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Item 2. Management’s Discussion and Analysis

2023-05-10 compared with 2022-11-02 · 129 added, 224 removed, 138 unchanged (72% of the section changed)

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Forward-Looking Statements

Certain information included in this Form 10-Q and other materials filed or to be filed by us with the Securities and Exchange Commission (“SEC”), as well as information included in oral or written statements made by us or on our behalf, may contain forward-looking statements about our current and presently expected performance trends, growth plans, business goals and other matters.

Certain information included in this Form 10-Q and other materials we have filed or may file with the Securities and Exchange Commission (“SEC”), as well as information included in oral or written statements made by us or on our behalf, may contain forward-looking statements about our current and presently expected performance trends, growth plans, business goals and other matters.

These statements may be contained in our filings with the SEC, in our press releases, in other written communications, and in oral statements made by or with the approval of one of our authorized officers.

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, our focus on returning to pre-pandemic margins, results of operations, sales, target growth rates, cash flows, quarterly dividends, menu pricing, 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;

This includes, without limitation, statements regarding corporate social responsibility (“CSR”) and in our CSR report, the effects of geopolitical and macroeconomic factors on our financial condition and our results of operations, financial guidance and projections as well as expectations of our future financial condition, results of operations, sales, target growth rates, cash flows, corporate strategy, plans, targets, goals, objectives, performance, growth potential, competitive position and business, and statements regarding our ability to:

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

maintain our aggregate sales volumes;

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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 inflation and other cost pressures, including, but not limited to, impacts to wage rates, commodities and services costs, utilities expenses, insurance costs and legal expenses, and stabilize margins;

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

grow earnings;

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support the growth of North Italia and other FRC restaurants;

operate Social Monk Asian Kitchen and other concepts;

and utilize our capital effectively and continue to issue cash dividends and repurchase our shares.

and utilize our capital effectively.

These forward-looking statements may be affected by various factors including:

the rapidly evolving nature of the COVID-19 pandemic and related containment measures, including the potential for a complete shutdown of our restaurants, international licensee restaurants and our bakery operations;

supply chain disruptions and inflation;

the geopolitical environment, demonstrations, political unrest, potential damage to or closure of our restaurants and potential reputational damage to us or any of our brands;

economic, public health and political conditions that impact consumer confidence and spending, including the impact of the COVID-19 pandemic and other health epidemics or pandemics on the global economy;

economic, public health and political conditions that impact consumer confidence and spending, including rising interest rates, periods of heightened inflation and market instability, and armed conflicts;

supply chain disruptions;

demonstrations, political unrest, potential damage to or closure of our restaurants and potential reputational damage to us or any of our brands;

the COVID-19 pandemic and related containment measures, including the potential for quarantines or restriction on in-person dining;;

acceptance and success of The Cheesecake Factory in international markets;

acceptance and success of North Italia and the FRC concepts, Social Monk Asian Kitchen and other concepts;

acceptance and success of North Italia and the FRC concepts;

the risks of doing business abroad through Company-owned restaurants and/or licensees;

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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;

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

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compliance with debt covenants;

strategic capital allocation decisions including any share repurchases or dividends;

strategic capital allocation decisions including with respect to share repurchases or dividends;

the ability to achieve projected financial results;

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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 January 3, 2023.) 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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Forward-looking statements speak only as of the date on which they are made, and we undertake no obligation to publicly update or revise any forward-looking statements or to make any other forward-looking statements, whether as a result of new information, future events or otherwise, unless required to do so by law.

The below discussion and analysis, which contains forward-looking statements, should be read in conjunction with our interim unaudited condensed consolidated financial statements and related notes in Part I, Item 1 of this report and with the following items included in our Annual Report on Form 10-K for the fiscal year ended December 28, 2021:

the audited consolidated financial statements and related notes in Part IV, Item 15;

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COVID-19 Pandemic and Other Impacts to our Operating Environment

We have experienced significant disruptions to our business as federal, state and local restrictions have fluctuated over time to mitigate the spread of the COVID-19 virus.

While most of our restaurants operated with no restrictions on indoor dining during the 2021 fiscal year and 2022 fiscal year to date, our operations were notably impacted during periods of accelerating case counts which led to restaurant staff quarantines and a shift in consumer behavior towards sheltering-in-place and social distancing.

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

During fiscal year 2022 to date, along with COVID-19, our operating results have been impacted by geopolitical and other macroeconomic factors, leading to increased commodity and wage inflation and other increased costs.

The ongoing effects of COVID-19 and its variants, along with other geopolitical and macroeconomic events could lead to further government mandates, including but not limited to capacity restrictions, shifts in consumer behavior, wage inflation, staffing challenges, product and services cost inflation and disruptions in the supply chain.

If these factors significantly impact our cash flow in the future, we may again implement mitigation actions such as suspending share repurchases and dividends, increasing borrowings on our credit facility or modifying our operating strategies.

Some of these measures may have an adverse impact on out business.

During fiscal 2022, the COVID-19 pandemic continued to affect our business during periods of accelerated case counts in which we experienced increased restaurant staff absenteeism and temporary shifts in consumer behavior, such as changes in customer traffic or the mix between on-premise and off-premise channels.

Along with the COVID-19 pandemic, our operating results were impacted by geopolitical and macroeconomic events, causing supply chain challenges and significantly increased commodity and wage inflation.

