Cheesecake Factory Inc (CAKE) 2016 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Cheesecake Factory first-quarter 2016 earnings conference call.

(Operator Instructions) As a reminder, this call is being recorded.

I would now like to introduce your host for today's conference, Mr. Matt Clark.

Sir, you may begin.

Thank you, operator, and good afternoon, everyone.

Welcome to our first-quarter fiscal 2016 earnings call.

I'm Matt Clark, Senior Vice President of Finance and Strategy.

On the call today are David Gordon, our President; and Doug Benn, our Executive Vice President and Chief Financial Officer.

David Overton, our Chairman and Chief Executive Officer, is currently traveling out of the country and will not be on the call today.

Before we begin, let me quickly remind you that during this call items will be discussed that are not based on historical fact and are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Actual results could be materially different from those stated or implied in the forward-looking statements as a result of the factors detailed in today's press release, which is available on our website at investors.thecheesecakefactory.com and in our filings with the Securities and Exchange Commission.

All forward-looking statements made on this call speak only as of today's date, and Company undertakes no duty to update any forward-looking statements.

On today's call David Gordon will begin with some opening remarks.

Doug will then take you through our operating results in detail and provide our outlook for both the second quarter of 2016 as well as our thoughts on the full fiscal year.

Following that, we will open the call to questions.

And with that, I will turn the call over to David Gordon.

Thank you, Matt.

In the first quarter of 2016 we again delivered consistent and dependable results, with comparable sales remaining above the casual dining industry as a whole and earnings per share greater than both our guidance and consensus expectations.

We were also named to Fortune's 100 Best Companies to Work For list for the third consecutive year.

Overall for the quarter, we are quite pleased that we delivered on all of our objectives and have set ourselves up for a solid year financially.

We have now completed 25 consecutive quarters of positive comparable sales at The Cheesecake Factory -- is as strong and relevant as ever.

Just recently we were once again recognized as the number-one casual dining brand in Nation's Restaurant News Consumer Picks Survey.

And prior to that The Cheesecake Factory was recognized as the number-one casual dining brand for Millennials in a survey conducted by Tecnomic.

The differentiated menu, operational excellence, and one-of-a-kind ambience that have been the hallmarks of The Cheesecake Factory for nearly four decades are clearly still resonating with our guests today.

Nonetheless, our efforts to continue driving the highest sales and traffic volumes in the industry are ongoing.

In the second quarter we are poised to more broadly roll out several guest station initiatives such as an enhanced server training program, our mobile payment app, CakePay, and an increased focus on home and office delivery through the initiation of the pilot program of partnerships with third-party providers in select locations.

And, of course, we also continue to innovate with our menu, adding both new superfood items this past winter as well as indulgences that The Cheesecake Factory is famous for.

Complementing our sales growth this quarter was an effective management of expenses throughout the income statement.

Our highly tenured teams managed the business well by leveraging the sales increase, hitting our projected labor productivity, and flowing through the benefit from benign commodity costs.

Combined with diligent G&A management, we were able to deliver overall operating margin above prior-year and guidance.

On the development front for 2016, we still expect to open as many as eight Company-owned restaurants, including one Grand Lux Cafe.

In February we completed our first opening of the year in Albuquerque, New Mexico, a new market for us.

We were quite happy with the response by guests in Albuquerque as we opened with a line down the block for the entire first week and have continued to see strong sales trends in this new location.

This type of performance gives us confidence with respect to our growth runway as we continue to open in existing and new markets and work towards our target of 300 domestic Cheesecake Factory locations.

And we believe that the quality sites we have for 2016 will meet our long-term objective to open restaurants in premier locations that can achieve our targeted returns.

Internationally we also continue to expect as many as 4 to 5 restaurants to open this year under licensing agreements, based on the information that we currently have.

For the first time each of our three licensees has at least one opening planned in the current fiscal year, including the first Cheesecake Factory restaurant in China at Disneytown within the Shanghai Disneyland Resort, which is expected to open later this quarter.

We remain confident that we are well positioned for 2016 and beyond.

Our brand is strong, and we are effectively executing on both our domestic and global growth plans to drive our targeted returns and grow shareholder value.

With that, I will now turn the call over to Doug for our financial review.

Thank you, David.

Our revenues at The Cheesecake Factory for the first quarter of 2016 were $553.7 million.

Revenues reflect the comparable sales increase of 1.7% of Cheesecake Factory restaurants.

External bakery sales were $11.3 million in the first quarter.

Cost of sales decreased approximately 80 basis points year-over-year in the first quarter of 2016 to 23.6% of revenues.

