Cheesecake Factory Inc (CAKE) 2024 Q2 法說會逐字稿

Good afternoon.

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

At this time, I would like to welcome everyone to The Cheesecake Factory Incorporated second quarter 2024 earnings conference call.

Please note that this call is being recorded.

(Operator Instructions)

Thank you.

I'll now turn the call over to Etienne Marcus, Vice President of Finance and Investor Relations.

You may begin your conference.

Good afternoon, and welcome to our second quarter fiscal 2024 earnings call.

On the call with me 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, 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.

In addition, during this conference call, we'll be presenting results on an adjusted basis, which exclude impairment of assets and lease terminations and acquisition related expenses.

An explanation of our use of non-GAAP financial measures and reconciliations to the most directly comparable GAAP measures appear in our press release on our website as previously described.

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

Matt will then review our second quarter financial results and finish up with some commentary on our outlook for the third quarter and full year 2024 before opening the call up to questions.

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

Thank you, Etienne.

We delivered another solid quarter with revenues finishing toward the higher-end of our expected range and profitability surpassing expectations, resulting in 24% year-over-year growth and adjusted earnings per share for the third consecutive quarter of 20% of greater growth.

Comparable sales at The Cheesecake Factory restaurants were 1.4% for the second quarter.

Once again, meaningfully outperforming the casual dining industry, resulting in record high Cheesecake Factory restaurant average weekly sales as well total company consolidated revenues.

Annualized unit volumes at The Cheesecake Factory reached $12.5 million for the quarter, and our newest restaurant in Orem, Utah opened to tremendous demand, underscoring the strong affinity for The Cheesecake Factory brand health unique dining experiences we provide for our guests.

Operational performance within the four walls was once again excellent in the second quarter with our operators intensely focused on fostering an environment where delivering delicious memorable experiences for our gas is a top priority, how effectively managing their restaurants.

To this point, they drove year-over-year improvements, improved efficiencies, labor productivity, overtime and wage management, contributing to significantly enhance restaurant level profitability.

In fact, The Cheesecake Factory restaurants four wall margin was 17.7% for the quarter, the highest level in the past six years.

Moving on to development.

We successfully opened five restaurants in the second quarter, including one Cheesecake Factory Point, one North Italia, one FRC restaurant and two Flower Child locations, all of which have opened to impressive demand, reinforcing our confidence in the strength of our experiential brands and their long-term growth potential.

One Cheesecake Factory restaurant also opened in Asia.

Additionally, subsequent to quarter-end, we opened in Blanco, Southern California.

With 11 restaurant openings so far this year, we're well positioned to meet our objective of opening as many as 22 new restaurants in 2024, including as many as three Cheesecake Factories, six to seven North Italias, six to seven Flower Child and seven to eight FRC restaurants.

In closing, we delivered another quarter of consistent and competitively strong results, supporting our belief that our strategy of focusing on what we do best delivering exceptional service, hospitality and delicious memorable experiences for our valued guests will continue to differentiate us in the industry and allow us to drive profitable sales growth over the long term.

And with that, I will now turn the call over to David Gordon to provide and operational update.

Thank you, David.

During the second quarter, our best-in-class operators not only drove significant profitability improvement, but just as important, continued to make incremental advances in guest satisfaction with virtually every key on-premise and off-premise, net promoter score metric that we track for The Cheesecake Factory ending the quarter at an historic high, which we believe contributed to comparable traffic, exceeding the black box casual dining index by 280 basis points.

These improvements are driven by our uncompromising commitment to operational excellence and the ongoing investments we make in our managers and staff to drive strong staff engagement and retention.

As we've said before, we believe our staffing success has been a key contributor to our operational execution.

And then the second quarter, we continued to produce year-over-year improvements in both manager and hourly staff retention and our already high staff engagement scores increased even further from a year ago.

Now turning to sales trends.

Cheesecake Factory off-premise sales remained relatively stable, 21% of sales for the second quarter, which equates to over $50,000 and off-premise average weekly sales more than double the average of our next closest peer.

North Italia second quarter comparable sales increased 2% from the prior year, resulting in annualized AUVs of $7.9 million.

Notably, our second quarter new restaurant opening and the Charlotte market Valentine open to tremendous demand with average weekly sales of over $188,000 for the first seven weeks.

Restaurant level profit margin for the adjusted mature North Italia locations was 15.3% for the quarter and the second quarter, we also opened a Culinary Dropout in Dallas, two Flower Child locations, one in Valentine across some of the new North Italia and the other in the St. Louis market.

