What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-01 compared with 2022-05-02 · 157 added, 89 removed, 193 unchanged (56% of the section changed)

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These statements are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as codified in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (together with the Securities Act, the “Acts”).

This includes, without limitation, statements regarding corporate social responsibility (“CSR”) and in our CSR report, the effects of the COVID-19 pandemic on our financial condition and our results of operations, accelerated and diversified revenue growth as a result of the acquisition of North Italia and Fox Restaurant Concepts LLC (“FRC”), financial guidance and projections as well as expectations of our future financial condition, results of operations, sales, target growth rates, cash flows, quarterly dividends, corporate strategy, plans, targets, goals, objectives, performance, growth potential, competitive position and business, and statements regarding our ability to:

This includes, without limitation, statements regarding corporate social responsibility (“CSR”) and in our CSR report, the effects of the COVID-19 pandemic on our financial condition and our results of operations, accelerated and diversified revenue growth as a result of the acquisition of North Italia and Fox Restaurant Concepts LLC (“FRC”), financial guidance and projections as well as expectations of our future financial condition, returning to pre-pandemic margins, results of operations, sales, target growth rates, cash flows, quarterly dividends, corporate strategy, plans, targets, goals, objectives, performance, growth potential, competitive position and business, and statements regarding our ability to:

leverage our competitive strengths, including investing in or acquiring new restaurant concepts and expanding The Cheesecake Factory® brand to other retail opportunities;

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provide a differentiated experience to customers;

outperform the casual dining industry and increase our market share;

leverage sales increases and manage flow through;

manage cost pressures, including increasing wage rates, insurance costs and legal expenses, and stabilize margins;

manage cost pressures, including wage rates, commodities cost, insurance costs and legal expenses, and stabilize margins;

grow earnings;

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the economic health of our landlords and other tenants in retail centers in which our restaurants are located, and our ability to successfully manage our lease arrangements with landlords;

unanticipated costs that may arise in connection with a return to normal course of business, including potential negative impacts from furlough actions;

unanticipated costs that may arise in connection with a return to normal course of business;

the economic health of suppliers, licensees, vendors and other third parties providing goods or services to us;

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the ability to achieve projected financial results;

economic and political conditions that impact consumer confidence and spending;

the resolution of uncertain tax positions with the Internal Revenue Service and the impact of tax reform legislation;

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In connection with the “safe harbor” provisions of the Acts, we have identified and are disclosing important factors, risks and uncertainties that could cause our actual results to differ materially from those projected in forward-looking statements made by us, or on our behalf.

(See Part II, Item 1A of this report, “Risk Factors,” and Part I, Item 1A, “Risk Factors,” included in our Annual Report

on Form 10-K for the fiscal year ended December 28, 2021.) These cautionary statements are to be used as a reference in connection with any forward-looking statements.

(See Part II, Item 1A of this report, “Risk Factors,” and Part I, Item 1A, “Risk Factors,” included in our Annual Report on Form 10-K for the fiscal year ended December 28, 2021.) These cautionary statements are to be used as a reference in connection

with any forward-looking statements.

The factors, risks and uncertainties identified in these cautionary statements are in addition to those contained in any other cautionary statements, written or oral, which may be made or otherwise addressed in connection with a forward-looking statement or contained in any of our subsequent filings with the SEC.

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The ongoing effects of COVID-19 and its variants, including, but not limited to, consumer behavior, capacity restrictions, mask and vaccination mandates, wage inflation, our ability to continue to staff our restaurants and disruptions in the supply chain, will determine the impact to our operating results and financial position.

The impact to our operations has been most notable during the periods of greatest accelerating COVID-19 case counts.

The impact to our operations has been most notable during the periods of greatest accelerating COVID-19 case counts, including the recent summer virus resurgence.

We have incurred and will continue to incur additional costs to address government regulations and the safety of our staff members and customers.

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Average check is driven by menu price increases and/or changes in menu mix.

We generally update The Cheesecake Factory menus twice each year, and our philosophy is to use price increases to help offset key operating cost increases in a manner that balances protecting both our margins and customer traffic levels.

We generally update The Cheesecake Factory menus twice each year, and our philosophy is to use price increases to help offset key operating cost increases in a manner that balances supporting both our margin objectives and customer traffic levels.

We have historically targeted menu price increases of approximately 2% to 3% annually, utilizing a market-based strategy to help mitigate cost pressure in higher-wage geographies.

Due to the cost pressures we are currently experiencing, particularly in commodities, in the first quarter of fiscal 2022, we implemented price increases above our historical levels to protect margins.

Due to the cost pressures we are currently experiencing, particularly in commodities, in the first quarter of fiscal 2022 we implemented menu price increases above our historical levels to support our longer-term restaurant-level margin objectives and are in the process of implementing further such increases in the third quarter of fiscal 2022.

Future near-term pricing actions may also be at levels above historical norms.

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Results of Operations

The following table presents, for the periods indicated, information from our condensed consolidated statements of income/(loss) expressed as percentages of revenues.

The following table presents, for the periods indicated, information from our condensed consolidated statements of income expressed as percentages of revenues.