Some of these factors continued to impact our operating results in fiscal 2023, contributing to significantly increased commodity and other costs.

We have also encountered delays in opening new restaurants due to supply chain challenges and delays in permitting, construction, landlord readiness, and equipment availability.

For more information regarding the risks to our business relating to the COVID-19 pandemic and other geopolitical and macroeconomic events, see “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the fiscal year ended January 3, 2023.

The Cheesecake Factory Incorporated is a leader in experiential dining.

We are culinary forward and relentlessly focused on hospitality.

We currently own and operate 314 restaurants throughout the United States and Canada under brands including 210 The Cheesecake Factory ® , 32 North Italia ® restaurants and a collection within our FRC business.

We currently own and operate 318 restaurants throughout the United States and Canada under brands including The Cheesecake Factory ® (210 locations), North Italia ® (33 locations), Flower Child ® (31 locations) and a collection of other FRC brands (35 locations).

Internationally, 30 The Cheesecake Factory ® restaurants operate under licensing agreements.

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Financially, we are focused on prudently managing expenses at our restaurants, bakery facilities and corporate support center, and leveraging our size to make the best use of our purchasing power.

Investing in new Company-owned restaurant development is our top long-term capital deployment priority, with a focus on opening our concepts in premier locations within both new and existing markets.

We expect our acquisition of North Italia and FRC to further accelerate and diversify our growth opportunities.

For The Cheesecake Factory concept, we target an average cash-on-cash return on investment of approximately 20% to 25% at the unit level.

Investing in new Company-owned restaurant development is our top long-term capital allocation priority, with a focus on opening our concepts in premier locations within both new and existing markets.

We plan to continue expanding The Cheesecake Factory and North Italia concepts, and in addition, our FRC subsidiary serves as an incubation engine, creating additional concepts for potential future growth.

For The Cheesecake Factory concept, we target an average cash-on-cash return on investment of approximately 20% to 25% at the unit level, calculated by dividing restaurant-level profit (earnings before interest, taxes, depreciation and amortization and preopening costs) by our cash investment.

We target an average cash-on-cash return on investment of approximately 35% for the North Italia concept and 25% to 30% for the FRC concepts.

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For The Cheesecake Factory concept, our strategy is to increase comparable restaurant sales by growing average check and maintaining customer traffic through (1) continuing to offer innovative, high quality menu items that offer customers a wide range of options in terms of flavor, price and value, (2) focusing on service and hospitality with the goal of delivering an exceptional customer experience and (3) continuing to provide our customers with convenient options for off-premise dining, as we believe there is opportunity for a longer-term elevation of our off-premise mix compared to pre-COVID-19 pandemic levels.

We are continuing our efforts on a number of initiatives, including menu innovation, a greater focus on increasing customer throughput in our restaurants, leveraging our gift card program, working with a third party to provide delivery services for our restaurants, increasing customer awareness of our online ordering capabilities, augmenting our marketing programs, enhancing our training programs and leveraging our customer satisfaction measurement platform.

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

We are continuing our efforts on a number of initiatives, including menu innovation, a greater focus on increasing customer throughput in our restaurants, leveraging our gift card program, working with a third party to provide delivery services for our restaurants, increasing customer awareness of our online ordering capabilities, augmenting our marketing programs including the anticipated nationwide launch of a guest rewards program, enhancing our training programs and leveraging our customer satisfaction measurement platform.

Average check variations are 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 supporting both our margin objectives and customer traffic levels.

In prior years, we have 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 inflationary cost pressures we are experiencing, we implemented menu price increases above our historical levels in the first and third quarters of fiscal 2022 to support our longer-term restaurant-level margin objectives and are in the process of implementing an incremental price increase in the fourth quarter of fiscal 2022.

Prior to fiscal 2022, we targeted menu price increases of approximately 2% to 3% annually, utilizing a market-based strategy to help mitigate cost pressure in higher-wage geographies.

In the first quarter of fiscal 2022, we started implementing menu price increases above our historical levels, including an incremental price increase in the fourth quarter of fiscal 2022, to offset significant inflationary cost pressures.

Future near-term pricing actions may also be at levels above historical norms to keep pace with any significant cost increases.

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Our objective is to recapture our pre-COVID-19 pandemic margins and longer-term to drive margin expansion, by leveraging incremental sales to increase restaurant-level margins at The Cheesecake Factory concept, leveraging our bakery operations, international and consumer packaged goods royalty revenue streams and G&A expense over time, and optimizing our restaurant portfolio.

We plan to employ a balanced capital allocation strategy, comprised of:

investing in new restaurants that are expected to meet our targeted returns, repaying borrowings under our Revolving Facility and returning capital to shareholders through our dividend and share repurchase programs, the latter of which offsets dilution from our equity compensation program and supports our earnings per share growth.

Future decisions to pay or to increase or decrease dividends or to repurchase shares are at the discretion of the Board and will be dependent on a number of factors, including limitations pursuant to the terms and conditions of the Fourth Amended Credit Agreement and applicable law.

We plan to employ a balanced capital allocation strategy comprised of investing in new restaurants that are expected to meet our targeted returns, repaying borrowings under our Revolving Facility and returning capital to shareholders through our dividend and share repurchase programs, the latter of which offsets dilution from our equity compensation program and supports our earnings per share growth.

