Cheesecake Factory Inc (CAKE) 2017 Q1 法說會逐字稿

Good day, and thank you for standing by.

Welcome to The Cheesecake Factory First Quarter 2017 Earnings Conference Call.

(Operator Instructions) And as a reminder, this conference is being recorded.

Now, I would like to welcome and turn the call to your host, Stacy Feit.

Please go ahead.

Thanks.

Good afternoon, and welcome to our first quarter fiscal 2017 earnings call.

I'm Stacy Feit, Senior Director of Investor Relations.

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

David Overton, our Chairman and Chief Executive Officer, is currently traveling in China and Japan 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 facts 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.

In addition, during this call, we will be discussing earnings per share on an adjusted basis, which excludes impairment and lease termination.

David Gordon 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 both the second quarter of 2017 as well as our current thoughts on the full fiscal year.

Following that, we'll open the call to questions.

And with that, I'll turn the call over to David.

Thank you, Stacy.

We delivered our 29th consecutive quarter of positive comparable sales during the first quarter and again outperformed the casual dining industry.

We remain top of mind with our guests.

In fact, The Cheesecake Factory was just named Brand of the Year in the Casual Dining category of the Harris Poll Equity Trend study (sic) [Harris Poll EquiTrend study].

This distinction underscores the continuing strong guest affinity for our brand.

In addition, we were recently recognized as one of the 100 Best Companies to Work For by Fortune Magazine for the fourth consecutive year.

And we were again the only restaurant brand noted.

This reinforces that we continue to be an employer of choice.

We also see in our own data -- we see this in our own data, with our already industry-leading retention levels showing further improvements during the first quarter at both the manager and hourly staff levels.

Our teams executed very well during the quarter, hitting our labor productivity and food efficiency targets.

On the development front, we recently achieved an exciting milestone.

We will be bringing The Cheesecake Factory concept to Canada.

We've executed a lease for our first company-owned and operated international location in Toronto at the Yorkdale Shopping Centre.

The response to the announcement has been overwhelming, both in traditional and social media, so we look forward to the opportunity this new market holds for us.

In 2017, we continue to expect to open as many as 8 company-owned restaurants.

This includes one Cheesecake Factory relocation in Hackensack, New Jersey, which is slated to open in the second quarter as well as our second RockSugar.

We continue to expect as many as 4 to 5 restaurants to open under licensing agreements internationally in 2017.

This includes our first location in Hong Kong, which opened earlier this week at Harbour City Mall, the largest and most diverse shopping mall in Hong Kong and a fantastic location on the Victoria Harbour.

Pent-up demand for the brand was tremendous, with a line at the door of over 100 people, and the wait for a table exceeding 3 hours on opening day and continuing all throughout this week.

In closing, our first quarter results were in line with our expectations.

And looking ahead, we will focus on what we do best, delivering delicious, memorable food and excellent hospitality to continue to drive our guest's intent to return while effectively managing our operations and expenses.

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

Thank you, David.

Total revenues for the first quarter of 2017 were $563.4 million, reflecting a comparable sales increase of 0.3% at The Cheesecake Factory restaurant.

As we discussed on our last earnings call, because our strong holiday week was captured as the 53rd week last year, that high volume sales week was replaced with an average week in the first quarter of 2017.

This reduced revenues by about $10 million in the first quarter of 2017 on a comparable basis, which impacted average weekly sales as well as operating margins during the quarter.

External bakery sales were $12.2 million in the first quarter.

Cost of sales decreased approximately 70 basis points year-over-year in the first quarter of 2017 to 22.9% of revenues.

Key ingredients driving the favorability included meat, dairy and groceries.

Labor was 34.4% of revenues, an increase of about 90 basis points from the first quarter of last year.

A majority of the increase was attributable to higher wage rates, as expected, as well as some deleverage.

Other operating costs were 24.1% of revenues, up 70 basis points from the prior year due primarily to higher general liability insurance costs as well as higher repairs expense versus the first quarter of 2016.

G&A was 6.4% of revenues in the first quarter of fiscal 2017, in line with the same quarter of the prior year as expected.

Preopening expense was $1 million in the first quarter of 2017 versus $2.3 million in the same period last year.

