Cheesecake Factory Inc (CAKE) 2012 Q4 法說會逐字稿

Good day ladies and gentlemen, and welcome to The Cheesecake Factory fourth quarter fiscal 2012 earnings conference call.

My name is Chantalay and I will be your facilitator for today's call.

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

We will be facilitating a question-and-answer session towards the end of this conference.

(Operator Instructions).

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

I would now like to turn the call over to your host for today, Ms. Jill Peters, Vice President of Investor Relations.

Please proceed.

Good afternoon and welcome to our fourth quarter fiscal 2012 earnings call.

I'm Jill Peters.

On the call today are David Overton, our Chairman and Chief Executive Officer, and Doug Benn, our 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 facts 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 investor section of our website at TheCheesecakeFactory.com and in our filings with 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 statement.

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 outlook for both the first quarter of 2013 as well as the full year.

Following that, we will open the call to questions.

With that I'll turn the call over to David.

Thank you Jill.

As we think about the fourth quarter and 2012 overall, there are a number of key takeaways.

We've now had three straight years during which we delivered positive comparable sales in every quarter.

And in the fourth quarter of 2012 we outperformed the casual dining industry in spite of the impact from Hurricane Sandy.

We grew operating margins by 50 basis points in 2012, putting us a significant step closer toward recapturing peak margin levels.

We grew earnings per share by 15% last year, consistent with our longer-term objective.

And we returned $114 million in cash to shareholders through dividends and share buybacks.

Overall 2012 was a good year.

Our business is healthy and stable.

We continue to perform at competitively strong levels and operationally we continue to execute very well, translating sales increases into profit.

Internationally our expansion is progressing extremely well.

In the Middle East, two new Cheesecake Factory restaurants opened during the fourth quarter, one in Kuwait and a second location in Dubai.

The newest Dubai restaurant is nearly 23,000 square feet with over 500 seats, the largest Cheesecake Factory restaurant worldwide.

Sales in each of the three Middle East locations are very strong with initial volumes quite a bit higher than we planned for, reflecting incredible demand for our brand.

In a continuation of our global expansion strategy, today we announced a licensing agreement with a premier restaurant operator in Latin America.

Alsea will build and operate our restaurants throughout Mexico and Chile and the agreement has the potential to expand into four other countries -- Argentina, Brazil, Colombia and Peru.

We expect the first location in Latin America to open in early 2014 in Mexico City.

International growth is a significant opportunity for us.

And in addition to the agreements already in place, we are continuing discussions with other potential global partners.

Before I move on to our specific development targets for this year, I'll take a moment to provide some color on Grand Lux Cafe.

We made the business decision to discontinue operations in three of our Grand Lux Cafe restaurants because they were not delivering the necessary sales volumes to drive our required return.

However, this should not be viewed as a change in strategy, with the remaining Grand Lux Cafe averaging over $11 million in sales for the full year of 2012.

We continue to position the concept for potential future growth.

We are currently in discussions with landlords for sites and expect open more Grand Lux Cafes starting in 2014.

As of 2013 development pipeline we anticipate opening as many as 8 to 10 Company-owned restaurants this year, including two or three relocations.

Consistent with the plans we shared with you last October, we're planning on one opening in the first half of this year and the remaining openings in the second half of 2013.

Internationally we now expect as many as three new locations to open based on the current information we have.

At this time I'll turn the call over to Doug.

Thank you David.

I'll start by reviewing our financial results for the fourth quarter and then provide an update on our outlook for 2013.

Total revenues at The Cheesecake Factory for the fourth quarter of 2012 were $464.7 million.

As a reminder, when comparing revenues to the fourth quarter of 2011, we had an extra week in the year-ago period.

Revenues reflect of an overall comparable sales increase of 0.9%, but we did see a pretty significant impact from Hurricane Sandy which reduced comparable sales by about 60 basis points.

We have a concentration of restaurants in the Mid-Atlantic and Northeast, particularly the coastal areas most affected by the storm.

When looking at the underlying strength of our business, comparable restaurant sales increased by 1.5% absent the weather disruption.

Comparable sales by concept grew 1.3% at The Cheesecake Factory and declined 3.2% at Grand Lux Cafe.

Total restaurant operating weeks in the fourth quarter of 2012 represent 13 weeks as compared to 14 weeks in the fourth quarter of 2011.

In addition the current year quarter reflects the opening of 10 new restaurants during the trailing 15-month period.

At the bakery, external sales were $26.7 million, down about $2.7 million.

However, the bakery's profitability was up substantially from the prior year.

Cost of sales decreased 30 basis points to 25.8% of revenue for the fourth quarter.

The majority of this stemmed from favorable bakery dairy costs as well as a bakery mix shift benefit.

Labor was 31.3% of revenue in the quarter, down 40 basis points from the prior year.

In a continuation of what we experienced throughout the first three quarters of this year, group medical costs were again lower in the fourth quarter, accounting for most of the favorability.