Longer-term, we believe our domestic revenue growth (comprised of our targeted annual unit growth of 7%, in aggregate across concepts, and comparable sales growth), combined with margin expansion, planned debt repayments and an anticipated capital return program will support our long-term financial objective of 13% to 14% total return to shareholders, on average.

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Results of Operations

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

September 27, 2022

September 28, 2021

September 27, 2022

September 28, 2021

April 4, 2023

March 29, 2022

Costs and expenses:

Cost of sales

Food and beverage costs

Labor expenses

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Total costs and expenses

(Loss)/income from operations

Income from operations

Interest and other expense, net

(Loss)/income before income taxes

Income tax (benefit)/provision

Net (loss)/income

Dividends on Series A preferred stock

Undistributed earnings allocated to Series A preferred stock

Net (loss)/income available to common stockholders

Thirteen Weeks Ended September 27, 2022 Compared to Thirteen Weeks Ended September 28, 2021

Revenues increased 3.9% to $784.0 million for the fiscal quarter ended September 27, 2022 compared to $754.5 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 1.1%, or $6.3 million, from the third quarter of fiscal 2021 and increased 9.5% from the third quarter of fiscal 2019.

Income before income taxes

Income tax provision

Thirteen Weeks Ended April 4, 2023 Compared to Thirteen Weeks Ended March 29, 2022

Revenues increased 9.1% to $866.1 million for the fiscal quarter ended April 4, 2023 compared to $793.7 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 average sales per restaurant operating week increased 6.3% to $239,679 in the first quarter of fiscal 2023 from $225,523 in the first quarter of fiscal 2022.

Total operating weeks at The Cheesecake Factory restaurants increased 1.2% to 2,737 in the first quarter of fiscal 2023 compared to 2,704 in the prior year.

Because our strong sales week between Christmas and New Year’s Day was captured as the 53rd week of fiscal 2022, that high-volume week was replaced with an average sales week in the first quarter of 2023.

This negatively impacted revenues by approximately $10 million in the first quarter of fiscal 2023.

The Cheesecake Factory comparable sales increased by 5.7%, or $34.4 million, from the first quarter of fiscal 2022 and increased 14.9% from the first quarter of fiscal 2019 on an operating week basis.

The increase from fiscal 2022 was primarily driven by an increase in average check of 4.7% (based on an increase of 10.4% in menu pricing, partially offset by 5.7% negative impact from mix) and increased customer traffic of 1.0%.

Sales through the off-premise channel comprised approximately 23% of our restaurant sales during the third quarter of fiscal 2022 as compared to 28% in the third quarter of fiscal 2021.

Off-premise sales mix remains elevated versus the pre-pandemic level of 15% during the third quarter of fiscal 2019, even as customers continue to return to on-premise dining.

Sales through the off-premise channel comprised approximately 23% of our restaurant sales during the first quarter of fiscal 2023 as compared to 28% in the first quarter of fiscal 2022.

However, off-premise sales mix remains elevated versus the pre-pandemic level of 17% during the first 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 third quarter of fiscal 2022 compared to the prior year third quarter comprised approximately 2% of the negative change in mix with a positive correlative impact to traffic.

We implemented effective menu price increases of approximately 3.25% and 4.25% in the first and third quarters of fiscal 2022, respectively, and are in the process of implementing an incremental 2.8% price increase in the fourth quarter of fiscal 2022.

The Cheesecake Factory average sales per restaurant operating week increased 1.1% to $222,884 in the third quarter of fiscal 2022 from $220,362 in the third quarter of fiscal 2021.

Total operating weeks at The Cheesecake Factory restaurants increased 0.6% to 2,705 in the third quarter of fiscal 2022 compared to 2,689 in the prior year.

North Italia comparable sales increased approximately 10% from the third quarter of fiscal 2021 and increased 18% from the third quarter of fiscal 2019.

In turn, the lower mix of sales in the off-premise channel during the first quarter of fiscal 2023 compared to the prior year first quarter comprised approximately 2% of the negative change in mix with a positive correlative impact to traffic.

We implemented effective menu price increases of approximately 4.25%, 2.8% and 3.5% in the third and fourth quarters of fiscal 2022 and the first quarter of fiscal 2023, respectively.

North Italia average sales per restaurant operating week increased 5.4% to $147,559 in the first quarter of fiscal 2023 from $139,940 in the first quarter of fiscal 2022.

Total operating weeks at North Italia increased 13.8% to 429 in the first quarter of fiscal 2023 compared to 377 in the prior year.

North Italia comparable sales increased approximately 9% from the first quarter of fiscal 2022 and increased 30% from the first quarter of fiscal 2019 on an operating week basis.

The increase from fiscal 2022 was primarily driven by increased customer traffic of 3.5%, as well as an increase in average check of 5.5% (based on an increase of 8% in menu pricing, partially offset by a 2.5% negative impact from mix).

We implemented effective menu price increases of approximately 2.0% and 5.5% in the fourth quarter of fiscal 2021 and second quarter of fiscal 2022, respectively, and are in the process of implementing a 4.3% price increase in the fourth quarter of fiscal 2022.

North Italia average sales per restaurant operating week increased 7.8% to $136,994 in the third quarter of fiscal 2022 from $127,098 in the third quarter of fiscal 2021.

Total operating weeks at North Italia increased 13.2% to 395 in the third quarter of fiscal 2022 compared to 349 in the prior year.