The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for any other interim period or for the full fiscal year.

March 29, 2022

March 30, 2021

June 28, 2022

June 29, 2021

June 28, 2022

June 29, 2021

Costs and expenses:

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Dividends on Series A preferred stock

Net income/(loss) available to common stockholders

Thirteen Weeks Ended March 29, 2022 Compared to Thirteen Weeks Ended March 30, 2021

Revenues increased 24.1% to $778.4 million for the fiscal quarter ended March 29, 2022 compared to $627.4 million for the comparable prior year period, primarily due to an increase in comparable restaurant sales, reflecting the impact of the COVID-19 pandemic in the first quarter of fiscal 2021, as well as additional revenue related to new restaurant openings.

The Cheesecake Factory comparable sales increased by 20.7%, or $102.6 million, from the first quarter of fiscal 2021.

The increase from fiscal 2021 was primarily driven by increased customer traffic of 25.3% primarily due to the impact of the COVID-19 pandemic in the prior year, partially offset by a decline in average check of 4.6% (based on a 8.2% negative change in mix, partially offset by an increase of 3.6% in menu pricing).

Sales through the off-premise channel comprised approximately 28% of our restaurant sales during the first quarter of fiscal 2022 as compared to 43% in the first quarter of fiscal 2021 as many customers have returned to on-premise dining, whereas consumer behavior had shifted towards the off-premise channel during the prior year period due to the pandemic.

However, off-premise sales mix remains elevated versus the pre-pandemic level of 17% during the first quarter of fiscal 2019.

Undistributed earnings allocated to Series A preferred stock

Net income available to common stockholders

Thirteen Weeks Ended June 28, 2022 Compared to Thirteen Weeks Ended June 29, 2021

Revenues increased 8.3% to $832.6 million for the fiscal quarter ended June 28, 2022 compared to $769.0 million for the comparable prior year period, primarily due to an increase in comparable restaurant sales, as well as additional revenue related to new restaurant openings.

The Cheesecake Factory comparable sales increased by 4.7%, or $28.4 million, from the second quarter of fiscal 2021 and increased 13.1% from the second quarter of fiscal 2019.

The increase from fiscal 2021 was primarily driven by increased customer traffic of 5.7%, partially offset by a decline in average check of 1.0% (based on a 5.7% negative change in mix, partially offset by an increase of 4.7% in menu pricing).

Sales through the off-premise channel comprised approximately 25% of our restaurant sales during the second quarter of fiscal 2022 as compared to 31% in the second quarter of fiscal 2021 as more customers have returned to on-premise dining, whereas consumer behavior had shifted towards the off-premise channel during the prior year period due to the pandemic.

However, off-premise sales mix remains elevated versus the pre-pandemic level of 16% during the second quarter of fiscal 2019.

We account for each off-premise order as one customer for traffic measurement purposes.

Therefore, average check is generally higher for off-premise orders as most are for more than one customer.

In turn, the lower mix of sales in the off-premise channel during the first quarter of fiscal 2022 compared to the prior year first quarter was the primary driver of the negative change in mix and also contributed to the increase in traffic.

In turn, the lower mix of sales in the off-premise channel during the second quarter of fiscal 2022 compared to the prior year second quarter was the primary driver of the negative change in mix and also contributed to the increase in traffic.

We implemented effective menu price increases of approximately 3.3% and 1.5% in the first quarter of fiscal 2022 and third quarter of fiscal 2021, respectively.

The Cheesecake Factory average sales per restaurant operating week increased 20.9% to $225,523 in the first quarter of fiscal 2022 from $186,478 in the first quarter of fiscal 2021.

Total operating weeks at The Cheesecake Factory restaurants increased 1.0% to 2,704 in the first quarter of fiscal 2022 compared to 2,678 in the prior year.

North Italia comparable sales increased approximately 32% from the first quarter of fiscal 2021.

The increase from fiscal 2021 was primarily driven by increased customer traffic of 32% primarily due to the impact of the COVID-19 pandemic in the prior year, partially offset by a decrease in average check of 1% (based on a 5% negative change in mix, partially offset by an increase of 4% in menu pricing).

North Italia average sales per restaurant operating week increased 29.2% to $139,940 in the first quarter of fiscal 2022 from $108,328 in the first quarter of fiscal 2021.

Total operating weeks at North Italia increased 24.4% to 377 in the first quarter of fiscal 2022 compared to 303 in the prior year.

The Cheesecake Factory average sales per restaurant operating week increased 5.1% to $237,004 in the second quarter of fiscal 2022 from $225,452 in the second quarter of fiscal 2021.

Total operating weeks at The Cheesecake Factory restaurants increased 0.5% to 2,704 in the second quarter of fiscal 2022 compared to 2,691 in the prior year.

North Italia comparable sales increased approximately 12% from the second quarter of fiscal 2021 and increased 22% from the second quarter of fiscal 2019.

The increase from fiscal 2021 was primarily driven by increased customer traffic of 8%, as well as an increase in average check of 4% (based on an increase of 5% in menu pricing, partially offset by a 1% negative change in mix).