Other operating costs and expenses were 23.9% of revenues for the fourth quarter, down 20 basis points from the fourth quarter of the prior year.

This was driven by a variety of factors, including a favorable year-over-year comparison on our bakery operations and lower marketing costs, partially offset by lapping the leverage from the extra week in the prior year.

G&A was 5.8% of revenues for the fourth quarter, up 70 basis points from the prior year, primarily due to equity compensation and our corporate bonus accrual, both of which were lower in the fourth quarter of the prior year.

In addition, we encourage some expenses related to supporting our international growth and we lapped the G&A leverage that we got from the extra week last year.

As we detailed fairly specifically in our earnings release, we recorded $9.5 million in impairment of assets and lease terminations during the fourth quarter.

This included charges related to discontinuing operations of three previously impaired Grand Lux Cafe restaurants and impairing one Cheesecake Factory restaurant.

Preopening expense was $4.8 million in the fourth quarter of 2012 versus about $3 million in the same period last year.

We opened four new restaurants during the fourth quarter of this year and two in the comparable period of the prior year.

Interest and other expenses were higher by approximately $419,000.

On a comparable basis, the increase reflects the favorable settlement in the fourth quarter of 2011 of a lawsuit filed against the IRS relating to the deductibility of certain executive compensation expenses.

Our tax rate for the quarter and year both reflect the impact of impairment and lease termination charges on pretax income.

For the full year, our tax rate was 26.5%, quite a bit better than our normalized rate of 29% to 30%.

The primary reason is that while our deductions and credits stayed pretty flat in absolute dollars in 2012, they represented higher a percentage of pretax income due to the impairment and lease termination charges.

In addition we had a benefit from changes in our investments in variable life insurance contracts used to support our deferred compensation plan.

In summary, the fourth quarter was quite solid.

The hurricane cost us about 60 basis points in sales, which equates to roughly $0.01 to $0.015 in earnings per share.

Our operators managed their restaurants very well, contributing to an increase in restaurant level margins of 90 basis points.

This level of execution enabled us to deliver earnings per share within our stated range.

Moving on, cash flow from operations for 2012 was approximately $195 million.

Net of roughly $86 million of cash used for capital expenditures, we generated about $109 million in free cash flow for the year.

During the fourth quarter we repurchased approximately 800,000 shares of our common stock at a cost of $26.4 million, and made $6.4 million in dividend payment.

For the year we repurchased 3.2 million shares of our common stock for $101.4 million.

Together with dividend payments, we returned $114.3 million in cash to shareholders, nicely ahead of our plan for the year.

That wraps up our business and financial review for the fourth quarter of 2012.

Now I'll spend a few minutes on our outlook for the first quarter of 2013 and an update on the full year.

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, the effects of any impacts associated with holidays and known weather influence.

For the first quarter of 2013 we estimate a range of comparable store sales between flat and 1%.

This range is inclusive of two events which, on a combined basis, impact comparable sales by roughly 95 basis points.

First, the temporary closure of our restaurant in Hawaii due to a fire.

This is an insured loss, so despite the impact on comparable sales, we are not assuming an impact to earnings per share.

Second, our estimated range also reflects the impact from the storm that hit the Northeast earlier this month.

Based on our assumed comparable sales range, our estimate for diluted earnings per share for the first quarter is between $0.40 and $0.43.

I will note that the impact from the February storm cost us about one penny in earnings per share.

The diluted earnings per share range does not include an estimated $1 million in additional pretax charges we expect to record in the first quarter of 2013.

These charges relate to Grand Lux Cafe restaurants whose operations we are discontinuing as of the end of March 2013.

At a high level 2013 looks to be a very solid year, characterized by our fourth quarter of delivering consistent increases in -- our fourth year, excuse me, of delivering consistent increases in comparable restaurant sales; significant operating margin growth as we continue toward our goal of returning to peak operating margins; and achieving our mid-teens earnings per share growth objective.

Specifically for the full year 2013 we expect diluted earnings per share growth of 12% to 15% or a range of $2.10 to $2.18, based on an assumed comparable sales range of between 1.5% and 2.5%.

Over the past four years we've improved our operating margins by 260 basis points, including 50 basis points of improvement in 2012.

We expect to close the gap versus our historical peak margin levels by roughly another 30 basis points to 40 basis points in 2013.

Operating margin growth in 2013 will be driven by a number of factors, most predominantly international growth, with the initial three Middle East locations delivering higher than planned volume and as many as three more locations expected to open this year.

In terms of commodity costs, food cost inflation should have a lesser impact on us than we initially expected.

We are now planning for about 3% food cost inflation in 2013.

In addition, we should see some benefit to cost of sales from planned efficiency gains and a bakery mix shift.

Our total capital expenditures are now expected to be between $100 million and $120 million, primarily driven by planned 2013 openings of between 8 and 10 new restaurants, as David mentioned, as well as expected opening in early 2014.

