The Cheesecake Factory Incorporated (NASDAQ:CAKE) Q1 2024 Earnings Conference Call May 8, 2024 5:00 PM ET Company Participants Etienne Marcus - Vice President of Finance & Investor Relations David Overton - Chairman & Chief Executive Officer David Gordon - President Matt Clark - Executive Vice President & Chief Financial Officer Conference Call Participants David Tarantino - Baird Katherine Griffin - Bank of America Brian Mullan - Piper Sandler Brian Vaccaro - Raymond James Jim Salera - Stephens Jon Tower - ...

Cheesecake Factory (CAKE) reported $891.22 million in revenue for the quarter ended March 2024, representing a year-over-year increase of 2.9%. EPS of $0.73 for the same period compares to $0.61 a year ago.The reported revenue represents a surprise of +0.33% over the Zacks Consensus Estimate of $888.27 million. With the consensus EPS estimate being $0.63, the EPS surprise was +15.87%.While investors closely watch year-over-year changes in headline numbers -- revenue and earnings -- and how they compare to W ...

Cheesecake Factory (CAKE) came out with quarterly earnings of $0.73 per share, beating the Zacks Consensus Estimate of $0.63 per share. This compares to earnings of $0.61 per share a year ago. These figures are adjusted for non-recurring items.This quarterly report represents an earnings surprise of 15.87%. A quarter ago, it was expected that this restaurant chain would post earnings of $0.74 per share when it actually produced earnings of $0.80, delivering a surprise of 8.11%.Over the last four quarters, t ...

Revenue and Sales Performance - Revenues increased by 2.9% to $891.2 million for the fiscal quarter ended April 2, 2024, compared to $866.1 million for the same period in the prior year, primarily due to new restaurant openings[97] - The Cheesecake Factory sales rose by 1.8% to $667.8 million in the first quarter of fiscal 2024, while average sales per restaurant operating week decreased by 0.7% to $237,903[98] - Comparable sales for The Cheesecake Factory decreased by 0.6%, or $3.9 million, driven by a 1.5% decline in customer traffic, partially offset by a 0.9% increase in average check[98] - Sales through the off-premise channel accounted for approximately 22% of restaurant sales in the first quarter of fiscal 2024, down from 23% in the prior year[98] - North Italia sales increased 12.0% to $70.9 million for Q1 fiscal 2024, compared to $63.3 million in Q1 fiscal 2023[99] - Flower Child sales rose 10.2% to $34.5 million for Q1 fiscal 2024, up from $31.3 million in Q1 fiscal 2023[101] - Other FRC sales increased 8.2% to $74.2 million for Q1 fiscal 2024, compared to $68.6 million in Q1 fiscal 2023[102] - Total revenue for fiscal 2024 is anticipated to be approximately $3.6 billion[115] Cost Management and Financial Metrics - The Cheesecake Factory's food and beverage costs decreased to 22.8% of revenues in the fiscal quarter ended April 2, 2024, down from 23.8% in the prior year[96] - Total costs and expenses were 95.6% of revenues for the fiscal quarter ended April 2, 2024, compared to 96.1% for the same period in the prior year[96] - The company is focused on managing expenses prudently at restaurants, bakery facilities, and corporate support centers to leverage purchasing power[85] - The effective income tax rate decreased to 11.6% in Q1 fiscal 2024 from 12.5% in Q1 fiscal 2023[110] - The company expects a net income margin of approximately 4.25% for fiscal 2024[115] Capital Expenditures and Growth Plans - The company plans to continue expanding The Cheesecake Factory and North Italia concepts, focusing on premier locations in both new and existing markets[85] - The company aims for a targeted annual unit growth of 7% across concepts, combined with margin expansion to support a long-term financial objective of 13% to 14% total return to shareholders[93] - The company plans to open up to 22 new restaurants in fiscal 2024, with capital expenditures estimated between $180 million to $200 million[116] - Capital expenditures for new restaurants were $25.0 