximately $68 million. Depreciation is estimated to be $30 million, and pre-opening expenses to be $13 million to support 13 openings in the quarter. Based on these assumptions, we would anticipate adjusted net income margin to be about 5.8% at the midpoint of the sales range provided.
Matt Clark: For modeling purposes, we are assuming a tax rate of approximately 14% to 15% and diluted weighted average shares outstanding of approximately 52.5 million, including dilution from the convertible notes and stock-based compensation associated with a higher share price. With regard to development, we remain on track to open as many as 26 new restaurants in 2026. This includes as many as five Cheesecake Factories, eight North Italias, seven Flower Childs, and as many as six FRC restaurants. We continue to anticipate approximately $210 million in cash CapEx to support unit development, as well as required maintenance on our restaurants. Note, this CapEx estimate includes some new restaurant construction expenses, which may be classified as operating lease assets instead of additions to property and equipment in the statement of cash flows.
Matt Clark: Before I turn to our 2027 outlook, I want to acknowledge that while we are very encouraged by The Cheesecake Factory's recent sales inflection, it is early, and we believe it is prudent to remain measured in our outlook. As a result, our underlying sales growth and margin assumptions for 2027 are more closely aligned with our historical algorithm objectives. As we continue to gain greater visibility into these trends, we will update our expectations accordingly. With that in mind, I will now turn to our initial fiscal 2027 outlook, which reflects what we know today. First, with regard to development, as David mentioned, we plan to further increase development next year. At this time, we expect to open as many as 27 new restaurants in 2027, with roughly three-quarters of those openings planned for the second half of the year.
Matt Clark: Next, based on our estimates for net operating week growth, we are targeting total revenue of approximately $4.425 billion for fiscal 2027. We currently estimate total inflation across our commodity basket, labor, and other operating expenses to be in the low to mid single digit range and relatively consistent across the quarters. We expect some modest leverage from G&A, depreciation, and pre-opening expenses of approximately 10 to 20 basis points in total compared to 2026. Based on these assumptions, we would expect full year net income margin of 6.0% to 6.1% at the sales estimate provided, consistent with our long-term algorithm of 25 to 35 basis points of annual margin expansion. For modeling purposes, we are assuming a tax rate of approximately 12% and diluted weighted average shares outstanding of approximately 52 million, with the ultimate share count dependent in part on stock price performance.
Matt Clark: We would anticipate approximately $220 million in cash CapEx to support new unit development, as well as required maintenance on our restaurants. Note that the total CapEx estimate includes roughly as many as five Cheesecake Factories, four to five North Italias, 11 to 13 Flower Childs, and six to seven FRC restaurants. In closing, what is most encouraging about the quarter is the breadth and consistency of our performance. Our operators are executing at a high level. Menu innovation is resonating with guests. Engagement with Cheesecake Rewards and the app continues to grow, and our broader marketing efforts are expanding awareness and attracting new guests to the brand. Importantly, these are not isolated drivers. They are reinforcing one another and amplifying the underlying strengths of The Cheesecake Factory, helping us increase frequency and drive exceptional sales performance.
Matt Clark: The impact is evident in our financial results, including record quarterly revenue, healthy flow-through, margin expansion, and strong earnings growth. At the same time, we have a robust development pipeline and significant capital to reinvest in the business. Our balance sheet and cash generation provide the flexibility to accelerate unit growth while continuing to return capital to shareholders. Taken together, we enter Q4 from a strong position with multiple levers to support traffic and earnings. We remain focused on translating this momentum into profitable growth and long-term shareholder value. With that, we will take your questions.
Operator: We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question is from the line of Jon Tower with Citi. Jon, your line is now open. Please go ahead.