As to our corporate tax rate, we expect it to be in the range of between 29% and 30% for 2013.

And we anticipate the majority of our free cash flow after capital expenditures to be used for dividend and share repurchases.

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 re-queue with any additional questions.

(Operator Instructions).

John Glass, Morgan Stanley.

Thanks very much.

Doug, I know you're not really in the practice of providing specific guidance about comps during the quarter, and you provided that range from the first quarter which I appreciate.

But at the same time there's been some fairly extreme numbers thrown out in terms of current comp trends in the last several weeks.

So could you just comment, or could you just maybe directionally or generically comment, and are you not seeing those kind of extremes?

Or do you factor that in, but think you get some back at the end of the quarter because this is really all just weather-related and it will get ironed out in the full first quarter?

I would say we would factor in everything that we knew today as -- so we know what's happened with the storms.

We know what's going on with our Hawaii restaurant, we know what our comps are to date, and we know what we are facing for the rest of the quarter.

So we factor that in.

I just think it's very misleading to give any kind of really quarter to date comp store sales information, because in many quarters in the past, the comp store sales that we would've given quarter to date would have been either misleadingly high or misleadingly low for what we thought we would achieve for the quarter.

So if you've gone back over time over the last number of years, we've been pretty close and within our range normally that we estimate comp store sales to be.

Understood.

Do the comps have to materially improve from here to achieve that range?

I won't comment on that because it's not -- it could be very misleading.

We've had quarters before where we said our comps would be 1.5% to 2.5% per quarter when we had comps of 4% then, going into the call.

It doesn't -- it's not something that I want to comment on.

I appreciate it, thank you.

Jeffrey Bernstein, Barclays.

Hello?

Great, thank you.

One, just a clarification and then the question.

Just clarifying the earlier comments, your peers obviously talked about delayed refund checks and higher taxes and gas spikes.

I'm just wondering directionally whether those are things I am assuming you would be feeling as well.

Have you noticed anything within the comprehensive in terms of sequential trend for the fourth quarter or into the first, or anything regional or did it weaken or anything like that?

Without talking specifically on the comp, anything you're seeing to lead you to believe that there is some impact from some of these recent changes?

Not really that I can ascertain.

I think we have had -- we've had three years in a row where we've had roughly 2% comp store sales.

And if you take into account the fact that we've got this Hawaii, we've got the storm that happened to us in the first quarter, we have really some of the toughest compares against last year's comp store sales.

We are really saying that the first quarter comp store sales, we would expect them to be in the 2% range if it wasn't for those things.

Got it.

And just the question being in the fourth quarter, you talk about how it was, I guess, roughly in line with your expectation.

It seems like the EPS of $0.51, looks like there's a lower tax rate.

So if you back that out, which looked like it was a few pennies, it's down into the higher $0.40s.

You think Sandy was only a penny or so, so it seems like if you add it back, is it fair to say that kind of normalized number for the fourth quarter was more than the $0.49 to $0.50 range, the lower end of your guide was or --

That lower tax rate is created by the fact that there is a much higher tax rate that we apply when we do this non-GAAP adjustment for the lease terminations and the impairment charges.

So our more normalized tax rate for the quarter was not significantly less.

In fact, the way that I would look at our earnings for the fourth quarter is we made $0.51 share.

And we were a little bit outside of our guided range of 1% to 2% in comp store sales, but we made our guided range because we managed our business well from a cost standpoint.

And we were able to achieve that level of earnings per share within our range.

I don't think the tax rate is the driver at all.

Got it.

So if you added back Sandy, which was a penny or so, the comp was right in the middle the range and the EPS was kind of in that $0.52 range.

Yes, well -- that's right.

That's right.

Thank you very much.

David Tarantino, Robert W. Baird.

Good afternoon.

One question maybe as a follow-up to some of the other questions about the consumer environment.

We have heard a lot of other brands talk about some significant slowness, so I'm just wondering maybe if I can tackle this from a different angle and ask you maybe if -- how do you see The Cheesecake Factory brand being positioned in today's environment?

And why do you think the comps are either holding up better than what we are hearing from others or are expected to hold up better on an underlying basis in the first quarter?

My comment about that, David, wouldn't be any different today than it would be six months ago or six months from now.

I think there are many things that clearly differentiate our brand and that make us -- make our performance better than what the industry has been.

So despite the fact, for instance, that our comp store sales for the fourth quarter were up 0.9%, there was -- that was still -- there is still a measurable gap between the industry, however you measure the industry, whether you measure it with Navtrak or whether you measure it with Black Box Intelligence which we use internally.

So the things that differentiate us -- menu innovation, our facilities, our service standards, all of those things, the variety of our menu, the SkinnyLicious, all the things that we offer our guests are what differentiated us before and what continue to differentiate us now and will continue drive our business.