We did not have any openings in the first quarter of 2017 compared to one opening in the same quarter of the prior year.

Our tax rate this quarter was approximately 17% and adjusted earnings per share of $0.72 was in line with our expectations.

Cash flow from operations was approximately $48 million.

Net of roughly $19 million of cash used for capital expenditures, we generated about $29 million in free cash flow for the quarter.

That wraps up our business and financial review for the first quarter of 2017.

Now, I'll spend a few minutes on our outlook for the second quarter and full year.

As we've 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 effects of any impacts associated with holidays or weather.

For the second quarter of 2017, we are estimating adjusted diluted earnings per share between $0.85 and $0.88, and comparable sales between 1% and 2% at The Cheesecake Factory restaurant.

This comp sales range assumes an approximately 50 basis point favorable impact from the shift of Easter and the associated spring break vacations into the second quarter this year from the first quarter in 2016.

Turning to fiscal 2017.

We are now estimating adjusted diluted earnings per share between $2.93 and $3.02, based on an assumed comparable sales range of 0.5% to 1.5%.

This reflects the flow through of our first quarter actuals as well as a modest tempering of our top line expectations for the balance of 2017, which we view as prudent, given that the anticipated improvement in the consumer environment has not yet played itself out.

On the cost side, we continue to expect commodity inflation of about 1% to 2% in 2017.

Our guidance range continues to assume wage rate inflation of approximately 5%.

Regarding our corporate tax rate, we currently expect it to be approximately 23% for 2017.

As a reminder, 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 8 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 doing so in 2017 in the form of dividends and share repurchases.

We expect to allocate as much as $100 million toward share repurchases this year, which is reflected in our guidance.

With that said, we'll take your questions.

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

(Operator Instructions).

(Operator Instructions) And our first question is from the line of John Glass with Morgan Stanley.

Doug, can you maybe just talk a little bit about how the comps flowed through the first quarter?

You were at the lower end of your sales range.

It does seem like comps picked up in second quarter.

I know some of that is due to comparisons and Easter shift.

But was it relatively easier?

Did you have like a tough month in there?

Maybe just talk about how you think about why you've lowered your comp expectations for the year?

I know the first quarter is a [piece of it], is there anything else that you're seeing in the business that would lead you to do that?

Yes, I think that as far as the month-to-month within the quarter, the comp store sales started off strong.

They moderated some throughout the quarter as we were impacted by weather and the Easter spring break shift that affected the month of March, in particular.

March was in line with our expectations, but we did have incrementally worse year-over-year weather that month.

We didn't see the same kind of weakness in February that the industry reported.

We do not believe we were really impacted by tax refund delays, for instance.

Overall, for the quarter, we continue to take share.

We maintained our healthy sales gap to the industry during the quarter, particularly, when you consider the negative impact from the spring break shift and the fact that, that shift helps most other casual diners in the first quarter and has the opposite impact on us and then the second quarter, that flips around the other way for others and for ours.

So we got the 50 basis points back in the second quarter as we entered April.

And I guess with respect to the guidance for the full year, earlier in the year, I think there was more optimism about the economy, that there would at least be a small uptick in the economy.

However, at this time, we remain in a low-growth environment.

We just finished the quarter, as you know, where the GDP grew by 0.7% on an annualized basis.

And that just leads us to believe that 2017, from a comp store sales point -- standpoint, is going to look a lot like 2016.

So last year, we ran about 1.2% in comp store sales, and the midpoint of the range that we're giving now is 1%.

So we're -- our business is stable.

We're just not seeing any macro lift right now.

And so we're only -- we only adjusted it by 0.5%.

That's helpful.

Can I just sneak one more?

Your dollars per store actually didn't grow very much at all this quarter.

I know the labor line delevered, but are you doing something on labor more holistically longer term?

Or is this just you trim labor because comps were slightly lower this quarter?

Yes, John, this is Matt.

It's a good question.

The wage rate inflation was pretty much in line with our expectations, as David Gordon commented in his prepared remarks.

I think we just did a good job of flexing to the comp store sales.

We have a very robust planning on this, and so I think what you're seeing is just the impact of us managing appropriately in the stores for the sales that we projected.

