Cheesecake Factory Inc (CAKE) 2008 Q3 法說會逐字稿

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  • Operator

  • Good day, ladies and gentlemen, and welcome to the third quarter 2008 Cheesecake Factory earnings conference call.

  • My name is Francine, and I'll be your coordinator for today.

  • At this time, all participants are in listen only mode.

  • We'll be facilitating a question answer session toward the end of today's conference.

  • (OPERATOR INSTRUCTIONS).

  • I would now like to turn the presentation over to your host for today's conference, Ms.

  • Jill Peters, Vice President of Investor Relations.

  • Please proceed, ma'am.

  • Jill Peters - VP IR

  • Thank you.

  • Good afternoon and welcome to our third quarter earnings call, which is also being broadcast life over the Internet.

  • Also with us today are David Overton, Chairman and Chief Executive Officer and Matt Clark, Vice President of Strategic Planning.

  • Before we begin let me quickly remind you that during the call today items may 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 at of 1995.

  • Actual results could differ materially from those stated or implied in forward-looking statements as a result of the factors detailed in today's press release.

  • Which is available in the investor section of our website at 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.

  • On the call today, David will begin by providing some opening remarks and Matt will go through our operating results in detail and then provide our current expectations for the remainder of 2008.

  • David will share some final thoughts and then we'll open the call to questions.

  • Without further delay, I'll turn the call over to David.

  • David Overton - Chairman, CEO

  • Thank you Jill.

  • I'll start off with an update on our CFO search as I know it's a topic of interest to all of you.

  • Our executive search firm Spencer Stewart has been identifying well qualified and talented individuals and presenting candidates to us for consideration.

  • We have been interviewing and assessing their qualifications and fit, and short listing candidates for subsequent rounds of the process.

  • In recognizing the importance of this position, our goal is to hire CFO as soon as possible, although it is difficult for us to pinpoint a specific time frame for that to happen, but we'll keep you updated on the progress.

  • While we continue our search, our interim CFO Cheryl Slomann has been doing an excellent job managing the accounting and finance area.

  • As to the third quarter, overall revenues and comparable sales came in within our guided range, albeit at the lower end.

  • Guest traffic was about flat relative to the second quarter despite a significantly more difficult quarter, resulting from numerous high viewership events this took place during the quarter, hurricanes and other disruptions for dining occasions.

  • We're in the midst of unprecedented times, with the global financial crisis, housing market crisis and rising unemployment destabilizing consumer confidence.

  • In addition, cost pressures are further squeezing restaurant operator's margins and like many others in casual dining, our earnings were impacted by spikes in commodity and energy costs.

  • Although these costs are leveling out from their highs and we're beginning to see some moderation in those pressures in Q4.

  • Consumer spending remains tight in this economic environment but we believe we are positioned to compete effectively for casual dining market share.

  • While the The Cheesecake Factory's popularity was built on positive word of mouth, we recognize the need in this environment to be proactive and build a formalized approach to marketing our brand.

  • Our efforts are focused on reaching consumers through high quality marketing initiatives that fit well with our brand positioning.

  • Our concepts are highly differentiated in the industry, and we offer guests an unparalleled total experience.

  • The quality of our food, the innovation in our menu, the inherit value of our shareable portions, the ambience of our restaurants and our commitment to hospitality are tenets of our brand that will continue to distinguish our concepts from others in casual dining and maintain our strong competitive positioning for the long-term.

  • Near term our focus is on three areas.

  • Stimulating sales, managing our margins and protecting our balance sheet.

  • We kicked off our sales initiatives in conjunction with our 30th anniversary celebration on July 30th, National Cheesecake Day, where we offered every slice of cheesecake at the 1978 price of $1.50 per slice.

  • The response was phenomenal, with guest traffic up 59%.

  • We served almost 335,000 guests that day, and lines were long, but guests were willing to wait to be part of the event.

  • Demonstrating the power of our brand.

  • One of the other key learnings from this event was our ability to effectively reach consumers without having to use a national advertising campaign to do it.

  • We used satellite media and radio tours as well as viral strategies to get the world out and this low cost strategy proved highly effective.

  • In fact, the The Cheesecake Factory was the most searched phrase on Google at one point during the day.

  • And I think we ended up the day with it being second most searched.

  • Our current initiative, which got under way at the beginning of October, is a 30th anniversary guest card program.

  • During the first 2 weeks of October, we showed guests our appreciation for their support over the past three decades with a special guest card, for use on a subsequent visit.

  • The offer varies from a complementary slice of cheesecake to $10 off the guest's next visit.