That's helpful.

If I could maybe squeeze one in for David.

David, could you just maybe tell us what your overall thoughts are on Grand Lux Cafe and maybe what you learned about the locations that didn't work, and how you're thinking about the growth opportunity for the brand going forward in light of the ones you're discontinuing.

Sure.

We are very happy that we are doing $11 million a year average sales at Grand Lux.

That's not easy to come by and it's a rarity in the industry.

So that's why we are still enthusiastic.

We opened when the market turned, and these stores are in Scottsdale.

They are in markets that were very, very weak to begin with.

They weren't when we opened, but they became that way.

So we are not letting that take the wind out of our sails.

We like what we did in New Jersey, and we are getting a lot of strong complement on the decor and the feeling of the restaurant, so we still want to open a couple more of those.

As we talked about that we are still making many changes for more differentiation, whether it would be a menu change to Grand Lux Cafe out in the next few months.

So again, we are still enthusiastic, we are still going to open some more, we think we have a better, more universal, more relaxed, more modern decor, and the food keeps changing.

And again, I look at that $11 million and I say we are sitting on something that can grow and be very good.

So that's how we feel about it.

I would just add that for some time on our conference calls and in our filings with the SEC, we've talked about the varying performance level at Grand Lux Cafe, and as David mentioned we have some locations that are driving some of the highest sales volumes in our system Companywide.

And we have been looking at these three particular restaurants.

We impaired them first in 2009.

This is something over the past three years we've continued to monitor them, and so as part of our ongoing assessment, we just made the decision at this point in time that they should have their operations discontinued.

Understood, thank you.

Michael Kelter, Goldman Sachs.

Please proceed.

I was hoping to learn a little bit more about the leverage you need for -- on rent -- the same-store sales you need to generate leverage on rent and labor, given the uncertainty on comp trends and maybe the broader industry.

For example, your flat to plus 1% same-store sales number for the first quarter, does your $0.40, $0.43 EPS estimate assume that you can maintain or even lever your fixed costs?

Or is there some deleverage at that rate?

It's a little hard to specifically answer that question.

I think the answer to what we would expect to see from margins in the first quarter for a number of reasons, some of which relate to the leverage question.

I would say -- my general answer is 0% to 1% we are not getting a lot of leverage.

But we are going to have higher margins in the first quarter than we had last year for other reasons, related to international development and royalties associated with international development.

So I would -- and I've said this in the past, anything over -- between 1% and 2% is a pretty high number for us.

With average unit volumes of $10 million, 2% over the course of the year is a $200,000 gain in volume.

So anywhere between $100,000 in $200,000 gain in volume in a restaurant, there is a good chance that we would establish just a little bit of leverage on some of the operating costs.

Just to comment also about your rent, rent is a variable cost generally.

We negotiate leases that have, like most leases, that have a fixed component, and then a percentage rent component.

Our volumes are such that we are almost always paying percentage rent.

So we have -- generally we don't get a lot of rent leverage from increases in comps per sale.

That's very helpful.

And one other, recently you guys announced that David Gordon would take over as President of Cheesecake, and I know he has been at the Company for a long time, but I'm sure he has his own ideas on what he would like to accomplish.

What should we expect his imprint might be on the role that's different than, let's say, the prior leadership?

I would say that one of the great things about our Company is our depth of leadership and the talent that we have.

And as you know, superb execution, operational excellence, they are the keys to our success.

And David Gordon is -- he is a consummate operator.

There's no one that knows our operations any better than he does.

He has been in leadership roles with our Company for the past 20 years.

He certainly understands our culture, our adherence to high standards and is keenly aware of how to use systems and processes to achieve excellence.

He is very well suited for this role.

I would say that the difference is that David is just -- we are an operational based Company, as you know very well.

We are not marketing based.

We rely heavily on driving our results through great operations, and that's where David is differentiated from anyone we've had in the past in this role.

Thank you.

Brian Bittner, Oppenheimer & Co.

Thank you.

You talked about something being a penny EPS headwind for the first quarter.

Were you talking about the winter storm?

And if so, what are you assuming that takes away from your comp by itself without the Hawaii issue?

Okay, so you want to know what really the impact of the storm is, so about a 1% impact, about half of that is -- I would say a little more than half of that is Hawaii.

So the impact of the storm, I would say, is right around 40 basis points, and the cost of it is about a penny.

(multiple speakers) There's no cost to the Hawaii piece because it's insured.

Got it.

You also talked about lower medical costs in the fourth quarter accounting for all of the labor leverage.

When does that dynamic -- when does that dynamic (multiple speakers) the [majority], when does the lower medical costs end?

We are largely self-insured.

From a medical perspective.

And therefore any group insurance charge in any given quarter is dependent on the claims experience that we have had, and we simply had lower claims experiences.

It's difficult to know exactly why we've had lower claims experience.

We have made some changes to our plans that might be driving some of it.

