Cheesecake Factory Inc (CAKE) 2011 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to the first quarter 2011 The Cheesecake Factory earnings conference call.

My name is Derek, and I will be your operator for today.

At this time all participants are in a listen-only mode.

We will facilitate a question and answer session towards the end of the conference.

(Operator instructions).

As reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to Ms.

Jill Peters.

You may proceed.

Thank you, good afternoon and welcome to our first quarter fiscal 2011 earnings call.

I'm Jill Peters, Vice President of Investor Relations.

With us today are David Overton, Chairman and Chief Executive Officer; and Doug Benn, Executive Vice President and Chief Financial Officer.

Before we begin, let me quickly remind you that during this call 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 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 investors section of our website at www.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 will start off the call today with some opening remarks.

Doug will then take you through our operating results in detail and provide our thoughts on the second quarter and full year 2011.

Following that, we will open the call to questions.

Now I will turn the call over to David.

Thank you, Jill.

We are very pleased to report our fifth consecutive quarter of positive comparable sales.

The momentum in our business that began in 2010 continues as positive guest traffic fuels our market share gains.

In addition, for the third quarter in a row, we saw ongoing improvement in our menu mix as beverage sales continued to stabilize, allowing us to retain a greater amount of our menu price increases.

Geographically, we continue to see strength in key markets such as Texas, the Midwest, the Southeast and the mid-Atlantic area, and California was solidly positive this quarter despite the heavy rains we've had.

In fact, every one of the 11 markets we measure was positive this quarter.

In addition, all day parts were up in the first quarter, with the mid-afternoon and late-night shoulder periods increasing nicely.

Overall, we are pleased the broad-based direction and trends we're seeing in our business.

In spite of the pressure from rising food costs during the quarter, we achieved operating margins that were constant with last year and delivered earnings growth that exceeded our plan.

We are managing our business better and better, always looking for incremental opportunities to be even more efficient and offset cost pressures while upholding our standards on service and quality.

On the development front we are still planning for between six and nine new restaurants this year.

In addition, our work is well underway internationally with our Middle East partner.

Plans to open our first location sometime next year are shaping up.

And in keeping with our commitment to return at least $100 million in cash to shareholders this year, we repurchased about $50 million of our stock during the first quarter.

With that, I'll turn the call over to Doug.

Well, thank you, David.

Total revenues at The Cheesecake Factory for the first quarter increased 3% to $419 million compared to $405 million in the prior-year first quarter.

Restaurant revenues reflect a 1.7% increase in total restaurant operating weeks due to the opening of four new restaurants during the trailing 15-month period plus a 1.3% increase in average weekly sales.

Overall, comparable sales at The Cheesecake Factory and Grand Lux Cafe restaurants increased 1.6% for the quarter.

Inclement weather negatively impacted restaurant traffic and, hence, comparable restaurant sales by approximately 80 basis points.

Despite the weather, guest traffic was positive and our average check was up about 1%.

We implemented a 0.7% menu price increase at The Cheesecake Factory in our winter 2011 menu change, lapping a 0.6% menu price increase from the winter of 2010.

We had 1.4% of price in the menu exiting the quarter.

At the bakery, external sales were $11.9 million, up slightly versus the prior year.

Cost of sales increased to 25% of revenue for the first quarter of 2011 compared to 24.3% in the same quarter of last year.

As expected, we experienced higher food costs related to certain non-contracted items, particularly dairy and fresh fish, in addition to pressure from seafood and a number of grocery items.

Labor was 32.8% of revenue for the first quarter, down 50 basis points from 33.3% in the prior year.

Our direct operating labor was about 30 basis points better than the first quarter of last year due to overall productivity gains.

The remainder of the decrease was related to lower group medical insurance cost and lower equity compensation expense.

Other operating costs and expenses were 24.7% of revenues for the first quarter of 2011, up from 24.5% in the first quarter of last year.

