Ladies and gentlemen, thank you for standing by and welcome to The Cheesecake Factory's Second Quarter Fiscal 2020 Earnings Conference Call. After the speakers' presentation, there will be a question-and-answer session. I would now like to hand the conference over to your speaker today, Stacy Feit, Vice President, Investor Relations. Thank you. Please go ahead.

Thanks, Rob. Good afternoon and welcome to our second quarter fiscal 2020 earnings call. On the call 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, throughout this conference call, we will be presenting results on an adjusted, if-converted basis, which reflects the potential impact of the conversion of the Company’s convertible preferred stock into common stock. An explanation of our use of non-GAAP financial measures and reconciliations to the most directly comparable GAAP measures appear in our press release on our website as previously described. Finally, please also note that our press release includes an additional table calculating basic and diluted net loss per common share, which shows the line item impact of the Company’s convertible preferred stock. While this preferred stock participates in dividends on an as-converted basis when declared on common stock, as a participating security it requires us to apply the two-class method to compute both basic and diluted net income per share. The two-class method is an earnings allocation formula that treats participating securities as having rights to earnings that would otherwise have been available to common stockholders. In addition, as our preferred stock is a participating security, we are required to calculate diluted net income per share under the if-converted method in addition to the two-class method and utilize the most dilutive result. In periods where there is a net loss, no allocation of undistributed net loss to preferred shareholders is performed as the holders of our preferred stock are not contractually obligated to participate in our losses. Now for the agenda, David Overton will begin today's call with some opening remarks, and David Gordon will provide an operational update. Matt will then briefly review our second quarter results and provide a current financial update. With that, I will turn the call over to David Overton.

Thank you, Stacy. After pivoting quickly to an off-premise only operating model in March with the onset of COVID-19, we saw a solid increase in Cheesecake Factory off-premise sales in the second quarter, as we geared up to reopen our dining rooms in mid-May. We have taken a deliberate approach in our reopening strategy as the health and safety of our teams and guests remain our top priority. In addition to securing adequate PPE for our staff members and implementing additional safety protocols, we also made a number of operational changes and technology upgrades, including contactless menu and payment technology and text paging in order to ensure the best and safest possible experiences for our guests and staff. Our strategic decision to maintain our restaurant management teams has enabled us to reopen our dining rooms very effectively. We have seen strong pent-up demand with many Cheesecake Factory locations experiencing waits on weekends. Our large restaurant footprint and flexible seating layouts are enabling us to recapture meaningful sales levels despite capacity restrictions. During the second quarter, we managed the business well, with strength across The Cheesecake Factory restaurant key performance indicators, including food efficiency, labor productivity and controllable profit. With some states reversing course on their reopenings, our operators have done an extraordinary job navigating evolving regulations. As COVID cases continue to rise in many parts of the country, we know the situation will remain fluid. We believe our operational excellence and strong financial position will enable us to navigate this dynamic environment as effectively as possible. Tomorrow, we are celebrating National Cheesecake Day. To commemorate the occasion this year, we are launching two new cheesecakes, Chocolate Caramelicious Cheesecake made with Snickers and our Lowlicious Cheesecake which is low carb, no sugar added and gluten-free. Now more than ever, there is so much need in our communities, so we have decided to use our platform this year to support Feeding America's hunger relief efforts with a donation of $1 for every slice of cheesecake sold tomorrow. Our marketing team has generated great coverage in the press with over one billion media impressions. While our current reality is quite different this year, we look forward to continuing to provide our guests delicious, memorable experiences, whether in our dining rooms, on our patios or in the comfort of your own homes. With that, I will turn the call over to David Gordon.