Similar to the new North Italia location all pre-open to higher-than-expected demand, bolstering our confidence in the developing concepts in our portfolio and their ability to meaningfully contribute to our overall growth going forward.

Other Fox Restaurant Concepts, annualized AUVs were $7 million.

And lastly, we just eclipsed one year anniversary of the launch of The Cheesecake Rewards program, and we remain very pleased with the program's performance.

Acquisitions continue to exceed our internal expectations, and we remain encouraged by the level of member activity and engagement that we are seeing.

This year, celebration of National Cheesecake Day rewarded members were able to enjoy and slice for half price on any dine-in visit on both Monday, July 29 and Tuesday, July 30.

This, as an example of remarkable moment with Rewards members receiving an exclusive benefits to drive member engagement and ultimately incremental traffic for our business over the long term.

And with that, let me turn the call over to Matt for our financial review.

Thank you, David.

Let me first provide a high-level recap of our second quarter results versus our expectations I outlined last quarter.

Total revenues of $904 million finished course the higher end of the range we provided.

Adjusted net income margin of 5.9% well exceeded the high end of the guidance we provide, and we returned $17.7 million to our shareholders in the form of dividends and stock repurchases.

Now turning to some more specific details around the quarter.

Second quarter, total sales at The Cheesecake Factory restaurants were $677 million, up 4% from the prior year.

Comparable sales increased 1.4% up versus the prior year.

Total sales for North Italia were $75.5 billion, up 15% from the prior year period.

Other FRC sales totaled $73.6 million, up 12% from the prior year.

And sales for operating week were $134,100.

Flowers Child sales totaled $35.7 million, up 7% from a prior year, and sales per operating week were $85,900 and external bakery sales were $13.6 million, down 12% from the prior year.

Now moving year-over-year expense variance commentary.

In the second quarter, we continued to realize improvement across several key line items in the P&L.

Specifically, cost of sales decreased 90 basis points, primarily driven by higher menu pricing than commodity inflation.

Labor as a percent of sales decreased 20 basis points, primarily driven by higher menu pricing, then labor inflation, labor productivity improvements, partially offset by higher management labor due to our improved staffing position as a result of increase retention.

Other operating expenses increased 20 basis points.

G&A decreased 40 basis points, mostly driven by lower legal fees and depreciation increased 10 basis points as a percent of sales.

Pre-opening costs were $7 million in the quarter compared to $6 million from the prior year period.

We opened five restaurants during the second quarter versus three restaurants in the second quarter of 2023.

And in the second quarter, we recorded a pretax net expense of $1 million, primarily related to FRC acquisition related expenses and impairment of assets and lease terminations income.

Second quarter GAAP diluted net income per share was

[$1.8].

Adjusted diluted net income per share was

[$1.9].

Now turning to our balance sheet and capital allocation.

The company ended the quarter with total available liquidity of approximately $277 million, including a cash balance of about $41 million, and approximately $237 million available on revolving credit facility.

Total debt outstanding was unchanged at $475 million in principal.

CapEx totaled approximately $29 million during the second quarter for new unit development and maintenance.

During the quarter, we completed approximately $3.9 million in share repurchases and returned $13.9 million to shareholders via a dividend.

Now let me turn to our outlook.

Well, we will not be providing specific comparable sales and earnings guidance, we will provide our updated thoughts on our underlying assumptions for Q3 and full year 2024.

The assumptions factor in everything we know as well today, which includes net restaurant, quarter to date trends, what we think will happen in the weeks ahead and the effect of any impacts associated with holidays, and it assumes no material operating or consumer disruptions.

For Q3, we anticipate total revenues to be between $855 million and $870 million, which represents year-over-year growth similar to Q2.

Next at this time, we expect effective commodity inflation of low single-digits for Q3 as our broad market basket remains very stable.

We are modeling net total labor inflation of mid-single-digits when factoring in the latest trends and wage rates and minimum wage increases as well as other components of labor.

G&A is estimated to be about $57 million.

Depreciation is estimated to be approximately $25 million.

Based on these assumptions, we would anticipate net income margin to be about 2.6% to 3% based on the sales range provided.

Now for the full year.

Based on similar assumptions, we would anticipate total revenues for fiscal 2024 to be approximately

[$3.58 billion].

For sensitivity purposes, we are using a range of plus or minus 50 basis points.

We currently estimate total inflation across our commodity baskets, labor and other operating expenses to be a low to mid-single digit range and fairly consistent across the quarters.

We are estimating G&A to be about 10 basis points higher year-over-year as a percent of sales and depreciation to be about $101 million for the year.

