The Cheesecake Factory Incorporated Q2 FY2026 earnings call

• Core Brand Performance and Strategic Pillars

  • The Cheesecake Factory delivered a record quarter with total revenue surpassing $1 billion for the first time, and adjusted diluted earnings per share up 24% year over year. Traffic outperformed the Black Box Casual Dining Index by 350 basis points, hitting a new all-time high for average weekly sales.
  • Three core strategic pillars drive performance: best-in-class operational execution with industry-leading staff retention, ongoing twice-yearly menu innovation, and growth of the Cheesecake Rewards program. Retention creates consistent guest experience, while new menu items (such as the recently launched bowls category) drive higher repeat visits from guests.
  • The newly launched Cheesecake Rewards app exceeded adoption expectations, growing the member base, enabling personalized targeted offers, providing guest behavior insights, and improving marketing efficiency. Viral social media engagement for viral menu items (both new and long-standing) has also driven incremental traffic.

• Growth Pipeline and Development

  • Four restaurants were opened in Q2 2026, and the company remains on track to open up to 26 new restaurants in full year 2026, consistent with its 7% annual unit growth long-term objective. The full-year opening plan includes 5-6 Cheesecake Factories, 6-7 North Italia locations, 7 Flower Child locations, and up to 7 FRC restaurants.

• Multi-Brand Portfolio Performance

  • Flower Child continues to outperform the broader fast casual segment, driven by its differentiated positioning: a made-from-scratch, health-forward yet craveable menu at accessible price points, combined with a more elevated experiential dine-in experience than traditional fast casual. It has a higher dinner mix (30-35%) than most fast casual concepts, with steady 55% off-premise mix.
  • North Italia is undergoing targeted improvement initiatives, including adding value-oriented menu options (lower-priced pastas, lunch specials), expanding local marketing, and testing improvements in H2 2026. Management expects variable traffic trends over the next several quarters as initiatives roll out, with a focus on long-term brand strength.

Cheesecake Factory restaurants: Q2 total sales of $729.5 million, up 7% year over year, representing 72.95% of total Q2 revenue. Comparable sales grew 5.8% and traffic grew 2.7% year over year, with restaurant-level margin reaching 20% (the highest in a decade), and annualized average unit volumes (AUVs) exceeding $13.5 million. North Italia: Q2 total sales of $98.4 million, up 8% year over year, representing 9.84% of total Q2 revenue. Comparable sales declined 3% year over year, with annualized AUVs of $7.9 million. Adjusted mature location restaurant-level margin was 15.6% (down from 18.2% year over year). New openings outperformed with average weekly sales above $200,000. Flower Child: Q2 total sales of $56.6 million, up 18% year over year, representing 5.66% of total Q2 revenue. Comparable sales increased 13% year over year (17% two-year comp increase), with annualized AUVs of $5.3 million. Adjusted mature location restaurant-level margin was 20.1% for the quarter. ~8% of the comp gain comes from traffic, with ~2.5% from pricing. Other concepts (including The Henry and external bakery): Other FRC sales totaled $104 million, up 15% year over year, representing 10.4% of total Q2 revenue. External bakery sales were $15.4 million. The newly opened Henry location in Wilmette has average weekly sales trending at $200,000 for an annualized AUV of over $10 million.

• Q3 2026 Guidance:

  • Total revenue expected between $980 million and $990 million.
  • Effective commodity inflation is projected to be low single digits, and net total labor inflation is projected to be low to mid single digits.
  • G&A expected between $63 million and $64 million, depreciation estimated at $29 million, and pre-opening expenses expected between $10 million and $11 million to support 6 planned openings.
  • Adjusted net income margin is expected to be ~4.3% at the midpoint of the revenue range, with an effective tax rate of 13% to 14%.