The slight increase was driven by lapping unusually low workers compensation and general liability insurance expense in the first quarter of last year, which impacted the comparison.

G&A expenses were 5.8% of revenues for the first quarter, flat as compared to the first quarter of 2010, and depreciation expense for the first quarter of 2011 was 4.2% of revenues, down versus 4.5% in the prior-year period.

The favorability stemmed primarily from the rate of depreciation on corporate and IT investments over the past few years and from comparable sales leverage.

Net interest expense was $1.3 million in the first quarter of 2011, down significantly from $2.5 million in the first quarter last year.

This was driven by the fact that we paid off the balance on our revolving credit facility as of the end of fiscal 2010.

Our tax rate for the quarter was 28%, in line with our expectations.

As David mentioned, we effectively managed our cost structure in the first quarter of 2011, keeping operating margins at 7.1%, flat with the prior year, in spite of 70 basis points of food cost pressure.

Ultimately, our goal continues to be to return operating margins to peak levels.

We have made significant progress towards this objective over the past two years while we increased our guest counts and maintained high guest satisfaction scores.

And we continue to expect to have additional margin expansion this year.

Our liquidity position is as strong as it has ever been, with a cash balance of about $76 million and no bank debt.

Cash flow from operations for the quarter was approximately $52 million.

Net of $10 million of cash used for capital expenditures, we generated about $42 million in free cash flow during the quarter.

We used our free cash flow combined with some of the cash on our balance sheet to repurchase a little over 1.7 million shares, returning approximately $50.6 million in cash to shareholders.

That wraps up our business and financial review for the first quarter of 2011.

Now I will spend a few minutes on our outlook for the second quarter as well as the full year 2011.

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.

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, known weather influences and the effect of any impacts associated with holidays.

2011 is a 53-week year for us, with the extra week falling in the fourth quarter.

Our assumptions for the full year reflect this.

For the full year 2011 we expect diluted earnings per share to be between $1.58 and $1.70, representing an increase in the midpoint of our guidance.

This is in spite of an additional $0.06 in higher cost of sales that we are now expecting for the year over and above what we anticipated when we provided our last update in February.

All told for the year, cost of sales is impacting our earnings per share by about $0.11 relative to the initial guidance we provided last October.

We are absorbing this pressure by actively managing our cost structure, including ongoing improvements in labor productivity and tight G&A controls.

And, as we previously indicated, we will implement a higher level of menu price increases in our upcoming summer menu change if commodity cost pressures continue at the current level.

Our earnings estimate for the full year is based on an assumed comparable sales range of between 1.5% and 3%, which reflects both guest traffic and average check growth.

Our business remains strong and stable, continuing the trend from last year.

For the second quarter of 2011, we estimate diluted earnings per share between $0.39 and $0.41.

As we discussed last quarter, we expect year-over-year food cost pressures to be significantly higher in the first half of the year and then to moderate on a comparative basis by the fourth quarter.

We believe this will be the case primarily based on the fact that we experienced very high dairy costs in the fourth quarter of 2010 that we expect to mitigate on a comparative basis.

Our earnings estimate for the second quarter reflects about $0.05 in year-over-year pressure from cost of sales.

Our earnings per share estimate for the quarter is based on an assumed range of comparable sales between 1.5% and 3%, consistent with our full-year assumption.

We expect our tax rate to be between 28% and 29% for both the second quarter and full year 2011.

Our projection for capital spending in 2011 remains at $70 million to $90 million in support of our planned six to nine new restaurant openings in 2011 as well as expected early 2012 openings.

We continue to target at least $100 million of our free cash flow towards share repurchases in 2011.

And as mentioned earlier, we completed about one-half of our expected repurchases during the first quarter.

With that said, we will take your questions.

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

(Operator instructions) John Glass, Morgan Stanley.

Doug, can you just remind us, on your outlook for moderating food costs in the back half, does that assume -- is that known commodity contracts you have, or does that assume sort of abatement in dairy and other commodities?

So what happens if you are wrong?

