What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-08 compared with 2023-11-06 · 108 added, 163 removed, 156 unchanged (63% 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, quarterly dividends, corporate strategy, plans, targets, goals, objectives, performance, growth potential, competitive position and business, and statements regarding our ability to:

This includes, without limitation, statements regarding corporate social responsibility (“CSR”) and in our CSR report, the effects of 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, share repurchases, 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 and insurance costs, and stabilize margins;

manage cost pressures, including, increasing wage rates and insurance costs, and increase margins;

grow earnings;

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find suitable sites and manage increasing construction costs;

profitably expand our concepts domestically and in Canada, and work with our licensees to expand our concept internationally;

support the growth of North Italia and other FRC restaurants;

profitably expand our concepts domestically and in Canada, and work with our licensees to expand The Cheesecake Factory internationally;

support the growth of North Italia, Flower Child and Other FRC restaurants;

and utilize our capital effectively.

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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;

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

pandemics 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;

acceptance and success of North Italia, Flower Child and Other FRC concepts;

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

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changes in unemployment rates;

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

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 inclusion of supplementary analytical and related information herein may require us to make estimates and assumptions to enable us to fairly present, in all material respects, our analysis of trends and expectations with respect to our results of operations and financial position.

COVID-19 Pandemic and Other Impacts to our Operating Environment

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 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 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.

Geopolitical and Other Macroeconomic Impacts to our Operating Environment

Beginning in 2021, our operating results were impacted by geopolitical and other macroeconomic events, causing supply chain challenges and significantly increased commodity and wage inflation.

Some of these factors continue to impact our operating results in fiscal 2024, contributing to significantly increased commodity and other costs.

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

Climate change may further exacerbate a number of these factors.

For more information regarding the risks to our business relating to the geopolitical and macroeconomic events, see “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the fiscal year ended January 2, 2024.

The Cheesecake Factory Incorporated is a leader in experiential dining.

We are culinary forward and relentlessly focused on hospitality.

We currently own and operate 325 restaurants throughout the United States and Canada under brands including The Cheesecake Factory ® (213 locations), North Italia ® (33 locations), Flower Child ® (31 locations) and a collection of other FRC brands (39 locations).

We currently own and operate 335 restaurants throughout the United States and Canada under brands including The Cheesecake Factory ® (216 locations), North Italia ® (38 locations), Flower Child ® (31 locations) and additional brands within our FRC portfolio (42 locations).

Internationally, 34 The Cheesecake Factory ® restaurants operate under licensing agreements.

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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.

Returns are affected by the cost to build restaurants, the level of revenues that each restaurant can deliver and our ability to maximize the profitability of restaurants.

Investing in new restaurant development that meets our return-on-investment criteria is expected to support achieving mid-teens Company-level return on invested capital.

We plan to continue expanding The Cheesecake Factory and North Italia concepts, and in addition, our FRC subsidiary serves as an incubation engine,innovating new food, dining and hospitality experiences to create fresh, exciting concepts.

Our overall revenue growth is primarily driven by revenues from new restaurant openings and increases in comparable restaurant sales.

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

awareness of our online ordering capabilities, improving the pick-up experience, augmenting our marketing programs, including our Cheesecake Rewards TM 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.

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 help offset significant inflationary cost pressures.

Prior to fiscal 2022, we targeted menu price increases of approximately 2% to 3% annually.

Beginning in 2022, we have implemented menu price increases above our historical levels to help offset significant inflationary cost pressures.

Current and 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.

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/(loss) expressed as percentages of revenues.

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

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

October 3, 2023

September 27, 2022

October 3, 2023

September 27, 2022

April 2, 2024

April 4, 2023

Costs and expenses:

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Total costs and expenses

Income/(loss) from operations

Income from operations

Interest and other expense, net

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.

Income before income taxes

Income tax provision

Thirteen Weeks Ended April 2, 2024 Compared to Thirteen Weeks Ended April 4, 2023

Revenues increased 2.9% to $891.2 million for the fiscal quarter ended April 2, 2024 compared to $866.1 million for the comparable prior year period, primarily due to additional revenue related to new restaurant openings, partially offset by a decrease in comparable restaurant sales.

The Cheesecake Factory sales increased 1.8% to $667.8 million for the first quarter of fiscal 2024, compared to $656.0 million for the first quarter of fiscal 2023.

Average sales per restaurant operating week decreased 0.7% to $237,903 in the first quarter of fiscal 2024 from $239,679 in the first quarter of fiscal 2023.

Total operating weeks at The Cheesecake Factory restaurants increased 2.6% to 2,807 in the first quarter of fiscal 2024 compared to 2,737 in the prior year.

The Cheesecake Factory comparable sales decreased by 0.6%, or $3.9 million, from the first quarter of fiscal 2023.

The decrease from fiscal 2023 was primarily driven by decreased customer traffic of 1.5% partially offset by an increase in average check of 0.9% (based on an increase of 5.2% in menu pricing and 4.3% negative impact from mix).