And given our unit growth expectations, we are estimating preopening expenses to be approximately $28 million, which includes support for some early 2025 of those.

Based on these assumptions, we would expect full year net income margin to be approximately 4.3% to 4.4% based on the sales range provided.

Now let me provide some additional context to our underlying assumptions that I just outlined.

First, we incorporated two Cheesecake Factory restaurant closures, one close mid-July related to a lease exit, and the other expected to close mid-August related to conservation of a center or location isn't.

We adjusted expectations for our bakery restaurant sales to be more in line with our performance in the first half of the year.

And we updated sales projections for some of our lesser established concepts, which are performing more aligned with broader casual dining sales trends during the first half of 2024.

Importantly, our core and growth contests at Cheesecake Factory, North Italia and Flower Child have outperformed the industry, and this is contributed to our overall sales stability and enhanced profitability relative to our expectations and last year's results.

As such, we are increasing our net income margin projections for the full year 2024.

In total, we believe we remain on track for both the top line and bottom line as well as new unit openings relative to our range of expectations at the beginning of the year.

Specifically with regard to development, as David Overton highlighted earlier, we still plan to open as many as 22 new restaurants this year across our portfolio of concepts.

With four to five openings in the third quarter and the remainder in the fourth quarter, continuing our balanced cadence of new restaurant openings for the year.

And we would anticipate approximately $180 million to $200 million in CapEx to support this year's and some of next year's unit development as well as required maintenance on our restaurants.

In closing, we are leveraging The Cheesecake Factory is broad consumer appeal and high degree of relevance to drive sales.

Our operators continue executing an exceptionally high level to drive NPS and profitability and our development pipeline remains intact.

We have now delivered three consecutive quarters of strong results, including stable sales and significant profitability growth.

We believe we are well positioned to continue generating our historically consistent operational and financial results and making progress towards our longer-term goal of shareholder value creation.

And with that said, I'll take your questions.

Thank you.

(Operator Instructions)

David Tarantino, Baird.

Hi, good afternoon.

Matt, I guess my question -- my first question is on the guidance for the year, the revenue guidance.

It seems like you may have tweak that lower.

I think last time you said $3.6 billion and now it's $3.58 billion and I know $3.58 million rounds to $3.6 billion.

But it does -- I guess your comments made it sound like that was lowered, and you called out a few factors.

But I guess my question is first, have you changed your outlook at all for the core brands, The Cheesecake Factory brand or North Italia in that guidance?

Yeah, David.

This is Matt.

That's a super question to lead off with.

No, the core outlook for Cheesecake, North, and Flower Child remains intact.

And we have a couple of -- I won't call them random events because stuff happens in the business all the time but maybe more ancillary impacts to that aggregate top-line business -- we noted the two Cheesecake closures.

That's about $10 million right there.

So that's like half of it.

And then we've seen a little bit of softness in the retail segment.

So those are really the biggest drivers.

And it is -- like you said, it rounds to it, but we just wanted to provide some context for sort of tweaking or refining that number for everybody.

Great.

That's helpful.

And then I think on the last call, you mentioned that you're running kind of flattish traffic at the Cheesecake Factory.

Can you just give an update on where you ended the second quarter on that metric and what you're assuming for the rest of the year?

Sure.

So we ended a negative 0.2% on traffic.

And frankly, the Sunday before the Fourth of July week, we were still slightly positive.

I think everybody knows that week in the industry kind of book-ended some negative news on either side of it.

So I would say, to be totally fair, we were right on track to that flattish number as we expected to be.

And our expectations for the year have remained the same to run in that ballpark in the full year as well.

Andy Barish, Jefferies.

Hey, guys.

The 17.7% Cheesecake margin is really impressive.

But when you look at kind of a gap to the enterprise margin that was reported, it looks like it's a little bit wider than what I recall about 150, 160 basis points.

Is there something else going on there with increased growth in the new concept or how should we think about sort of be early openings and maybe just the drag that some of those newer concepts create?

Yeah, Andy.

This is Matt.

It's a good question.

And we were really pleased with the 17.7% for Cheesecake Factory for sure as you noted, and we've made a ton of progress there.

We've always talked about a 1% to 2% range from the core concept to the consolidated metric.

And it ebbs and flows depending upon how many new restaurants are opening in all of the other concepts.

And certainly, if you think about our outlook and where we're opening and how many of each concept, it was disproportionately newer concepts in the first half of the year, right?

It was really just [auram] of the Cheesecake Factory, and that was just the very last week of the quarter.

So all of those other new concepts opened up, which we had 10 openings in the first half of the year, which is, I think, really incredible for us too.