million in Q1 fiscal 2024, compared to $24.3 million in Q1 fiscal 2023[121] Shareholder Returns and Stock Activity - Common stock dividends paid were $12.8 million in Q1 fiscal 2024, compared to $13.2 million in Q1 fiscal 2023[125] - The company has repurchased 56.9 million shares at a total cost of $1,824.2 million, with 0.4 million shares repurchased for $12.5 million in Q1 fiscal 2024[127] - The company has cumulative share repurchase authorization of up to 61.0 million shares, with no expiration date[128] Liquidity and Financial Stability - Cash provided by operating activities increased by $1.7 million in Q1 fiscal 2024, totaling $66.7 million[120] - The company believes its cash and cash equivalents, along with expected cash flows and available borrowings, will provide adequate liquidity for the next 12 months[129] - The company entered into a Fourth Amended and Restated Loan Agreement providing a $400 million Revolver Facility, with $236.5 million net availability for borrowings as of April 2, 2024[123] - The Revolver Facility includes financial covenants that limit equity distributions and restrict certain financial activities[124] Risk Management - A hypothetical 1% increase in food costs would have negatively impacted cost of sales by $2.0 million in Q1 fiscal 2024[136] - A hypothetical 1% rise in interest rates would increase annual interest expense by $1.3 million based on borrowings as of April 2, 2024[137] - The company has not experienced changes in internal control over financial reporting that materially affect its financial reporting[139] - The company has no hedging contracts in place as of April 2, 2024, to manage commodity price risks[135]

Executive Summary & Q1 2024 Financial Highlights [Q1 2024 Financial Performance and CEO Commentary](index=1&type=section&id=Q1%202024%20Financial%20Performance%20and%20CEO%20Commentary) Q1 2024 revenues rose to $891.2 million, net income $33.2 million, and diluted EPS $0.68, reflecting operational improvements Q1 Fiscal 2024 Financial Performance (GAAP & Adjusted) | Metric | Q1 Fiscal 2024 (GAAP, in millions) | Q1 Fiscal 2024 (Adjusted, in millions) | Q1 Fiscal 2023 (GAAP, in millions) | | :-------------------------------- | :-------------------- | :------------------------ | :-------------------- | | Total Revenues | $891.2 | N/A | $866.1 | | Net Income | $33.2 | $35.6 | $28.05 | | Diluted Net Income Per Share | $0.68 | $0.73 | $0.56 | | Comparable Restaurant Sales (The Cheesecake Factory) | (0.6)% | N/A | 5.7% | - CEO David Overton stated that The Cheesecake Factory restaurants' comparable sales and traffic **meaningfully outperformed the industry**, with sales improving throughout the quarter and operational improvements contributing to **significant profitability growth**[3](index=3&type=chunk) Business Operations & Development [Restaurant Development](index=2&type=section&id=Restaurant%20Development) Q1 2024 saw **five new restaurant openings**, including one international Cheesecake Factory, with plans for up to **22 new restaurants** - During Q1 fiscal **2024**, the Company opened **five new restaurants**: **two North Italia**, **two FRC**, and **one Flower Child** location. Additionally, **one Cheesecake Factory restaurant opened internationally** under a licensing agreement in Mexico. Subsequent to quarter-end, **another Cheesecake Factory restaurant opened internationally** in Asia[4](index=4&type=chunk) - The Company expects to open **as many as 22 new restaurants** in fiscal **2024**, including **3-4 The Cheesecake Factory**, **6-7 North Italia**, **6-7 Flower Child**, and **6-7 FRC restaurants**[4](index=4&type=chunk) [Company Overview](index=2&type=section&id=Company%20Overview) The Cheesecake Factory operates **335** U.S./Canada restaurants and **34** international licensed locations, recognized as a top employer - The Company owns and operates **335 restaurants** throughout the United States and Canada under brands including The Cheesecake Factory, North Italia, Flower Child, and a collection of other FRC