Cheesecake Factory Inc (CAKE) 2018 Q4 法說會逐字稿

Good afternoon.

My name is Mike, and I will be your conference operator today.

At this time, I would like to welcome everyone to The Cheesecake Factory Fourth Quarter Fiscal 2018 Earnings Conference Call.

(Operator Instructions) I will now turn the call over to Stacy Feit, Senior Director of Investor Relations.

You may begin your conference.

Thanks.

Good afternoon, and welcome to our fourth quarter fiscal 2018 earnings call.

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

Before we begin, let me quickly remind you that during this call, items will 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 be materially different from those stated or implied in forward-looking statements, as a result of the factors detailed in today's press release, which is available on our website at investors.thecheesecakefactory.com and in our filings with the Securities and Exchange Commission.

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

David Overton will begin today's call with some opening remarks, and David Gordon will provide an operational update.

Matt will then take you through our financial results in detail and provide our outlook for the first quarter and the full year 2019.

With that, turn the call over to David.

Thank you, Stacy.

Our key financial metrics, including Cheesecake Factory comparable restaurant sales of 1.9%, adjusted operating margin and adjusted earnings per share met or exceeded our expectations during the fourth quarter.

Solid execution in our restaurants contributed to these results.

Our operators drove year-over-year productivity increases in sales and labor as well as better food efficiency and overall flow through was strong.

During the fourth quarter, we also opened 3 Cheesecake Factory restaurants in Temecula, California; Lubbock, Texas; and Chattanooga Tennessee, meeting our 2018 development goal.

There was significant pent-up demand from The Cheesecake Factory brand in these markets, and with the 3 centers undergoing meaningful redevelopment, we saw great opportunities to bring the concept to these locations.

To date, sales levels have exceeded our expectations.

Looking forward to 2019, we expect to open as many as 6 Cheesecake Factory restaurants as well as the first location of Social Monk Asian Kitchen, our fine, fast-casual concept, which is scheduled to open next week.

We now expect as many as 5 restaurants to open internationally under licensing agreements in 2019.

We concluded our 40th anniversary year with a number of achievements.

We opened our 200th Cheesecake factory restaurant, served over a 100 million guests across our concepts, and we're recently recognized on Fortune Magazine's 100 Best Companies to Work For list for the sixth consecutive year.

And once again, we were the only restaurant company on the list.

Our people are our greatest resource and enable us to deliver delicious, memorable experiences for our guests every day.

This accolade is a testament to our strong culture, industry-leading training and tangible career advancement we provide for our staff members and managers.

We believe these attributes will continue to differentiate us as an employer of choice and positions us even more critical today to support continued successes in the restaurant industry.

With that, I will now turn the call over to David Gordon for an operational update.

Thank you, David.

Building on what David said about our people being our greatest resource, we closed the year with industry-leading retention at both the hourly staff and manager level.

Industry research continues to confirm the influence of strong retention on service, guest sentiment and ultimately restaurant sales, and the impact is even more pronounced at the General Manager level.

Our data supports these correlations as we saw improvements in our guest satisfaction scores in the second half of the year across all metrics, including service, base of experience and food quality, in tandem with solid comparable sales performance.

This increased guest satisfaction extends to both dine-in and off-premise occasions.

This is particularly encouraging as our off-premise business continues to grow, reaching 14% of total sales during 2018 versus 12% in the prior year.

Off-premise contribution increased further during the fourth quarter to about 15%, and that trend just continues into 2019.

We believe this continued growth is being driven by our differentiated positioning, high-quality made-from-scratch menu and value proposition, supported by our creative on-brand marketing.

To that end, we executed Our Day of 40,000 Slices promotion in December in collaboration with DoorDash to celebrate our 40th anniversary with our delivery guests.

We again received tremendous publicity around this event, and within 5 minutes of launch, we increased the offer to 60,000 slices to meet the incredible demand that we had.

And in January, given our strong relationship with DoorDash, we were among a very select group of restaurant brands that were featured in their recent national TV ad campaign.

We look forward to continuing to collaborate in creative ways to keep The Cheesecake Factory top of mind as an excellent delivery option.

We also continued to see more guests utilizing our online ordering platform for pickup.

Online ordering and delivery are great channels to increase guest frequency and awareness of The Cheesecake Factory as an everyday occasion.

