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Item 2. Management’s Discussion and Analysis

2023-08-07 compared with 2023-05-10 · 109 added, 77 removed, 190 unchanged (49% 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 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:

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, 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 developing and investing in new restaurant concepts and expanding The Cheesecake Factory® brand to other retail opportunities;

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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, increasing wage rates and insurance costs, and stabilize margins;

grow earnings;

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attract and retain qualified management and other staff;

manage risks associated with the magnitude and complexity of regulations in the jurisdictions where our restaurants are located;

increase shareholder value;

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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;;

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;

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changes in unemployment rates;

changes in laws impacting our business, including laws and regulations related to COVID-19 impacting restaurant operations and customer access to off- and on-premises dining;

increases in minimum wages and benefit costs;

changes in laws impacting our business, increases in minimum wages and benefit costs;

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;

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

changes in laws impacting our business;

adverse weather conditions in regions in which our restaurants are located;

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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.

Some of these factors have 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.

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, disruptions in the supply chain and delay in new restaurant openings.

The ongoing impact of 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, disruptions in the supply chain and delay in new restaurant openings.

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.

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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 including the anticipated nationwide launch of a guest rewards program, enhancing our training programs and leveraging our customer satisfaction measurement platform.

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 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.

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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.

April 4, 2023

March 29, 2022

June 28, 2022

Costs and expenses:

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Depreciation and amortization expenses

Impairment of assets and lease termination expenses

Impairment of assets and lease termination (income)/expenses

Acquisition-related contingent consideration, compensation and amortization expenses

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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 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.

Thirteen Weeks Ended July 4, 2023 Compared to Thirteen Weeks Ended June 28, 2022

Revenues increased 4.0% to $866.2 million for the fiscal quarter ended July 4, 2023 compared to $832.6 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 0.7% to $238,654 in the second quarter of fiscal 2023 from $237,004 in the second quarter of fiscal 2022.

Total operating weeks at The Cheesecake Factory restaurants increased 1.1% to 2,734 in the second quarter of fiscal 2023 compared to 2,704 in the prior year.

The Cheesecake Factory comparable sales increased by 1.5%, or $9.6 million, from the second quarter of fiscal 2022 and increased 14.1% from the second quarter of fiscal 2019 on an operating week basis.

The increase from fiscal 2022 was primarily driven by an increase in average check of 5.2% (based on an increase of 10.6% in menu pricing, partially offset by 5.4% negative impact from mix), partially offset by decreased customer traffic of 3.7%.

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.

We are in the process of implementing approximately a 2.0% price increase in the third quarter of fiscal 2023.

Sales through the off-premise channel comprised approximately 22% of our restaurant sales during the second quarter of fiscal 2023 as compared to 25% in the second quarter of fiscal 2022.

However, off-premise sales mix remained 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 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 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.

In turn, the lower mix of sales in the off-premise channel during the second quarter of fiscal 2023 compared to the prior year second quarter comprised approximately 1% of the negative change in mix with a positive correlative impact to traffic.

In addition, both traffic and mix declined relative to the higher traffic levels and incident rates associated with the post pandemic surge that benefited our second quarter of fiscal 2022.

However, incident rates remained elevated versus the pre-pandemic level.

North Italia average sales per restaurant operating week increased 3.3% to $153,692 in the second quarter of fiscal 2023 from $148,778 in the second quarter of fiscal 2022.

Total operating weeks at North Italia increased 13.5% to 429 in the second quarter of fiscal 2023 compared to 378 in the prior year.

North Italia comparable sales increased approximately 8% from the second quarter of fiscal 2022 and increased approximately 30% from the second quarter of fiscal 2019 on an operating week basis.

The increase from fiscal 2022 was primarily driven by an increase in average check of 6.4% (based on an increase of 8.2% in menu pricing, partially offset by a 1.8% negative impact from mix), as well as increased customer traffic of 1.6%.

We implemented effective menu price increases of approximately 4.25% and 4.00% in the fourth quarter of fiscal 2022 and the second quarter of fiscal 2023, respectively.

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

As of April 4, 2023, there were four The Cheesecake Factory restaurants and six North Italia restaurants not yet in the comparable sales base.

As of July 4, 2023, there were four The Cheesecake Factory restaurants and four 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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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%).

As a percentage of revenues, food and beverage costs were 23.2% and 24.5% in the second quarters of fiscal 2023 and 2022, respectively, primarily due to menu pricing leverage that were slightly in excess of inflation across most categories (1.3%), partially offset by favorable dairy pricing in the second quarter of fiscal 2022 (0.2%).

Labor Expenses

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.

As a percentage of revenues, labor expenses, which include restaurant-level labor costs and bakery production labor, including associated fringe benefits, were 35.3% and 36.6% in the second quarters of fiscal 2023 and 2022, respectively.

