CAKE - Earnings call transcript Q2 2019 | The Cheesecake Factory Incorporated

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Operator

Good afternoon. My name is Rod, and I will be your conference operator today. At this time, I would like to welcome everyone to The Cheesecake Factory Second Quarter Fiscal 2019 Earnings Conference Call. (Operator Instructions) Thank you. Ms. of you President conference. begin Vice Feit, Investor may Relations, your Stacy

Stacy Feit

you. to earnings welcome afternoon, second Thank and XXXX our Good quarter fiscal call.

Matt but Overton, our today our and Q&A. Chief President call David is Chairman on Chief Clark, traveling the Officer, and for internationally and David the Vice be our Officer. On Financial Executive Executive will are President; Gordon, call

this seen, fiscal issued Concepts, have remaining probably acquire in announcing release XXXX a North and Child release, you our to quarter in remaining addition interest have As second which we interest Italia. also earnings we press agreements the entered in afternoon that to Flower the also into included Restaurant Fox

presentation, Investor transactions, from section. To be downloaded website summarizing Relations can help the the a the today, with which Latest our discussion investors.thecheesecakefactory.com we at in have Presentations short provided

call will and operational provide an transaction begin opening We the today's remarks regarding will with update. some

provide our take outlook We you review then detail. Fox will North and the through and third Restaurant our for the then in Italia second full XXXX more transactions quarter and financial the year Concepts quarter results,

Commission. update statements date, company releases, on implied historical are discussed at and statements. Before with during this be be different only no Litigation Securities you XXXX. we investors.thecheesecakefactory.com forward-looking and a results remind not speak and the of forward-looking filings Actual forward-looking in result factors that or website today's within are All statements duty our and undertakes from of that could made as are materially of available let based in on will items begin, the Private considered call, today's me those forward-looking on the statements to fact the call meaning quickly in Exchange the which Reform any stated of Act this as detailed our press Securities

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

David Gordon

I and Factory, announce the Concepts we initial our only Restaurant XXXX, helped our am North his Fox of to in both have Fox Flower we the Cheesecake with and Fox at but Italia in together have relationship experiential North growth bring fuel agreements pleased minority and also leadership Stacy. developed you, Child The all to dining. team investments Italia concepts a Thank Restaurant that in entered position Since making to reinforce of into Sam Concepts. not

the true realized acquisition and the combination potential the could entrepreneurial organization. greater companies we We It planned X of of the as relationship Italia. our most integration became through evident North of even restaurant value process drive of for as experiential that worked X this

we North to incubation regard is growth about future. long-term we've and As immediate specifically, very the commitment with the very the Italia In impressed and discipline. our we've turn, engine concept business design to to for importantly, of of concepts innovation, know got And Sam menu hospitality, ideal been eye and the Restaurant develop to believe Concepts concept. team, curation, we're with excited Fox his potential

structure cooking North potential our daily. scratch and All casual accelerate believe will growth core from these businesses. Italia modern us on We enabling to FRC our and focus lens a Italian of on dishes segment. handmade while turns unique are the dining our transactions maintain upscale the

to owned operate as will a at operations Concepts be Italia's while North transactions, located headquarters by to will Restaurant naturally. enabling embrace Cheesecake scale. Fox and to combination FRC's corporate creative the innovate Sam of led in Factory's subsidiary concepts, The capital to continue scale the them Phoenix, completion spirit, the This headquarters and wholly from help be the Following concept the will Arizona. infrastructure providing

additional by with of of complemented the The to even our and opportunities expect in Factory to growth be future, look dining experiences, our for positioned long-term growth we for provide exceptional and entire better our Italia in concepts offer power the and infrastructure team. potential, his brand, Cheesecake shareholders. With Sam guests the welcoming maximize vehicle teams engines growth develop We to forward value and respective North and incubation an to concept

outperform. within turning to to a operational which Now despite earnings This in quarter during execution the sales continue solid our expectations, second by was Adjusted per environment we supported was soft our results. share quarter. industry restaurant

Our to on-brand sales the the channel. marketing grow, we off-premise during of driving value our comprising sales second total our quarter Off-premise are to continues supported in performance. We by store XXXX. high supported made-fresh-from-scratch XX% our business, outperformance continue as believe creative of positioning, comp quality, differentiated and proposition menu again, take share this approximately

our from engagement, taste number National with our We A the and guests generated their the of to broadly, other celebrated with and Pineapple Cheesecake we was More with to weighing excitement. social the yesterday Day TV various see celebrities our Upside-Down of continue Cheesecake. great regards to Cheesecake first popular positive return cast initiatives. in a results show joining marketing, in media

to environment, and search status. frequently about TV And our people test our to sales-driving summer Cheesecake we ongoing more marketing marketing of Factory To will to was how remind Cheesecake of on-air as channels, example on number including publicity team events forward a are the industry and is This we of The XX taking continue and secured much item again attain another in team we capabilities to influencer with build on our marketing a our awareness a to year. sales. Cheesecake The on-brand this paid trending our ties top-of-mind Factory be National commercial. Twitter Day segments fall, drive a and received, Factory's addition, this excellent an into publicity as collaborations possible additional utilizing marketing In social complement increase and the generate advertising, with step the year-round to marketing Cheesecake

driving brand Favorability Labor good we their the test a XXX our second and front increased results highly productivity of of of to effective the of our buy in dishes our this model. offer leveraging associated more occasions. with about media for an could XX media that with messaging sales, on comp markets economically to restaurant-level cost but launching guests maintaining option has strength no year-over-year. We remind made be be spot. are capture driver. sales this targeted feasible Along objective structure than a In store determine There our Rather, buy will modest to and margins. The flat we Factory quarter. our business will the to are this had more turn, we Cheesecake the committed dining with during made-fresh-from-scratch be

continue We efficiencies. areas to where food manager we both reduce and with retention, year-over-year. hours continue underscore maintain overtime These results importance the staff and and up engagement retention to excel of rates hourly staff industry-leading strong