We believe the growth we have seen in off-premise lunch sales validates this use case.

In addition to these top line initiatives, we're committed to our objective of maintaining flat restaurant level margins.

This year, we will be further augmenting our market-based pricing strategy in higher-wage geographies while continuing to seek additional efficiencies in our restaurants to support this effort.

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

Thank you, David.

Comparable sales at The Cheesecake Factory restaurants increased 1.9%, exceeding our expectations for the fourth quarter.

Including $15.7 million in external bakery sales, total revenues were $585.2 million, which as noted in our earnings release, now reflects the classification of complimentary meals as contra revenue versus other operating expense.

Cost of sales was 23% of revenues, a decrease of about 40 basis points from the fourth quarter of last year, reflecting menu pricing leverage.

Labor was 35.8% of revenues, an increase of about 130 basis points from the same period last year.

Approximately half of this increase was due to higher group medical insurance costs as we lapped a favorable Q4 level in 2017.

The remainder is primarily attributable to higher hourly labor, as expected.

While still the chief inflationary cost in restaurant P&Ls, it was encouraging to see hourly labor pressure abate from the levels we saw in prior quarters.

Other operating costs were 24% of revenues, down 70 basis points from the same period last year.

The aforementioned reclassification of complimentary meals as well as a decrease in workers' comp insurance costs drove the year-over-year decline.

G&A was 6.3% of revenues in the fourth quarter of fiscal 2018, up 20 basis points from the same quarter of the prior year.

Preopening expense was approximately $5.1 million in the fourth quarter of 2018 versus $7.6 million in the same period last year.

We had 3 openings in the fourth quarter of 2018 compared to 6 openings in the same period last year.

Finally, during the fourth quarter of 2018, we recorded a pretax charge of $15 million, including $13.9 million in noncash impairment, primarily related to one restaurant in each of the Cheesecake Factory Grand Lux Cafe and RockSugar Southeast Asian Kitchen brands.

Excluding the impairment, adjusted earnings per share was $0.60, which was within our guidance range.

And adjusted operating margin was at the higher end of our outlook and stable versus last year as anticipated.

Cash flow from operations for 2018 was approximately $291 million, net of roughly $103 million of cash used for capital expenditures and $25 million in growth capital investments in the 2 Fox Restaurant Concepts.

We generated over $160 million in free cash flow for the year and we returned over $165 million to our shareholders via our dividend and share repurchase program.

That wraps up our financial review for the fourth quarter.

Now I'll spend a few minutes on our outlook for the first quarter and full year 2019 as well as some initial assumptions around the anticipated acquisition of North Italia.

As we've done in the past, we continue to provide our best estimate for earnings per share ranges based on realistic comparable sales assumptions and the most current cost information we have at this time.

These assumptions factor in everything we know as of today, which includes quarter-to-date trends, what we think will happen in the weeks ahead and the effect of any impacts associated with holidays or weather.

To help with the discussion today, we have provided a short presentation, which can be downloaded from our Investor Relations website at investors.thecheesecakefactory.com in the Latest Presentation section.

For the first quarter of 2019, we are estimating adjusted diluted earnings per share between $0.58 and $0.62 based on comparable sales in a range of 0.5% to 1.5% at The Cheesecake Factory restaurants.

This comp sales range assumes about a 75 basis point negative impact from the shift of Easter and the associated spring break vacations into the second quarter of this year from the first quarter in 2018.

Turning to full year 2019, we expect comparable sales in a range of 1% to 2% at The Cheesecake Factory restaurants, in line with our long-term target.

On the cost side, we continue to expect food inflation for our 2019 market basket to be approximately 1% to 2% and wage inflation of about 6%.

For modeling purposes, we anticipate a 2019 tax rate of approximately 10%.

We are estimating adjusted diluted earnings per share between $2.54 and $2.70.

This range excludes our portion of any loss from the operations of the Fox concepts as well as any onetime integration costs associated with the anticipated acquisition of North Italia and includes an estimated $4 million in additional expense related to the adoption of the new lease accounting standard, which equates to approximately $0.08 impact to adjusted EPS, which we expect to be spread ratably through the year.