This was generally consistent with our expectations in light of the low inflationary commodity environment.

Key ingredients driving the favorability were seafood and poultry.

Labor was 33.5% of revenues, an increase of about 50 basis points as compared to the first quarter of last year.

This reflects the higher wage rate and we have talked about previously, as labor productivity was in line with our operating targets.

Other operating costs were 23.4% of revenues, down 40 basis points from the prior year, primarily driven by benefits from lower utility costs than expected and some favorability in insurance expense.

G&A was 6.4% of revenue in the first quarter of fiscal 2016, flat to the same quarter of the prior year, as expected.

Preopening expense was $2.3 million for the first quarter of 2016 versus $1.5 million in the same period last year.

We had one new restaurant opening in 2016 compared with no first-quarter restaurant openings last year.

So overall, our margins were quite solid in the first quarter, with about 80 basis points of expansion and essentially every line coming within our expectations or slightly better.

Our tax rate this quarter was approximately 27%, also slightly better than our expected range.

Cash flow from operations was approximately $76 million.

Net of roughly $22 million of cash used for capital expenditures, we generated about $54 million in free cash flow for the quarter.

That wraps up our business and financial review for the first quarter of 2016.

It was a strong quarter and represents a good financial start to the year for us.

Now I will spend a few minutes on our outlook for the second-quarter and full-year 2016.

As we have done in the past, we continue to provide our best estimate for earnings per share ranges, based on realistic comparable sales assumptions and the most current input cost information we have at this time.

These assumptions factor in everything we know as of today, which includes quarter-to-date trends, what we think will happen in the weeks ahead, and the effect of any impacts associated with holidays or weather.

For the second quarter of 2016, we are estimating diluted earnings per share between $0.69 and $0.72, based on an assumed range of comparable sales of between flat and up 1% at The Cheesecake Factory restaurants.

This takes into consideration the shifts associated with spring break as well as the sales levels we are lapping from 2015.

Overall this will put the first half of the year comparable sales at about positive 1.1%, at the midpoint of the range compared to 3.5% in the prior year or, together, about 4.6% on a two-year stacked basis.

With respect to the full year of 2016, we are estimating comparable sales to be in a range of approximately 1% to 2%.

This assumes that the third and fourth quarter combined would be in a range of 1.5% to 2.5% as compared with 1.6% in 2015.

The full-year diluted earnings per share sensitivity associated with this comparable sales range is now $2.61 to $2.70, up from our prior guidance by $0.03 to $0.04 at the midpoint.

This earnings range reflects our actual results for the first quarter, our sales expectations for the second quarter, and the impacts from expected shifts in the timing of some expenses.

Note that fiscal 2016 is a 53-week year for us, and our estimates include the impact from the additional week.

On the cost side we continue to expect food cost inflation to be about flat in 2016.

Some areas, such as produce and dairy, are expected to be somewhat higher for the full year, whereas we currently expect our lower seafood and poultry costs to continue.

And we are still planning for wage inflation of approximately 5% in 2016, a blend of both governmentally regulated and generally higher wage environment.

For the first quarter we came in essentially on our projections in this area.

Overall we are expecting our operating margins to expand slightly for the full year.

Regarding our corporate tax rate, we now expect it to be about 27% to 28% for 2016.

Total capital expenditures this year are expected to be between $100 million and $110 million for as many as eight planned 2016 domestic openings as well as potential openings in early 2017.

We anticipate returning substantially all of our free cash flow to shareholders in the form of dividends and share repurchases.

In summary, our business trends have been solid, and our consistent guidance across many key factors is representative of this.

As result, we have been able to increase our expectation for earnings per share for 2016 and are maintaining a significant focus aimed at growing the top line.

With that said, we will take your questions.

In order to accommodate as many questions as possible, please limit yourself to one question and then re-queue with any additional questions.

(Operator Instructions) John Glass, Morgan Stanley.

Doug, is there anything that happened from a margin perspective is the first quarter that you don't expect to repeat -- you know, any favorability?

I ask that in the context of understanding comp expectations are a little lower in the second quarter, but you are going from a pretty robust earnings growth of, what, over 20% in this quarter, essentially flat next quarter.

So is that just the deceleration in comp, or is there something else that doesn't repeat?

And can you put a little more color on your comp guidance?

Is that more reflecting of what you are actually seeing versus what you expect to see?

It's a pretty big deceleration on a two-year basis.

Right.

Okay.

So I would say, in response to your first question, that if you reconcile our guidance that we gave for the first quarter, basically part of the first quarter beat was based on utilities and insurance, and that was about $0.04.

