What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-06 compared with 2023-08-07 · 126 added, 106 removed, 193 unchanged (55% of the section changed)

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

the timing of our new unit development;

the timing of our new unit development and related permitting;

compliance with debt covenants;

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Although we believe that the assumptions underlying forward-looking statements are currently reasonable, any of the assumptions could be incorrect or incomplete, and there can be no assurance that forward-looking statements will prove to be accurate.

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.

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 January 3, 2023:

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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 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.

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

The ongoing impact of geopolitical and macroeconomic events could lead to further shifts in consumer behavior, wage inflation, staffing challenges, product and services cost inflation, disruptions in the supply chain and delays 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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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.

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

In addition, on a regular basis, we carefully consider opportunities to adjust our menu offerings or ingredients to help manage product availability and cost.

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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.

In October 2023, we announced plans for a third bakery production facility.

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.

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Results of Operations

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

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

June 28, 2022

October 3, 2023

September 27, 2022

October 3, 2023

September 27, 2022

Costs and expenses:

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Depreciation and amortization expenses

Impairment of assets and lease termination (income)/expenses

Impairment of assets and lease termination expenses

Acquisition-related contingent consideration, compensation and amortization expenses

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Total costs and expenses

Income from operations

Income/(loss) from operations

Interest and other expense, net

Income before income taxes

Income tax provision

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.

Income/(loss) before income taxes

Income tax (benefit)/provision

Net income/(loss)

Thirteen Weeks Ended October 3, 2023 Compared to Thirteen Weeks Ended September 27, 2022

Revenues increased 5.9% to $830.2 million for the fiscal quarter ended October 3, 2023 compared to $784.0 million for the comparable prior year period, primarily due to an increase in comparable restaurant sales, as well as additional revenue related to new restaurant openings.

The Cheesecake Factory average sales per restaurant operating week increased 2.3% to $227,917 in the third quarter of fiscal 2023 from $222,884 in the third quarter of fiscal 2022.

Total operating weeks at The Cheesecake Factory restaurants increased 1.9% to 2,756 in the third quarter of fiscal 2023 compared to 2,705 in the prior year.

The Cheesecake Factory comparable sales increased by 2.4%, or $14.4 million, from the third quarter of fiscal 2022 and increased 12.6% from the third quarter of fiscal 2019 on an operating week basis.

The increase from fiscal 2022 was primarily driven by an increase in average check of 3.4% (based on an increase of 9.5% in menu pricing, partially offset by 6.1% negative impact from menu mix), partially offset by decreased customer traffic of 1.0%.

We implemented effective menu price increases of approximately 2.8%, 3.5% and 2.0% in the fourth quarter of fiscal 2022 and the first and third quarters of fiscal 2023, respectively.

Sales through the off-premise channel comprised approximately 21% of our restaurant sales during the third quarter of fiscal 2023 as compared to 23% in the third quarter of fiscal 2022.

However, off-premise sales mix remained elevated versus the pre-pandemic level of 15% during the third quarter of fiscal 2019.

Historically we have experienced a lower off-premise mix during the third quarter.

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 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%.

In turn, the lower mix of sales in the off-premise channel during the third quarter of fiscal 2023 compared to the prior year third 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 third quarter of fiscal 2022.

However, incident rates remained elevated versus pre-pandemic levels, and traffic outperformed the broader casual dining industry despite the softening sales environment.

North Italia average sales per restaurant operating week increased 6.2% to $145,494 in the third quarter of fiscal 2023 from $136,994 in the third quarter of fiscal 2022.

Total operating weeks at North Italia increased 8.6% to 429 in the third quarter of fiscal

2023 compared to 395 in the prior year.

North Italia comparable sales increased approximately 8% from the third quarter of fiscal 2022 and increased approximately 28% from the third quarter of fiscal 2019 on an operating week basis.

The increase from fiscal 2022 was primarily driven by an increase in average check of 5.5% (based on an increase of 8.2% in menu pricing, partially offset by a 2.7% negative impact from menu mix), as well as increased customer traffic of 2.7%.