With the adoption of the new standard and our use of the hindsight practical expedient, which is a FASB-approved method that allows us to use hindsight in determining lease terms, additional lease extensions have been included in the lease term for rent expense calculations as we are now reasonably certain the extensions will be exercised, which is the primary driver of the incremental P&L impact.

Note that also under the new standard, you will see line item shifts for expenses associated with our build-to-suit leases.

More specifically, approximately $10 million formally booked to depreciation and approximately $7 million of interest expense will now be rent.

Including the previously mentioned $4 million in incremental P&L impact and the $17 million shift, we will have an additional $21 million in rent in the other operating expenses line thereby impacting both our operating margin and EBITDA metrics.

Keep in mind, there is no cash impact.

This is just a different accounting dimension.

In turn, we believe net income and EBITDAR will be more appropriate metrics to monitor performance going forward.

And on the balance sheet, we will now capitalize approximately $1 billion as right-of-use assets with an associated lease liability.

We are adopting the new lease standard prospectively, as such, prior periods will remain as reported.

With regard to capital allocation, we now expect our cash CapEx in 2019 to be between $90 million and $100 million to support our anticipated unit growth.

We continue to expect growth capital contributions to the 2 Fox Restaurant Concepts prior to the anticipated acquisition of North Italia to be approximately $20 million to $25 million.

Based on North Italia's current performance, we are likely to acquire the remaining interest in the concept at the end of the third quarter of 2019 and are evaluating potential financing alternatives to fund the currently estimated $150 million to complete the purchase.

In the meantime, we want to provide you with some assumptions to help with your analysis of the anticipated acquisition.

In terms of unit economics, North Italia generates over $7 million in sales on average, which equates to roughly $1,200 per square foot.

Target 4-wall cash flow margin is 18% to 20%, with an average cash CapEx investment of $3 million to $3.5 million.

Target cash and cash return is 35% plus.

North continues to have a strong pipeline, which we believe will support sustained 20% plus unit growth annually going forward, which will translate to preopening costs of about 2% to 2.5% of North's sales.

We are working through our integration plan, and at present, we do not anticipate G&A deleverage on our P&L post acquisition.

As we contemplate financing alternatives, our intention is to maintain a balanced capital allocation strategy, complementing our growth investments with continued return of capital to shareholders via our dividend and share repurchase program in 2019 and going forward.

Further with regard to capital allocation, as we discussed on our last call, we engaged in reviews of Grand Lux Cafe and RockSugar to ensure that we have the best levers in place to drive company-wide ROIC and earnings growth in the future.

To that end, we are continuing to review the performance of several Grand Lux Cafe locations, have performance improvement plans in place for the 2 RockSugar restaurants and have no plans to open additional Grand Lux Cafe or RockSugar locations at this time.

In closing, from an operating perspective, our strategy remains on track.

We are leveraging The Cheesecake Factory's broad consumer appeal and high degree of relevance to drive sales while managing through the industry cost pressures.

Complementing our focus on the core Cheesecake factory concept, we believe we have the right growth drivers and capital allocation strategy in place to maximize long-term value for our shareholders, deliver best-in-class dining experiences to our guests and continue to offer great opportunities for our team.

With that said, we'll take your questions.

(Operator Instructions) Operator?

(Operator Instructions) Your first question comes from John Glass from Morgan Stanley.

Matt, a couple of questions on your guidance.

One is, how do you think about restaurant margins?

I think your goal was flat.

So was that assumed in this guidance?

Secondly, on pricing, I think you talked a little bit more about some tactical pricing increases.

So can you just be clear about what your pricing outlook is for '19 specifically?

And you also talked about wages being a little bit more benign -- wage inflation, benign in the fourth quarter.

Was that work that you did or you're actually seeing the market come back from a wage inflation standpoint?

John, I'll try to address each.

This is Matt.

So certainly, as David Gordon mentioned, our objective incorporated into the guidance is the flat core margins, and that's a combination of efficiencies in pricing and sales leverage.

So the pricing outlook is about 3% for the year, which is pretty close to where we ended 2018.

So we would imagine being relatively consistent at that level.

Although again, as David Gordon mentioned, possibly seeing a little bit more separation between the higher-cost wage markets.

And so if you think about California, it went up another dollar.

Certainly, the cost pressure there is a little bit more.

We're seeing competitors take a little bit more pricing, and so we'll probably be in line there as well.