With restaurants includes that regard to X unit location early as expect moved as locations development the quarter. open as for opened the for into Cheesecake now XXXX, Factory to Oxnard, XXXX. has many X year the second California during expectation we This

second XXXX, opened to including to that the Arabia expect under agreements many during in the internationally location restaurants X as open in continue quarter. We licensing as Saudi third

now financial with that, over to I'll And call Matt the turn for review. our

Matthew Clark

David. you, Thank

million. higher in revenues, Factory by leverage, revenues including reflecting XX price $XX.X XX.X% was offset of $XXX.X external The second partially quarter bakery at sales increased comparable last quarter from decrease of produce of basis X%, sales, total menu were restaurants million about sales points a Cost Cheesecake Second of year, costs. the

same do was down the of our $X.X year. was bakery upgrade period. Coast not quarter primarily second from in same in period and Labor year. XX.X% of was new year-over-year. group of second by with were to and openings quarter costs the second last of is year, versus year. approximately the about during revenues, last offset XXXX of in attributable of areas, last legal costs, expenses Preopening second of XXXX, same $X.X points had This West the variety XX were to This XXXX, of higher points We prior million lapping associated the offset is the million we G&A XX primarily last the X.X% XX.X% expense of basis higher year. up last any by driven wage an year including same basis of in in period quarter partially hourly lease have the There puts by points lower standard. rent Other lapping of from noncash of revenues, from rates, in the insurance quarter opening mainly final costs period prior the quarter operating fiscal the a XX planned the increase of medical additional period accounting infrastructure stages the basis same revenues incurred the the X takes other marketing adoption year. the due the in

And our tax was quarter approximately rate this X%.

during loss the million repurchases North used nearly $XX high of approximately our flow. earnings of in second capital That quarter. adjusted the cash $XX over operations via financial capital on generated $X wraps to which share and their $X.XX. driven Flower our North $XX We million costs minority investments cash million our million approximately expenditures during quarter. Italia Cash flow Italia and by Flower completed in as share provided Net the preopening and to expected, in primarily growth review dividend free in We shareholders Child, for second from unit per million returned growth is $XX levels Child. up quarter. roughly Excluding given $XX the million was was for and

and the minutes the Concepts impact outlook a range integration our XXXX. full for any note few our spend Italia from quarter not I'll onetime year including Restaurant the costs. CapEx North do reflect Now Please and on transactions, outlook and Fox third

past, realistic, we sales ranges estimate most we've share per the in As current information based provide everything the cost in quarter-to-date the we These what any at to today, this on and trends, weeks for in time. of happen our assumptions associated we have the holidays weather. will continue effect know done earnings of think best assumptions and or factor ahead which we with impacts as includes comparable

environment For produce earnings to $X.XX flat sales sales XXXX, range ongoing up quarter the a share between the of in per X% softness third diluted The estimating are and adjusted Factory of Cheesecake and costs. in in continued on pressure at industry reflecting based we restaurants, comparable $X.XX

Turning X.X% The sales of Cheesecake to now year comparable restaurants. expect in a Factory X% range full XXXX, we at to

our we the food cost the XXXX now given the we expect in recent greatest On for have which quarter. closer currently market impact produce, side, inflation be during to the third basket expect X%, inflation to to

inflation about We of continue X%. to wage estimate

reflects which tax we earnings actuals X%. $X.XX, to per adjusted For X% uncertainty our modeling approximately produce between and quarter of turn, costs. purposes, we second diluted In now around the estimate anticipate rate $X.XX share a XXXX now and

a Flower our North QX driven reminder, operations costs EPS portion support and year levels from Italia of to rate. preopening high As growth anticipated Child, our by their and of their of any full loss current the exclude ranges

between now be regard to $XX With and capital from CapEx unit to $XX maintenance cash our to we million expect anticipated growth and allocation, ongoing needs. XXXX our support million

over we've previously X.Xx Fox and to be approximately run be Concepts will acquisitions Italia Now the $XXX consideration and North Italia turning million rate revenues. Child, and years cash Flower The ratably equating X in announced to transactions Restaurant be in the we total approximately $XX the $XX million, due next $XXX closing. will million million completed An North will additional for including at this afternoon. invested

closed be following and by to will week million flexibility, will revolving on just X be based presentation transaction the With and continue the cash Further the outside financial website. a FRC Child. on includes the FRC of financial our individual Italia The strong in our we facility, earlier provision which both term to of hand. performance cash Investor acquisitions. of projected brands upsized summarizing an on closing maintain drawing detail found on a of $XXX sheet the we Flower ample the can credit on acquisitions leverage, this funded and The balance earnout transactions also North Relations

Excluding expected to approximately share per earnings in neutral expenses, the XXXX be integration accretive thereafter. fiscal transactions and to are

of Our unanimously to has the of end the XXXX, fiscal Board approved subject expected are of closing transactions, third the conditions. which to customary quarter Directors close around

continued reinforce leader the as license expansion strategic making experiential these and of investments in long-term position international complement to our are dining the domestic and We

from occasions Italia, Italia Specific an believe concept, offer. The Cheesecake Factory. ideal North is whitespace to fit to significant and an Italian see we the for want we experiential on-trend North dining

there in and annualized which now With in investments, planned X opened to are more run in rate planned underlying North expanded nationally mid-single-digit are support revenues XXXX X% Washington, store pipeline more XXXX of Virginia in next sustained With upon quarter the close North the sales the And location, over of have as $XXX fourth states openings has fundamentals underscoring X well our the transaction. and this of D.C., concept. X million including comp for approximately in strong as sales Italia months, for performance the place. expected XX growth the the opening Reston, store one today. restaurants comp increased be year, has capital the they