So that's really the difference of why -- you might have seen a 1% sometimes.

That could be 1.6 or something, as what you said, and it's really the growth of those new concepts for that period of time.

Got you.

And then just the comp set at North slowed down, obviously still really high unit volumes there, and it sounds like new stores you're opening well.

But anything that you would point out?

I know it's a relatively small comp base in the 2% number you reported for the 2Q.

Yeah.

And I would also just echo what I talked about the whole Fourth of July.

I think it literally rounded to 3% that Sunday.

So it was just fractionally different than expectations and nothing more than that.

Jon Tower, Citi.

Great.

Thanks for taking the questions.

Maybe just from a high level kind of going back to the margin piece, it's impressive figure Cheesecake close to 18% this quarter.

And I'm just curious, when kind of zooming out and looking at the company over time, obviously, you've made some pretty good progress from where you were on store level margins.

But trying to think about the brands or the enterprise over the longer term, do you see a path to reaching, say, above pre-pandemic levels when it comes to consolidated store-level margins -- closer to that 16%-17% that you had '18, '19 timeframe?

Jon, it's Matt.

Yeah, we do.

I mean, we think that the business should operate between 16% and 18%.

That's like econ when we're -- supply and demand meet in casual dining.

It certainly will depend on the rate of growth in any given period of time.

So if you think about the pre-pandemic also, we just didn't have as much growth.

And that does weigh on the enterprise margin for that period of time, right?

So I think that is going to be a piece of it.

I mean that being said, the more progress we make in Cheesecake, the more we'll absorb that growth.

And I think, getting in over 16% is still our goal.

And given the progress that we've made over the past 18 months, it's definitely in our sights.

Okay.

In terms of thinking about that timeline, are you thinking this is something achievable over the next five years?

Or do you think it's more beyond that because your system needs to continue to grow to reach that?

I would say it's less than five years.

I think the trajectory that we're on is positive.

The underlying fundamentals of the business are stable.

When you look at things like wage growth and commodities being relatively benign, it gives us an opportunity to rebuild much like we did when we came out of financial crisis, right?

I think there's a real parallel at this point in time.

So I don't know what a specific time, but certainly, well in advance of five years for sure.

Got it.

And then just one clarification on the bakery comments that you made earlier, the growth going forward.

Are you expecting the percentage growth to stay the same or dollars in terms of the back half of the year relative to what we saw in the first half?

Percent -- really the percentage.

So just a little bit of pressure on the branded retail I think you've seen that from other big CPG companies, so

--

Brian Mullan, Piper Sandler.

Thank you.

Just wanted to ask on the California.

Just given your exposure there, I wanted to ask what you're seeing from that consumer over the last few months.

Are the trends much different than the rest of the system?

Has anything surprised you one way or the other in terms of consumer response to some of the changes on the non-full-service?

Any color would be great.

Hi, Brian.

This is David Gordon.

Thanks for the question.

We're seeing pretty consistent trends across all geographies, really no additional pressure in California.

I know that has been reported recently, probably a little bit more in the QSR world, but we are not seeing that certainly.

We're also not really seeing any impact yet on way wages at all from the FAST Act, which are two positive signs for us.

So really no change.

Okay, thanks.

And then just some of the comments where the core brands are outperforming the industry and then maybe some of the FRC brands are more in line with the industry, when you're seeing that in what is a pretty tough industry environment, does that make you evaluate or rethink how many non-core brand units you want to open in the years ahead or -- I know the flip side of that is maybe not, because those units could -- one of those could turn into the next core brand.

But I would just be curious to get your thinking and if you evaluate that from time to time.

Brian, this is Matt.

We, of course, look at that.

We have tremendous faith in all of those concepts.

We view the environment as being relatively tough and transitory, notwithstanding the outperformance in some of our concepts.

I think we've seen a little bit of alcohol trade down, which has resulted in that.

But the unit economics across the FRC comp stats are tremendously strong still and worthy were the growth.

So we're going to continue to invest as, we always have, for the long term and not for one quarter or the next.

Katherine Griffin, Bank of America.

Hi, thank you.

First, I wanted to ask a clarification on the unit growth outlook.

It looks to me like you raised the guidance for the Fox Restaurant Concepts, which I believe doesn't include Flower Child.

So I think the Flower Child guidance is intact, but you raised the guidance for some of the other clients.

But I'm trying to square that, I guess, some of your comments about the outperformance of North Italia and Flower Child relative to your expectations.

And I guess, yes, what's essentially behind that increase in the unit growth outlook that we should be considering?