  • The redemption period began this week so data is limited but we are excited about the program as it's a new avenue for us to encourage incremental visits.

  • In addition to internally generating marketing initiatives, we continue to partner with American Express and MasterCard to leverage their casual dining consumer's spending data.

  • We conducted a targeted direct mail offer with American Express in the Los Angeles market in late summer.

  • The redemption rate of 11% far surpassed the average redemption expected by American Express, which again, we believe speaks of the popularity of our brand.

  • In addition, to using marketing and sales driving levers, we continued to leverage the strength of our menu as a means of stimulating sales.

  • We have a number of test menus in our restaurants at various price points, which are a complement to our full menu.

  • These test menus allow us to conduct in restaurant marketing of our menu in a high quality way that is unique for us.

  • One of these has the distinct, has a distinct value orientation, providing more options to guests at moderately lower price points in order to respond to their changing needs.

  • Four of the items on this menu are the number one, in their respective categories, and we're pleased with guest response to this offering.

  • The breadth of our menu provides us with a strong platform with which to consider a variety of menu options to maintain our relevance to guest both in terms of food and flavor as well as portion size and price points.

  • As we talked about previously, we are also maximizing our delivery channels to provide guests with multiple options in using our restaurants and to ensure that we maintain market share in off premise dining whether it's to go, curb side or delivery.

  • About 43% of our restaurants now have home delivery service available, in addition, we launched our catering initiative in two restaurants in Southern California in September, and we're ready to expand it somewhat.

  • On the cost side, we implemented a number of initiatives to enhance our margin management, mostly related to labor and utility costs.

  • First with the full roll out of our kitchen management system completed this summer, we reviewed the opportunity to modify the expediter role in our restaurants since one of the benefits of KMS is that it auto mates the process of on the cook line.

  • As a result, we reduced our restaurant labor costs by about $5 million on an annualized run rate.

  • We'll realize about $2 million in labor savings in 2008 from this effort alone.

  • On the utility side, we continued to evaluate the benefits of the recently expanded program to manage our energy usage and utility costs.

  • We saw savings of about 25 basis points in the initial group of restaurants testing the program, and currently almost 20% of our restaurants are on the on the program with plans to continue roll out.

  • We remain focused on driving sales and actively examining our infrastructure with opportunities to streamline our operations and reduce our cost base without sacrificing guest services.

  • Lastly I'll provide some color on our recent actions regarding our share re-purchase plans as it relates to our objective of maintaining a liquid position and strong balance sheet.

  • Last week we temporarily suspended our share re-purchase authorization and terminated our ten B 51 share re-purchase program.

  • Given the unprecedented events in the global financial markets and the uncertain impact it will have on our economy, we decided taking the conservative position of building our cash balance was the most prudent and appropriate action at this time.

  • We believe conserving cash in uncertain economic environment is a good approach and gives us the maximum amount of flexibility in the future.

  • With that, I will turn the call over to Matt Clark to discuss the results and our outlook for the remainder of 2008.

  • Matt Clark - VP Strategic Planning

  • Thanks David, we'll start off the review of our results by taking everybody through the top line.

  • Total revenues at the The Cheesecake Factory for the third quarter increased 8%, to $405 million.

  • Our revenue growth this quarter was comprised of an approximate 8% increase in restaurant revenues, and a 9% increase in bakery revenues.

  • First let's take a look at some details on the restaurants and we can follow-up with the bakery business in a moment.

  • The 8% increase in restaurant revenues represents an approximate 15% increase in total restaurant operating weeks, resulting primarily from the opening of 23 new restaurants during the trailing 15-month period.

  • Coupled with an approximate 6% decrease in average weekly sales.

  • Overall comparable sales at The Cheesecake Factory and Grand Lux cafe restaurants decreased approximately 4.8% for the quarter.

  • The concept that translates into decreases of 4.7%, and 5.1% at the The Cheesecake Factory and Grand Lux Cafe respectively.

  • The 6% decline in average weekly sales in is slight live behind the change in comparable restaurant sales, nonetheless our restaurants are still very busy, producing an average of over $10 million in sales on an annualized basis through the third quarter of this year, over two times the industry average.

  • At The Cheesecake Factory, while comparable sales were generally softer than we would like, the weakness was concentrated in the west and southwest regions and primarily in the suburban areas within those markets, a continuation of the trends we saw in the first half of this year.

  • However, as David noted, we did see stable guest traffic patterns compared to Q2 despite the arguably tougher environment.