What's the amount you might be off?

And are you now including that original overage of -- I think there was a $3 million to $5 million savings that you thought of as either contingencies to offset higher food -- is that now being used in your guidance despite higher food costs?

I would say to the first part of your question it was -- it escaped me again.

The first part of the question is how much are you predicting food cost will decline in the back half versus how much do you just know it is a comparison issue and you've got things locked in this year?

Well, some of it -- it's a little bit of both, right.

So the first half of the year we're expecting food cost inflation of about 4.5% plus, and in the last half of the year about 2.5% minus.

And a lot of that has to do with the fact that we expect to lap a lot of high dairy costs from 2010 in the fourth quarter of 2011, but also due to the fact that we expect to have slightly lower fresh fish costs, slightly lower cheese prices than last year as well.

And I think, additionally, I would say that our confidence in our cost of sales mitigation in the second half of the year comes from the fact that, as I mentioned, we will take a higher menu price increase.

We will be more aggressive than we were in February, in the summer, if these cost pressures continue.

And then I think you were referring to the $3 million to $5 million in additional cost management initiatives that we talked about last quarter, and we talked about them being either a hedge or a potential upside.

I think with what has happened with cost of sales and food cost pressure, they are more of a hedge for what we are able to keep our earnings per share guidance the same or increase it slightly, maybe, the bottom end of the range, from what it was.

What may be still an upside or is still an upside, that in our guidance we have not assumed more aggressive pricing.

So we have the same pricing rolling on as we have rolling off in August.

So that is a little bit of potential upside to what we are talking about.

Thank you.

Jeffrey Bernstein, Barclays Capital.

Just a clarification on that last question and then something separate.

Specific to the pricing you talked about, it sounds like guidance right now is just assuming you were [pleased].

What is the magnitude of what you'd consider in terms of menu price increases in the summer if, for example, commodities the way you see them now remain through the summer period?

I'm just trying to gauge what you have been testing, what kind of comfort level you have with how high you could take that pricing.

And then I had a follow-up question.

Let me give you a little bit of perspective by that by talking about the first quarter.

Despite the food cost inflation we had in the first quarter and given the fact that we only took -- we only had 1.4% of pricing in the menu in the first quarter, we still were able to increase our penny profit per guest at the gross profit line.

So sales minus cost of sales, even given the fact that we only had 1.4% pricing and very heavy cost pressure, we made more per guest at the gross profit line in the first quarter.

So with that said, there's not a lot of additional movement in price that's needed to make a big impact.

So when you look at what's rolling off in August, we have 1.4% in the menu, as I said, 0.7% is rolling off in August.

I would think that we would feel comfortable with being somewhere above 1%.

An incremental 1% on top of the 0.7% you already have?

Right, right, so that will make, instead of, say, 1.4% on the menu would increase that by 40 or 50 basis points.

Got you.

And just as a clarification, in terms of the commodity basket, I think you guys were previously saying last quarter a 3% basket of inflation with 4% in the first half, 2% in the second half.

So just to clarify first, did you just say that now you think it's 4.5% in the first half and 2.5% of inflation in the back half?

And if that's the case I'm just wondering if you can give us an update on what is locked and what is still floating at this point.

What is locked and floating hasn't changed.

So what has changed is that the floating -- floating by its very nature is obviously changing.

So I would tell you that the 3% expectation we had in February on a blended basis for the whole year is closer to 3.5% today, with, again, the first half being around 4.5%, say, and the second half 2.5%.

And then if you further bifurcate the second half, by the fourth quarter, we would expect food cost inflation in that quarter to be more in the 1.5% range.

Understood, thank you very much.

Joe Buckley, Bank of America Merrill Lynch.

Thank you.

Doug, you talked about labor productivity as one of the things you focused on to try to counter this high food cost environment.

Could you elaborate a little bit on that, what you're doing there?

Sure.

In the first quarter, in particular -- let's talk about that.

