Cheesecake Factory Inc (CAKE) 2016 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to The Cheesecake Factory third quarter 2016 earnings conference call.

(Operator Instructions)

As a reminder, today's conference is being recorded. I would now like to introduce your host for today's conference, Ms. Stacy Feit. Ma'am, you may begin.

Thank you. Good afternoon, and welcome to our third quarter FY16 earnings call. I'm Stacy Feit, senior Director of Investor Relations. On the call today are David Overton, our Chairman and Chief Executive Officer; David Gordon, our President; and Doug Benn, our Executive Vice President and Chief Financial Officer.

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 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 the Company undertakes no duty to update any forward-looking statements.

David Overton will begin today's call with some opening remarks. Doug will then take you through our operating results in detail, and provide our outlook for the fourth quarter and the balance of 2016, as well as our initial thoughts on 2017. Following that, we will open the call to questions. With that, I will turn the call over to David.

Thank you, Stacy. We delivered our 27th consecutive quarter of positive comparable sales, as we continue to create unique dining experiences for our guests. We also meaningfully out-paced casual dining industry during the third quarter, underscoring our differentiated positioning, as we remain a destination of choice. We had strong bottom-line performance, as well.

In addition to continuing to provide something for everyone with our innovative menu, we are encouraged by the result of our technology-enabled initiatives. We are seeing some incremental sales in many locations from the delivery service we have been piloting with a third-party partner. We began a phased national roll-out at the end of the third quarter, which has continued throughout October. At present we have 78 restaurants in 16 states being served, and we plan to continue to introduce delivery to additional locations, as our partner expands their market coverage.

Feedback on our mobile payment app CakePay continues to be positive. As we discussed on our second-quarter call, we were chosen by MasterCard to be featured in the national advertising campaign for their MasterPass digital wallet solution. National TV spots ran in September, with the largest portion of the ad buy slated for November and December. We believe this campaign is creating awareness for both CakePay and our restaurants.

Execution within the four walls was excellent during the quarter. Our best-in-class operators hit our labor productivity and food efficiency targets, while delivering The Cheesecake Factory experience. We continue to invest in training, development, and retention, as well as productivity tools to ensure that we maintain the infrastructure necessary to support continued high-caliber performance.

On the development front for 2016, we still expect to open as many as eight Company-owned restaurants, including one Grand Lux Cafe. Three Cheesecake Factory restaurants opened in October -- one in Greensboro, North Carolina; one in Stamford, Connecticut; and our first New York City location in Queens, which just opened yesterday. We have three domestic openings scheduled for the remainder of the fourth quarter.

On the international front, we now expect as many as four restaurants to open this year under licensing agreements, based on the information we currently have. This includes The Cheesecake Factory at Dubai Festival City Mall that opened in August. For the first time, each of our three licensees is planning to open at least one international restaurant this year.

Looking forward to 2017, we expect to open as many as eight to nine Company-owned restaurants. This includes one Cheesecake Factory relocation, and our second Rock Sugar Pan-Asian Kitchen. Internationally, we expect as many as four to five restaurants to open under licensing agreements in 2017.

In closing, we continue to deliver consistent and predictable performance, a hallmark of our Company. We are executing at a high level operationally, positioning us well for a strong finish to 2016, as well as we look ahead to 2017. With that, I will now turn the call over to Doug for our financial review.

Thank you, David. Total revenues at The Cheesecake Factory for the third quarter of 2016 were $560 million. Revenues reflect the comparable sales increase of 1.7% at The Cheesecake Factory restaurants. External bakery sales were $13.3 million in the third quarter. Cost of sales decreased approximately 90 basis points year over year in the third quarter of 2016 to 23% of revenues.

Key ingredients driving the favorability included seafood, groceries, dairy, and poultry. Labor was 33.3% of revenues, an increase of about 60 basis points from the third quarter of last year. A majority of the increase is attributable to higher hourly wages. Wage rate inflation was in line with our expectations.

Other operating costs were 24.1% of revenues, down 30 basis points from the prior year, due primarily to favorability in our workers' comp insurance comparison.

G&A was 6.4% of revenues in the third quarter of FY16, up 10 basis points from the same quarter of the prior year. Pre-opening expense was $2 million in the third quarter of 2016, versus $4.3 million in the same period last year. We did not have any openings in the third quarter of 2016, compared to two openings in the same quarter of the prior year.