  • At The Cheesecake Factory, we implemented our planned 1% effective menu price increase in our summer menu change and we'll have 2.5% price in our menu in the remainder of the year.

  • We are not capturing our full menu price increase at this time, though as incident rates are down about 1%, mostly in desserts and beverages, due to guests adjusting their ordering habits in this weak economic climate.

  • At Grand Lux Cafe, the majority of the comparable sales decline continues to come from our one unit in California and three units in Florida.

  • Keep in mind that the Grand Lux comp base only has nine-units so performance in four units impacts the overall comp number.

  • In addition, we still see a little softness in the Las Vegas market.

  • However, between the Grand Lux Venetian and Grand Lux Palazzo locations we continue to have sale in excess of $900,000 per week during the third quarter, which is great performance in any market or any environment.

  • Moving onto our bakery operations.

  • Bakery sale, net of inter company sales, increased 9% in the third quarter to $14.3 million versus $13.1 million in the prior year quarter.

  • The increase is due primarily to higher sales to the warehouse clubs and continues to build on the solid bakery sales performance that was deliver in the first 2 quarters.

  • That covers our top line performance.

  • Before I get into the individual components of our income statement for the third quarter, I'll address our consolidated operating margin.

  • Our overall operated margin for the quarter was 5.2%, versus 7.4% in the comparable quarter last year.

  • As has been common across the restaurant industry, spikes in commodity and energy costs as well as higher minimum wages are broadly pressuring margin.

  • In addition as we evaluate the different components of our operations, we continue to see some measurable year over year pressure at the bakery and Grand Lux Cafe.

  • At Grand Lux Cafe, we experienced the continued impact of the four new restaurants opened since September of last year.

  • On the base of nine, this is a nearly 45% increase.

  • While expected, this continues to place pressure on the operating margins compared to the prior year.

  • But we do also expect to recoup some of this lost margin as these locations build some awareness and sales volume over time.

  • For the quarter, the bakery had about 5% of margin pressure due primarily to significant commodity cost increases.

  • Predominantly in eggs and cream cheese.

  • These pressures were partially offset by the distribution and efficiencies we're gaining as we continue to increase utilization in our East Coast bakery facility.

  • We've also implemented price increases to pass through some of these cost pressures and are leveraging our higher third party sales where possible within the bakery operations.

  • Next let's take a look at the individual P&L line items and we'll begin with cost of sales, which experienced an increase to 25.7% of revenues for the third quarter, compared to 24.7 in the same quarter last year.

  • The increase was primarily the result of higher costs for produce, cheese, and general grocery items.

  • The cost for some of our non-contracted items such as pastas, grains and cooking oils rose precipitously with the overall commodity market surge that occurred in early to midsummer.

  • This was also compounded by the fuel surcharges that went into effect, as the price and gas and diesel escalated during this time as well.

  • Total labor expenses were 33.2% of revenues for the third quarter, up from 32.2% in the prior year.

  • This increase primarily reflects the deleverage effect from the lower level of sales, and higher costs stemming from minimum wage increases, however our labor costs did come in close to expected levels as our operators continued to manage staffing levels well.

  • Other operating costs and expenses were 25.6% of revenues for the third quarter, up from the 23.9% reported in the same quarter last year.

  • The increase reflects higher utility cost and the deleverage effect on the lower level of sales in the third quarter.

  • Approximately 50% of the pressure was a result of the temporary spike in energy prices that culminated in July and August, impacting both natural gas and electricity, with the balance of the pressure associated with the variance in average weekly sales.

  • G&A expenses for the third quarter were 5.3% of revenues, flat relative to the prior year.

  • As David noted, we continue to aggressively manage our overhead cost for this environment and appropriately scale our infrastructure for our growth plans.

  • Depreciation expense is 4.5% of total revenues for the third quarter, compared to 4.2% for the third quarter of the prior year.

  • Pre-opening cost incurred during the third quarter were $2.1 million, compared to $8.7 million in the same quarter last year.

  • As expected we started to see the benefit on the preopening line this quarter from fewer openings this year relative to last and the related reduction in support infrastructure.

  • Interest expense included $3 million of expense on the $275 million in outstanding debt, we had under the revolving credit facility during the quarter.

  • We have interest rates color agreements on $250 million of the outstanding revolver balance, that mitigates the risk from interest rates variations and keeps our LIBOR rate within a weighted range of approximately 4% to 5%.

  • We also pay a bank margin on top of LIBOR, which will vary based on our debt to EBITDA ratio.

  • Our effective tax rate for the third quarter increased to 32%, primarily attributable to timing impacts from state filings and related FIN 48 entities.

