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Item 2. Management’s Discussion and Analysis

2024-08-05 compared with 2024-05-08 · 115 added, 80 removed, 184 unchanged (51% 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, share repurchases, 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 , potential price increases, 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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Because of these factors, risks and uncertainties, we caution against placing undue reliance on forward-looking statements.

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.

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.

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 2, 2024:

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

the “Risk Factors” included in Part I, Item 1A;

the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Part II, Item 7;

“Risk Factors” included in Part I, Item 1A;

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Part II, Item 7;

and the cautionary statements included throughout this Form 10-Q.

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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.

While we have seen improvements in many of these areas, 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.

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

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.

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, 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.

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

April 2, 2024

April 4, 2023

Costs and expenses:

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Depreciation and amortization expenses

Impairment of assets and lease termination expenses

Impairment of assets and lease termination (income)/expenses

Acquisition-related contingent consideration, compensation and amortization expenses

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Income tax provision

Thirteen Weeks Ended April 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).

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

Revenues increased 4.4% to $904.0 million for the fiscal quarter ended July 2, 2024 compared to $866.2 million for the comparable prior year period, primarily due to additional revenue related to new restaurant openings and an increase in comparable restaurant sales.

The Cheesecake Factory sales increased 3.7% to $676.7 million for the second quarter of fiscal 2024 compared to $652.5 million for the second quarter of fiscal 2023.

Average sales per restaurant operating week increased 1.0% to $240,989 in the second quarter of fiscal 2024 from $238,654 in the second quarter of fiscal 2023.

Total operating weeks at The Cheesecake Factory restaurants increased 2.7% to 2,808 in the second quarter of fiscal 2024 compared to 2,734 in the prior year.

The Cheesecake Factory comparable sales increased by 1.4%, or $9.2 million, from the second quarter of fiscal 2023.

The increase from fiscal 2023 was primarily driven by an increase in average check of 1.6% (based on an increase of 4.5% in menu pricing and 2.9% negative impact from mix), partially offset by decreased customer traffic of 0.2%.

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 are in the process of implementing approximately a 1.9% price increase in the third quarter of fiscal 2024.

Sales through the off-premise channel comprised approximately 21% of our restaurant sales during the second quarter of fiscal 2024 as compared to 22% in the second 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 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.

North Italia sales increased 14.6% to $75.5 million for the second quarter of fiscal 2024, compared to $65.9 million for the second quarter of fiscal 2023.

Average sales per restaurant operating week decreased 1.5% to $151,330 in the second quarter of fiscal 2024 from $153,692 in the second quarter of fiscal 2023.

Total operating weeks at North Italia increased 16.3% to 499 in the second quarter of fiscal 2024 compared to 429 in the prior year.

North Italia comparable sales increased approximately 2% from the second quarter of fiscal 2023.

The increase from fiscal 2023 was primarily driven by an increase in average check of 3% (based on an increase of 6.5% in menu pricing, partially offset by a 3.5% negative impact from mix), partially offset by decreased customer traffic

We implemented effective menu price increases of approximately 2.2% and 3.7% in the second quarter of fiscal 2024 and the fourth quarter of fiscal 2023, respectively.

Flower Child sales increased 6.6% to $35.7 million for the second quarter of fiscal 2024, compared to $33.5 million for the second quarter of fiscal 2023.

Flower Child sales per restaurant operating week was $85,867 in the second quarter of fiscal 2024 as compared to $85,863 in the second quarter of fiscal 2023.

Total operating weeks at Flower Child increased 6.7% to 416 in the second quarter of fiscal 2024 compared to 390 in the prior year.

Other FRC sales increased 12.0% to $73.6 million for the second quarter of fiscal 2024, compared to $65.7 million for the second quarter of fiscal 2023.

Other FRC average sales per restaurant operating week decreased 5.7% to $134,131 in the second quarter of fiscal 2024 from $142,270 in the second 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.