So Katherine, this is Matt.

I would think about it as a fungible pool overtime.

Now one of those locations that we've been targeting opening will not go unopened over time.

It just may be in the fourth quarter, or it could be in the first quarter of next year.

So frankly, I wouldn't read anything into the specific movement of one or another in a given year.

It's just really about the optimizing of the timing and when that makes the most sense from a construction standpoint and our resources for our new opening teams.

We were completely bullish on our pipeline.

We think we're in really great shape for this year and frankly, for next.

Great.

Thank you.

And then the second question is just if you're seeing anything as far as quarter-to-date trends that -- as far as changes in seasonality.

I know you spoke to seeing some pretty resilient comps up until July 4, but I'm just curious if you're seeing any differences, whether that's impacts from hybrid work or extended summer vacations that are embedded in your 3Q top-line expectations.

Yeah, Katherine.

It's Matt.

I do think the one thing to call out, which has been noted and many others, as hot as it has been in so many parts of the country, it can impact patio utilization, right?

And so I think with that just can ebb and flow depending on -- I don't know if it's a permanent change in seasonality or sometimes, it's more in June and July than it is in August and September.

But all of that's factored into our expectations.

Otherwise, we do believe that things are slightly different than 10 years ago but that has started really before COVID too.

So I think it's just returning to what a normal seasonal pattern would be post-pandemic.

Brian Vaccaro, Raymond James.

Hi, thanks and good evening.

Matt, on Cheesecake Factory's comps, could you comment kind of specifically on the cadence that you saw through the quarter and any color on what you're seeing in July?

It seems like the casual dining segment data has softened up.

Curious if you're seeing that.

Any changes in consumer behavior or one-off items you think are worth highlighting?

(technical difficulty) first thing, we've been obviously paying a lot of attention to that and doing a lot of analytics.

The year has been very consistent for us, in Cheesecake Factory particularly.

Whether you're looking at a one-year stack, a two-year stack, or a five-year stack, it just hasn't moved that much.

And I'm talking about plus or minus [a percent] over a month is not a very, very big variance.

And so we feel pretty good about the predictability and stability of that concept and weathering the storm well.

I think as I noted to Katherine, in July, the one thing I would call out is weather.

It was tremendously hot in parts of the Northeast all across the country really.

I think that did impact the patio usage, which we were able to accurately assess and sort of understand.

But otherwise, I feel like our trend for the past six, seven months have been in a very tight range.

Okay.

And can you remind us on Cheesecake's patio business?

What percent of sales this time of year come from the patio or seats overall or patio at Cheesecake?

Yeah, I think it's around -- I'll double-check whether we can get you something specific.

I'll comment off the top of my head, but at the end, the team will make sure it's right.

I think it's around 15%, but certainly peak summer has less than that.

That's more like an annualized number.

So I think it will be 10% peak summer.

Spring and fall have highest for obvious reasons.

But winter is then strong in Arizona and Florida.

So it kind of depends.

So we'll get a specific number for you.

Okay.

Thank you.

And sorry if I missed it earlier, but could you just run through the comp components for both Cheesecake and North in

[Q3]?

Yes, for Cheesecake, like I said, the traffic was a negative 0.2. The pricing was 4.5 and the mix was a negative 2.9. So I think all of those factors came in pretty much right in line with where we expected them to.

Etienne, do you have the North ones in front of you?

I do.

So North traffic was negative 1, price was 6%, and mix was negative 3%.

Okay, great.

And then just last one, if I could.

On the G&A, you said that the second quarter came in quite a bit more favorable.

I think you mentioned legal costs, but maybe you could just flesh that out a little bit for us.

But I think you also raised your G&A guide for the year a little bit.

Any color on that would be helpful.

Thank you.

Sure.

I think that we, in the last quarter, said we'd be up 10 basis points, which we would -- that now was a slight increase over Q1.

So we're maintaining that same perspective.

Like I said in the last call, G&A can be a little bit lumpy; not everything of 100% controllable quarter to quarter.

We did have one or two particularly large settlements last year.

And we've just seen some favorable management in the legal area that contributed to some savings.

So honestly, given the environment, we're just buckling down and everybody is watching every penny, right?

So we're just trying to make sure that were in line with sales and driving profitability.

Brian Harbour, Morgan Stanley.

Thank you.

Good afternoon.

Matt, maybe just another small cost question, but you're seeing kind of favorability in the labor and food lines.

There's still a little bit of pressure on the other OpEx line.

Could you comment on what's driving that?

And do you think that still kind of continues in the second half?

Yeah.