With respect to the wages, in Q4, I think that the market remained very competitive.

I think that we had a slightly lower overtime level, which helped.

And as David Gordon mentioned, we had a very, very strong retention.

And certainly, that also helps support over time all of the efforts the we've been doing to be a great place to work, and keeping our employees happy helps to manage that.

That being said, it was a little bit more benign.

We're still -- our outlook is still around 6% for 2019.

Your next question comes from Sharon Zackfia from William Blair.

I'm sorry if I missed this.

I had some technical difficulties getting on the call.

But did you have a revenue reclass at all in the quarter?

It looks like the annual numbers are a little bit different than what we would get by adding the quarters that were reported.

The way we did, Sharon -- the short story is we were taking complimentary meals in other operating expense when it should have been contra revenue.

And so that was the difference.

There's no bottom line impact.

Okay.

And then on traffic or ticket in the quarter, did you talk about that and the cadence of developments for 2019?

Sure, we'll touch on.

So in the quarter, pricing was about 2.9%, and so mix was positive 0.6% and traffic was negative 1.6%.

But as we've noted before, when you look at how we track the to-go orders and the higher check, we sort of net those 2 together and really look at those being about a negative 1%.

And from a cadence perspective, we anticipate most of the openings to be in the back half of the years, as usual, at this point in time.

Obviously, as David Overton mentioned, Social Monk will be the short order here.

And then I think we have one in the second quarter, with the remainder being kind of September through December.

Okay.

And then on North Italia, is there any way, as we look at that kind of loss in the investment of unconsolidated affiliates, to kind of get some kind of clarity on what would be North Italia versus Flower Child when you start to consolidate North Italia?

Sure.

So a couple of things.

That's a really good question.

And so for clarity, one of the things that's really driving that right now is the fast pace of growth, and so it's mostly driven by a little bit heavier G&A that they need to support that as well as a little bit more preopening.

So I could give you some perspective right now, but I wouldn't carry that forward when we complete the acquisition as anticipated.

I think what we're saying, as you look at all of the pieces, that the preopening would be more like 2% to 2.5% of North sales, et cetera.

So I'm not sure that it's going to be equivalent to what you might model out for 2020, but it's about a 50-50 split right now in terms of that line item.

And do you have how many North Italia restaurants are under contract right now for opening or have leases signed?

I can tell you sort of the outlook for the year.

We think that we'll end the year with 22 or 23 locations based on the leases and the construction and the timing, if that's helpful.

Your next question comes from Jeffrey Bernstein from Barclays.

One question, just on the comps.

It seems like, as you mentioned, there was upside to your guidance.

I wasn't sure whether you would attribute that to comp acceleration for the industry or whether maybe your guidance was on the conservative side or whether there's anything in particular that might have helped the comp through the fourth quarter.

And then I had a follow-up.

I think that the holiday season was strong.

I think that different brands performed differently within that.

But generally, we had very good results as we closed out the quarter and slightly above where we thought we would be for that time period.

And the assumption that you're making for -- I mean, I know you said you're expecting 1% to 2% comp in '19.

What are you thinking about for the broader industry?

However you would have defined that?

It would seem like many use kind of this KNAPP-TRACK index, which would seem like past couple of quarters, you're modestly lagging the index.

I'm wondering, one, what might you attribute that to, whether it's just the industry is bouncing back stronger or maybe they're discounting more aggressively.

Or how to think about yourselves versus the industry as we look to '19?

Yes.

I think, our objective is the 1% to 2%.

We run $10.7 million in AUV.

And so it's always hard for us when we get a question like that because we don't really compare ourselves to anybody in the industry.

And so as long as we run that 1% to 2%, then we can meet our long-term financial objectives.

That being said, I don't think it feels much different going into this year than it felt last year.

And so that's kind of the baseline assumption for where we think things are going.

And it really -- what's in the industry, I think, you hit on it, Jeff, is it depends on how much discounting and promotional activity the competitors are willing to engage in, which will drive them.

Got it.

And lastly, I think you said 14% was the combination of to-go and delivery.

Just wondering if you would break that out kind of the growth rates for either or both or where you are?

Your strongest stores?

Maybe but do you have to bring that in-house from a delivery perspective?

There's a lot questions in one there, Jeff, so I'll tackle them one at a time.

This is David Gordon.