  • We completed share re-purchases totaling 9.6 million shares in fiscal 2008 at a total approximate cost of $172 million.

  • This is within our expectations of repurchasing between 150 and $200 million of our common stock for this year.

  • This included the re-purchase of approximately 4.4 million shares in the third quarter, and about 650,000 shares in the fourth quarter, prior to terminating our 10 B 51 plan.

  • In the aggregate during 2007, and 2008 combined, we have returned over $420 million of capital to shareholders through share re-purchases.

  • We currently have approximately 7.9 million shares remaining under the 31 million share re-purchase authorization.

  • Now, let's move on to the balance sheet and cash flow.

  • The events in the financial markets during the past six weeks have certainly resulted in a heightened focus on balance sheet risk.

  • Our balance sheet remains strong with a solid liquid position of approximately $56 million in cash and marketable securities as of September 30, 2008.

  • We do have $275 million in long-term debt in our capital structure in the form of a five-year revolving credit facility that is due in April, 2012.

  • We have no principal payments due on the revolver prior to that time.

  • In addition, we have 25 million available on the revolver, for back up liquidity purposes and to support standby letters of credit for our insurance arrangements.

  • We are not relying on the credit markets to fund our operations or development plans and continue to expect to finance our CapEx requirements through operating cash flow.

  • landlord construction contributions and our cash on hand.

  • Speaking of which, our cash flow from operations through the third quarter continued to be strong at approximately $150 million as reported in our financials.

  • Our cash and accrued CapEx through the third quarter, per the statements of cash flows was approximately $57 million.

  • Which includes construction and progress for 2008 and 2009 openings.

  • We generated approximately $25 million in free cash flow after CapEx in the third quarter, and $58 million through the first 3 quarters of the year.

  • We continue to expect cash CapEx for 2008 to be the in the range of 75 to $80 million.

  • That wraps up our business and financial review for the third quarter.

  • I will now spend a few minutes on our fourth quarter 2008 outlook, and then turn the call back over to David for some final remarks.

  • Given the uncertain consumer outlook and dynamic cost environment it is difficult to forecast with precision.

  • However, we will share our expectations for the balance of the year based on current trends and information that we have as of today.

  • Our expectation for total revenue growth in 2008, including both restaurants and external bakery sales is approximately 6.5%, relative to the prior year.

  • This assumes comparable sales in the minus four to minus five range for the full year 2008.

  • For the fourth quarter, this implies revenue growth of about flat to positive 1%, and comparable sales in the minus six to minus seven range, relative to the prior year.

  • These estimates take into consideration the 2008 holiday calendar, which excludes New Years Eve for us, and which equates to an approximate minus 1% impact on both total revenue growth and comparable restaurant sales for the quarter.

  • Our outlook also takes into consideration the weakness in the overall economy and its impact on the consumer spending based on our visibility today.

  • We expect cost of sales as a percent of revenues to be about 60 to 70 basis points higher to the fourth quarter, compared to the fourth quarter of 2007.

  • Although we have seen commodity costs decline from the peak levels in the summer, some grocery items as well as cheese and produce are expected to continue at rates higher than prior year levels.

  • Of note we have locked in contracts for nearly all of our proteins, including chicken and most seafood for 2009 at approximately flat pricing, relative to 2008.

  • This is in addition to extending our beef contract, excluding ground beef through 2009, also at flat pricing relative to 2008.

  • Back to Q4 of this year, labor expenses are expected to be about 40 to 50 basis points higher for the fourth quarter relative to the prior year quarter.

  • Other operating costs as a percent of revenues will be approximately 200-basis points higher for the four quarter relative total prior year.

  • Related primarily to deleverage from lower average weekly sales and lacking some favorable adjustments to our self insurance reserve last year.

  • Partially offset by the expected moderation in utility costs.

  • Our expectation is for G and A expenses for the fourth quarter to be about 10 to 20 basis points lower relative to the fourth quarter of 2007.

  • Depreciation expense will be approximately 30 basis points higher for the fourth quarter compared to the prior year, based on our expected growth and investment plans.

  • Fourth quarter pre-opening costs will be approximately $3.5 million, resulting in total 2008 preopening cost of $12.5 million.

  • Our newest location in Towson, Maryland, opens today and our last new restaurant for the year is scheduled to open in Annapolis, Maryland, in early December.

  • This location is the first of the smaller prototype Cheesecake Factory restaurants that we have discussed, which we estimate can deliver in 8 million this average annual sales at an investment costs that will achieve our required rate of return.

