The Cheesecake Factory(CAKE) - 2024 Q3 - Quarterly Report

PART I FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for the quarterly period ended October 3, 2023, including balance sheets, income statements, cash flows, and detailed notes Condensed Consolidated Balance Sheets As of October 3, 2023, total assets slightly increased to $2.777 billion, while cash decreased, and stockholders' equity grew to $321.6 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | October 3, 2023 (Unaudited) | January 3, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $63,987 | $114,777 | | Total current assets | $272,376 | $345,768 | | Property and equipment, net | $777,669 | $746,051 | | Total assets | $2,776,890 | $2,775,220 | | Total current liabilities | $618,520 | $656,678 | | Long-term debt | $469,543 | $468,032 | | Total liabilities | $2,455,246 | $2,483,217 | | Total stockholders' equity | $321,644 | $292,003 | Condensed Consolidated Statements of Income/(Loss) For Q3 2023, net income reached $17.9 million on $830.2 million revenue, a significant turnaround from a $2.4 million loss in the prior year Income Statement Summary (in thousands, except per share data) | Metric | Thirteen Weeks Ended Oct 3, 2023 | Thirteen Weeks Ended Sep 27, 2022 | Thirty-Nine Weeks Ended Oct 3, 2023 | Thirty-Nine Weeks Ended Sep 27, 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $830,210 | $784,001 | $2,562,494 | $2,410,354 | | Income/(loss) from operations | $19,030 | $(2,205) | $100,427 | $54,058 | | Net income/(loss) | $17,945 | $(2,398) | $88,670 | $46,421 | | Diluted net income/(loss) per share | $0.37 | $(0.05) | $1.80 | $0.92 | Condensed Consolidated Statements of Cash Flows Cash from operations increased to $150.5 million for the first nine months of 2023, despite an overall $50.8 million decrease in cash and cash equivalents Cash Flow Summary (in thousands) | Cash Flow Activity | Thirty-Nine Weeks Ended Oct 3, 2023 | Thirty-Nine Weeks Ended Sep 27, 2022 | | :--- | :--- | :--- | | Cash provided by operating activities | $150,546 | $98,897 | | Cash used in investing activities | $(100,648) | $(78,057) | | Cash used in financing activities | $(100,629) | $(76,949) | | Net change in cash and cash equivalents | $(50,790) | $(56,470) | | Cash and cash equivalents at end of period | $63,987 | $133,157 | Notes to Condensed Consolidated Financial Statements The notes detail accounting policies, fair value measurements, debt, leases, and segment information, including specifics on the Revolver Facility and Convertible Senior Notes - As of October 3, 2023, the company had $130.0 million outstanding on its $400 million Revolver Facility and $345.0 million in aggregate principal of Convertible Senior Notes due 2026[37][40] Segment Revenues (in thousands) | Segment | Thirteen Weeks Ended Oct 3, 2023 | Thirteen Weeks Ended Sep 27, 2022 | | :--- | :--- | :--- | | The Cheesecake Factory restaurants | $628,140 | $602,902 | | North Italia | $62,417 | $54,113 | | Other FRC | $58,642 | $52,193 | | Other | $81,011 | $74,793 | | Total | $830,210 | $784,001 | - Subsequent to the quarter's end, on October 26, 2023, the Board declared a quarterly cash dividend of $0.27 per share and approved a new stock repurchase plan under Rule 10b5-1[69] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance for the third quarter and first nine months of 2023, covering revenue growth, margin improvements, capital allocation, and fiscal outlook Results of Operations Q3 2023 revenues rose 5.9% to $830.2 million, driven by comparable sales growth and improved operating income due to menu pricing offsetting cost inflation - The Cheesecake Factory's Q3 2023 comparable sales increased 2.4% YoY, driven by a 3.4% increase in average check, partially offset by a 1.0% decrease in customer traffic, with off-premise sales constituting 21% of restaurant sales[93] - North Italia's Q3 2023 comparable sales grew approximately 8% YoY, fueled by a 5.5% increase in average check and a 2.7% increase in customer traffic[96] Key Cost Ratios (as % of Revenues) | Cost Category | Q3 2023 | Q3 2022 | | :--- | :--- | :--- | | Food and