XX% $X.X CapEx million ratio, plus food margin by the $X North equating Target unit concept XX% to cash $X,XXX is sales in to XX% domestic for of over an national is strong year cuisine, X equates in States, million, investment X:X unit strong North Italia $X the category our ethnic per very sales Italia we which on growth This time. to target restaurant-level generating plan on With for to the cash date, concept. the is has operations. of average a return coupled million XX%, #X for locations XXX reception average, cash plus. believe achieved typically supports United roughly Italian there With potential foot. to investment with economics, is to annual about square and of

$XXX Fox Concepts Child, be at rate is comprising restaurant multiple Culinary the annualized are Henry. revenues and close transaction. Dropout The the group FRC's concepts, including of Restaurant Flower anticipated approximately run to a unique million

there XX% annual believe growth for is unit aggregate potential portfolio. their we for Now

billion dining with X% We some help X% the you leader, of revenues to in provided pro to X% growth comprised unit XXXX on X% $X experiential comparable plus to sales category nearly of in growth, and company have XX with anticipated and targeted combined The forma modeling X% metrics of is expected slides your and growth. additional be eight presentation. to an revenue

and close that aligned has a a our supported should believe philosophies already, good cultures support knowledge We deal of and existing integration. relationship sharing smooth

estate our synergies economics, objective. and supply-chain, the to believe, Italia real will with over coupled FRC margin expect and capture which recapture unit We additional we time, North support

our maintain to after completing share of We to restaurants under capital integration credit targeted returns, flow also strategy, accelerate are meet borrowings continuing the cash the program. expect in generation the to investing repaying facility comprised and balanced repurchase new a allocation that and plan expected and dividend

this year, assist variety anticipate are aggregate a much revenue acquisitions as XXXX. we contribute some the on your and providing with These assumptions will are To including for around next as to million in of impact. incremental initial modeling $XXX We purchase acquisition point just in estimates factors, accounting. depend at the

openings that a number of North. a and we these units yet, North the XX.X%, year, next margins high in new for be steady-state figures haven't achieved For FRC combined for given reflects which estimate to levels XXXX. approximately XX% level Both restaurant-level of margin number include of margin significant

the and accomplish be longer-term Italia When continue leverage believe objective. estimate and our which we to average accounting concepts. will ultimately Italia roughly accounting. for depend we preopening of costs unit and impact new per finally, standard the on the of North to approximately of for will D&A to rolling FRC We X%, able G&A, North purchase in FRC's unit project that North and currently And we XX% of G&A X% FRC volume Italia lease

Fox believe today's the and Factory in significant restaurant complement and Italia the acquisitions value-creation core with scale, growth balance a power of robust In Cheesecake to long-term meaningful uniquely unit and Restaurant opportunities we business. believe the cash Concepts We potential the to are North profitable concepts, industry. closing, drive company sheet, growth strong positioned be diversified will generation meaningful combined drivers, flow

questions. And we'll with (Operator your Instructions) Operator? that said, take

Operator

question (Operator Instructions) And Morgan first the your Glass John Stanley. comes from from line of

Your open. line is

John Glass

two. Thanks very much. If I just could maybe

on second first, are out you revised outlook in much like doesn't for the your outlook it the your came Just quarter now outlook annual a bit and where your third changed and little year, objectives seem given just lower. quarter your

primary changes the this better fourth particularly within balance just you of comp in the given quarter walk is things think you've fronts us year-end talked produce and that issue in third do in quarter? kind the on you third what can the quarter? So issue both you at now, are? get through the look the How what Do the about

Matthew Clark

this good productive steady John, about Yes. is business. our of And core think right. Matt. you're just very lead of much nature I fact we feel I with kind the would changed, not has the that

So we're track predominantly the puts for have third few up counter costs hitting right you as noted, I on all takes, the and quarter. come certainly EPS really mean, the The in objectives.

are produce, the about we we a feel it's basket, third the comp small so total our look the we pretty for at that good I little where close outlook is XX% for there When contracted piece where maybe We softer year, bit quarter. out is. think for to thought,

I that industry. seems are across doesn't that, little trend July there industry, us slow there. maybe a looked And for be changing when with we off at concern. where But that a behavior school give other the seeing or to the started in we some of some think that bit cause multiyear patterns has

steady think our store sales range. I in projected pretty comp

and in year. much we thought line be we and small pretty the takes with where when would very So we puts started

John Glass

in assumed those both build better the just reductions purchasing or some in when have you about in Can -- margin? you about synergies, you've that Restaurants for G&A that and ranges to 'XX. or or level you achieve? in you Have can you And accretion provided think talk the you haven't about restaurant of your breakeven restaurant about extent what margin you've being the have talked built Fox assumptions what projections the the for

Matthew Clark

Sure.

production, it's does G&A know think of the expect everybody buying excellent produce synergies. Only will we and and about terms of growth. see being a really predicated this Fox lot opportunity certainly, don't cash flow We is that for revenue team can great said, We have can not time. for on think of in production time. power. I a That over companies we expand think a leverage I deal job experiential be dining synergies. there, -- over us to there we both an growth more to opportunity of we It's the in upside importantly off

estate real greater have will We capabilities.

So there be to current that we be something very will on and a the of factoring but could That his any with we're team that will work in into not projections. our be some, closely evaluate Sam benefit out for years us. and

Operator

William question from next line comes from Your Sharon Zackfia Blair. the of

Your line is open.