We implemented effective menu price increases of approximately 2.5% and 2.0% in the first quarter of fiscal 2024 and the third quarter of fiscal 2023, respectively.

Sales through the off-premise channel comprised approximately 22% of our restaurant sales during the first quarter of fiscal 2024 as compared to 23% in the first quarter of fiscal 2023.

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 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.

In turn, the lower mix of sales in the off-premise channel during the first quarter of fiscal 2024 compared to the prior year first quarter comprised approximately 1% of the negative change in mix with a positive correlative impact to traffic.

North Italia sales increased 12.0% to $70.9 million for the first quarter of fiscal 2024, compared to $63.3 million for the first quarter of fiscal 2023.

Average sales per restaurant operating week increased 0.1% to $147,654 in the first quarter of fiscal 2024 from $147,559 in the first quarter of fiscal 2023.

Total operating weeks at North Italia increased 11.9% to 480 in the first quarter of fiscal 2024 compared to 429 in the prior year.

North Italia comparable sales increased approximately 3% from the first quarter of fiscal 2023.

The increase from fiscal 2023 was primarily driven by an increase in average check of 4% (based on an increase of 8% in menu pricing, partially offset by a 4% negative impact from mix), partially offset by decreased customer traffic of 1%.

We implemented

effective menu price increases of approximately 4.0% and 3.7% in the second and fourth quarters of fiscal 2023, respectively.

We are in the process of implementing a 2.5% price increase in the second quarter of fiscal 2024.

Flower Child sales increased 10.2% to $34.5 million for the first quarter of fiscal 2024, compared to $31.3 million for the first quarter of fiscal 2023.

Flower Child sales per restaurant operating week increased 4.2% to $83,673 in first quarter of fiscal 2024 from $80,282 in the first quarter of fiscal 2023.

Total operating weeks at Flower Child increased 5.6% to 412 in the first quarter of fiscal 2024 compared to 390 in the prior year.

Other FRC sales increased 8.2% to $74.2 million for the first quarter of fiscal 2024, compared to $68.6 million for the first quarter of fiscal 2023.

Other FRC average sales per restaurant operating week decreased 7.6% to $140,584 in the first quarter of fiscal 2024 from $152,194 in the first quarter of fiscal 2023.

Average sales per restaurant operating week were impacted by new restaurant openings, as well as the concept mix and a decline in comparable sales.

Total operating weeks at Other FRC increased 17.1% to 528 in the first quarter of fiscal 2024 compared to 451 in the prior year.

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

As of October 3, 2023, there were six The Cheesecake Factory restaurants and four North Italia restaurants not yet in the comparable sales base.

As of April 2, 2024, there were eight The Cheesecake Factory restaurants and seven North Italia restaurants not yet in the comparable sales base.

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

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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 23.5% 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%).

As a percentage of revenues, cost of sales was 22.8% and 23.8% in the first quarters of fiscal 2024 and 2023, respectively, primarily due to menu price increases in excess of inflation across most categories (0.6%) and a shift in sales mix (0.3%).

Labor Expenses

As a percentage of revenues, labor expenses, which include restaurant-level labor costs and bakery production labor, including associated fringe benefits, were 36.3% 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%).

As a percentage of revenues, labor expenses, which include restaurant-level labor costs and bakery production labor, including associated fringe benefits, were 36.0% in both the first quarters of fiscal 2024 and 2023.

Management labor increased due to higher staffing levels (0.3%), offset by menu price increases in excess of wage rate inflation (0.3%).

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 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%).

As a percentage of revenues, other operating costs and expenses were 26.3% and 26.7% in the first quarters of fiscal 2024 and 2023, respectively.

This variance was primarily driven by a shift in sales mix (0.3%) and lower utilities (0.1%), partially offset by increased restaurant-level incentive compensation expense (0.1%).

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 6.5% and 6.4% in third quarters of fiscal 2023 and 2022, respectively.

As a percentage of revenues, G&A expenses were 6.8% and 6.2% in first quarter of fiscal 2024 and 2023, respectively.

This variance was primarily due to increased labor expense (0.4%) and higher legal fees (0.1%)

Impairment of Assets and Lease Termination Expenses

During the first quarter of fiscal 2024, we recorded impairment of assets and lease terminations expense of $2.1 million primarily related to impairment of assets for one The Cheesecake Factory location and lease termination costs for one The Cheesecake Factory location.

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.

Preopening Costs

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.

Preopening costs were $5.9 million and $3.1 million in the first quarters of fiscal 2024 and 2023, respectively.

We opened two North Italia, one Flower Child and two Other FRC locations in the first quarter of fiscal 2024 compared to one Flower Child and one Other FRC location in the first quarter of fiscal 2023.

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 $2.0 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 (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 3.2%, 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 24.5% 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 35.9% 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 26.7% 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 $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 $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 (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%).