And our next question comes from the line of Sharon Zackfia with William Blair.

I guess, 2 questions.

First, the composition of comps.

Could you break that out for us between ticket and transaction?

And then secondarily, I guess, maybe you just touched on this a little bit.

You were talking last quarter about some incremental labor efficiencies you might be able to garner this year.

I don't know if that helped as well in the first quarter, where you are on that effort, which I know wasn't included in the prior guidance.

Let me answer the first one and with respect to the breakdown.

So comp store sales were 0.3%.

Pricing was -- in the quarter was 2.4%, and the mix was slightly positive at 0.2%.

So traffic was down 2.3%.

On the labor, Sharon, I think that we were pretty much in line with where we expected.

We're always looking for improvements in the way that we manage that.

But we do anticipate this year, as we've said, there will be some margin pressure, which we think will mostly be offset in the cost of sales lines.

So pretty much in line with the plan that we had.

I don't believe that there was an incremental benefit from our efforts yet.

And maybe as a follow-up.

I think you had mentioned potentially taking more price over the summer, if you didn't achieve incremental labor efficiencies.

Are you willing to

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for the summer are at this point?

So we just rolled off pricing, and we're now at about 2.2% after being at about 2.4%, weighted for the first quarter.

We haven't announced the pricing plans for the back half of the year.

As you know, we'll take pricing again when our menu change comes in the summer.

Part of that is based on how we will evaluate guest traffic trend, the sales, the macro environment.

It's a little bit art and a little bit science, but I think we will take pricing to protect the margins that we are giving in our guidance today.

And so it will depend on a lot of factors at that point in time.

But we feel that we can still take pricing and that we're still achieving our average ticket increases in accordance with what we have taken.

And our next question comes from the line of Joshua Long with Piper Jaffray.

I wanted to see if you might be able to talk about how the Grand Lux comp performed during the quarter.

Yes.

Grand Lux comp store sales were down 2.8%.

Got it.

And then as we think about the -- as many as 8 stores, I think last time, we had talked about that being kind of back end-loaded.

Anything changing there?

And then as you start looking out into 2018, how is that pipeline shaping up for new units?

I think what we had said previously, the cadence of the openings is going to be a couple here in the third quarter, and the rest of them will be towards the end of the year.

And the cadence for next year looks similar to this year.

We continue to hold out for A+ sites.

And know that, that's where we're going to get the type of returns that we're looking for.

And we're about where we thought we would be at this point in this year, looking towards next year.

Great.

And then on the technology front, I know we've had some opportunities to have some new initiatives, things at the store level.

How are those performing?

Are you thinking, are there maybe evolutions or extensions off of that?

Or things that we might see over the course of this year that are either baked in or maybe still on the -- I guess, on the planning side of things?

I think as we've talked about before, on the technology front, when it comes to guest-facing technology, well, we did roll out our CakePay app and we still continue to get great responses from the guests that are using the app.

So we'll continue to hopefully see that grow throughout the year.

And we've talked about potentially, down the line, and I don't see that happening this year, expanding the use of that app if we chose to, to offer things like waitlist management or letting guests put their name on the wait.

But at this point, we're still evaluating all of that, and don't have any intention of doing that in the near future.

We, earlier this year, though, we did roll out automated production.

So with -- most of our -- the technology initiatives that we employ are related to back of the house as opposed to guest-facing.

But the automated production call feature has -- that allows our restaurant to be able to automate their daily production to improve food efficiency even further, we rolled that out to all restaurants, and I think we are seeing a benefit in food efficiencies from that technology.

And our next question comes from the line of Jeffrey Bernstein with Barclays.

Two questions, just one kind of diving a little further into the comp.

I was just wondering if you'd offer any color in terms of whether or not you're able to quantify the weather, and this is with your heavy California exposure.

We've heard plenty of people talk about the significant impact there, especially with your patio business.

And whether there's any change in thought in terms of your -- I know you're at the high-end malls, so everyone talks about kind of mall traffic softening, I know you've said you're more resilient.

But it would seem like even at the high-end malls, the most affluent consumer is still doing more shopping online.

So that was kind of my first question, was just the weather and your thoughts on the mall implications.

And then I had one follow-up.

Joe, this is Matt.