Additionally some of it might be based on -- if you talk to our health care consultants, they would talk about the rate of inflation on medical costs in 2012, which may be more benign that it has been in past years.

So I think those are some of the reasons.

It's very difficult to know what kind of cost -- what kind of claims we're going to have in the future when you are predicting this.

So I would just look at it as something that we would -- that's not going to be a benefit every quarter, but it has been every quarter for this year.

Okay, thanks.

And then lastly, just the 1.5% comp in the fourth quarter when you exclude the Sandy impact, what was traffic as a piece of that?

Okay, so the breakdown for the quarter was that our comp was up 0.9%, our traffic was negative 1%, so that our check average was up 1.9% on pricing of about 1.7%.

So we really had a positive menu mix that drove -- that drove the comp this quarter.

So traffic was down 40 basis points when you take away Sandy.

That's true, when you take away Sandy, but there's other impacts to the fourth quarter that we included in our guidance, such as there is probably another 15 to 20 basis points that we had -- what was it, four presidential debates and then Election Day?

Those were big down days for most people in the restaurant business.

But we factored that into our guidance.

But it did impact the comp for the quarter.

And the only other comment that I would make is that some refer to like a holiday shift, and we really didn't call that out because we are not sure exactly what the impact a holiday shift might've had.

But there's maybe some impact there.

And then the final comment I guess is there was a pretty tough comparison against the fourth quarter of last year.

So all those things I think factored into the comp and the traffic piece, as all those impacted traffic.

The menu mix has been negative for a long, long time -- not a long, long time, but it's been consistently negative.

Did that surprise you or was that what you expected?

And why was it positive?

I think we said for a while that we would expect the menu mix to stabilize and allow us to capture more of our price increases that we put in the menu.

People move around the menu, they try different items, and that changes the mix.

We obviously don't have a lot of control over that, but we saw what we saw happen in the fourth quarter, although it's good.

We do believe the mix will continue to ebb and flow from quarter to quarter, particularly as we make more changes to our menu.

But over time we would think that roughly we would see the pricing that we put in the menu that we are able to achieve that pricing level, or close to it, from a comp store sales standpoint.

So it was good in the fourth quarter that that happened, but I think we are going to see some more ebbing and flowing of that.

Thank you.

Nicole Miller Reagan, Piper Jaffray.

Good afternoon.

I was hoping you could share a little bit about international performance.

It seems to me that as that becomes a bigger piece of the puzzle, that did impact the P&L as much as this comp conversation.

So I'm just more curious than anything if you could talk about comp sales trends or sales trends overall.

What kind of records are being set?

Do these international joint ventures look like their US counterparts or how are they different?

Thank you.

First, I would say you are absolutely right, that when we talk about the drivers of our growth [going for] comp store sales are certainly very important.

But our international development, and as evidenced again today with a new announcement of our agreement with Alsea, is going to be a bigger and bigger piece of our earnings per share growth.

And it's certainly going to impact our margins significantly.

One of the reasons that we are talking about increasing our margins and getting 30 basis points to 40 basis points closer to our peak margin levels in 2013 is because of the leverage that's created on margins by international development.

Just going back to the specifics of the restaurants that we have open internationally, as David mentioned in his comments, the sales volumes at each of the three Middle East locations are quite a bit higher than what we planned for, which obviously has a very positive impact on royalties.

And for some time we've been referring to producing a penny per share in earnings per share as a rule of thumb from each Middle East or each international restaurant that has been open for a full year.

And based on the volume those restaurants are producing, the earnings-per-share contribution, at least from the initial restaurants in the Middle East, is somewhat higher than that.

So that's -- we are factoring that in, we are not predicting going forward that they are all going to be higher, but the average volume from restaurants that we've opened in the Middle East is quite a bit higher than what we had originally planned and what $0.01 per share is based upon.

Yes, and in terms of comp store sales, the first store opened I think it was July or August, so we don't have any records.

Also that's really our partners world of the profit they are making in comp store sales.

We are really just interested in helping them generate sales where we will share in that royalty.

Thank you very much.

Matthew DiFrisco, Lazard.

Thank you.

I just have a couple of questions here as far as clarification.

I think you said, David, that Scottsdale was one of the markets, and then I also see the Beverly Center as far as one of the Grand Lux closings.

Where is the third one?

And I'm just curious are these all relatively close to other Cheesecakes that potentially there could be a direction of sales as you maybe take a large restaurant out of the market?

I don't know if -- they are five miles apart in Scottsdale; one way five miles, one the other way five miles.

It may be a possibility, but again, I don't think people will just automatically go to Cheesecake Factory because they can't go to Grand Lux, although, really, one doesn't know.

The third was in Park Meadows in a suburb of Colorado, and there is a Cheesecake Factory there.

And again, the Cheesecake Factories in Los Angeles, there's -- one is one mile apart, the other is a couple miles apart.