And we don't really expect that part of it to continue into the second quarter.

So that's part of the second quarter.

But the second-quarter lower earnings guidance is about half of the difference that you might see between the earnings guidance we are giving and what the consensus might be is probably the lower sales guidance we are giving.

And part of it is that we are lapping a very low group medical expense from last year.

So when we forecast our group medical expense, we're forecasting it to be the same percentage as the entire year last year; but on a quarter-to-quarter basis, there could be some quarters that -- well, for instance, in the first quarter we budgeted -- or forecasted higher than what we actually ran.

In the second quarter we feel like we are going to actually be higher than last year, because it was so low last year.

With respect to the second quarter there are number of drivers, I would say, with the way that we looked at our sales expectations.

Really, the negative effect from the spring break shift that shifted from the second quarter into the first quarter impacted the second-quarter comp-store sales.

We have also included the impact of weather that we know has already happened in the second quarter -- severe flooding in Texas, for instance; late winter storms in Colorado.

And we're also taking to take into account the fact that we are lapping some really tough comparisons.

Sales were up 2.8% in the second quarter last year, so that is tough.

And it's really currently a choppy comp-store sales environment.

We will say that.

It's hard to get a real run rate on what comp-store sales are, and I believe the industry is experiencing some choppiness and softness over the past few weeks.

We will just have to see how that plays out over the next few weeks.

But based on all that, we felt that zero to 1% comp guidance was appropriate for the second quarter.

Got you.

Thank you very much.

Jeffrey Bernstein, Barclays.

Two questions as well, one maybe just a follow-up on that -- you know, that's prospective looking.

I'm just wondering if you can give some thoughts as to the first quarter, so we can kind of see show you exited?

Maybe if you can provide some sequential color on the quarter and the components that you often provide in terms of the makeup of the comp, and whether there was any regional disparity.

I know you talked about last quarter Texas holding up well, but maybe the Northeast and some other markets, a little softer.

So just some qualitative color on the first quarter trends.

And then I had one follow-up.

Okay.

Sure.

Comps for the quarter, as we said, were 1.7% for The Cheesecake Factory.

That's composed of 2.7% in menu pricing, a 0.5% decline in traffic, and 0.5% decline in menu mix.

From the standpoint of the way sales really fell in the quarter, we had -- December 30 is a very busy day for us.

And it moved out of 2015 into 2016, and that benefited first-quarter comp-store sales.

And certainly we had some Easter and spring break calendar shifts that shifted from the second quarter into the first quarter that also benefited first-quarter comp-store sales.

And combined, the impact of those two things is somewhere between 70 and 75 basis points.

So those were two things that impacted the first quarter.

And then geographically, we continue to have a fairly consistent performance across geographies, still a relatively narrow gap.

Interestingly, our strongest markets were the Northeast, the Midwest, and the Northwest.

Northeast was strong, though, because we were lapping some bad weather there; at least that contributed to the Northeast being strong.

California felt a little bit of pressure in the fourth quarter, with the impact from weather and following a very strong first quarter of 2015.

Florida was off a bit as well, but still positive.

Again, relatively a narrow gap and fairly consistent performance across geographies.

Understood.

And then just the mall traffic -- it seems like people are still talking about a decelerating trend.

I didn't know whether you had recognized at this point that maybe you are seeing some of that in the high-end malls, or whether you really seem to be bucking the trend, targeting that higher-end consumer in the higher-end malls?

I don't think -- Jeff, this is Matt.

I don't think we've seen a difference.

It's sort of what Doug has said, and I think what we've been saying now for a while, but it is continuing to be true, is that the performance of the mall and non-mall or different levels of mall across our geographies has been relatively in a tight band.

So what does that mean for the higher-end malls?

Our traffic is relatively consistent across that.

Understood.

Thank you.

Nicole Miller, Piper Jaffray.

The last time, I think -- maybe even the last couple quarters that you have spoken with us, you were looking aggressively at other sales channel opportunities, international and CPG.

Would you please give us an update on both those fronts?

With CPG, I think as we always have, we know that the cakes are obviously today in retail and an opportunity for us.

And we know there is still a strong affinity for the brand.

And we have some work we've done so far that is interesting to us that may lead to something in the future.

That's about as much as I think we can say at this point.

But we are excited about it, and we see where it takes us on the CPG front.

And if you are talking about international expansion, this will be a big year for us for international expansion.

Building 4 to 5 -- are having our licensee partners build 4 to 5 new restaurants, having all three of our licensee partners, as David mentioned in his remarks, now opening restaurants ought to add a lot of consistency to that.