  • We expect net interest expense to be about $3.7 million in the fourth quarter, and both our Q4 and 2008 full year tax rate to be approximately 30%.

  • Lastly, we anticipate a weighed average outstanding share count for the fourth quarter of approximately 60 million shares.

  • This is down 25% from the approximately 80 million shares outstanding at the time we began our share re-purchase program in 2007.

  • I'll now turn the call back over to David for some closing remarks.

  • David Overton - Chairman, CEO

  • Thank you, Matt.

  • We continue to believe that the weakness we're experiencing is macro driven.

  • We have confidence in our brand and believe our growing marketing efforts will only increase the strength of our brand.

  • We have a significant market opportunity ahead of us across all three of our concepts and we will apply a high level of discipline to our site selection standards in continuing to expand our concepts in a rationale way.

  • Our restaurants are healthy, cash generators and we'll be prudent in our decisions on the best use of that cash.

  • Before we move into the question and answer session, I have a few comments as we look ahead to 2009.

  • The retail real estate landscape has been the topic of much discussion in the restaurant industry and in the media recently.

  • Given the troubles in economy, developers are delaying opening dates of new and expanded projects, and in some cases, running into problems getting financing for their projects.

  • In addition, some tenants are dropping out of plan development.

  • All of this will result in overall retail development being tempered next year.

  • In light of this, and our belief that it is most prudent to maximize the flexibility of our capital resources and keep our options open until we can get a better read on the economy, we expect to open between 3 and 5 new restaurants in 2009.

  • Rather than moving ahead with the 7 to 9 new restaurants that we initially projected.

  • We are also building flexibility into our lease negotiations to give ourselves the ability to delay opening dates until economic circumstances may be more favorable so while the final number of units that we will open next year is still fluid, our range of 3 to 5 new restaurants represents our best estimate today.

  • We believe disciplined spending on investments is the right approach in this economy and having flexibility on opening dates is beneficial.

  • Our site standards remain high and focused on the highest return premium locations based on their availability.

  • As to guidance for 2009, we will employ guidance when we report fourth quarter and full year 2008 results in early February.

  • At that time we will be changing our guidance practices to focus on annual guidance rather than providing both quarterly and annual guidance.

  • In making this decision, we looked at common practices across casual dining and also took into consideration the difficulties in forecasting each quarter's performance in this environment.

  • Most importantly, we manage our business on a much longer term horizon than quarter to quarter performance so this change is directionally more in line about how we think about our business.

  • With that we'll take your questions, in order to accommodate as many questions as possible in the time that we have left on this call, please limit yourself to one question and then resequence with any additional questions.

  • Operator?

  • Operator

  • Our first question comes from the line of Steven Kron of Goldman Sachs, please proceed.

  • Steven Kron - Analyst

  • Hi, thanks a couple questions if I might real quick.

  • I guess, if I look at the numbers that you just reported, and I look at the I know store sales numbers which fell within the range that you guys talk about at the end of July there was quite of more deleverage in the P&L I know you started to talk a little bit about commodity costs maybe inflating more than you expected, I guess a I'm a bit confused as to why there was a surprise on the deleverage side, maybe you can address that, and then secondly on the commodity side, it seems as those you guys have been re-negotiating contracts here and you've locked in a decent amount for '09 at this point, can you give us some sense as to what percentage of your basket is currently locked in for '09 and how that might compare to last year?

  • And what that basket looks like at this point?

  • Thanks.

  • David Overton - Chairman, CEO

  • Sure Steve.

  • Let's start with the first question.

  • I think, you know, there was maybe a modestly more deleverage in the 20 or 30 basis points.

  • The biggest impact was really in the energy and cost of sales as it related to the spike in the commodities market.

  • As we said about 50% of the increase year over year in the other operating expense was related to that surge in commodities so you're talking in the ballpark of over a 100 basis points.

  • I think it's less about the deleverage which I think we expected appropriately and it's more about the external factors causing significant pressure on the P&L which should for the most part have been temporary in that environment.

  • And then secondly as we look at the commodities we have locked in a very significant percentage of our proteins, which represents a good part of the basket for us, and certainly at favorable rates for us.

  • We're looking, I would say, just to give everybody perspective, that we are currently looking and we will of course, remain opportunistic as the commodities continue to come down but we're currently looking at total cost of sales in the 3 to 4% range, which would certainly be favorable to the environment that we're looking at this year.

  • Operator

  • Our next question comes from the line of Matt DiFrisco of Oppenheimer, please proceed.