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.

We are in the process of implementing an approximate 3.7% price increase in the fourth quarter of fiscal 2023.

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

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

As of October 3, 2023, there were six 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, 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%).

As a percentage of revenues, food and beverage costs were 23.5% and 25.2% in the third quarters of fiscal 2023 and 2022, respectively, primarily due to menu price increases that were slightly in excess of inflation across most categories (1.5%).

Labor Expenses

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%).

As a percentage of revenues, labor expenses, which include restaurant-level labor costs and bakery production labor, including associated fringe benefits, were 36.3% and 37.4% in the third quarters of fiscal 2023 and 2022, respectively.

This decrease was primarily due to menu price increases in excess of wage rate inflation and improved restaurant staffing levels (1.2%), as well as lower group medical costs due to lower claim activity (0.3%), partially offset by higher production labor in our bakery (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 26.2% 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%).

As a percentage of revenues, other operating costs and expenses were 27.6% and 27.7% in the third quarters of fiscal 2023 and 2022, respectively.

This variance was primarily driven by lower utility costs due to higher rates in 2022 (0.2%) and lower off-premise costs due to sales mix (0.2%), offset by launch costs related to our Rewards program (0.3%), higher bakery production overhead expense (0.3%) and increased workers’ compensation insurance costs due to higher claim activity (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 6.4% and 6.0% in second quarters of fiscal 2023 and 2022, respectively.

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

As a percentage of revenues, G&A expenses were 6.5% and 6.4% in third quarters of fiscal 2023 and 2022, respectively.

Preopening Costs

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.

Preopening costs were $6.7 million and $4.3 million in the third quarters of fiscal 2023 and 2022, respectively.

This increase was partially due to the mix of new restaurant openings, as we opened two The Cheesecake Factory locations in the third quarter of fiscal 2023 compared to one The Cheesecake Factory, one North Italia restaurant and one Other FRC location in the comparable prior year period.

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

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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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.

Interest and other expense, net was $2.0 million and $1.3 million for the third quarters of fiscal 2023 and 2022, respectively.

This increase was primarily due to higher interest on our Revolver Facility ($1.0 million).

Income Tax Provision

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.

Income Tax (Benefit)/Provision

Our effective income tax rate was (5.5%) and 31.9% for the third quarters of fiscal 2023 and 2022, respectively.

The decrease was primarily due to a cumulative benefit recorded in the fiscal 2022 third quarter tax provision resulting from a decline in annual forecasted income before taxes from the second quarter to the third quarter of fiscal 2022 (63.4%) and a lower proportion of state taxes expense in relation to income before taxes (9.5%).

These factors were partially offset by a lower proportion of non-taxable gains in relation to income before taxes in the third quarter of fiscal 2023 as compared to non-deductible losses in relation to income before taxes in the comparable prior year period on our investments in variable life insurance contracts used to support our non-qualified deferred compensation plan (“Non-Qualified Plans”) (15.5%), a lower proportion of employment credits in relation to income before income taxes (12.2%), and a higher proportion of tax shortfall related to equity compensation in relation to income before taxes (3.0%).

Thirty-Nine Weeks Ended October 3, 2023 Compared to Thirty-Nine Weeks Ended September 27, 2022

Revenues increased 6.3% to $2,562.5 million for the first nine months of 2023 compared to $2,410.4 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 3.0% to $235,398 in the first nine months of fiscal 2023 from $228,470 in the first nine months of fiscal 2022.

Total operating weeks at The Cheesecake Factory restaurants increased 1.4% to 8,227 in the first nine months of fiscal 2023 compared to 8,113 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 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 Cheesecake Factory comparable sales increased by 3.2%, or $58.4 million, from the first nine months of fiscal 2022 and increased 13.9% from the first nine months of fiscal 2019 on an operating week basis.

The increase from fiscal 2022 was primarily driven by an increase in average check of 4.5% (based on an increase of 10.2% in menu pricing, partially offset by 5.7% negative impact from menu mix), partially offset by decreased customer traffic of 1.3%.