North Italia average sales per restaurant operating week increased 12.0% to $148,778 in the second quarter of fiscal 2022 from $132,824 in the second quarter of fiscal 2021.

Total operating weeks at North Italia increased 15.2% to 378 in the second quarter of fiscal 2022 compared to 328 in the prior year.

Restaurants become eligible to enter the comparable sales base in their 19 th month of operation.

At March 29, 2022, there were three The Cheesecake Factory restaurants and six North Italia restaurants not yet in the comparable sales base.

At June 28, 2022, there were two The Cheesecake Factory restaurants and seven North Italia restaurants not yet in the comparable sales base.

International licensed locations and restaurants that are no longer in operation, including those which we have relocated, are excluded from comparable sales calculations.

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Cost of sales consists of food, beverage and bakery production supply costs incurred in conjunction with our restaurant and bakery revenues, and excludes depreciation, which is captured separately in depreciation and amortization expenses.

As a percentage of revenues, cost of sales was 23.7% and 21.7% in the first quarters of fiscal 2022 and 2021, respectively, primarily due to inflation in excess of pricing across most categories (2.4%), partially offset by a shift in sales mix within the restaurants and a lower proportion of third-party bakery revenues (0.4%).

As a percentage of revenues, cost of sales was 24.5% and 22.0% in the second quarters of fiscal 2022 and 2021, respectively, primarily due to inflation across most categories in excess of menu price increases (2.3%).

Labor Expenses

As a percentage of revenues, labor expenses, which include restaurant-level labor costs and bakery direct production labor, including associated fringe benefits, were 37.3% and 36.6% in the first quarters of fiscal 2022 and 2021, respectively.

This increase was primarily due to wage rates and overtime (1.2%) as well as training labor (0.3%), partially offset by pricing leverage (0.8%) in the first quarter of fiscal 2022.

As a percentage of revenues, labor expenses, which include restaurant-level labor costs and bakery direct production labor, including associated fringe benefits, were 36.6% and 35.7% in the second quarters of fiscal 2022 and 2021, respectively.

This increase was primarily due to wage rate inflation in excess of menu price increases (1.2%), as well as increased staffing levels compared to the prior year (0.3%), partially offset by a decline in group medical insurance costs due to lower claim activity (0.5%) in the second quarter of fiscal 2022.

Other Operating Costs and Expenses

Other operating costs and expenses consist of restaurant-level occupancy expenses (rent, common area expenses, insurance, licenses, taxes and utilities), marketing, including delivery commissions, other operating expenses (excluding food costs and labor expenses, which are reported separately) and bakery production overhead and distribution expenses.

As a percentage of revenues, other operating costs and expenses were 26.2% and 28.9% in the first quarters of fiscal 2022 and 2021, respectively.

This variance was primarily driven by pricing leverage (1.6%), sales leverage within the occupancy and building costs (0.6%), and lower restaurant-level incentive compensation expense (0.5%), partially offset by higher general liability insurance due to lower claim activity in the prior year (0.2%).

As a percentage of revenues, other operating costs and expenses were 26.3% and 25.9% in the second quarters of fiscal 2022 and 2021, respectively.

This variance was primarily driven by utilities inflation in excess of menu price increases (0.2%) and higher workers compensation insurance costs due to lower claim activity in the prior year (0.2%).

G&A expenses consist of the restaurant management recruiting and training program, restaurant field supervision, corporate support and bakery administrative organizations, as well as gift card commissions to third-party distributors.

As a percentage of revenues, G&A expenses were 6.2% and 7.1% in the first quarters of fiscal 2022 and 2021, respectively.

This variance was primarily driven by sales leverage and expense management (0.6%), as well as lower corporate incentive compensation expense (0.3%).

As a percentage of revenues, G&A expenses were 6.0% and 6.3% in the second quarters of fiscal 2022 and 2021, respectively.

This variance was primarily driven by lower corporate incentive compensation expense (0.4%).

Depreciation and Amortization Expenses

As a percentage of revenues, depreciation and amortization expenses decreased to 2.7% in the first quarter of fiscal 2022 from 3.5% in the comparable prior year period due primarily to sales leverage.

Impairment of Assets and Lease Terminations

During the first quarter of fiscal 2022, we recorded impairment of assets and lease terminations expense of $0.2 million related to lease termination costs and accelerated depreciation for two Grand Lux Cafe locations that closed during the quarter.

In the first quarter of fiscal 2021, we recorded impairment of assets and lease terminations expense of $0.6 million related to lease termination costs for two Other restaurants.

As a percentage of revenues, depreciation and amortization expenses decreased to 2.7% in the second quarter of fiscal 2022 from 2.9% in the comparable prior year period due primarily to sales leverage.

Impairment of Assets and Lease Terminations Expenses

During the second quarter of fiscal 2022, we recorded impairment of assets and lease terminations expense of $0.1 million compared with no impairment of assets and lease terminations expense during the second quarter of fiscal 2021.

