CHEESECAKE FACTORY INC Q3 FY2026 earnings call

• Cheesecake Factory Momentum: Delivered comparable sales growth of 15.2%, driven by a 9.5% traffic increase that significantly outperformed the casual dining index. Restaurant-level profit margins expanded 240 basis points to 18.7%. Annualized unit volumes exceeded $13.9 million.
• Operational Excellence: Execution was broad-based across geographies, day parts, and days of the week. Off-premise sales remained stable at ~21% of total sales. The brand successfully attracted younger demographics, reinforcing long-term relevance.
• North Italia Turnaround Initiatives: Comparable sales declined 3% due to sales leverage challenges. Management is implementing targeted fixes including a new menu with accessible price points, an enhanced happy hour program, increased media investment in two markets, and a new kitchen management system to improve throughput.
• Flower Child Acceleration: Strong performance with 11% comparable sales growth and 18% two-year comp growth. Mature restaurant margins improved 280 basis points to 20.2%. The company is investing in real estate and infrastructure to accelerate unit growth starting next year.
• Development Pipeline: Opened six restaurants in Q3. Total openings for 2026 are on track for up to 26 units. Plans include up to 27 new restaurants in 2027, with roughly three-quarters scheduled for H2.

Total revenues reached $1.033 billion, exceeding the high end of guidance. The Cheesecake Factory segment led with sales of $754.4 million (up 16% YoY), contributing approximately 73% of total revenue. Other FRC concepts generated $90.3 million in sales (up 16%). North Italia reported sales of $93 million (up 11%), while Flower Child sales totaled $56.5 million (up 17%). External bakery sales were $12.6 million.

• Q4 2026 Revenue: Anticipated between $1.04 billion and $1.05 billion.
• Q4 2026 Margin: Adjusted net income margin expected to be approximately 5.8% at the midpoint of the sales range.
• Key Assumptions: Effective commodity inflation modeled at low single digits; net labor inflation at low-to-mid single digits; G&A estimated at $68 million; depreciation at $30 million; pre-opening expenses at $13 million for 13 planned openings.
• Fiscal 2027 Outlook: Targeting total revenue of approximately $4.425 billion. Full-year adjusted net income margin is projected at 6.0% to 6.1%, consistent with long-term goals of 25-35 basis points of annual margin expansion.
• Capital Expenditure: Approximately $210 million in cash CapEx expected for 2026 to support development and maintenance; ~$220 million anticipated for 2027.

• Sustainability of Growth: Management acknowledges it is early to declare the recent sales inflection permanent, maintaining measured outlooks for 2027 aligned with historical objectives until more visibility is gained.
• Capacity Constraints: While currently managing high volumes, there is inherent risk associated with operating near capacity during peak holiday periods, potentially limiting further traffic growth in those specific weeks.
• Cost Inflation: Labor costs are modeled to increase by low-to-mid single digits due to wage trends and minimum wage increases, which could pressure margins if not offset by sufficient sales leverage.
• Concept Performance Variance: North Italia continues to face headwinds with declining comparable sales and lower margins compared to peers, requiring successful execution of turnaround initiatives to avoid drag on overall portfolio performance.

Q: Analyst asked about the durability of younger demographic engagement and repeat metrics.

A: CFO noted that data shows a large percentage of guests are younger, crucial for brand relevancy. After four months, sales trends remain consistent regardless of organic social cadence, indicating strong operational execution. Management expects to convert these new guests into frequent visitors over time.

Q: Analyst questioned whether Q4 guidance implies deceleration from Q3's 15% comps and how capacity impacts holiday weeks.

A: CFO clarified that Q3 trends are durable through most of Q4. However, the last three weeks are typically at capacity, so they modelled flat traffic plus only pricing lift for that period. This results in a weighted average that appears as a deceleration but reflects prudent modeling of peak constraints rather than a drop in underlying demand.

Q: Analyst asked why flow-through seemed lower in Q3 despite high sales growth, specifically regarding labor costs.

A: CFO explained that the focus was on hiring sufficient staff to maintain NPS scores and service quality for new guests, viewing this as investment rather than inefficiency. He noted that while Q2 had hyper-productivity (35% flow-through), Q3 and Q4 are expected to see normalized flow-through rates of 20-25% as sales stabilize at higher volumes.

Q: Analyst inquired about the pace of menu innovation and what drove the high mix shift in Q3.

A: President stated menu innovation cadence remains constant at two changes per year. The high mix shift was driven by viral success of existing items like Cajun Salmon and a desire among guests for full experiential dining (higher alcohol incident rates) rather than bargain hunting. Cheesecakes remain flat but at all-time highs.

Q: Analyst asked about the balance of Flower Child expansion between existing vs. new markets and unit economics.

A: CFO highlighted strong economics with $5.1M AUVs and 20% mature margins. President indicated a 50/50 split between existing and new markets for next year's 11-13 openings, leveraging synergies from multi-unit presence in established areas while expanding footprint strategically.