So we will see.

It's possible to get a little business, but I wouldn't want to make that a strong statement to you at this moment.

I have been to the one in Park Meadows and I think you have a Cake in the same parking lot or in the same mall complex.

It is on the other side of the mall, right.

Great, okay.

Then also as far as your comp guidance, again, I'm not going to go back and ask a different way the comp trends.

But looking ahead, have you also factored in Easter in that it falls into 1Q?

I would assume you get hurt on that Sunday of business.

No.

We have factored in Easter.

It is in the first quarter this year.

And -- but it doesn't have -- the fact -- Easter day is not what you factor in about Easter.

What you factor in about Easter is the spring breaks that are associated with Easter.

So spring break, while Easter day may not be a great day for us, spring breaks are certainly great days for us.

So we have factored in that spring breaks will probably be a little earlier this year.

And so we've taken that into account in the best manner we can.

That's good color, thank you.

Also looking at your guidance, it looks like you lowered your CapEx.

Is that correct?

How are you -- where have you found the extra pennies?

It looks like you shaved maybe $10 million of the low end and $5 million off the top end from previous guidance, but yet you kept the number of units the same.

We are just building in a wider range for new restaurant openings.

Historically, if you've listened to our conference calls over time, which I know you have, we refine our CapEx budget every quarter and as we have more visibility into our expected spending, and that's all we are doing now.

Keep it going in that right direction, good.

Last question, license stores or a follow-up to Nicole's here.

I thought earlier in the call there was a mention of about $11 million was the volume you saw in that international store.

But I'm trying to back out the number out of the revenues.

It looks like you're getting about $77,000.

Or when do you think we'll get some granularity?

Will be in the Q, how much royalties were in the restaurant revenue line?

And am I correct to assume that 100% of that royalty, call it $70,000 or $80,000 or so, is on the revenue restaurant revenue line?

Whatever the royalty revenue is in the restaurant revenue line, be $11 million you're referring to was the average unit volumes of the remaining Grand Lux Cafes that are open.

Let's see.

The other part of your question was --

The annual royalty looks like it would be turn out to be $77,000.

So is a quarter of that $77,000 in the revenue in 1Q '13 roughly?

I'm not -- whatever we estimate the -- here's how we do it.

The estimated volume for the restaurants that are open at the beginning of the year, whatever we think they're going to do in the first quarter, multiplied by our royalty rate, is the royalty that's in the first quarter.

And we are not -- we have not discussed ever what our royalty rate is because we don't think that that is what we should do.

Okay.

I was just curious if it's going to be broken out in the Q, just to look at restaurant apples-to-apples (multiple speakers)

We are going to eventually going to break it out when it's impossible to determine what the royalties of our -- from any of the individual restaurants.

When we get 10 or more restaurants open, then we may break out royalty income.

How about another way just to put -- your quarterly comp was very -- your quarterly margin was strong.

Is primarily all of that driven by just organic leverage off of the restaurant, or was there an abnormally large amount of royalties in the fourth quarter of '12?

Not an abnormally large amount.

In fact the third restaurant open on the last day of the fourth quarter so there was none for it, and the other one I believe opened midway through the fourth quarter.

So we had like a restaurant and a half of volume in the fourth quarter.

Beautiful, thank you.

Appreciate all the answers.

Joe Buckley, Bank of America Merrill Lynch.

Thank you.

Just wanted ask you a bookkeeping question on the tax rate.

I realize there is a lot of material in the release, but it looked like the normalized tax rate ex the one-time items was about 24%.

Does that sound right?

No.

For the quarter itself?

Yes.

For the quarter -- so for the quarter itself, our tax rate without -- you've got to -- it's a very complex calculation to do in that when we pull out on the non-GAAP table in the back, pull out those expenses that we think ought to be segregated for purposes of analyzing our results, we tax those at 40%.

And our tax rate obviously is nowhere close to 40%.

In fact we estimated it to be between 29% and 30%.

So I would say that our tax rate for the quarter was more in the neighborhood of a little less than 29% to 30% on a normalized basis.

Okay, so the non-GAAP recognition, the -- like that netting -- what I was doing was taking the net income after tax impact from the impairment of assets and lease terminations, to comparing that to the $9 million, whatever it was, $9.5 million pretax.

Is that not the way to do it, in terms of the tax benefit from the impairment?

I don't really have a response to that, because I don't have that calculation in front of me.

I don't know; maybe we can talk about it more off-line.

But I don't have that information.

So I would say that you've got to -- I know that internally that we struggle with what the tax rate is when we have these one time or whatever, these carved out charges.

So my understanding was that our tax rate was probably a percent or two lower than 29% to 30%.

Do you have another comment, Jill?

I think what complicates the tax rate also for the fourth quarter is that if you look at what our full-year tax rate should be and run through any adjustment to that full-year rate through the fourth quarter.