We implemented effective menu price increases of approximately 3.5% and 4.25% in the second and fourth quarters of fiscal 2022, respectively, and are in the process of implementing a 4.0% price increase in the second quarter of fiscal 2023.

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

At September 27, 2022, there were three The Cheesecake Factory restaurants and seven North Italia restaurants not yet in the comparable sales base.

As of April 4, 2023, there were four The Cheesecake Factory restaurants and six 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.

Cost of Sales

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 25.2% and 22.5% in the third quarters of fiscal 2022 and 2021, respectively, primarily due to inflation across most categories in excess of menu price increases (2.6%).

Food and Beverage Costs

Food and beverage costs consist of raw materials and ingredients used in the food and beverage products sold in our restaurants and to our third-party customers.

As a percentage of revenues, cost of sales was 23.8% and 23.7% in the first quarters of fiscal 2023 and 2022, respectively, primarily due to inflation across most categories slightly in excess of menu price increases (0.1%).

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 37.4% and 37.1% in the third quarters of fiscal 2022 and 2021, respectively.

This increase was primarily due to increased staffing levels compared to the prior year (0.5%), as well as wage rate inflation in excess of menu price increases (0.3%) and training costs (0.2%), partially offset by a decline in group medical insurance costs due to lower claim activity (0.7%) in the third quarter of fiscal 2022.

As a percentage of revenues, labor expenses, which include restaurant-level labor costs and bakery production labor, including associated fringe benefits, were 36.0% and 37.3% in the first quarters of fiscal 2023 and 2022, respectively.

This decrease was primarily due to menu pricing leverage in excess of wage rate inflation (1.0%) and a decline in group medical insurance costs due to lower claim activity (0.3%) in the first quarter of fiscal 2023.

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 27.7% and 26.7% in the third quarters of fiscal 2022 and 2021, respectively.

This variance was primarily driven by utilities (0.5%) and building maintenance expense (0.4%) inflation in excess of menu price increases.

Other operating costs and expenses consist of all other restaurant-level operating costs, the major components of which are occupancy expenses (rent, common area expenses, insurance, licenses, taxes and utilities), dining room and to-go supplies, repairs and maintenance, janitorial expenses, credit card processing fees, marketing including delivery commissions, and incentive compensation, as well as bakery production overhead.

As a percentage of revenues, other operating costs and expenses were 26.7% and 26.2% in the first quarters of fiscal 2023 and 2022, respectively.

This variance was primarily driven by deleverage related to the revenue impact from the fiscal calendar shift due to the 53 rd week in fiscal 2022 (0.3%).

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 6.4% and 6.1% in the third quarters of fiscal 2022 and 2021, respectively.

This variance was primarily driven by higher travel and meeting expenses as we return to more normalized business operations (0.3%).

Depreciation and Amortization Expenses

As a percentage of revenues, depreciation and amortization expenses decreased to 2.9% in the third quarter of fiscal 2022 from 3.0% in the comparable prior year period due primarily to sales leverage.

As a percentage of revenues, G&A expenses were 6.2% in both first quarter of fiscal 2023 and 2022.

Impairment of Assets and Lease Termination Expenses

During the first quarter of fiscal 2023, we recorded impairment of assets and lease terminations expense of $2.2 million primarily related to lease termination costs for one Grand Lux Cafe location compared to $0.2 million in the first quarter of fiscal 2022.

Acquisition-Related Contingent Consideration, Compensation and Amortization Expenses

We recorded $1.1 million and $0.7 million of acquisition-related contingent consideration, compensation and amortization during the third quarters of fiscal 2022 and 2021, respectively, reflecting changes in the fair value of the deferred and contingent consideration and compensation liabilities, and amortization of acquired definite-lived licensing agreements.

Acquisition-related contingent consideration, compensation and amortization expenses consist of changes in the fair value of the deferred and contingent consideration and compensation liabilities and amortization of acquired definite-lived licensing agreements.

We recorded $1.2 million and $0.9 million of acquisition-related contingent consideration, compensation and amortization during the first quarters of fiscal 2023 and 2022, respectively.

Preopening Costs

Preopening costs were $4.3 million and $3.2 million in the third quarters of fiscal 2022 and 2021, respectively.

We opened one The Cheesecake Factory, one North Italia and one Other FRC locations in the third quarter of fiscal 2022 compared to two North Italia, one Other FRC location 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.

Also included are expenses for maintaining a roster of trained managers for pending openings, the associated temporary housing and other costs necessary to relocate managers in alignment with future restaurant opening and operating needs, and corporate travel and support activities.

Preopening costs were $3.1 million and $1.8 million in the first quarters of fiscal 2023 and 2022, respectively.

We opened one Flower Child and one Other FRC location in the first quarter of fiscal 2023 compared to no openings in the comparable prior year period.

Restaurant-level 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.

Also included in preopening costs are expenses for maintaining a roster of trained managers for pending openings, the associated temporary housing and other costs necessary to relocate managers in alignment with future restaurant opening and operating needs.

Preopening costs can fluctuate significantly from period to period based on the number, mix and timing of restaurant openings and the specific preopening costs incurred for each restaurant.

Interest and Other Expense, Net

Interest and other expense, net was $1.3 million and $1.8 million for the third quarters of fiscal 2022 and 2021, respectively.

Income Tax (Benefit)/Provision

Our effective income tax rate was 31.9% and (10.5%) for the third quarters of fiscal 2022 and 2021, respectively.