Overall, sales leverage and effective cost management enabled us to offset wage inflation, driving strong adjusted margins, which were up 100 basis points versus the prior year. As a reminder, we recorded a $6 million pre-tax non-cash charge during the third quarter of 2015.

Our tax rate this quarter was approximately 27%, within our expected range. Adjusted earnings per share increased 19%.

Cash flow from operations for the first nine months of 2016 was approximately $217 million. Net of roughly $71 million of cash used for capital expenditures, we generated about $146 million in free cash flow through the third quarter of 2016.

That wraps up our business and financial review for the third quarter. Now I will spend a few minutes on our outlook for the fourth quarter and the balance of 2016, as well as our initial thoughts on 2017. 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 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.

As a reminder, 2016 is a 53-week year for us, with the extra week falling in the fourth quarter. This is reflected in our assumptions. For the fourth quarter of 2016, we are estimating diluted earnings per share between $0.65 and $0.68, based on an assumed range of comparable sales of between 1% and 2% at The Cheesecake Factory restaurants.

With respect to the full year of 2016, we now expect comparable sales to be between 1% and 1.5%, and we are increasing our diluted earnings per share sensitivity to a range of $2.81 to $2.84, representing 19% to 20% year-over-year growth. This guidance is up $0.08 at the high end from the prior range, reflecting our strong bottom-line performance in the third quarter. We are expecting our overall operating margins to expand nicely for the full year.

Regarding our corporate tax rate, we expect it to be about 27% for 2016. We now expect total capital expenditures this year to be between $100 million and $105 million, for as many as eight planned 2016 domestic openings, as well as potential openings in early 2017.

We now anticipate completing up to $150 million in share repurchases this year. Together with our dividend, we plan to return capital of roughly $190 million to shareholders in 2016.

Turning to FY17, we are currently estimating diluted earnings per share in a range of $2.95 to $3.11, based on an assumed comparable sales range of between 1% and 2%. On the cost side, we expect commodity inflation of about 1.5% to 2% in 2017. This assumption reflects notably higher seafood costs, primarily attributable to salmon, where as we currently expect meat, poultry, and dairy costs to be favorable.

The guidance range assumes wage rate inflation of approximately 5% in 2017, consistent with the level we have seen in 2016. While we anticipate slightly less impact from government-regulated wage increases in 2017, we are seeing upward pressure on discretionary wages in this tight labor environment. As we have done in the past, we will seek efficiencies and cost savings to help offset some of the labor pressure, but this is not factored into our guidance at this point.

Regarding our corporate tax rate, we expect it to be approximately 23% to 24% for 2017. This lower tax rate reflects our estimate of the impacts of the adoption of the new accounting rules regarding stock-based compensation.

Our total capital expenditures in 2017 are expected to be between $125 million and $140 million, including as many as eight to nine planned domestic openings, as well as potential openings in early 2018.

Our restaurants generate a substantial amount of cash, and we continue to effectively allocate our capital to achieve our targeted returns and maximize shareholder value. In keeping with our practice of consistently returning our free cash flow to shareholders, we plan to continue to do so in 2017 in the form of dividends and share repurchases, which is reflected in our guidance.

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)

Our first question comes from the line of Nicole Miller with Piper Jaffray. Your line is now open.

Thank you, good afternoon. I was wondering if you could talk a little bit about experiential dining, and if you think your results signal that's important in the current environment? Maybe how can we think about what that means? What are the characteristics of experiential operators or dining, for consumers? Thanks.

I would think that experiential dining is important. I think it's one of the reasons why, when people ask us the question about whether the gap between grocery store pricing and restaurant pricing, whether that widening gap has impacted our sales results. We answer that question, we don't think it has -- we think it has very little impact on our sales results, because people are coming to us for exactly what you're talking about, Nicole, experiential dining.

They're getting something more out of their dining occasion when they come to The Cheesecake Factory than simply food. They're getting the environment, the service, and everything else that comes with a personalized experience. I think that experiential dining, in addition to many other things, operational excellence, the environment that we serve our food in, our server training, all those things are what's helping to drive our results.

I would just add, Nicole, that I think our brand lends itself to sharable type of experiences, where you're coming into a social environment, and our food is not just large variety, but the portion size creates an environment where people want to come and share with each other and experience with each other. We see that just in the amount of Instagram pictures that are taken of our food. I think other than Starbucks, we are the most popular Instagrammed brand out there. That's part of that experience. They want to share that experience with other people, and I think that does differentiate us from other brands.

