The Cheesecake Factory Incorporated (CAKE)

Q2 2010 Earnings Call

July 22, 2010 5:15 pm ET


Jill Peters - Vice President of Investor Relations

W. Benn - Chief Financial Officer and Executive Vice President

David Overton - Chairman, Chief Executive Officer and Member of Enterprise Risk Management Advisory Committee


Greg Schroeder - Wisco Research LLC

Brad Ludington - KeyBanc Capital Markets Inc.

Keith Siegner - Crédit Suisse AG

Destin Tompkins - Morgan Keegan & Company, Inc.

Matthew DiFrisco - Oppenheimer & Co. Inc.

John Glass - Morgan Stanley

Mitchell Speiser - Buckingham Research

Larry Miller - RBC Capital Markets Corporation

John Ivankoe - JP Morgan Chase & Co

Jeffrey Bernstein - Barclays Capital

Peter Saleh - Telsey Advisory Group



Good day, ladies and gentlemen, and welcome to the Second Quarter 2010 The Cheesecake Factory Earnings Conference Call. My name is Sally, and I will be your operator for today. [Operator Instructions] I would now like to turn the conference over to your host for today, Jill Peters. Please proceed.

Jill Peters

Thank you. Good afternoon, and welcome to our Second Quarter Fiscal 2010 Earnings Call. I'm Jill Peters, Vice President of Investor Relations. With us today are David Overton, Chairman and Chief Executive Officer; and Doug Benn, Executive Vice President and Chief Financial Officer.

Before we begin, let me quickly remind you that during this call, items may 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 differ materially from those stated or implied in forward-looking statements as a result of the factors detailed in today’s press release, which is available in the Investors section of our website at 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 statement.

David will start off the call today with some opening remarks. Doug will then take you through our operating results in detail and provide our thoughts on the third quarter fiscal 2010 as well as an update on the full year. Following that, we'll open the call to questions.

Without further delay, I'll turn the call over to David.

David Overton

Thank you, Jill. We're pleased to report another quarter of positive comparable sales at both The Cheesecake Factory and Grand Lux Café. The economy is still sluggish, and the recovery seems to have slowed. This is evident in the Federal Reserve's actions last week, reducing its outlook for the economy.

In addition, consumer confidence in July declined. Consumers appear to be cautious about spending, with concerns about global instability and the recent stock market volatility stated as reasons for the caution. However, in spite of this, we delivered very solid sales and earnings results for the quarter. Our better-than-expected comparable sales in the second quarter were driven by guest traffic gains of 1.4%. Consumers are very selective today about where they dine out, more so than they've ever been. Quality service and value for the overall experience a guest receives are no longer nice to have; they're necessities.

Our ongoing high guest satisfaction scores are one indicator that we're doing more than just meeting the needs of our guests. Our comparable sales performance and cost savings increase helped drive 22% growth in earnings per share this quarter. We now anticipate realizing slightly more in savings than we originally expected this year from our cost management initiatives that we implemented in 2009.

As for development, we expect to open an 8,500 square foot Cheesecake Factory in Bridgewater, New Jersey next month, which will be our final new restaurant openings for the year. Beyond 2010, we're optimistic about the fact that we're starting to see more availability of high-quality restaurant sites than we have in the recent past. These aren't just typical mall sites; they're a variety of site types, including freestanding, in line and specialty centers.

We don't require only new mall development or expansion of malls for site opportunities. For example, if a large retailer closes, the space can be carved up into several pieces, which opens up additional opportunities for us. Right now, it's too early to pinpoint the number of new restaurants we expect to open in 2011, but as we have more on definitive development plans for next year, we'll share that with you.

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

W. Benn

Well, thank you, David. Total revenues of The Cheesecake Factory for the quarter were $418.9 million compared to the prior year second quarter, an increase of 2.7%. Restaurant revenues reflect a 1.3% increase in total restaurant operating weeks, primarily from the opening of two new restaurants during the trailing 15-month period, plus a 1.6% increase in average weekly sales.

Overall, comparable sales of The Cheesecake Factory and Grand Lux Café restaurants increased 1.6% for the quarter. By concept, comparable sales increased 1.6% and 0.9% at The Cheesecake Factory and Grand Lux Café, respectively.

As we discussed previously, sequential sales comparisons at both concepts were impacted in the second quarter by holiday shifts and by heavy Gift Card redemptions in the first quarter.

In terms of the components that comprise comparable sales, traffic was up 1.4%, as David mentioned. We had another 1.4% in pricing, stemming from an effective menu price increase of about 0.6% in our winter 2010 menu change.

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