Income Tax Provision

Our effective income tax rate was 11.6% and 12.5% for the first quarters of fiscal 2024 and 2023, respectively.

The decrease was primarily due to a change to our reserve for uncertain tax positions (1.8%), a lower proportion of non-deductible executive compensation in relation to income before income taxes in the first quarter of fiscal 2024 (0.5%), and higher non-taxable gains in the first quarter of fiscal 2024 on our investments in variable life insurance contracts used to support our non-qualified deferred compensation plan (0.4%).

These factors were partially offset by a higher proportion of tax shortfall related to equity compensation in relation to income before income taxes in the first quarter of fiscal 2024 (1.8%).

Non-GAAP Measures

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.

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 income/(loss) and diluted net income/(loss) 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 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.

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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/(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)

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 2, 2024

April 4, 2023

Impairment of assets and lease termination expenses

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Tax effect of adjustments (1)

Adjusted net income/(loss)

Diluted net income/(loss) per share

Adjusted net income

Diluted net income per share

Impairment of assets and lease termination expenses

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Tax effect of adjustments (1)

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.

Adjusted diluted net income per share (2)

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

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

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Based on recent trends and assuming no material operating or consumer disruptions, we anticipate total revenue for fiscal 2024 to be approximately $3.6 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.

During fiscal 2024, 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 low to mid-single digit range.

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

We estimate preopening costs of approximately $26 million.

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

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 fourth quarter of fiscal 2023 are expected to be approximately $870 million to $890 million.

We estimate G&A expenses to be slightly higher than fiscal 2023 as a percent of sales and preopening costs of approximately $28 million.

Based on these factors, we expect fiscal 2024 net income margin of approximately 4.25% at the estimated revenue.

We plan to open as many as 22 new restaurants in fiscal 2024, including three to four The Cheesecake Factory restaurants, six to seven North Italia restaurants, six to seven Flower Child locations and six to seven restaurants within our Other FRC business.

We anticipate approximately $180 to $200 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.

Total revenues for the second quarter of fiscal 2024 are expected to be between $890 million to $910 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.

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.

Based on these factors, we expect second quarter fiscal 2024 net income margin of approximately 5.25% at the mid - point of the estimated revenue range.

Liquidity and Capital Resources

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

During the first quarter of fiscal 2024, our cash and cash equivalents increased by $3.9 million to $60.2 million.

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

October 3, 2023

September 27, 2022

April 2, 2024

April 4, 2023

Cash provided by operating activities

Additions to property and equipment

Acquisition-related deferred consideration and compensation

Common stock dividends paid

Treasury stock purchases, inclusive of excise tax

Treasury stock purchases

Cash Provided by Operating Activities

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.

Cash flows from operations increased by $1.7 million from the first quarter of fiscal 2023 primarily due to higher net income, partially offset by the timing of receivables collected and payments of accounts payable and accrued expenses made.

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 $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.

Capital expenditures for new restaurants, including locations under development, were $25.0 million and $24.3 million for the first quarter of fiscal 2024 and 2023, respectively.

Capital expenditures also included $11.1 million and $12.2 million for our existing restaurants and $1.0 million and $1.5 million for bakery and corporate capacity and infrastructure investments in the first quarter of fiscal 2024 and 2023, respectively.

We opened five restaurants in the first quarter of fiscal 2024 comprised of two North Italia, one Flower Child and two Other FRC locations compared to one Flower Child and one Other FRC location in the first quarter of fiscal 2023.

We expect to open as many as 22 new restaurants in fiscal 2024 across our portfolio of concepts.

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 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.

We anticipate approximately $180 to $200 million in capital expenditures to support this level of unit development, as well as required maintenance on our restaurants.

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 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.

As of April 2, 2024, the conversion rate for the Notes was 13.5979 shares of common stock per $1,000 principal amount of the Notes, which represents a conversion price of approximately $73.54 per share of common stock.

In connection with the cash dividend that was declared by our Board on May 7, 2024, on May 21, 2024 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 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.

As of April 2, 2024, 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.

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.

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 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 $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 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.

Common stock dividends of $12.8 million and $13.2 million were paid in the first quarter of fiscal 2024 and 2023, respectively.

As further discussed in Note 12 of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this report, in May 2024, our Board declared a quarterly dividend to be paid in June 2024.

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 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.

Under authorization by our Board to repurchase up to 61.0 million shares of our common stock, we have cumulatively repurchased 56.9 million shares at a total cost of $1,824.2 million, excluding excise tax through April 2, 2024.

We repurchased 0.4 million shares at a cost of $12.5 million, excluding excise tax during the first quarter of fiscal 2024 compared to 0.3 million shares at a cost of $12.4 million, excluding excise tax during the comparable fiscal 2023 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 October 3, 2023, we had no financing transactions, arrangements or other relationships with any unconsolidated entities or related parties.

As of April 2, 2024, 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