Thank you.

Thank you. Our next question comes from the line of John Ivankoe with JPMorgan. Your line is now open.

Hi, thank you. Doug, just a quick clarification and the question. You mentioned lower insurance costs. I think that helped your OpEx, other OpEx this quarter. How much was that in basis points, if you can quantify it?

That was probably about most of the amount of the difference. It wasn't lower really insurance costs. It was lower comparative costs. The costs were unusually high last year, and they were more in line with what is normal this year.

Okay, fair enough. In your prepared remarks, in your setting up guidance for FY17, you mentioned something very quickly that you may try to offset some of the wage pressure from some things that you may be doing. I'm sorry, I'm not quoting you correctly at all, but what did you mean, and what could that mean? How significant could it be? Why wouldn't your guidance contemplate something that you may do structurally or tactically, or what have you?

Well, our guidance does include the important things that are going to help offset wage-rate pressure, such as what kind of menu pricing we're taking. It incorporates the fact that we have this lower tax rate, and all of those things that are helping to offset the wage-rate pressure.

We haven't really -- anything that we identify from a cost savings standpoint is not going to be a huge bucket. It's going to be a little bit here, or a little bit there. We did a little bit of those things this year, and we really just not specifically identified what items those might be yet. That's why we didn't include them in our guidance.

What do you think menu price is for 2017? I'm sorry if I missed.

Well pricing, John, as you know from us, always depends at least for us on the commodity environment, and the traffic trends at the time that we are making decisions about our menu change. While we have really not firmed up exactly what 2017 pricing will be yet, we believe we have pricing power, given that differentiated positioning that we talked about earlier, maybe in contrast to what some of our competitors are doing, who are discounting, which we are not doing. We could take pricing at levels similar to 2016, should we feel the environment necessitates that. I would say that exact decision on that has not been made.

Thanks.

Thank you. Our next question comes from the line of Sam Beres with Robert W. Baird. Your line is now open.

Hi, good afternoon. There has been a lot of focus on the industry demand environment lately. I was wondering if you could just maybe provide any perspective on how Q3 comps trended throughout the quarter? Then obviously you came in a little bit above the high end our comp guidance. Really, what factors do you think drove the up side, versus how you were thinking about it with the last report?

Okay, yes, month to month, our sales trends improved each month during the quarter, in contrast perhaps to the performance of the broader industry. Our best comp store sales month was actually in September. I would just say that I think we returned to our normal sales pattern of 1% to 2% that we've seen for a number of years now.

There was a period of six to eight, or maybe 10 weeks or so in the second quarter, where we said that sales were a little bit soft. They were off of our -- what our average was, by about 1%. But we thought that was cyclical.

We had seen it before a number of times going in both directions -- sometimes a little higher than normal, sometimes a little lower than normal. We said we certainly didn't see the slow-down in the second quarter as a harbinger of anything really bad that we thought was going on in the restaurant business. I think we're simply back to where we have always been from a sales standpoint, at about 2%.

That's helpful, thanks. In terms of the Q4 comp outlook, any perspective to provide on some of maybe the pushes and pulls for the comps? I know you have had Hurricane Matthew hit the nation here in October, and then you do have a Halloween shift and some Christmas holiday shifts. How should we be thinking about those impacts in Q4 comps here?

Yes, we factored all those things in. Certainly, the fact that we have an easier comparison gives us confidence to say the 1% to 2% for the fourth quarter. But as you mentioned, we also factored in a somewhat negative impact on a year-over-year basis related to the shift in Christmas from Thursday and Friday last year to Saturday and Sunday this year, that we're not going to enjoy the long weekend benefit that we saw from Christmas holidays last year. That is roughly a 50-basis-point impact, and we've factored that into our guidance.

Halloween is a positive for us that we factored in. It's on a Monday this year, which is nice. Then we have modestly negative impacts from Hurricane Matthew, presidential debates, New Years Eve falling on a Saturday. None of these factors are really worth quantifying on their own, and our best estimate of their collective impact is reflected in the guidance we provided.

Thanks.

You're welcome.

Thank you. Our next question comes from the line of Joe Buckley with Bank of America Merrill Lynch. Your line is now open.

Thank you. Doug, to you. If you gave this during the call, I may have missed it. Can you give the breakdown for the third-quarter comp in terms of traffic, price, and mix?

