The Cheesecake Factory Incorporated's CEO Discusses Q1 2012 Results - Earnings Call Transcript

The Cheesecake Factory Incorporated (CAKE)

Q1 2012 Earnings Call

April 25, 2012 5:00 pm ET

Executives

Jill S. Peters - Vice President of Investor Relations

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

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

Analysts

John S. Glass - Morgan Stanley, Research Division

Jeffrey Andrew Bernstein - Barclays Capital, Research Division

Joseph T. Buckley - BofA Merrill Lynch, Research Division

David E. Tarantino - Robert W. Baird & Co. Incorporated, Research Division

Matthew J. DiFrisco - Lazard Capital Markets LLC, Research Division

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

Michael Kelter - Goldman Sachs Group Inc., Research Division

Keith Siegner - Crédit Suisse AG, Research Division

Will Slabaugh - Stephens Inc., Research Division

Nicole Miller Regan - Piper Jaffray Companies, Research Division

Mitchell J. Speiser - The Buckingham Research Group Incorporated

Bryan C. Elliott - Raymond James & Associates, Inc., Research Division

Larry Miller - RBC Capital Markets, LLC, Research Division

Peter Saleh - Telsey Advisory Group LLC

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

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

Jake R. Bartlett - Susquehanna Financial Group, LLLP, Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the First Quarter 2012 The Cheesecake Factory Earnings Conference Call. My name is Jeremy, and I'll be your operator for today. [Operator Instructions] I would now like to turn the conference over to your host for today, Ms. Jill Peters. Please proceed.

Jill S. Peters

Good afternoon, and welcome to our first quarter fiscal 2012 earnings call. I'm Jill Peters, Vice President of Investor Relations. On the call today is David Overton, our Chairman and CEO, who is traveling in Asia and joining us by phone; and Doug Benn, our 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 facts 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 www.thecheesecakefactory.com 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.

Doug will start off the call today with our business and financial review, He will then provide our outlook for the second quarter of 2012, as well as the full year. Following that, David and Doug will take your questions.

Before I turn the call over to Doug, I will note that we will be at the Baird Growth Stock Conference in Chicago on May 8, with both David and Doug presenting on behalf of the company.

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

W. Douglas Benn

Well, thank you, Jill. The first quarter marked our ninth straight quarter of positive comparable sales with strength across geographies and day parts. And we had the best guest traffic levels that we've seen in more than a year and an increase of 1.9%. Our guest traffic was consistently better than the industry average for nearly the entire quarter based on the data we track.

On a 2-year basis, comparable sales are a healthy 4%. Our sales growth has been very consistent, and we are confident about our ability to deliver steady, dependable sales growth in the future. Importantly, manager retention in our restaurants is at near record levels. The tenure of our managers and our operations leadership teams directly impact the productivity of our restaurants. Retention also plays a crucial role in guest satisfaction. Our ongoing focus and investment of time and resources in training and development are clearly having a positive impact.

As to development, we are on track to open as many as 7 to 8 new restaurants in the U.S. this year. Our first opening of the year was in March in downtown Salt Lake City. The restaurant is doing very well with weekly sales averaging over $250,000 since its opening. Our next Cheesecake Factory opening is coming up in June, followed by the Grand Lux Café in New Jersey, opening in July. Our international expansion continues to be on track. The first of 3 planned Middle East openings by our licensee is currently slated for late summer.

Now let's review our financial results for the first quarter and our thoughts about the remainder of 2012. Total revenues of The Cheesecake Factory for the first quarter increased 4.1% to $435.8 million. Revenue growth reflects an overall comparable sales increase of 2.4%. Comparable sales increased by 2.6% at The Cheesecake Factory and 0.3% at Grand Lux Café. In addition, we had a 4% increase in total restaurant operating weeks due to the opening of 8 new restaurants during the trailing 15-month period plus a 0.7% increase in average weekly sales.

As we discussed at our last earnings call in February, a high-volume week was replaced with an average week in the first quarter 2012 because our big holiday week was captured as the 53rd week of last year. This reduced revenues by about $8 million in the first quarter of 2012, impacting our average weekly sales in the quarter.

At the bakery, external sales were $10.8 million, down about $1 million from the prior year. Cost of sales decreased 30 basis points to 24.7% of revenue for the first quarter. We experienced better-than-anticipated favorability primarily from dairy and produce costs.

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