Cheesecake Factory Inc (CAKE) 2013 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter 2013 The Cheesecake Factory earnings conference call.

My name is Jackie and I will be your coordinator for today.

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

Following the prepared remarks there will be a question-and-answer session.

(Operator Instructions).

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

I would now like to turn the presentation over to Ms. Jill Peters.

Please proceed.

Thank you.

Good afternoon and welcome to our fourth quarter fiscal 2013 earnings call.

I am Jill Peters, Vice President of Investor Relations.

On the call today are David Overton, our Chairman and Chief Executive Officer; David Gordon, our President; and Doug Benn, our Executive Vice President and Chief Financial Officer.

Before we begin let me quickly remind you that during this call items 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 factors detailed in today's press release, which is available in the investor section of our website, TheCheesecakeFactory.com, and in our filings with the Securities and Exchange Commission.

All forward-looking statements made on this call speak only as of today's date and the Company undertakes no duty to update any forward-looking statements.

David Overton will 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 2014 as well as the full year.

Following that, we will open the call to questions.

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

Thank you Jill.

As we think about the fourth quarter and 2013 overall, there are some key points that I want to highlight.

First, we've just completed our fourth straight year of delivering positive quarterly comparable sales at full margins without discounting.

And we outperformed the casual dining industry in nearly every quarter during this time period, including in the fourth quarter of 2013.

Excluding the weather impact, our comparable sales in the fourth quarter were within our expected range despite the softer retail sales in the malls this holiday season.

Second, we grew operating margins by about 40 basis points in 2013 as we make ongoing progress toward our goal of recapturing peak operating margin levels.

Third, we continued to expand in 2013 with the opening of nine Company-owned restaurants, including two restaurants with record-setting opening week sales and three relocations that are delivering higher sales volume than their previous locations were.

In addition, The Cheesecake Factory entered a new country last year with the opening of a restaurant in Saudi Arabia.

Under a licensing agreement, the restaurant opened to long waits and huge demand.

And, finally, in 2013 we returned over $210 million in cash to shareholders through dividends and share buybacks.

Overall 2013 was a solid year.

Our business is healthy, we are competitively well-positioned, and our execution remains strong, translating into dependable performance.

We achieved a significant milestone to start off 2014, being recognized by Fortune Magazine as one of the 100 Best Companies to Work For.

We are honored by this and I am personally very gratified.

We have the best talent in the business and our leadership position in casual dining is made possible by the more than 33,000 people who work here.

The recognition from Fortune acknowledges the hard work and commitment of our team, and we believe that this will help us to continue to attract and retain the best talent in the industry.

This year we expect to open as many as 10 to 12 Company-owned restaurants in a mix of new and existing markets, including one relocation consistent with the plans we shared with you in October.

Our first new restaurant of the year opened yesterday in Syracuse, New York.

The timing of international openings is subject to change for a number of reasons.

However, we continue to expect as many as 3 to 5 restaurants to open in the Middle East and Mexico under licensing agreements.

We anticipate that 2014 will be a solid year for us, with a nice acceleration in both our domestic and international expansion plans.

In addition, we are [looking] for continued comparable sales outperformance relative to the industry, growth in earnings per share, and again, returning a healthy amount of cash back to shareholders.

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

Thank you David.

The revenues at -- total revenues at The Cheesecake Factory for the fourth quarter of 2013 were $475.1 million.

Revenues reflect an overall comparable sales increase of 0.9%, which includes a significant impact from severe winter storms that affected our restaurants, primarily in the Northeast as well as the Midwest.

The inclement weather reduced comparable sales by approximately 70 basis points.

We believe a better measure of the underlying strength of our business is to look at our comparable restaurant sales without the weather disruption, which reflects an increase of 1.6%.

Comparable sales increased 1.1% at The Cheesecake Factory and declined 1.1% at Grand Lux Cafe.

The Cheesecake Factory continues to outperform the industry while Grand Lux Cafe's sales performance is more in line with the industry.

External sales at the bakery were $17.1 million for the quarter.

Cost of sales was down 140 basis points in the fourth quarter of 2013 at 24.4% of revenues versus 25.8% in the prior-year quarter.

The favorability stemmed primarily from a mix shift between bakery and restaurant sales, as well as continued lower grocery costs, with favorable wheat and corn prices benefitting items such as pasta and oils.