What really helped us in the first quarter is we did a better job of managing our labor during periods of time when labor can go askew on you.

We managed it well, such as during inclement weather.

The ability to manage labor well during inclement weather and managing it and having a better plan for even very high-volume days, such as Valentine's Day and Presidents' Day.

So we are doing a better job of managing in those two areas, and that's what helped us a lot in the first quarter.

But I would just say, on an ongoing basis from a just management of the average wage rate, management of other labor metrics, such as our guest per labor hour, both of those we are doing a very good job and a tight job of managing them, and that's what's -- we are able to keep our labor cost lower.

And one more question -- your outdoor seating utilization first quarter this year versus last year -- was it significantly different, given all the weather issues?

In California, it certainly -- the interesting thing geographically, I think Dave had mentioned in his comments that geographically we were up in every region that we measure.

We measure 11 regions, and California was one of them.

And it wasn't up just -- it was up more than just a very minimal amount, it was up over 1%.

And that was despite -- I don't know how many people remember -- we had at least 10 days in a row of very heavy rain here.

And that obviously has a big impact on patio utilization.

So we basically lost all of our patios during that period of time.

Okay, thank you.

Destin Tompkins, Morgan Keegan.

Doug or David, I'd be curious to get your opinion on the strength in your sales trends, especially at The Cheesecake Factory, and kind of the momentum in the business.

And for the overall industry, I think there has been, obviously, some encouraging signs, given the fact that gas prices have been higher and there has been some headwinds and macro noise out there.

The sales trends have seemed resilient, and I'm just curious what your take is on that and your confidence in that continuing as we go through the year.

I'll just tell you, we are pleased with our comp trends, and if you really take -- divide the comp trends into check average and guest count and take into account that the first quarter there was some weather impact and our guest counts were still up despite weather, certainly without weather our guest count increases would have been north of 1%.

And in addition to that, then we have a very solid 1% increase in our average check.

So we are somewhere right in the pretty solid 2%, 2% plus range of what we are looking at as far as trends go.

And really, the third consecutive quarter an improvement in our average check, we said we expected that that would happen, and it is, as non-alcoholic beverages have continued to stabilize.

And we would expect to eventually be able to get back to where we could capture closer to the entire amount of our menu price increase.

We are getting closer now, and it's certainly moving in the right direction.

So we are pleased with where we are trending on our comp sales overall.

Is there anything unusual going on with Grand Lux, given their trends in the quarter?

And what is your expectation going forward for them?

Well, I'd tell you, for one thing, Grand Lux had a particularly strong first quarter last year.

We were actually up by 4%.

So some of it is a tough comparison.

Florida last year particularly was very strong because of cool weather in Florida that helped both of our concepts, but certainly the Grand Lux concept.

And the other thing to remember about Grand Lux is that Grand Lux has -- there's only 13 units.

So therefore, the variability in sales performance is greater on both a location-by-location basis, quarter to quarter.

So you can get a disproportionate impact in either direction, plus or minus, from swings in sales, particularly at high-volume locations.

So we got some of that disproportionate impact at our two high-volume Las Vegas locations this quarter, so that caused variability in the comp for the overall concept.

And the other thing I'll say about the sales at the Grand Lux in the first quarter -- really, they were more disproportionately impacted by what I'll call later spring breaks this year than last year, which really negatively impacted the first quarter because, as we know, Easter is just coming up this weekend.

And spring breaks are usually associated with that period of time in some way, and spring break time is really good for our restaurants.

Thank you.

Brad Ludington, KeyBanc Capital Markets.

I just want to get a little bit of clarification on two minor points.

First, on the cost of sales pressure you talked about going up to $0.11, it sounds like you're indicating that really about $0.10 of that falls into the first half, about $0.05 in the first quarter, $0.05 in the second.

I just want to clarify that.

And then also on interest expense hitting about $1.3 million, is that around a stable level that we should expect with your landlord financing liability that you have, or were you taking on debt during the quarter?