Acquisition-Related Contingent Consideration, Compensation and Amortization Expenses

We recorded $0.9 million and $0.6 million during the first quarter of fiscal 2022 and 2021, respectively, of acquisition-related contingent consideration, compensation and amortization.

We recorded $0.9 million and $11.4 million during the second quarter of fiscal 2022 and 2021, respectively, of acquisition-related contingent consideration, compensation and amortization.

This decrease is primarily related to the impact of an amendment to the FRC acquisition agreement in the second quarter of fiscal 2021 that, among other things, extended the measurement period through fiscal 2026.

Preopening Costs

Preopening costs were $1.8 million and $3.9 million in the first quarters of fiscal 2022 and 2021, respectively.

We had no openings in the first quarter of fiscal 2022 compared to one The Cheesecake Factory, one North Italia and one Other FRC location in the comparable prior year period.

Preopening costs were $2.9 million and $2.8 million in the second quarters of fiscal 2022 and 2021, respectively.

We opened one North Italia restaurants and one Other location in the second quarter of fiscal 2022 compared to two North Italia and one Other location in the comparable prior year period.

Preopening costs include all costs to relocate and compensate restaurant management staff members during the preopening period, costs to recruit and train hourly restaurant staff members, and wages, travel and lodging costs for our opening training team and other support staff members.

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Interest and Other Expense, Net

Interest and other expense, net was $1.5 million and $2.7 million for the first quarters of fiscal 2022 and 2021, respectively.

This decrease was primarily due to interest in the prior year related to our interest rate swap, which was terminated in June 2021 ($0.5 million), as well as favorability across several other categories.

Interest and other expense, net was $1.1 million and $4.7 million for the second quarters of fiscal 2022 and 2021, respectively.

This decrease was primarily due to interest in the prior year related to our interest rate swap, which was terminated in June 2021 ($2.8 million), lower interest on our Revolving Credit Facility due to a repayment in June 2021 ($0.4 million), as well as favorability across several other categories .

Income Tax Provision

Our effective income tax rate was 13.8% and 37.1% for the first quarters of fiscal 2022 and 2021, respectively.

The decrease resulted primarily from a reserve for an uncertain tax position recorded in the first quarter of fiscal 2021, partially offset by a lower proportion of employment credits in relation to pre-tax income in the first quarter of fiscal 2022.

Our effective income tax rate was 4.3% and 7.4% for the second quarters of fiscal 2022 and 2021, respectively.

The decrease resulted primarily from a higher proportion of employment credits in relation to pre-tax income, partially offset by nondeductible losses in the second quarter of fiscal 2022 as compared to non-taxable gains in the comparable prior year period on our investments in variable life insurance contracts used to support our non-qualified deferred compensation plan (“ESP”).

Twenty-Six Weeks Ended June 28, 2022 Compared to Twenty-Six Weeks Ended June 29, 2021

Revenues increased 16.5% to $1,626.4 million for the first half of 2022 compared to $1,396.4 million for the comparable prior year period, primarily due to an increase in comparable restaurant sales, reflecting the impact of the COVID-19 pandemic in the first half of fiscal 2021, as well as additional revenue related to new restaurant openings.

The Cheesecake Factory comparable sales increased by 12.0%, or $130.9 million, from the first half of fiscal 2021 and increased 10.6% from the first half of fiscal 2019.

The increase from fiscal 2021 was primarily driven by increased customer traffic of 14.4% primarily due to the impact of the COVID-19 pandemic in the prior year, partially offset by a decline in average check of 2.4% (based on a 6.7% negative change in mix, partially offset by an increase of 4.3% in menu pricing).

Sales through the off-premise channel comprised approximately 26% of our restaurant sales during the first half of fiscal 2022 as compared to 36% in the first half of fiscal 2021 as more customers have returned to on-premise dining, whereas consumer behavior had shifted towards the off-premise channel during the prior year period due to the pandemic.

However, off-premise sales mix remains elevated versus the pre-pandemic level of 16% during the first half of fiscal 2019.

The Cheesecake Factory average sales per restaurant operating week increased 12.3% to $231,264 in the first half of fiscal 2022 from $206,012 in the first half of fiscal 2021.

Total operating weeks at The Cheesecake Factory restaurants increased 0.7% to 5,408 in the first half of fiscal 2022 compared to 5,369 in the prior year.

North Italia comparable sales increased approximately 21% from the first half of fiscal 2021 and increased 22% from the first half of fiscal 2019.

The increase from fiscal 2021 was primarily driven by increased customer traffic of 19%, as well as an increase in average check of 2% (based on an increase of 4% in menu pricing, partially off by a 2% negative change in mix).

North Italia average sales per restaurant operating week increased 19.2% to $144,365 in the first half of fiscal 2022 from $121,061 in the first half of fiscal 2021.

Total operating weeks at North Italia increased 19.7% to 755 in the first half of fiscal 2022 compared to 631 in the prior year.

Cost of Sales

As a percentage of revenues, cost of sales was 24.1% and 21.8% in the first half of fiscal 2022 and 2021, respectively, primarily due to inflation across most categories in excess of menu price increases (1.9%).