Total operating weeks at Other FRC increased 18.8% to 549 in the second quarter of fiscal 2024 compared to 462 in the prior year.

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

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

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

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

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

As a percentage of revenues, cost of sales was 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%).

As a percentage of revenues, food and beverage costs were 22.3% and 23.2% in the second quarters of fiscal 2024 and 2023, respectively, primarily due to menu price increases in excess of inflation across most categories (0.4%) and a shift in sales mix (0.4%).

Labor Expenses

As a percentage of revenues, labor expenses, which include restaurant-level labor costs and bakery production labor, including associated fringe benefits, were 36.0% 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%).

As a percentage of revenues, labor expenses, which include restaurant-level labor costs and bakery production labor, including associated fringe benefits, were 35.1% and 35.3% in the second quarters of fiscal 2024 and 2023, respectively.

This decrease is primarily driven by menu price increases in excess of wage rate inflation and improved productivity (0.4%), partially offset by an increase in management labor due to higher staffing levels (0.2%).

Other Operating Costs and Expenses

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

As a percentage of revenues, other operating costs and expenses were 26.3% 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%).

As a percentage of revenues, other operating costs and expenses were 26.4% and 26.2% in the second quarters of fiscal 2024 and 2023, respectively.

This variance was primarily driven by increased occupancy and building related costs (0.4%), partially offset by a shift in sales mix (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 6.8% 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.

As a percentage of revenues, G&A expenses were 6.0% and 6.4% in the second quarter of fiscal 2024 and 2023, respectively.

This variance was primarily due to lower legal fees (0.2%).

Impairment of Assets and Lease Termination (Income)/Expenses

During the second quarter of fiscal 2024, we recorded impairment of assets and lease terminations income of $0.2 million primarily related to lease termination income for one Flower Child location.

During the second quarter of fiscal 2023, we recorded impairment of assets and lease terminations income of $0.7 million primarily related to lease termination income for one Grand Lux Cafe location.

Preopening 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.

Preopening costs were $7.0 million and $6.0 million in the second quarters of fiscal 2024 and 2023, respectively.

We opened one The Cheesecake Factory, one North Italia, two Flower Child and one Other FRC locations in the second quarter of fiscal 2024 compared to one The Cheesecake Factory and two Other FRC locations in the second 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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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%).

Our effective income tax rate was 6.9% and 5.8% for the second quarters of fiscal 2024 and 2023, respectively.

The increase was primarily due to a lower proportion of employment credits in relation to income before income taxes (3.0%) in the second quarter of fiscal 2024 and a lower proportion of non-taxable gains on our investments in variable life insurance contracts used to support our non-qualified deferred compensation plan in relation to income before income taxes (0.3%) in the second quarter of fiscal 2024.

These factors were partially offset by a change to our reserve for uncertain tax positions (1.6%) and a lower proportion of state taxes expense in relation to income before taxes in the second quarter of fiscal 2024 (0.5%).

Twenty-Six Weeks Ended July 2, 2024 Compared to Twenty-Six Weeks Ended July 4, 2023

Revenues increased 3.6% to $1,795.3 million for the first six months ended July 2, 2024 compared to $1,732.3 million for the comparable prior year period, primarily due to additional revenue related to new restaurant openings and an increase in comparable restaurant sales.

The Cheesecake Factory sales increased 2.8% to $1,344.5 million for the first six months of fiscal 2024 compared to $1,308.5 million for the first six months of fiscal 2023.

Average sales per restaurant operating week increased 0.1% to $239,446 in the first six months of fiscal 2024 from $239,167 in the first six months of fiscal 2023.

Total operating weeks at The Cheesecake Factory restaurants increased 2.6% to 5,615 in the first six months of fiscal 2024 compared to 5,471 in the prior year.

The Cheesecake Factory comparable sales increased by 0.4%, or $5.3 million, from the first six months of fiscal 2023.

The increase from fiscal 2023 was primarily driven by an increase in average check of 1.3% (based on an increase of 4.8% in menu pricing and 3.5% negative impact from mix), partially offset by decreased customer traffic of 0.9%.