Sure. We had obviously the comp was 1.7%. Pricing in the quarter was about 2.6%. We had a positive mix of about 0.5%, so traffic was minus 1.4%, which was an improvement over where we were in the second quarter. We made some progress on the traffic front.

Okay. David, you mentioned delivery and you mentioned number of stores in different markets in a number of states where you're executing that. Was that in effect for the full quarter, or did that get layered in as the quarter progressed? Was it a significant factor in the same-store sales performance?

Joe, it was layered in as the quarters went. We didn't roll out all those 79 restaurants at one time. Some of them just hit as frequently as a week and a half or two weeks ago.

Okay. The initial response to that is it meaningful from a sales standpoint? I realize it's only 79 stores across the quarter. Any individual stores you can talk about, what kind of reaction you've had?

We have had positive reaction. I think that we're pleased thus far. That's why we want to continue to roll out. We've seen some sales incrementality in some locations, and we have seen great feedback from guests in regards to the experience, the quality of the food, the times that we're actually getting the food to them, and their using the app, and their experience with our partner, as well. We feel great about it, and that's why we're continuing to March forward.

Who are you partnering with?

Our partner today is DoorDash.

Got it. Okay, that's helpful. Thank you.

Thank you, and our next question comes from the line of Karen Holthouse with Goldman Sachs. Your line is now open.

Hi, good afternoon. This is actually Greg Lum on for Karen today. I was just wondering if you could provide any color on the retail traffic trends that you guys are seeing at the malls that you're located in?

Well, as you know we are in a lot of malls. The malls that we're in are all of the higher A-plus -- A to A-plus malls. We like being in malls, and we bring traffic to the malls. When we choose a site, we look at many factors -- parking, exterior door. We look at all the demographics, and malls are great places for us to be. The amount of money maybe that's being spent at some of the big box department stores in some of the lower malls, or maybe even some of the malls that we're in, that might be down some; but specialty retailers are doing well, and we're doing well in malls.

Thank you.

Thank you. Our next question comes from the line of Matthew DiFrisco with Guggenheim. Your line is now open.

I'm sorry, this is Matt Kirschner on for Matt DiFrisco. I was just hoping you could go a little bit further into the third-quarter comp, the 1.7%, the components of that? Also, what was the Grand Lux same-store sales number for the quarter?

The components, I said that earlier, but the comps were 1.7%, price was 2.6%, our mix was positive 0.5%, and traffic was up 1.4% -- I mean down 1.4%, excuse me.

Grand Lux comps for the quarter were up 3.4%. In the third quarter, our Las Vegas restaurants, which are our highest-volume Grand Lux restaurants, continued to perform well. We also saw improvements in our Florida locations. Grand Lux traffic was also positive in the quarter.

Great, thanks. Last quarter, you talked about some of the weakness in Houston. Have you noticed any other regional variances?

Well, geographically, I think it's good news that we continue to see fairly consistent performance across geographies. There is about a 4% gap on the average between our best-performing and worst-performing geographies. California is our -- in the northwest and the northeast, those are all our strongest markets. Our weakest marks are the mountain region and the southeast. In fact, those are the only two geographies with negative comps. With respect to Texas and Florida, both of those were slightly positive, as we started to see signs of stabilization and growth in those markets.

Great, thank you.

You're welcome.

Thank you. Our next question comes from the line of Will Slabaugh with Stephens, Inc. Your line is now open.

Hi, good afternoon, guys. This is actually Billy on for Will. I wanted to ask real quick on the 2017 guidance a little more. Is there a cadence to that EPS guidance that we should be aware of, beyond the regular seasonality that we usually see?

I don't think so.

Okay, and then on the same-store sales guidance, does that at least assume flat traffic, or is that something you guys see as achievable?

The comp-store sales guidance for 2017?

Yes.

Well, certainly we see it as achievable. That's why we said it. But 1% to 2% would assume traffic somewhere in the neighborhood of negative 1%.

Got it. Then real quick if I could, sorry if I missed this, what was -- or what do you project pre-opening to be for the fourth quarter?

We can get with you offline on that.

Great. Thanks, guys.

Thank you. Our next question comes from the line of John Glass with Morgan Stanley. Your line is now open.