That sounds like 2 questions, but we're happy to answer them both.

The first one on the weather, certainly, we haven't quantified it, but it was a little bit worse than last year.

In the first quarter, we always have some weather.

But as you pointed out, really, in California, there was an impact.

I think in the East Coast, it was pretty similar.

And the way that we kind of looked at the quarter comp, if you take our actual number and you add the 50 basis points of the shift from the holiday, and then you add in what we kind of roundabout think the weather impact was, you get back to the trend that Doug alluded to for last year, a little bit over 1%.

So I think that gives you an idea.

A lot of that was in the West Coast and in the patios, on the usage there.

When we dig into it a little bit more, though, we're not seeing a difference in the malls, per se.

I think that you can identify specific situations if it were weather or construction, but that the mall traffic for us in those A locations, in most instances, is still doing very strong.

Great.

And then just more on the cost side.

I think you highlighted the commodities and the labor outlook for this year.

You gave some color on the pricing thoughts.

I was just wondering when you package that all together, and you think about the, I think more often than not, you talk about operating margin, but should we expect that with the labor at mid-single digits and the commodity inflation still 1 to 2, it will be hard for your couple of points of price to hold the margin?

How should we think about kind of how all those things come together?

Well, I think that -- as you know, over the last couple of years, we've had some pretty significant margin expansion, maybe a little bit outpacing our margin expansion expectations.

But based on our current assumptions, we would expect to see a year-over-year decline in operating margins.

But if you go the whole way to the bottom line margin, the net income margin, because of the favorable tax rate that we expect to have this year in part, and also in part because of the fact that we have some reclassification going from -- of asset disposals that were accounted for below the line, below the operating line, are now part of operating income, we would expect the net income margin, really, to be flat to slightly expanding for the year.

So you're right about the operating margin, we'll see a little pressure on it.

The bottom line margin, we shouldn't.

And our next question is from the line of Gregory Francfort with Bank of America.

Guys, can you all put the pricing level you're taking into perspective and maybe give us some thoughts on how much competitors are taking pricing in the markets that you're in, if the mid-2% is outpricing the market, underpricing the market?

I know you guys have a lot of exposure to California, where I think prices have gone up a lot.

But just any sense for the competitive dynamic, that would be great.

We see that our competitors in California are probably taking pricing faster than we are to offset some of those labor pressures.

We do continue to look towards taking a little more pricing in those areas like California or New York, where we see the labor pressures.

But certainly, in that sort of 2.5-ish percent range that we've been running, we feel comfortable.

And our data would suggest that we're probably under what the competitive set is on a national basis, and we like that positioning.

Maybe just another quick one.

The interest and other line was pretty favorable year-over-year.

Was that anything on landlord construction allowances?

Or is there anything kind of onetime in why that was favorable year-over-year?

So I mentioned earlier about the -- we had a reclassification, so there's -- there were -- and it amounted to roughly 20 basis points, so 10 to 20 basis points, where there was -- asset disposals used to be in that line and now, they're in depreciation.

So they're affecting negatively other operating income, and they're affecting positively the line that you're looking at, the other income line.

And our next question is from the line of Brian Vaccaro with Raymond James.

This is Alex Marty, filling in for Brian Vaccaro.

Most of my questions were answered, but a quick one on delivery.

I believe your leveraging the order platform with your delivery partner at the moment.

The question is, are you working towards developing an internal online ordering platform and if there's a potential time line on that?

So we currently do have our delivery platform through DoorDash.

And we have approximately 100 locations rolled out so far and looking to cover about 2/3 of the country and 2/3 of our restaurants by the end of the year.

We also are looking at an online ordering platform that would be outside of what we're doing with DoorDash.

And we have started that project just recently in the past couple of months.

We'll move down that path throughout this year, and we'd be hoping to launch an online ordering platform by next year.

That's very helpful.

And one more quick one.

I appreciated you guys giving the revenue number for the lapping of the extra week, but can you guys possibly quantify that on EPS?

I think that we have talked about that in our filings, Greg.

We can double check that number for you.

Yes, it's no problem.

We can get it some other time.

And our next question comes from the line of Will Slabaugh with Stephens.

This is actually Drew, on for Will.