Labor was 31.6% of revenues in the quarter, 30 basis points higher than the fourth quarter of the prior year.

Labor productivity was impacted by reduced efficiencies brought on by the winter storms, which was partially offset by the benefit from a bakery sales mix shift.

Other operating costs and expenses were 24% of revenues for the fourth quarter, up 10 basis points from the fourth quarter of the prior year.

We did a pretty good job of managing other operating expenses, again considering the winter storms, with workers' compensation costs a little bit higher.

G&A was 6.2% of revenues for the fourth quarter, up 40 basis points from prior year.

The increase was expected and was driven primarily by higher equity compensation costs.

Although we granted fewer shares of equity this year, our expense is starting to increase because lower-priced options are now dropping off of our equity expense calculation.

Depreciation expense for the fourth quarter of 2013 was 4.3% of revenues, up 20 basis points from the prior-year period.

The increase was driven by timing of depreciation expense on IT asset replacements, as well as some deleverage on lower bakery sales.

As noted in our press release, we recorded a net pretax benefit of $3.8 million during the fourth quarter related primarily to the relocation of two Cheesecake Factory restaurants.

In connection with the early termination of one of our leases, we received financial consideration from the landlord in the amount of $4.9 million.

This was offset by $1.1 million of asset impairment and accelerated depreciation expense.

Preopening expense was $4.9 million in the fourth quarter of 2013 versus $4.8 million in the same period last year.

We had six restaurant openings in the fourth quarter of 2013, including three relocations, versus four openings in the same period of the prior year.

For the full year our tax rate was 26.9%, better than our expected rate of about 28%.

The primary reasons are significant gains on our investments used to support our deferred compensation plan, which are nontaxable, and lower state income taxes than expected.

In summary, the fourth quarter was solid relative to the industry trends and within our expectations.

Weather disruptions present many challenges for restaurant operators, and our team prudently managed their restaurants.

The winter storms cost us approximately 70 basis points in sales, equating to roughly $0.02 in earnings per share.

Cash flow from operations for the full year 2013 was approximately $205 million.

Net of roughly $106 million of cash used for capital expenditures, we generated about $99 million in free cash flow for the year.

During the fourth quarter we repurchased 1 million shares of our common stock at a cost of $48.1 million.

For the year we repurchased 4.5 million shares of common stock for $183.7 million.

Together with dividends we returned $211 million in cash to shareholders.

That wraps up our business and financial review for the fourth quarter of 2013.

Now I'll spend a few minutes on our outlook for the first quarter 2014 and an update on the full year.

As we've done in the past, we continue to provide our best estimate for earnings per share ranges based on realistic comparable sales assumptions.

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

For the first quarter of 2014 we estimate diluted earnings per share of between $0.48 and $0.50 based on an assumed range of comparable sales between flat and up 1%.

Bear in mind the following items with respect to our comparable sales assumption range.

First, we estimate that approximately 50 basis points in sales will shift from the first quarter to the second quarter of 2014 due to Easter and the surrounding spring breaks taking place in April this year versus March last year.

Second, we've seen a significant impact from the storms affecting the Northeast, Southeast and Midwest quarter-to-date.

As a result, we factored in a 90 basis point impact to our comparable sales assumptions for the impact of storms that have occurred through yesterday.

We are maintaining our guidance for the full year 2014 with estimated diluted earnings per share in a range of $2.29 to $2.41 based on an assumed comparable sales range of between 1% and 2%.

We expect that our trend of comparable sales outperformance relative to the industry will continue.

And while the high end of our range assumes that comparable sales accelerate relative to 2013, we believe it is reasonable and achievable.

Our outlook for food cost inflation in 2014 has improved relative to where we were last October.

We are now planning for between 3% and 4% inflation in 2014.

Our expectation for higher shrimp and salmon cost hasn't changed much.

But we are anticipating lower costs in a number of other categories.

With the downward revision in food cost inflation, we are now planning for menu price increases for this year of about 2%, in line with our historical practice as we try to balance our need for protecting margins with our desire to grow guest traffic.

As to our corporate tax rate, we expect it will be about 29% in 2014.

As we noted earlier, we saw substantial gains on our investments used to support our deferred compensation plan in 2013.