I mean, as we've talked about, there are multiple factors, but we obviously are spending more marketing because of the Rewards program.

So I think we called that out that we're still lapping that in the second quarter.

So absent that, it's pretty much in line.

We didn't see any -- there was like a 10 here but a positive 10 there.

There was nothing the material outside of it.

So Etienne, for the balance of the year, we would expect to be similar to last year as a percent of sales?

Yeah, pretty flattish as a percent of sales, particularly for the third quarter and maybe a little bit of benefit in the fourth quarter.

But that's pretty much what we're thinking at this point in time.

Okay.

Got it.

Makes sense.

North Italia comps, you said it was kind of in line with your expectations.

I guess, are some of the older stores consistent with that number or are they drastically different?

What do you think kind of can drive North Italia comps over time if perhaps they were to pick up?

I think it is pretty consistent.

There's always -- it's a small base, Brian.

So there's always going to be one restaurant here or there that's slightly different than the others.

We're pretty happy.

I think in the long term, we target about 3%.

So we are right in the ballpark for that.

I think if you think about Cheesecake Factory managing through a little bit of a negative mix component there -- and they have a little bit too on the alcohol side, but we feel like it's pretty stable.

And so we're not concerned.

We feel like it's right on track.

As David Gordon mentioned, our newest opening was one of the best we've ever had.

So we know it's resonating, but I think there's just a little bit of recalibration on the mix that I think stabilizes in the course of the next 6 to 12 months.

Dennis Geiger, UBS.

Great.

Thank you.

Matt, you might have just touched on some of this just there.

But as it relates to that mix breakdown that you've given some good detail in in prior quarters and thinking about alcohol, sides, group order, can you do that a little more -- provide some more specific color there?

And I think you kind of talked about the mix outlook a little bit there.

But can you go into that a little more?

Can we still maybe get to a flattish by the end of the year or maybe not quite yet?

Thank you.

Sure, Dennis.

I think, honestly, we feel really good about the predictability and the trajectory there, because it's come in now three quarters in a row -- kind of right where we thought -- the big picture is when we lapped around some of these social -- not just restrictions but how people felt, we got more big parties back in.

The big parties per capita buy a little bit less than a two-top or four-top, but what we've seen really is very consistent spend per person by party size.

Cheesecake Factory has 46 years or so of experience, right?

So it's a broad menu.

And so it's not a big surprise that it will return to the norm.

And we definitely we believe that you're going to see, give or take, another 1% improvement in Q3 and a 1% in Q4 and sort of our expectations generally for mix is plus or minus 1%.

So I think we'll get back to a normal range, whether it's exactly flat.

We'll see -- that's still six months to go.

But it should be fast approaching in over that time.

Helpful.

And maybe one other just on a price of from here as it relates to -- I think you spoke previously about what we should expect for price over the coming quarters.

What does that look like in the absence of additional price and anything to share kind of on the next round of price?

Thank you.

Yeah.

We think we're going to be a little just -- a hair over 4% for the back half of the year.

And then we feel in this environment, we should be able to get back next year to kind of a normal 2.5% to 3%, knock on wood, all things being equal.

So we believe we've done a good job and not seeing pressure as evidenced by the flat traffic over the last three quarters, absent the January weather.

So we feel like that's been a balance that we've been able to maintain.

But at the same time, we'd like to head back down to normal levels.

We've talked a lot about, over the year, that we kind of manage to the average.

I'm pretty sure when I saw the latest US inflation data, it was -- restaurant pricing was up 4.2%.

And so we're right in the middle, and we're right in the middle of the groups that we track.

And so we're maintaining our value proposition well.

Jim Salera, Stephens, Inc.

Hi, guys.

Thanks for taking our question, I wanted to drill down a little bit on the Rewards program.

I think historically, you guys mentioned one of the value propositions there is that as it helps alleviate some of the wait time seeing improves the overall guest experience.

Can you just match that up with the better-than-industry trends that you're seeing on traffic and does that help the poor traffic at Cheesecake and support acquisition as kind of a added value prop?

Sure.

Hi, Jim.

This is David Gordon.

I think what you're referring to really as one of the published offers as part of the program, which is exclusive access to reservations for a reward members.

And we are seeing reservations activation being very, very solid.

We know the guests -- when we asked them before the program what they would really appreciate about a Rewards program is to not have to wait at Cheesecake Factory.

So certainly convenience and people being pressed for time today is important as ever.

And knowing that you can get into Cheesecake Factory and perhaps not have to wait as you have historically on every single visit is a real big benefit of the program.