• Full Year 2026 Guidance:

  • Total revenue expected to be ~$4 billion at the midpoint of estimates, an upward revision from prior guidance.
  • Total inflation across commodities, labor, and other operating expenses expected to be in the low to mid single digits.
  • GAA expected to be ~6.4% of sales, depreciation expected to be ~$116 million, and pre-opening expenses expected between $35 million and $36 million.
  • Full year adjusted net income margin expected to be ~5.4% of sales (correcting a prior slide deck error that incorrectly stated 5%), an upward revision from prior guidance. Full year four-wall margin improvement is now projected at 60 basis points (up from 25 basis points prior), with half the improvement from commodity costs and half from labor efficiencies.
  • Capital expenditures expected to be ~$210 million to support new unit development and restaurant maintenance.
  • The full year guidance assumes no material consumer or operating disruptions.

• Underperformance of the North Italia brand, with comp sales declining 3% in Q2 and margins down 260 basis points year over year, and improvement from new strategic initiatives expected to take multiple quarters to materialize with potential near-term traffic variability.
• Macroeconomic uncertainty, including ongoing inflationary pressure on input and labor costs, and a bifurcated consumer economy that relies on the company's core higher-income consumer base to sustain performance.
• Transitory risk of social media-driven traffic momentum, which requires ongoing investment in marketing infrastructure and engagement to sustain long-term growth.
• External geopolitical risks and scheduled political events (including U.S. midterm elections, with prior experience of government shutdowns impacting consumer demand) add uncertainty to back half performance.
• Actual results may differ materially from forward-looking guidance due to unforeseen factors impacting operations or consumer behavior.

Q: What share of Cheesecake Factory's recent positive traffic growth comes from the new rewards app versus other initiatives, and are you seeing increased traction with younger guests? / A: Traffic growth is driven by three core complementary factors: consistent high-level operations enabled by industry-leading staff retention, successful new menu innovation (bowls and bites) that resonates with guests, and incremental lift from the app launch. All factors work together to create a growth flywheel. The company is seeing clear increases in younger guest visits, partially driven by rising mall foot traffic among younger consumers and strong engagement on the company's social media channels.

Q: What lessons from Cheesecake Factory's recent success are applicable to your other portfolio brands like North Italia and Flower Child? / A: The company is systematically applying successful Cheesecake Factory systems and practices across all its brands. This includes people practices for talent retention and consistent execution, menu value positioning strategies, marketing approaches, and shared supply chain and technology infrastructure leveraging Cheesecake's scale. These practices have already supported Flower Child's strong growth and are being rolled out to North Italia to support its turnaround, with a long-term focus on building sustainable growth for all concepts.

Q: What is driving Flower Child's sustained outperformance relative to the broader fast casual segment, and what is the long-term margin outlook for the brand? / A: Flower Child's success stems from its unique differentiation: it offers a broad menu of made-from-scratch, health-forward items at approachable price points, with a more elevated experiential dine-in experience than traditional fast casual. It has a higher dinner mix than most fast casual concepts and steady off-premise sales. At its current $5.3 million AUV, Flower Child already delivers 20% restaurant-level margins. As traffic grows, the company will prioritize holding margins around this level rather than pushing increases, instead investing in growth and keeping price points competitive to support further AUV expansion. Some mature locations already reach $6.5-$7 million AUV, showing significant long-term upside.

Q: What is your pricing strategy for the back half of 2026, and will you maintain lower pricing to sustain traffic momentum? / A: Pricing will hold around 3% in both Q3 and Q4 2026, which is roughly in line with overall company inflation. When accounting for new lower-priced menu items like bowls, effective pricing is actually under 2%, which already reflects a deliberate investment in consumer value. The company evaluates pricing twice per year aligned with menu updates, and will continue to balance offsetting inflation with investing in accessible price points, staffing, and marketing to sustain growth.

Q: Will you shrink the Cheesecake Factory menu to focus on high-performing items, given that some long-standing menu items have recently gone viral? / A: The company will not reduce menu size. Broad menu variety is a core brand strength that eliminates consumer veto votes and increases the chance any item can resonate and go viral. Management will continue adding new delicious, high-value items every six months to keep the menu fresh, and will prioritize execution and quality above all, as viral growth for any item only benefits the brand if it meets the company's quality standards.