Labor Expenses

As a percentage of revenues, labor expenses were 36.9% and 36.1% in the first half of fiscal 2022 and 2021, respectively.

This increase was primarily due to wage rate inflation in excess of menu price increases (1.4%), partially offset by a decrease in group medical insurance costs due to lower claim activity (0.5%) in the first half of fiscal 2022.

Other Operating Costs and Expenses

As a percentage of revenues, other operating costs and expenses were 26.3% and 27.3% in the first half of fiscal 2022 and 2021, respectively.

This variance was primarily driven by pricing leverage (0.5%), sales leverage within occupancy and building costs (0.3%) and lower restaurant-level incentive compensation expense (0.3%).

As a percentage of revenues, G&A expenses were 6.1% and 6.6% in the first half of fiscal 2022 and 2021, respectively.

This variance was primarily driven by lower corporate incentive compensation expense (0.3%), as well as sales leverage and expense management (0.3%).

Depreciation and Amortization Expenses

As a percentage of revenues, depreciation and amortization expenses decreased to 2.7% in the first half of fiscal 2022 from 3.2% in the comparable prior year period due primarily to sales leverage.

Impairment of Assets and Lease Terminations Expenses

During the first half of fiscal 2022, we recorded impairment of assets and lease terminations expense of $0.3 million related to lease termination costs and accelerated depreciation for two Grand Lux Cafe locations that closed during the first quarter of fiscal 2022.

During the first half of fiscal 2021, we recorded impairment of assets and lease terminations expense of $0.6 million related to lease termination costs for two Other restaurants, one of which closed during the fourth quarter of fiscal 2020 and one that closed at the beginning of the first quarter of fiscal 2021.

Acquisition-Related Contingent Consideration, Compensation and Amortization Expenses

We recorded $1.8 million and $11.9 million during the first half of fiscal 2022 and 2021, respectively, of acquisition-related contingent consideration, compensation and amortization.

Preopening Costs

Preopening costs were $4.7 million and $6.6 million in the first half of fiscal 2022 and 2021, respectively.

We opened one North Italia and one Other location in the first half of fiscal 2022 compared to one The Cheesecake Factory, three North Italia restaurants, one Other FRC and one Other location in the comparable prior year period.

Interest and Other Expense, Net

Interest and other expense, net was $2.6 million and $7.4 million for the first half of fiscal 2022 and 2021, respectively.

This decrease was primarily due to interest in the prior year related to our interest rate swap, which was terminated in June 2021 ($3.3 million), lower interest on our Revolving Credit Facility due to a repayment in June 2021 ($0.5), as well as favorability across several other categories.

Income Tax Provision

Our effective income tax rate was 9.0% and 11.7% for the first half of fiscal 2022 and 2021, respectively.

The decrease resulted primarily from a higher proportion of employment credits in relation to pre-tax income in the first half of fiscal 2022 and our reserve for an uncertain tax position recorded in the comparable prior year period, partially offset by nondeductible losses in the first half of fiscal 2022 as compared to non-taxable gains in the comparable prior year period on our investments in variable life insurance contracts used to support our ESP.

Non-GAAP Measures

Adjusted net income/(loss) and adjusted net income/(loss) per share are supplemental measures of our performance that are not required by or presented in accordance with GAAP.

Adjusted net income and adjusted if- converted net income per share are supplemental measures of our performance that are not required by or presented in accordance with GAAP.

These non-GAAP measures may not be comparable to similarly titled measures used by other companies and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP.

We calculate these non-GAAP measures by eliminating from net income/(loss) and diluted net income/(loss) per common share the impact of items we do not consider indicative of our ongoing operations.

To reflect the potential impact of the conversion of our Series A preferred stock into common stock for the period that it was outstanding prior to the conversion on June 15, 2021, we excluded the preferred dividend and assumed all convertible preferred shares have been converted into common stock.

We calculate these non-GAAP measures by eliminating from net income available to common stockholders and diluted net income per common share the impact of items we do not consider indicative of our ongoing operations.

(See Note 9 of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this report for further discussion of our preferred stock.) We use these non-GAAP financial measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons.

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In the future, we may incur expenses or generate income similar to the adjusted items.

Following is a reconciliation from net income/(loss) and diluted net income/(loss) per common share to the corresponding adjusted measures (in thousands, except per share data):

March 29, 2022

March 30, 2021

Net income/(loss) available to common stockholders

Following is a reconciliation from net income available to common stockholders and diluted net income per common share to the corresponding adjusted measures (in thousands, except per share data):

June 28, 2022

June 29, 2021

June 28, 2022

June 29, 2021

Net income available to common stockholders

Dividends on Series A preferred stock

Net income attributable to Series A preferred stock

COVID-19 related costs (1)

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Acquisition-related contingent consideration, compensation and amortization expenses

Uncertain tax positions

Termination of interest rate swap

Uncertain tax position

Tax effect of adjustments (2)

Adjusted net income/(loss)

Diluted net income/(loss) per common share

Adjusted net income

Diluted net income per common share

Dividends on Series A preferred stock

Assumed impact of potential conversion of preferred stock into common stock (3)

Net income attributable to Series A preferred stock

Assumed impact of potential conversion of Series A preferred stock into common stock (3)

COVID-19 related costs (1)

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Acquisition-related contingent consideration, compensation and amortization expenses

Uncertain tax position

Termination of interest rate swap

Uncertain tax positions

Tax effect of adjustments (2)

Adjusted if-converted net income/(loss) per share (4)

Adjusted if-converted net income per share (4)

(1) Represents incremental costs associated with the COVID-19 pandemic such as additional sanitation, personal protective equipment, sick and vaccination pay, and healthcare benefits associated with furloughed staff members.