The other published rewards being a complementary slice of cheesecake on your birthday, we're seeing strong utilization there as well.

And just overall acquisition continues to be very strong.

Our increased membership enrollment is very, very strong.

People are very engaged in the program.

So I think along with reservations, all aspects of a program seem to be resonating with Cheesecake Rewards guests so far.

And just pointing back to National Cheesecake Day, which I mentioned earlier -- and we just completed National Cheesecake Day Monday and Tuesday of this week -- and as we compare to last year's NCD, which is on the same day days, our comps are up mid to single digits.

We have twice the enrollment that we had last year, and we have 4 times the member redemptions versus last year.

So the increased numbers have been effective.

People are really engaged in the program.

We will continue to -- I know we keep saying it's early, but we're only a year.

So we're going to continue to test and learn, analyze the information, and make sure that our unpublished offers, which are an important part of the program as well, where we're taking an individualized approach to drive incrementality, continue to be meaningful and get us really strong returns without any additional cost.

Okay.

That's super helpful.

And maybe keeping that same train of thought but thinking about North Italia, I know historically, the Italian spaces has a lot of mom-and-pop competition that probably don't have any digital -- or very limited digital offerings.

Is there anything you can do taking your learnings from that and maybe bridge it to North Italia?

Or is it just not big enough of a concept yet to warrant a full-fledged program alongside the offering there?

Certainly down the road as we continue to learn what resonates with guests as part of the program or any offerings, whatever might makes sense for North Italia or fit down the line would be something we can look at.

North has historically taken reservations, and that's a meaningful part of how guests utilize North today.

We haven't changed that program.

Don't really have any intention of changing it.

So I would say down in the future, we can talk about that a little bit more.

Right now because of the size of the concept and the continued growth, I wouldn't anticipate anything in the near term -- any type of loyalty reward program.

Matt Curtis, William Blair.

Hi, good afternoon.

We've heard some other casual dining brands talk about keeping up marketing spend in the second half of the year.

So I was just wondering if you can talk about what your plans are at The Cheesecake Factory to remain top of mind in what looks like it's becoming a more promotional and advert environment?

Matt, this is David Gordon again.

I think I would just lean back into the Rewards program.

I don't think that we need to take a look at a spend that's additional to what we've already talked about being that the Rewards program is already built into our plan for the year.

And since we do have a higher-than-anticipated membership rate thus far, we're going to continue to communicate to those guests and try and drive incrementality, whether that's trying to drive them to a specific day of the week or a specific day part or introduce them to new and different products that perhaps they haven't ordered before off the menu gives us, I think, leverage that we haven't historically had.

And we know that it works, because we've seen so far this year.

And that's how we'll continue to do marketing in a way that works for Cheesecake.

Jim Sanderson, Northcoast Research.

Thanks for the question.

Just following up on the discussion of the loyalty program.

Is there a plan in the back half of the year to increase the number of events similar to the free cheesecake giveaway that yielded mid-single-digit comps?

Just wondering if the plan is to increase the number of events that would be incremental in the back half.

Well, unpublished offers are happening all the time.

So how we utilize those unpublished offers or what they are going to be, obviously, we haven't talked about yet.

But we'll continue to understand guests and how they are utilizing us.

And we certainly know that that's a powerful tool.

We've tested numerous different offers over the past six months, not just half off of a complementary -- half off of a slice of cheesecake but a lot of different offers.

So we'll continue to do that.

And we know what's most effective, and we want to continue to do it in a way to protect margins at the same time.

Understood.

And then a follow-up question on store closures.

Is there any other expectations that you'll see units potentially at risk of having to be closed based on some of the leasing issues or other issues in the next two to four quarters?

I would always say there could be one or two, right?

The leasing environment continues to be pretty dynamic.

I think we've built a great pipeline of openings.

But we're always looking at the portfolio.

We have almost 350 restaurants.

Many one of them come up on leads on an annual basis.

And we've had a great amount of successful when moved trade areas.

So we're always going to evaluate.

If a site comes up for its lease, then we'll look and see if there's a better location and if that makes sense.

So I would say there's always a probability of one to two in that kind of timeframe.

Jeffrey Bernstein, Barclays.

Great.

Thank you very much.

Just two questions.

The first one, just on the competitive environment.

Clearly, we've seen some aggressive discounting from other casual diners.

I know that's not a strategy you guys typically pursue.

But would you say there's any noticeable impact on you or the broader industry or maybe changing of value scores, or maybe you're seeing your own consumer shift to more value-oriented items while still coming but maybe shifting down to less costly items?

Any thoughts there?