So while this is a big year for opening restaurants internationally, certainly something like a 40%-some increase in new international restaurants, we would expect for us to be able to open between three and five international restaurants as we look into the future, because we now have three partners that are opening restaurants for us.

And as far as expanding those relationships, we are talking to potential other international partners, but the real -- probably the next thing you would see us do as far as expanding international would be to expand our relationships with our existing partners.

For instance, in the Middle East Al Shaiya operates in, I think, 19 different countries.

And we are only -- our agreement with them is only to develop restaurants in, I think, seven different countries.

So there's a big opportunity even with our existing licensees to expand the relationship.

Thank you.

Appreciate it.

Joe Buckley, Bank of America.

Just coming back to the same-store sales breakdown, the mix seems slightly negative.

Can you talk about that and what drove that?

Well, we have been talking about mix for quite a while.

And our mix has been positive for some time now -- for two straight years.

And we are lapping a very strong mix from the first quarter last year.

We were up 1.3% in mix the first quarter of last year.

And I think - you know, we've said before, people move around the menu; they are trying different things.

And that changes the mix.

We believe the mix will ebb and flow over time and revert back to the neutral or to the norm as time goes by.

So dessert sales continue to be very strong.

In fact, they went up as a percent of sales this year -- this quarter compared to the same quarter last year, almost 17% in dessert sales.

So that's not what it is.

But nonalcoholic beverage sales -- they're still pressuring us, so that could be some of it.

Okay.

And then you gave us a pricing factor.

Can you talk about what you did on the regional pricing, how extensive that was?

And did you get the expected benefit from it?

Well, we have -- you know, we talked about pricing and being a little more aggressive on pricing in light of the significant wage rate inflation environment that we are in.

So currently today we have 2.9% of price in the menu, which is a little higher than what our historical norm has been, which is right around 2%.

But we've been anywhere from 1% to 3%.

And we have had different pricing in, like, Hawaii and San Francisco for quite a while.

And as the regional wage pressures became more regionalized, we decided to start slowly differentiating some more of our pricing.

So we've done that.

For competitive reasons we are not going to disclose the specifics of what we have done, but you can assume that more menu pricing was taken where the government-mandated changes were made.

Okay.

And did you see any customer reaction to the pricing?

Did it go smoothly from a customer standpoint?

It has gone smoothly.

I was just in some of the restaurants in those markets recently and anecdotally had been asking some folks.

And really, it's been accepted pretty widely.

Okay.

Very good.

Thank you.

David Tarantino, Baird.

First, Doug, a clarification question on what the impact of Easter was or is in the second quarter.

I think you mentioned it would be a drag.

And then maybe my bigger-picture question is just related to the overall environment; you know, it does seem like it's slowed down here for casual dining.

And I think you used the word choppy.

So I was wondering if you have some perspective on why do you think the trends have been choppy recently, including for your business, since the Cheesecake has been a consistent outperformer?

And any thoughts you could offer there would be helpful.

Okay.

I don't know how wise I'm going to be to answer the second part of that question.

Certainly, the Easter impact is about 0.35%, something like that -- between 0.3% and 0.4% is about how much that is impacting the second quarter.

And when I talk about a choppy environment, it's just -- you know, with weather and things that are happening in the second quarter, and the Easter shift, and -- we have only had four weeks so far, it's difficult to tell what our run rate on comp-store sales really are.

And I don't -- do you have any wisdom there, Matt, on what --?

David, you know, one of the things we have talked about is if you look at the past, call it, five or six years postrecession, the environment has been relatively directionally positive, but it hasn't been without its ebbs and flows.

And we go back and look at historical performances as one measure; and we've seen, at least in our business, times like this before.

It was a little bit in 2011, and then a little bit in 2013, where we've dipped down to about 1%; and then we bounced back up to 2%.

And we are more focused on the full year.

So, yes, it feels a little bit softer.

But I don't think, again, it's outside of what you might see in some years, in some patches.

And it could be the weather; it could be the politics.

I don't know that we have a specific -- I don't think it's that big of a difference that we would consider it to be something unusual from a historical perspective.

And I think that it's too early to say that any choppiness we're seeing is a trend.

Great, that's helpful.

And then maybe just as a follow-up to that, I think you mentioned a couple things that are coming here in the short run, with the server training, if you could elaborate on what that is.

And then CakePay -- do you think that those could be needle-movers in terms of the comps here in the next couple of quarters?

Or you think it will be more of a longer-term driver?

Thanks, David.