We are not assuming a repeat of this in 2014, thereby reducing our expectation for nontaxable gain.

In addition the Work Opportunity Tax Credit has not been renewed for 2014, so our estimated tax rate does not assume a benefit from this program.

Our total capital expenditures are now expected to between $110 million and $120 million for planned 2014 openings as well as expected openings in early 2015.

With respect to capital allocation, our earnings per share sensitivity range for 2014 assumes we will continue to use substantially all of our free cash flow for dividends 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.

I'm going to try to finesse this just a little bit, Doug.

Could you just clarify on commodities, they are more favorable than you thought but dairy is probably the main one that has gone up significantly.

So are you incorporating a view on dairy?

Have you locked in dairy, particularly cream cheese, or is that still a risk?

And then that's the clarification.

Just in terms of the traffic, there's been a lot of debate about mall versus non-mall performance.

Can you, David or Doug, talk about the relative performance of your mall versus non-mall stores?

Has there been any difference that would be notable?

Yes.

First of all, with respect to the commodity costs, we are -- they are better than what we thought they would be back last October when we gave our guidance.

And a few things have gotten better, and that's what is allowing us to say that we are now planning for 3% to 4% inflation.

Bread for instance, it's better than what we expected it to be.

Some of our meat is better, some of our cheese is better and some of our grocery items are better.

There's not any less risk, I don't think, associated with dairy.

We are about 50% contracted for 2014, which is consistent with how much we had under contract at this time last year.

So the shrimp and salmon, we still expect right now, based on what we know for it to be, about what we thought it was going to be in October, but some other things have come down.

And then the mall versus non-mall stores?

This is David Gordon.

We really didn't see any differentiation between the mall and non-mall.

The majority of our restaurants are in mall locations, but for the most part there really was no variability between the two.

I think that a lot of people go window-shopping and they go out to eat, and they want to get out and it's an enjoyable evening.

And many of them will go back and order off the Internet.

So although sales might be down, many times there's a lot of people and they are really there to enjoy themselves, eat, and window-shop.

So we are really not noticing any difference even though mall sales have been down.

Great, thank you.

That's helpful.

Michael Kelter, Goldman Sachs.

I wanted to just continue that line of conversation around the shift to eCommerce.

Are there things that you guys think about that you need to do differently if the current trends continue, whether it means proactively driving more people to your restaurants directly, versus maybe relying on mall traffic?

Or are there units you might need to relocate from maybe a B mall to an A mall elsewhere?

Anything else that you guys think about you need to do to adjust your business given the shift?

Not really.

First of all, I don't think we are in any B malls.

I think we are only in A malls.

And we have our own door.

We are always -- we've always brought business to malls versus feeding off of there.

It's nice to have shoppers there, it's nice to do mid-afternoon a little extra business, but we are busy after the mall closes.

We are busy with many, many people outside the mall, so we don't really depend on malls.

We like shopping; we don't like business parks, where lunch ends right at 2.

But we are really a standalone restaurant.

And when we choose a restaurant, we think of every -- we get parking, we get the door, we are looking for the outside area of the demographics.

And we really don't care that much how -- what the exact sales of the mall is.

I would even add that even at times when the mall is not open, Sunday brunch we open at 10 o'clock.

The majority of our malls aren't open until 11 o'clock on those days, or late-night when the mall is not open, the traffic is still destination traffic, still coming to see us, not necessarily mall traffic coming to shop within the mall.

Maybe the other side of the conversation on technology, one was the commerce threat that some perceive, and the other is the benefit.

Just kind of curious to hear from you guys, a lot of restaurants are starting to talk more and more about loyalty apps, mobile payment, tabletop tablets; different things for different concepts.

What does technology mean for Cheesecake?

I think we're going to be careful when it comes to technology.

The core of our business is wonderful hospitality and delicious memorable food.

And our strategy is to improve in those two areas continually, as we have every year for 35 years.

Where technology can add value to the guest experience, we will be very careful and analyze that.

Something as simple as whether or not we would do text paging in a market versus actually handing out pagers.

But right now we don't have a roadmap that talks specifically about adding technology for the sake of adding technology.

I doubt very much that we're going to do tablets.

I think that's great for Chili's and that level, where people are coming in for one experience.

But for us, they are coming in for a very different experience and I think they want to be waited on and served.