Sharon Zackfia

I questions a afternoon. couple Good the of acquisition. guess on

entity you synergy guess that concepts? EBITDA from from a of Fox a wondering Fox delivery profit of I'll of could and But mean concepts just third-party as think do to, what Fox you its with Factory? the that you're use perspective, incubator some your elaborate the about I entirety. of well kind get might larger Cheesecake buying? for that And the think menu just relationships I can kind could perspective, some we you feedback -- the like gave I'm of secondarily, then could that for enough be you how an us I into And obviously, word restaurant-level as kind break

Matthew Clark

tackle Sharon, first this try one. is I'll the Matt. to

right, the $XXX about we if think baseline, fourth quarter. above record in I of think some million revenue I you the guess will So

what is you've the to X% would $XXX have if and modeled absent you then amortization X%. got million above of around previously the depreciation So at you and look North. margins we're And XX.X% thinking

etcetera. absent G&A perspective, in our so tried think onetime to that of XX% a will David happy cost then will get entity I'll of I the off-line talk help on an using essentially as on And a we'd metric synergies EBITDA the revolver, the that let you and getting from about that with DoorDash, basically integration be can We're we work overall the number do target breakeven for financials. And kind into G&A there. to I to interest there. close with AUVs give be the with I think you backwards you're And everybody line and well. cost think preopening, But pretty any EPS. the

David Gordon

David it's Gordon. Sharon,

has closely of and all is and years the -- taking over his fresh great created the concepts Over ingredients, past Sam around and quality very of team, quite entrepreneur and working care with certainly, some them people. Sam X.X wonderful based

future if would then that are create, a think there scale that organizations. leverage So have having many Flower Cheesecake when Cheesecake are together to And umbrella and in decide scale fall in we so team we'll what's today the and time similarities the do whether would be evaluate as continues X Factory and that goes individually of some one And about we've would Factory as team all we our Matt of about then and those like scale Sam opportunities, may look nationally forward, North of as deal with Cheesecake comes, in those and broader to we'll great best Factory Child. to hope and there and concepts whatever we said, DoorDash for each -- Arizona at overtime, well moving as talk have also nationally, moving believe company. if for best those done under to the and the with it's we

Sharon Zackfia

was David. asking I a Thank I from guess you, standpoint. menu

David Overton

-- menu be will a we'll they this the still be Factory new standpoint, our still incubating will their is Overton, ones. doing From team doing Cheesecake and Yes. David and concepts

concepts guests, are what is way their same, Cheesecake-ize they the keep and so for our very that terms much of to So we of we the want as keep to them plan future not the want now. offering and in our as they are

Sharon Zackfia

That's very you. Thank helpful.

Operator

Nicole Piper line the Miller Jaffray. from of Your next question comes from

open. is line Your

Nicole Miller

clarification. I'm very amount? the afternoon. dollar call would comment turn the return? your attributes. It you your will measure branding a imagined TV. to be like of total back attaching you Could quick leverage approximate equity for or any X how you. about is then brand question debt Thank much call to going on then My having you Good the just translate sounds if wondering and to you And action turning

Matthew Clark

this I'll we'll just that about of just about of million I'll combined much we the -- debt entity flow. with imagine Nicole. $XXX the have cash associated of -- would Yes. operating ballpark transaction, the Matt, and would is probably in

that's So X turn. our

David Gordon

And test and in in that and going start measure XX that about to test we all we're then forward. to call on messaging the action, Factory Nicole, we see markets, to will Without leveraging TV, without offer, it's over what just awareness is. want what attributes pilot, our it an see we be do experiential made-from-scratch the the how aided want Cheesecake a a and think time to pilot that we'll phase does, and the moving we during and

Nicole Miller

-- of guess, in oh, the phase. pilot And the measuring I there. answer I measure guess you'll that's just terms

move need something guess if like wondering you I in a besides Just obvious.

Matthew Clark

some that net right, it's evaluates think watching on and making of valid the I to perspective. not sort over a model -- also be you're sales will build there's a tail we'll very pre-post line we'll when hope think you're a Since Obviously, store an be able comp pilot time. in you us so right. it's I market, it carefully and that statistically, give that, like investment every

Nicole Miller

Thank you.

Operator

comes America. line Bank the Francfort of from question Your Gregory from next of

is open. Your line

Gregory Frankfort

acquisition guess change how I Is than what that percent then concepts? thinking clarification And guess about Cheesecake then of you're does to different are long have I this one asked capital thinking Just of and CAKE than any X? AUVs with you store growth, is. that just brands the you maybe difference maybe XX differently And sales? term rather play that a maybe clarifying growth allocating I between now about a longer-term nation question. percent question,

Matthew Clark

this is Greg, Matt.

think sort same a it will if of you the preopening, different base, about using percent rate sales we're percentage it's of use you million The because of XX% of question. would that on cost a growth, but the as in being really the and number think XX% It get growth the AUV So right? of of you total ballpark. be the of totally is first business one in run if a I that $XXX the but percentage

to year the will pretty X. by I respect acquisitions initially be think to allocation, with essentially self-funding capital close

we need approach. Factory don't Cheesecake around see a balanced So a any allocation or capital really The to decisions shift

on very have deal We gotten the a businesses. piece, highly financing good they're profitable

Factory to So be we grow as continue able have to. Cheesecake planning to we just to expect The been

of continue to we this of and we program expect with will the dividend, share think our that, the some bit to as continue I and near X have else store the growth able it But essentially, to were be kind will down a otherwise, -- a right, all fungible of doing we that's did the time pool. everything before. the that repurchase this grow going plus, do to provide we're we to term debt balance little paying We be in and