(2) Based on the federal statutory rate and an estimated blended state tax rate, the tax effect on all adjustments assumes a 26% tax rate.

(3) Represents the impact of assuming the conversion of preferred stock into common stock (9,598,559 shares), resulting in an assumption of 53,787,314 weighted-average common shares outstanding for the thirteen weeks ended March 30, 2021.

(3) Represents the impact of assuming the conversion of preferred stock into common stock (8,126,001 and 8,862,280 shares for the thirteen and twenty-six weeks ended June 29, 2021, respectively), resulting in an assumption of 54,902,770 and 54,837,353 weighted-average common shares outstanding for the thirteen and twenty-six weeks ended June 29, 2021.

(4) Adjusted net income per share may not add due to rounding.

Fiscal 2022 Outlook

Based on extrapolating recent trends and assuming no material disruptions from COVID-19 or other factors, we anticipate total revenue for the second quarter of fiscal 2022 to be approximately $830 million to $850 million and for the full fiscal year to be approximately $3.3 billion to $3.4 billion, with The Cheesecake Factory fiscal year 2022 average sales per location reaching just over $12 million, including the impact of the 53rd operating week.

We remain committed to protecting our longer-term restaurant-level margins and will take appropriate actions, including additional menu pricing to offset structural and permanent costs, as needed.

However, we will likely continue to absorb short-term cost fluctuations driven by the current environment.

Including the February 2022 price increase, we currently have 4.75% pricing in The Cheesecake Factory menu and anticipate taking another menu price increase that is above our historical norm in the third quarter of fiscal 2022.

For fiscal year 2022, we expect commodity inflation of low to mid double digits inclusive of the recent geopolitical environment, with mid-teens inflation in the second quarter of fiscal 2022 moderating to high single digit inflation in the fourth quarter of fiscal 2022.

Based on our second quarter performance, recent trends and including the impact of the latest virus resurgence, we anticipate total revenue for the third quarter of fiscal 2022 to be approximately $785 million to $805 million and for the full fiscal year to be approximately $3.32 billion to $3.37 billion, with The Cheesecake Factory fiscal year 2022 average sales per location reaching $12 million, including the impact of the 53rd operating week.

We remain committed to supporting our longer-term restaurant-level margin objectives and will take appropriate actions, including additional menu pricing to help offset structural and permanent costs.

However, there remains measurable risk associated with cost fluctuations driven by the current environment.

We currently have 4.75% pricing in The Cheesecake Factory menu and are in the process of implementing a 4.25% menu price increase in the third quarter of fiscal 2022.

For fiscal year 2022, we expect commodity inflation of approximately 14% to 15% inclusive of the recent geopolitical environment, with 15% to 16% inflation in the third quarter of fiscal 2022 and moderating to 13% to 14% inflation in the fourth

quarter of fiscal 2022.

We expect fiscal year 2022 net labor inflation of approximately 5% when factoring in wage rates and channel mix, among other components such as payroll taxes and benefits.

We also anticipate other operating costs and expenses as a percentage of revenues to improve as we move through the year, with a full year average of approximately 25.5%.

In addition, we expect fiscal 2022 G&A expenses of approximately $210 million, preopening costs of approximately $18 million, depreciation and amortization expenses of approximately $90 million and are utilizing a tax rate of approximately 11% to 12% for modeling purposes.

We plan to open as many as 15 to 16 new restaurants in fiscal 2022, including four The Cheesecake Factory restaurants, four to five North Italia restaurants and as many as seven restaurants within our FRC business, which includes three to four Flower Child locations.

We also anticipate other operating costs and expenses as a percentage of revenues to be slightly above 26% in the third quarter of fiscal 2022 and, with the full benefit of the third quarter menu price increase, to be approximately 25% for the fourth quarter of fiscal year 2022.

In addition, we expect fiscal 2022 G&A expenses of approximately $207 million, with approximately $52 million and $55 million to $56 million in the third and fourth quarter of fiscal 2022, respectively.

The increase in G&A expenses from the third to the fourth quarter of fiscal 2022 primarily relates to the 53rd operating week.

We also anticipate fiscal 2022 preopening costs of approximately $18 million, depreciation and amortization expenses of approximately $91 million and are utilizing a tax rate of approximately 9% to 10% for modeling purposes.

We plan to open as many as 15 new restaurants in fiscal 2022, including four The Cheesecake Factory restaurants, four North Italia restaurants and as many as seven restaurants within our FRC business, which includes three Flower Child locations.

