What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-04 compared with 2024-08-05 · 122 added, 104 removed, 195 unchanged (54% of the section changed)

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

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

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

supply chain disruptions;

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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,innovating new food, dining and hospitality experiences to create fresh, exciting concepts.

We plan to continue expanding The Cheesecake Factory, North Italia concepts, Flower Child 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.

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.

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 ® 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, utilizing a market-based strategy to help mitigate cost pressure in higher-wage geographies.

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 support of both our margin objectives and customer traffic levels, utilizing a market-based strategy to help mitigate cost pressure in higher-wage geographies.

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

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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.

October 1, 2024

October 3, 2023

October 1, 2024

October 3, 2023

Costs and expenses:

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Income before income taxes

Income tax provision

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.

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.

Income tax provision/(benefit)

Thirteen Weeks Ended October 1, 2024 Compared to Thirteen Weeks Ended October 3, 2023

Revenues increased 4.3% to $865.5 million for the fiscal quarter ended October 1, 2024 compared to $830.2 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 3.1% to $647.8 million for the third quarter of fiscal 2024 compared to $628.1 million for the third quarter of fiscal 2023.

Average sales per restaurant operating week increased 1.4% to $231,011 in the third quarter of fiscal 2024 from $227,917 in the third quarter of fiscal 2023.

Total operating weeks at The Cheesecake Factory restaurants increased 1.7% to 2,804 in the third quarter of fiscal 2024 compared to 2,756 in the prior year.

The Cheesecake Factory comparable sales increased by 1.6%, or $9.6 million, from the third quarter of fiscal 2023.

This increase was primarily driven by an increase in average check of 2.4% (based on an increase of 4.5% in menu pricing and partially offset by 2.1% negative impact from mix), partially offset by decreased customer traffic of 0.8%.

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

Sales through the off-premise channel comprised approximately 21% of our restaurant sales during the third quarter of both fiscal 2024 and 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.

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.

North Italia sales increased 15.2% to $71.9 million for the third quarter of fiscal 2024, compared to $62.4 million for the third quarter of fiscal 2023.

Average sales per restaurant operating week decreased 2.6% to $141,771 in the third quarter of fiscal 2024 from $145,494 in the third quarter of fiscal 2023.

Total operating weeks at North Italia increased 18.2% to 507 in the third quarter of fiscal 2024 compared to 429 in the prior year.

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

This increase was primarily driven by an increase in average check of 4% (based on an increase of 6% in menu pricing, partially offset by a 2% negative impact from mix), partially offset by decreased customer traffic of 2%.

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.

We are in the process of implementing approximately a 2.3% price increase in the fourth quarter of fiscal 2024.

Flower Child sales increased 13.7% to $36.6 million for the third quarter of fiscal 2024, compared to $32.2 million for the third quarter of fiscal 2023.

Flower Child sales per restaurant operating week increased 6.5% to $85,225 in the third quarter of fiscal 2024 as compared to $80,006 in the third quarter of fiscal 2023.

Total operating weeks at Flower Child increased 6.7% to 430 in the third quarter of fiscal 2024 compared to 403 in the prior year.

Other FRC sales increased 14.3% to $67.0 million for the third quarter of fiscal 2024, compared to $58.6 million for the third quarter of fiscal 2023.

Other FRC average sales per restaurant operating week decreased 4.4% to $116,493 in the third quarter of fiscal 2024 from $121,916 in the third 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 18.8% to 549 in the second quarter of fiscal 2024 compared to 462 in the prior year.

Total operating weeks at Other FRC increased 19.5% to 575 in the third quarter of fiscal 2024 compared to 481 in the prior year.

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

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

As of October 1, 2024, there were seven The Cheesecake Factory restaurants and six North Italia restaurants not yet in their respective comparable sales bases.

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

Food and Beverage Costs

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

As a percentage of revenues, 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%).

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 bakery customers.

As a percentage of revenues, food and beverage costs were 22.6% and 23.5% in the third quarters of fiscal 2024 and 2023, respectively, primarily due to menu price increases in excess of inflation across most categories (0.7%) and a shift in sales mix (0.2%).

Labor Expenses

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

As a percentage of revenues, labor expenses, which include restaurant-level labor costs and bakery production labor, including associated fringe benefits, were 35.9% and 36.3% in the third 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 (1.0%), partially offset by higher group medical costs due to large claim activity (0.5%).

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 26.4% 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 6.0% and 6.4% in the second quarter of fiscal 2024 and 2023, respectively.

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

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, incentive compensation and bakery production overhead.

As a percentage of revenues, other operating costs and expenses were 27.7% and 27.6% in the third quarters of fiscal 2024 and 2023, respectively.

This variance was primarily driven by increased restaurant-level incentive compensation expense (0.2%), 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 and gift card commissions to third-party distributors.