So just 2 quick ones.

First one, just seeing what you all were seeing, specifically in Texas.

I know you had mentioned California and the East Coast.

And then just how are things looking internationally for you all?

Are things continuing to meet expectations?

So Texas was a positive market for us.

So we were continuing to see signs of stabilization there.

So that was positive.

And the other question was...

Was internationally.

And obviously, we're pretty happy with what we've seen in Hong Kong.

I mean, that would be our first restaurant there.

The demand really was even maybe perhaps more than we would've thought it would have been in this first week of opening.

At the same time in Asia, our partner there in China at Disney Town, we've seen some nice increases in sales there as well.

So all of our licensee partners continue to do well.

We see some strong traffic trends and continue to be on the path for growth with every partner.

And our next question comes from the line of Karen Holthouse with Goldman Sachs.

One quick housekeeping question.

What was commodity inflation in the quarter?

It was about flat to slightly up.

We -- I think we had initially said that we expected 1% to 2%, so a little bit better than what we expected.

But we continue to expect it to be 1% to 2% as we look out into the next 3 quarters.

And then I know your commodity basket, just given the amount of fresh food that you serve, you do have a little bit more exposure to produce than the average restaurant.

Should we be thinking about any impacts in 2Q from weather in California?

I know a couple of other companies at this point have talked about seeing some spikes there.

I think that's already incorporated in our outlook, Karen.

And certainly, I think over the past several quarters, there have been ups and downs in the produce.

And so it wouldn't be dissimilar from the trends if you're looking at them.

There was a spike in avocado, I think, last fall.

And so sort of the run rate already has a little bit of that pressure, and it's definitely in our guidance.

And then on the not Cheesecake Factory revenues.

If you just look at year-over-year growth in dollars, there was about $800,000 or so of growth.

The bakery grew more than that.

So between the other concepts in the U.S. and the international unit, I'm trying to understand what could have been sort of down year-over-year.

On the other U.S. concepts, there's one more Grand Lux in there this year than there was last year.

It didn't look like the first quarter of '16 was a particularly big number.

For international, around like in upfront license fee, just trying to understand what the moving pieces there could look like.

Sure, sure.

So it's really actually just a line around the 53rd week.

So the same phenomenon that Doug talked about, with the $10 million swing, when you compare the fiscal periods is, is impacting that line item.

And so you're just seeing that the Grand Lux business, for example, comparing itself against a bigger week in the prior year and the net of that.

And is that a similar percentage adjustment to what you see at Cheesecake Factory?

Or is it more or less impacted by that?

It was pretty similar.

And our next question comes from the line of Sam Beres with Robert W. Baird.

Maybe just a couple of quick clarifications, Doug.

In terms of the Q2 tax rate, what's your assumption there for your EPS guidance?

Well, if you take the full year tax rate that we've given, which is what, around 23%, first quarter was 17%.

So kind of backing into a Q2 through Q4, it's about 24% to 25% each of those quarters.

And the tax rate's lower in the first quarter, primarily due to the fact that the stock options exercises and particularly, restricted share vesting is more pronounced in the first quarter.

And the benefit -- then the tax benefit that we get from those vestings is more pronounced in the first quarter as well.

Great, that's helpful.

And in terms of the Q1 comp, I think you called out a 50 basis point impact from calendar.

I just wanted to clarify.

Was that solely from the Easter shift itself?

Just wondering if that also included Valentine's Day, which I believe with the last call, you said it was actually a slight benefit during the quarter?

Yes, that was just for the Easter and spring break.

And there's always some minor movements in other areas, but that was the one that was measurable enough to call out.

Okay.

And then maybe lastly, traffic, obviously, still has been nicely outperforming the industry here in recent periods.

And the industry, certainly, has been challenging.

But that said, I mean, traffic is still tracking slightly negative here.

So I guess maybe the question is, where are you seeing traffic losses, maybe in terms of any specific day parts?

And I guess, as we look forward, what do you think is needed to stabilize that traffic trend?

Is it just a better industry or consumer environment?

Or do you think you can move the needle with some of the internal initiatives you can do?

Well, we're not seeing it in any specific place.

I mean, I think our consistent performance across dayparts and geographies tells us the brand is doing well.

