- Revenue: $904 million, finishing toward the higher end of the expected range.
- Adjusted Net Income Margin: 5.9%, exceeding the high end of guidance.
- Comparable Sales (The Cheesecake Factory): 1.4% increase year-over-year.
- Annualized Unit Volumes (The Cheesecake Factory): $12.5 million.
- Four Wall Margin (The Cheesecake Factory): 17.7%, highest level in six years.
- New Restaurant Openings: Five in Q2, including one Cheesecake Factory, one North Italia, one FRC restaurant, and two Flower Child locations.
- Total Sales (The Cheesecake Factory): $677 million, up 4% from the prior year.
- Total Sales (North Italia): $75.5 million, up 15% from the prior year.
- Total Sales (Other FRC): $73.6 million, up 12% from the prior year.
- Total Sales (Flower Child): $35.7 million, up 7% from the prior year.
- External Bakery Sales: $13.6 million, down 12% from the prior year.
- Cost of Sales: Decreased 90 basis points.
- Labor as a Percent of Sales: Decreased 20 basis points.
- G&A Expenses: Decreased 40 basis points.
- Pre-Opening Costs: $7 million, up from $6 million in the prior year.
- GAAP Diluted Net Income Per Share: $1.8.
- Adjusted Diluted Net Income Per Share: $1.9.
- Total Available Liquidity: $277 million, including $41 million in cash and $237 million available on revolving credit facility.
- Total Debt Outstanding: $475 million in principal.
- CapEx: Approximately $29 million during the second quarter.
- Share Repurchases: Approximately $3.9 million.
- Dividends Returned to Shareholders: $13.9 million.
- Q3 Revenue Outlook: $855 million to $870 million.
- Full Year 2024 Revenue Outlook: Approximately $3.58 billion.
- Full Year Net Income Margin Outlook: 4.3% to 4.4%.
- CapEx for 2024: $180 million to $200 million.
Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Cheesecake Factory Inc (CAKE, Financial) reported a 24% year-over-year growth in adjusted earnings per share for the third consecutive quarter.
- Comparable sales at The Cheesecake Factory restaurants increased by 1.4%, outperforming the casual dining industry.
- The company opened five new restaurants in the second quarter, including one Cheesecake Factory, one North Italia, one FRC restaurant, and two Flower Child locations, all of which opened to impressive demand.
- Operational performance within the restaurants was excellent, with a focus on improving efficiencies, labor productivity, and wage management, leading to enhanced restaurant-level profitability.
- The Cheesecake Factory's four-wall margin reached 17.7% for the quarter, the highest level in the past six years.
Negative Points
- Total revenues for the full year 2024 are now projected to be slightly lower at $3.58 billion, down from the previous guidance of $3.6 billion.
- External bakery sales decreased by 12% from the prior year, totaling $13.6 million.
- Two Cheesecake Factory restaurant closures are expected, one related to a lease exit and the other due to the conversion of a center location.
- North Italia's comparable sales increased by only 2% from the prior year, indicating slower growth compared to other segments.
- The company noted some softness in the retail segment, which contributed to the slight adjustment in the full-year revenue outlook.
Q & A Highlights
Q: Have you changed your outlook at all for the core brands, The Cheesecake Factory brand or North Italia in that guidance?
A: No, the core outlook for Cheesecake, North, and Flower Child remains intact. The slight adjustment in revenue guidance is due to factors like two Cheesecake closures and some softness in the retail segment.
Q: Can you give an update on where you ended the second quarter on traffic and what you're assuming for the rest of the year?
A: We ended the quarter with traffic at negative 0.2%. Our expectations for the year remain the same, aiming for flattish traffic.
Q: The 17.7% Cheesecake margin is impressive. Is there something else going on with increased growth in new concepts?
A: The difference is due to the growth of new concepts. We had 10 openings in the first half of the year, which were disproportionately newer concepts.
Q: Are some of the older North Italia stores consistent with the 2% comp number, or are they drastically different?
A: The older stores are consistent with the 2% comp number. The slight difference is due to the Fourth of July week and some recalibration on the mix, particularly on alcohol.
Q: Do you see a path to reaching pre-pandemic levels of consolidated store-level margins?
A: Yes, we believe the business should operate between 16% and 18%. Given the progress we've made, getting over 16% is still our goal and is achievable in less than five years.
Q: What are you seeing from the California consumer over the last few months?
A: We're seeing consistent trends across all geographies, including California. No additional pressure or impact from the FAST Act on wages.
Q: Are you seeing any changes in seasonality or impacts from hybrid work or extended summer vacations?
A: The hot weather has impacted patio utilization, but otherwise, we believe things are returning to a normal seasonal pattern post-pandemic.
Q: Can you comment on the cadence of Cheesecake Factory's comps through the quarter and any color on what you're seeing in July?
A: The year has been very consistent for us. The one thing to call out in July is the hot weather, which impacted patio usage.
Q: What is the opportunity to drive further efficiencies or improvements in Q3 and Q4?
A: We are always looking to improve. Stable staffing and retention have led to increased efficiencies, lower overtime, better wage management, and higher NPS scores.
Q: Can you provide more specific color on the mix breakdown and the outlook for mix improvement?
A: We expect another 1% improvement in Q3 and Q4. Our expectations for mix are generally plus or minus 1%, so we should be fast approaching a normal range.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