There was no debt during the quarter, so that's probably a pretty stable number, I would think.

I don't know what would really move that a whole lot.

The cost of sales pressure that -- it is probably pretty close to what you talked about in the third quarter.

If you were just to look at cost of sales as a percentage of sales, we were up in the first quarter.

We will be up in the second quarter.

In the third quarter we will be up but not as much, and in the fourth quarter we would expect year-over-year to be down in cost of sales.

So your $0.11 -- $0.10, $0.01 might be right, or maybe it's $0.09, $0.02, but pretty close.

Thank you.

Nicole Miller Regan, Piper Jaffray.

Thanks, it's Josh on for Nicole.

I had a question -- I wanted to go back to the labor management and the efficiencies that you guys were talking about.

Are those really about focusing on driving execution at the restaurant level, or are there still tools and/or initiatives that you can roll out at the restaurant level to help out the managers and the restaurant staff?

Well, I think that one of the things we're doing is we're keeping a lot of the savings initiatives that apply to the labor line that we've already put in place.

And we are learning to even manage better with respect to things like the KMS system than we have, and we are also, again, just -- we pay acute attention to the statistics around labor and labor management, and I just think we are moving the needle on that.

Some of labor was helped -- is helped, too, by when we have positive comp store sales.

That certainly helps us leverage that line a little bit, too.

Certainly.

And then on the day part trends, can you comment or have you started seeing any sort of pick back up, or what trends are you seeing at the midweek lunch part?

We have seen some strong general trends for the industry on the business and kind of the correlated metrics there.

Is that starting to flow through to your restaurants as well?

Are you starting to see the midweek business guest or diner come back in?

We are seeing -- all of our day parts are up at least some, and we are starting to see shoulder periods filling in a little bit more.

Late-night and mid-afternoon were both up nicely this quarter, and they were up by -- in dollar terms, by a greater percentage than operating week growth.

So they were up, say, in the neighborhood of 4% or 5% and operating week growth was only about 1.7%.

So we are moving people to the shoulder periods, which is what we really need to do and have done in the past to be able to grow our comp store sales vibrantly.

We have done it before, and I think they're moving back in that direction because if you go during a peak meal period, we are still quite full and on a wait.

Okay, great, thanks much.

Mitch Speiser, Buckingham Research.

My first question is on real estate, and with Blockbuster and Borders now being liquidated, can you give us a sense of if that is giving you incremental real estate opportunities in 2012?

And then I have a follow-up question.

I don't think many of the Blockbusters are going to be right for us in size and, really, location.

I think we are in touch with some of the Borders that are going out.

And again, they are very large, so a landlord has to cut them up.

And where it's appropriate, we are certainly interested.

Right now we don't have any locked down, But we're looking at those.

But there's many others, Marshall's and other big boxes; if they are in the right place in the center and are attached, we have done a few of those.

There will be some of those next year.

And they are really working out very nicely, so that's as good as I can do at this moment.

Do you feel confident that you can open up more stores in 2012 versus your targeted 2011 at this point?

It's certainly our goal.

Until we start announcing that number and lock a number down, it's hard to say.

But we look at every what we consider prime or A site in the country, and if we can make a deal, we move forward with them.

And as you know, with the different size boxes we have, hopefully there will be more opportunities out there.

Great, thanks, and if I can also ask just on the share repurchase as it relates to the share base, which only went down just slightly versus the fourth quarter, did you buy those shares back at the end of the quarter?

Were there options that offset that?

I guess my direct question is where do you see the average share base panning out for full year 2011?

Yes, I would say -- the answer to your question is yes to both of those.

Yes, we did buy near the end of the quarter, and yes, there were option exercises that went the other way on us.

And if I were to look at the entire year and what the planned share repurchases are for the year and using some generalizations or some averages, you could see weighted average shares down well over 1 million shares by the end of the year.

And would that be an average for 2011?

I'm sorry if you said that.

Or was that more like a fourth-quarter end?

