The Cheesecake Factory Incorporated Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Financial Results: Second quarter results exceeded expectations with consolidated revenues and adjusted earnings per share setting new milestones. Comparable sales at The Cheesecake Factory restaurants increased 1.2%, and 4-wall margin hit 18.5%, the highest in 8 years.
• Menu Innovation: Introduced 14 new dishes across 2 categories (bowls and bites). Launched Cheesecake Peach Perfect with Raspberry drizzle for National Cheesecake Day.
• Development: Opened 8 restaurants in Q2, including 2 Cheesecake Factory, 1 North Italia, 3 Flower Child, 2 FRC. Anticipate opening up to 25 new restaurants in 2025, including 2 international Cheesecake Factory.
• Operational Execution: Hourly and management retention increased, driving labor productivity and food efficiencies. Internal Net Promoter Score improved across channels. Off-premise sales at The Cheesecake Factory were 21% in Q2.
• Segment Updates: North Italia annualized AUVs reached $8 million with a margin of 18.2%. Flower Child comparable sales up 4% with a margin of 20.4%.

Segment Performance

• The Cheesecake Factory restaurants: Second quarter comparable sales increased 1.2%, total sales $683.3 million (up 1% from prior year). 4-wall restaurant margin reached 18.5%, up 80 basis points year-over-year, the highest in 8 years.
• North Italia: Total sales $90.8 million (up 20% from prior year period). Annualized AUVs increased 2% to $8 million. Restaurant level profit margin for adjusted mature locations improved 290 basis points to 18.2%.
• Flower Child: Sales totaled $48.2 million (up 35% from prior year). Comparable sales increased 4%, average weekly sales $91,400, annualized AUV over $4.8 million. Restaurant level profit margin for adjusted mature locations reached 20.4%.
• Other FRC: Sales totaled $90.2 million (up 22% from prior year), sales per operating week $136,800.
• External bakery: Sales $12.9 million.

Guidance

• Q3 Outlook: Anticipates total revenues between $905 million and $915 million. Effective commodity inflation expected in low single digits, net total labor inflation in low to mid-single digits. G&A estimated at $61 million, depreciation at $28 million, preopening expenses $7-8 million. Adjusted net income margin expected at midpoint of sales range.
• Full Year 2025: Anticipates total revenues ~$3.76 billion at midpoint. Effective commodity, labor, and other operating expenses inflation in low to mid-single digits. G&A estimated flat year-over-year, depreciation ~$109 million, preopening expenses ~$34 million. Adjusted net income margin expected ~4.9%.

Risks

No detailed material risks prominently discussed in the transcript.

Question and Answer

• Q: As it relates to the increase in the net income margin for 2025 from 4.75 to 4.9, is this primarily operationally driven at the store level?

A: Matt Clark says it's due to operational excellence and sales trends.

• Q: On the topic of labor, perspective on retention levels relative to pre-pandemic?

A: David Gordon says staff and management retention is as good as historically, exceeding pre-pandemic levels.

• Q: Q2 breakdown related to price and mix and implied traffic for Cheesecake Factory?

A: Matt Clark says net effective pricing ~4%, traffic negative 1.1%, mix balance.

• Q: Customer response to February menu update?

A: David Gordon says new menu items are on a separate card, expecting success.

• Q: Follow-up on lower price point menu items, consumer awareness and response?

A: David Gordon says guests see lower price points, order rates are positive.

• Q: Clarification on operating environment and Flower Child profitability?

A: Matt Clark says environment is steady, Flower Child mature unit margins 20.4%, AUV ~$4.8 million.

• Q: North Italia comp breakdown, impact of LA fires?

A: Etienne Marcus and Matt Clark say price 4%, mix -1%, traffic -4%, comp would have been flat ex-LA.

• Q: Perspective on casual dining and experiential success?

A: David Gordon says people want experiential dining, all concepts provide that.

• Q: Rewards program details, Flower Child vs Cheesecake?

A: David Gordon says Flower Child is app-based, Cheesecake is more personalized, different programs.

• Q: Flower Child store capacity, traffic trends?

A: Matt Clark says capacity runway, traffic steady.

• Q: Social marketing for new menus, daypart promotion?

A: David Gordon says using data for targeted messaging, including rewards.

• Q: Flower Child store opening cadence?

A: David Gordon says comfortable with ~20% growth, focused on management development.

• Q: Dynamics around $500 million converts?

A: Matt Clark says strike prices around $70-71, dilution not material in big picture.