The increase was primarily due to a cumulative benefit recorded in the fiscal 2022 third quarter tax provision resulting from a decline in annual forecasted pre-tax income from the second quarter to the third quarter of fiscal 2022, a benefit recorded in the third quarter of fiscal 2021 arising from an increase to our fiscal 2020 loss carryback as a result of repaying 100% of the FICA taxes that were deferred in fiscal 2020 under the Coronavirus Aid, Relief and Economic Security Act (“the CARES Act”) and higher nondeductible losses in the third quarter of fiscal 2022 as compared to the comparable prior year period on our investments in variable life insurance contracts used to support our non-qualified deferred compensation plan (“ESP”).

These factors were partially offset by a higher proportion of employment credits in relation to pre-tax income in the third quarter of fiscal 2022.

Thirty-Nine Weeks Ended September 27, 2022 Compared to Thirty-Nine Weeks Ended September 28, 2021

Revenues increased 12.1% to $2,410.4 million for the three quarters of 2022 compared to $2,150.8 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 three quarters of fiscal 2021, as well as additional revenue related to new restaurant openings.

The Cheesecake Factory comparable sales increased by 8.2%, or $137.3 million, from the first three quarters of fiscal 2021 and increased 10.2% from the first three quarters of fiscal 2019.

The increase from fiscal 2021 was primarily driven by increased customer traffic of 9.2% primarily due to the impact of the COVID-19 pandemic in the prior year, partially offset by a decline in average check of 1.0% (based on a 5.8% negative impact from mix, partially offset by an increase of 4.8% in menu pricing).

Sales through the off-premise channel comprised approximately 25% of our restaurant sales during the first three quarters of fiscal 2022 as compared to 33% in the comparable prior year period 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 three quarters of fiscal 2019.

The lower mix of sales in the off-premise channel during the first three quarters of fiscal 2022 versus the comparable prior year third quarter comprised approximately 4% of the negative change in mix with a positive correlative impact to traffic.

The Cheesecake Factory average sales per restaurant operating week increased 8.4% to $228,470 in the first three quarters of fiscal 2022 from $210,801 in the first three quarters of fiscal 2021.

Total operating weeks at The Cheesecake Factory restaurants increased 0.7% to 8,113 in the first three quarters of fiscal 2022 compared to 8,058 in the comparable prior year period.

North Italia comparable sales increased approximately 17% from the first three quarters of fiscal 2021 and increased approximately 21% from the first three quarters of fiscal 2019.

The increase from fiscal 2021 was primarily driven by increased customer traffic of 14%, as well as an increase in average check of 3% (based on an increase of 5% in menu pricing, partially off by a 2% negative impact from mix).

North Italia average sales per restaurant operating week increased 15.1% to $141,833 in the first three quarters of fiscal 2022 from $123,211 in the first three quarters of fiscal 2021.

Total operating weeks at North Italia increased 17.3% to 1,150 in the first three quarters of fiscal 2022 compared to 980 in the prior year.

Cost of Sales

As a percentage of revenues, cost of sales was 24.5% and 22.0% in the first three quarters of fiscal 2022 and 2021, respectively, primarily due to inflation across most categories in excess of menu price increases (2.2%).

Labor Expenses

As a percentage of revenues, labor expenses were 37.1% and 36.5% in the first three quarters of fiscal 2022 and 2021, respectively.

This increase was primarily due to wage rate inflation in excess of menu price increases (0.9%), partially offset by a decrease in group medical insurance costs due to lower claim activity (0.6%) in the first three quarters of fiscal 2022.

Other Operating Costs and Expenses

As a percentage of revenues, other operating costs and expenses were 26.7% and 27.1% in the first three quarters of fiscal 2022 and 2021, respectively.

This variance was primarily driven by sales leverage within occupancy and building costs (0.3%).

As a percentage of revenues, G&A expenses were 6.2% and 6.4% in the first three quarters of fiscal 2022 and 2021, respectively.

This variance was primarily driven by lower corporate incentive compensation expense (0.2%).

Depreciation and Amortization Expenses

As a percentage of revenues, depreciation and amortization expenses decreased to 2.8% in the first three quarters of fiscal 2022 from 3.1% in the comparable prior year period due primarily to sales leverage.

Impairment of Assets and Lease Terminations Expenses

During the first three quarters 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 three quarters 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 $2.9 million and $12.6 million during the first three quarters 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 $9.0 million and $9.8 million in the first three quarters of fiscal 2022 and 2021, respectively.

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

Interest and Other Expense, Net

Interest and other expense, net was $3.9 million and $9.2 million for the three quarters of fiscal 2022 and 2021, respectively.

This decrease was primarily due to higher interest expense in the prior year ($4.1 million), mainly related to our interest rate swap, which was terminated in June 2021 ($3.3 million).

Income Tax (Benefit)/Provision

Our effective income tax rate was 7.4% and 2.6% for the first three quarters of fiscal 2022 and 2021, respectively.

The increase resulted primarily from nondeductible losses in the first three quarters 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 and a benefit recorded in 2021 arising from an increase to our fiscal 2020 loss carryback as a result of repaying 100% of the FICA taxes that were deferred in fiscal 2020 under the CARES Act, partially offset by a higher proportion of employment credits in relation to pre-tax income in the first three quarters of fiscal 2022 and our reserve for an uncertain tax position recorded in the comparable prior year period.