brands. Internationally, **34 The Cheesecake Factory restaurants** operate under licensing agreements[7](index=7&type=chunk)[18](index=18&type=chunk) - The Company was named to the FORTUNE Magazine "100 Best Companies to Work For" list for the **eleventh consecutive year** in **2024**[3](index=3&type=chunk)[7](index=7&type=chunk) Liquidity and Capital Allocation [Liquidity and Capital Allocation Details](index=2&type=section&id=Liquidity%20and%20Capital%20Allocation%20Details) As of April 2, 2024, liquidity was $296.7 million, debt $475 million, with $12.5 million in share repurchases and a $0.27 dividend Liquidity and Debt (as of April 2, 2024) | Metric | Amount (in millions) | | :-------------------------------- | :------------- | | Total Available Liquidity | $296.7 | | Cash Balance | $60.2 | | Revolving Credit Facility Availability | $236.5 | | Total Principal Debt Outstanding | $475 | | - 0.375% Convertible Senior Notes due 2026 | $345 | | - Revolving Credit Facility Drawn | $130 | - In Q1 fiscal **2024**, the Company repurchased approximately **359,400 shares** of its stock at a cost of **$12.5 million**. The Board of Directors declared a quarterly dividend of **$0.27 per share**, payable on June 4, **2024**[5](index=5&type=chunk) Condensed Consolidated Financial Statements [Condensed Consolidated Statements of Income](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) Q1 2024 revenues grew 2.9% to $891.2 million, operating income rose 15.8% to $39.3 million, with diluted EPS at $0.68 Consolidated Statements of Income (13 Weeks Ended) | Metric | April 2, 2024 (in thousands) | April 2, 2024 (% of Revenues) | April 4, 2023 (in thousands) | April 4, 2023 (% of Revenues) | | :--------------------------------------- | :-------------------------------- | :---------------------------- | :-------------------------------- | :---------------------------- | | Revenues | $891,223 | 100.0% | $866,114 | 100.0% | | Food and beverage costs | $203,253 | 22.8% | $206,224 | 23.8% | | Labor expenses | $320,930 | 36.0% | $311,528 | 36.0% | | Other operating costs and expenses | $233,541 | 26.3% | $230,929 | 26.7% | | General and administrative expenses | $60,366 | 6.8% | $54,069 | 6.2% | | Depreciation and amortization expenses | $24,756 | 2.8% | $22,955 | 2.7% | | Impairment of assets and lease termination expenses | $2,083 | 0.2% | $2,242 | 0.3% | | Acquisition-related contingent consideration, compensation and amortization expenses | $1,121 | 0.1% | $1,189 | 0.1% | | Preopening costs | $5,880 | 0.6% | $3,052 | 0.3% | | Total costs and expenses | $851,930 | 95.6% | $832,188 | 96.1% | | Income from operations | $39,293 | 4.4% | $33,926 | 3.9% | | Interest and other expense, net | $(1,761) | (0.2)% | $(1,880) | (0.2)% | | Income before income taxes | $37,532 | 4.2% | $32,046 | 3.7% | | Income tax provision | $4,341 | 0.5% | $3,996 | 0.5% | | Net income | $33,191 | 3.7% | $28,050 | 3.2% | | Basic net income per share | $0.70 | N/A | $0.58 | N/A | | Diluted net income per share | $0.68 | N/A | $0.56 | N/A | [Selected Segment Information](index=5&type=section&id=Selected%20Segment%20Information) The Cheesecake Factory segment led revenue and operating income growth; North Italia and Other FRC saw revenue gains but operating income declines [Segment Revenues](index=5&type=section&id=Segment%20Revenues) Revenues by Segment (13 Weeks Ended) | Segment | April 2, 2024 (in thousands) | April 4, 2023 (in thousands) | YoY Change | | :----------------------------- | :--------------------------- | :--------------------------- | :--------- | | The Cheesecake Factory restaurants | $667,794 | $656,000 | +1.8% | | North Italia | $70,874 | $63,303 | +11.9% | | Other FRC | $74,229 | $68,640 | +8.1% | | Other | $78,326 | $78,171 | +0.2% | | **Total** | **$891,223** | **$866,114** | **+2.9%** | [Segment Operating Income/(Loss)](index=5&type=section&id=Segment%20Operating%20Income%2F%28Loss%29) Income/(Loss) from Operations by Segment (13 Weeks Ended) | Segment | April 2, 2024 (in thousands) | April 4, 2023 (in