I think that the server training -- it's actually rolled out now nationwide.

And as new servers are coming on board, the new training is being implemented in each one of those locations.

And the training is a little bit more focused on today's needs of today's guests, whether that's Millennial generation, or the broad guest base that we have -- more focused on tailoring the service and the hospitality towards those specific guests.

We were able to increase the service hospitality of the focus by probably 30% of the training versus menu knowledge, which is what a lot of the focus was previously.

And through the use of technology, we were still able to continue the menu knowledge but enhance the focus on service and hospitality.

So do we believe that over time that's going to improve service and hospitality in the restaurants?

We do a pretty good job today, but there's -- we are always working to get better.

We do believe that it will get better, and, in turn, that we would see service scores start to rise.

And is there a correlation between the service scores and sales moving forward?

We certainly have seen that in the past, and we would hope that that would be the case in the long-term.

As far as CakePay, CakePay will be rolled out here nationally by Friday of this week.

So every restaurant will have the mobile app available.

That will be more of a long-term.

I think that as people look to adopt mobile payment, and it becomes more of the norm, then we would expect to see it become more the norm at Cheesecake Factory.

I can tell you that in just some of the recent restaurants where it has been rolled out over the past week, we have seen some nice adoption, and the guests certainly have enjoyed it.

The experience is exactly what we've been working towards.

It's been flawless as far as execution goes.

And from a server's perspective, they see a little bit of the time saved on their end, and that convenience for the guest to be able to leave whatever they desire -- it was our original intent, certainly so far has panned out.

But the adoption will take a while, I think, like you would see in any mobile payment environment.

Great.

Thank you.

That's helpful.

Matthew DiFrisco, Guggenheim Sec.

Doug, you mentioned a little bit about the labor and how -- 5% or so wage inflation, as you planned.

But the operating week growth or the per-week -- gain on a labor per-week basis only went up a little under 3%, maybe a little over 2%.

So obviously there's some labor efficiencies you're doing in there as well to potentially offset, I guess, some of that wage pressure.

How does that look, or what is the cadence of that as the year goes on?

Is that something -- that sort of mark of maybe outpacing sales or same-store sales by 100 basis points, 150 basis points?

Is that sort of the deleverage that we should expect going throughout the year?

Or is labor efficiency going to be lapped at some time through 2016, where you're not going to be able to offset as much as that 5% as you just did in 1Q?

I think our operators did a great job with running our labor in the first quarter.

We had the wage rate inflation that we expected to have, but we managed our business very well, such that [great] labor productivity was right on plan or a little bit better.

So that's what -- that helped.

We continue to be in an environment where exactly what we thought would happen with respect to labor this year -- that the labor increases are being offset by the lower and the more benign commodity cost environment that we are in.

And that's what we would expect to have continue for the rest of this year: that we'll continue to run our business well, and we'll be able to manage the higher wage rates that we are seeing.

We would certainly expect labor as a percentage of sales at the end of the year to be higher.

And, I don't know, 50 basis points is roughly what I think we were looking at for the whole year.

So maybe this is -- I think we think that the first quarter is sort of indicative of what it's going to be.

But we would expect, with that said, that operating margins for the year would grow as well.

And -- maybe not as much as they did in the first quarter, which was pretty substantial.

But we expect them to grow as well because of this cost of sales offset, if nothing else.

Got it.

So I guess the readthrough is also, even though you're looking at a little bit lower comp outlook in the immediate -- in the current quarter, the cost management on the labor side is still in place and could help to offset what otherwise would maybe be more meaningful margin degradation, where you have a 5% wage pressure but flat to 1% comps.

I think we're probably going to have more labor pressure at flat to 1% than we would have at 1% to 2%.

But we will -- I think what you said is generally true.

Okay.

And then also, I guess, can you talk a little bit about what you are seeing regionally in demand, as far as -- not necessarily specific to your brand, but in your trends, in the data you see for the industry?

The regions that have taken more price -- I know you're saying you're taking selective price where the structural minimum wage has gone up, and you are seeing greater structural wage pressure.

What are you seeing as far as the consumer as you look out across the base of 200 restaurants in markets like California, where there has been a minimum wage increase, and a lot of peers have taken price, versus markets maybe like the Southeast, where there hasn't been the minimum wage pressure and concurrent menu price increases?

We will track it regionally the best we can versus some of the industry norms out there.

And our gap to the industry was pretty good in Q1.

And it was representative, for the most part, across the geographies.

And so whether in those markets that we took a little bit more pricing or not, we didn't see a statistically significant difference in our gap to industry.