As a percentage of revenues, G&A expenses were 6.5% in both the third quarter of fiscal 2024 and 2023.

This was primarily due to the timing of operational leadership meetings (0.3%), partially offset by higher 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.

During the third quarter of fiscal 2024, we recorded impairment of assets and lease terminations income of $3.5 million primarily related to lease termination income, net for two The Cheesecake Factory restaurants and one Social Monk location.

During the third quarter of fiscal 2023, we recorded impairment of assets and lease terminations expense of $48,000.

Preopening Costs

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.

Preopening costs were $7.0 million and $6.7 million in the third quarters of fiscal 2024 and 2023, respectively.

We opened one Flower Child and three Other FRC locations in the third quarter of fiscal 2024 compared to two The Cheesecake Factory locations in the third 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.

Income Tax Provision

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.

Income Tax Provision/(Benefit)

Our effective income tax rate was 5.8% and (5.5%) for the third quarters of fiscal 2024 and 2023, respectively.

The increase was primarily due to leverage on higher annual forecasted income before taxes, predominantly related to employment credits, (6.2%), a larger cumulative benefit recorded in fiscal 2023 resulting from a decline in the effective tax rate from the second quarter to the third quarter (5.3%) and a smaller reduction to our reserve for uncertain tax positions (1.6%).

These factors were offset by a higher amount of non-taxable gains on our investments in variable life insurance contracts used to support our non-qualified deferred compensation plan (1.2%).

Thirty-Nine Weeks Ended October 1, 2024 Compared to Thirty-Nine Weeks Ended October 3, 2023

Revenues increased 3.8% to $2,660.7 million for the first nine months ended October 1, 2024 compared to $2,562.5 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 2.9% to $1,992.2 million for the first nine months of fiscal 2024 compared to $1,936.6 million for the first nine months of fiscal 2023.

Average sales per restaurant operating week increased 0.5% to $236,637 in the first nine months of fiscal 2024 from $235,398 in the first nine months of fiscal 2023.

Total operating weeks at The Cheesecake Factory restaurants increased 2.3% to 8,419 in the first nine months of fiscal 2024 compared to 8,227 in the prior year.

The Cheesecake Factory comparable sales increased by 0.8%, or $14.9 million, from the first nine months of fiscal 2023.

This increase was primarily driven by an increase in average check of 1.6% (based on an increase of 4.7% in menu pricing and partially offset by 3.1% negative impact from mix), partially offset by decreased customer traffic of 0.8%.

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

North Italia sales increased 13.9% to $218.3 million for the first nine months of fiscal 2024, compared to $191.7 million for the first nine months of fiscal 2023.

Average sales per restaurant operating week decreased 1.4% to $146,881 in the first nine months of fiscal 2024 from $148,915 in the first nine months of fiscal 2023.

Total operating weeks at North Italia increased 15.5% to 1,486 in the first nine months of fiscal 2024 compared to 1,287 in the prior year.

North Italia comparable sales increased approximately 2% from the first nine months of fiscal 2023.

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

Flower Child sales increased 10.1% to $106.8 million for the first nine months of fiscal 2024, compared to $97.0 million for the first nine months of fiscal 2023.

Flower Child sales per restaurant operating week increased 4.7% to $84,929 in the first nine months of fiscal 2024 from $81,136 in the first nine months of fiscal 2023.

Total operating weeks at Flower Child increased 5.2% to 1,258 in the first nine months of fiscal 2024 compared to 1,196 in the prior year.

Other FRC sales increased 11.3% to $214.9 million for the first nine months of fiscal 2024, compared to $193.0 million for the first nine months of fiscal 2023.

Other FRC average sales per restaurant operating week decreased 6.2% to $129,897 in the first nine months of fiscal 2024 from $138,458 in the first nine 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 18.7% to 1,654 in the first nine months of fiscal 2024 compared to 1,394 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%).

As a percentage of revenues, food and beverage costs were 22.6% and 23.5% in the first nine 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%).

As a percentage of revenues, labor expenses were 35.7% and 35.9% in the first nine months of fiscal 2024 and 2023, respectively.

This decrease is primarily due to menu price increases in excess of wage rate inflation (0.5%), partially offset by increased management labor due to improved staffing levels (0.2%) and higher group medical costs due to large claim activity (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%).

As a percentage of revenues, other operating costs and expenses were 26.9% and 26.7% in the first nine months of fiscal 2024 and 2023, respectively.

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

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

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.

During the first nine months of fiscal 2024, we recorded impairment of assets and lease terminations income of $1.6 million primarily related to lease termination income, net for two The Cheesecake Factory restaurants, one Grand Lux Cafe location, one Flower Child location and one Social Monk location.

During the first nine 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.

Preopening costs were $19.9 million and $15.8 million in the first nine months of fiscal 2024 and 2023, respectively.