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

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

North Italia average sales per restaurant operating week increased 5.0% to $148,915 in the first nine months of fiscal 2023 from $141,833 in the first nine months of fiscal 2022.

Total operating weeks at North Italia increased 11.9% to 1,287 in the first nine months of fiscal 2023 compared to 1,150 in the prior year.

North Italia comparable sales increased approximately 8% from the first nine months of fiscal 2022 and increased approximately 30% from the first nine 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%).

As a percentage of revenues, food and beverage costs were 23.5% and 24.5% in the first nine months of fiscal 2023 and 2022, respectively, primarily due to menu price increases slightly in excess of inflation across most categories (1.1%), partially offset by favorable dairy pricing in fiscal 2022.

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.

As a percentage of revenues, labor expenses were 35.9% and 37.1% in the first nine months of fiscal 2023 and 2022, respectively.

This decrease was primarily due to menu price increases in excess of wage rate inflation (1.1%) and a decline in group medical insurance costs due to lower claim activity (0.2%).

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.

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

This variance was primarily driven by higher marketing costs, including the launch costs related to our Rewards program (0.3%), partially offset by a decrease in off-premise costs due to sales mix (0.2%).

As a percentage of revenues, G&A expenses were 6.4 % and 6.2% in the first nine months of fiscal 2023 and 2022, respectively.

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.

Preopening costs were $15.8 million and $9.0 million in the first nine months of fiscal 2023 and 2022, respectively.

This increase was partially due to the mix of new restaurant openings, as we opened three The Cheesecake Factory, one Flower Child and three Other FRC location in the first three quarters of fiscal 2023 compared to one The Cheesecake Factory, two North Italia, one Other FRC and one Flower Child location in the comparable prior year period.

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

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.

Interest and other expense, net was $6.1 million and $3.9 million for the first nine months of fiscal 2023 and 2022, respectively.

This increase was primarily due to higher interest on our Revolver Facility ($3.3 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%).

Income Tax (Benefit)/Provision

Our effective income tax rate was 6.0% and 7.4% for the first three quarters of fiscal 2023 and 2022, respectively.

The decrease was primarily due to non-taxable gains in the first three quarters 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 Plans (5.3%), a lower proportion of state taxes expense in relation to income before taxes (1.2%) and interest accrued on our fiscal 2020 loss carryback (1.1%) in the first three quarters of fiscal 2023.

These factors were partially offset by a lower proportion of employment credits in relation to income before taxes (6.9%).

Non-GAAP Measures

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.

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

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

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

We calculate these non-GAAP measures by eliminating from net income/(loss) and diluted net income/(loss) 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.

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

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

June 28, 2022

Impairment of assets and lease termination (income)/expenses

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

October 3, 2023

September 27, 2022

October 3, 2023

September 27, 2022

Net income/(loss)

Impairment of assets and lease termination expenses

Acquisition-related contingent consideration, compensation and amortization expenses

Tax effect of adjustments (1)

Adjusted net income

Diluted net income per share

Impairment of assets and lease termination (income)/expenses

Adjusted net income/(loss)

Diluted net income/(loss) per share

Impairment of assets and lease termination expenses

Acquisition-related contingent consideration, compensation and amortization expenses

Tax effect of adjustments (1)

Adjusted diluted net income per share (2)

Adjusted diluted net income/(loss) 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.

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Based on these factors, we expect fiscal 2023 net income margin of approximately 3.8%.

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 plan to open as many as 16 new restaurants in fiscal 2023, with as many as nine openings in the fourth quarter of fiscal 2023.

These included as many as five The Cheesecake Factory restaurants, four North Italia restaurants and as many as seven restaurants within our FRC business, which includes one Flower Child location.

In recent years, including fiscal 2023, we have encountered delays in opening new restaurants due to longer lead times in obtaining licenses and permits, as such we have strategically moved some of our openings into the first quarter of fiscal 2024.

We anticipate approximately $150 million to $160 million in cash capital expenditures to support this level of unit development, as well as required maintenance on our restaurants.