Income Tax Provision

Our effective income tax rate was 12.5% and 13.8% for the first quarters of fiscal 2023 and 2022, respectively.

The decrease was primarily due to a higher proportion of employment credits in relation to income before income taxes in the first quarter of fiscal 2023 (1.6%) and non-taxable gains in the first quarter of fiscal 2023 as compared to non-deductible losses in the comparable prior year period on our investments in variable life insurance contracts used to support our non-qualified deferred compensation plan (1.1%).

These favorable factors were partially offset by a higher proportion of state taxes expense in relation to income before income taxes (0.6%), a higher proportion of tax shortfall related to equity compensation in relation to income before income taxes (0.6%) and a change in our reserve for uncertain tax positions (0.5%) in the first quarter of fiscal 2023.

Non-GAAP Measures

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

Adjusted net income and adjusted diluted 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 (loss)/income available to common stockholders and diluted net (loss)/income 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 had been converted into common stock.

(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.

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

We use these non-GAAP financial measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons.

Our inclusion of these adjusted measures should not be construed as an indication that our future results will be unaffected by unusual or infrequent items.

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

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

September 27, 2022

September 28, 2021

September 27, 2022

September 28, 2021

Net (loss)/income available to common stockholders

Dividends on Series A preferred stock

Net income attributable to Series A preferred stock

COVID-19 related costs (1)

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

April 4, 2023

March 29, 2022

Impairment of assets and lease termination expenses

Acquisition-related contingent consideration, compensation and amortization expenses

Termination of interest rate swap

Uncertain tax position

Tax effect of adjustments (1)

Adjusted net (loss)/income

Diluted net (loss)/income per common share

Dividends on Series A preferred stock

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)

Adjusted net income

Diluted net income per share

Impairment of assets and lease termination expenses

Acquisition-related contingent consideration, compensation and amortization expenses

Termination of interest rate swap

Uncertain tax positions

Tax effect of adjustments (1)

Adjusted if-converted net (loss)/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.

Adjusted diluted net income per share (2)

(1) 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 (0 and 5,908,167 shares for the thirteen and thirty-nine weeks ended September 28, 2021, respectively), resulting in an assumption of 51,112,650 and 53,582,824 weighted-average common shares outstanding for the thirteen and thirty-nine weeks ended September 28, 2021.

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

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

Fiscal 2023 Outlook

Based on our fiscal 2022 year-to-date performance and recent trends, we anticipate total revenue for the fourth quarter of fiscal 2022 to be approximately $900 million to $930 million, including the impact of the 53rd operating week.

Fourth quarter-to-date through October 25, 2022, The Cheesecake Factory comparable sales increased approximately 2.8% and 14.0% compared to the comparable periods in fiscal 2021 and fiscal 2019, respectively.

Fourth quarter-to-date through October 25, 2022, North Italia comparable sales increased approximately 9% and 25% compared to the comparable periods in fiscal 2021 and fiscal 2019, respectively.

We are currently estimating the following expenses for the fourth quarter of fiscal 2022.

Based on recent trends and assuming no material operating or consumer disruptions, we anticipate total revenue for fiscal 2023 to be approximately $3.55 billion.

During fiscal 2023, we currently estimate total inflation across our commodities, total labor (factoring in the latest trends in wage rates and channel mix, as well as in other components such as payroll taxes and benefits) and other operating costs and expenses to be in the mid-single digit range.

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

We anticipate commodity inflation of approximately 15% and expect net labor inflation of approximately 5% when factoring in wage rates and channel mix, among other components such as payroll taxes and benefits.

We anticipate other operating costs and expenses as a percentage of revenues to be approximately 25.5%.

In addition, we expect G&A expenses of approximately $55 million to $56 million, preopening costs of approximately $7 million and depreciation and amortization expenses of approximately $25 million in the fourth quarter of fiscal 2022, including the 53rd operating week, and are utilizing a tax rate of 8% for modeling purposes.

We plan to open as many as 13 new restaurants in fiscal 2022, including three The Cheesecake Factory restaurants, four North Italia restaurants and as many as six restaurants within our FRC business, which includes three Flower Child locations.

We anticipate approximately $130 million in cash capital expenditures to support this level of unit development, as well as required maintenance on our restaurants.

Restaurant opening dates may be impacted by supply chain challenges and permit approval delays.

Fiscal 2023 Outlook

Based on our fiscal 2022 year-to-date performance and recent trends, we anticipate total revenue for fiscal 2023 to be approximately $3.5 billion to $3.6 billion.

We anticipate commodity and net labor inflation to be in the mid-single digit range.

We plan to open as many as 21 to 24 new restaurants in fiscal 2023, including four to five The Cheesecake Factory restaurants, seven to eight North Italia restaurants and ten to eleven restaurants within our FRC business, which includes three to four Flower Child locations.

We estimate preopening costs of approximately $24 million.

Based on these factors, we expect fiscal 2023 net income margin of approximately 4%.

We continue to plan to open as many as 20 to 22 new restaurants in fiscal 2023, including as many as five to six The Cheesecake Factory restaurants, five to six North Italia restaurants and as many as 10 restaurants within our FRC business, which includes three to four Flower Child locations.

In recent years, we have encountered delays in opening new restaurants due to supply chain challenges, as well as to longer lead times in obtaining licenses and permits.

We anticipate approximately $165 million to $175 million in cash capital expenditures to support this level of unit development, as well as required maintenance on our restaurants.