So there might be some things out there, but a lot of the things that people are talking about right now I don't think will be right for our concept.

Very helpful, thank you.

Joe Buckley, Bank of America Merrill Lynch.

Excuse me, thank you.

This may be obvious based on some of your comments, but did sales tail off as the quarter progressed?

Was December noticeably weaker than the prior two months?

The answer to that is yes.

October and November were the two strongest monthly sales that we've seen, really throughout all of 2013.

In fact at the end of November, we not only had strong positive sales, but we had positive guest traffic as of the end of November, obviously with some help from lapping Hurricane Sandy from last year.

And December was soft due to the winter storms, and we were also lapping our toughest comparison of the year in December.

So that's kind of how the month by month within the quarter shook out.

Okay.

And one more if I can.

Would you comment on the relocations?

I guess you have three of them now.

And I don't know when they were done in the quarter, but most curious, I guess, on the sales lift you're experiencing?

We are pleased with the sales lift we've seen in all three of them.

They were spread out a little bit.

One was at the beginning of the third quarter; the other two were in the fourth quarter.

And all three of them have seen greater average weekly sales than in their previous location, and they are all in terrific mall destinations within a mile to three miles of their previous location.

And guests have been receiving them very favorably.

Okay.

Can you clarify at all the sales lift, or is it too early?

A little too early.

Okay.

Fair enough, thank you.

Jeffrey Bernstein, Barclays.

Great, thank you.

Just two questions as well.

First, following up on -- from a comp perspective, you mentioned in the press release just about your particular strength in California.

Just wondering if you can talk a little bit about whether you think that is a strengthening market in California, specifically, or whether for some reason you are taking share in that market, and whether you can provide any other markets that skewed stronger or weaker.

Just seems like even if you add back the weather, your comp for the full quarter would've been I guess a 1.6%.

And your guidance for the full quarter, that would be at the very low end.

Just trying to figure out ex the weather, what might some of the other drivers have been and what particular markets might be impacted in that.

And then I had a follow-up.

As you would expect, the regions that were impacted the most by the winter storms where the softest.

That's the Northeast, the Mid-Atlantic, the Midwest.

But California has been an area of strength for us for quite a number of quarters in a row now, and so that's our largest market.

So they were up.

The Southeast was very strong as well as was Florida.

So we didn't really see any big changes geographically, other than for the weather, than what we have been seeing in general during the fourth quarter.

Got it.

But do you think it's Cheesecake specifically in California doing something different?

I don't know if the whole market is just getting better and all your peers are seeing the same thing, or whether you think you're taking share from those competitors.

I think we are taking share from competitors in California.

Got it.

And the fact that I guess later on in the quarter, it seems like the comp was at the low end of the range.

I didn't know whether you attribute that to anything in particular, other than the weather, because I know you kind of guided us last quarter based on what you knew through that date.

It seems like it might have slowed; I wasn't sure if there was anything else to attribute that to.

I don't have anything specifically to attribute it to.

It was -- if we take out the weather, it was within the range.

So we would like for it to be at the high end of the range, but it wasn't.

I don't know that I have anything in particular to attribute that to.

And just the other question was the international, I guess it's still 3 to 5 units and you kind of mentioned that it's very difficult for you guys to forecast it, being that you are not the person opening those units.

Should we assume similar -- I know your first few units were so much stronger than most people would have anticipated, whether these units are similarly going to be on the corner of Main & Main, and therefore pushing closer to $0.02 per unit to earnings rather than your run rate for some longer-term more like $0.01 per unit per year in opening?

I would say -- the way that we've modeled it is we don't model it as if they are going to be $0.015 or $0.02.

But we are -- when we open in a new market like Saudi Arabia, we are getting one of the best locations in those markets, and we are doing substantially higher volume.

So could that continue?

Yes.

We have -- we will open our first restaurant in Mexico.

We don't really think right now that Mexico is going to be as strong a market as Dubai was, but we don't really know.

So it's a brand-new market.

When it's a brand-new market, we are very well known and there's some presold-ness, if you well, to our coming there and some anticipation.

You know, they could open up higher.

But we model it as if they do average -- average about what they average in the United States.

Understood, thank you.

David Tarantino, Robert W. Baird.

Good afternoon.

Doug, just a couple of clarification questions.