Delivery -- we did end the year around 14%.

In the fourth quarter, it was 15%.

We seem to be tracking that so far this year in total off-premise sales.

Delivery is about 27% of that total off-premise sales.

And our online ordering has continued to grow over time.

It's probably around 12%, 13% right now.

When we launched online ordering, it was probably in 9% to 10%.

So we've seen some nice growth there and continued growth in delivery.

And I'd say it's pretty broad across geographies.

Some of the geographies that started stronger that were in our base originally, in northern California, and some of those is a little more tech [savvy], have continued to stay very strong.

But even in some of the newer markets, we see really good sustained growth, and we don't see any reason why that won't continue with the partnership with DoorDash throughout this year.

And certainly, the marketing initiatives associated with DoorDash, whether it's the Day of 40,000 Slices or even their current ad campaign right now, are only increasing that awareness, which we believe is helpful to us as well.

Your next question comes from David Tarantino from Baird.

Just a couple of follow-up questions to that last one.

On delivery, David, do you have any sort of sense of how much of those sales is incremental versus cannibalizing existing business?

And I have a question about -- I'm sorry, go ahead.

I'm sorry.

Just to answer that.

I think that we still feel it's about 60% incremental.

I think I mentioned in the opening remarks, we've seen some of that lunch business grow, and we think that some of that is the delivery business.

So we feel good about the positive incrementality.

Okay.

And what's the level that needs to be to break even on that?

Well, we continue to work closely with DoorDash.

And I think as we've improved that relationship over time, the level has dropped.

So we're well clear right now where we need to be, and it's -- less than 50% is the marker.

Right.

That's good.

And then Matt, I think, you mentioned the guidance excludes the loss on your portion of the income for the 2 Fox Concepts.

I guess, why are you excluding that now when it's been included so far to date?

Yes, I mean, I think there are a couple of things.

It gives it a little bit maybe more perspective on the core operations.

It's a little bit outside of our control and bumpy.

And so it's one of the things where we don't want to give out a number and then beat it or miss it just based on the timing of openings, and if something moves with North, if they have sort of hyper growth at the moment.

And so to be honest, it's just -- I think it's more clear how the company is performing if we provide it that way.

Okay.

And then on the North Italia acquisition, would you -- I guess, at a high level, it does look like it's losing money based on the preopening cost being so high and maybe the G&A structure being high.

But I guess, at a high level, would you expect that acquisition to be dilutive to your EPS in the first year?

Well, we tried to give the metrics to help with that.

And certainly, it is being driven by the G&A and the preopening.

And so if you kind of walk through the line items that we provided, I think you can kind of get to a rough estimate.

It's hard to say until we finalize the financing piece, though, right?

So I think that will be the final piece that we need.

But from an operating perspective, we definitely believe that it will be generating positive income, and it's just a matter of getting the financing piece to be able to answer your question.

Your next question comes from Gregory Francfort from Bank of America.

I got 2 questions on North.

The first is, do you expect to make any changes to the pace of buyback around maybe a way to fund the North acquisition?

And then the other piece of it is, I think you said G&A, you don't expect it to be either -- to increase or decrease your rate or pace of G&A when it comes on your books.

How do you expect that to work?

Do you expect when North comes on -- I think, you said G&A was running pretty meaningfully higher than it is on the cake business right now.

Do you expect to just kind of not add cost as you add stores?

Or how is that going to maybe not cause G&A to pick up?

Sure.

Thanks Greg.

This is Matt.

The first, we're committed to continuing the capital return to shareholders the dividend and the repurchase.

Although, certainly, one of the scenarios that we're evaluating with the board would be do you taper a little bit on the repurchase to sort of pay for it over time or do some sort of bulleted Term A loan or something like that?

But not too meaningful because we do want to continue with the repurchase program.

I think we've got a lot of credibility there.

And so that will continue to be an important piece of our capital returns.

With the G&A, so as we look at opening 6 Cheesecake Factories this year, we could easily be opening 10 or 12 Cheesecake Factories.

So if you just say that's 6 Cheesecake Factories and 6 North Italias, we can do that pretty easily.

There's obviously some direct G&A associated with the concept, similar to what any restaurant brand has.

But in terms of being able to sort of bolt that on to our existing infrastructure, we don't really see that being a problem.

