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Item 7. Management’s Discussion and Analysis

2025-02-24 compared with 2024-02-26 · 93 added, 105 removed, 209 unchanged (49% of the section changed)

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Geopolitical and Other Macroeconomic Impacts to our Operating Environment

During fiscal 2021 and 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 continued to impact our operating results in fiscal 2023, contributing to significantly increased commodity and other costs.

We also encountered delays in opening new restaurants primarily 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 delay in new restaurant openings.

In recent years, our operating results were impacted by geopolitical and macroeconomic events, causing supply chain challenges and significantly increased commodity and wage inflation.

Our commodity and wage inflationary environment began returning to more historical levels in fiscal 2024.

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

Adverse weather conditions and natural disasters may further exacerbate a number of these factors.

Any of these factors may have an adverse impact on our business and materially adversely affect our financial performance.

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Our bakery division operates two facilities that produce quality cheesecakes and other baked products for our restaurants, international licensees and third-party bakery customers.

Our strategy is driven by our commitment to customer satisfaction and is focused primarily on menu innovation, service and operational execution to continue to differentiate ourselves from other restaurant concepts, as well as to drive competitively strong performance that is sustainable.

Our strategy is driven by our commitment to customer satisfaction and is focused primarily on menu innovation, service and operational execution to differentiate ourselves from other restaurant concepts, and drive competitively strong performance that is sustainable.

Financially, we are focused on prudently managing expenses at our restaurants, bakery facilities and corporate support center, and leveraging our size to make the best use of our purchasing power.

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.

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

In addition, our FRC subsidiary serves as an incubator, innovating new food, dining and hospitality experiences to create fresh, exciting concepts.

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

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, increasing customer throughput in our restaurants, leveraging our gift card program, partnering with a third party to provide delivery services for our restaurants, increasing customer awareness of our online ordering capabilities and improving the pick-up experience, augmenting our marketing programs, including our Cheesecake Rewards ® program, enhancing our training programs and leveraging insights from 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.

We generally update The Cheesecake Factory menus twice a year, and our philosophy is to use price increases to help offset key operating cost increases in a manner that supports both our margin and customer traffic objectives.

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 fiscal years 2022 and 2023, we implemented 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.

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

In fiscal years 2023 and 2024, we implemented price increases above our historical levels, to help offset significant inflationary cost pressures.

We will continue to take the cost and inflationary environment into consideration when implementing future pricing decisions.

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

Margins are subject to fluctuations in commodity costs, labor, restaurant-level occupancy expenses, general and administrative (“G&A”) expenses and preopening expenses.

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.

Our objective is 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.

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 Revolver 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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Income from operations

Interest and other expense, net

Interest expense, net

Other income, net

Income before income taxes

Income tax benefit

Income tax provision/(benefit)

Fiscal 2024 Compared to Fiscal 2023

Revenues increased 4.1% to $3,439.5 million for fiscal 2023, compared to $3,303.2 million for fiscal 2022, which included approximately $78.4 million contributed by the 53rd week, due to an increase in comparable restaurant sales, as well as additional revenue related to new restaurant openings.

Revenues increased 4.1% to $3,581.7 million for fiscal 2024 compared to $3,439.5 million for fiscal 2023, primarily due to additional revenue related to new restaurant openings and an increase in comparable restaurant sales.

The Cheesecake Factory sales increased 2.6% to $2,661.6 million for fiscal 2024 compared to $2,595.1 million for fiscal 2023.

The Cheesecake Factory average sales per restaurant operating week increased 0.7% to $237,349 in fiscal 2024 from $235,701 in fiscal 2023.

Total operating weeks at The Cheesecake Factory restaurants decreased 0.4% to 11,010 in fiscal 2023 compared to 11,052 in the comparable prior year period.

Excluding the impact of the 53rd week in fiscal 2022, total operating weeks increased 1.6% compared to 10,841 in the prior year.

The Cheesecake Factory comparable sales increased by 3.0%, or $73.6 million, from fiscal 2022 and increased 13.9% from fiscal 2019 on an operating week basis.

Total operating weeks at The Cheesecake Factory restaurants increased 1.9% to 11,214 in fiscal 2024 compared to 11,010 in the comparable prior year period.

The Cheesecake Factory comparable sales increased by 1.0%, or $25.9 million, from fiscal 2023.

The increase from fiscal 2023 was primarily driven by an increase in average check of 1.7% (based on an increase of 4.7% in menu pricing, partially offset by a 3.0% negative change from menu mix), partially offset by decreased customer traffic of 0.7%.

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

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

We account for each off-premise order as one customer for traffic measurement purposes.

Therefore, average check is generally higher for off-premise orders as most of these orders are for more than one customer.

In turn, the lower mix of sales in the off-premise channel during fiscal 2023 compared to fiscal 2022 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 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 5.0% to $149,727 in fiscal 2023 from $142,532 in fiscal 2022.

North Italia sales increased 15.7% to $299.6 million for fiscal 2024 compared to $258.9 million for fiscal 2023.

North Italia average sales per restaurant operating week decreased 1.0% to $148,231 in fiscal 2024 from $149,727 in fiscal 2023.

Average sales per restaurant operating week are impacted by the acceleration of new restaurant openings that have not matured.

Total operating weeks at North Italia increased 16.9% to 2,021 in fiscal 2024 compared to 1,729 in the prior year.

Excluding the impact of the 53rd week in fiscal 2022, total operating weeks increased 10.1% compared to 1,571 in the prior year.

North Italia comparable sales increased approximately 8% from fiscal 2022 and increased approximately 31% compared to fiscal 2019 on an operating week basis.

The increase from fiscal 2022 was primarily driven by an increase in average check of approximately 5% (based

on an increase of 8% in menu pricing, partially offset by a 3% negative impact from mix), as well as increased customer traffic of 3%.

North Italia comparable sales increased approximately 2% from fiscal 2023.

The increase from fiscal 2023 was primarily driven by an increase in average check of approximately 3% (based on an increase of 6% in menu pricing, partially offset by a 3% negative impact from mix), partially offset by decreased customer traffic of 1%.

We implemented effective menu price increases of approximately 2.2% and 2.3% in the second and fourth quarters of fiscal 2024, respectively.

Flower Child sales per restaurant operating week increased 6.5% to $79,714 in fiscal 2023 from $74,852 in fiscal 2022.

Total operating weeks at Flower Child increased 4.2% to 1,599 in fiscal 2023 compared to 1,534 in the prior year.

Excluding the impact of the 53rd week in fiscal 2022, total operating weeks increased 6.4% compared to 1,503 in the prior year.

Flower Child sales increased 13.7% to $145.0 million for fiscal 2024 compared to $127.5 million for fiscal 2023.

Excluding the impact of the 53rd week in fiscal 2022, total sales increased 13.1% compared to $112.7 million in the prior year.

Flower Child sales per restaurant operating week increased 5.8% to $84,351 in fiscal 2024 from $79,714 in fiscal 2023.

Total operating weeks

at Flower Child increased 7.5% to 1,719 in fiscal 2024 compared to 1,599 in the prior year.

Flower Child comparable sales increased approximately 6% from fiscal 2023.

The increase from fiscal 2023 includes an increase of 2% in menu pricing.

Other FRC sales increased 13.7% to $300.0 million for the fiscal 2024 compared to $263.9 million for fiscal 2023.

Other FRC average sales per restaurant operating week decreased 4.3% to $132,495 in fiscal 2024 from $138,469 in fiscal 2023.

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Total operating weeks at Other FRC increased 18.8% to 2,264 in fiscal 2024 compared to 1,906 in the prior year.

Excluding the impact of the 53rd week in fiscal 2022, total operating weeks increased 15.7% compared to 1,647 in the prior year.

Other FRC sales increased 11.1% to $263.9 million for fiscal 2023, compared to $237.6 million for fiscal 2022.

Excluding the impact of the 53rd week in fiscal 2022, total sales increased 13.5% compared to $232.6 million in the prior year.

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

At January 2, 2024, there were nine The Cheesecake Factory restaurants and seven North Italia restaurants not yet in the comparable sales base.

At December 31, 2024, there were eight The Cheesecake Factory restaurants and nine North Italia restaurants not yet in the 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.

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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 bakery customers.

As a percentage of revenues, food and beverage costs were 23.4% for fiscal 2023 compared to 24.6% for fiscal 2022, primarily due to menu price increases in excess of inflation across most categories (1.0%).

As a percentage of revenues, food and beverage costs were 22.5% for fiscal 2024 compared to 23.4% for fiscal 2023, due primarily to menu price increases in excess of inflation across most categories (0.5%) and a shift in sales mix (0.2%).

The Cheesecake Factory restaurant menus are among the most diversified in the foodservice industry and, accordingly, are not overly dependent on a few select commodities.

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(See the discussion of our contracting activities in Part II, Item 7A — “Quantitative and Qualitative Disclosures About Market Risk.”)

For new restaurants, food and beverage costs are typically higher for a period of time after opening until our management team becomes more accustomed to predicting, managing and servicing the sales volumes at these restaurants.

For new restaurants, food and beverage costs are typically higher for a period of time after opening until our management team becomes more accustomed to predicting and managing the sales volumes at these restaurants.

Labor Expenses

As a percentage of revenues, labor expenses, which include restaurant-level labor costs and bakery production labor, including associated fringe benefits, were 35.3% and 35.7% in fiscal 2024 and fiscal 2023, respectively.

This decrease was primarily due to menu price increases in excess of wage rate inflation and improved staffing levels (1.0%).

This decrease was primarily due to menu price increases in excess of wage rate inflation (0.6%), partially offset by higher management salaries due to improved staffing levels (0.2%).

For new restaurants, labor expenses are typically higher for a period of time after opening while our management team becomes more accustomed to predicting and managing the sales volumes at the new restaurants.

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As a percentage of revenues, other operating costs and expenses were 26.7% and 26.8% in fiscal 2024 and fiscal 2023, respectively.

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

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Impairment of Assets and Lease Termination Expenses

During fiscal 2023, we recorded impairment of assets and lease termination expenses of $29.5 million primarily related to the impairment of long-lived assets for three The Cheesecake Factory (one previously partially impaired), one North Italia (previously partially impaired), one Other FRC and two Other restaurant lease terminations.

During fiscal 2022, we recorded impairment of assets and lease terminations expense of $31.4 million primarily related to the impairment of long-lived assets for three The Cheesecake Factory, one Other FRC and three Other restaurants that are primarily located in areas which have not fully recovered from the pandemic.

During fiscal 2024, we recorded impairment of assets and lease terminations expense of $13.6 million primarily related to impairment of long-lived assets for one The Cheesecake Factory (previously partially impaired) and six Other FRC locations (one previously partially impaired), partially offset by lease termination income, net for four The Cheesecake Factory restaurants (including two relocations), one Grand Lux Cafe location, one Flower Child location, one Social Monk location and one Other FRC location (that closed in early fiscal 2025).

See Notes 1 and 6 of Notes to Consolidated Financial Statements in Part 1V, Item 15 of this report for further discussion of our long-lived and intangible assets.

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We recorded $2.4 million and $11.7 million of expense during fiscal 2024 and 2023, respectively, of acquisition-related contingent consideration, compensation and amortization.

In fiscal 2023, the fair value of the contingent consideration and compensation liability decreased by $3.1 million due to a payment of $13.0 million per the FRC acquisition agreement, partially offset by $9.9 million increase in the fair value primarily stemming from a change in the volatility factors, as well as an increase in fiscal 2023 revenues and estimated future revenues utilized in the calculation and amortization.

In fiscal 2022, the fair value of the contingent consideration and compensation liability increased by $4.7 million due to a $11.9 million increase in the fair value primarily stemming from a change in the volatility factors, as well as an increase in fiscal 2022 revenues and estimated future revenues utilized in the calculation and amortization, partially offset by a payment of $7.2 million per the FRC acquisition agreement.

In fiscal 2024, we recorded $4.3 million of amortization, partially offset by a $1.9 million decrease in the fair value of the contingent consideration and compensation liability primarily stemming from a change in the volatility factors, as well as a decrease in fiscal 2025 revenues and estimated future revenues utilized in the calculation.

In fiscal 2023, there was a $7.3 million increase in the fair value primarily stemming from a change in the volatility factors, as well as an increase in fiscal 2023 revenues and estimated future revenues utilized in the calculation and $4.4 million of amortization.

Preopening Costs

Preopening costs were $27.5 million for fiscal 2024 compared to $25.4 million for fiscal 2023.

We opened 16 restaurants in fiscal 2023 comprised of six The Cheesecake Factory, three North Italia, six Other FRC, and one Flower Child location compared to 13 restaurants in fiscal 2022 comprised of three The Cheesecake Factory, four North Italia, three Other FRC, and three Flower Child locations.

We opened 23 restaurants in fiscal 2024 comprised of three The Cheesecake Factory (including two relocations), six North Italia, eight Other FRC, and six Flower Child locations compared to 16 restaurants in fiscal 2023 comprised of six The Cheesecake Factory, three North Italia, six Other FRC, and one Flower Child location.

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.

The increase in preopening cost from fiscal 2022 primarily relates to a higher number of openings and the mix of new restaurant openings.

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 $8.6 million in fiscal 2023 compared to $6.0 million in fiscal 2022.

This increase was primarily due to higher interest on our Revolver Facility ($3.5 million), partially offset by higher interest income due to higher cash balances in interest bearing accounts ($1.1 million).

Income Tax Benefit

In fiscal 2023, we had an income tax benefit of $1.3 million, an effective tax rate of (1.3%), compared to an income tax benefit of $10.2 million, an effective tax rate of (31.1%), in fiscal 2022.

The change was due primarily to a smaller proportion of employment credits in relation to income before income taxes (49.4%), offset by a higher proportion of non-taxable gains as compared to non-deductible losses in fiscal 2022 on our investments in variable life insurance contracts used to support our non-qualified

deferred compensation plan (“Non-Qualified Plans”) in relation to income before income taxes (12.1%), a lower tax shortfall in fiscal 2023 related to equity compensation (4.0%) and a lower proportion of state taxes expense in relation to income before income taxes (3.5%).

(See Note 17 of Notes to Consolidated Financial Statements in Part IV, Item 15 of this report for further discussion of income taxes.)

Income Tax Provision/(Benefit)

In fiscal 2024, we had an income tax provision of $14.3 million, an effective tax rate of 8.3%, compared to an income tax benefit of $1.3 million, an effective tax rate of (1.3%) in fiscal 2023.

The increase was primarily due to leverage on higher income before taxes, predominantly related to employment credits, (11.3%) and a larger amount of non-deductible executive compensation (0.5%).

These factors were offset by a larger reduction to our reserve for uncertain tax positions (0.7%) and a higher amount of employment tax credits (1.5%).

(See Note 17 of Notes to Consolidated Financial Statement in Part IV, Item 15 of this report for further discussion of income taxes.)

Non-GAAP Measures

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

Adjusted net income, adjusted diluted net income per share and adjusted earnings before interest, tax, depreciation and amortization (“EBITDA”) are supplemental measures of our performance that are not required by or presented in accordance with GAAP.

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

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

Additionally, EBITDA and adjusted EBITDA exclude the impact of certain non-cash transactions.

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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Adjusted net income

Diluted net income

Diluted net income per common share

Impairment of assets and lease termination expenses

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Tax effect of adjustments (1)

Adjusted net income per share (2)

Adjusted diluted net income per common 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.

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

Fiscal 2024 Outlook

This discussion contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as codified in Section 27A of the Securities Act, and Section 21E of the Exchange Act and should be read in conjunction with our consolidated financial statements and related notes in Part IV, Item 15 of this report, the “Risk Factors” included in Part I, Item 1A of this report and the cautionary statements included throughout this report.

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.

Including the 2.5% February 2024 price increase, we will have 4.5% pricing in The Cheesecake Factory menu, and we will evaluate the level of pricing for the summer menu based on inflationary trends.

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 consistent with 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 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 first quarter of fiscal 2024 are expected to be between $875 million to $895 million, including the impact from the inclement weather quarter-to-date.

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 first quarter fiscal 2024 net income margin of approximately 3.5% at the mid-point of the estimated revenue range.

Following is a reconciliation from net income to EBITDA and adjusted EBITDA measures (in thousands):

Depreciation and amortization expenses

Interest expense, net

Income tax provision/(benefit)

Impairment of assets and lease termination expenses

Acquisition-related contingent consideration, compensation and amortization expenses

Stock-based compensation (1)

Adjusted EBITDA

(1) See Note 15 of Notes to Consolidated Financial Statement in Part IV, Item 15 of this report for further discussion of stock-based compensation.

Liquidity and Capital Resources

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

risks and uncertainties of conducting our business operations under various economic and industry cycles.

Typically, cash flows generated from operating activities are our principal source of liquidity, which we use to finance our restaurant expansion plans, ongoing maintenance of our restaurants and bakery facilities and investment in our corporate and information technology infrastructures.

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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 fiscal 2023, our cash and cash equivalents decreased by $58.5 million to $56.3 million.

During fiscal 2024, our cash and cash equivalents increased by $27.9 million to $84.2 million.

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

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Repayments on credit facility

Proceeds from exercise of stock options

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 $56.5 million from fiscal 2022 primarily due to higher net income, a higher payroll accrual due to the timing of payments and higher incentive compensation accrued in fiscal 2023 compared to 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 53rd week of fiscal 2022 year.

Cash flows from operations increased by $49.9 million from fiscal 2023 primarily due to higher net income and a decrease in prepaid expenses due to a higher balance in fiscal 2023 related to the timing of January rent payments, partially offset by lower impairment of assets and lease termination expenses, a payment of deferred consideration and compensation related to the FRC acquisition in excess of acquisition-date fair value and an increase in inventory levels.

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.

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Capital expenditures also included $53.0 million and $47.8 million for our existing restaurants and $8.4 million and $5.4 million for bakery and corporate capacity and infrastructure investments in fiscal 2024 and 2023, respectively.

We opened 16 restaurants in fiscal 2023 comprised of six The Cheesecake Factory, three North Italia, six Other FRC and one Flower Child location compared to 13 restaurants in fiscal 2022 comprised of three The Cheesecake Factory, four North Italia, three Other FRC and three Flower Child locations.

We expect to open as many as 22 new restaurants in fiscal 2024 across our portfolio of concepts, with approximately 75% of the openings occurring in the second half of fiscal 2024.

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.

We opened 23 restaurants in fiscal 2024 comprised of three The Cheesecake Factory, six North Italia, eight Other FRC and six Flower Child locations compared to 16 restaurants in fiscal 2023 comprised of six The Cheesecake Factory, three North Italia, six Other FRC and one Flower Child location.

We expect to open as many as 25 new restaurants in fiscal 2025 across our portfolio of concepts, with approximately half of the openings occurring in the first half of fiscal 2025.

We anticipate approximately $190 million to $210 million in capital expenditures to support this level of unit development, as well as required maintenance on our restaurants.

This estimate includes new restaurant construction expenses, some of which may be classified as operating lease assets instead of additions to property and equipment in the statement of cash flows.

Acquisition-Related Deferred Consideration and Compensation

During fiscal 2023 and 2022, we made payments of $11.3 million and $11.1 million, respectively, for deferred consideration related to the FRC acquisition.

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

During fiscal 2023, we made payments of $11.3 million for deferred consideration related to the FRC acquisition.

During fiscal 2023, we also made payments of $13.0 million for deferred consideration and contingent consideration and compensation related to the FRC acquisition.

During fiscal 2024, we made payments of $6.5 million for contingent 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.

At January 2, 2024, the conversion rate for the Notes was 13.4936 shares of common stock per $1,000 principal amount of the Notes, which represents a conversion price of approximately $74.11 per share of common stock.

At December 31, 2024, the conversion rate for the Notes was 13.8741 shares of common stock per $1,000 principal amount of the Notes, which represents a conversion price of approximately $72.08 per share of common stock.

In connection with the cash dividend that was declared by our Board on February 13, 2025, on March 5, 2025 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.

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Certain of our material subsidiaries have guaranteed our obligations under the Revolver Facility.

On October 6, 2022, we repaid the outstanding balance under the prior credit facility and borrowed the same amount on the Revolver Facility.

In November 2023, we borrowed $15.0 million on the Revolver Facility and repaid it in December 2023.

As of January 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.

In the fourth quarter of fiscal 2023, we borrowed and then repaid $15.0 million on the Revolver Facility.

In the fourth quarter of fiscal 2024, we repaid $20.0 million on the Revolver Facility.

As of December 31, 2024, we had net availability for borrowings of $256.5 million, based on a $110.0 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.

At January 2, 2024, we were in compliance with all covenants in effect at that date.

At December 31, 2024, we were in compliance with all covenants in effect at that date.

(See Note 10 of Notes to Consolidated Financial Statements in Part IV, Item 15 of this report for further discussion of our long-term debt.)

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Common stock dividends of $53.0 million and $53.2 million were paid in fiscal 2024 and 2023, respectively.

The 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 Loan Agreement.

As further discussed in Note 19 of Notes to Consolidated Financial Statements in Part IV, Item 15 of this report, in February 2025, our Board declared a quarterly dividend to be paid in March 2025.

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On October 26, 2022, our Board increased the authorization to repurchase our common stock by 5.0 million shares to 61.0 million shares.

Under this authorization, we have cumulatively repurchased 56.5 million shares at a total cost of $1,811.7 million, excluding excise tax through January 2, 2024.

We repurchased 1.4 million shares at a cost of $46.1 million, excluding excise tax during fiscal 2023 compared to 2.0 million shares at a cost of $63.1 million fiscal 2022.

This increase is primarily due to the resumption of our share repurchase program 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 Loan Agreement.

Under this authorization, we have cumulatively repurchased 57.1 million shares at a total cost of $1,829.7 million, excluding excise tax through December 31, 2024.

We repurchased 0.5 million shares at a cost of $18.0 million, excluding excise tax, during fiscal 2024 compared to 1.4 million shares at a cost of $46.1 million, excluding excise tax, during fiscal 2023.

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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Contractual Obligations and Commercial Commitments

The following table summarizes our undiscounted contractual obligations and commercial commitments as of January 2, 2024 (amounts in millions):

The following table summarizes our undiscounted contractual obligations and commercial commitments as of December 31, 2024 (amounts in millions):

Payment Due by Period

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Also includes the commitments associated with the third bakery production facility.

The FRC acquisition agreement also included a contingent consideration provision which is payable annually from 2022 through 2027 and is based on achievement of revenue and profitability targets for the FRC brands other than North Italia and Flower Child with considerations made in the event we undergo a change in control or divest any FRC brand (other than North Italia and Flower Child) during the five years after closing.

The liability for this contingent consideration provision was $25.5 million at January 2, 2024.

The liability for this contingent consideration provision was $20.2 million at December 31, 2024.

See Note 2 in Notes to Consolidated Financial Statements in Part IV, Item 15 of this report for discussion of the fair value measurement for this liability.

We are also required to provide financing to FRC in an amount sufficient to support achievement of these targets during the five years after closing.

Cash Flow Outlook

We believe that our cash and cash equivalents, combined with expected cash flows provided by operations and available borrowings under the Revolver Facility, will provide us with adequate liquidity for the next 12 months and the foreseeable future.

As of January 2, 2024, we had no financing transactions, arrangements or other relationships with any unconsolidated entities or related parties.

As of December 31, 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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The FRC acquisition agreement included a contingent consideration provision, a portion of which was considered part of the acquisition consideration and the remainder of which was considered future compensation expense.

This contingent consideration and compensation is payable annually from 2022 through 2027 and is based on achievement of revenue and profitability targets for the FRC brands other than North Italia and Flower Child.

This contingent consideration and

compensation is payable annually from 2022 through 2027 and is based on achievement of revenue and profitability targets for the FRC brands other than North Italia and Flower Child.

The fair value of the contingent consideration and compensation liability is determined utilizing a Monte Carlo model based on estimated future revenues, margins, volatility factors and discount rates, among other variables and estimates and has no minimum or maximum payment.

The undiscounted range of outcomes per the Monte Carlo model was $2.6 million to $235.4 million at January 2, 2024 and $0 to $276.0 million at January 3, 2023.

During fiscal 2023, the fair value of the contingent consideration and compensation liability decreased by $3.1 million to $25.5 million due to a payment of $13.0 million per the FRC acquisition agreement, partially offset by $9.9 million increase in the fair value primarily stemming from a change in the volatility factors, as well as an increase in fiscal 2023 revenues and estimated future revenues utilized in the calculation, and amortization.

The undiscounted range of outcomes per the Monte Carlo model was $0 to $142.4 million at December 31, 2024 and $2.6 million to $235.4 million at January 2, 2024.

During fiscal 2024, the fair value of the contingent consideration and compensation liability decreased by $5.3 million to $20.2 million due to a payment of $6.5 million per the FRC acquisition agreement and a $1.9 million decrease in the fair value primarily stemming from a change in the volatility factors, as well as a decrease in fiscal 2025 revenues and estimated future revenues utilized in the calculation, partially offset by $3.1 million of amortization.

The fair value of the contingent consideration and compensation liability is highly subjective, and results could change materially if different estimates and assumptions were used.

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We did not record any impairment charges related to indefinite-lived intangible assets in fiscal 2024, 2023 or 2022.

(See Note 1 in Notes to Consolidated Financial Statements in Part IV, Item 15 of this report for further discussion of these impairments.)

(See Note 1 in Notes to Consolidated Financial Statements in Part IV, Item 15 of this report for further discussion of impairment testing.)

Long-Lived Assets

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These estimates are subjective and our ability to realize future cash flows and asset fair values is affected by factors such as changes in economic conditions and operating performance.

In fiscal 2023, we recorded $29.5 million of expense primarily related to the impairment of three The Cheesecake Factory (one previously impaired), one North Italia (previously impaired), one Other FRC and two Other restaurant lease terminations.

In fiscal 2022, we recorded $31.4 million of expense primarily related to the impairment of three The Cheesecake Factory, one Other FRC and three Other restaurants.

In fiscal 2021, we recorded $16.3 million of expense primarily related to the impairment of long-lived assets for three The Cheesecake Factory and two Other restaurants.

In fiscal 2024, we recorded impairment of assets and lease termination expenses of $13.6 million primarily related to impairment of long-lived assets for one The Cheesecake Factory (previously partially impaired) and six Other FRC locations (one previously partially impaired) and lease termination income, net for four The Cheesecake Factory restaurants, one Grand Lux Cafe location, one Flower Child location, one Social Monk location and one Other FRC location (that closed in early fiscal 2025).

In fiscal 2022, we recorded $31.4 million of expense primarily related to the impairment of three The Cheesecake Factory, one Other FRC and three Grand Lux Cafe locations.

(See Note 1 in Notes to Consolidated Financial Statements in Part IV, Item 15 of this report for further discussion related to long-lived asset impairment.)

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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-K

Item 7. Management’s Discussion and Analysis