Jon Tower: Great. Thanks for taking the questions. Maybe starting off, I was just wondering on the labor cost side, you had mentioned, obviously, you have seen some leverage year-over-year. It did expand by about 7.5%, I believe, year-over-year in the quarter. I am just curious if you feel comfortable with that run rate going forward in terms of either percentage growth or even on a per week basis. From an incentive standpoint, I think you had also mentioned in the other OpEx line there was not some incentive compensation. So maybe if you could speak to how to think about breaking that out.
Matt Clark: Sure, John. This is Matt. Thanks for the questions. Just to take it the second part first. As we had talked about with investors, we are taking the opportunity to reinvest in our business, and in particular, our frontline management that are making these amazing results happen. So in that other OpEx line, there is about $4 million that would be attributable to that reinvestment in a discretionary one-time bonus. With respect to the labor, I think we feel good. We caught up. Obviously, the sales are very high, and so making sure that the restaurants are staffed is super important, as we look to maintain our near record high NPS scores even with these volumes. We feel good about where it is at. I think, relative to the mix of the total company, Cheesecake Factory, obviously, outweighing makes the dollars per week look a little bit different.
Matt Clark: But if you do it by the concept, I think we are feeling pretty good about that.
Jon Tower: Got it. Maybe just going to the marketing side, obviously, you guys have had quite a bit of success, it looks like, through social channels. It sounds like you are dipping your toes in a little bit on a market-by-market basis at North Italia. I think historically the company has shied away from marketing, and I think as a percentage of sales, it is a much lower number than a number of the competitors in the marketplace. How are you thinking about that growing over time?
David Gordon: Hey, John, it's David Gordon. Good to hear from you. Thank you for the question. I think that, first off, The Cheesecake Factory has always been a word of mouth business, right? Number 1 for us is to make sure that we're executing as well as we possibly can so people continue to want to talk about their wonderful experiences, and our operators are doing a terrific job doing that. The strategy over the past couple of years, as you know, has been to leverage the new Cheesecake Rewards platform, and to make sure that our member acquisition and activation of those new members continues to grow. We saw that through all of Q3. Great momentum in that program.
David Gordon: We have an increased focus on driving frequency, driving repeat visits, using all the data that we've been able to gather over the past couple of years to continue to offer personalized offers for guests who are part of that rewards program. So we feel really, really good about where that program sits today. As you know, we launched the app in the second quarter. We continue to see strong adoption of the app moving into the third quarter and really strong engagement. It will continue to have a growing role in the program, whether that's the digital ordering or just direct guest engagement and communication through the app. So rewards will continue to remain a pretty important factor in The Cheesecake Factory marketing trajectory. Certainly, the social engagement in the quarter was strong.
David Gordon: The Cheesecake Factory continues to be a highly differentiated brand, and the breadth and visual appeal of our menu really lends itself to a really great shareable content. So we'll continue leveraging that visual appeal of the menu and all the social commentary to create those culturally relevant moments and amplify any organic engagement that we can where we feel it's appropriate. Increasing that brand awareness and bringing new guests into the fold. Lastly, our traditional lead generation, paid search, appropriate influencer engagements will continue across all of our social channels whether that's on TikTok or Instagram or Facebook, you name it. Then lastly, I just touched on the execution, but I don't really think there's anything more important than ensuring that those new guests that walk through our doors, we deliver on the execution promise that have been key to our long-term success and driving sustainable long-term traffic.
David Gordon: We have the best operators in the business. Experiential dining is something that we believe firmly in and what guests continue to want and desire, and we can deliver and execute because of those operators and their passion for executing for all of our guests, whether they're visiting for that first time because they heard about us in the social channel, or they're coming for their hundredth time, we're going to continue to earn their loyalty.
Operator: Your next question comes from the line of Andrew Barish with Jefferies. Andrew, your line is now open. Please go ahead.
Andrew Barish: Hey, guys. Yeah, amazing results. It kind of feels like October's been a little softer for the industry. I mean, it's not a big month, but just wondering if you would kind of provide any thoughts on the start to Q4. I know you mentioned some calendar stuff, Matt, with Halloween on a Saturday and Christmas and New Year's. Can you just try to kind of frame up what you think the impact of those may be as well?