First on the comps, when you quantify the weather impact, is that just the weather impact from the storms in December, or did you net out the benefits from cycling Hurricane Sandy?

No, we didn't net out the benefit.

We just -- we included that benefit into the guidance that we gave of [1.5 to 2.5].

So we did that.

So that was incorporated in the guidance.

And so what we did was just add back the negative weather for December.

Understood, okay.

Thank you.

And then could you break out the check and traffic?

I might've missed that, but did you give those two components?

No, I didn't give it yet.

But I can do that; no problem.

So the traffic was down about 1%.

Price was about 2%, so mix was about flat, just slightly negative.

The mix has been about flat for four or five quarters in a row now.

So that's a good trend.

So, to get traffic closer to flat we will have very strong comp store sales.

Great.

And then one question to help reconcile the earnings for the quarter.

If my math is correct and adjusting for the tax rate, it looks like earnings came out about $0.04 below low end of your guidance, again adjusted for the tax rate, and weather issues you mentioned were $0.02 of that.

And I'm just wondering what the rest of it might've been.

And possibly was it related to bakery sales or other factors that are outside the restaurant?

Some of those were related to bakery sales.

All those numbers that you threw out, they are estimates.

What I would say is that roughly the lower tax rate offset was -- offset the negative from the weather.

But we also did have a few other things that were higher from a timing perspective than what we originally thought they would be.

For instance in G&A, legal and professional fees were a little bit higher this quarter and G&A was up more than what we anticipated with respect to that.

That was maybe 10 basis points.

So there were some other smaller things in there.

But generally the quarter, you could say the tax rate change offset the impact of the weather, because the weather might've been a little more than $0.02.

It's all -- there's some rounding in there too.

Great, that's helpful.

Thank you very much.

Jeff Farmer, Wells Fargo.

Thank you.

Just following up on the earlier international question, as you guys pursue additional development in new markets, do you have an opportunity to leverage that existing infrastructure you have in Calabasas?

Or do you expect to add, I guess, incremental investment sort of lockstep as you enter those new markets?

I'm really just trying to get a better read on how much leverage there is on this international business as you continue to expand.

Yes, we sort of did a step function increase in our international investment in 2013 when we set up an international department.

So, as we add new restaurants, where we have to add additional people international, we'll certainly not initially.

There's people throughout the Company that are in purchasing and other areas of the Company that are involved in international that that impacts their day jobs, if you will.

And there's some headcount that has already been added or might be added associated with that.

But the majority of the international G&A was put on board this year.

Okay, thank you.

Brian Bittner.

Thank you.

Just a clarification question, Doug.

Is the 90 basis points that you have assumed have been lost from weather in the first quarter, is that what has been lost so far just based on storms that have happened?

Or does that anticipate further lost sales from potential storms that could arise like the one coming now?

That -- as I said in my prepared remarks, what I said is that incorporates all the bad weather through yesterday.

So we didn't factor in any extraordinary weather events that hadn't happened yet through yesterday.

So I guess another way of saying that, we are assuming a normal winter weather pattern for the rest of the quarter.

Not that there will be no weather, but it will be normal winter weather pattern.

Okay, thank you.

Nicole Miller, Piper Jaffray.

I was on mute, I apologize.

For the 10 to 12 stores this year, can you talk to us about the Cadence by quarter, and then also where they will be geographically?

On the back quarter, we would expect more restaurant openings in the first half of the year this year than we did last year.

So maybe two or three of them opening in the first half of the year, we already opened the one in Syracuse, as we said at the start.

Geographically, the mix is all over the place.

So we just want to adjust, obviously, our preopening, then, accordingly, right, because there will be opening more in the first half this year?

Yes, I would adjust the preopening.

Obviously part of what is impacting year-over-year earnings per share in the first quarter is the fact that we had preopening expense, more preopening expense the first quarter this year than we had in 2013.

So, yes, you would need to front-end load it just a little bit more.

I wouldn't go overboard on that because out of the ones opening in the second half of the year, I would probably put more of them in the fourth quarter than in the third quarter.

That's very helpful.

And then just real quick on the comps, if you look at January, February, March of last year, can you give us an idea of what was the easiest and what makes the most difficult compare as you cycle through this weather, please?

Yes, well, March is definitely the most difficult compare.

I'm trying to find exactly where that is in my notes here.

