The Cheesecake Factory Incorporated Q3 FY2025 earnings call

Management Statement and Operational Highlights

• David Overton noted third quarter results were solid with consolidated revenues within guidance range and earnings/profitability above expectations. Cheesecake Factory restaurants had positive comparable sales amid competitive environment, menu innovation is a key differentiator.
• David Gordon highlighted strong leadership/operational discipline, improvements in retention, menu innovation resonating with guests. North Italia faced industry softness but strong retention; Flower Child performed exceptionally well; FRC portfolio expanded with strong demand.
• Matt Clark reviewed financial results, adjusted net income margin, balance sheet, capital allocation, and provided outlook on Q4 2025 and full year 2026.

Segment Performance

• Cheesecake Factory restaurants: Third quarter comparable sales increased 0.3%, total sales $651.4 million, up 1% from prior year. Annualized unit volumes averaged over $12 million. Restaurant-level profit margin increased 60 basis points year-over-year to 16.3%.
• North Italia: Total sales $83.5 million, up 16% from prior year period. Comparable sales declined 3%, reflecting industry softness. Restaurant-level profit margin for adjusted mature locations improved 70 basis points to 15.7%.
• Flower Child: Third quarter comparable sales increased 7%, total sales $48.1 million, up 31% from prior year. Annualized AUVs $4.6 million. Restaurant-level profit margins for adjusted mature locations 17.4%, an improvement of 140 basis points year-over-year.
• Other FRC: Total sales $78 million, up 16% from prior year, sales per operating week $115,600.
• External bakery: Sales $18 million, up 20% from prior year period.

Guidance

• Q4 2025: Anticipates total revenues between $940 million and $955 million, approximate 1% step down from Q3 sales trend. Effective commodity inflation of low single digits, net total labor inflation of low to mid-single digits. G&A estimated ~$60 million, depreciation ~$28 million, preopening expenses ~$8 million to $9 million. Adjusted net income margin expected ~5.1% at midpoint of sales range.
• Full year 2026: Full year outlook for 4.9% net income margin remains intact. Expect to open as many as 25 new restaurants in 2025 (including 4 Cheesecake Factories, 6 North Italias, 6 Flower Childs, 9 FRC restaurants) and up to 26 in 2026. Anticipate ~$190 million to $200 million in cash CapEx.

Risks

• Soft macro and consumer environment impacting the restaurant industry.
• Impact of government shutdown on consumer behavior and sales.
• Competition in the restaurant space, including from other polished casual chains and independents.
• Potential sales transfer and cannibalization from new restaurant openings affecting performance of existing locations.

Question and Answer

Q: Just kind of wondering what you're seeing in terms of consumer behavior that's driving a little bit more caution in the current environment?

A: It's mostly in the traffic. Really, the more cautionary tone is associated with the fourth quarter. And I think, frankly, there's probably been an impact from the government shutdown and we're looking forward to having that resolved. And overall, things remain pretty predictable, just slightly below where we have been.

Q: Could you just provide the breakdown of comps for both Cheesecake Factory and North Italia traffic price mix?

A: For Cheesecake, pricing was about 4%, traffic was a negative 2.5%, mix was the difference. For North, price was 4%, mix was negative 1%, traffic rounded to negative 6%.

Q: What was the commodity inflation in the third quarter? And how do you see the fourth quarter playing out from a commodity inflation perspective?

A: Commodities were flattish in third quarter. In fourth quarter, beef has moved up, so favorability will be cut in half. Effective commodity inflation of low single digits expected.

Q: Just as it relates to the new menu, I know you anticipated some pressure on mix a little bit from the bites and bowls, just given those are more affordable options and you talked about how the customer is navigating those nicely. So is that playing out exactly how you thought from a mix perspective?

A: It's been pretty much in line with our forecast and actually in the initial read has been a benefit to mix, around negative 1% for next year.

Q: I want to start with following up on the comp side. Are you seeing the deceleration broad-based across geographies or certain markets weaker?

A: Geographically, Cheesecake is usually pretty stable. Closest to D.C. may be more prone to pressure, but generally, we think this will potentially continue into the first quarter and manage the business appropriately.

Q: One more on loyalty there following up. As it relates to the app and just kind of the momentum that you talked about with the membership growth and the customer satisfaction with the program. As we think about -- or you think about benefits to '26, is it -- does it look similar to maybe what we saw in '25?

A: We're continuing to evolve the program. Definitely getting incremental contribution from it, but in near term, making sure not overstating. Expect to build on it next year but not specifying yet.

Q: Regarding media and advertising, what are you seeing in terms of consumer engagement per ad spend?

A: We have continued to spend more, but in rewards program. Not doing national TV advertising, but increasing rewards-related spending. Social media is where we'd dedicate more funding rather than ad placement.