Matt Clark: Andy, sure. This is Matt, and certainly an important question we know for investors there. We don't give quarter to date trends, but maybe I'll take this opportunity to contextualize the Q4 guidance and help people understand how we're seeing the business today. That guidance considers that the Q3 comp trends are durable and that we see that strength being able to be sticky. But with one little caveat, the last three weeks of the quarter are typically pretty much at capacity for Cheesecake Factory, given the holidays. We modeled those just at our pricing of 3%. Just assuming that that would be flat traffic. Then we took those two parts and deducted 1% for the holiday shifts. That's kind of how we get to the guide, and that gives you a little barometer that we feel pretty good about our business run rate.
Andrew Barish: Very helpful. Yeah, just on putting this kind of same store sales number up, I assume it's coming at all hours and shoulders and late night, but, to your point on capacity at peak, is there something we're missing that's allowed this kind of huge number in addition to some of the things you've already highlighted?
Matt Clark: Well, as we noted in the prepared remarks, I mean, the breadth of the strength was really one of the key points, and it was across the country. It was every day of the week. It was every daypart. As you might imagine, a little bit less on like a Saturday night, of course. But we have talked about the capacity before, and while we ran a nearly $14 million AUV in what is historically the slowest quarter of the year for the restaurant industry, we do have restaurants that are of average size that are doing low 20s. So capacity continues to not be a problem for us, and we were able to deliver on that virtually at every angle in the quarter.
Operator: Your next question comes from the line of John Ivankoe with JPMorgan. John, your line is now open. Please go ahead.
John Ivankoe: Hi. Thank you very much. The question was on development for fiscal 2027, and you may have said this, but I just wanted to make sure I can clarify some numbers. So in fiscal 2026, we had 5 Cheesecake Factories, 8 North Italias, 7 Flower Childs, and 6 non-FRC. I mean, looking at these numbers, these results, which obviously speak for themselves, it would seem like you would have a significant opportunity to not only step up Flower Child, but maybe even find some more opportunity for Cakes. But I ask that in the question that your aggregate development 2027 versus 2026 is just up a single unit 27 versus 26. In 2026, I just want to get it, and I guess just a coincidence that the years and the numbers are the same.
John Ivankoe: I just want to get a sense exactly what the numbers kind of read underneath the surface, and if there is kind of a good guide, because we all have the model at this point, there is a good guide or thinking in terms of how much further fiscal 2028 could perhaps accelerate as you are signing deals currently today for that out year. Thank you.
David Gordon: Sure, John. This is David Gordon. Certainly, 2026 matching 2026 and 2027 matching 2027 is not a strategy. It is a coincidence. But we are excited about opening all 26 restaurants this year, and that number for 2027 next year, I think is a good mix. We are enthusiastic about accelerating the Flower Child unit growth and feel like we are in a very stable position to be able to do that. I know you have heard us mention in the past that we really wanted to make sure that we handled that growth in a way that was quality growth, and we were able to execute all those new openings as well as we possibly can, and I think we are in a good place to do that.
David Gordon: To your point of The Cheesecake Factory, there really is a site-based strategy, and as great projects come available, we, to your point, can open more Cheesecake Factories. We have all the sizes to be able to do that. The recent opening in Wichita at around 6,500 square feet was very successful. It gives us confidence that that smaller footprint is one that works really well for the operators and can deliver the type of ROI and sales generation that we need. As we look out to 2028, I would not expect that 2028 is going to match 2028. You might see a slight acceleration from there as more sites continue to become available. And we have the capacity, certainly from everything we have done in the past at The Cheesecake Factory, to open up more Cheesecake Factories than four to six a year.
John Ivankoe: Can I ask, how many Flower Childs are you expecting in 2027, and where will that leave us on potentially a run rate for the brand beyond 2027 in terms of annual openings?