Hi, this is Courtney on for John. Two quick ones. Just on the labor line, I know it sounded like hourly wage inflation was in line with your expectations, and it's going to be similar in 2017 as it is in 2016, but this quarter it seemed like, at least the pressure on the margin side, was a little bit less. Was that mostly the result of the higher comp versus last quarter, or was that more of the productivity initiative? Then secondly, if you can just comment on the tax rate. Should we expect that also to be lower in the out-years beyond 2017?

Okay, so let me see if I've got this. From a labor standpoint, in the third quarter, the increase as I mentioned was largely driven by hourly wages. It was also partially driven by a group medical expense being higher year over year. Certainly, the fact that our comp-store sales were over and above our range that we gave, 1.7%, that helped with some leverage on the comp line.

Also, we had some, during the quarter, some timing of expenses that benefited the third quarter, and are moving into the fourth quarter that we have incorporated into our guidance that also helped us with the earnings-per-share beat over and above our -- the high end of the guidance we gave. We also, I think frankly, effectively managed our costs very well during the quarter. G&A and Management labor came in somewhat below plan, and that helped earnings per share in the quarter, as well. Then your other question, I forgot it already.

It was just on -- you gave the tax rate guidance for 2017. Should we expect that lower tax rate --

Well, that's the way -- that isn't the way it works. The tax-rate guidance is going to be dependent on what our stock price really is, because it's a tax benefit that we're now able to run through the income statement that before had to go on the balance sheet.

The tax benefit that we get from a tax deduction, when restricted shares lapse or stock options are exercised, it's going to be dependent on what the share price is at the time we do it. That's our estimate for what the tax rate will be for 2017, based on an assumed stock price that we've assumed throughout the year. We have to do the same thing. We have to assume stock prices for share repurchases, as well, so we've done it with respect to this, too.

Okay, thanks.

You're welcome.

Thank you, and our next question comes from the line of Andy Barish with Jefferies. Your line is now open.

Hi guys, nice quarter. Any -- on the shifting of openings, any margin pressures? Some of the expense timing you talked about, any particular lines we should look at in the 4Q at this point?

No, I mean they only shifted a few weeks. The year or the month that you open restaurants, they're not positive obviously for a couple of months anyway because of the pre-opening that's involved. No, I don't think there's a material change.

Thank you.

You're welcome.

Thank you. Our next question comes from the line of Steven Anderson with Maxim Group. Your line is now open.

Yes, good afternoon. Actually, you haven't mentioned the name Rock Sugar in quite some time. I just want to see what your motivation is to start up unit growth there, rather than continuing some of the momentum at Grand Lux?

Well, it's a unique concept. It has a high customer appeal. It's been voted in several surveys as a very good restaurant, and is frequented by high-profile people. It's on trend, we think, with the increasing consumer interest in ethnic cuisines. We just think that we're interested in trying a second site to initially expand the concept beyond the southern California market. We believe we've identified a good candidate for 2017. Do you want to add anything to, that David?

We had property that we could expand on, and we wouldn't put a Grand Lux there, and so we decided that this would be a perfect time to have Rock Sugar grow. We had the property, it was there. We controlled it, and we decided this would be a perfect site. That's why we're doing it.

Okay, thank you.

Thank you, and our next question comes from the line of Peter Saleh with BTIG. Your line is now open.

Great, thank you, and congrats on the quarter. I just wanted to circle back on delivery. I know you said it's in like 78 or 79 stores today. Do you anticipate that delivery will be rolled out to all your Cheesecake Factory stores, or is there a certain number of stores that you don't think it would be appropriate for?

We would like for it to be in every location. As our partner continues to expand into new markets, we will expand with them. There needs to be a density of population for them to expand, but we should be close to 100 restaurants by the end of the year, and we will continue moving forward next year, as well.

Do you think you will get to all the restaurants by the end of 2017, or is that too optimistic?

Our hope would be that we could get to all of the restaurants by the end of the year.

Okay. Lastly on delivery, what gives you guys confidence as you roll this out this is mostly incremental, and not cannibalizing some of your in-store business?

Well, we can look at the current restaurants today and monitor whether or not we feel like there is cannibalization. We could look at our percentage of to-go sales in general, and see if they are growing in those restaurants. We have seen some to-go sale -- we have about 10% of to-go sales on average, and we have for a long time. We've seen some incrementality to that, and we haven't seen cannibalization in the restaurants that have seen those increases. That gives us insight into understanding exactly what's happening with those guests, and whether or not they are trading off one experience for the other.