As you indicate, we're outperforming measurably across the industry.

And certainly, our goal to meet our mid-teens total return guidance in the medium to long term is to get traffic back to flat.

And we are working on all of the key pieces of restauranteuring to accomplish that.

And we have, as David Gordon talked about, very high engagement with our staff, and are on the 100 Best Places to Work With, and that relates to better than industry retention.

We rolled out a special menu for our menu this past quarter.

We've seen a really great adoption from our guests.

It provides a lot of value, along with The Great Cheesecake Factory flavor and portion sizes.

So we certainly think all of those things will be able to get us back to that flat traffic, but as Doug mentioned, with a little bit of help from the macro economy.

Okay.

And our next question comes from the line of Peter Saleh with BTIG.

Great.

I just wanted to come back to delivery and if you guys are still seeing incremental sales traffic from your delivery efforts in the stores in which it's been implemented in.

Any sort of comment on the benefit to average weekly sales?

That'd be helpful.

I think we are some incremental sales in some of our locations.

I think, most importantly, that it's really margin-neutral overall, the entire program.

It's what our guests are desiring and asking.

I think we're very happy with the overall quality of the experience that we're providing.

So that's why we're going to continue down this path with DoorDash.

We think that's a great value for the guests.

And although it's not dining in a Cheesecake Factory, it's bringing Cheesecake Factory home in the most convenient, easy way for our guests, and that's job #1.

And is there a lag between when you implement the delivery and when you get to like a certain run rate?

Or is it pretty immediate that you start to see the benefits from the delivery effort?

It's very location-specific.

So in the markets that are already highly penetrated with delivery, we tend to see a faster uptick there.

And the markets where delivery in general, there isn't as much demand, it just starts a little bit slower.

And our next question is from the line of Jon Tower with Wells Fargo.

Just a question on the special menu card insert that you introduced, I believe it was January, February, across the stores.

I know it was more value-focused than some of the other menu items that you have.

So I was curious to get your update on how that delivered relative to your expectations?

And I think the last time you had introduced it, it was in 2000.

So perhaps reference that in your answer as well.

I think that we've been very happy with the guest response thus far.

We see high incident rates and usage of that special menu, which is very similar to what happened the first time we launched the special menu.

We saw the same thing.

And we didn't see a degradation in overall check average.

We saw, actually, guests who are ordering something off the special menu and then decide, "You know what, I think I'm going to also going to have a slice of cheesecake," or adding on something incrementally.

So we're very proud of the menu.

So far, it's doing very, very well.

And we rolled it out throughout the entire 3 periods of the first quarter.

And any plans during the year to alter what's on that menu?

Or does it stay pretty fixed?

I think we're going to continue, we have our next menu change coming up here in a few months.

And as we always do, we're going to try and do whatever we think is most creative and our guests crave and want.

So to be determined.

And our next question comes from the line of Steve Anderson with Maxim Group.

I just wanted to build on what Karen was saying earlier about commodities.

I know in the last couple of calls, you've highlighted seafood as a potential source of margin pressure.

Been seeing that seafood price, particularly for salmon and shrimp, have started to come back in, but I wanted to see if you've seen that and if any change has been reflected in your guidance.

I would say that whatever has happened with respect to salmon, we've obviously reflected it in our guidance.

I don't know, I -- do you have any comments on...?

We typically are able to lock in a lot of the protein categories.

So our objective is to manage the risk appropriately and provide guidance that is predictable and dependable.

And so sometimes, we'll get at the bottom, and sometimes, we'll be at the average of the market, based on the hedging programs that are in place.

So that movement, up and down, is not going to influence the guidance that we gave last quarter, which was pretty consistent to what we're giving this quarter, which is a commodities basket of about 1% to 2% for the year.

And our next question comes from the line of Bob Derrington with Telsey Group.

Could you give us a little bit of color on -- I think you all rolled out the calorie counts on your menus in early, was it late March?

I'm just curious from your all view, whether you saw any change in preference, any shift, any impact on sales trends?

And then I've got a follow-up to that.

Bob, we actually did roll out the calorie counts as we rolled the menu through the country over the entire quarter, and did not see any changes in guest behavior and -- which is very similar to what we've seen in California, and in the State of Washington and other geographies where we've had that menu in place for a while now.