Thank you, David. While COVID has presented extraordinary challenges and the second quarter was anything but normal, the power of The Cheesecake Factory brand, our strong guest affinity and our talented teams remain a constant. As David mentioned, our guests have been very excited to return to our restaurants when indoor dining rooms reopen and our off-premise business remains well in excess of pre-COVID levels. We continue to see strength in the off-premise channel at both reopened restaurants and those continuing to operate an off-premise only model, with off-premise comprising approximately half of our total sales quarter-to-date. In fact, since reopenings began, we have maintained on average 90% of elevated COVID off-premise sales in Cheesecake Factory restaurants with reopened dining rooms. This has contributed to our recapture on average quarter-to-date of nearly 80% of prior year sales levels in these reopened locations. This would equate to over $8 million per unit on average, on an annualized basis, despite 50% capacity restrictions. And we have seen sales at The Cheesecake Factory restaurants that are operating an off-premise only model continue to accelerate, with current weekly off-premise sales equating to $4.2 million on average per unit on an annualized basis. In states that have rolled back their reopenings, including California and Florida, we are fortunate to have sizable patios in many locations to continue to serve guests in accordance with outdoor-only dining restrictions. In some cases, given the strength of our relationship with many of our landlords, we have also been able to access additional space to augment our outdoor seating capacity. Concurrently, we have seen off-premise sales accelerate in most of these locations, as our guests want to enjoy The Cheesecake Factory despite the additional restrictions. In total, our restaurants opened for outdoor dining only are currently doing volumes of nearly 90% on average of Cheesecake Factory locations with indoor dining rooms open. Currently, 146 Cheesecake Factory locations have indoor dining rooms open, 36 are open for outdoor dining only and 22 locations are operating an off-premise only model in accordance with local mandates. And we have one Cheesecake Factory location that remains closed in San Francisco. In aggregate, across restaurant operating models, fiscal third quarter to-date through July 26 comparable sales at The Cheesecake Factory restaurants are down approximately 32%. The breadth of our menu and our dessert offerings continue to differentiate The Cheesecake Factory for all occasions. Our sales performance has been supported by on-brand marketing campaigns, mostly focused on the off-premise channel leveraging The Cheesecake Factory brand identity as a dessert leader and the breadth of our menu to meet demand across all day parts. Our 4th of July Burger offer resonated with new and existing guests as well as the media, with coverage in over 120 outlets, generating over four billion media impressions, as well as significant social media engagement. The guest response was so tremendous that we had to reduce the duration of the offer given that demand far exceeded our forecasted supply levels. Notably, a majority of sales for this promotion came through our online ordering channel. As reported on our last call, our own online ordering platform eclipsed delivery for the first time since its launch in 2018. And that strength sustained in the second quarter, with the channel comprising over 40% of our off-premise sales and delivery contributing approximately 35%. The Cheesecake Factory brand also continues to perform well in the delivery channel. We saw both our average customer order frequency and average customer order value increase during the second quarter. Guest affinity for The Cheesecake Factory brand also continues to support performance in the retail channel. We achieved our highest level of consumer packaged goods royalty revenues during the second quarter, driven by continued strength in sales of our famous brown bread and building awareness of our new ice cream offering. In regard to North Italia, we began reopening indoor dining rooms toward the end of May and soft sales built throughout the second quarter. Currently 17 North locations have indoor dining rooms open and six are open for outdoor dining only. Quarter-to-date, through July 26, comp store sales are down approximately 32%. During COVID, we have continued to build out North's off-premise business which was in its infancy prior to the acquisition. We have leveraged our existing relationship with DoorDash and have also launched an online ordering platform for takeout utilizing the same technology that we use at The Cheesecake Factory. With building awareness through marketing campaigns and solid operational execution, off-premise sales currently comprise over 30% of North's total sales. The FRC concepts began reopening dining rooms in mid-May and also saw sales build throughout the second quarter, with continued strong contribution from off-premise. Currently 39 FRC locations have indoor dining rooms open, four are open for outdoor dining only and seven locations remained closed. As we move into the back half of the year, we know volatility in the restaurant operating environment will remain, as COVID continues to impact consumer behavior and our ability to fully operate our dining rooms. I'm incredibly proud of how nimble our teams have been, constantly adapting to whatever changes come their way. While there is little doubt that 2020 has been the toughest period that the restaurant industry has ever faced, I'm confident in our ability to continue to navigate through this dynamic landscape and we expect to emerge stronger on the other side of the pandemic. And with that, I will now turn the call over to Matt for our financial review.