And obviously, their concept is in hypergrowth for them as a percentage.

And for us, it's not going to be the G&A associated with that brand.

Relative to the big picture for our company, it's just not that big of a piece.

Your next question comes from Andy Barish from Jefferies.

Wondering on the DoorDash marketing.

Is that expected to continue with your relationship?

And how -- I guess, how do you guys contribute to that?

And then anything else on the marketing side that you're thinking about kind of outside of the delivery realm that may help on the traffic front?

So we would anticipate that the current marketing strategy we've employed with DoorDash is going to continue throughout the year.

We have some ideas already in place, and we work with them on each one of those, whether it's something like the Day of 40,000 Slices or some of the things we have coming up for this year or just our days of -- our week of free delivery that happens with a certain cadence throughout the year, and we would anticipate that continuing to happen.

As far as other marketing throughout the year, we have increased a little bit of our online search presence, and we would anticipate doing that throughout the remainder of the year as well.

We see some nice early returns in doing that, and we think that it's a way the people are accessing the information about the brand and trying to find out where we are and how to get to us in the most convenient way to order off-premise, to-go or Olo.

So that something we started doing in January, and we like the early returns on that so far.

Your next question comes from John Ivankoe from JPMorgan.

Two questions, if I may.

First, what are the assumptions or, I guess, what's possible in terms of labor hours?

As we think about fiscal '19, you've been clear about the labor inflation.

But are there programs or would you want to do anything to labor hours as we think about labor dollar per operating week change for the business in '19 over '18?

Sure.

John, this is Matt.

Certainly, if you look at historically, and I know different companies provide different metrics when we talk about the labor inflation.

I think that's because it's easy for us to tie back to the sort of the macro environment.

But if you look at the dollars per operating week, we've historically run 1% to 2% better than that labor inflation metric that we provide.

And certainly, our objective -- we're sort of a continuous improvement type of company.

We're always looking to build improvements in our productivity, and that would be part of our plan.

There's no big idea to like remove the bussers or something like that because we're also focused on sort of driving sales.

So it's a combination of the 2.

Of course.

And then secondly, I think there was some work done on your Calabasas bakery facility in 2018.

Could you talk about the benefits of that?

And if there's any application to the other facilities that you have in the U.S. as well?

Sure.

We did complete a remodel, and it was an extremely successful project, on time and on budget.

We feel very good.

Essentially, we took the same technology that we utilize today in our North Carolina location, and we brought that to this facility.

It definitely provides for more scalability as we go forward.

And there's also some margin opportunities.

I think as we've talked about it in our Investor Relations presentation, there is a couple of [tenths] of margin improvement associated with the bakery.

We should start to see some of that benefit in the 2019 year, and that will be built into our guidance.

And that's through being more efficient and controlling our own supply chain with the updated equipment.

Your next question comes from Matthew DiFrisco from Guggenheim Securities.

Sorry if this was already asked.

But to be -- the other revenue line, it seemed like it was a little bit lighter, the $54 million or so versus $57 million.

Was that anything to do with the restating revenue as well or is that just some holiday sales?

Or did you lose a customer within the cake business?

Matt, this is Matt Clark.

So obviously, if you know any restaurant piece that was in the other, which would be Grand Lux, that's very similar to the Cheesecake Factory in terms of that reclassification.

And then I think the bakery sales year-over-year were a little bit softer, maybe $1 million, and that was really in the club segment.

And there was no lost customer.

I think there was just one less LTL.

So those would be the 2 drivers.

And did you provide what the Grand Lux comps were?

A negative 3.3%.

Your next question comes from Will Slabaugh from Stephens.

I had a question to follow up on the off-premise.

And you're certainly seeing some nice growth off of that off-premise platform.

I'm wondering if you were able to break out what the traffic dynamics look like between the dine-in and off-premise business?

And then back to a comment you made about lunch improving as well in off-premise.

Curious, and this is a million-dollar question I realize, but how incremental that lunch guest is with off-premise and delivery even versus what that dinner off-premise guest looks like?

Well, on the first part, we don't really capture.

I mean, I guess you could back into the data.

We've sort of tried to answer this question before.

Certainly, there was growth in the off-premise and there is a decline in the on-premise, right?

And so that would be the math.

Some of that, as we've noted, because it's not 100% incremental, is a little bit of a trade out.