David Gordon: Yeah. So it would be 11 to 13 for next year.
John Ivankoe: Thank you so much.
Matt Clark: That would be, roughly, John, this is Matt, roughly 25% increase year over year at that midpoint, and we feel ready to do that with the people work that has been done, and if that is successful, then we should be able to continue that.
John Ivankoe: That's great. Thank you, guys.
Operator: Your next question is from the line of Jim Salera with Stephens. Jim, your line is now open. Please go ahead.
Jim Salera: Hey, guys. Good afternoon. Thanks for taking our questions. Very encouraging to hear about all the new guests coming into the restaurants. Was hoping you could share some details about frequency, types of things they order off the menu. Matt, I think you touched on this a little bit, but have you seen any restaurants sort of hit the ceiling on capacity and what that might look like, even if it is during a specific day part where you can only service a certain number of guests?
David Gordon: Hi, Jim. This is David. As far as capacity goes, historically on those busiest shifts at The Cheesecake Factory on a Saturday or Friday night when the wait is an hour, really what happens is it just extends the shoulder periods, and we might be busier at 9:00 at 10:00 at night, and we are open late night at The Cheesecake Factory on the weekends. So there still is even capacity there. To Matt's point about the restaurants that are doing $20 million a year in AUVs, there is still capacity. So we have very stable off-premise business. I just mentioning that as well. Throughout the quarter, 17% off-premise, and there is still an opportunity to grow that business. We have seen some growth in the delivery business as well. So there is opportunity.
David Gordon: As far as new guest behavior, they tend to be very much in line with what we see historically. As you know, we did have some good social content around one particular menu item, the Cajun Salmon, and we did see a lot of new guests coming in and trying that salmon, and fortunately bringing people with them. When you look at the mix of those tickets, you see guests ordering a long time favorite Chicken Madeira or Avocado Egg Rolls, along with trying that Cajun Salmon, which may have been the reason that they came in for the first time. Dessert order behaviors continued to remain very consistent as well.
Jim Salera: That is great. Then a quick follow-up.
David Gordon: Sorry, I think I said 17%. Just real quick, I want to clarify, on the off-premise is 21%. 17% is the continued dessert sales as a percentage of sales.
Jim Salera: Great. Just one thought on, one question on marketing. As you lean more into social, can you just walk us through as a kind of percentage of spend, should we see the brand marketing support kind of match their contribution to the portfolio? Or is there maybe a tilt towards Flower Child and maybe some of the lesser-known brands, given that Cheesecake Factory, though people are discovering it for the kind of rediscovering in social media as feeling much more prominent in sort of the consumer's mind that they know that brand versus some of the other ones they might not have as much familiarity with?
David Gordon: Well, certainly, as we bring the newer concepts into newer markets where they don't have as much awareness, then we would increase that marketing spend, whether that's for a North Italia or a Flower Child. To your point, we really don't have to do that with Cheesecake Factory. Wichita, again, is a good example. Although it's a new market, people have been going to Kansas City Cheesecake Factory for years, and the awareness of the brand is much stronger. So we might have an elevated spend at the newer concepts, especially in those new markets. As stated in the earlier comments, we are right now doing some pilot marketing to increase awareness in a couple of markets for North Italia, just to see if that improves some of the awareness in those new markets, even though maybe those restaurants have been there for 6, 12, 18 months thus far.
Operator: Your next question is from the line of Sharon Zackfia with William Blair. Sharon, your line is now open. Please go ahead.
Sharon Zackfia: Hi. Thanks for taking the question. I wanted to delve a little bit into the younger demographics that you have been so successful with The Cheesecake Factory core concept over late. Do you have any metrics on how durable that customer is? Are you seeing kind of repeat metrics there that would be similar to other cohorts of The Cheesecake Factory customers?