So it skews that number a little bit, so I would direct you to look more at the full-year rate then just at the fourth-quarter rate.

Which (multiple speakers) on a full-year basis, if you exclude the impact from the impairment and lease termination charges, would've been just a little bit below that normalized 29% to 30% rate.

Okay.

And then a more basic business question, where are you in terms of new menu rollout at Cheesecake Factory?

And you're also -- I guess last call you had talked about some marketing tests, including I think some TV in one market.

Have you done anything more on that front or do you plan to do anything more in the new year?

Do you want to talk about the first part (multiple speakers)

We are right in the middle of it, Joe.

It takes amongst rollout Cheesecake Factory.

We are already into, I think, the second or third month of this rollout.

It will be done in a few months, and the Grand Lux rollout will begin in a couple of months.

So we do the same thing every year, and this year is no different in terms of new menu items.

And then --

On the marketing piece, as you know we use marketing to strengthen and protect our brand.

We use it to defend our market share, and we did a test a pretty unique campaign that was purely focused on brand awareness.

There was no offer, no call to action, there was really no -- even any copy in the ads.

We used radio, we used billboard and outdoor, in-mall advertising in one market for a couple of months to see how customers would respond to it.

And it was part of the brand building that we were doing, and we plan to continue to do the test, adding a new market this year.

And to further our learning is what I would say about what mediums are -- radio versus billboard versus in-mall, what moves the sales needle the most.

And can it be sustained.

Can it be sustained, and we are still measuring the sustainability.

We still have some residual sales from what we did in the test market.

And ultimately, then, looking at what level of return we can get from these types of campaigns.

So we are happy with our test and we are doing some more.

Okay, thank you.

Will Slabaugh, Stephens.

Thanks guys.

I wonder if you could comment just briefly on the geographies and how those played out during the quarter, if you saw maybe any variability between California, Texas, the East Coast etc.

outside of the storms.

It's hard to say outside of the storms because I don't have it broken out by geography.

But as you would expect the regions that are impacted by the storm was very volatile.

I would say all other regions were positive to -- I'll call it approximately flat.

The areas of strength included places like Texas and the Northwest and California.

Got you.

And just one quick follow-up here on cost of sales.

I wonder if you could talk just a little bit more about the moving pieces there in the quarter.

And I realize that was down year-over-year, which was nice to see, but the sequential move was a little bit more maybe than I anticipated, so could you speak to kind what was going on in that line item?

So cost of sales was just about 30 basis points less than last year.

We had two things that primarily were driving that.

One is we had favorability in the bakery, particularly with respect to dairy cost.

So the bakery paid substantially less for dairy than they did in the previous year, and that impacted the cost of sales line.

We also had a bakery mix shift.

That's how we refer to it.

What we mean is the bakery's sales as a percentage of total sales were lower, and that brings cost of sales lower because the bakery's cost of sales were higher.

John Ivankoe, JPMorgan.

Thank you.

I think just a few follow-ups if I may.

Firstly, was there any preopening from the international units that was booked in the fourth quarter?

No, higher preopening in the fourth quarter was mainly due to opening more restaurants in the fourth quarter this year than last year.

Okay, and obviously there's some timing in that number as well.

Sure, right, because it's not just the restaurants were open specifically in the quarter.

It's the restaurants that are open in adjacent quarters.

Of course.

Secondly, could you quantify the margin savings from the closed Grand Lux on 2013?

I assume it could be measurable.

It's three restaurants on a base of 180.

So it's not really that big a deal.

But you know, I don't know, could margins be 20 points less or something at those units?

I would assume that you would keep them open if they weren't -- if they were making any cash at all.

Well, you can assume we did a thorough analysis and made a decision based on what cash they were or were not generating.

But I can tell you that the margin impact from closure of the Grand Lux is measurable, but it's not that big a number.

Okay.

And then finally, decisions on pricing -- and I'm sorry if I may have missed this.

Decision on pricing for 2013, are we in the consumer environment where you kind of continue at 2%-plus pricing throughout the year?

I think we are looking at 2%.

I think for the first quarter we're going to have about 1.8% in the menu.

And then we have in the third quarter rolling off about 0.75%.

So we will see what we think we can do up against that.

But I would say we should be, for the year, pretty close to 2% is what we see right now.

Okay, thank you.

That's it for me.

Sharon Zackfia, William Blair.

Good afternoon.

Most my questions have been answered, but I was hoping you could update us on the performance of the small format Cheesecake Factories, and how many of those are you planning for 2013.

And you may have said this, but I think I must've missed which Cheesecake Factory was actually impaired.

We didn't say that, and I am probably not going to disclose that, because I don't know that that does anything for us.

But I would say with respect to the small formats, the restaurants that we've opened in the last three years are -- and this continues to be true, and we've said this before, continue to perform better from the metrics of sales per square foot and sales per seat about 10% better than the average.

And many of those restaurants were what you're calling the smaller format restaurants.