But March is definitely the most difficult compare.

Hold on just a second.

Yes, because if you remember last year, in March is when Easter happened and spring break happened, and that is a big benefit for us when those things happen.

It doesn't seem to be the same or as big a benefit from -- for others, but it's a big benefit for us.

So we know that we are going to be down in March relative the last year, more than likely, because we are not going to have spring break to rely on in March this year.

We'll have it to rely on in April.

So we would expect April to be up compared to last year.

So, basically, March was by far the best month in the first quarter last year.

Thank you.

Andy Barish, Jefferies.

Hey guys.

Should we kind of think about 2014 as a pause in your margin progress back to peak margins, just given some of the commodity inflation and some of the labor stuff that you've talked about in the past?

Well, as you said, we have done a good job of improving operating margins in the past five years, and 40 basis points in 2013.

In 2014, I would -- we are still modeling that we're going to get a slight improvement in operating margins this year.

Maybe [1/10th, maybe 2/10ths], but not as big as what it was.

We are expecting an increase on the cost of sales line because that inflation is more than the menu pricing that we're going to take.

We are expecting G&A to be up, but for -- but we are expecting to have lower -- higher margins, lower costs on the other line items in the P&L such that we will get, I would think by the end of the year, a slight benefit.

Thank you.

Sharon Zackfia, William Blair.

Good afternoon.

Doug, maybe you could kind of expand upon what the California minimum wage increase in the back half of the year, it sounded like maybe you were expecting labor to be favorable this year.

Are you going to take more price in California when you think about that?

And then I think on the last call you kind of left open the question as to whether or not you would price shrimp and salmon kind of more aggressively this year.

I'm not sure if you commented on that specifically.

Yes.

Let me talk about that first.

We have -- we are in an environment now where we are expecting lower commodity cost inflation than we expected in October.

So with that, we have decided to go more back toward our historical pricing of taking 2% pricing.

When we were talking about pricing to shrimp and salmon, we were talking about just a little bit more pricing, 2.25% or so.

But in the environment we are in and the sort of sluggish consumer environment, we would rather not raise prices any more than we have to.

And so we are going to go -- as opposed to still doing that more heavy pricing, we are not going to do that.

We are more going to go to historical pricing.

And then the first question again, remind me?

The California minimum wage.

Yes.

The minimum wage, it's obviously going up in California this year.

We factored that into our guidance.

It goes up on July 1. It's right now we factored in between $2 million to $3 million in pressure from minimum wage increases, mostly in California.

And we've factored that in, and that's in the guidance that we gave.

Thank you.

John Ivankoe, JPMorgan.

Hi, thank you, as you can hear me; I'm sorry.

Actually just a question on weather, and there's been kind of a lot of talk about it, and I wanted to ask something slightly differently, and hopefully not too nitpicky.

With a lot the West Coast having record dry and record warm weather, we used to talk a lot about patio sales that either benefited or were perhaps negatively impacted if there was a lot of rain, for example, in those markets.

Were you able to look at things like productive patio seating, especially during some of the weeks, like in December when you were the most busy, when arguably the weather was the best, or I guess the most abnormal?

In California the weather has been pretty consistent for the past two to three years.

So our patio capacity has been pretty stable for the past two or three years.

So I don't really know that we had any real benefit, because it was really I think --

We just didn't lose it.

We just didn't lose it.

2013 I think was the least amount of rain on record in California, but the year before was probably the record before that.

So we didn't really lose any weather, and we used those patios to their full capacity as much as we could.

Okay.

Fair enough.

And then secondly, if I may, really quickly on bakery sales, obviously that's always kind of volatile.

So is there a good outlook in 2014, does that continue to grow?

And if I may, how much did -- well, it looks like less bakery sales in the fourth quarter.

How much did that affect COGS and labor?

Because I know that the movement in the net line affects other lines around your P&L.

Yes.

So the mix of restaurant sales to bakery sales, so bakery sales were down, restaurant sales were up.

So the mix skewed more heavily toward restaurants, and that, out of 140 basis points of cost of sales benefit compared to the previous year, helped by about 100 or 110 of that.

So it was a pretty big piece of the cost of sales improvement.

Now there were some other reasons cost of sales improved as well, but that was the biggest.

With regard to bakery sales, for the last few quarters, there's been a decline in external bakery sales.