And then I had a follow-up.

Hi, Jeff.

It's David Gordon again.

This isn't the first time that we've seen marketing out there in casual dining ramp up.

It's happened historically over our 45-plus years.

And generally, we don't see it have an impact to us and our guest or value perception from our guest because others are offering a lot of different type of value.

So we wouldn't anticipate in this cycle that we would see it have any sort of negative impact to our long-term and short-term plan.

And we haven't seen that in the recent activity that has probably picked up in the past few months.

Understood.

And then my follow-up is, the comment you made about the lesser-known brands -- I think you said its comping more similar to broader casual dining -- so below products your core brands.

Wondering whether there any initiatives you have to reaccelerate that traffic or whether those brands actually take a more aggressive approach to drive traffic or whether you're okay with them kind of lagging your core brands, because you're not in the game of trying to drive short-term traffic.

Just trying to get a feel for some of those other brands relative to your core.

Thank you.

Sure.

Jeff, it's Matt.

We are always looking to drive traffic.

So that never -- the gas pedal is always on.

And like I said, I think some of it is transitory.

I think some of it is mix on alcohol, right, which is not necessarily related to the guest traffic side of things.

And so those are two different equations.

We're not necessarily in this environment looking to portion check, right?

I don't think that that's a wise strategy.

So if our guest traffic is relatively stable, but we have a little bit less incident rate, that's one trajectory.

That's where we think we're at right now.

And we're always going to be, in every one of our concepts, looking for ways, whether it's through more unique advertising menu items or operational initiatives to drive that.

So no, there's no -- nobody is just watching that happen.

We're aggressively attacking all fronts.

Jeff Farmer, Gordon Haskett.

Thank you.

You called out delivering improvements in food efficiencies, labor productivity, I think over time, wage management -- a long list of things in the Q2 at the restaurant level.

My question is, what is the opportunity to drive further efficiencies or improvements as we get into Q3 and Q4?

Jeff, this is David Gordon again.

I think we're always looking to improve upon previous performance.

One thing we haven't touched much on is just the stable staffing and retention of the restaurants.

And I think that again, I was just looking at the month that just ended, and we're seeing best-in-class retention at the staff level and at the management level, which is why we're seeing increased efficiencies, lower over-time, better wage management, and higher NPS scores.

And I would anticipate that to happen this coming quarter as well and into the fourth quarter because of the stability we have in each one of those locations where you have staff members that are more comfortable doing their job, we're able to continue to cross train them, which increases productivity.

So the more time we have that stability, the more we would anticipate that each one of those metrics when it comes to labor or food agency or food waste, will continue to improve quarter over quarter.

All right.

Thank you for that.

And just one quick bookkeeping.

Matt, you might have talked about it; I might've missed it.

But did you share the commodity and wage inflation numbers in Q2?

Q2, the commodity was about 1%, and wage inflation has kind of dipped [into] about 4%-ish -- continues to improve.

So those are both very solid based on historical kind of references, if you will.

John Ivankoe, JPMorgan.

Hi, thank you.

Years ago -- and hopefully, it's still the case now -- the industry measure the perceived price and price service value from a food perspective that they were giving their guests through prime costs.

Your prime costs are actually relatively low for casual dining at around 57%, and that's obviously anchored by COGS that are getting down to the low 22% range.

So when you do think about longer-term margin expansion across your portfolio, can those prime costs go even lower?

Could or should those COGS go even lower?

Or when do you think about longer-term ability to expand your margins, should we expect that be more volume-driven through the fixed cost side?

Thank you.

Yeah, John.

This is Matt.

That's a good question.

It's an interesting dynamic for sure.

One thing I like to remind our investors is that we tend to have slightly higher labor and slightly lower commodity costs because we make everything from scratch in the restaurant every single day and many of our competitors, frankly, don't do that have a commonest area.

And so the mix of those to can be a little bit misleading.

I think 57% is a strong number, but it's probably right in line historically with where we've been.

Keep in mind, too, that we benefit from the vertical integration of The Cheesecake Factory bakeries.

So I think that that skews it a little bit.

I think from the efficiencies David Gordon talked about relative to retention, there still is an opportunity without taking anything away from the guests and keeping our huge portions and great food and great service to get a little bit better, right?

So if we can keep even more of our people made for training and everything he talked about get la little bit better.

So we're always going to try for that.

At the same time, I would also like to see volume pick up and have a little bit of leverage.

The ideal state is to get a little bit above.

There are no further questions at this time.

This will conclude today's conference call.

Thank you, all, for your participation.

You may now disconnect.