This decrease was primarily due to menu pricing leverage in excess of wage rate inflation (1.3%), partially offset by increased manager staffing levels (0.2%).

Other Operating Costs and Expenses

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%).

As a percentage of revenues, other operating costs and expenses were 26.2% and 26.3% in the second quarters of fiscal 2023 and 2022, respectively.

This variance was primarily driven by lower workers compensation insurance costs due to higher claim activity in the second quarter of fiscal 2022 (0.2%), lower off-premise costs due to sales mix and lower supply costs (0.2%), partially offset by launch cost related to our Rewards program (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% 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

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.

As a percentage of revenues, G&A expenses were 6.4% and 6.0% in second quarters of fiscal 2023 and 2022, respectively.

This variance was primarily driven by increased staffing levels (0.2%).

Preopening Costs

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.

Preopening costs were $6.0 million and $2.9 million in the second quarters of fiscal 2023 and 2022, respectively.

We opened one The Cheesecake Factory and two Other FRC locations in the second quarter of fiscal 2023 compared to one North Italia restaurant and one Flower Child location in the comparable prior year period.

The second quarter of fiscal 2023 was negatively impacted by delays in the timing of new restaurant openings that resulted in additional cost.

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.

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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 $2.2 million and $1.1 million for the second quarters of fiscal 2023 and 2022, respectively.

This increase was primarily due to higher interest on our Revolver Facility ($1.6 million).

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.

Our effective income tax rate was 5.8% and 4.3% for the second quarters of fiscal 2023 and 2022, respectively.

The increase was primarily due to a lower proportion of employment credits in relation to income before income taxes in the second quarter of fiscal 2023 (9.4%), partially offset by non-taxable gains in the second 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 (6.7%), a lower proportion of state tax expense in relation to income before taxes (0.7%) and a lower proportion of tax shortfall related to equity compensation in relation to income before taxes (0.2%) in the second quarter of fiscal 2023.

Twenty-Six Weeks Ended July 4, 2023 Compared to Twenty-Six Weeks Ended June 28, 2022

Revenues increased 6.5% to $1,732.3 million for the first six months of 2023 compared to $1,626.4 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 3.4% to $239,167 in the first six months of fiscal 2023 from $231,264 in the first six months of fiscal 2022.

Total operating weeks at The Cheesecake Factory restaurants increased 1.2% to 5,471 in the first six months of fiscal 2023 compared to 5,408 in the prior year.

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

The Cheesecake Factory comparable sales increased by 3.6%, or $44.0 million, from the first six months of fiscal 2022 and increased 14.5% from the first six months of fiscal 2019 on an operating week basis.

The increase from fiscal 2022 was primarily driven by an increase in average check of 5.0% (based on an increase of 10.5% in menu pricing, partially offset by 5.5% negative impact from mix), partially offset by decreased customer traffic of 1.4%.

Sales through the off-premise channel comprised approximately 22% of our restaurant sales during the first six months of fiscal 2023 as compared to 26% in the first six months of fiscal 2022.

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

North Italia average sales per restaurant operating week increased 4.3% to $150,626 in the first six months of fiscal 2023 from $144,365 in the first six months of fiscal 2022.

Total operating weeks at North Italia increased 13.6% to 858 in the first six months of fiscal 2023 compared to 755 in the prior year.

North Italia comparable sales increased approximately 8% from the first six months of fiscal 2022 and increased approximately 30% from the first six months of fiscal 2019 on an operating week basis.

The increase from fiscal 2022 was primarily driven by an increase in average check of 5.6% (based on an increase of 8.0% in menu pricing, partially offset by a 2.4% negative impact from mix), as well as increased customer traffic of 2.4%.

Food and Beverage Costs

As a percentage of revenues, food and beverage costs were 23.5% and 24.1% in the first six months of fiscal 2023 and 2022, respectively, primarily due to menu price increases slightly in excess of inflation across most categories (0.9%), partially offset by favorable dairy pricing in fiscal 2022 (0.3%).

Labor Expenses

As a percentage of revenues, labor expenses were 35.7% and 36.9% in the first six months of fiscal 2023 and 2022, respectively.

This decrease was primarily due to menu pricing leverage in excess of wage rate inflation (1.1%) and a decline in group medical insurance costs due to lower claim activity (0.2%) in the first quarter of fiscal 2023.

Other Operating Costs and Expenses

As a percentage of revenues, other operating costs and expenses were 26.4% and 26.3% in the first six months of fiscal 2023 and 2022, respectively.

This variance was primarily driven by launch costs related to our Rewards program (0.2%).

As a percentage of revenues, G&A expenses were 6.4 % and 6.1% in the first six months of fiscal 2023 and 2022, respectively.

This variance was primarily driven by increases across several categories.