Matt Clark: Hey, Sharon, it is Matt. Thanks for the question. We are very encouraged. The data that we have shows that a very large percentage of the guests that are coming in are younger in general, so it is always important for brand relevancy to continuously refresh that pipeline. Feels a bit early to think about the frequency. We are about 4 months in. What we have seen so far is very consistent sales trends over the last 4 months, right? No matter what the cadence has been of some of the organic social, it really has not changed our sales trends up and down in waves. We have been very consistent. So that is a very positive, I think, marker for us.
Matt Clark: The consistency, as noted earlier, across the country, the day parts, and the days of the week, all of those things tell us that we are doing an excellent job in the four walls when those guests come in, and that we are expecting to convert a good percentage of them to be more frequent over time.
Sharon Zackfia: Okay. Matt, could you give us the traffic and ticket for the quarter?
Matt Clark: Sure. It was 2.4% pricing, a positive 3.3% mix, and 9.5% traffic.
Sharon Zackfia: All right. Thank you.
Operator: Your next question is from the line of Chris O'Cull with Baird. Chris, your line is now open. Please go ahead.
Chris O'Cull: Thanks, and congrats on the strong results. I mean, I have always considered Cheesecake Factory having strong execution, especially as it relates to menu innovation and service, and those aspects of the business seem relatively consistent. Marketing spending also has not changed materially, but the effectiveness of that spending clearly has improved. Can you just help us understand what you are doing differently today in marketing than you were a year ago, and why it seems to be resonating more with consumers?
David Gordon: Sure, Chris. Thanks for the question. Well, certainly, I think we are engaging in the organic social content, at a greater level and frequency than we were 12 months ago. 12 months ago, maybe, we were a little more gun-shy to engage. Today, where appropriate, when appropriate, we are talking about the brand. We are sharing more about what we are doing that is new. We have actually taken a new approach in some of our content and how our menu items look in social, and we think that is resonating really well with guests also. I would say the experiential elements of Cheesecake Factory today are resonating as well as they ever have, whether it is the hospitality, the way the restaurants feel, the vast menu, and the ability for people to get just about anything they want today and then share that content is really relevant.
David Gordon: I think it is a little bit of what we are doing, and we are going to continue to do that. We certainly will continue to monitor those social channels, influence them appropriately when we think we should. Most importantly, as I said earlier, execute against those new sales and the traffic growth because, we do not want it to be a one-and-done situation. It never has been at Cheesecake Factory. We are building brand loyalty and guest loyalty for the long term.
Chris O'Cull: Okay. That is helpful. Then just one more. Matt, sales flow through at the restaurant level looked lower in Q3 than in Q2, and that is despite the sharp acceleration in sales and if you adjust for those one-time bonuses. So how should we think about flow-through rate in Q4 at the restaurant level?
Matt Clark: Sure, Chris, that is a great question, and we are happy to provide that clarity. I think we had talked about Q2 being hyper-productive at that 35% rate, really as sales started ramping up. I would say where we were at relatively in Q3, adjusted for the sales, would be similar in Q4, right? So if the sales trends, because some of that in the holidays were at capacity, and so on a weighted total sales basis, we are still talking about 20% to 25% versus that Q2 35%. I think that incorporates any of the reinvestments similar to Q3.
Operator: Your next question is from the line of Sara Senatore with Bank of America. Sara, your line is now open. Please go ahead.
Sara Senatore: Oh, thank you. I just wanted to follow up, I guess, maybe a question on that, not the margin flow through, but on the forecast or the outlook and just kind of unit count versus comp and trying to reconcile those. I think, certainly in 2027, it sounds like since you are opening more Flower Child, maybe that lower AUV is a bit of a headwind. If I think about the comp implied for Q4, it seems like it is a deceleration. Still very, very strong, but maybe not that 15%, maybe something more in the high singles. Looking out to 2027, the revenue guide is fairly similar, I think, to what you will end up doing this year. But the mix of stores is a little bit different. So I guess if you could give any kind of help on that, on balancing those two things.