So I think we view that as a positive.

That's great.

Thank you.

Will Slabaugh, Stephens Inc.

I wanted to ask about sales again, if I could.

During the quarter you clearly held up better than most of your peers.

But I'm curious if you saw generally what the industry data was showing, in terms of -- you did mention a fairly strong start to the year, and then that slowed quite a bit into sort of the end of February; and then into March even more meaningfully; then in April as well.

So just curious if you would touch on any color you might have in terms of what you think is going on there, and how that may relate to what you have historically seen within the business.

If you look at month by month, sales trends in every month of the quarter were positive, but there are a lot of factors that are impacting that.

January was positively impacted by the end-of-the-year calendar shift.

February was negatively impacted by the Super Bowl shifting into February from January.

And then March was positively impacted by the spring break shifts.

But all months were positive.

And then we have also the very strong 4.2% comparison with the prior quarter.

And I forgot; I guess I got it right here, how it fell out month by month.

But I would say that each month was positive, and that maybe March was a little bit weaker than the others, if you take out some of that.

Yes, I think that's right.

We have a national footprint at this point in time.

And I think we are much more resilient than, as you pointed out well, than many in the industry.

But if you were to bend the curves up and down month to month, the directions would be similar to what the bigger picture is that you're seeing.

Good deal.

Thanks, guys.

Karen Holthouse, Goldman Sachs.

I'm curious, and I don't know if there's a way to generalize it: if you look at all of your sales or all of your transactions, what percentage of those occur not necessarily on peak, but when restaurants are on a wait?

I'm just trying to think through if the pay-at-the-table does help speed table turns a little bit.

What sort of percentage of the business could that benefit really be applicable to?

It's -- we can get you more specifics on that.

I can tell you from historical analysis, Karen, that clearly what we call the big four shifts, when you are thinking of kind of late Friday through the Sunday brunch, we have a significant amount of wait in many of our restaurants, ranging from 30 minutes to 90 minutes or more in some of those really busy locations.

And I think we are not that different than the industry.

If you were to take those shifts and look at a percentage of the total sales, it's going to be more than, slightly more than 50% of the week compared with the other 4 1/2 days.

So I think that that's probably still true today.

All right.

Thank you.

Keith Siegner, UBS Securities.

Thanks.

I appreciate the question as well.

Given that you're going to test this pilot here coming up soon -- given that you're going to be testing this pilot for home office delivery -- or home and office delivery here soon, just wanted to get your philosophy a little bit on this program.

We have seen some interesting approaches from some other major national chains in full service getting a tremendous amount of growth and, therefore, leverage out of that channel.

How you think about, say, for example, pricing?

Is this a full-priced occasion?

Do you run some discounts, given that they are not leveraging the service and taking up seats?

How are you thinking about approaching to-go as a long-term opportunity as compared to the eat-in occasion?

Well, hopefully, Keith -- you know, the to-go has been a big part of our business for a long time.

We do 8% to 10% of to-go sales and have for probably as long as we have been around.

So our approach with to-go has always been to provide the same experience for the guests as they are going to get within the restaurant; from a pricing strategy that would be the same.

We would like for the guests to have the same pricing structure.

We don't anticipate discounting or having the pricing structure be any different.

One of the reasons that we're piloting with a few different partners is to understand how their pricing structure may affect that guest's experience, whether that's a delivery fee or a service fee, or no fee at all, depending on how we structure the actual partnership.

So we are in week two in a very limited amount of restaurants so far.

And we really have a lot of learning to go.

We really, most importantly, want to understand what that product is like by the time it gets in the door.

And is it the quality that we would expect, so that paying that same price point, the value perspective is still there -- is still there for the guest.

And also that the companies are able to meet our expectation when it comes to service.

So thus far, in the first two weeks it has been promising; we've had some very busy days.

And we also want to make sure that our performance within the restaurant stays consistent.

And even as volumes do improve, and people -- delivery were to really pick up, that we execute as well as we would like within the four walls in the restaurant with those guests as well.

And just to be clear, as a follow-up, you do have kitchen capacity as it stands right now, even at some of the peak dinner hours, to handle more volumes through the back of the house if this really takes off.

Correct?

We do.

Our restaurants are designed to be able to handle that volume, plus the to-go, plus if there's incremental business to be had.

We can handle the volume.

Thank you.

Sharon Zackfia, William Blair.

Doug, I wanted to ask maybe about labor optimization on an ongoing basis, given that wage pressures seems like it's going to be with us for a while.