beverage costs | 23.5% | 25.2% | | Labor expenses | 36.3% | 37.4% | | Other operating costs | 27.6% | 27.7% | Fiscal Outlook The company projects fiscal 2023 total revenue at ~$3.45 billion with a ~3.8% net income margin, and anticipates continued growth and margin expansion in 2024 Fiscal 2023 Outlook | Metric | Guidance | | :--- | :--- | | Total Revenue | ~$3.45 billion | | Cost Inflation | Mid-single digit range | | Net Income Margin | ~3.8% | | New Restaurants | Up to 16 | | Capital Expenditures | $150 million - $160 million | Fiscal 2024 Outlook | Metric | Guidance | | :--- | :--- | | Total Revenue | $3.6 billion - $3.7 billion | | Cost Inflation | Low to mid-single digit range | | Net Income Margin | 4.0% - 4.5% | | Capital Expenditures | $175 million - $200 million | Liquidity and Capital Resources Cash from operations totaled $150.5 million for the first nine months of 2023, with $64.0 million in cash and $236.5 million in Revolver Facility availability as of October 3, 2023 - During the first nine months of 2023, cash and cash equivalents decreased by $50.8 million to $64.0 million[123] - The company opened seven restaurants in the first nine months of 2023 and plans to open as many as 16 for the full fiscal year[127] - As of October 3, 2023, the company had a $130.0 million outstanding balance on its Revolver Facility, with net availability of $236.5 million[130] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from commodity price volatility, interest rate fluctuations, and investment value changes, with mitigation efforts noted - A hypothetical 1% increase in food costs would have negatively impacted cost of sales by $1.9 million in Q3 2023[142] - Based on outstanding borrowings, a hypothetical 1% rise in interest rates would increase annual interest expense by $1.3 million[143] Item 4. Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of October 3, 2023, with no material changes in internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of October 3, 2023[144] - No changes in internal control over financial reporting occurred during the fiscal quarter that have materially affected, or are reasonably likely to materially affect, the company's internal controls[145] PART II OTHER INFORMATION Item 1. Legal Proceedings The company is subject to various legal proceedings, including a tentative wage citation settlement and dismissed class action complaints, with no material adverse effect expected - The company is involved in a wage citation case from 2018 which has reached a tentative settlement, for which an immaterial amount has been reserved[52] - Two class action complaints filed in February 2023 regarding alleged improper website tracking were voluntarily dismissed by the plaintiffs in May 2023[53] Item 1A. Risk Factors No material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended January 3, 2023, have occurred - The company directs investors to the risk factors detailed in its Annual Report on Form 10-K for the fiscal year ended January 3, 2023, indicating no material updates during the quarter[147] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2023, the company repurchased 453,000 shares of common stock, contributing to 56.2 million shares repurchased cumulatively under authorization Share Repurchases in Q3 2023 (in thousands, except per share data) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | July 5 – Aug 8, 2023 | 114 | $36.09 | | Aug 9 – Sep 5, 2023 | 107 | $33.21 | | Sep 6 – Oct 3, 2023 | 232 | $29.68 | | Total | 453 | N/A | - Through October 3, 2023, the company has cumulatively repurchased 56.2 million shares at a total cost of $1,801.9 million, out of a total authorization of 61.0 million shares[150] Item 5. Other Items No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the third fiscal quarter of 2023 - No director or officer of the Company adopted or terminated a "Rule 10b5-1 trading arrangement" or a "non-Rule 10b5-1 trading arrangement" during the third fiscal quarter of 2023[151] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications of principal officers and financial statements in iXBRL format