thousands) | YoY Change | | :----------------------------- | :--------------------------- | :--------------------------- | :--------- | | The Cheesecake Factory restaurants | $86,071 | $78,386 | +9.8% | | North Italia | $3,170 | $4,606 | -31.2% | | Other FRC | $6,292 | $8,711 | -27.7% | | Other | $(56,240) | $(57,777) | +2.7% | | **Total** | **$39,293** | **$33,926** | **+15.8%** | [Segment Depreciation and Amortization](index=5&type=section&id=Segment%20Depreciation%20and%20Amortization) Depreciation and Amortization Expenses by Segment (13 Weeks Ended) | Segment | April 2, 2024 (in thousands) | April 4, 2023 (in thousands) | | :----------------------------- | :--------------------------- | :--------------------------- | | The Cheesecake Factory restaurants | $16,843 | $16,018 | | North Italia | $1,971 | $1,467 | | Other FRC | $2,425 | $1,927 | | Other | $3,517 | $3,543 | | **Total** | **$24,756** | **$22,955** | [Segment Impairment and Lease Termination Expenses](index=5&type=section&id=Segment%20Impairment%20and%20Lease%20Termination%20Expenses) Impairment of Assets and Lease Termination Expenses by Segment (13 Weeks Ended) | Segment | April 2, 2024 (in thousands) | April 4, 2023 (in thousands) | | :----------------------------- | :--------------------------- | :--------------------------- | | The Cheesecake Factory restaurants | $1,859 | $93 | | North Italia | - | - | | Other FRC | - | $55 | | Other | $224 | $2,094 | | **Total** | **$2,083** | **$2,242** | [Segment Preopening Costs](index=5&type=section&id=Segment%20Preopening%20Costs) Preopening Costs by Segment (13 Weeks Ended) | Segment | April 2, 2024 (in thousands) | April 4, 2023 (in thousands) | | :----------------------------- | :--------------------------- | :--------------------------- | | The Cheesecake Factory restaurants | $1,758 | $1,448 | | North Italia | $2,002 | $446 | | Other FRC | $1,724 | $721 | | Other | $396 | $437 | | **Total** | **$5,880** | **$3,052** | [Segment Operating Information](index=6&type=section&id=Segment%20Operating%20Information) Comparable Restaurant Sales vs. Prior Year (13 Weeks Ended) | Segment | April 2, 2024 | April 4, 2023 | | :----------------------------- | :-------------- | :-------------- | | The Cheesecake Factory restaurants | (0.6)% | 5.7% | | North Italia | 3% | 9% | Restaurant Counts and Openings (13 Weeks Ended April 2, 2024) | Segment | Restaurants Opened During Period | Restaurants Open at Period-End (Company-Owned) | | :----------------------------- | :----------------------------- | :--------------------------------------------- | | The Cheesecake Factory restaurants | - | 216 | | North Italia | **2** | 38 | | Other FRC | **2** | 42 | | Other (Flower Child, Grand Lux Cafe, Social Monk Asian Kitchen) | **1** | 40 | | **Total Company-Owned** | **5** | **336** | | International-licensed The Cheesecake Factory | **1** (subsequent to quarter-end, **another opened**) | 33 | [Selected Consolidated Balance Sheet Information](index=6&type=section&id=Selected%20Consolidated%20Balance%20Sheet%20Information) As of April 2, 2024, cash and cash equivalents increased to $60.2 million, with long-term debt remaining stable at $470.6 million Selected Consolidated Balance Sheet Information | Metric | April 2, 2024 (in thousands) | January 2, 2024 (in thousands) | | :-------------------------------- | :--------------------------- | :--------------------------- | | Cash and cash equivalents | $60,220 | $56,290 | | Long-term debt, net of issuance costs | $470,551 | $470,047 | Reconciliation of Non-GAAP Results to GAAP Results [Non-GAAP Reconciliation Details](index=7&type=section&id=Non-GAAP%20Reconciliation%20Details) Non-GAAP adjustments for Q1 2024 resulted in adjusted net income of $35.6 million and adjusted diluted EPS of $0.73, excluding non-recurring items - Non-GAAP measurements are intended to supplement GAAP results by eliminating the impact of items the Company does not consider indicative of its ongoing operations. These measures are used for financial and operational decision-making