Sara Senatore: Just quickly on the convert, this is the first time I think your stock has been well above the conversion price. I know, I think you cannot call until 2028, but any thoughts on that? Thank you.
Matt Clark: Sure. Sara, let me just reiterate one point that I think is most important is, our guide for Q4, again, to reiterate this, does not necessarily call for a deceleration of the Q3 trends through the balance of the quarter. It is only the last three weeks where we feel like we are modeling today at only +3 pricing because of the capacity that we are typically 25% to 30% busier in those weeks than others. So I just want to make sure that that is our outlook on the quarter. I think with respect to next year, certainly we are modeling that Q1 is going to be stronger than normal. But as we lap back around, that you are going to see some tapering, as we cross over these really big quarters.
Matt Clark: I think at this point in time, we feel like that is sort of the appropriate level, and we will continue to update as we see the trends continue into next year. I think the convertible senior notes are, obviously, as you noted, in the money, that is the dilution that is predominant in the guidance that we have given for weight. A little bit of that is respective to the equity comp, but most of it is with regards to the convertible senior notes. At this point in time, what we are talking about is kind of earning into that dilution, and it is early days of where the stock is at, and we will see how that plays out over time.
Matt Clark: Certainly, we have tremendous financial flexibility with the cash flow that we have and the balance sheet that we have. So we are in a really good spot. We are happy for our bondholders, we are happy for our shareholders. We hope to continue to just produce results that keep the bond in that territory.
Sara Senatore: Got it. Thank you. Okay, I understand. So the weighted sales, I think I was doing the math wrong on Q4. Understood. Thank you for that clarification. On the outlook, you said you are lapping, but I guess as you expect, one of the things that we have seen is kind of a positive virtuous cycle where your revenues go up and your spending goes up. I guess, is there, I do not know, any thought on how the ROI or ROA on some of these advertising may shift and allow you to maybe maintain faster, greater momentum than perhaps you have in the past?
Matt Clark: Yeah. Let us contextualize it this way. If you take out sort of the outside sales that we have, and we are talking about a normalized environment, again, what we have talked about is having a little bit more ownership of those sales trends vis-a-vis the Cheesecake Rewards program and the marketing. We do feel good about that. We would be on a normalized trajectory instead of talking about 1% to 2%, maybe talking about a 3% or plus comp. I think that is still our view. As we approach that lapping point in time that will be our objective.
Operator: Your next question comes from the line of Jeff Farmer with Gordon Haskett. Jeff, your line is now open. Please go ahead.
Jeff Farmer: Thank you, Matt. I think you just mentioned a low 3% mix at Cheesecake. That looks like that's the highest number in years. I might have missed it, but can you help us understand what drove that?
Matt Clark: Sure. Yeah, definitely is. I'd have to go back into the archives and see if the post-COVID revenge spending was up there. It might have been. A couple of things to note. The Cajun Salmon with all of those hacks that we know went viral is certainly at the upper end of our entrees. We did see a disproportionate sales for that. I also think it's important to know when you look at The Cheesecake Factory overall and why guests are coming in the experiential nature. In fact, we're up in alcohol incident rates, right? We're flat on cheesecakes, even though we're still at an all-time high. What we're seeing is that the guests that are coming in, they're not bargain hunters. They're wanting experiential dining, and they're getting the full Cheesecake Factory experience, as we say.
Jeff Farmer: That's helpful, and just as a follow-up to that. Just in terms of helping us understand the pace, scale, however you want to phrase it, of menu innovation in 2026 relative to what you've done in prior years. You just talked about the success of the Cajun Salmon. Is it measurable in terms of what the increase in menu innovation has been? How should we think about that pace of menu innovation as you get into 2027?