That's like the average for the full year because it's a weighted average, the way that it's done.

So where you didn't see much movement in the first quarter, it would really take, I believe, greater movement in the other quarters to get to over 1 million for the year.

Okay, thank you.

Will [Slaybaugh], Stephens.

Just wonder if you could give us an update on the performance of the four, I believe it is, smaller footprint units.

And if you could give us any color on the aggressiveness of the rollout of those type of footprint units, just in a broad sense as we look out past 2011?

Well, I'll let David talk about the rollout and he can talk about performance, too.

But the performance of the four units is very good.

We don't have anything close to anything -- we have all above the targeted returns that we would hope to get on those units for every one of those.

I don't think we see much difference today.

We don't look at them as smaller units or big units, just appropriate for the market and the demographic.

So for the most part, we're looking at about 8300 square feet moving forward unless it's really a very urban, densely populated area.

We are going to open a 7200-foot unit this year, and we think that's right for the marketplace.

And if that is all balanced out, then you will see 8000, 7000 -- lesser, but still some 10,000-square-foot units.

But we here now don't really think about smaller unit or large unit; it's just the appropriate size investment for the demographic and the sales we think we're going to generate.

Great, thanks.

Keith Siegner, Credit Suisse.

Thanks, two questions; one is a little on the picky -- I apologize.

I just want to make sure I understand this right.

The EPS headwind from inflation goes from $0.05 to $0.11, but the full-year inflation outlook goes from $0.03 to $0.035.

Is one of them growth?

Like is the EPS at growth and the $0.03 to $0.035 net?

Help me understand how one goes from $0.05 to $0.11 and the other from $0.03 to $0.035.

Okay, let's see if I can do that.

I don't know if I know the answer to that right off, but a 0.5% movement in food cost inflation is big.

And so each -- I guess the way to look at that is that each -- let's see.

0.5% -- that's the answer, is that a 0.5% movement in food cost inflation is really big, and that's the impact that that has on earnings per share, everything else being equal, if you did the math.

Okay, that's fine.

The other question I have is really on the international opportunity.

There has been a lot of buzz about this, especially given your first agreement.

Is this still kind of a test-and-see mode, let's see how these go?

Or given so much interest, which I think there has been, are you entertaining interest from other potential franchisees right now?

Would you hope to maybe have some more agreements coming, or again, is this more of just a let's give it a year and see how it goes and then decide what to do from there?

No, it's -- we have already identified five sites with our partner today, and those are all moving, and there's more sites that they want to present to us.

That's going to move very quickly, and I believe that they'll want to open more in countries we haven't agreed to yet, but most likely we would move forward with them.

They are a great partner.

We already have our development people over there looking at the sites, starting to work on plans.

So that's really moving nicely.

We have other countries that we are looking into very seriously right now with partners, and many that, of course, we have gotten so many inquiries, but many of them are just too small and we're turning them down at this point.

So I think you're going to see more deals done and the deal that we have in the Middle East is going to move probably quicker than any of us think.

That's great, thank you very much.

Matt DiFrisco, Lazard.

My question is with respect to the guidance.

I just want to clarify, the $1.58 to $1.70 -- and I think you associated that with improving margins on a full-year basis -- is that with the extra operating week?

That is -- yes, that's what we expect to make when all the dust settles after 53 weeks are over this year.

And when you referred to margin expansion, are you referring to EBIT or the restaurant level?

I'm referring to EBIT, EBIT margin.

And that doesn't necessarily mean, Matt, on every line item, certainly not on the cost of sales line items.

But on other line items by the end of the year with the 1.5% -- it depends where we are, right, within the 1.5% and the 3% range.

But we would expect to get, certainly in the middle of that range, some amount of operating margin growth, even with higher cost of sales.

Correct.

So if you have that margin expansion outlook, I don't know how you're getting to the lower end of guidance with $1.58.

It appears as though that would have to see a slowdown on the top line.

I don't know what numbers you are looking at.