Sales through the off-premise channel comprised approximately 21% of our restaurant sales during the first six months of fiscal 2024 as compared to 22% in the first six months of fiscal 2023.

North Italia sales increased 13.3% to $146.4 million for the first six months of fiscal 2024, compared to $129.2 million for the first six months of fiscal 2023.

Average sales per restaurant operating week decreased 0.7% to $149,528 in the first six months of fiscal 2024 from $150,626 in the first six months of fiscal 2023.

Total operating weeks at North Italia increased 14.1% to 979 in the first six months of fiscal 2024 compared to 858 in the prior year.

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

The increase from fiscal 2023 was primarily driven by an increase in average check of 4% (based on an increase of 7% in menu pricing, partially offset by a 3% negative impact from mix), partially offset by decreased customer traffic of 1%.

Flower Child sales increased 8.3% to $70.2 million for the first six months of fiscal 2024, compared to $64.8 million for the first six months of fiscal 2023.

Flower Child sales per restaurant operating week increased 3.7% to $84,775 in first six months of fiscal 2024 from $81,711 in the first six months of fiscal 2023.

Total operating weeks at Flower Child increased 4.4% to 828 in the first six months of fiscal 2024 compared to 793 in the prior year.

Other FRC sales increased 10.0% to $147.9 million for the first six months of fiscal 2024, compared to $134.4 million for the first six months of fiscal 2023.

Other FRC average sales per restaurant operating week decreased 6.9% to $137,040 in the first six months of fiscal 2024 from $147,172 in the first six months 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 18.2% to 1,079 in the first six months of fiscal 2024 compared to 913 in the prior year.

Food and Beverage Costs

As a percentage of revenues, food and beverage costs were 22.6% and 23.5% in the first six months of fiscal 2024 and 2023, respectively, primarily due to menu price increases in excess of inflation across most categories (0.5%) and a shift in sales mix (0.3%).

Labor Expenses

As a percentage of revenues, labor expenses were 35.5% and 35.7% in the first six months of fiscal 2024 and 2023, respectively.

This decrease is primarily due to menu price increases in excess of wage rate inflation (0.3%), partially offset by increased management labor due to improved staffing levels (0.2%).

Other Operating Costs and Expenses

As a percentage of revenues, other operating costs and expenses were 26.3% and 26.4% in the first six months of fiscal 2024 and 2023, respectively.

This variance was primarily driven by a shift in sales mix (0.2%), partially offset by increased restaurant-level incentive compensation expense (0.1%).

As a percentage of revenues, G&A expenses were 6.4% and 6.3% in the first six months of fiscal 2024 and 2023, respectively.

This variance was primarily due to increased labor expense (0.1%).

Impairment of Assets and Lease Termination (Income)/Expenses

During the first six months of fiscal 2024, we recorded impairment of assets and lease terminations expense of $1.9 million primarily related to impairment of assets for one The Cheesecake Factory location and lease termination costs for one The Cheesecake Factory and one Flower Child location.

During the first six months of fiscal 2023, we recorded impairment of assets and lease terminations expense of $1.6 million primarily related to lease termination costs for one Grand Lux Cafe location.

Preopening Costs

Preopening costs were $12.9 million and $9.1 million in the first six months of fiscal 2024 and 2023, respectively.

We opened one The Cheesecake Factory, three North Italia, three Flower Child and three Other FRC locations in the first half of fiscal 2024 compared to one The Cheesecake Factory, one Flower Child and three Other FRC locations in the first half of fiscal 2023.

Income Tax Provision

Our effective income tax rate was 8.8% and 8.6% for the first six months of fiscal 2024 and 2023, respectively.

The increase was primarily due to a lower proportion of employment credits in relation to income before income taxes (1.7%) in the first six months of fiscal 2024 and a higher proportion of tax shortfall related to equity compensation in relation to income before income taxes in the first six months of fiscal 2024 (0.5%).