  • Matt DiFrisco - Analyst

  • Thank you.

  • Can you tell us what compromises those 3 to 5 new stores in 2009?

  • I thought there were plans initially for two Grand Luxes.

  • I'm curious how much of that is Cheesecake versus Grand Lux and also can you give us a little insight into an environment where you're only opening 3 to 5 stores, what happens with G and A, I guess a lot of your peers out there are slowing growth as well, but you're really not seeing any sort of reduction or benefit from slower growth outside of lower pre-opening.

  • I'm curious if there's further reductions potentially at the G and A level if we grow it at a slower pace.

  • Matt Clark - VP Strategic Planning

  • Well let me, I'll address the G&A, MA, and then Dave will talk a little bit about the real estate.

  • You know certainly we're in a very fluid environment.

  • As we look at it, we're still developing our plan for next year.

  • If you look at what we did this year when we initially dropped the unit development down to the seven level, we did take out, about $1 million per quarter on a run rate basis, and we'll continue to evaluate the ways that we can best scale our business to adapt to a three to five-unit operating base.

  • We certainly didn't stand still this year nor would we expect to.

  • But we'll be in a better position to give you more guidance on that when we update you in February.

  • David Overton - Chairman, CEO

  • Yes, and several landlords have postponed their sites.

  • They haven't canceled them, but they're not delivering them when they said they would, for various reasons.

  • I think some of them, there are a large that either can't get the money to open or they want it postponed, so we have moved a number of these into 2010, 2010 should be a very good year with that, but we have not, we placed the 2009 sites.

  • So in Grand Lux, was one that the landlord had just called and asked if we could open up in 2010, rather than in, and they're opening date in '09.

  • So there will be all Cheesecake Factories in 2009, and at this point, it looks like we'll have, I think at least 2 to 3 Grand Luxes in 2010.

  • Operator

  • The next question comes from the line of John Glass of Morgan Stanley, please proceed.

  • John Glass - Analyst

  • Hi.

  • Thanks so much.

  • Could you quantify how much of a drag that the Grand Lux brand is putting on your margins right now if you can cut it that way, just order of magnitude.

  • And either Grand Lux or Cheesecake, are there stores that are close to being cash flow break even or negative, or ones that are getting close to a point where a closure or two is possible.

  • David Overton - Chairman, CEO

  • Well, let me address the first one.

  • The second part first, I think.

  • And you know just to be clear, all, all the The Cheesecake Factory remain very good producers of cash, and we're very proud of that and all the Grand Lux Cafes that have been open at least a year, are all producing great cash and we have 1 or 2 that are still ramping up that we opened at the very end of the last year it's a little bit longer in this environment but positively tending our restaurant portfolio is extremely long in this environment, and we feel very confident going into next year with that group.

  • With respect to Grand Lux, I think, you know, it's not a huge piece.

  • I think we're just evaluating how we can maybe ramp some of those restaurants up faster, but it's, it's nominal in the grand scheme of things and we're talking with the, with the group that opened last year, really only in the 10 to 20-basis point impact.

  • Operator

  • Our next question comes from the line of Bryan Elliott, Raymond James.

  • Please proceed.

  • Bryan Elliott - Analyst

  • Good afternoon.

  • Actually a couple clarifications.

  • I think I misheard the year to date cash flow from ops number?

  • I thought I heard 150, but that doesn't seem right.

  • Matt Clark - VP Strategic Planning

  • 115.

  • 115, Brian.

  • Bryan Elliott - Analyst

  • Okay.

  • Thank you.

  • And also the previous question on food inflation, you said all in it looks like 3 to 4% despite the meat contracts being flat.

  • Did I hear that right?

  • And I assume that was a calendar '09 look forward?

  • Matt Clark - VP Strategic Planning

  • Yes.

  • That's right, and obviously as I said, we're still looking opportunistically I would say we're also cautious about what we've seen in some of the other categories, whether it's in, in cheese or produce, or the grains, and so we feel very solid on the protein contracts, but we're waiting for a little bit more visibility before we give you more precision on the 3 to 4 range for now.

  • Operator

  • Our next question comes from the line of Destin Tompkins of Morgan Keegan.

  • Destin Tompkins - Analyst

  • My question on the same store sales trend.

  • Can you speak to the trend that you saw through the third quarter, specifically, did it decelerate, was it weaker in September than earlier in the quarter and then on the negative to 6 to 7 assumption for the fourth quarter, I think I heard that right, does that speak to the trend you've seen quarter to date and can you maybe quantify how much drag you're expecting from those holiday shifts and maybe what part of that is just the core, the core trend in the business?