But we're not tracking that to the guests specifically.

So I think you could probably figure out through those metrics your best guess on that piece of it.

Relatively, the lunch, I think, is important because we have seen over time that maybe that's where there's been a little bit more pressure, particularly as all the guests everywhere crave even more convenience.

And so it's something for us to -- that we've been focusing on and probably has a little bit more incrementality to it.

Your next question comes from Jeff Farmer from Gordon Haskett.

Just following on some of the labor questions.

So 6% wage rate inflation last year, 3% menu pricing got you roughly 120 basis points of labor cost pressure.

You're, for all intents and purposes, pointing to the same numbers this year, meaning 6% wage rate inflation, 3% menu pricing.

Any reason why we wouldn't see another 100 basis points of labor cost pressure in '19?

Jeff, this is Matt.

I think the big outlier there, what goes into the labor line, is the group medical expense.

We've been talking about that.

And obviously, there's been a couple of quarters of multimillion-dollar pressure with large claims.

I think that on just an equal comparative year-over-year basis, if you're looking at labor and it's 36% or so and there's a 3% difference between the pricing and the labor inflation, then you'd maybe have 100 basis points.

But we've been maybe 1% to 2% better than that, so you're probably more like 60 or 70 basis points when that's out.

That's helpful.

And just one more follow-up.

You did touch on it.

But in terms of the third-party delivery costs, in terms of where they show up on the income statement, that's the first question.

And to the extent that you're able to share any margin impact at all would be helpful.

So the commission piece goes into the other operating costs and expenses.

And on a relative basis, given the size of the business and the overall deal structure, the margin impact to the total company is negligible.

(Operator Instructions) Your next question comes from Karen Holthouse from Goldman Sachs.

On the impairment charges for the units that are going to be closed, can you give us -- [or is that sort of closed?] Can you give us an idea if those are units you actually intend to close or just to repair?

And then what was sort of the -- about approximate age of those restaurants in terms of when they opened for each of the brands?

So it's just the impairment, Karen, this is Matt.

So it's an accounting treatment that doesn't necessarily tie back to staying open or closing.

We do a whole separate analysis when we evaluate closures, which is really looking at the viability of the future cash flows versus the rent expense, et cetera.

I'm sure you're well aware of all those pieces.

It was kind of a varied mix of ages.

The Cheesecake Factory and Grand Lux were quite old and the RockSugar was pretty new, obviously.

Your next question comes from Peter Saleh from BTIG.

Are you guys planning at all to add any additional delivery partners in 2019 or you guys thinking you'll stick strictly with DoorDash?

Well, DoorDash is our exclusive partner at this time, and that's the agreement that we have with them.

Okay, and then have you made any changes on the pricing side, to the consumer or considered maybe making changes on the pricing side to maybe raise the prices for delivery?

Or have you -- or have there been any discussions on maybe taking down the commissions from DoorDash on your end?

Or is the deal basically the same as it has been for the past couple of years now?

It's a relatively new deal.

It was the beginning of last year, and our goal all along from a guest perspective has been to keep the prices in line with the guest experience you would have within the restaurant.

So we would not anticipate ever raising the prices to the guest, and we feel very good about the current deal we have and the commission structure that we have today.

Your next question comes from Stephen Anderson from Maxim Group.

You answered most of my questions, but I wanted to get back to -- I missed the international development that you're planning for 2019 and where you plan to do that.

Yes.

We're anticipating as many as 5 international openings next year, a couple in the Middle East, hopefully 2 in Latin America and 1 in Asia.

Your next question comes from Jon Tower from Wells Fargo.

Just following up on North Italia and the Fox Restaurant investments.

Could you give us a basis for what you guys have spent so far to date on North Italia?

And then, I believe you also have an option in 2021 to acquire the remaining interest in the Fox Restaurant group; part of the agreement that you signed a few years ago.

Is that still the case?

So John, this is Matt.

Two things, just finishing on that.

2021 is for Flower Child, and that is still the case, and they're similar but parallel deals.

And to date, I think it's representative of our financials, but let's just say, it's between $40 million and $45 million so far for North.

Okay.

And then total between the concepts, how much is that?

It's pretty similar between the 2 so far.

That was our last question.

At this time, this concludes today's conference call.

You may now disconnect.