We opened one The Cheesecake Factory, three North Italia, four Flower Child and six Other FRC locations in the first nine months of fiscal 2024 compared to three The Cheesecake Factory, one Flower Child and three Other FRC locations in the first three quarters 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%).

Our effective income tax rate was 8.0% and 6.0% for the first nine months of fiscal 2024 and 2023, respectively.

The increase was primarily due to leverage on higher annual forecasted income before taxes, predominantly related to employment credits, (4.1%).

This was partially offset by a higher amount of non-taxable gains on our investments in variable life insurance contracts used to support our non-qualified deferred compensation plan (1.2%).

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):

October 1, 2024

October 3, 2023

October 1, 2024

October 3, 2023

Impairment of assets and lease termination (income)/expenses

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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 $3.56 billion to $3.60 billion.

Based on recent trends and assuming no material operating or consumer disruptions, we anticipate total revenue for fiscal 2024 to be approximately $3.57 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.

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

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 4.3% 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.

Based on these factors, we expect fiscal 2024 net income margin of approximately 4.5% based on the estimated revenue provided.

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

Estimate includes new restaurant construction expenses which are classified as operating lease assets in the statement of cash flows.

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

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 third quarter fiscal 2024 net income margin of 2.6% to 3.0% based on the estimated revenue range provided.

Total revenues for the fourth quarter of fiscal 2024 are expected to be between $905 million and $915 million.

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

Based on these factors, we expect fourth quarter fiscal 2024 net income margin of 4.8% to 4.9% based on the estimated revenue range provided.

Fiscal 2025 Outlook

Based on our fiscal 2024 year-to-date performance and assuming no material operating or consumer disruptions, we anticipate total revenue for fiscal 2025 to be approximately $3.75 billion.

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

We expect G&A expenses to be slightly better than fiscal 2024 as a percent of sales, depreciation expense of approximately $106 million and preopening costs of approximately $30 million.

Based on these factors, we expect fiscal 2025 net income margin of approximately 4.75% at the mid-point of the estimated revenue provided.

Our development expectations for 2025 are to continue accelerating unit growth, with as many as 24 new restaurant openings.

We anticipate approximately $190 million to $210 million in cash capital expenditures to support this level of unit development, required maintenance on our restaurants and our preliminary capital estimate for the initial phase of development for the third bakery facility.

Liquidity and Capital Resources

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However, we believe our operating lease arrangements continue to provide appropriate leverage for our capital structure in a financially efficient manner.

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

During the first nine months of fiscal 2024, our cash and cash equivalents decreased by $4.1 million to $52.2 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 1, 2024

October 3, 2023

Cash provided by operating activities

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Cash Provided by Operating Activities

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.

Cash flows from operations increased by $23.8 million from the first nine months of fiscal 2023 primarily due higher net income and an increase in accounts payables due to a lower balance in fiscal 2023, partially offset by an increase in inventory levels and a payment of deferred consideration and compensation related to the FRC acquisition in excess of acquisition-date fair value.

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 $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.

Capital expenditures for new restaurants, including locations under development, were $76.1 million and $61.6 million for the first nine months of fiscal 2024 and 2023, respectively.

Capital expenditures also included $38.1 million and $34.2 million for our existing restaurants and $6.3 million and $4.1 million for bakery and corporate capacity and infrastructure investments in the first nine months of fiscal 2024 and 2023, respectively.

We opened 14 restaurants in the first nine months of fiscal 2024 comprised of one The Cheesecake Factory, three North Italia, four Flower Child and six Other FRC locations compared to three The Cheesecake Factory, one Flower Child and three Other FRC locations in the first nine 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.

Estimate includes new restaurant construction expenses which are classified as operating lease assets in the statement of cash flows.

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.

During the first nine months of 2023, we made payments of $24.2 million for deferred consideration and compensation related to the FRC acquisition.

During the first nine months of 2024, we made payments of $6.5 million for deferred consideration and compensation related to the FRC acquisition that was included in cash provided by operating activities.

Convertible Senior Notes

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

As of July 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.

As of October 1, 2024, the conversion rate for the Notes was 13.7961 shares of common stock per $1,000 principal amount of the Notes, which represents a conversion price of approximately $72.48 per share of common stock.

In connection with the cash dividend that was declared by our Board on October 23, 2024, on November 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 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.

As of October 1, 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 $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.

Common stock dividends of $39.8 million and $40.1 million were paid in the first nine 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 October 2024, our Board declared a quarterly dividend to be paid in November 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 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.

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 $1,829.2 million, excluding excise tax through October 1, 2024.

We repurchased 0.5 million shares at a cost of $17.5 million, excluding excise tax during the first nine months of fiscal 2024 compared to 1.1 million shares at a cost of $36.3 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 July 2, 2024, we had no financing transactions, arrangements or other relationships with any unconsolidated entities or related parties.

As of October 1, 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