We anticipate approximately $140 million in cash capital expenditures to support this level of unit development, as well as required maintenance on our restaurants.

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However, we believe our operating lease arrangements continue to provide appropriate leverage for our capital structure in a financially efficient manner.

During the first quarter of fiscal 2022, our cash and cash equivalents decreased by $6.1 million to $183.6 million.

During the first half of fiscal 2022, our cash and cash equivalents increased by $5.3 million to $194.9 million.

The following table presents, for the periods indicated, a summary of our key cash flows from operating, investing and financing activities (in millions):

March 29, 2022

March 30, 2021

June 28, 2022

June 29, 2021

Cash provided by operating activities

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Acquisition-related deferred consideration and compensation

Convertible debt issuance, net of issuance cost

Common stock issuance, net of issuance cost

Repayments on credit facility

Series A preferred stock cash-settled conversion

Series A preferred stock dividends paid

Proceeds from exercise of stock options

Common stock dividends paid

Treasury stock purchases

Cash Provided by Operating Activities

Cash flows from operations increased by $11.9 million from the first quarter of fiscal 2021 primarily due to a lesser impact of the COVID-19 pandemic.

Cash flows from operations decreased by $42.9 million from the first half of fiscal 2021 primarily due to higher fiscal year-end 2021 liabilities related to increased sales and staffing levels that were paid in the first half of fiscal 2022, compared to those accrued at fiscal year-end 2020 and paid in the first half of fiscal 2021.

Property and Equipment

Capital expenditures for new restaurants, including locations under development, were $16.5 million and ($0.3) million for the first quarters of fiscal 2022 and 2021, respectively.

Capital expenditures also included $12.2 million and $6.7 million for our existing restaurants and $0.4 million and $0.8 million for bakery and corporate capacity and infrastructure investments in the first quarters of fiscal 2022 and 2021, respectively.

Capital expenditures for new restaurants, including locations under development, were $21.7 million and $14.0 million for the first half of fiscal 2022 and 2021, respectively.

Capital expenditures also included $22.4 million and $14.4 million for our existing restaurants and $2.3 million and $2.5 million for bakery and corporate capacity and infrastructure investments in the first half of fiscal 2022 and 2021, respectively.

We currently anticipate fiscal 2022 capital expenditures to be approximately $140 million.

Acquisition-Related Deferred Consideration and Compensation

During the first quarter of fiscal 2022, we made a payment of $7.2 million for contingent consideration and compensation related to the FRC acquisition.

During the first half of fiscal 2022, we made a payment of $7.2 million for contingent consideration and compensation related to the FRC acquisition.

Convertible Senior Notes

On June 15, 2021, we issued $345.0 million in aggregate principal amount of convertible senior notes (“Notes”), which will mature on June 15, 2026, unless earlier repurchased, redeemed or converted.

At March 29, 2022, the conversion rate for the Notes was 12.7551 shares of common stock per $1,000 principal amount of the Notes, which represents a conversion price of approximately $78.40 per share of common stock.

In connection with the cash dividend that was declared by our Board on April 21, 2022, on May 12, 2022 we will adjust the conversion rate (which is expected to increase) and the conversion price (which is expected to decrease) of the Notes in accordance with the terms.

The net proceeds from the sale of the Notes were approximately $334.9 million after deducting issuance costs related to the Notes.

At June 28, 2022, the conversion rate for the Notes was 12.8586 shares of common stock per $1,000 principal amount of the Notes, which represents a conversion price of approximately $77.77 per share of common stock.

In connection with the cash dividend that was declared by our Board on July 21, 2022, on August 11, 2022 we will adjust the conversion rate (which is expected to increase) and the conversion price (which is expected to decrease) of the Notes in accordance with the terms.

(See Note 5 of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this report for further discussion of the Notes.)

Common Stock Issuance

On June 15, 2021, we issued 3.125 million shares of our common stock for $175.0 million.

In connection with the issuance, we incurred direct and incremental costs of $8.0 million.

Revolving Credit Facility

On March 30, 2021, we entered into an Amended Credit Agreement, which terminates on July 30, 2024, and consists of a $400 million revolving loan facility (the “Revolving Facility”), including a $40 million sublimit for letters of credit.

The Amended Credit Agreement also provides the ability to increase the Revolving Facility in an amount not to exceed (a) during the Covenant Relief Period $125 million and (b) thereafter, $200 million.

The Amended Credit Agreement also provides the ability to increase the Revolving Facility in an amount not to exceed $200 million.

The funding of any such increases are subject to receipt of lender commitments and satisfaction of customary conditions precedent.

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The occurrence of an event of default could result in the termination of commitments under the Revolving Facility, the declaration that all outstanding loans are immediately due and payable in whole or in part and the requirement of cash collateral deposits in respect of outstanding letters of credit.

As of March 29, 2022, we were in compliance with the covenants set forth in the Revolving Facility.

At March 29, 2022, we had net availability for borrowings of $240.1 million, based on a $130.0 million outstanding debt balance and $29.9 million in standby letters of credit.