And that we have talked about stems from lower sales to warehouse clubs.

And our bakery team has been working to identify additional distribution channels with a better mix between sales volume and profit.

You could say that we are migrating to a broader sales portfolio with less concentration and higher profit margin.

So if you look at -- if we broke out the profit associated with the bakery, it's not down anywhere near in line with what sales are.

In fact, profitability in many aspects is improving.

So we would expect this approach, this broader sales approach with less concentration of higher profit margins, will help stabilize.

And we would expect year-over-year bakery sales, certainly by the second half of 2014, to be much more stable.

Okay.

Interesting, thank you for the color.

Matthew DiFrisco, Buckingham Research.

Thank you.

Just have a couple of clarifications and I do have a question.

I know how you love to talk about the same-store sales in depth here about the guidance.

I don't mean to be harping, but as far as what you took into account, I just want to clarify.

I would assume Valentines moving to a Friday from a Thursday, something like that impacts comps in the outlook as well as something -- the nor'easter last year.

I think it started in February 8 and ended around 11 or 12.

So I'm curious, all those factors are included sort of in that 0.9 drain or weight on the comp guidance?

Let me answer them one at a time.

So we have factored in the shift of Valentine's Day into our comp guidance.

That's obviously not a positive.

Valentine's Day obviously is a busy holiday and is shifting to an already busy day of the week.

That's in guidance.

And you mentioned there are other nuances as well in the guidance that we gave, all of which has been incorporated.

For instance, we were lapping 60 basis points, approximately, in bad weather impact from last year that helps our comparison this year, and we've already benefited from a lot of that in the quarter, some more to come.

But that's all factored into the guidance that we gave of 0% to 1%.

Excellent, just wanted to clarify that.

And then, as far as your guidance, I heard in the CapEx, it sounded like you lowered that on the high end by $10 million, the CapEx.

I didn't hear free cash flow.

Did you improve your outlook for free cash flow as well?

We think free cash flow is going to be about $120 million for the year.

And I think we just tightened up our capital expenditure thoughts for the year.

That's why the top end of the guidance came down.

Good.

You tightened it up in the right direction.

The last question I have, with respect to the smaller store formats, you had a couple of stores now open, the 8000 square foot store for approaching about a year or so now, and -- or a little over a year, stores like in Tennessee.

Are you seeing the similar type of consumer?

Is there any difference in that consumer when you open up in smaller markets?

Is it in income-wise on a relative basis to that region?

Is it -- is the brand being used any differently?

Or is there any sort of physical appearance you think that is making the brand get used differently with a smaller format versus the more grand-looking stores?

I think even though those restaurants are smaller format, they're still just as grand.

When you walk inside, they are still beautiful and the guest feedback is tremendous.

I'd say those guests are behaving, acting, and purchasing just the same way that all of our guests have in all the other locations.

And that's really positive.

Those are some of the best openings that we've had over the past few years are in those markets.

And Syracuse continues to be another one, and we are off to a great start there as well.

Excellent.

Doug, just clarifying; when you relocate a store, are those new stores, are they included in the comp base?

Or are they left out of the comp base?

They are left out of the comp base.

It's hard to know how comparable the new restaurants would be.

The size could be different; the trade areas, while better, they are different, too.

And given that we are only talking about a handful of restaurants, it really doesn't make a material impact one way or another.

I'm just trying to figure out average weekly sales versus same-store sales and the gap there.

I would assume you're taking out underperforming -- not underperforming, but softer versus the store that's replacing it, which isn't in the comp base.

So, in theory, your average weekly sales would potentially outpace your same-store sales?

Yes.

So, this quarter, average weekly sales were up 2.4%.

So they are outpacing same-store sales.

But the reason for that, remember, we discontinued the operation of three underperforming Grand Lux restaurants in the first quarter of 2013, and that's not part of this year's average weekly sales calculation.

And I think really in addition, the performance of newer restaurants and the sales metrics associated with newer restaurants, including relocated restaurants, has been strong; certainly above average.

And that contributes some to that gap as well.

Excellent, thank you.

Brian Elliott, Raymond James.

Thank you.

And this is tongue-in-cheek, Doug, but did you factor in Atlanta being an ice den for the next three days in your guidance?

I see you have power.

Yes.