Thank you, David. Second quarter comparable sales at The Cheesecake Factory restaurants declined 56.9%. For context, we saw sales ramp throughout the quarter with the reopening of our dining rooms beginning in mid-May. From a low of down approximately 66% in April to a 42% decline in June. Revenue contribution from North Italia and FRC totaled $37.2 million. North Italia comparable sales declined 59%. Sales per operating week at FRC including Flower Child were approximately $46,200 and including $14.7 million in external bakery sales, total revenues were $295.9 million during the second quarter of fiscal 2020. Note, we had 29 locations across our concepts, including three Cheesecake Factories closed for much of the quarter and exited Q2 with 19, including one Cheesecake Factory still closed. As usual, I'm going to provide year-over-year detail on expenses, but of course, note that the significant disparity in revenues given the impact from COVID in the second quarter of this year drove abnormal year-over-year variances. Cost of sales increased 210 basis points, reflecting a shift in sales mix as well as inflation in meat and dairy. Labor increased 530 basis points, which was primarily attributable to the cost of maintaining our full restaurant management team in the reduced sales environment as well as higher group medical insurance costs associated with company-paid healthcare benefits for our furloughed staff members, which concluded June 30, and higher large claims activity, partially offset by a benefit from the employee retention credit and the CARES Act. Other operating expenses increased to 41.1% of sales due primarily to sales deleverage, increased marketing and costs for additional cleaning, PPE and other expenses associated with COVID. And G&A increased 590 basis points, also reflecting sales deleverage, partially offset by a reduction in the corporate variable compensation accrual. Preopening costs were approximately $2.1 million in the quarter associated with our new unit development department and restaurant management bench. We recorded a $2.4 million impairment charge associated with the Stamford, Connecticut Cheesecake Factory location, which discontinued operations last week as its performance was not meeting our expectations. Finally, during the second quarter, we reported $11.7 million in COVID-19 related expenses, including the healthcare benefits for our furloughed staff members and the cost for additional cleaning, PPE and other expenses that I mentioned a moment ago, as well as some other smaller items. These expenses were primarily captured in the labor, other operating expense and cost of sales lines on the income statement. GAAP diluted net loss per share was $1.61 reflecting the potential impact of the conversion of the Company’s convertible preferred stock into common stock and excluding the COVID related costs, impairment charge as well as other special items, including $1.1 million in acquisition related costs and $1 million credit to the acquisition related contingent consideration compensation and amortization, driven by an increase in our interest rate during the quarter, adjusted if-converted net loss per share for the second quarter of 2020 was $0.87. Now turning to our balance sheet and cash flow. We ended the second quarter with $250 million in cash and $376 million in debt. This reflects cash used in operating activities of approximately $2.7 million, CapEx of $13.7 million, a $4 million repayment on our credit facility to free up room for letters of credit and the $200 million convertible preferred stock investment from Roark that we closed in April. A $3.7 million dividend for the second quarter of fiscal 2020 was paid in kind to holders of the Company’s convertible preferred stock. Our second quarter cash burn came in below what we had projected at the time of our first quarter earnings call, given our sales recovery and good working capital management. At present, our Cheesecake Factory restaurants are cash flow positive on average at a $6 million annualized average unit volume equivalent with our current cost structure, including continuing to retain all of our restaurant management teams as well as an accrual for full base rent. Importantly, our 33 Cheesecake Factory locations opened with 50% indoor dining capacity for the full month of June, achieved 87% of prior year sales volume with an almost flat year-over-year four-wall margin of approximately 17.5% for the month of June. From a cash perspective, the company has paid a substantial majority of its rent payments through July, after giving effect to various abatement and deferral structures in place for certain lease agreements. While we will not be providing guidance given the level of continued uncertainty associated with the virus, we want to provide some color around our cash flow and capital allocation expectations. At the company level with the current sales trends and our reduced G&A structure, we are roughly breakeven at the operating cash flow level. We continue to expect approximately $5 million per quarter of maintenance CapEx and we are currently estimating $5 million to $10 million per quarter of growth CapEx for the back half of the year to finish construction of nearly complete new units under development. We are monitoring operating conditions in their respective markets to determine when to move forward with these new unit openings. In closing, while the industry operating environment has been challenging, we have managed the business well across brands, both operationally and financially. Our sales ramp has produced results in-line with our modified expectations for COVID and we continue to prudently manage costs and our cash position. We believe COVID will continue to bring volatility to the restaurant industry and our business, given trends in the virus and the constantly changing patchwork quilt of regulations. Financial strength and flexibility will continue to be a key determinant of the restaurant concepts that can endure COVID. With the strength of our brands, teams, culture and balance sheet, we believe we are positioned to not only continue to manage through the pandemic, but also thrive on the other side. With that said, we will take your questions. In order to accommodate as many questions as possible, please limit yourself to one question and then requeue with any additional questions.