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

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

on these factors, we expect fourth quarter fiscal 2023 net income margin of approximately 4.25% at the mid-point of the estimated revenue range.

This reflects higher preopening costs to support our planned restaurants openings, which we expect to be approximately $10 million in the fourth quarter of fiscal 2023.

Fiscal 2024 Outlook

Based on our fiscal 2023 year-to-date performance and recent trends, we anticipate total revenue for fiscal 2024 to be approximately $3.6 billion to $3.7 billion.

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

Based on these factors, we expect fiscal 2024 net income margin of approximately 4% to 4.5% at the mid-point of the estimated revenue range.

Our development expectations for 2024 are to take another measurable step towards achieving our objective of 7% annual unit growth.

We anticipate approximately $175 million to $200 million in cash capital expenditures to support this level of unit development, required maintenance on our restaurants and our preliminary capital estimate for the initial phase of development for the third bakery facility.

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

During the first nine months of fiscal 2023, our cash and cash equivalents decreased by $50.8 million to $64.0 million.

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

June 28, 2022

October 3, 2023

September 27, 2022

Cash provided by operating activities

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Cash Provided by Operating Activities

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.

Cash flows from operations increased by $51.6 million from the first nine months of fiscal 2022 primarily due to higher net income, a higher payroll accrual due to the timing of payments, lower incentive compensation paid in the first nine months of fiscal 2023 compared to the first nine months of fiscal 2022 and the collection of our fiscal 2020 net operating loss carryback refund in 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 higher sales tax payments in the first quarter fiscal 2023 due to the 53 rd week of fiscal 2022 year.

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 generally 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 $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.

Capital expenditures for new restaurants, including locations under development, were $61.6 million and $36.9 million for the first nine months of fiscal 2023 and 2022, respectively.

This increase was partially due to the mix of new unit development.

Capital expenditures also included $34.2 million and $37.3 million for our existing restaurants and $4.1 million and $3.9 million for bakery and corporate capacity and infrastructure investments in the first nine months of fiscal 2023 and 2022, respectively.

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

We expect to open as many as 16 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.

We anticipate approximately $150 million to $160 million in capital expenditures to support this level of unit development, early fiscal 2024 development, as well as required maintenance on our restaurants.

Acquisition-Related Deferred Consideration and Compensation

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.

During the third quarter of fiscal 2023 we made a payment of $11.3 million for deferred consideration related to the FRC acquisition.

Our corresponding fiscal 2022 payment of $11.1 million was made early in the fourth quarter of fiscal 2022.

During the first nine months of fiscal 2023 and 2022, we also made payments of $13.0 million and $7.2 million, respectively, for deferred 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 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.

As of October 3, 2023, the conversion rate for the Notes was 13.3775 shares of common stock per $1,000 principal amount of the Notes, which represents a conversion price of approximately $74.75 per share of common stock.

In connection with the cash dividend that was declared by our Board on October 26, 2023, on November 14, 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 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.

As of October 3, 2023, we had net availability for borrowings of $236.5 million, based on a $130.0 million outstanding debt balance and $33.5 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 $27.0 million and $14.3 million were paid in the first six months of fiscal 2023 and 2022, respectively.

Common stock dividends of $40.1 million and $28.3 million were paid in the first nine 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.

As further discussed in Note 12 of Notes to Condensed Consolidated Financial Statements in Part I, Item

1 of this report, in October 2023, our Board declared a quarterly dividend to be paid in November 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 55.8 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.

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

Under authorization by our Board to repurchase up to 61.0 million shares of our common stock, we have cumulatively repurchased 56.2 million shares at a total cost of $1,801.9 million, excluding excise tax, through October 3, 2023.

Under our share repurchase program and in connection with vesting of restricted share awards, we repurchased an aggregate of 1.1 million shares at a cost of $36.3 million, excluding excise tax, during the first nine months of fiscal 2023 compared to an aggregate of 1.3 million shares at a cost of $41.5 million during the comparable fiscal 2022 period.

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

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

As of October 3, 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