Gregory Frankfort

much. very it, you thank Got

Operator

the next of Bernstein Jeffrey Barclays. question Your line from from comes

open. is line Your

Jeffrey Bernstein

first maybe guess. or David for questions, Two you. I thank David Great,

kind the was Lux and were ultimately for Cheesecake Factory it up think Child. and RockSugar the and North of and in then bigger it set I As Grand back day, then just picture, Italia Flower the we was

like more. XX got it Now another seems or so we've

on versus concern the because part seem become you you that or maybe then maybe there achieved does your this the the other Just I I wanted, secondary brands the engine just any focus that had about wondering how ultimately didn't didn't wanted viewed for you And portfolio the acquisition. or just over pros just Cheesecake maniacal the one historical you've addition complicates can Factory. brands out just the if don't lay cons is how synergies you -- I'm it follow-up. The whether think know wondering not whether whether growth on

David Gordon

is This Jeff. David. Thanks,

going never to Cheesecake I is run operate to think our factories change. maniacal and how and we will continue

as any As ones previously, far plans RockSugar, don't as we at time. up this stated to Lux open Grand any new we and have

on the focused running to is country. have They with continues grow operate during Factory a Cheesecake integration operate be to we across so growing do as also as and time However, able period to memorable as at brands North focused well. great and restaurants, perfectly will start the business to thing. in North, those on to And our to have. as deliver do growth always we over we've stay grow North this stay today, expertise -- experiences, we brand just XX% as continue to we'll North appropriately same able continue as Factory of squarely and that guest XX% those our all Cheesecake a leverage to we'll North rate, we'll

us he's focused continues to are other stay them done lead and Phoenix, that from being Sam years he's and restaurants has to that, important gives at that's on able stay for Cheesecake and team as squarely know while we as learning through providing focused going experiences, creative do been everything his that Factory. exceptional guest and he's And to running important force to over XX guests the those to ability operate years on his and continue a that

Jeffrey Bernstein

terms was my to the from you X% then change there on per the see how XX expanding And to X% operating the is you'd it. the I and know the the basis slide or I any points that strategy range over of going any was within change year Got past on openly just range just margin. of the and years. buckets few expansion it margin to operating next in in follow-up of maybe those wondering that maybe whether portfolio. for about decks kind talked

acquisition, see deck. this I slide in metric in the newer layer didn't you particular that that Now

Matthew Clark

Matt. this Jeff, is

we're and it math question, include in because great around. evaluating that we still process a is the did that that's it not we're currently something think of doing the and I

Our still leveraging objectives around exist. G&A

But this though business are margins Cheesecake still Nothing Our the track recalibrate margins keeping to on certainly, has with of we expand and we need I year. those, component we're portfolio the for core kind right of flat. to international opportunities to pursuing this. the think CPG respect and our around with exist, changed Factory

So maintains still that objective. the

would Certainly, So correct. those we those still of pull the pieces portfolio wanted sure make of dilutive but any and to targets about math that it that the motion components the nothing -- given get back future. we it to in be are here, in

Jeffrey Bernstein

you. Very helpful. Thank

Operator

from Your Stephens. next of question from Slabaugh comes line Bill

open Your line is

William Slabaugh

the on consumer. a just question Yes, comments Thanks. your about

was during you've well. it more a as reflected consumer into gotten your challenging quarter somewhat mentioned the and You that results XQ environment that

somewhat it in past you'd this like saying versus what So maybe been seems is quarters. new

activity curious or maybe been you've different of it be around consumer anything there's and change geographically I'm would if out menu? parts either the day whether to parts what within seeing call around So

Matthew Clark

No.

things. little the year. quantify I you Box I we little shift, industry whether a lot Easter at and seeing think -- I are but that, was call, certainly an these a July mechanisms those the some in a -- think July, year-over-year ebbs think the year MillerPulse, it's I to a hard are I as referenced think significantly And and I companies that to of there settling tracking as later that. earlier think seems KNAPP-TRACK One, flows just have of or pieces any a It's of other the weather. it's bit Black or we're don't may that of those all throughout think significant, normal reporting been of noise. this look couple the turbulent if and holiday bit was just of

year changed. for comps the for guidance barely has Our

just I it's performing think same some very I those are of components geographies edge. consistently. The So the around think

we the historically seen have more haven't has the of seen any that than sales been when in volatility anomaly pattern. We there

William Slabaugh

That's helpful. Thank you.

Operator

comes line question next the Andy Your Barish of Jefferies. from from

open. is line Your

Andy Barish

congrats the some interesting concepts. really on Just and a acquisition, buying couple

sort you the Cheesecakes, as the sort give XXXX, any year? unit and of you're color On how that we for thinking to mid- overall growth? high X per maybe about unit kind Fox North visibility growth about handful going number forward single to digit on of should how the to handful of get other pipeline much Is can XX of sort you think of as of then have concepts to a that us and

Matthew Clark

Yes. think your math we I have I close. mean I a think specific is pretty number, don't but

For looking X%, for achievable that, real and we that target Cheesecake still already. to are good support next we is that think Factory, very year at feel and estate

XX% much would And there's that a be in target given North little they for roughly least growth you're and opportunities the concepts. about more group I then Child if that real pipeline good some an interesting within lot annual place. and estate pretty we would get the basis includes to at bit on XX% a that a that's XX Flower be not have for we restaurants next say a certainly, of different right year, referenced, FRC would As on,

So we estate on feel growth, the unit further count us variety a this perspective ability the and leverage. of from sort a real and to in helps us only of ways gives

So hit targets. pretty good those to opportunity

Andy Barish

perspective maintain just talent you Just of and at XXXX the acquisition And into a year from to anything incremental we the cost of quickly, then some on in thinking there. as Fox? first the move people-retention of be labor about ownership through kind should