Well, if you're looking for margin expansion -- I could talk to you off-line about it, but (multiple speakers) --

Yes, well we're talking -- I'm talking the operating margin line, and then there's other things below that like interest, and I don't know what you have in there for interest or taxes.

Sure, okay.

So I don't know.

And then the second question I had -- Grand Lux -- it sounds like you were talking about the two larger guys, I guess your Vegas store and the Chicago store, might have had some --

Just the Vegas store.

Chicago was fine.

Okay -- had a little bit of a slowdown.

So I guess, could we assume then that they were all cash flow positive, and the brand as a standalone is -- and generated earnings, positive earnings in the quarter?

The brand?

Oh, yes, greatly positive.

In fact, those restaurants in Las Vegas are -- even though they were disproportionately impacted, I think I said, or had a disproportionate impact on the concept, they are still two of the -- in fact, one of them is the highest volume restaurant we have, period, and the other one is in the top 10.

Right, you have to do breakfast at every other store, and maybe you could get that.

Last question -- any update on RockSugar?

No, we are still just holding.

It's improving.

Its comps were up, even though we don't report it.

And we are doing nicely, but we don't have that second unit yet.

But I'm sure we will.

Beautiful, thank you.

[Ahmad Ogden], JP Morgan.

Hi, thanks, it's John Ivankoe; I got disconnected.

I'm sorry if you touched on this previously, but when you look at the current consumer environment in terms of incomes and what they might be paying in higher gas prices, how much pricing power do you think exists in your Company today or in the second half, as you have alluded to, that you could take that wouldn't affect either mix or traffic?

Is it a 3% to 4% number?

Is that too high to think about with -- off some of the negatives that currently exist in the economy?

Or might it be something a little bit lower than that?

Yes, you might not have been on when I talked about the great impact on -- in other words, we had a profit, gross profit penny-per-guest increases this quarter despite the fact that we only increased our menu prices this quarter by 1.4%.

So we're talking -- when we are talking about being more aggressive, the number 3% or 4% is not even entering our mind.

We are more at the high end -- instead of 1.4%, 1.9% or 2% or something like that.

It's not 3% or 4%.

Okay, all right, perfect, thank you.

Jonathan Komp, Robert W.

Baird.

Hi, thanks.

It's Jon Komp calling in for David.

Doug, just one question, looking at the Q1 comp trends.

Just given all the noise related to weather during the quarter, I'm wondering if you can provide any additional information or additional color on how comps might have played out through the quarter and whether or not you might have ended the quarter on a high note.

Well, we had pretty steady comps during the quarter, other than -- February was really the highest month, but we would have expected that because we had the easiest comparisons then.

We had bad weather in February last year.

So if you kind of take out the weather impacts, January and March were about the same.

So, I would describe them as steady.

Okay, that's helpful.

And then just a broader question on the full-year EPS outlook -- I know you raised the midpoint on the guidance despite the incremental pressures from commodity costs, so I'm just wondering at this point of the year what gives you confidence to do it, to raise the midpoint at this time?

Well, there's a lot of things we are doing to actively manage our cost structure.

And we talked last time and a little bit on this call about the $3 million to $5 million in additional cost management initiatives that are helping to offset additional pressure.

We talked some about our labor productivity and continuing to manage hourly wage rates carefully and keeping our productivity metrics high, such as guests per labor hour.

We're working on production planning at the bakery, managing G&A.

And then we talk about the pricing power.

So pricing has a big impact as well on what earnings per share are going to be after the pricing is in.

So being able to be or willing to be a little more aggressive on our summer menu price increase is going to help us and helps give us that confidence.

No one likes it, but everybody knows food is expensive, it's going up everywhere, it's in people's minds.

And our price increase will be reasonable compared to really what is going on out there in supermarkets and many other restaurant chains.

Okay, thank you.

Ladies and gentlemen, that concludes today's Cheesecake Factory conference call.

We would like to thank you for your participation.

You may now disconnect, and have a great day.