These factors were partially offset by a change to our reserve for uncertain tax positions (1.6%) and a lower proportion of state taxes expense in relation to income before taxes (0.2%).

Non-GAAP Measures

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

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

Our inclusion of these adjusted measures

should not be construed as an indication that our future results will be unaffected by unusual or infrequent items.

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

Following is a reconciliation from net 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

Impairment of assets and lease termination (income)/expenses

Acquisition-related contingent consideration, compensation and amortization expenses

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Diluted net income per share

Impairment of assets and lease termination expenses

Impairment of assets and lease termination (income)/expenses

Acquisition-related contingent consideration, compensation and amortization expenses

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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.

(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.

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

Fiscal 2024 Outlook

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.

Based on recent trends and assuming no material operating or consumer disruptions, we anticipate total revenue for fiscal 2024 to be approximately $3.56 billion to $3.60 billion.

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.

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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.

Based on these factors, we expect fiscal 2024 net income margin of approximately 4.3% to 4.4% based on the estimated revenue range provided.

We plan to open as many as 22 new restaurants in fiscal 2024, including as many as three The Cheesecake Factory restaurants, six to seven North Italia restaurants, six to seven Flower Child locations and seven to eight 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.

Total revenues for the third quarter of fiscal 2024 are expected to be between $855 million and $870 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 second quarter fiscal 2024 net income margin of approximately 5.25% at the mid - point of the estimated revenue range.

Based on these factors, we expect third quarter fiscal 2024 net income margin of 2.6% to 3.0% based on the estimated revenue range provided.

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

During the first six months of fiscal 2024, our cash and cash equivalents decreased by $15.6 million to $40.7 million.

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

April 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

Treasury stock purchases, inclusive of excise tax

Cash Provided by Operating Activities

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.

Cash flows from operations decreased by $7.1 million from the first six months of fiscal 2023 primarily due to an increase in inventory levels, timing of prepaid expenses and a payment of deferred consideration and compensation in excess of acquisition-date fair value, partially offset by higher net income.

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 $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.

Capital expenditures for new restaurants, including locations under development, were $38.9 million and $37.8 million for the first six months of fiscal 2024 and 2023, respectively.

Capital expenditures also included $24.8 million and $22.0 million for our existing restaurants and $2.6 million and $2.9 million for bakery and corporate capacity and infrastructure investments in the first six months of fiscal 2024 and 2023, respectively.

We opened ten restaurants in the first six months of fiscal 2024 comprised of one The Cheesecake Factory, three North Italia, three Flower Child and three Other FRC locations compared to one The Cheesecake Factory, one Flower Child and three Other FRC location in the first six months of fiscal 2023.

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

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.

Acquisition-Related Deferred Consideration and Compensation

During the first six months of fiscal 2024 and 2023, we made payments of $6.5 million and $13.0 million, respectively, for contingent consideration and compensation related to the FRC acquisition.

Convertible Senior Notes

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

As of April 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.

As of July 2, 2024, the conversion rate for the Notes was 13.6938 shares of common stock per $1,000 principal amount of the Notes, which represents a conversion price of approximately $73.03 per share of common stock.

In connection with the cash dividend that was declared by our Board on July 25, 2024, on August 13, 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 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.

As of July 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.

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Common Stock Dividends

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.

Common stock dividends of $26.7 million and $27.0 million were paid in the first six months 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 July 2024, our Board declared a quarterly dividend to be paid in August 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 56.9 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.

Under authorization by our Board to repurchase up to 61.0 million shares of our common stock, we have cumulatively repurchased 57.0 million shares at a total cost of $1,828.1 million, excluding excise tax through July 2, 2024.

We repurchased 0.5 million shares at a cost of $16.4 million, excluding excise tax during the first six months of fiscal 2024 compared to 0.6 million shares at a cost of $21.7 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 April 2, 2024, we had no financing transactions, arrangements or other relationships with any unconsolidated entities or related parties.

As of July 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