I don't know if your model really is suited for kind of outsourcing some of the prep work or anything like that, or if that would be meaningful, or if there are other things you could do in the four walls that might help offset that labor inflation that you're seeing?

Sharon, I will take that.

I think that our operating model is complex, as you know.

And having fresh ingredients every day with 250 menu items -- if there was somebody out there that could do it as well as we would expect, we would explore that.

We've always said that if you could make the same product of the same quality and do it for any less, of course we would want to try and figure out a way to do that.

We haven't been able to find somebody that can do that yet.

So our job and our goal continually is to make sure that our restaurants are performing on a core timely basis as well as our top performers.

So there are -- as well as our productivity was in the first quarter -- I think Doug mentioned that -- our operator just did a wonderful job with productivity and maximizing the labor force within each restaurant.

Still an opportunity to continue to outperform and to make sure that the third- and fourth-quartile performers are meeting the Company average.

And if we can continue to do that and perform as we did in the first quarter, that will help offset some of that 5% pressure that Doug is talking about.

And that's the work that we do every day.

Having a wide-variety menu is a differentiator for us, and it keeps competition at bay.

And it also (technical difficulty) the complexity that you're talking about.

But we are continually looking for -- whether it's technology and equipment that can improve service times or increase productivity, or reduce the amount of manual labor that's happening in the restaurant, that is going all the time.

And our teams are looking at that on a continual basis.

Okay.

And Doug, one follow-up.

Do you have a good share count for the second quarter, given the share repurchases?

I think, Sharon, we were just a hair over 50 million.

Yes.

And so I think that we would continue to think for the balance of the year we would be trending that a little bit downwards.

And we said between 49 million and 50 million weighted average for the year.

Okay.

But I thought you repurchased 1 million shares in the first quarter, and the share count went down, like, 440,000.

So --?

So some of that is timing, right?

So we are reporting the actual number of shares, and this is the weighted average basis.

Right.

I guess I'm just asking what the share count was as of quarter-end as opposed to the weighted average.

We'll get that to you after the call.

Great.

Okay, thank you.

John Ivankoe, JPMorgan.

Doug, just a clarification regarding, you know, you guys having December 30 in the first-quarter 2016 versus not in first quarter of 2015.

Some companies handle that differently -- like, they will include it in their average weekly sales, but not in their same-store sales.

Are you saying that that was included in your same-store sales, so it wasn't exactly a comparable days comp?

No; it was comparable.

It was just in a different year.

We had -- our year-end changed.

Okay.

Yes, I've seen that handled multiple ways.

Okay.

Well, if that's how you have handled it, that's fine.

I just wanted to clarify.

And then, on a separate topic, we have talked before about your tickets at Cheesecake Factory above your check average being positive and below your check average being negative.

So is that still the case?

And if that is the case, are you working on doing anything to bring the number of tickets below your check average up?

Well, we have done a lot of menu innovation, John.

As you know, we change our menu twice a year.

And we have -- for instance, we have put on the -- if you look at our new superfoods section, there's a lot of salads there under $10.

Our small plates are low priced as well.

So we've put items on, lower-cost items, for people that want to come in at that price point and still get full service.

And in terms of anything that might change more in the future regarding that, or should we not (multiple speakers)

Yes, I think that you're going to see the superfoods section grow.

And then I think over time that we'll try to put things on the menu that will attract all levels of -- all income levels and all spending levels.

So we have the opportunity to be all things to all people, and that's why we have been so successful over the years.

So we would continue to move in that direction.

Thank you.

Paul Westra, Stifel.

Just a couple of follow-ups.

Most have been answered already.

But I guess from a different perspective, Doug, on your guidance -- for the full year, comp guidance comes down 50 basis points.

But the EPS number comes up $0.03 to $0.04.

So how would you characterize where that upside versus your outlook is coming from on the earnings?

Well, the earnings was largely a flow-through of the amount that we beat the first quarter by, which I think was $0.08.

So we flowed through roughly at the midpoint about $0.04, as you say, of that $0.08.

And we didn't flow through at all, because we have some of those expenses that benefited the first quarter, where G&A that were timing related -- and we're expected to have those expenses, incur those expenses later in the year, anyway.

So that's why -- that's basically the difference.

And then back to that comment on insurance: you said there was up to a $0.04 benefit here in the first quarter.

But you are not changing your outlook?

Is that -- so that's correct?

That even -- or --?

Insurance was maybe about $0.02 worth of benefit in the first quarter, so we would expect the -- we expected to have that -- well, no -- we didn't expect to have that versus our guidance.

But we wouldn't expect for continuing benefits from insurance.