and period-to-period comparisons[21](index=21&type=chunk) Reconciliation of Non-GAAP Financial Measures (13 Weeks Ended) | Metric | April 2, 2024 (in thousands) | April 4, 2023 (in thousands) | | :--------------------------------------------------------------------------------- | :--------------------------- | :--------------------------- | | Net income (GAAP) | $33,191 | $28,050 | | Impairment of assets and lease termination expenses | 2,083 | 2,242 | | Acquisition-related contingent consideration, compensation and amortization expenses | 1,121 | 1,189 | | Tax effect of adjustments | (833) | (892) | | **Adjusted net income (non-GAAP)** | **$35,562** | **$30,589** | | Diluted net income per share (GAAP) | $0.68 | $0.56 | | Impairment of assets and lease termination expenses | 0.04 | 0.05 | | Acquisition-related contingent consideration, compensation and amortization expenses | 0.02 | 0.02 | | Tax effect of adjustments | (0.02) | (0.02) | | **Adjusted net income per share (non-GAAP)** | **$0.73** | **$0.61** | Additional Information [Conference Call and Webcast](index=2&type=section&id=Conference%20Call%20and%20Webcast) A conference call on May 8, 2024, discussed Q1 fiscal 2024 results, with a webcast replay available until June 7, 2024 - The Company held a conference call to review its Q1 fiscal **2024** results on **May 8, 2024**, at 2:00 p.m. Pacific Time. A live webcast and replay are available on investors.thecheesecakefactory.com until **June 7, 2024**[6](index=6&type=chunk) [Safe Harbor Statement](index=3&type=section&id=Safe%20Harbor%20Statement) Forward-looking statements are subject to risks and uncertainties; investors should consult SEC filings for full risk factor disclosure - The press release contains forward-looking statements regarding restaurant development and other non-historical facts, which are based on current expectations and involve risks and uncertainties that may cause results to differ materially[9](index=9&type=chunk) - Investors are cautioned that forward-looking statements are not guarantees of future performance and are affected by various factors including economic conditions, supply chain disruptions, operational risks, market acceptance, and regulatory changes. A full discussion of risks and uncertainties is available in the Company's SEC filings (Form 10-K, 10-Q, 8-K)[9](index=9&type=chunk)

Core Insights - Cheesecake Factory (CAKE) is expected to report quarterly earnings of $0.63 per share, a 3.3% increase year-over-year, with revenues projected at $888.27 million, reflecting a 2.6% year-over-year growth [1] - The consensus EPS estimate has been adjusted downward by 0.3% over the past 30 days, indicating a reassessment by analysts [1] Revenue Estimates - Revenues from North Italia are expected to be $69.76 million, representing a 10.2% increase from the prior year [2] - Revenues from The Cheesecake Factory restaurants are forecasted to reach $665.10 million, suggesting a 1.4% year-over-year increase [2] - Revenues from Other segments are estimated at $77.24 million, indicating a 1.2% decrease year-over-year [2] - Revenues from Other FRC are projected to be $76.75 million, reflecting an 11.8% year-over-year increase [3] Comparable Restaurant Sales - Comparable restaurant sales for The Cheesecake Factory are estimated to decline by 0.9%, contrasting with a 5.7% increase from the previous year [3] - Comparable restaurant sales for North Italia are expected to be 2.7%, down from 9% in the prior year [4] Number of Restaurants - The number of company-owned restaurants for The Cheesecake Factory is projected to be 216, up from 210 year-over-year [3] - The total number of company-owned restaurants is estimated at 338, compared to 318 in the previous year [3] - The number of company-owned restaurants for North Italia is expected to reach 37, up from 33 year-over-year [3] - The number of company-owned restaurants for Other FRC is projected at 41, compared to 35 in the prior year [4] - The number of company-owned restaurants for Other is expected to remain at 40, consistent with the previous year's figure [4] Stock Performance - Over the past month, shares of Cheesecake Factory have returned +0.4%, while the Zacks S&P 500 composite has seen a -0.4% change [4] - Currently, CAKE holds a Zacks Rank 3 (Hold), indicating that its performance may align with the overall market in the near future [4]