David Gordon: Sure, Jeff. This is David. Menu innovation has been key to Cheesecake Factory for nearly 50 years now. The cadence of innovation has always been heightened. We are always looking for new ideas. We are always sharing new ideas. We are always working in our R&D kitchen to come up with what is next that we can put on The Cheesecake Factory menu. That work is always being done and will continue to be done. The cadence is the two menu changes a year, and that will be the same cadence moving into the next year and for the foreseeable future. I would not anticipate that that is going to change. The Cajun Salmon actually had been on the menu for a while. It was not even a new menu item.
David Gordon: It had already been on the menu. Somebody just discovered it and decided to talk about it a little more loudly than they had before.
Operator: Your next question is from the line of Brian Vaccaro with Raymond James. Brian, your line is now open. Please go ahead.
Brian Vaccaro: Thank you and good evening. I just wanted to follow up on the other OpEx line in the quarter. You noted the $4 million of incentive bonuses, obviously, in Q3. Is there a level of bonuses that you have layered into the Q4 guidance? That is the first question. The second one, if you look at Q3 and you took the $4 million out, it still looks like the cost per week in other OpEx, that Cheesecake Factory other OpEx, was still up around 10%, maybe. Is that higher marketing that we are seeing? Are there any other one-time items to call out, or maybe that is just line items that are tied to higher sales, like credit card fees and rent, et cetera?
Matt Clark: Yeah, Brian, I will start with that one. I think you nailed it. It is just the higher sales levels. We did also call out higher electricity on a rate basis. So really those are the two things. On a year-over-year basis, the marketing dollar percentage comparisons at Cheesecake are not really that different. For the Q4, everything that we talk about in terms of reinvestment is in there. So there is some incentive comp. There is also some marketing. David Gordon talked about that at North. That would fall in the other OpEx line. So there is some continuation of that. As we get the actuals, we will be able to update everybody on the next call as to what actually transpires in the quarter, but we are forecasting some additional one-time costs there.
Brian Vaccaro: Okay. If I may, just on a follow-up, with unit growth accelerating at Flower Child, can you share more on what the balance looks like on building out existing markets versus entering new markets? Maybe you could just level set us on the unit economic targets for the brand, sort of targeted AUVs. I know the mature margin is around 20%, but AUVs, expected cost to build, that kind of thing. Thank you.
Matt Clark: Sure. I will start with the economics, and then David Gordon can talk about the build-out expectations. Right now we are super happy, really, to be honest, $5 million AUVs and 20% mature margins on the build-out cost. It has been around $2.8 million to $3 million, so pretty strong cash-on-cash returns. Frankly, they continue to accelerate. At that level, the business is great, and we will look to expand the 11 to 13 that we are planning for next year. The momentum is continuing as you see with their comps, and the stacking actually getting better. So, there is room in both of those metrics to continue to improve.
David Gordon: Brian, as far as the mix for next year, it is probably about 50/50 new to existing markets. I would expect that to continue. We see some great synergy when we are able to get that second and third restaurant open in an existing market. So we are happy to follow up in new markets and get a second and third in there relatively quickly. I would expect that cadence to be probably the same in the outlying years of 2028 and 2029.
Operator: Your next question is from the line of Brian Bittner with Oppenheimer. Brian, your line is now open. Please go ahead.
Brian Bittner: Hey, thanks. It seems like based on your 2027 guidance, you are still expecting a pretty solid year next year, even with a big Q1. It still seems like positive comps against tough laps. The question is just, as you analyze your sales data, are you seeing evidence that you can share with us maybe other than the recent four months of momentum that really gives you the confidence that this will not prove to be just a sugar high for the brand? What do you believe is the biggest tool that you have to turn this traffic growth into sustainable business moving forward?