So, our newer restaurant, which include a big component of smaller format restaurants, are performing very well.

If you won't talk about which Cheesecake was impaired, is there anything you could tell us about what you think went wrong with that?

Is it a recent site, is it an older site, is it an area change?

It's a site that is about -- I think it's about 10 years old.

Sharon, we just went through the same process from an accounting standpoint, in analyzing this restaurant as we have with other restaurants that we have impaired in the past.

When we impair our restaurant, what we do is we estimate its future cash flows to determine whether we think we can recoup our investment.

And this restaurant (multiple speakers) -- it was, that's right.

The restaurant opened 10 years ago.

It was one where we made a higher than typical capital investment on.

And the current sales level and our projection of future sales and the resulting cash flow from those didn't reflect our ability to recoup our investment over time, so we impaired the restaurant.

Thank you.

Mitch Speiser, Buckingham Research.

Thank you.

Doug, did you disclose the average weekly sales growth metric in the fourth quarter, or can you, if you didn't?

I didn't; I can.

It's a little bit confusing.

Here's what I'll do.

The average weekly sales growth is 1.8%.

And I think that what people are usually asking when they ask this question is trying to get at the performance of our newer restaurants that aren't in the comp base, and I just did comment on that and how well they were doing.

The gap between the average weekly sales and comp store sales is really driven by the difference in the operating versus fiscal week comparison.

This is where it gets a little bit dicey and hard to understand.

The revenue or the average weekly sales number is a fiscal period number, but in order for comparable sales to be truly comparable, that number is an operating week number comparing like weeks.

It's the reverse of what we saw in the -- and we spend a lot of time explaining, as I remember, in the first quarter of the year when average weekly sales trailed comp store sales, because if you remember, this big week of sales was captured as a 14th week of the fourth quarter of 2011.

So this is just kind of the opposite of that.

So I wouldn't say having 1.8% average weekly sales in the fourth quarter would give you any kind of indication of how new restaurants are doing, although that might say -- that might tell you, well, that shows that they are doing well.

Well, it really isn't showing that.

I'm telling you they are doing well, but this particular comparison is not relevant because of this whole 52-week, 53-week year which I really can't wait until we are beyond that.

Got it, no, I understand there's some noise in the numbers.

My next question is on the international stores.

Were there any upfront fees that you booked in the fourth quarter, and is there any lumpiness in 2013 in terms of any one-time fees as you build out the international stores?

I think there is lumpiness in international, and what happens is that we do have upfront fees, we have reimbursements.

And often the expenses associated with those, we also have expenses associated with a lot of these reimbursements.

And they will and have been happening in different quarters than each other, and I would expect that that would continue in the future.

So there will be lumpiness, because we have -- our agreement provides for reimbursement of certain expenses, design fees as I talked about maybe, other reimbursements and site fees for instance.

And these offset each other in many quarters and sometimes there will be a little more revenue in one quarter than another, or a little more expense in one quarter than another.

But it's hard to say.

Okay.

Maybe if I could ask just a broader question on international, or your guidance for 2013 has 30 to 40 BPS of margin improvement.

Can you give us a sense of how much of that might come from the international segment?

A good piece of it, I would say.

I would say the majority of it, say 30 -- 20 to 30 basis points is coming from international.

Of course it depends what assumptions you made about international.

We made the assumption where we know the volumes of the three restaurants that are open now.

And we have to assume or make an assumption of when the other restaurants will open, which we are not in control of directly, and then how much volume they'll do.

And so I would say up to 30 basis points of margin improvement can come from international development alone, because there's not that much costs associated with that royalty stream.

And so as we get more and more international restaurants open -- and a signing of this new international partner, in Alsea, is a big deal for us because we will have a second partner that is opening restaurants internationally.

And if you look forward at the mid-teens earnings per share growth that we have talked about many times, a lot of that growth is going to be driven by international development.

And a lot of our margin improvement toward peak margin levels is going to be driven by international royalty streams.

Great, thanks.

And my last question, there will be a couple of closures of Cheesecakes this year.

I guess relocations, which means you will be closing a few.

Can you give us the timing, the potential timing of these closures throughout the year?

We plan on the closure and the reopening of the other unit to be in such close proximity to each other it really doesn't matter.

(multiple speakers) Yes, it's really -- it's really that we have a chance, we have leases that are getting old, getting close to expiration time.

We have a chance to be able to relocate a restaurant and choose not to renew a lease because -- and we are only doing that because economics are accretive to us.

So while you might want to say that 8 to 10 new restaurants, two relocations that you net those out, it's not entirely a netting, because we wouldn't be doing this if we didn't think that the earnings per share that was going to be generated from the new restaurant -- we expect them to be greater than the earnings per share that was generated by the old restaurant, perhaps significantly.

Understood, thanks very much.

That concludes our conference for today.

You may now disconnect.

Have a wonderful day.