  • David Overton - Chairman, CEO

  • Sure.

  • Sure.

  • I think, you know, we'll go back, we'll look at that third quarter first.

  • July and August for us were pretty stable.

  • Certainly September.

  • There was a little bit more volatility and I think as you look as where we came in, it was, at the lower in albeit within the range so there was a modest bit of pressure that occurred in September, and, I think we incorporated that into our visibility.

  • It's kind of been about the same run rate into October and that's what we're guiding to.

  • And within the, the outlook for the fourth quarter, about 1% impact from the timing of the holidays and the way that the calendar lays out, a negative 1% impact is what's built in.

  • So you know the visibility is what we're guiding to.

  • And that negative one is within the visibility that we've given you.

  • Operator

  • Our next question comes from the line of John Ivankoe of JPMorgan, please proceed.

  • John Ivankoe - Analyst

  • Great.

  • High thanks I'm sorry, if any, of these are repetitive.

  • Just a couple quick one.

  • First if you can give us CapEx for '09.

  • Secondly, if you could talk about whether your contemplating either yea or nay or just possible taking pricing through your winter menu price increase and thirdly on the balance sheet, is there an absolute level of net debt that you're comfortable with?

  • In other words, you know that would allow you again buy back stock whether in terms of, absolute level or best of eastbound by do that you feel very comfortable with in that current environment or is that not the way we should be thinking about it right now?

  • David Overton - Chairman, CEO

  • Okay.

  • So let's go through that one at a time.

  • From a CapEx standpoint we'll give more guidance, in February, but I can tell you, if you kind of look at our cap ex for this year that we're guiding to, and back out, you know, approximately three units at average cost, that would give you something to model with, that will be approximately until we talk to you again in February.

  • And then with respect to pricing, we're very cognizant of the margin pressures and making sure that we try to tow the line and I think we will, we will continue to watch in this fluid environment a lot of factors we're looking at our guest traffic, we're looking at commodities.

  • We're looking at consumer sentiment and we'll take as much as and as deep a look as we possibly can before committing.

  • Certainly we know that we need to at least be in the range where we're at this year at a minimum.

  • So we're targeting in that direction, and then third, with respect to the debt, we're very comfortable where we're at today.

  • We think it's been good for, for all concerned, but I think we're comfortable with where we're at, and we'll look to build our cash, and then utilize that cash as we see fit next year.

  • Not really looking to increase the debt position at this time.

  • Operator

  • Our next question comes from the line of Mitch Speiser of Buckingham Research, please proceed.

  • Mitch Speiser - Analyst

  • Thanks very much.

  • Can you just give us perhaps in rank order just the comp trends kind of weekday versus weekend lunch and dinner, in the third quarter and if there were any changes versus the trends you've seen in the first and second quarter?

  • Thanks.

  • David Overton - Chairman, CEO

  • Yes, we haven't really seen much of a difference.

  • I think, you know, if you look at our second quarter versus third quarter our comps were very similar, our guest traffic patterns were very similar.

  • I think we held our market share as good as anybody.

  • Clearly in this environment, the one thing you see is the weekends are still very, very busy in our restaurants and you know if there is any pressure, it's really during the week, and you see a little bit of the shoulders come off, and so that's been very consistent with what we have, have discussed in prior quarters.

  • We didn't really see a change from that in the third quarter.

  • Operator

  • Our next question comes from the line of Keith Siegner, please proceed.

  • Keith Siegner - Analyst

  • Sure can you hear me.

  • David Overton - Chairman, CEO

  • We hear you.

  • Keith Siegner - Analyst

  • Just one quick question.

  • Since last quarter, you've hired a CMO, you know, and last quarter you talked a little bit about some marketing initiatives.

  • I was wounding if you can update on on where do you stand with that program, what's been put in place, are there any other marketing programs coming soon, just any information you can give us, on an around those plans would be great, thanks.

  • David Overton - Chairman, CEO

  • Well, we just went through a couple of them which was National Cheesecake Day as I said we're in the middle of, of the cheesecake or the gift, the guest cards that we're giving out.

  • We've given out more than about 1.7 million of those internally to try to achieve some incremental visits from our guests.

  • So those are pretty big programs.

  • We've already done all of our research across the country, which Mark has wanted to do to make sure that he truly understood the nature of our guests and each of our markets and how we distinguish that and then once that information is all sorted out, he'll move ahead with different plans for different parts of the country starting next year.