Matt Clark: Brian, this is Matt. Thanks for the question. We are encouraged across many fronts, right? I think you go and you look at how the business is performing. As I noted, we are still near record high NPS scores, even with all of these volumes. Guests are coming in for that full experience at Cheesecake Factory. Beyond that component of it, really the underpinnings that David Gordon mentioned are the rewards program and the new marketing, and we are seeing the effectiveness of those. We continue to have twice as many acquisitions per week with the rewards program than we did before the launch of the app. It is important that we are bringing in new guests, but then we are also engaging with them and continuing to drive the frequency. We know guests that are part of the rewards program have a higher frequency.
Matt Clark: There is a lot of tail left in that to continue to grow the business outside of some of the social. In fact, the social continues as well. It does have a virtuous cycle to it, and we see that the more that we engage, the more that we get organic content created by our really rabid fans. We have seen that be very consistent and very durable to this point in time.
David Gordon: Brian, I would just add that the tenure of our operators and their ability to execute as well as they have gives us the confidence that we can take market share. Experiential dining today is appreciated as much as ever, I just want to give kudos again to those operators who have done such a terrific job throughout the quarter and will remain really stable in the restaurants to be able to execute on the higher volume.
Brian Bittner: My follow-up is diving into that earnings flow through dynamic a bit more. Obviously, margins and earnings expanded nicely, not taking anything away from you on that, but on a 15% Cheesecake comp, I think we would have expected a little more flow through. I just want to dive into the labor segment with The Cheesecake Factory. When you look at the per operating cost per week operating costs, they really accelerated the same percentage as the comp accelerated from Q2 into Q3. That is why leverage was about the same year-over-year in Q3, despite the way higher comps. The question is, how do you want us thinking about these labor costs and the variability in them as comps naturally do fluctuate from here? Will there be an opportunity to maybe get more productive with this unprecedented higher sales level you are operating at now?
Matt Clark: Well, I think, for one, Brian, it is early in the sales lift to gauge that incompleteness. But we were hyper-focused on making sure the restaurants got to staffing levels to deliver the service and the quality that our guests are expecting. In particular, if you think about these new guests, those aren't the ones we want to be hyper-productive on. We want to show them as much love and care as we possibly can to bring them back in. We view it all as investing for the future and making sure, and we feel pretty fantastic about the overall flow-through for the year that we are projecting. So you are right. There is going to be quarters where the metrics don't seem quite as outstanding.
Matt Clark: But I think our view is that, a 30% net income gain this year on top of what you talked about, which is a pretty good outlook, is leading the industry right now, and that's our goal, is to continue to make sure we run the business for the long term.
Operator: Your last question is from the line of Lauren Silberman with Deutsche Bank. Lauren, your line is now open. Please go ahead.
Lauren Silberman: Thank you for fitting me in, and congrats on the great results. I thought I'd go back to the assumption on traffic being flat during the holidays in the last 3 weeks, given how busy you are. Is it an area where you can continue to drive positive traffic, or are you just at full capacity? Any other times during the year where you're at peak capacity?
Matt Clark: Yeah, Lauren, that's a fair question. Again, is there capacity during those weeks? There is, right? I'm not saying that every restaurant is full on a Tuesday night for all 3 of those weeks. I think for us, that just seems like a prudent approach at this point in time. They are markedly more busy, right? There's no doubt about that, is that they are usually more busy, 25% to 30% compared to sort of the average weeks in the other parts of the quarter. But hopefully we'll be able to beat that number. But for the moment, that seems like the right way to model it.
Lauren Silberman: Okay. Understood. On pricing, I think you mentioned Q3 was 2.4%, and that Q4 it is 3%. Are you assuming 3% Q4, and is that how we should think about 2027? Thank you.
Matt Clark: Yeah. A little bit of that was just the timing of year-over-year pricing. So 3% as a run rate is good to use for next year as well at this point in time. Of course, we will reserve the right to update that as we get into the menu change cycle, and we see where our cost and sales trends are. I think for everybody's modeling, that is a good start.
Operator: This concludes today's call. Thank you for attending. You may now disconnect.
