CHEESECAKE FACTORY INC Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Solid Results: Delivered solid top and bottom-line results with revenues at higher end of guidance and profitability surpassing expectations. Sixth consecutive quarter of 20%+ adjusted EPS growth.
• Retention and Satisfaction: Improved manager and staff retention drove guest satisfaction to new heights. Labor management and food efficiencies improved restaurant profitability.
• Menu and Marketing: Latest menu change with over 20 new items garnered substantial media coverage (over 700 placements, ~8B PR impressions).
• Cheesecake Rewards: Member acquisition exceeding expectations, shifted to personalized offers for higher engagement.
• Development: Opened 8 restaurants in Q1, expect 8 more in Q2, and 25 total in 2025, including 2 internationally.

Segment Performance

• The Cheesecake Factory: Comparable sales increased 1% with annualized unit volumes exceeding 12,500,000. Four-wall restaurant margins reached 17.4%, up 140 basis points from Q1 2024.
• North Italia: Annualized AUVs increased 1% to $7.75 million. Comparable sales declined 1% due to LA fires. Adjusted mature North Italia locations had a profit margin of 16.6%.
• Flower Child: Comparable sales increased by 5%, significantly outperforming the Black Box fast casual dining index. Average weekly sales $88,500, annualized AUV over $4.6 million. Adjusted mature locations margin 18.6%.

Guidance

• Updated total revenue outlook aligns with lower end of previous expectations due to revised economic forecasts.
• Q2 total revenues anticipated between $935M and $950M.
• Full-year 2025 total revenues estimated at midpoint $3.76B.
• Adjusted net income margin expectations maintained despite tariffs, with ability to absorb tariff impact without changing margin outlook.

Risks

• Tariffs: Impact on other operating expenses, particularly on imported small wares and to-go packaging. Potential for pricing adjustments or cost-saving initiatives to mitigate impact.
• Macroeconomic Uncertainty: Uncertainty in economic growth and real disposable income affecting consumer spending patterns.

Question and Answer

Q: David Tarantino asked about macro environment impact on business, whether seen in Q1/Q2.

A: Matt Clark responded it's a mix of prior year factors (weather, fires, holiday shifts) and current environment not as robust as before, expecting it to continue.

Q: Sharon Zackfia inquired about tariff impact on P&L and absorption.

A: Matt Clark said tariffs impact other operating expenses, with offsetting factors from labor and cost of sales, evaluating pricing and vendor relationships.

Q: Andy Barish asked about same-store sales components at The Cheesecake and calendar impact.

A: Matt Clark noted ~4% effective pricing, -1.2% traffic, mix difference from menu change. Easter timing impacted Q1 but helps Q2.

Q: Jon Tower asked about labor productivity and rewards program metrics.

A: Matt Clark said productivity improvements from retention, rewards program impact on OpEx ~15bps.

Q: Brian Vaccaro asked about commodity inflation and Flower Child performance.

A: Matt Clark said commodity inflation near breakeven, David Gordon highlighted Flower Child's differentiation in food quality, operations, and experiential elements.

Q: Brian Harbour asked about pricing expectation.

A: Matt Clark said 4% pricing expectation remains, with menu changes evaluated based on factors.

Q: Jim Sanderson asked about development impact of tariffs and international performance.

A: Matt Clark said tariffs not significantly impacting current development, international units had positive comps in Q1.

Q: Christine Cho asked about casual dining demand resilience.

A: Matt Clark said structural changes in consumer behavior towards eating out, higher wallet share for full-service, supporting resilience.

Q: Jon Ivankoe asked about COGS and menu price points.

A: Matt Clark discussed menu pricing balance, benefits of fresh ingredients, and focus on attractive price points for new items.