The Cheesecake Factory Incorporated (CAKE)

Q3 2011 Earnings Call

October 19, 2011 5:00 pm ET


W. Douglas Benn - Chief Financial Officer and Executive Vice President

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

Jill S. Peters - Vice President of Investor Relations


Phan Le

Brian Vaccaro - Raymond James

Nicole Miller Regan - Piper Jaffray Companies, Research Division

John S. Glass - Morgan Stanley, Research Division

Jonathan R. Komp - Robert W. Baird & Co. Incorporated, Research Division

Paul Westra - Cowen and Company, LLC, Research Division

Sharon Zackfia - William Blair & Company L.L.C., Research Division

Stephen Anderson - Miller Tabak + Co., LLC, Research Division

Mitchell J. Speiser - Buckingham Research Group, Inc.

Brad Ludington - KeyBanc Capital Markets Inc., Research Division

Michael Kelter - Goldman Sachs Group Inc., Research Division

John W. Ivankoe - JP Morgan Chase & Co, Research Division

Joseph T. Buckley - BofA Merrill Lynch, Research Division



Good day, ladies and gentlemen, and welcome to the Third Quarter 2011 The Cheesecake Factory Earnings Conference Call. My name is Stacy, and I'll be your conference moderator for today. [Operator Instructions] As a reminder, this conference call is being recorded for replay purposes. I would now like to turn the presentation over to your host for today to Ms. Jill Peters. Please proceed.

Jill S. Peters

Good afternoon, and welcome to our third quarter fiscal 2011 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 statements.

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 outlook for the rest of the year and 2012. Following that, we'll open the call to questions. Now I'll turn the call over to David.

David Overton

Thank you, Jill. The third quarter was our seventh consecutive quarter of positive comparable sales with The Cheesecake Factory and Grand Lux Café both positive. Geographically, there's ongoing strength in places such as California, Florida and Texas, our 3 largest markets. Each of these delivered significantly above-average comparable sales.

Importantly, from a profitability standpoint, we are managing our business well. Normalized for commodity cost, profit margins are healthy as we effectively leveraged cost across our P&L. We are competitively well positioned, maintaining high guest satisfaction scores and delivering margin improvement in labor, other operating expenses and G&A.

In September, we completed our summer menu rollout, including the introduction of our new SkinnyLicious menu. Innovation is a big differentiator for us, it helps us drive guest traffic with full margin sales across a broad range of options and price points to remain relevant to consumers' wants and needs. Our development plans are on track for this year, with one more opening tomorrow and the final opening in early December for a total of 7 new Cheesecake Factory restaurants in 2011. These 7 new restaurants are quite diverse in their geography: California, Texas, Florida and the Northeast. Our development strategy continues to be location-specific, focused on premier sites that can meet our sales target of about $1,000 per square foot, fueling strong returns.

In reality, and the restaurants that we've opened over the past 3 years are averaging sales that are above our system average. As a result, our returns are exceeding our expectations. We have a significant runway for growth as we take The Cheesecake Factory from 150 to 300 anticipated units and position Grand Lux Café for future growth.

Looking ahead to 2012, kind of looks to be a solid year. We're currently expecting to open as many as 7 to 10 new restaurants next year, including a new Grand Lux Café. The pipeline for high-quality sites is strong and more robust than we've seen in quite some time.

In addition to our domestic openings, our initial 3 international locations are scheduled to open in the Middle East next year. Our plans are in line with our longer-term objectives, including increased new restaurant development, international expansion and earnings per share growth in the midteens.

In addition, we plan to continue to return a sizable amount of cash to our shareholders. Doug will get into the details, so with that, I'll turn the call over to him.

W. Douglas Benn

Well, thank you, David. Total revenues of The Cheesecake Factory for the third quarter increased 3% to $430 million. Restaurant revenues reflect a 1.9% increase in total restaurant operating weeks due to the opening of 6 new restaurants during the trailing 15-month period, plus a 0.6% increase in average weekly sales.

Overall, comparable sales increased 0.8% at The Cheesecake Factory and 0.9% at Grand Lux Café. We did see some impact from Hurricane Irene, which impacted overall comparable sales by about 40 basis points. Absent this, comparable restaurant sales increased 1.2%. We implemented an approximate 1.25% menu price increase at The Cheesecake Factory in our summer 2011 menu change, lapping a 0.7% menu price increase from the summer of 2010.

Read the rest of this transcript for free on