And your first question comes from the line of Sharon Zackfia from William Blair. Your line is open.

Hi. Good afternoon. Thanks for taking the questions. I guess there are two questions, really. Thank you for the context on breakeven cash flow. I'm wondering though, what kind of level of comp you need at this point to get to breakeven corporate EBITDA — I think that would be helpful. And then secondarily, given the $4 million plus AUVs you are doing in off-premise only, what does that do to kind of inform future restaurant development thoughts? I mean you have clearly had a seismic change in your business, and I know you are not developing new units per se right now, but there are got to be some learnings here that kind of inform how you think about the business going forward.

Hi, Sharon. Hope you are doing well. This is Matt. Appreciate the questions. So on the first one, I think we may have answered it, but let me just clarify for you. We did say at current sales levels, we're breakeven at the company level operating cash flow. And so I think that is what you are referring to. And our quarter-to-date Cheesecake Factory comps are down 32%. With respect to the off-premise, we do believe it will be sticky, I think consumer trends have definitely changed over time. I don't know that it will greatly influence how we develop going forward, given that our restaurants are really set up well to do this already. So I don't know that we would credit ourselves of having the hindsight to see all of this, but the foresight, but we are certainly happy with the productivity that we can get, and we want to continue to have, as David Overton mentioned, all of the options available, whether that is in restaurant, on the patio or at home. So, I think we would be happy continuing with these trends and our restaurants would look and feel similar as we continue to grow.

I guess maybe a follow-up on that, I mean, does it make you question the size of restaurants going forward though, if you can do these kinds of volumes with capacity restrictions and the kind of off-premise that you are doing?

Sharon, we do have a number of size restaurants. So they are as small as 5,500 square feet and so we choose the restaurant based on the demographic and what we think we can do in our estimate. So, we have from 10,000 down to 5,500 and it is a possibility that we would want a little bit smaller dining rooms but that remains to be seen.

Okay. Thank you.

Your next question comes from the line of Nicole Miller from Piper Sandler. Your line is open.

Thank you so much and good afternoon. I thought it was very interesting in the prepared commentary to say you were on a wait and clearly that says a lot about the brand equity of The Cheesecake Factory. But what does that also tell us about consumer behavior, what do you think are permanent shifts and when and how do you think the consumer really wants to go out to eat and that is what they are going to do?

Nicole, hi. This is David Gordon. Good to hear your voice. I think that we know that people want to get out and what has been interesting is that even the restaurants that opened their dining rooms early on, so at the beginning of the quarter, have seen waits throughout the entire quarter. So it is not just that they wanted to get out because they were pent up and had to get out for a couple of weeks. We have seen that consistent behavior happen all throughout the quarter and we are on the waits anywhere from 20 to 60 minutes on the weekend and that is in every geography and every size restaurant. So it is not even like it is just happening in geographies where COVID isn't as impacted. So it is a good sign. And to your point, I think it shows the affinity for the brand and it does show that a lot of the surveys that were out there in the beginning that one of the first things people would want to do once they got back together was go out and dine. So we think we are well positioned to capture those dining occasions whether that continues to be in the restaurant on a wait or continuing to build the off-premise business and sustain the off-premise business that we have.