So we took about half of the difference between the midpoint of the guidance we gave and what we actually reported and increased our end-of-the-year guidance by that amount.

And the other half is timing related.

Okay.

And then on the second-half comp outlook, looking to return back to that 2% number from below 1% here in the 2Q, I guess, what gives you the confidence either from Cake-specific actions on menu, or take-out initiatives and things?

Or is it just expecting to be more improving comparisons, or improving macro?

I would say that the first answer is we really don't know what comp-store sales are going to be for the second half of the year.

But the way we got at 1.5% to 2.5% was we took into account that there was this choppiness in the environment that we are in, and we lowered the two-year stacked comp for the second half of the year.

So we have much easier comparisons in the second half.

The first-half comps last year were up 3.5%.

In the second half we were only up 1.6% last year.

So we had 4.6% of two-year stacked comps in the first quarter.

And the way -- the guidance we gave represents or indicates about 3.6% two-year stacked comps in the second half.

So that's what we did.

Will that turn out to be true?

Well, time will tell, obviously.

But that's the thought process we went through.

Great.

And then, lastly, one more on the competitive environment -- a lot of other casual diners talking about lunch being the most impacted and specifically from some of the QSR efforts.

I know you are typically above the fray, anyway, and especially relating to QSR impacts.

Any commentary on lunch being maybe softer or weaker, or maybe in some -- even just some locations?

I'm looking at that now.

And I -- you know, for instance, just -- this is overall sales: our lunch sales overall compared to last year, and this is not just comp sales, this is all sales -- were up more than dinner sales were up.

Well, answers the question.

(laughter)

Yes.

Great.

Okay, thanks so much.

Steve Anderson, Maxim Group.

A quick question on the real estate strategy.

I don't know if you were starting to look at the 2017 pipeline, but given that we are only looking at 8 units for this year, is it safe to say at this point we could see a little bit of an acceleration in terms of the real estate strategy for next year?

Clearly you might get some favorable mall site or some new development coming up?

Well, Steve, we're going to open as many restaurants next year as we think that there's a high likelihood that we can meet our return hurdles.

And that's what we do every year.

I know people have a little bit of difficulty fully understanding why one year we have 10 and the next year we have eight or whatever.

But next year we could have eight again, or we could have more than eight.

It just depends how many restaurants that we locate where we think we can have lines out the door when we open, like we did in Albuquerque.

And are there any opportunities for relocation like there were in past years, do you think?

Well, we did some in 2013 and 2014 that I think you are referring to, and really none in 2015.

And I don't think we anticipate doing any relocations next year.

All right.

Thank you.

Brian Vaccaro, Raymond James.

David, you mentioned in your prepared remarks the brand's strong positioning with Millennials.

And I'm just curious if you could share what percentage of your guests are comprised of Millennials?

And how has that percentage trended over the last few years?

I don't know that I have that specific data in front of me.

I can tell you that certainly for the past 10 years, the breadth of guests from 15 to 85 that dine in The Cheesecake Factory is vast.

And that's why our sales volumes are they are.

The Tecnomic survey that I'm referring to just came out maybe two or three months ago.

And part of what Doug talked earlier about -- putting the superfoods on the menu, some of the other work that we've done; a lot of the great social media marketing that we've done, whether that's through influencers, our Instagram page, and all of that, tells us that there certainly is relevance with our brand with Millennials.

And the Tecnomic sort of proved that out in that one survey.

I don't have the exact number in front of me right now on what percentage of our guests may be Millennials.

But we feel pretty good that we are resonating with them and giving them what it is that they want and what they need.

Okay.

All right.

Just a couple of quick ones: can you tell us what the Grand Lux comps were in the quarter?

Yes, I can.

They were 3.1% positive.

3.1% positive?

Okay.

And then on the G&A front, you held it flat as a percent of sales, obviously, this quarter.

Is the goal for 2016 to still see slight leverage there?

I would say sort of flat for the year is what we would expect.

Flattish, given the renewed sales outlook?

Okay.

And then last one -- I did notice that the depreciation expense -- it declined about $0.5 million sequentially.

Can you provide some color on what drove that?

And do you expect more normal growth as we move through the rest of 2016?

Yes, Brian, we do kind of expect it to be normal over the course.

And we'll be happy to talk with you off-line about just the accounting around that.

Nothing material, just a couple of pieces that were smaller.

All right, fair enough.

Thank you.

And that does end our Q&A session for today.

Ladies and gentlemen, thank you for participating in today's conference.

This concludes today's program.

You may all disconnect.

Everyone have a wonderful day.