Total revenues for the second quarter of fiscal 2023 are expected to be approximately $870 million to $890 million.

We anticipate commodity inflation to be in the high-single digit range and expect labor inflation to be in the mid-single digit range.

Based on these factors, we expect second quarter fiscal 2023 net income margin of approximately 4.75% at the mid-point of the estimated revenue range.

Liquidity and Capital Resources

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Typically, cash flows generated from operating activities are our principal source of liquidity, which we use to finance our restaurant expansion plans, ongoing maintenance of our restaurants and bakery facilities and investment in our corporate and information technology infrastructures.

However, given the impact of the COVID-19 pandemic on our operations, during fiscal 2020 we increased borrowings under our credit facility and issued convertible Series A preferred stock to increase our liquidity.

During fiscal 2021, we used net proceeds from issuing convertible senior notes and additional common stock to fund the repurchase of the majority of our Series A preferred stock and the conversion of the remaining Series A preferred stock into common stock, simplifying our capital structure and eliminating future convertible preferred stock dividends.

We also utilized a portion of the net proceeds to reduce borrowings under our credit facility.

Similar to many restaurant and retail chain store operations, we utilize operating lease arrangements for all of our restaurant locations.

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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 three quarters of fiscal 2022, our cash and cash equivalents decreased by $56.5 million to $133.2 million.

During the first quarter of fiscal 2023, our cash and cash equivalents decreased by $1.4 million to $116.1 million.

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

September 27, 2022

September 28, 2021

April 4, 2023

March 29, 2022

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

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Cash Provided by Operating Activities

Cash flows from operations decreased by $20.3 million from the first three quarters of fiscal 2021 primarily due to lower net income and higher fiscal year-end 2021 liabilities related to increased sales and staffing levels that were paid in the first three quarters of fiscal 2022 compared to those accrued at fiscal year-end 2020 and paid in the first three quarters of fiscal 2021.

These factors were partially offset by collection of our fiscal 2020 net operating loss carryback refund.

Cash flows from operations increased by $31.5 million from the first quarter of fiscal 2022 primarily due to higher net income, the timing of payroll disbursements in relation to the fiscal 2023 versus 2022 year-end dates and higher incentive compensation paid in the first quarter of fiscal 2023 compared to the first quarter of fiscal 2022.

These factors were partially offset by the timing of accounts payable disbursements in relation to the fiscal 2023 versus 2022 year-end dates.

Typically, our requirement for working capital has not been significant since our restaurant customers pay for their food and beverage purchases in cash or cash equivalents at the time of sale, and we are able to sell many of our restaurant inventory items before payment is due to the suppliers of such items.

Property and Equipment

Capital expenditures for new restaurants, including locations under development, were $36.9 million and $23.6 million for the first three quarters of fiscal 2022 and 2021, respectively.

Capital expenditures also included $37.3 million and $21.7 million for our existing restaurants and $3.9 million and $3.9 million for bakery and corporate capacity and infrastructure investments in the first three quarters of fiscal 2022 and 2021, respectively.

We currently anticipate fiscal 2022 capital expenditures to be approximately $130 million.

Capital expenditures for new restaurants, including locations under development, were $24.3 million and $16.5 million for the first quarter of fiscal 2023 and 2022, respectively.

Capital expenditures also included $12.2 million and $12.2 million for our existing restaurants and $1.5 million and $0.4 million for bakery and corporate capacity and infrastructure investments in the first quarter of fiscal 2023 and 2022, respectively.

We opened two restaurants in the first quarter of fiscal 2023 comprised of one Flower Child and one Other FRC location compared to no restaurant openings in the first quarter of fiscal 2022.

We expect to open as many as 20 to 22 new restaurants in fiscal 2023 across our portfolio of concepts.

We anticipate approximately $165 to $175 million in capital expenditures to support this level of unit development, as well as required maintenance on our restaurants.

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

Our corresponding fiscal 2023 payment of $13.0 million was made early in the second quarter.

Convertible Senior Notes

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

At September 27, 2022, the conversion rate for the Notes was 12.9717 shares of common stock per $1,000 principal amount of the Notes, which represents a conversion price of approximately $77.09 per share of common stock.

In connection with the cash dividend that was declared by our Board on October 26, 2022, on November 14, 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.

As of April 4, 2023, the conversion rate for the Notes was 13.1638 shares of common stock per $1,000 principal amount of the Notes, which represents a conversion price of approximately $75.97 per share of common stock.

In connection with the cash dividend that was declared by our Board on May 10, 2023, on May 23, 2023 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.

Credit Facility

On March 30, 2021, we entered into an amendment to our existing loan agreement (the “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 $200 million.

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

Certain of our material subsidiaries have guaranteed our obligations under the Amended Credit Agreement.

The Amended Credit Agreement contains customary affirmative and negative covenants, including limits on cash dividends and share repurchases with respect to our equity interests, and restrictions on indebtedness, liens, investments, sales of assets, fundamental changes and other matters.

The Amended Credit Agreement also contains customary events of default that include, among others, non-payment of principal, interest or fees, violation of covenants, inaccuracy of representations and warranties, bankruptcy and insolvency events, material judgements, cross defaults to material indebtedness and events constituting a change of control.

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.

Our compliance with the financial covenants set forth in the Revolving Facility as of September 27, 2022 was measured under the Fourth Revolving Facility, and as such date we were in compliance with such financial covenants.