Matthew Clark

have Sam be to are Well, going operate going they business still They're just his as the and been. to team there.

world-class to opportunity. things synergy will more I This do -- as the talent they is we great about that. they think provider, situation that noted, the a a this to do about continue already be growth all but not

rates put great already they already out It's a So with that. in run we've that job do embedded the there.

share that that So think will other. and knowing each the that continue the will people philosophy we're benefit working that we around only I together

Operator

Your of comes JPMorgan. line question from the John from Ivankoe next

Your open. is line

John Ivankoe

Hi. A couple things. of

on you're exposure mentioned I point I of you markets acceleration staffing that whether are in or that that any this actually shortages of jobs context where there? are terms those in any is, that asked the are of the outlook any X%. seeing mean, seeing for front at about? of And costs Firstly, to your house back labor, Are concerned you What's in you stability, inflation wage there become house? beginning experiencing

Matthew Clark

John, this is Matt.

have places a percentage market has. or not We choice probably slightly basis be The minimum-wage our goes is be different is the that in restaurants. the it imagine are we'll situation. slightly up, in the of wage would following impact of relatively lower. been of by would total changes, be #XX Certainly, perspective, on challenging of a we're a year, rate, once able the increases with expectations say work employer Factory it's pattern mandated as that and has the There's of causing not this, the next of us rhythm But we Cheesecake reason get a pretty etc., into brand little we'll we sort bit more again from company minimum diversified evaluate got a what so we been math just as a any the to to on X quarters. and any I best the shortfall the our but it's wage, On outside in and impact to the credit X.X% been continuing predictable. staff are and to could one around more

John Ivankoe

the diversified. commodities, your is understand second question obviously Great. on that I And protein basket

at the You any non-commodity comment pork Could don't sell but kind foresee you of market produce anything could the just quarter seasonal side. on a does avocados else on the over concern shortfall chicken. view a if on of lot you mean this sell you produce view do elaborate as if challenges you you point? -- I X? and give protein side that do Is or and a you there's also actually on your

Matthew Clark

is this Matt. John, Sure.

On the we're proteins, this contracted. year, for

have before we've historically have proteins. going you've does protect an to that the ups such I think degree. there's to we've worked a lot for just kitchen, with on but of where a still happen we many seen what's outlook we've some able don't We I out situations do. accommodate But think needed and been around what balance think flexible that XXXX to and yet there us downs I around and noise to

year. has With for in around relative imagine past mean a been similar would avocados. aggregate growing been I to range the a for be basket. smaller predominately couple of produce, I really it's last respect years So season it to as the to it in

rise. I think to continues the demand

there never of You that subsided. the spike of sort what around in a farms it and happening bit really with have Mexico associated little was I think

this makeshift into on the in transitory I very built nature very, regardless. again, that think, bit is our of a based guidance we've some little but expectation and historical So

Operator

Your next from from Dennis [ph] UBS. question the line comes of

line Your is open.

Unidentified Analyst

All right thanks.

clarification a Just question. and then a

wondering just go can ordering that commentary the few unchanged first, of mix could where targets as to what like? if next Just largely anything your on perhaps looks you delivery question margins? off-premise. Cheesecake in thoughts and And mentioned like? add the mix And then the remain just off-premise mix off-premise that What if just the given share if there's Thanks. the relation long-term acquisition? to it the on over some relates to as then years, is you it online to about relates And X-year looks

Matthew Clark

Sure, Dennis. Matt. start. I'll This is

out boost kind an that the math just changed. of But We update. target to the figure we is the these given contribute margin reiterating growth for say I long-term to profitable you our we to targets. that before, international and provide around growth, confident able around this drive the once hitting more any to that just a we'll math, reevaluating just reevaluate we've are What be haven't about incremental portfolio. that needed again, gives We those to feel long-term would would I the and tell put us targets our ability there CBG and significant engines, out G&A opportunities additional and

David Gordon

And quarter, about delivery the moved some online over second ordering up just of of nice last quarter the sales second was year, about which is on the and the of that off-premise front, XX% XX%. to was Dennis, total and growth in off-premise XX% is XX%

we out time still in. grown are rolled XX% since about of So that's ordering incrementally guests and over online phoning

me, for you you're close look dining in. when and the quarter tension end at would excuse roll appropriate feel So first we travel actually the that's the packing get also allows the of did the experience be Cheesecake gone temperature and very out and food very The packaging last well. to appropriate and allows the integrity of new to very, quarter at That -- Factory food

already think far acquisition continued goes, the the that country for of So restaurants there's And growth we continue DoorDash today, as grow today will markets be some We use across sales. to in as and our the the the that there about the as we've talked concepts to offering off-premise grow are room and continue still great to feel DoorDash some business off-premise. of off-premise to and along FRC of well. -- to many opportunity

Operator

Matt comes of from DiFrisco the from Your next Guggenheim question line Securities.

open. is line Your

Matthew DiFrisco

you. Thank

respect benefit With to in a to question. I then a had and clarify Just was XQ? I Easter, drag that or wanted one point a

Matthew Clark

So we we -- benefit. being anticipated a Matt, it

think it's much I from a little the be of when -- as seems were slightly to maybe muted will. obviously so a a diners, season bit and as was bit little other benefit some we it -- thought. think we little a weeks March get bit. holiday little year that it But this but casual in not It opposite and late if the of bit they between out I and spread a that the it April was you were maybe

Matthew DiFrisco

Fox? structure Sam And point then of just to that Fox you deal, have are will the still of clarify ownership of then here The a entity percentage in does XXX% one the remain Arizona? question. Or more owning my