  • So we have a few things in that we're really kind of done internally that's Mark's generated and then once the information gets in, we'll have bigger plans for next year.

  • Operator

  • (OPERATOR INSTRUCTIONS).

  • Our next question comes from the line of Matthew DiFrisco.

  • Please proceed.

  • Matt DiFrisco - Analyst

  • Thanks, I just had a follow-up question on the same store sales trend that you reported for this quarter.

  • You said that I think it's primarily west and southwest with a little bit of an impact from the Vegas store as well.

  • The Grand Lux store there.

  • I'm curious, so being should we imply then that you're seeing negative but not as negative or are you actually seeing positive trends, because some of the channel checks suggest that I think that, even in places in the northeast there's a a drastic drop off as late at least in the retail traffic, and it's being shared by some restaurants as well.

  • David Overton - Chairman, CEO

  • Well, I would tell you that it's mixed, what we talked about before remains consistent.

  • We are stronger in the urban environments, and we've seen some positive trends there.

  • We are less strong and, and quite a bit softer in some of the more suburban and deeper suburban locations and I think really it's side to housing, as we've indicated, and that can be true in any part of the geography, so we can have positive trends in the northeast, that are related to being urban, and in the west you just see more of the housing crisis going on, and so I think you've got a greater preponderance in that geography.

  • But really more it's based on where the housing impacts are in the urban suburban mix rather than geographically.

  • Operator

  • Our next question comes from the line of Jeffrey Bernstein of Barclays Capital.

  • Please proceed.

  • Jeffrey Bernstein - Analyst

  • Great thank you.

  • Couple of questions if I'm reviving sales one I think you mentioned delivery now being in north of 40% of your stores and to go option now being available.

  • I'm just wondering at least not store that it's in if you can a little bit about the result you're seeing so far as far as sales lists or how those margins compare to kind of your in store, and second I think you mentioned Grand Lux comp and California and Florida where you have four stores being, I don't know how you characterize it whether it was significantly negative, but are there any initiatives that you can do in a local market area to perhaps revive.

  • I know it's hard for you to assess the Grand Lux brand when four of the nine stores are struggling like that I'm wondering if you can approach it by a store by store basis and approach it on that front.

  • Matt Clark - VP Strategic Planning

  • Let's go with that second part first again.

  • Just clarify on the Grand Lux, you know, it's very similar to where the Cheesecake Factory is, I don't think that we would classify either the LA store or Florida as being significantly down just a little bit softer than the rest of the mix and Vegas actually is holding up quite well.

  • We do think it's interesting to look at some targeted marketing for Florida and certainly I'm sure that Mark, our CMO is addressing that.

  • I think that that makes sense and will warrant some actions for us, and I think with three high volume restaurants in the south Florida market, we certainly could do something that makes sense.

  • David Overton - Chairman, CEO

  • Yes, there's a plan.

  • There's already been money allocated and local PR companies contacted, so Grand Lux has its own individual plan separate from Cheesecake to, to answer that.

  • Matt Clark - VP Strategic Planning

  • And then with regards to the delivery and the to go.

  • We are seeing, it's early, but in some of our locations significant success and a lot of recent activity, we believe it's all incremental, as this is a brand new channel for us, and the margins generally are in line.

  • They're some trade out being, but really probably pretty close to what we're experiencing I know store and we've seen a variety of lists, but it's measurable I will tell you at this point in time at some locations and certainly as it matures a little bit more, we may be able to provide a little bit more visibility on that.

  • Operator

  • Our final question come from the line of Steve Anderson of MKM Partners, please proceed.

  • Steve Anderson - Analyst

  • One question about, you discussing this with suppliers, have they hinted at all about a reduction in some of the full surcharges with gasoline diesel fuel having come down 30% since the summer?

  • Matt Clark - VP Strategic Planning

  • Yes, a lot of those are tied to specific levels and so we don't even have to re-negotiate on many instances because we're already starting to come down below the levels that are targeted from where those kick in.

  • I think if you remember back to the middle of summer, gas was well above $4, so you cross over some of the pre-arranged thresholds, so I think that naturally that that's going to occur.

  • And then, and as we look at negotiating for next year, we'll certainly be cognizant of where we want to target and make sure we bake that in our overall guidance on cost of sales.

  • David Overton - Chairman, CEO

  • We're on those every day going back and making sure that those charges are taken off as soon as possible.

  • Steve Anderson - Analyst

  • Thank you.

  • Operator

  • You have no more further questions.

  • David Overton - Chairman, CEO

  • Okay.

  • .Well then thank you everyone.

  • Bye bye.