So, so far no changes whatsoever.

That's great.

Just curious, given the fact that the FDA has now changed their mind, or at least delayed the requirement, any thoughts around possibly removing those calories?

Are you just going to leave them out there?

What are your thoughts?

I think we're going to be -- yes, we're going to be discussing it here in the next couple of months as we get closer to the next new menu rollout.

(Operator Instructions) And our next question comes from the line of Gregory Francfort with Bank of America.

Just can you address maybe what mall traffic is in the malls you're in?

And I think one concern that investors have had that you've proven is not really a correct one is, just that mall traffic may impact Cheesecake sales.

And I guess, is it something that the malls you're in don't see a traffic impact that the industry is seeing?

Or that you're a destination, even though mall traffic at the stores you're -- or the areas you're in, is down?

I guess, what's the dynamic you're seeing playing out in the locations you're in?

I think it's both of the things you just said, right?

So we definitely are a destination, we have our own entrance.

We operate our own hours.

We're open earlier Sundays, we stay open later than the mall, that's why we've always been a tenant of choice.

And simultaneously, we've only gone into those A malls that continue to reinvest capital to drive their own guest experience and continue to bring people in.

So I don't know that we know the specific traffic for every mall, but we know that we're pretty consistent across our base of locations, which are predominantly mall adjacent or in malls.

And one way to further talk about the fact that we are in the A+ malls is -- there has been over 100 Macy's closures.

And only one of those Macy's was in a mall where we have a Cheesecake Factory.

Got it.

Got it.

And then maybe just to follow up, are you seeing capacity or restaurant capacity ticking up in the malls that you're in?

And do think that matters at all to your business?

I mean, by restaurant capacity, I mean, total restaurant count.

I think it comes and goes.

And it depends on the mall.

And we certainly monitor the number of vacancies in the mall, with leases and all of those kinds of things.

But we're pretty happy competing against any restaurant that we believe that a critical mass of a destination for those malls is a benefit to everybody.

And so we're happy to see some of the trends in these better malls move towards having movie theaters and more options.

It brings people into that space, and we're happy to compete and take market share.

And our next question comes from the line of Matthew DiFrisco with Guggenheim Securities.

This is Matt Kirschner, on for Matt.

I was just hoping if you could clarify the comments around Texas.

You said the sales comp turned positive, but would you say it's still below kind of the national trend?

And I have one follow-up.

Well, actually, our Texas sales were right on our trend for the overall quarter.

So we were up 0.3% for the quarter and Texas was up roughly the same amount.

Okay.

And that's the narrowest or the best performance Texas has had now in, you'd say, at least a year or 2?

Well, they were up the last quarter, too, I think, yes.

So they've been recovering, I guess, for a couple or 3 quarters now.

And then just on the nascent comps you have, the North Italia and Flower Child.

Could you just provide an update on kind of where you are as far as the growth and investment in those concepts?

So there's not too much more to report than the last time when we talked about that after the investment last fall.

We do meet with our partners on a regular basis.

We're very excited about the progress that they're making.

Very like-minded to us, very focused on the guest experience and restauranteuring.

And they're on track with their plans.

So really, our participation at this point is to help fund their growth, and it'll be a couple of years before any of the options come into play.

Okay.

And then if you don't mind, maybe just one more question on Canada.

You said you were going to open the first store in Toronto.

Is there a time line with that?

We're hoping that it would open this year.

That's our current plan.

If it were to slip till next year, it's hard to say.

But our current plan has it opening this year, we'll see.

And do you see like a ceiling for the number of restaurants you could operate in Canada?

Or I know some restaurant concepts have identify like some margin kind of pressures from just operating outside of the country.

Yes, sure.

When we look at the start entire scope of the market in Canada, we do believe that there could be as many as 8, if not more, Cheesecake Factories within all of Canada.

We'll wait and see how this launch in Toronto goes.

And we certainly understand those margin pressures, and have done a lot of research and a lot of work leading up to the decision and move into the market.

And ladies and gentlemen, this concludes our Q&A session and program for today.

Thank you for your participation.

You may all disconnect.

Have a wonderful day.