As of June 28, 2022, we were in compliance with the covenants set forth in the Revolving Facility.

In the second quarter of fiscal 2021, we utilized a portion of the net proceeds from our Notes and common share offerings to reduce the balance on our Revolving Facility by $150.0 million.

At June 28, 2022, we had net availability for borrowings of $237.7

million, based on a $130.0 million outstanding debt balance and $32.3 million in standby letters of credit.

(See Note 5 of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this report for further discussion of our long-term debt.)

Series A Preferred Stock

During the second quarter of fiscal 2021, we paid a cash dividend on our Series A preferred stock of $5.1 million.

During the second quarter of fiscal 2021, we paid $457.3 million in connection with the cash-settled conversion of 150,000 shares of our outstanding Series A preferred stock (effected through a repurchase agreement), and the share-settled conversion of the remaining 50,000 shares of our outstanding Series A preferred stock into 2,400,864 shares of our common stock, of which $13.6 million was deemed to be a dividend.

(See Note 9 of Notes to Consolidated Financial Statements in Part IV, Item 15 of this report for further discussion of our preferred stock.)

Common Stock Dividends

To preserve liquidity during the COVID-19 pandemic and in conjunction with the terms of the Amended Credit Agreement, our Board suspended declaring dividends on our common stock.

Cash dividends of $2.2 million were paid in the first quarter of fiscal 2021, represent dividends previously accrued on restricted stock awards that vested during those quarters.

In April 2022, our Board declared a quarterly dividend.

(See Note 13 for further information on the approved dividend.) Future decisions to pay or to increase or decrease dividends are at the discretion of the Board and will be dependent on our operating performance, financial condition, capital expenditure requirements, limitations on cash distributions pursuant to the terms and conditions of the Amended Credit Agreement and applicable law, and other such factors that the Board considers relevant.

Common stock dividends of $14.3 million and $0.3 million were paid in the first half of fiscal 2022 and 2021, respectively.

The increase is primarily due to the resumption of our quarterly dividend in the second quarter of fiscal 2022 after the suspension that began in fiscal 2020 due to the impact of COVID-19 on our business and in conjunction with the terms of our Amended Credit Agreement.

As further discussed in Note 13 of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this report, in July 2022, our Board declared a quarterly dividend to be paid in the third quarter of fiscal 2022.

Future decisions to pay or to increase or decrease dividends are at the discretion of the Board and will be dependent on our operating performance, financial condition, capital expenditure requirements, limitations on cash distributions pursuant to the terms and conditions of the Amended Credit Agreement and applicable law, and other such factors that the Board considers relevant.

Share Repurchases

Under authorization by our Board to repurchase up to 56.0 million shares of our common stock, we have cumulatively repurchased 53.2 million shares at a total cost of $1,706.4 million through March 29, 2022 with 97,682 shares repurchased at a cost of $3.9 million during the first quarter of fiscal 2022 to satisfy tax withholding obligations on vested restricted share awards.

Under authorization by our Board to repurchase up to 56.0 million shares of our common stock, we have cumulatively repurchased 53.6 million shares at a total cost of $1,717.3 million through June 28, 2022.

We repurchased 0.5 million shares at a cost of $14.8 million during the first half of fiscal 2022 compared to 0.1 million shares at a cost of $4.6 million during the comparable fiscal 2021 period.

$10.4 million of the increase is due to the resumption of our share repurchase program in the second quarter of fiscal 2022 after the suspension that began in fiscal 2020 due to the impact of COVID-19 on our business and in conjunction with the terms of our Amended Credit Agreement.

The remaining variance represents the change in repurchases made to satisfy tax withholding obligations on vested restricted share awards.

Our objectives with regard to share repurchases have been to offset the dilution to our shares outstanding that results from equity compensation grants and to supplement our earnings per share growth.

Our share repurchase program does not have an expiration date, does not require us to purchase a specific number of shares and may be modified, suspended or terminated at any time.

To preserve liquidity during the COVID-19 pandemic and in conjunction with the terms of our Amended Credit Agreement, our Board suspended our share repurchase program.

In April 2022, our Board reinstated our share repurchase program.

Future decisions to repurchase shares are at the discretion of the Board and are based on several factors, including current and forecasted operating cash flows, capital needs associated with new restaurant development and maintenance of existing locations, dividend payments, debt levels and cost of borrowing, obligations associated with the Acquisition, our share price and current market

The timing and number of shares repurchased are also subject to legal constraints and covenants under the Amended Credit Agreement that limit share repurchases based on a defined ratio.

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We believe that our cash and cash equivalents, combined with expected cash flows provided by operations and available borrowings under the Revolving Facility, will provide us with adequate liquidity for the next 12 months and the foreseeable future.

As of March 29, 2022, we had no financing transactions, arrangements or other relationships with any unconsolidated entities or related parties.

As of June 28, 2022, we had no financing transactions, arrangements or other relationships with any unconsolidated entities or related parties.

Additionally, we had no financing arrangements involving synthetic leases or trading activities involving commodity contracts.

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What changed 10-Q

Item 2. Management’s Discussion and Analysis