I don't want to break the rules. So I won't ask another question, but that is helpful and again fascinating and I'm sure there is a way that you interact with them to get all the data you want as they wait. So thank you very much.

Your next question comes from the line of David Tarantino from Baird. Your line is open.

Hi. Good afternoon. Question about the sales trends you are seeing in the locations that have dining rooms open. I think for The Cheesecake Factory recapturing about 80% of the sales and I was wondering if you could maybe think about throughput constraints that you might be seeing. And I guess the nature of the question is, do you think that number would be higher if you are operating at full capacity? In other words, do you think the consumer demand is there to get you back to 100%? Is it just a matter of getting the capacity back in the restaurant or do you think there is maybe less demand now than what you had before?

Thanks, David. Hi. It is David Gordon again. I think that any capacity that we have, number one, we can handle. So, I think that restriction of 80% is just based on the 50% dining room capacity. We see that people are waiting, just like they were waiting previously and we don't see any increase in people walking away or not being willing to wait. So I think, as Matt said, also the off-premise business we think is going to be sticky. So, as restrictions continue to lift, not just in those 50% capacity, but in the 25% moving to 50% and who knows when we could even get to 75% dining rooms reopen again, we think we will be able to keep a decent percentage of the off-premise sales, be able to handle that capacity and get back to where we were before in the dining rooms with the waits on the weekends and even the waits during the week.

And David, this is Matt. I think it is, I think just mathematically you can clearly see that in the fact that the restaurants with the dining rooms at 50% are doing higher volumes than the patio-only. So as we have more capacity, we are doing measurably more volume. So, I definitely think that is the case.

So I guess as a follow-up and a related question would be, do you think on the other side of this, when you have 100% capacity back, is it your view that the volumes could go well above where you were previously because of the off-premise sales?

I think that that was true, anyway, I think we believe that anyway. We have been down a little bit off of our peak throughput. So there was capacity that we could have tapped into, so I think also what we have seen with the increase in the off-premise further validates that the total sales output from our restaurants could definitely be above where we were right before COVID.

Great. Thank you very much.

Your next question comes from the line of John Glass from Morgan Stanley. Your line is open.

Thanks very much. My question has to do with what your experience has been with how you are rethinking the business model through this period. A lot of your peers have talked about structurally reducing primarily hourly labor by whatever amount, 150 basis points, 300 basis points that they think and stay post-COVID. How do you think about that? On an unrelated topic, some of that has come from menu simplification and obviously the calling card of Cheesecake Factory has been menu diversity. Have you taken a look if you reduce the menu, have you taken a look at that and said maybe there is an opportunity to reduce items if that were to improve labor productivity or is that not an opportunity you think is worth pursuing?

Hey, John. This is Matt. I will just start on the financial aspect of that, I think it is very telling that in the 33 locations where we had the 50% capacity for the full month of June, we were able to achieve flat margins year-over-year. And so, the power of The Cheesecake Factory and that is with the full menu — the power is driving those volumes and if you are getting $8 million, $9 million, $10 million, we are able to flex in a way that many of our competitors just aren't able to do. I think that they are in a position where they have still looked at reducing guest options, which is what that amounts to. Also we feel really good about being able to manage our business through this and still provide 100% of what makes The Cheesecake Factory brand so great. That doesn't mean that we won’t look for ways to be more efficient. Of course, we will, but certainly it doesn't need to be in the menu simplification or taking anything away from the guests. I think it just has to do with really sort of fine tuning every line item, where there is a little bit of opportunity and not making any sort of game changer type of changes.

Thank you.

Your next question comes from the line of Dennis Geiger from UBS. Your line is open.