We've got (multiple speakers)

We are ahead of expectations.

I figured I had until maybe 2 o'clock this afternoon before one of the trees would take out my power, but it hasn't yet.

So -- but I expect to wake up in the dark tomorrow for sure.

But anyway, I did want to ask about the bakery, clarify your comment there.

Did I hear you right; you said the bakery profit was actually up year-on-year despite the sales decline?

The bakery profit was -- I didn't say that the bakery profit was up or down.

What I said was the bakery profit, it was slightly lower, but it was not anywhere lower compared to the -- it was not commensurate with the decrease in sales by any means.

Okay.

So the margins were up, but (multiple speakers) okay.

So the [EBIT dollars] were down a little bit.

So that was part of the EPS miss.

Okay.

That's all I had, all my other questions have been answered.

Thanks.

Operator: Karin Holthaus, Credit Suisse.

Hey, actually another question on bakery.

So, in the first quarter it was profit dollars down, but not commensurate to revenues.

As we think about that through the balance through the year, is it drag on profitability for another quarter or a drag on profits for another quarter, and then more EBIT neutral after that?

Or is the drag going to continue into the back half?

We wouldn't expect there to be a drag on profit for the bakery in 2014.

We would expect that we are doing other things in the bakery with respect to sales, with respect to infrastructure, to have it so that there's -- at least past the first quarter, not a drag on profitability.

Okay, thank you.

Stephen Anderson, Miller Tabak.

Good afternoon.

I remember last quarter you broke out the results for the Grand Lux Cafe and specifically for two of the locations in Las Vegas.

What -- have we seen any improvement out of Las Vegas as that pertains to the entire system?

And do you see opening any additional units this year?

I think you mentioned that in the last call as well.

So Grand Lux was sort of down in -- more in line with the industry.

And again, there's only 10 restaurants in the comp base.

The Las Vegas restaurants are the biggest ones.

I don't think we gave specifics last quarter on Las Vegas, except we would say that they were -- this quarter Las Vegas restaurants are down about 1%.

So that's contributing, yes.

It's part of it.

But other restaurants are down because the severe winter storm impacted them.

And there's only 10 restaurants in the comp base.

So they get affected more by events like winter storms.

So it was only down 1.1%, and you could say that 1% of that or so was attributed to Las Vegas, and then the rest the winter storms.

Three of those others are in the Midwest and the Northeast, so, significant.

That's good.

In terms of the comp base, you're talking about maybe having an additional Grand Lux open this year.

Is that still going to be the case?

We are hoping to make it.

Right now we are planning on it.

It could go into first quarter of 2015.

But we are working diligently and hopefully it will be part of 2014, but I can't guarantee it.

Thank you.

With that, the last question will come from the line of Will Slabaugh with Stephens Inc.

Thanks.

Just one quick one and a follow-up.

On the geographic breakdown in sales, you mentioned the strength in California.

I wonder if you would break down how the rest of your regions fared during the quarter.

Other than -- we generally don't give any specifics about that.

We tell which regions are soft and then we tell which regions are the strongest.

So, the softest ones are the ones that are impacted by the weather.

And you know, when I say soft, our comps were up 0.9%.

And again, I think we've said this in prior quarters, there's not a big difference between the best-performing geographic regions and the worst-performing geographic regions.

So it's not like, oh my goodness, this region is way down.

I think our worst region, even including weather, was down 1%.

Got it, that's helpful.

Then a quick follow-up on international if I could, and I know this is obviously hard to predict.

But is there any reason you could point to now that the acceleration that we are expecting, at least, in 2014 with regard to international units shouldn't continue beyond that 3 to 5 type range going forward?

And then a follow-up to that; is there any update on Asia?

So they are sort of related to each other.

One of the things I will say, not specifically with respect to Asia, but you could imply that we're talking about Asia.

But we continue to talk with other potential partners, and again focusing on established operators, a multibrand retail and restaurant brand that has the infrastructure to operate a restaurant like The Cheesecake Factory.

So if we get an additional licensee partner signed up, then we will have three in place.

And the more operating licensee partners that you have in place, the more likely that we can -- that not any one of them in any one year is impacted by whatever is going on in their region and that we should be able to continue to build somewhere in the 3+ international locations a year.

Thank you.

Ladies and gentlemen, with that I would like to thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect and have a great day.