CHEESECAKE FACTORY INC Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Results Overview: In Q3, delivered strong and dependable results with stable revenue, solid operational execution, and substantial profitability growth. Adjusted earnings per share grew 49% from prior year.
• Development: Opened 4 restaurants in Q3, with 17 openings YTD, on track to open 22 new restaurants in 2024 and up to 24 in 2025.
• Operational Execution: High staff and management retention led to great execution. Record guest satisfaction scores, improved restaurant level margins. Cheesecake Factory comp sales/traffic outperformed industry. North Italia margin improved, Flower Child sales growing.
• The Cheesecake Rewards Program: Demand surpassed expectations, member activity/engagement high, driving incremental visits from existing and new guests.

Segment Performance

• Cheesecake Factory restaurants: Third quarter total sales were $647.8 million, up 3% from prior year. Comparable sales increased 1.6% versus prior year. Adjusted earnings per share grew 49% from the prior year.
• North Italia: Total sales were $71.9 million, up 15% from prior year period. Third quarter comparable sales increased 2% from prior year, resulting in annualized AUVs of $7.4 million. Adjusted mature North Italia locations had a 15% restaurant level margin, a 250 basis point improvement from prior year.
• Other Fox Restaurant Concepts (FRC): Sales totaled $67 million, up 14% from prior year and sales per operating week were $116,500.
• Flower Child: Sales totaled $36.6 million, up 14% from prior year and sales per operating week were $85,200.
• External bakery: Sales were $14.9 million.

Guidance

• Q4 2024: Anticipates total revenues to be between $905 million and $915 million. Effective commodity inflation expected to be low single-digits, net total labor inflation low to mid single-digits. G&A estimated above $58 million, depreciation ~$26 million, adjusted net income margin ~4.8% to 4.9%.
• 2025: Anticipates total revenues at midpoint $3.75 billion. Adjusted net income margin ~4.75%. Planning to open up to 24 new restaurants in 2025, with approximately $190 million to $210 million in cash CapEx.

Risks

• No specific risks detailed, but mentions forward-looking statements and potential material differences from actual results due to various factors.

Question and Answer

Q: Drill down on same-store sales components (traffic, mix, pricing).

A: Pricing in the quarter was 4.5%, mix was a negative 2.1%, traffic was a negative 0.8%, related to July but improving throughout the quarter.

Q: What's driving traffic trends vs peers?

A: Stability of staff/management retention, great execution, all-time high net promoter scores, taking market share through execution.

Q: Flower Child performance update?

A: Flower Child comps continue to be the strongest in the system running mid single-digits, geography national, outperforming fast casual category.

Q: Unit growth for 2025?

A: Similar cadence to 2024, balanced approach with similar number of each concept opened as in 2024.

Q: Commodity inflation, menu pricing?

A: Q4 effective commodity inflation low single-digits, menu pricing to offset inflation, expecting Q4 pricing similar to Q3 at 4.5%.

Q: Reservations and rewards program?

A: High usage of reservations, rewards program driving incremental visits from moderates/frequent guests, margin neutral.

Q: Net unit growth, G&A for 2025?

A: Net unit growth ~+20 for 2024, ~24 in 2025; G&A to scale with unit growth, targeting decrease as a percent of sales.

Q: Bakery business, holiday season?

A: New grocery agreements, international expansion; holiday season consistent with historical patterns, no major impact on restaurants.

Q: Unit level margins for Cheesecake and North Italia?

A: Cheesecake avg 16.4% last 4 quarters, North Italia mature units 15%, aiming for 16%-18% range through sales and operational effectiveness.

Q: Reservations impact on productivity?

A: No table holding, reservations met within 5 mins, no impact on throughput.