Preopening Costs

Preopening costs were $9.1 million and $4.7 million in the first six months of fiscal 2023 and 2022, respectively.

We opened one The Cheesecake Factory, one Flower Child and three Other FRC location in the first half of fiscal 2023 compared to one North Italia and one Flower Child location in the comparable prior year period.

The first six months of fiscal 2023 was negatively impacted by delays in the timing of new restaurant openings that resulted in additional cost.

Interest and Other Expense, Net

Interest and other expense, net was $4.0 million and $2.6 million for the first six months of fiscal 2023 and 2022, respectively.

This increase was primarily due to higher interest on our Revolver Facility ($2.8 million).

Income Tax Provision

Our effective income tax rate was 8.6% and 9.0% for the first six months of fiscal 2023 and 2022, respectively.

The decrease was primarily due to non-taxable gains in the first six months 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 (4.0%), partially offset by a lower proportion of employment credits in relation to income before income taxes in the first six months of fiscal 2023 (3.6%).

Non-GAAP Measures

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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

June 28, 2022

Impairment of assets and lease termination (income)/expenses

Acquisition-related contingent consideration, compensation and amortization expenses

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Diluted net income per share

Impairment of assets and lease termination expenses

Impairment of assets and lease termination (income)/expenses

Acquisition-related contingent consideration, compensation and amortization expenses

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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.

We plan to open as many as 20 new restaurants in fiscal 2023, including as many as six The Cheesecake Factory restaurants, five North Italia restaurants and as many as nine restaurants within our FRC business, which includes three 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 $160 million to $170 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.

Total revenues for the third quarter of fiscal 2023 are expected to be approximately $835 million to $855 million.

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

Based on these factors, we expect third quarter fiscal 2023 net income margin of approximately 2.75% at the mid-point of the estimated revenue range.

Liquidity and Capital Resources

Our corporate financial objectives are to maintain a sufficiently strong and conservative balance sheet to support our operating initiatives and unit growth while maintaining financial flexibility to provide the financial resources necessary to protect and enhance the competitiveness of our restaurant and bakery brands and to provide a prudent level of financial capacity to manage the risks and uncertainties of conducting our business operations under various economic and industry cycles.

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.

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.

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

During the first six months of fiscal 2023, our cash and cash equivalents decreased by $23.2 million to $91.6 million.

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

April 4, 2023

March 29, 2022

June 28, 2022

Cash provided by operating activities

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Common stock dividends paid

Treasury stock purchases

Treasury stock purchases, inclusive of excise tax

Cash Provided by Operating Activities

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.

Cash flows from operations increased by $14.0 million from the first six months of fiscal 2022 primarily due to higher net income and lower incentive compensation paid in the first six months of fiscal 2023 compared to the first six months of fiscal 2022.

These factors were partially offset by timing of accounts payable disbursements in relation to the fiscal 2022 versus 2021 year-end dates and the sales tax liabilities due to increased sales at fiscal 2022 year end.

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 $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.

Capital expenditures for new restaurants, including locations under development, were $37.8 million and $21.7 million for the first six months of fiscal 2023 and 2022, respectively.

Capital expenditures also included $22.0 million and $22.4 million for our existing restaurants and $2.9 million and $2.3 million for bakery and corporate capacity and infrastructure investments in the first six months of fiscal 2023 and 2022, respectively.

We opened five restaurants in the first six months of fiscal 2023 comprised of one The Cheesecake Factory, one Flower Child and three Other FRC locations compared to one North Italia and one Flower Child location in the first six months of fiscal 2022.

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

We anticipate approximately $160 million to $170 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 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.

During the six months of fiscal 2023 and 2022, we made payments of $13.0 million and $7.2 million, respectively, for contingent consideration and compensation related to the FRC acquisition.

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.

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.

As of July 4, 2023, the conversion rate for the Notes was 13.2717 shares of common stock per $1,000 principal amount of the Notes, which represents a conversion price of approximately $75.35 per share of common stock.

In connection with the cash dividend that was declared by our Board on July 27, 2023, on August 15, 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.)

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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.

As of July 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.

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Common Stock Dividends

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.

Common stock dividends of $27.0 million and $14.3 million were paid in the first six months of fiscal 2023 and 2022, respectively.

This 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 12 of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this report, in July 2023, our Board declared a quarterly dividend to be paid in August 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 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.

Under authorization by our Board to repurchase up to 61.0 million shares of our common stock, we have cumulatively repurchased 55.8 million shares at a total cost of $1,787.3 million, excluding excise tax, through July 4, 2023.

We repurchased 0.6 million shares at a cost of $21.7 million, excluding excise tax, during the first six months of fiscal 2023 compared to 0.5 million shares at a cost of $14.8 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.

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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 April 4, 2023, we had no financing transactions, arrangements or other relationships with any unconsolidated entities or related parties.

As of July 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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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