Great. Thanks for the question. I'm wondering if you could talk a bit more about how you are thinking about further gains across the portfolio, but also within the reopened restaurants from here. Is it really more about increased consumer mobility and consumer willingness to dine out or do you feel like a lot of this is things within your control and what is most significant there? Are there ways to increase capacity within the restaurants when states allow, be it dividers, etc., ways to drive the customer to other days and times that are lower capacity, opportunity for outdoor dining at a greater rate increase at all? Just some thoughts around what is in your control from here. Thank you.

Thanks, Dennis. Certainly social distancing requirements and the dining room capacity requirements are a bit of a restraint. As they lift, however, as an example, in Texas before they had an order they were looking to go from 50% to 75% capacity. We have plans and we are ready if we need to be able to put dividers, nicely designed dividers in between booths, so we could easily get to that 75% capacity as fast as possible, and we are planning wherever we can to be able to jump on those opportunities as soon as that capacity is expanded. I think I may have stated in the opening remarks that, on our patios today, since they are large, we have good seating capacity and in conjunction with our landlords in many restaurants, we have been able to expand that just a little bit even outside of our traditional patio and add another one to four stations that can be meaningful, certainly addressing some of those long waits that we had talked about. So our operators are exceptionally nimble and able to be creative in ways that still align with the guest experience that we want and we will look for every opportunity to expand capacity, but still with the main focus being ensuring that it is safe for every single guest and for the staff, because we know in the long run, although you might get some short-term sales out of something that isn't safe, guests need to feel like they can return and they know it is a safe environment.

And Dennis, this is Matt. I would just add on to that, we know that what is in our control is to continue to drive some of the off-premise business. The fact that with those open dining rooms we are keeping 90% of our elevated COVID off-premise sales is a testament to how, what we have always talked about — the quality and the value of Cheesecake Factory off-premise. And I think guests are seeing that and we have really been developing innovative new ways to market that and I think we can continue to do it. So I think also that channel will be something that we can continue to grow whether that is through our own online ordering or delivery or even guests still calling in the old fashioned way, we are happy to do that.

Thank you.

Your next question comes from the line of John Ivankoe from JPMorgan. Your line is open.

Hi. Thank you. I wanted to revisit the margin, the 17.5% margin comment that you made. I mean if that is flat year-over-year in that subset of restaurants, exactly how did you achieve that level of margins on a lower level of sales? In other words, if the menu wasn't changed, if the customer hasn't seen any change, if there is not any change in the experience, can you make some comments of some of the operational changes that you made within the store that you could potentially carry forward and even build on as we go forward as sales volumes rebuild across the entire chain?

Yes, John. This is Matt. I think that the main driver that I would call out is that we just do much bigger volumes than our competitors. And so, the flow-through above the breakeven point for us is mostly variable and we are able to adjust, because we are operating at levels where 1% of rent and we are able to move each of the line items in a way that corresponds to revenue. So there is not necessarily magic other than the brand's volumes. So I would say, to be fair, we do have the full management in those restaurants, there was a little bit of margin pressure there. But because we were bringing back all of the staff that had already worked for Cheesecake Factory, there was less training cost year-over-year, but those are small pieces. For the most part, everything lined up pretty well. So that is why we talk about not wanting to take away from the brand because the sales-driving piece is what really enables that. I think we got a little bit smarter at scheduling and some of the smaller pieces of the P&L that helps to fill in the gaps, but it is really flexing appropriately across every line item.

And where things like R&M and marketing and maybe even some of the fixed rent, I mean I guess the percentage rent in this case, I mean, was there anything that was worth to get a couple of hundred basis points here and there, I guess specifically focusing on the R&M piece and marketing piece?

Yes, nothing more than the uptake. They were all in the 50 basis points, 25 basis points that were trading off.

Thank you.

Your next question comes from the line of Gregory Francfort from Bank of America. Your line is open.

Hey. Thanks. My understanding is part of what has given Cheesecake the ability in the past to have the volumes that it has is the bigger business to shoulder periods. Can you maybe talk about how that is recovered as dining rooms have opened up and if you are comping a similar level of the shoulder periods as you are the rest of the day parts, maybe dinner to lunch day parts? Thanks.