Matthew Clark

and will ownership, Sam will deal, it have be XXX% opportunities is period be they earnout we've that and there have will an structured -- We to staying time over but the on XXX%. as

Matthew DiFrisco

wining to and question be the believe greater that Okay. And off-premise we're than initially. correlation room. substitution seeing call as or may dining business here I some also, my the getting be David's incrementality to Does the you're delivering the could with from far there of question the to cannibalization guess into growth that off-premise the maybe you're that then in with respect what as somewhat lead

David Gordon

Well, there. we think there's incrementality feel still I like

that as I incremental, think it's the time. said and we've past think still see that growing in probably of can XX% over we

as being to continue evaluate guests convenience for the see as right certainly more continue There into up as Matt feels the necessarily that QX some that but we with But that off-premise. happening growth don't same-store forward. where to is in attributed restaurant stated sales small we'll of part think to want look it where ended it whether in moving we could earlier, I a come of to now. be meaningful not

Matthew DiFrisco

What XX% was the year ago? a

David Gordon

XX%.

Operator

line from comes of from Farmer Jeff Haskett. next the question Gordon Your

is open. line Your

Jeff Farmer

have I a modeling Thanks. question then some and clarifications.

up on So question. first the

last at that is under very curious how over you what XXXX? as us quarters, into I'm in driving that especially move X of XQ Your that well and the labor just examples. we control is gave sustainable couple cost been very, But had kept our model. a looking

Matthew Clark

has -- the been group around think we've medical had I it's real that ever Well, been cost. noise insurance

wage do I read point think in time. on I operators best-in-class. our a at this labor and a And I forecasting as think management tools piece, good job, we noted tremendous are pretty the have our

area, to step also improve bussers look we're going we're to function, continuously out, example, every to a not to going take We we're look not for in just better. opportunities be the for incrementally

the sustainable ability good right going we've think we to is feel company into that's then long-term do. if next very insurance that, but explained year about So absolutely that's -- Jeff, I forward. our I higher for and that, And cost, we business manage our the have going decision labor

David Gordon

that, there's the said people really our can people, I not And we our would lead cross-train we sure we add just importantly, more we will and that, to our as next time, way rates are the about, be keep that's Because it being earlier more because much XXX feel for year. something much talked continue into we productive, Matt not can as retention just as but churn. industry-leading people for care really ability helps on historically, Fortune there's list, them.

Jeff Farmer

And modeling. just then on

for lines, revenue everything you then for another know two again, have one else. Cheesecake restaurants so and that, the you line currently So just

break moving again, you makes So everyone's a that on going segmentation forward. life thing I'm it's And in a but are this just out curious, modeling there I as more segment? mean, line And just unsolicited this easier of Fox a bit separate far advice for terms be early of Fox? new little in revenue terms a will basis, thinking about to

Matthew Clark

third We're evaluating all that to the the as quarter the our we in process of to decisions make and Well, clear. of provide with close transaction actual probably auditors, the you an update we'll and loud in those on of I get and able be closer the hear call.

Jeff Farmer

Okay. Thank you.

Operator

next of question line Saleh BTIG. from the comes from Peter Your

Your line is open.

Peter Saleh

a in small to increased Is in spending advertising if wanted TV shifting just test this is the I this an this the a the where back are to commercial thanks. shift, or is you to this shift? task? And support markets. XX investment Great, and come dollars

David Gordon

it's have our we we what part an increase of spends part this AOP is and that of from for plan discussed the It historically, previously. year and marketing our been in and

some So as we look in certainly see and a to that it Again, I earlier, It evaluate we'll to exactly budget's we'll a and year's plan drives is said difference marketing incrementality how the continue decide strategy. going pilot see is it then it making forward just next goes. what if we'll moving like.

Peter Saleh

of you on the one guys clarification Restaurant for Concepts just then are Fox And acquiring. Great. that

are X are just across or acquiring the XX you the are For acquiring country? Arizona in you stores that the Zinburger, stores

Matthew Clark

retained concept ones good in did Peter; part. and It launched will Phoenix of are our based the Sam the that development the and on company. in question, will of rights so successfully is that be your Great will very, that ones a part the very, previously that ownership the and -- catch has Phoenix that's be that that so part

Peter Saleh

So -- the other are Sam, by just... were XX they still developed I'm

Matthew Clark

Zinburgers rights were a doing, we and purchased a -- -- operate company and part will no so of it. ago of by Sam No, of of will quite not that has they're number but number that he be to what we're not. other the just will the piece Those different years continue

Peter Saleh

much. very you Thank Right.

Operator

from line comes [ph] the question next of from Baird. Your Mary

Your line is open.

Unidentified Analyst

and of QX? work XXXX half pricing of through are second you as and for during update, menu Good the anticipating X% provide toward summer afternoon. the then And for you just half the look traffic of Thanks breakdown taking the the questions. second you roughly check year? Could still your

Matthew Clark

So second yes. part the the answer is to

about pricing, in higher The as mix I pricing. we'll X% were we've really X.X% was by X% to negative noted, about but the at check and driven continue delivery traffic a be think we a was X.X% positive average. it's

And X%, and some I some traffic and that's related a weather guided do, were was negative of which to had way so of that Easter if the shorter than it companies talking to you're discussed. we shift that to about in we bit a we think adjusted about what the

Unidentified Analyst

much. Thank very you

Operator

next Wells Your question the of Fargo. from Jon comes line from Tower

open. is line Your

Jon Tower

being on of been restaurants in poor acquisition. the acquisitions to answered acquisition. up going really was just A Great, on the the has that on lot landscape regarding track deliver I companies beginning record follow the they thanks. a my The relatively at have of able but to synergies questions projected

that. fact curious to therefore, do from the X it what on Is that the investment first businesses confidence in had going those hear line I'm have just much gives years if be ability you, you now sight on strong kind and that, So to in how they to of into grow, cost retention, you've people minority fairly that a your it's how mind elaborating you would of would great?