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 September 27, 2022, we had net availability for borrowings of $238.5 million, based on a $130.0 million outstanding debt balance and $31.5 million in standby letters of credit.

On October 6, 2022, we entered into a Fourth Amended and Restated Loan Agreement (the “Fourth Amended Credit Agreement” and the revolving credit facility provided thereunder, the “Fourth Revolving Facility”).

The Fourth Amended Credit Agreement amends and restates in its entirety our prior Amended Credit Agreement.

The Fourth Revolving Facility, which terminates on October 6, 2027, provides us with revolving loan commitments that total $400 million, of which $50 million may be used for issuances of letters of credit.

The Fourth Revolving Facility contains a commitment increase feature that, subject to certain conditions precedent, could provide for an additional $200 million in revolving loan commitments.

Our obligations under the Fourth Revolving Facility are unsecured.

Certain of our material subsidiaries have guaranteed our obligations under the Fourth Revolving Facility.

On October 6, 2022 we repaid the outstanding balance under the Revolving Facility and borrowed the same amount on the Fourth Revolving Facility.

As of the date of this report, we had net availability for borrowings of $238.5 million, based on a $130.0 million outstanding debt balance and $31.5 million in standby letters of credit under the Fourth Revolving Facility.

Under the Fourth Revolving Facility, we are subject to financial covenants as of the last day of each fiscal quarter.

We are also subject to customary events of default that, if triggered, could result in acceleration of the maturity of the Fourth Revolving Facility.

Subject to certain exceptions, the Fourth Revolving Facility also limits distributions with respect to our equity interests, such as cash dividends and share repurchases, based on a defined ratio, and also sets forth negative covenants that restrict indebtedness, liens, investments, sales of assets, fundamental changes and other matters.

(See Notes 5 and 13 of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this report for further discussion of our long-term debt and the October 6, 2022 amendment.)

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.

Additionally, 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 I, Item 1 of this report for further discussion of our preferred stock.)

On October 6, 2022, we entered into a Fourth Amended and Restated Loan Agreement (the “Loan Agreement” and the revolving credit facility provided thereunder, the “Revolver Facility”).

The Loan Agreement amends and restates in its entirety our prior credit agreement.

The Revolver Facility, which terminates on October 6, 2027, provides us with revolving loan commitments that total $400 million, of which $50 million may be used for issuances of letters of credit.

The Revolver Facility contains a commitment increase feature that, subject to certain conditions precedent, could provide for an additional $200 million in revolving loan commitments.

Our obligations under the Revolver Facility are unsecured.

Certain of our material subsidiaries have guaranteed our obligations under the Revolver Facility.

As of April 4, 2023, we had net availability for borrowings of $238.5 million, based on a $130.0 million outstanding debt balance and $31.5 million in standby letters of credit under the Revolver Facility.

Under the Revolver Facility, we are subject to financial covenants, as well as to customary events of default that, if triggered, could result in acceleration of the maturity of the Revolver Facility.

Subject to certain exceptions, the Revolver Facility also limits distributions with respect to our equity interests, such as cash dividends and share repurchases, based on a defined ratio, and also sets forth negative covenants that restrict indebtedness, liens, investments, sales of assets, fundamental changes and other matters.

(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.)

Common Stock Dividends

Common stock dividends of $28.3 million and $0.3 million were paid in the first three quarters 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 October 2022, our Board declared a quarterly dividend to be paid in the fourth 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 Fourth Amended Credit Agreement and applicable law, and other such factors that the Board considers relevant.

Common stock dividends of $13.2 million were paid in the first quarter of fiscal 2023.

There were no common stock dividends paid in the first quarter of fiscal 2022 as our quarterly dividend did not resume until 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 12 of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this report, in May 2023, our Board declared a quarterly dividend to be paid in June 2023.

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 Loan 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 54.5 million shares at a total cost of $1,744.0 million through September 27, 2022.

We repurchased 1.3 million shares at a cost of $41.5 million during the first three quarters of fiscal 2022 compared to 0.1 million shares at a cost of $5.2 million during the comparable fiscal 2021 period.

$26.2 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.

Under authorization by our Board to repurchase up to 61.0 million shares of our common stock, we have cumulatively repurchased 55.5 million shares at a total cost of $1,778.0 million through April 4, 2023.

We repurchased 0.3 million shares at a cost of $12.4 million during the first quarter of fiscal 2023 compared to 0.1 million shares at a cost of $3.9 million during the comparable fiscal 2022 period.

This increase is primarily due to the resumption of our share repurchase program in the second quarter of fiscal 2022.

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

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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 FRC acquisition, our share price and current market conditions.

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

(See Notes 9 and 13 of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this report for further discussion of our repurchase authorization and methods and increased authorized amount under our share repurchase program, respectively.)

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

(See Note 8 of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this report for further discussion of our repurchase authorization.)

Cash Flow Outlook

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 September 27, 2022, we had no financing transactions, arrangements or other relationships with any unconsolidated entities or related parties.

As of April 4, 2023, 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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Actual results could differ from these estimates.

Our critical accounting estimates have not changed materially from those previously reported in our Annual Report on Form 10-K for the fiscal year ended December 28, 2021.

Our critical accounting estimates have not changed materially from those previously reported in our Annual Report on Form 10-K for the fiscal year ended January 3, 2023.

Recent Accounting Pronouncements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis