Earnings call transcript: Cheesecake Factory beats Q2 2025 earnings forecast

The Cheesecake Factory (CAKE) reported its second-quarter earnings for 2025, surpassing analyst expectations with an earnings per share (EPS) of $1.16, compared to the forecasted $1.06. The company’s revenue also exceeded predictions at $956 million, slightly above the anticipated $947 million. According to InvestingPro data, seven analysts have recently revised their earnings estimates upward for the upcoming period, suggesting continued momentum. Despite these positive results, the stock saw a 4.17% decline, closing at $65.89, before experiencing a slight uptick in after-hours trading.

Key Takeaways

• Cheesecake Factory’s Q2 2025 EPS surpassed expectations by 9.43%.
• Revenue reached $956 million, exceeding forecasts and marking a 1.2% increase in comparable sales.
• Stock price declined by 4.17% post-earnings announcement.
• Company plans to open 25 new restaurants in 2025.

Company Performance

The Cheesecake Factory demonstrated solid performance in the second quarter, with total revenues reaching $956 million, marking a slight increase over the previous year. The company reported a 1.2% rise in comparable sales, driven by strong consumer demand for experiential dining and high-quality food offerings. The Cheesecake Factory’s restaurant sales alone contributed $683.3 million, reflecting a 1% year-over-year growth.

Financial Highlights

• Revenue: $956 million, exceeding forecasts of $947 million.
• Earnings per share: $1.16, above the forecast of $1.06.
• Adjusted net income margin: 5.8%.
• Four-wall restaurant margin: 18.5%, the highest in eight years.

Earnings vs. Forecast

The Cheesecake Factory outperformed analyst expectations with an EPS of $1.16, representing a 9.43% surprise. Revenue also surpassed predictions, with a slight beat of 0.93%. This performance highlights the company’s robust operational strategies and consumer appeal.

Market Reaction

Despite the earnings beat, The Cheesecake Factory’s stock fell by 4.17% to $65.89 at the close of the trading day. However, in after-hours trading, the stock showed a modest recovery, rising by 0.53% to $66.24. This movement suggests a mixed investor sentiment, possibly influenced by broader market conditions or expectations for future performance. InvestingPro analysis indicates the stock may be trading above its Fair Value, though it maintains a favorable PEG ratio of 0.44, suggesting reasonable pricing relative to growth. For deeper insights into CAKE’s valuation and 12+ exclusive ProTips, subscribers can access the comprehensive Pro Research Report.

Outlook & Guidance

Looking forward, The Cheesecake Factory anticipates opening 25 new restaurants in 2025, contributing to a projected total revenue of approximately $3.76 billion for the year. The company expects a full-year adjusted net income margin of 4.9%, with anticipated inflation remaining in the low to mid-single digits.

Executive Commentary

David Gordon, President of The Cheesecake Factory, emphasized the company’s leadership in experiential dining, stating, "We continue to be leaders in experiential dining." CEO David Overton added, "Our results clearly demonstrate the strength of our platform," highlighting the company’s strong performance and market position.

Risks and Challenges

• Potential supply chain disruptions could impact product availability.
• Rising inflation may pressure profit margins.
• Increased competition in the casual dining sector could affect market share.
• Economic downturns may reduce consumer spending on dining out.
• Regulatory changes could impact operational costs.

Q&A

During the earnings call, analysts inquired about the company’s menu pricing strategy, which is set to reduce to around 3.5%. Questions also focused on the personalization of the rewards program and the growth potential of the Flower Child brand. Additionally, the dynamics of convertible notes conversion were addressed, providing insights into financial strategies.

Full transcript - The Cheesecake Factory (CAKE) Q2 2025:

Tiffany, Conference Operator: Hello, and thank you for standing by. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to The Cheesecake Factory, Inc. Q2 twenty twenty five Earnings Conference Call. All lines have been placed on mute to prevent any background noise.

After the speakers’ remarks, there will be a question and answer session. I would now like to turn the call over to Etienne Marcus, Vice President of Finance and Investor Relations. Sir, please go ahead.

Etienne Marcus, Vice President of Finance and Investor Relations, Cheesecake Factory: Good afternoon, and welcome to our second quarter fiscal twenty twenty five earnings call. On the call with me today are David Overton, our Chairman and Chief Executive Officer David Gordon, our President and Matt Clark, our Executive Vice President and Chief Financial Officer. Before we begin, let me quickly remind you that during this call, items will be discussed that are not based on historical facts and are considered forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results could be materially different from those stated or implied in forward looking statements as a result of the factors detailed in today’s press release, which is available on our website at investors.thecheesecakefactory.com and in our filings with the Securities and Exchange Commission. All forward looking statements made on this call speak only as of today’s date, and the company undertakes no duty to update any forward looking statements.

In addition, during this conference call, we will be presenting results on an adjusted basis, which exclude acquisition related items and impairment of assets and lease termination expenses. Explanations of our use of non GAAP financial measures reconciliations to the most directly comparable GAAP measures appear in our press release on our website as previously described. David Overton will begin today’s call with some opening remarks and David Gordon will provide an operational update. Matt will then review our second quarter financial results and provide commentary on our financial outlook before opening the call up to questions. With that, I’ll turn the call over to David Overton.

David Overton, Chairman and Chief Executive Officer, Cheesecake Factory: Thank you, Etienne. Our second quarter results exceeded expectations with consolidated revenues and adjusted earnings per share setting new milestones for the company. These solid financial results are fueled by operational excellence and sustained demand across our differentiated high quality concepts. Second quarter comparable sales at The Cheesecake Factory restaurants increased 1.2%, driving record high average weekly sales and further elevating our industry leading annualized unit volumes to nearly $12,800,000 for the quarter. Strategic innovation in our menu has always been a key pillar of our success.

Reflecting that ongoing focus, we are now introducing our latest menu, which features 14 new dishes across two innovative categories. And tomorrow, in celebration for National Cheesecake Day, we are launching our newest cheesecake, Peach Perfect with Raspberry Dribble. We believe our continued focus on culinary innovation keeps our menu highly relevant without relying on discounting and combined with the strength of our best in class operators positions us to stand out in a competitive landscape. Thanks to the outstanding execution of our operators, we delivered strong flow through and meaningful improvement in profitability. In fact, Cheesecake Factory’s four wall restaurant margin increased to 18.5%, up 80 basis points year over year and the highest level recorded in eight years.

Turning to development, we successfully opened eight restaurants in the second quarter, including two Cheesecake Factory restaurants, one North Italia, three Flower Child and two FRC restaurants. Subsequent to quarter end, we opened one FRC restaurant and one International Cheesecake Factory restaurant in Mexico under a licensing agreement. We are pleased with the progress we’ve made on new unit growth so far this year and continue to expect to open as many as 25 new restaurants in twenty twenty five. Additionally, we anticipate two Cheesecake Factory restaurants to open internationally under a licensing agreement. As we look ahead, the strong demand for our distinct dining experiences reaffirms our confidence in the long term trajectory of our portfolio.

Our results clearly demonstrate the strength of our platform and the effectiveness of our strategy to deliver sustainable growth and value. With that, I will now turn the call over to David Gordon to provide an operational update.

David Gordon, President, Cheesecake Factory: Thank you, David. Our performance this quarter reflects the operational strength and disciplined execution of our teams who continue to manage their restaurants with precision and excellence. Notably, both hourly and management retention increased year over year, improvements in labor productivity, food efficiencies and wage management. As we’ve noted previously, our success in staffing continues to be a key driver behind the improvement in guest satisfaction scores. Ultimately, it’s our team members who make it all possible, bringing our vision to life and delivering exceptional dining experiences every day.

To this point, our internal Net Promoter Score metrics improved across nearly all key areas this quarter, including in both dining and off premise channels with notable gains in pace of experience, staff service and food quality. Record Cheesecake Factory average weekly sales in the second quarter were supported by off premise sales of 21%, consistent with the average of the prior four quarters. And our newest Cheesecake Factory restaurant in Naperville, a suburb of Chicago, opened to remarkable demand, underscoring the strong affinity for the brand and the enduring value of our distinctive dining experience. As David mentioned, strategic menu innovation remains core to our success and we’re bringing that to life with the launch of two new menu categories, bowls and bites. Our new bowl selection includes six thoughtfully crafted options such as the teriyaki salmon bowl, orange cauliflower bowl, and the Peruvian chicken bowl.

We also introduced a lineup of eight new bites, smaller plates offered at an attractive price point. These are designed to drive interest and offer new ways to enjoy the menu with items like New Orleans Cajun shrimp, chicken and biscuits and meatball sliders. These new offerings reinforce the relevance of our menu and the strength of our innovation strategy. And together with our best in class operational execution, they drive sales and traffic and reinforce our leadership in experiential dining. Moving to Cheesecake Rewards.

The program continues to perform well with strong member growth and high satisfaction. As we evolve the program, we’ve shifted from large scale testing to a more targeted data driven strategy, delivering personalized offers aligned with member behavior and preferences. This refined approach has driven meaningfully higher engagement and deeper loyalty. Turning to North Italia. Second quarter annualized AUVs increased 2% reaching $8,000,000 Comparable sales declined 1% reflecting some continued impact from the Los Angeles Spires weighing more heavily on performance due to the concept’s smaller comp base relative to The Cheesecake Factory as well as some sales transfer impact from new restaurants.

We also successfully opened a new North Italia in Boise, Idaho during the quarter, marking our entry into another market. Early performance exceeded expectations with average weekly sales trending approximately 40% above the Q2 system average, reaffirming strong consumer demand for the concept. Restaurant level profit margin for the adjusted mature North Italia locations improved two ninety basis points from the prior year to 18.2%. The margin expansion was primarily driven by operational improvements as well as more favorable commodity and labor inflation. Flower Child continues on a strong upward trajectory with second quarter comparable sales increasing 4%, significantly outperforming the Black Box fast casual dining index, which was essentially flat for the quarter.

The improvement resulted in average weekly sales of $91,400 for an annualized AUV of over $4,800,000 a new milestone for the concept. We also opened three new Flower Child locations during the quarter, including two in new markets. Collectively, these restaurants averaged nearly $82,900 in weekly sales, translating to a solid AUV of approximately $4,300,000 annualized. Operational enhancements continue to support strong performance with restaurant level profit margin for adjusted mature Flower Child locations reaching 20.4% in the second quarter. Our strong portfolio performance fueled by sustained sales momentum, operational excellence and margin expansion positions us well to deliver on our long term growth ambitions.

And with that, let me turn the call over to Matt for our financial review.

Matt Clark, Executive Vice President and Chief Financial Officer, Cheesecake Factory: Thank you, David. Let me first provide a high level recap of our second quarter results versus our expectations I outlined last quarter. Total revenues of $956,000,000 and adjusted net income margin of 5.8% both exceeded the high end of the guidance ranges we provided. Now turning to some more specific details around the quarter. Second quarter total sales at The Cheesecake Factory restaurants were $683,300,000 up one percent from the prior year.

Comparable sales increased 1.2% versus the prior year. Total sales for North Italia were $90,800,000 up 20% from the prior year period. Other FRC sales totaled $90,200,000 up 22% from the prior year and sales per operating week were $136,800 Flower Child sales totaled $48,200,000 up 35% from the prior year and sales per operating week were $91,400 and external bakery sales were $12,900,000 Now moving to year over year expense variance commentary. In the second quarter, we continued to realize some year over year improvement across several key line items in the P and L. Specifically, cost of sales decreased 70 basis points, primarily driven by favorable commodity costs.

Labor as a percent of sales declined 20 basis points, primarily driven by the continued improvement in retention, supporting labor productivity gains and wage leverage, partially offset by higher group medical costs. Other operating expenses increased 40 basis points, primarily driven by higher facility related costs. G and A increased 10 basis points from the prior year. Depreciation remained relatively flat as a percent of sales. Pre opening costs were $9,000,000 in the quarter compared to $7,000,000 in the prior year period.

We opened eight restaurants during the second quarter versus five restaurants in the 2024. And in the second quarter, we recorded a pre tax net expense of $1,200,000 related to FRC acquisition related items and impairment of assets and lease termination expenses. Second quarter GAAP diluted net income per share was 1.14 Adjusted diluted net income per share was $1.16 Now turning to our balance sheet and capital allocation. The company ended the quarter with total available liquidity of approximately 5 and $15,300,000 including a cash balance of $148,800,000 and approximately $366,500,000 available on a revolving credit facility. Total principal amount of debt outstanding was $644,000,000 including $69,000,000 in principal amount of convertible notes due twenty twenty six and five seventy five million dollars in principal amount of convertible notes due 02/1930.

CapEx totaled approximately $42,000,000 during the second quarter for new unit development and maintenance. During the quarter, we completed approximately $100,000 in share repurchases and returned $14,300,000 to shareholders via our dividend. Now let me turn to our outlook. While we will not be providing specific comparable sales and earnings guidance, we will provide our updated thoughts on our underlying assumptions for Q3 and full year 2025. Our assumptions factor in everything we know as of today, including net restaurant counts, quarter to date trends, our expectations for the weeks ahead and anticipated impacts associated with holiday shifts.

Specifically for Q3, we anticipate total revenues to be between $9.00 $5,000,000 and $915,000,000 Next, at this time, we expect effective commodity inflation of low single digits for Q3. We are modeling net total labor inflation of low to mid single digits when factoring in the latest trends in wage rates and minimum wage increases as well as other components of labor. G and A is estimated to be about $61,000,000 Depreciation is estimated to be approximately $28,000,000 We are estimating pre opening expenses to be approximately $7,000,000 to $8,000,000 to support the two planned openings in the quarter and early Q4 openings. Based on these assumptions, we would anticipate adjusted net income margin to be about 3.25% at the midpoint of the sales range provided. For modeling purposes, we are assuming a tax rate of approximately 10% and weighted average shares outstanding of $48,500,000 Now for the full year, based on similar assumptions and no material operating or consumer disruptions, we anticipate total revenues for fiscal twenty twenty five to be approximately $3,760,000,000 at the midpoint of our estimates.

We currently estimate total inflation across our commodity basket, labor and other operating expenses to be in the low to mid single digit range, inclusive of the currently proposed tariff levels. We are estimating G and A to be about flat year over year as a percent of sales and depreciation to be about $109,000,000 for the year. And given our unit growth expectations, we are estimating pre opening expenses to be approximately $34,000,000 Based on these assumptions, we now expect full year adjusted net income margin to be approximately 4.9% of the sales estimate provided. For modeling purposes, we are assuming an 11.5% tax rate and a weighted average share count approximately 50 basis points lower than twenty twenty four. To help with modeling, this implies a Q4 tax rate of 11% to 12% and WESO of $49,000,000 With regard to development, as David stated earlier, we expect to open as many as 25 new restaurants in 2025.

This includes as many as four Cheesecake Factories, six North Italia’s, six Flower Childs and nine FRC restaurants. And we would anticipate approximately $190,000,000 to $200,000,000 in cash CapEx to support unit development as well as required maintenance on our restaurants. In closing, we delivered another quarter of strong financial and operational performance with record revenue, continued margin expansion and earnings growth. Our restaurant teams continue to execute at a high level and our differentiated experiential concepts remain well positioned to consistently deliver the delicious, memorable dining experiences our guests expect. As always, we remain focused on making steady progress toward our long term value creation priorities, growing comparable restaurant sales, expanding operating margins and accelerating accretive unit development.

With a stable foundation, a resilient business model and a clear strategic focus, we believe we are well positioned to continue generating consistent results and driving meaningful long term shareholder value. With that said, we’ll take your questions.

Tiffany, Conference Operator: Your first question comes from the line of Brian Bittner with Oppenheimer. Please go ahead.

Brian Bittner, Analyst, Oppenheimer: Thank you. Good afternoon. As it relates to the increase in the net income margin for 2025 from 04/1975 to 04/2009, is this primarily operationally driven at

David Gordon, President, Cheesecake Factory: the store level? Do you basically do you have

Brian Bittner, Analyst, Oppenheimer: a different assumption for the four wall margin expansion in 2025 versus I think 15 to 25 basis points of increase is what you had previously assumed?

Matt Clark, Executive Vice President and Chief Financial Officer, Cheesecake Factory: Hey, Ryan, it’s Matt. Thanks for the question. That’s true. I think the four wall our expectations now are that it will be better than we originally expected. I mean clearly demonstrated by our Q2 results being above our expectations.

And so I think we are committed to continuing to take it one quarter at a time, but our outlook has definitely increased based on operational excellence and overall sales trends.

Brian Bittner, Analyst, Oppenheimer: Thanks for that. And just lastly, as it relates to the third quarter, the revenue outlook you provided, there’s a lot of moving pieces within the model these days. Does it basically assume a base case for Cheesecake Factory same store sales that’s relatively similar to the second quarter?

Matt Clark, Executive Vice President and Chief Financial Officer, Cheesecake Factory: At the high end. That’s right. So I would say we really didn’t we’ve seen very, very stable sales. And so we continue to have that stable outlook. But I still think there’s no reason to get out ahead of our skis and try to forecast something greater until we see it happen.

Brian Bittner, Analyst, Oppenheimer: Great. Thank you.

Tiffany, Conference Operator: Your next question comes from Drew North with Baird. Please go ahead.

Drew North, Analyst, Baird: Thanks. I wanted to follow-up on the topic of labor. And my question is focused on labor retention, which has continued to be a good topic and positive for your business and the broader industry. But I was wondering if you could provide some perspective on where retention levels or turnover levels are maybe relative to pre pandemic or prior peaks to help us understand how much further improvement could be made or I guess higher level how you’re thinking about opportunity to continue to leverage labor across in the back half of the year here?

David Gordon, President, Cheesecake Factory: Sure. Hi, Drew. This is David Gordon. We continue to be very pleased with our progress around staff and management retention. Our staff level retention today is as good as it’s been historically in the company.

So even exceeding pre pandemic levels and the same thing, for management retention and best in class across the industry. And we continue to believe that’s because of the culture, the enduring culture of Cheesecake Factory and how we care for our staff and managers, the opportunities for them to continue to promote within the concept, whether that’s to be more productive as an hourly staff member and learn new stations, which improves productivity in the long run for us over time. We think we’ll continue to see the benefits of this ongoing retention, whether that’s in lower overtime, lower training cost. We don’t see why that’s going to change in the near term based on the current environment. Certainly, if things change in the macro environment that we don’t have control of, we’ll see what happens.

And on the management side, I think we continue to offer terrific career opportunities for people, for them to progress their career, to work in a company that has really leading unit growth today and giving them lots of opportunities to grow in each level of management to go as high as they potentially want to go. We continue to be an employer of choice on the selection side because of the stability of the restaurants, the stability of the sales. Hourly staff members know they’re going to get their hours. The tip staff members know they’re going to get good consistent tips that we have best in class benefits. So our challenge to the operators is to keep this up and to ensure that we make it through the second half of the year, maintaining the type of retention that we’ve seen thus far.

Drew North, Analyst, Baird: Thank you. That’s very helpful. And then one on the comp if I could. On Cheesecake Factory, can you share the Q2 breakdown related to price and mix and the implied traffic, I guess? And then how we should think about the cadence of pricing as we think about the second half?

Matt Clark, Executive Vice President and Chief Financial Officer, Cheesecake Factory: Sure, Bert. Drew, this is Matt. The net effective pricing in Q2 is about 4% for Cheesecake. Traffic was a negative 1.1% and then mix was the balance. And effectively that’s what’s encompassed in the guidance for the back half.

We do anticipate with the value that we’re putting on the menu that we might continue to see that level of mix continue, but we’re really focused on getting that traffic back to the positive side of the ledger. So very, very stable sales throughout the quarter and predictable. And I think that’s helped our operators deliver on the margins. And so that’s what we’re forecasting at the back half right now.

Drew North, Analyst, Baird: Thank you. I’ll pass it on.

Tiffany, Conference Operator: Your next question comes from Jeff Farmer with Gordon Haskett. Please go ahead.

Jeff Farmer, Analyst, Gordon Haskett: Thanks. You guys touched on it, but with that February menu update, did shine a brighter marketing light on the new menu items. So I guess the question would be, did you guys see a customer response to that in terms of just in terms of the the innovation aspect of of the new new menu?

David Gordon, President, Cheesecake Factory: Hey, Jeff. This is David again. Well, certainly, our approach with this next menu is very similar to the last menu change. We are taking all the new menu items and putting them on a separate card to ensure that guests see them and they don’t get lost in the menu early on in their life. We feel good about the stickiness of the menu items that we put on at the previous menu change that you mentioned in February.

And as Matt touched on, we think that this new menu, from a price point value perspective and also from flavor profile perspective, should be as successful, if not more successful than the rollout that we had in February.

Jeff Farmer, Analyst, Gordon Haskett: Okay. And then just as a follow-up to that, as it relates to sort of some of the lower price point menu items you put out there, do you think two things, that the consumer is aware of the lower prices or the lower price points? And are they responding to those lower price points?

David Gordon, President, Cheesecake Factory: Sure. Well, certainly, again, the fact that they’re outside of the menu, if you’re a guest that’s already coming into the restaurant, you’re going see that lower price point right away. And we can see in the order rates from the previous new menu that guests are responding to that. And as Matt touched on the mix, we’re anticipating that there’ll be some impact to the mix that we’re planning on. So we do think that it will continue to resonate, and it’s the right strategy.

And if people want to come in and add a bite to their meal, right, just like they did when we rolled out small plates and snacks, right? We had guests who were actually introduced to a new category. And instead of even cannibalizing from previous sales, they were just adding something that perhaps they weren’t planning on ordering. And we think this will happen with the bites perhaps as well. And somebody will add something like chicken and biscuits along with an appetizer and an entree, whereas before perhaps they were just gonna get an appetizer and an entree.

So it’ll be interesting to study here in in the next few months.

Etienne Marcus, Vice President of Finance and Investor Relations, Cheesecake Factory: Okay. Thank you.

Tiffany, Conference Operator: Your next question comes from Sarah Senatore with Bank of America. Please go ahead.

Sarah Senatore, Analyst, Bank of America: Oh, thank you. A quick follow-up and then a question on Flower Child. So just on the follow-up, I just wanted to make sure I understood. I know at the beginning of or the end of when you reported last quarter, you would say you did some caution just given the operating environment. And it sort of seems like that didn’t materialize.

I just want to make sure, is that the right read that the operating environment perhaps is a little bit healthier than you might have initially thought given some of the headlines. So that’s the clarification. And then on Flower Child, is there any kind of color you can give on profitability or unit economics? That certainly seems to be a very successful concept. The comps are very strong and I think you’re adding units at a nice clip.

So as you think about kind of the return profile of the company as a whole, anything you can say about how that might shift it in one direction or another?

Matt Clark, Executive Vice President and Chief Financial Officer, Cheesecake Factory: Sure. Sarah, this is Matt. Just to start with on the environment. I mean, I think certainly for Cheesecake Factory, Flower Child, all of our concepts, the environment has been very, very steady for us. I don’t know that it’s better or they’re certainly not true for everybody, but I feel like we’re weathering this environment in a very strong way.

And I think that’s a testament to our execution and as well as the brands that we have. So I think it’s prudent just to continue to take a little bit of a cautious approach, but we feel really good about where we’re sitting today. With regards to Flower Child and sort of the unit economics, David Gordon mentioned in the prepared remarks, we’re seeing exceptional performance. Mature unit margins cresting over 20% at 20.4% is a high mark for our company at the moment. And the AUVs getting up to in the quarter of 4.8%.

So we’re looking down at $5,000,000 up there maybe in the near term future. So certainly the returns that we’re getting today are in the mid-30s and we feel really positive about that and look forward to continuing to grow the concept and it seems to be working everywhere that we’ve been opening.

Sarah Senatore, Analyst, Bank of America: Okay. I apologize. I missed the prepared remarks on that. But just as you think about it as potentially a driver, do you see like an inflection point in terms of it as moving the needle on your results just because you haven’t broken out yet and yet it seems very, very attractive?

Matt Clark, Executive Vice President and Chief Financial Officer, Cheesecake Factory: Yes. It’s a little small from an accounting perspective in terms of segment reporting for sure. But our intention when we started this journey about six months ago was to continue to provide a little bit more information every quarter. So we’re continuing to add data to the ability for people to see the progress. And certainly we would continue to expect to provide even more information.

And certainly the performance has inflected over the past eighteen months with all of the work that the team has done whether it’s with the KDS system or the operational dashboards or the catering, right, has all come to fruition and really it is on a very strong trajectory. And I would suspect that it will play a bigger and bigger role as we go forward.

Sarah Senatore, Analyst, Bank of America: Thank you.

Tiffany, Conference Operator: Your next question comes from Jim Salera with Stephens. Please go ahead.

Jim Salera, Analyst, Stephens: Hey guys, good afternoon. Thanks for taking our question. Wanted to ask a couple on North Italia if I could. First, just some housekeeping, if you could give us the comp write down there, price, volume and mix for North Italia for the quarter. And then if I recall correctly, in 1Q, there were some headwinds from the fires in L.

A. And some regional weather. And so I believe the comp was similar, if not maybe down or up a little bit. But just any comments on kind of what’s continuing to contribute to softness there for North?

Etienne Marcus, Vice President of Finance and Investor Relations, Cheesecake Factory: Hey, Jim. This is Etienne. I’ll just give you the breakdown here. So price was 4% in the second quarter. Mix was negative 1%.

Traffic was negative 4%.

Matt Clark, Executive Vice President and Chief Financial Officer, Cheesecake Factory: So let me just give some extra color there Jim because I think it’s important for everybody to understand the performance at North is actually very, very strong. If you look at the AUVs of $8,000,000 actually outpacing the comps that’s because the new units are coming on that much stronger. And we delivered 18.2 on the mature margins, right? And so the higher sales and the higher margins are making for great returns. But what we are seeing is there is a little bit of sales transfer in some markets.

And that’s really what’s weighing on it. So if you take Charlotte as a good example and it talks to our ability to penetrate markets at the pace that we expected. So we have two Cheesecake factories in Charlotte. They’re doing 25,000,026 million dollars right near the system average. We just opened our third north in that market.

And this first full quarter was Q2 and it did on an annualized basis $10,000,000 right? And so as the third one there in total the three of them are averaging around $8,000,000 and the mature margins there are in the low 20%. And so they’re great investments, but when you open up that strong, you’re just moving a little bit of sales from one existing to another. And that’s really the major drive towards the comp there. If we net that out, it’s performing pretty much in line with Cheesecake Factory.

Like when we net out the sales transfers, it’s probably a 1% comp with a negative 1% traffic. And so we’re actually really, really pleased. They’re just opening faster and bigger than we expected.

Jim Salera, Analyst, Stephens: Got it. That’s super helpful. And maybe if I can just have one quick follow-up there. Just any color that you guys have on North in terms of trends by income bracket? If there’s anything that you’ve noticed in some locations with lower end consumer to the extent that like an aspirational consumer would go to North as kind of an elevated experience?

Matt Clark, Executive Vice President and Chief Financial Officer, Cheesecake Factory: Yes. I mean, think it’s similar to Cheesecake Factory, but maybe just a little more narrow. It’s probably slightly higher income on average, but certainly aspirational guests can still go to North and use the menu however they see fit, right? I mean, they can get pizza and pasta and salads all in the low 20s. And so I think that there’s opportunity there.

And every market that we’re going into now, we’re seeing really strong demand. We noted the opening in Boise being 40% above the system average, right? And so that’s telling us that guests of all walks of life of all income brackets of all demographics are going to north. You don’t open up doing $10,000,000 and 6,500 square feet if that’s not the case.

Jim Salera, Analyst, Stephens: Great. I appreciate all the color.

Etienne Marcus, Vice President of Finance and Investor Relations, Cheesecake Factory: I’ll hop back in the queue.

Tiffany, Conference Operator: Your next question comes from Brian Vaccaro with Raymond James. I

Etienne Marcus, Vice President of Finance and Investor Relations, Cheesecake Factory0: wanted to ask about menu pricing at Cheesecake Factory. I think you’ve been running, you said, around 4%, maybe the low 4s. Margins have obviously exceeded your expectations, and it still seems to be a pretty intense value environment just broadly thinking about the consumer. So I guess, how does that feed into your current thinking on your fall menu rollout? And and I guess why not let year on year pricing roll off a bit given these tailwinds that you’re seeing?

Matt Clark, Executive Vice President and Chief Financial Officer, Cheesecake Factory: Yeah. Brian, this is Matt. So so in fact, it will. We are we are taking less pricing going into the back half of the year. But also we’re introducing some items that have some inherently lower prices.

So the effective pricing that we’re taking is actually going down quite a bit more. And David Gordon mentioned the bowls and the bites. The bites are predominantly items that are under $10 and the bowls are in the $15 to $16 range with Cheesecake Factory portions. So when we look at what we’re doing from a value perspective on a really on an effective pricing, I think it’s going to be well below where the industry is at and we’re driving significant value for the consumer.

Etienne Marcus, Vice President of Finance and Investor Relations, Cheesecake Factory0: Okay. Sorry, might have misunderstood a previous comment on the pricing. But what type of year on your pricing at Cheesecake would be reasonable for the second half?

Matt Clark, Executive Vice President and Chief Financial Officer, Cheesecake Factory: 3.5 probably on a headline basis. But again, I would just reiterate that with the new menu items, there’s probably another 100 basis points of negative mix inherently built into that. So right, so the real pricing is probably going to be more like two to 2.5% in terms of what the consumer feels.

Etienne Marcus, Vice President of Finance and Investor Relations, Cheesecake Factory0: Okay. That is, that’s super helpful. I wanted to ask about margins as well and and maybe dial in on on the North Italia margins. Certainly encouraging improvement. I think you your your segment margin was nearly 15% if I did the rough math, quickly.

I guess, can you just elaborate a little bit on what drove that improvement in a in a slightly negative comp environment? And I I saw the other OpEx line in particular, maybe a hundred, hundred and thirty basis points year on year. Maybe just some some broader comments on on those margin dynamics you’re seeing at North.

Matt Clark, Executive Vice President and Chief Financial Officer, Cheesecake Factory: Sure, Brian. This is Matt. I I think generally, it’s the stability of the business and operational execution. We did, if you remember, kind of catch up on pricing equivalently to Cheesecake at the end of last year. So some of that is flowing through at this point in time.

But we’ve also seen some of the favorable commodities that we’ve had for the entire company. And really if you think about the total sales, I mean $8,000,000 AUV, we’re leveraging those sales driving profitability in the four walls. So we’re super encouraged by that as well. The teams continue to stay intently focused on driving the sales because we know we can deliver the profitability when we get the sales.

Etienne Marcus, Vice President of Finance and Investor Relations, Cheesecake Factory0: Great. And then just last quick clarification on North Italia comps. You mentioned the negative impact on the LA unit. Is it possible to quantify that and kind of what it would what the comp would have been ex the LA?

Matt Clark, Executive Vice President and Chief Financial Officer, Cheesecake Factory: It would have been flat without LA.

Etienne Marcus, Vice President of Finance and Investor Relations, Cheesecake Factory1: Okay. Perfect.

Etienne Marcus, Vice President of Finance and Investor Relations, Cheesecake Factory0: Thanks very much.

Etienne Marcus, Vice President of Finance and Investor Relations, Cheesecake Factory: You’re welcome.

Tiffany, Conference Operator: Your next question comes from Andy Barish with Jefferies. Please go ahead.

Etienne Marcus, Vice President of Finance and Investor Relations, Cheesecake Factory2: Hey, guys. More of a high level question and thought. I’d I’d I’d love to hear your perspective on it. Mean, casual dining seems to be, you know, kinda having a moment right now, you know, especially experiential. What what do you guys kinda think and see is going on and and obviously helping the success of your business?

David Gordon, President, Cheesecake Factory: Sure, Andy. Hey. This is this is David. I think that people want their dollars spent in the most productive way possible. You mentioned experiential dining.

I we we believe that we will continue to be leaders in experiential dining, and people wanna go out to eat, for great, wonderful, delicious food, but also as an experience. They want to be in an environment that has a lot of energy. We think we provide that in all of our concepts from Cheesecake Factory to a higher end fast casual at Flower Child, which very much is an experience, not just a transaction. So as people maybe move away from, especially younger people, move away from transactional purchases, want to spend time together, our restaurants highly designed, high touch hospitality. Today’s consumer appreciates that more than ever.

They’re more sophisticated than they’ve ever been about food. And we’re making all of our food from scratch every single day and every single concept. And we believe we can take market share and have been taking market share because of that sustained quality. I think the sustained level of great operations and all the way leading back to the retention numbers that we see at Cheesecake that have led all time high NPS numbers, which show consistency, and people appreciate that consistency as well.

Etienne Marcus, Vice President of Finance and Investor Relations, Cheesecake Factory2: Got it. And then just if you’re willing to share, I guess, an early look at the ’26 development pipeline, at least, directionally, I’m assuming you’re gonna open more units. Is that something that you’re honing in on as, you know, we sit here, with only four or five months to go in 2025?

David Gordon, President, Cheesecake Factory: Yeah. We certainly anticipate opening more units than the 25 that will open this year. We feel good about the pipeline. We feel good about the cadence of openings. So if could anticipate that number of percentage unit growth that we’ve shared in the past is one that we’re going to continue to be able to hit moving forward.

Etienne Marcus, Vice President of Finance and Investor Relations, Cheesecake Factory: Thank you.

Tiffany, Conference Operator: Your next question comes from Sharon Zackfia with William Blair. Please go ahead. Sharon Zakfia, your line is open.

Etienne Marcus, Vice President of Finance and Investor Relations, Cheesecake Factory3: Sorry. We have new phones. Can you hear me now?

Matt Clark, Executive Vice President and Chief Financial Officer, Cheesecake Factory: We can, Sharon. Yeah.

Etienne Marcus, Vice President of Finance and Investor Relations, Cheesecake Factory3: Okay. I have to learn to unmute. It’s 2025.

Jim Salera, Analyst, Stephens: So, heck,

Etienne Marcus, Vice President of Finance and Investor Relations, Cheesecake Factory3: So if you you mentioned this. I was on another call and then hopped on here. But I wanted to ask about the rewards program for Cheesecake. I think you, you mentioned it, but I was hoping to get some more kinda meat on the bone in terms of kind of what you’re seeing there, kind of in terms of percent of transactions that are involving rewards or incremental lift on spend for rewards members versus nonrewards. And if you have any data on frequency, kind of how that customer is visiting Cheesecake kind of before they joined rewards versus now or just versus the overall non rewards population?

David Gordon, President, Cheesecake Factory: Sure, Sharon. This is David. I think we’re gonna still continue to keep things at a pretty high level. What I will share is that we continue to see month over month acquisition exceeding our internal expectations. So that’s good to see.

People are still enthused about the program and continuing to sign up at a higher level than we anticipate. Members continue to have higher frequency, higher check average, higher NPS scores than nonmembers, so all very, very positive signs. And as we’ve moved from the more broad approach that we took in 2024, which had about a 1% redemption rate across very large swath of audiences, very broad, reaching everybody with the same type of offer. As you know, this year, we’ve moved to more personalized offers that are more behavior based based on the data we have about rewards members and timing based. We’re seeing those redemption rates of about 4% or higher, so significantly better than that, the broad based approach that we were taking before.

We now have our internal team fully intact. We brought on board a Director of Rewards who’s leading our team to continue to do analysis to make sure we have the right type of data to ensure that the redemption rates moving forward are positive, accretive, and, very much in line with the margin profile around what we want to spend with the program overall.

Etienne Marcus, Vice President of Finance and Investor Relations, Cheesecake Factory3: Can I ask a follow-up? When you have the rewards with Flower Child as well, kind of are there similarities or differences that you would point out between how the customer kind of interacts with the Flower Child rewards versus Cheesecake?

David Gordon, President, Cheesecake Factory: Yes. Flower Child is much more of a traditional rewards program.

Tiffany, Conference Operator: Okay.

David Gordon, President, Cheesecake Factory: It’s an app based program that has points, for visitation and for spend. So, we’re really not comparing them because they are so different. We’re very happy with with the program, at Flower Child, and I believe it is driving behavior for guests that that are in the program. You can order within the app. You can order ahead, all the typical things that you’d be able to do at a fast casual.

And thus far, it’s had a pretty positive response from guests, but completely different than the Cheesecake program, which is more of that, published, unpublished non points program.

Tiffany, Conference Operator: Okay. Thank you. Your next question comes from Jim Sanderson with Northcoast Research. Please go ahead.

Etienne Marcus, Vice President of Finance and Investor Relations, Cheesecake Factory4: Hey, thanks for the question. I wanted to follow-up a little bit more on Flower Child. I was wondering if you could give us a sense of where you think the store capacity could end up given your success on average weekly sales growth. I think you’ve more or less doubled sales volume over the past seven years. But wondering where you think this brand can actually end up given the opportunity for catering and for off premises?

Matt Clark, Executive Vice President and Chief Financial Officer, Cheesecake Factory: Hey, Jim, it’s Matt. It’s a really interesting question. I don’t think we know 100%. And then the reason I say that is because the operating team just keeps getting better and they’re able to drive more throughput. And you mentioned one of those reasons which is definitely catering.

They figured out a way to squeeze those sales in early before the store opens sometimes and maximize the total throughput. I can tell you we have locations doing between 6.5 and $7,000,000 And so we know that there’s a pretty good runway still for the overall brand to continue to grow its AUV on an organic basis right from traffic and transactions. That’s not from pricing that’s just from volume. So hopefully we’ll continue to increase that capacity, but we know we’ve got a long runway in the overall footprint here to go.

Etienne Marcus, Vice President of Finance and Investor Relations, Cheesecake Factory4: You mentioned those locations doing 6.5 to seven. Are those the most mature locations or anything specific about those sites that might be

Etienne Marcus, Vice President of Finance and Investor Relations, Cheesecake Factory: Yes.

Matt Clark, Executive Vice President and Chief Financial Officer, Cheesecake Factory: They are some of the more mature locations. And so they’ve been building business for a longer period of time. Sometimes it can just be the idiosyncratic nature of the site just works particularly well. But in general, the business keeps growing. And so, yes, the longer that the sites have been around typically the more traffic they have.

Etienne Marcus, Vice President of Finance and Investor Relations, Cheesecake Factory4: All right. And just a couple of questions on traffic trends. I think in the past you’d mentioned sometimes your patio capacity is at risk when you have heat waves things like that. Is there any change in traffic trends you noticed in the second quarter or in July to date related to weather or something unexpected?

Matt Clark, Executive Vice President and Chief Financial Officer, Cheesecake Factory: No. It’s been very steady across our company. Certainly, we do watch the weather. And you could have some pockets where it can impact it for a period of time a week here or there. But really if you take the bigger picture, it’s been very steady and predictable.

Etienne Marcus, Vice President of Finance and Investor Relations, Cheesecake Factory4: All right. Thank you very much.

Tiffany, Conference Operator: Your final question comes from Jon Tower with Citigroup. Please go ahead.

Etienne Marcus, Vice President of Finance and Investor Relations, Cheesecake Factory1: Great. Thanks for taking the questions. Just curious, I know it sounds like new menu is coming now or hitting now. And it does sound like the bowls and the bites, lower price points, $10.15 or so. It sounds like those kind of would work well, particularly around lunch.

So are you doing any sort of social marketing or just marketing in general to kind of hit that daypart, particularly during the weekdays when maybe your volumes aren’t as robust as your bigger weekends?

David Gordon, President, Cheesecake Factory: Sure, Jim. This is David. I think as I mentioned earlier on the rewards program, that’s the perfect opportunity for us to use the data that we have today to drive behavior to a specific daypart. So we’ve been doing that throughout the first half of this year. We’re going to continue to do that.

And certainly, as we message the new menu, we actually let members know about the new menu earlier than the rest of the population. And if we knew that you were a guest, maybe they hadn’t come for lunch, maybe we sent that to you at a particular time, talked about a lunch promotion that made you aware of those new items all at the same time. So having the the data really makes it more impactful for us to be able to to the right type of targeted messaging, to drive specific daypart. And so we’re going to be excited to do that through the rest of the year.

Matt Clark, Executive Vice President and Chief Financial Officer, Cheesecake Factory: And it’s really John one of the things too, it’s at lunch, but it’s also channels, right? We think that the bowl category will work really well for delivery. And as you know, we really don’t take incremental pricing. So we have a $15 or a $16 cheesecake portion bowl. We think that stacks up pretty well in this environment to be delivered.

Etienne Marcus, Vice President of Finance and Investor Relations, Cheesecake Factory1: Yes. No, that’s great. Maybe just pivoting just back to the Flower Child brand. Obviously, you guys are the brand itself sounds like it’s hitting on all cylinders today and you’re opening at a fairly healthy, I think, mid-20s percent growth clip in terms of new stores. And the returns sound like they’re justifying this.

Is there a threshold at which you won’t bump up against in terms of new store opening cadence? Are you guys not going to bump above 30% a year given human capital constraints or anything like that?

David Gordon, President, Cheesecake Factory: Sure, John. That’s that’s a great question. You’ve probably heard us talk about that before. And right today, we’re comfortable with that 20% number. We could probably be a little bit higher than that.

That team is very focused today and ensuring that we have the right general managers and executive chefs to open those restaurants and open the well, especially because so many of them are opening at such high volumes. We wanna make sure that that guest experience is perfect from from the get go. So manager development is a key focus for the team. We’re comfortable with where we are today at, you know, 20% or a little bit higher. As we continue to build that pipeline, we certainly have the capacity from a company standpoint to build more and to do it faster.

But we’re gonna be cautious and careful and make sure we can execute as well as we want to.

Etienne Marcus, Vice President of Finance and Investor Relations, Cheesecake Factory1: Great. Thanks for taking the questions.

Tiffany, Conference Operator: We have a question from Raul Crow with JPMorgan. Please go ahead.

Etienne Marcus, Vice President of Finance and Investor Relations, Cheesecake Factory5: Good afternoon, guys. Can you help us understand the dynamics around the $500,000,000 converts? It looks like we are not far off from the conversion price here. And should we see this elected ahead? What kind of dilution would you anticipate, after, like, expecting to pay a portion through cash?

And also, remind us how much of this is also hedged through call options?

Matt Clark, Executive Vice President and Chief Financial Officer, Cheesecake Factory: Yes. So this is Matt. That’s a great question. So, right the price the strike prices are 70,000,071 million sort of right in that zone. Certainly, with the 69,000,000 we would watch and sort of decide to do something on that based on economics.

And it would have to be around $80 for the sort of cost of carry to net out for us to decide to extinguish those. And on the other is really what I can remember on the $575,000,000 is at say $80 a 10 increase over the strike price there, you’re talking about 1.5% dilution. It’s not that meaningful in the bigger picture for us. And so certainly that’d be a high cost problem. I think all investors would be happy if we were $80 and there was a 1.5% dilution at that point in time.

David Overton, Chairman and Chief Executive Officer, Cheesecake Factory: Thank you.

Tiffany, Conference Operator: There are no further questions at this time. Ladies and gentlemen, this concludes today’s call. We thank you all for joining. You may now disconnect.

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