Great. Thank you very much.

Thank you.

(Operator Instructions)

We do have a follow-up question from the line of John Ivankoe with JPMorgan. Your line is now open.

Hi, thanks for taking this. Doug, just a point of education, if I may. The lower tax rate that we're going to see in 2017, is that met with any higher expenses elsewhere on the income statement and G&A as it relates to the incentive comp, the stock-based comp that you're planning on running through?

No, it's purely something that now impacts the tax line, the tax expense line, when previously that tax benefit, we put -- we went through paid-in capital. It went on the balance sheet. The new accounting rule says you can't put it on the balance sheet any more. You've got to take that tax benefit on the income statement.

It's not necessarily always going to be a positive. I mean it's a positive for us for next year in that the tax rate is going to be a lot lower, because of the fact that our stock price has increased since these equity awards have been made. We're recording actually in the income statement the tax benefit on that difference in what the options or the restricted shares were issued at, and what they're ultimately redeemed for, if you will.

Yes, that's -- from what I read, it is going to add volatility, which obviously is going to be fun for everybody. Does it influence your -- is there a cash flow impact to this, or is it just a pure GAAP impact?

It's pure GAAP impact.

Okay, thanks for that.

Thank you. Our next question comes from the line of Sharon Zackfia with William Blair. Your line is now open.

Hi, good afternoon. Sorry if I missed this, I had to join a little bit late. The guidance for next year with the tax benefit, Doug, if you take that out, the underlying earnings growth is a little bit less than I would have expected with a 1% to 2% comp. Can you walk through, in addition to labor, where you're seeing the pressure?

Well, labor is a big part of it. We're -- 5% wage rate inflation is -- we have, we expect the comp-store sales for the year at 1% to 2%, as we've talked about. We've been managing through the industry labor pressure, and continue to believe, as I said earlier, that we have pricing power in 2017.

We have a 53-week year, is one of the big things this year, comparing to a 52-week year next year. If you look at that, that represents probably 3% or so. Instead of say 5% to 10% growth over 2016 at the mid-point, that would make it like 8% to 13%, because we have again a 52-week year. The labor rate, wage rate inflation, you can look at it as being largely offset by that tax accounting change.

Then did you talk about what kind of price you're expecting for next year? Will it be less than this year, more? Are you still deciding on that?

No, we're still deciding on it. I did talk about it, and it's going to depend on what is the commodity environment and the traffic trends and other costs actually doing at the time we make the decision about that. We talked about believing we did have pricing power in this market given our differentiated positioning, and we could take pricing similar to the pricing levels we took this year, if we felt the need to do that.

Okay. My last question is I know there are a few markets where you took above-average pricing this year because of labor. I'm just curious if you're seeing any kind of push-back on that in those markets?

We are not, really. One of the markets that we have had the most government-regulated wage rate increases has been California. Then when I talked about geographies, California is actually one -- is our best-performing market. I don't think we're seeing a lot of impact from that more regionalized type of pricing.

Okay, great. Thank you.

Thank you. Our next question comes from the line of John Tower with Wells Fargo. Your line is now open.

Hi, good afternoon. Quick questions on MasterPass and CakePay. First on MasterPass, given how September trends were much better than the category and best in the quarter for you guys, can you talk about how maybe the MasterPass advertising contributed to comp growth? I know you mentioned it's going to continue in November, December. Maybe plans for 2017, as well? Could you talk about that? Then on CakePay, can you discuss the usage, customer usage in stores, and perhaps any other benefits you are seeing on your side from that?

Sure. Well, as far as MasterPass goes, the campaign was very limited in the period. It was probably a handful of ads that ran during that time. The majority of them are going to be running in November and December. It would be hard to attribute the benefit of the sales to anything that had to do with MasterPass thus far. We look forward to seeing what's going to happen in November and December.

The early adoption of CakePay is promising. It's still early, however. As mobile payments become more popular, I think CakePay will continue to be used more frequently by our guests. We do now have a full-page ad that's running in our menu to increase awareness within the restaurant, once guest do arrive.

It's still early, as it is I think with mobile payments in general. But we feel good about it thus far, and we think that the master pass will give us also more awareness of CakePay, because the ad itself does show the phone and a mobile payment process.

Okay, thank you.

Thank you. Ladies and gentlemen, this concludes today's question-and-answer session. Thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone have a great day.