Matthew Clark

is this Jon, Matt.

the your answered Flower with -- have the mean as Child of years in you them and North it question. team, the over we much well with right. and we're abilities. X Italia of you own That's involved collaborated time growth and spend Sam as past the I we his having when to think intimately exactly degree witnessed I as

continue work to our We And about that and I lot together a ability that in have and to confidence saying, a momentum. knowledge very again, the not of deep synergies. by end it's would of them just

we unique of not restaurant may or approach have a I think very have world may that the taken gone right. in M&A

before we as so Phoenix also that. Sam's this have team marriage X we disrupt for years We maintaining stand-alone in are dated a that and entity don't

we So think I Factory, do as at and is unique we The a are approach just, think value-driving. always slightly taking different that Cheesecake we that

Operator

line next question Morgan from comes of from the Stanley. John Your Glass

line is Your open.

John Glass

when put of in Thanks. million buy arrangement opportunity I prior and could you Why of let about smaller concepts is better good I others in own some they $XXX portfolio where and brands, not. capital may a philosophical ready, you're spending more most to into it? maybe Fox Now were -- some a enthusiastic one you nature. some sort your were invest to of this arrangement the follow-up incubate it's work, had just had portfolio and more versus think you you may the

you maybe the and more a and I versus whole wanting just needs are the trade-off is interested may this of conversely brands changing and in how ops to picking of perceived rationale smaller one to smaller those smaller do just portfolio recognition X grow independence. How this be maybe a be the business see and address able what's on may So consumers that maybe X, the for that way choosing changing view brands? your may is for also own to the And be, X, consumers guess, that?

Matthew Clark

have to then They've talking endeavors. John, amount first million be this about, received the consumer X what work So amount to profitable in over for the we're we virtually you I'll their pay of getting and the is North the right? purchased do capital incremental an Child, the money different that of $XXX a have that to and if for well Sam the the engine way another think lot may that financing incubation very FRC been see that of are deal, years Matt. take we're sort business. the likes. They part. to we're exactly with we top a team and incremental revenue on ability Flower about you're in it's part to Relative what that and financially, team of his great time. willing over us it of to win-win able confidence way of are now just time, And to exceptionally off, of

were win-win. structure a economically, just to able So we

be together combination Italia. than It fruitful then the our of not working of will integration the assets they Cheesecake we over more that is gives could they while on options help with for The both entities concepts us bring as that that's certainly think sort and penetrating different diluting and in a shifting. came and unique, are I that we as North consumers, noted, we time And the have of to that and bear said, on today the lot Factory. the you focus as waiting it think

David Gordon

restaurant z what And experiential Factory know provide able today other throughout we in in want be millennials and we'll the country. concepts Cheesecake out forms, people I certainly, that today spread that provide and that and and dining that we other to now think gen is be at will

John Glass

Thank you.

Operator

of question Brian next Vaccaro James. the Your comes from line from Raymond

open. is line Your

Brian Vaccaro

evening. good Thanks,

the quick Just on acquisition. FRC a follow-up

of the I you units just specifics performed Child that think a AUVs, that's could as to and right, within sort on specifically specifically? how the more concept East are FRC color on give it's across comp if maybe Coast, about half some grown the it's country little margins trends, concept, that for Flower

Matthew Clark

around The the So is maybe maybe Child Flower is revenue production in XX%. Brian, terms XX%, this of Matt.

much little do have a a because volumes. -- potentially X/X so quite concepts and weighted over not not fast it it's some do is So casual as higher other they that

the point so being. think comprise revenue, this about in XX% about time, helpful think sort an how and continues aggregate an of still going we're aggregate target Child we're as X very produce we does the updates Flower transaction though, one forward. the margin closing average think to respect provide more at foot as $X,XXX to of Certainly, to square we're noted, segments, over it volumes providing brand the hit about unit it With the on additional well. we'll next and the in than months of be sales. the to and as of And figuring time will in do report not brands total the of middle more go I I because out, Farmer It to Jeff the that for continues

that's so and Sam those strong very been past very brand. many over the country, of months locations been And of progress with the visiting the the throughout X with pleased and we've

Brian Vaccaro

XXXX? planning outlook Okay, other But versus how also the on FRC you just many locations X you're North's that X And XXXX? unit could growth are into It on that's pipeline you to on into Cheesecakes. comment and the specifics sounds like acquiring helpful. the

Matthew Clark

XX%, So will a little that there. change a Cheesecake least projected, more. North will unit continue with we be about no at bit growth maybe X%

solid developing identified to We also at underway balance are well already pipeline have be FRC XX% the that that And XXXX they business. for a achieve least the pipeline for North the of in side, target. for will

shed find those get company of growth real here locations. expertise tools of a the a between hit combined in to unit the to that lot lot and we So estate

way feel that. good we're our So on about well and

Brian Vaccaro

then you just last rate the facility? can expanded on remind debt, one, where out And settle great. Okay, interest the that us the on

Matthew Clark

the sits. will where bracket It and where Yes. LIBOR on in at we're depend obviously

south I Fed the settles going it X.X% guess. dust if it's maybe think X% for to of next somewhere probably end between keeps being and slightly somewhere would lowering, that will X% up just when I be and year

Brian Vaccaro

All right. you. Thank

Operator

one-hour And Factory XXXX mark. we have conference This fiscal now reached Cheesecake call. quarter second earnings concludes the The

disconnect. now may You

The Cheesecake Factory Incorporated (CAKE) 31 Jul 192019 Q2 Earnings call transcript