Company Overview - Cheesecake Factory (CAKE) is expected to report a year-over-year increase in earnings, with a projected EPS of $0.63, reflecting a change of +3.3% [2] - Revenues are anticipated to reach $888.27 million, which is a 2.6% increase from the previous year [2] Earnings Estimates and Revisions - The consensus EPS estimate has been revised down by 0.4% over the last 30 days, indicating a reassessment by analysts [2] - The Most Accurate Estimate for Cheesecake Factory is higher than the Zacks Consensus Estimate, resulting in a positive Earnings ESP of +0.27% [4] Earnings Surprise Prediction - A positive Earnings ESP is a strong indicator of an earnings beat, especially when combined with a Zacks Rank of 1, 2, or 3 [4] - Cheesecake Factory currently holds a Zacks Rank of 3, suggesting a likelihood of beating the consensus EPS estimate [5][6] Historical Performance - In the last reported quarter, Cheesecake Factory exceeded the expected EPS of $0.74 by delivering $0.80, resulting in a surprise of +8.11% [7] - Over the past four quarters, the company has beaten consensus EPS estimates three times [7] Industry Context - In the broader Zacks Retail - Restaurants industry, Portillo's Inc. is also expected to report earnings, with an EPS estimate of $0.05, indicating no change from the previous year [9] - Portillo's Inc. has an Earnings ESP of 4.76% and a Zacks Rank of 3, suggesting a potential earnings beat as well [9]

Core Insights - Zacks Premium offers tools for investors to enhance their stock market strategies, including daily updates on Zacks Rank and Style Scores [1][4] - The Zacks Style Scores categorize stocks based on value, growth, and momentum, providing ratings from A to F to indicate potential performance [2][3] Zacks Style Scores - **Value Score**: Identifies attractive stocks using ratios like P/E and Price/Sales, focusing on undervalued stocks [2] - **Growth Score**: Evaluates a company's financial health and future outlook, highlighting stocks with sustainable growth [2] - **Momentum Score**: Assesses trends in stock prices and earnings estimates to identify high-momentum stocks [2] - **VGM Score**: Combines the three Style Scores to find stocks with the best overall value, growth, and momentum [3] Zacks Rank - The Zacks Rank is a proprietary model based on earnings estimate revisions, with 1 (Strong Buy) stocks historically returning an average of +25.41% annually since 1988, outperforming the S&P 500 [4] - Investors are encouraged to select stocks with a Zacks Rank of 1 or 2 and Style Scores of A or B for optimal returns [5] Company Spotlight: Cheesecake Factory (CAKE) - As of January 2, 2024, Cheesecake Factory operates 334 restaurants in the U.S. and Canada, including various brands [6] - CAKE holds a Zacks Rank of 3 (Hold) and a VGM Score of A, indicating potential for growth [6] - The company is projected to achieve year-over-year earnings growth of 14.5% for the current fiscal year, with a Zacks Consensus Estimate of $3.08 per share [6] - Recent analyst revisions have positively impacted earnings estimates, with an average earnings surprise of 3.3% [6]

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Taking full advantage of the stock market and investing with confidence are common goals for new and old investors, and Zacks Premium offers many different ways to do both.The research service features daily updates of the Zacks Rank and Zacks Industry Rank, full access to the Zacks #1 Rank List, Equity Research reports, and Premium stock screens, all of which will help you become a smarter, more confident investor.It also includes access to the Zacks Style Scores.What are the Zacks Style Scores?Developed a ...