Sure. Hey, Greg. This is Matt. It remarkably was similar particularly in lunch and dinner, but the part that I think made up the difference really for us was that the mid-afternoon was stronger and a little bit of that came at the expense of late-night, which was a little bit less. And that was to be expected. We did have some shorter hours in there and things like that, but the mid-afternoon business definitely picked up and some of that was by design. And I think that that goes to one of the things we have been talking about for a while and that was through the off-premise channel and our ability to specifically drive day times and days of the week. And so we were really optimizing capacity in some of those situations by whether we maybe we ran a promotion for lunchtime only and that ran through 5 o'clock and we picked up sales at 4 o'clock and 5 o'clock that we might not have otherwise. So we feel really good particularly about the mid-afternoon, in addition to keeping lunch and dinner where they were.

Great. Thanks.

Your next question comes from the line of Jeff Farmer from Gordon Haskett. Your line is open.

Thank you. As Cheesecake has reopened restaurants in malls that have only recently reopened themselves, I'm just curious what the relationship is between that mall traffic you are seeing in these recently reopened malls and your own customer traffic.

Actually our traffic has remained pretty consistent whether or not a mall is fully reopened or not reopened. There were some situations throughout the quarter where we were able to reopen and maybe the mall hadn't opened yet or vice versa. But, the sales throughout all of the restaurants, mall, non-mall, open or not open are consistent and some of the malls that have fewer stores that have opened, our sales have remained very, very strong and very similar to the malls where a few more stores may be open and may have higher traffic.

That is helpful. And just as a quick follow-up, when the stimulus checks in April and May went out, what impact were you able to discern on demand for your own business?

I think it was hard to say. I mean, to be honest, there were so many factors that were going on then and I do think that there seemed to be like a week or two with a little bit of a blip up. But pretty much the trajectory was relatively consistent, so I would say there was a material, but it was not a big driver.

Thank you.

Your next question comes from the line of Jon Tower from Wells Fargo. Your line is open.

Great, thanks. Just a couple of quick ones from me. So historically, the company has not really done much by way of promotions, and it sounds like this 4th of July Burger offer resonated pretty well and drove some decent sales. First, I was curious if you could quantify how much demand that drove during the period, but second, does it also have you rethinking your promotional activity for the company going forward? And then I have one more follow-up.

Hi, Jon. This is David. I don't think it has us rethinking our promotional activity. I think that all along we have thought about doing marketing in ways that align with what is right for the brand. And this particular promotion happened to really resonate and was really successful, drove some of the mid-afternoon that particular week that Matt was talking about, but it doesn't change, I think our overall outlook on how we will use marketing moving forward. I think it shows us that, especially in the off-premise channel, there is an opportunity to drive the value and everything The Cheesecake Factory experience can bring in off-premise. So we will continue to do that, but it doesn't meaningfully change our overall outlook on marketing.

And Jon, this is Matt. If you didn't in forward, we are not going to quantify that for competitive reasons.

I understand that. I was just thinking more on the frequency of it, versus what we have seen in the past, which has really been very much focused on Cheesecake offering, not necessarily food items.

Well, I think the off-premise channel's different, and I think that with the elevated levels of it, I think there may be opportunities to do more there than we would have ever thought for the on-premise side of it. So that could be true.

And I will say just even during this time a good amount of what we have been promoting has still been Cheesecake, so this happens to be a one-off promotion, but most of what we have been doing has been around Cheesecake and our gift cards.

Okay. And then the follow up I have is just, the stores that have reopened for indoor dining, I'm curious to hear what the company is seeing with respect to restaurants that are co-located in say the malls or the lifestyle centers that you are in. Are they fully reopening, meaning doing the same in-store dining that you are doing? How can you quantify perhaps how many have closed that you have noted or anything, any qualifications around that would be great.

I don't think that we could quantify any more about those that have closed than what you are going to read elsewhere. I think there was recently an OpenTable or another data provider that came out with a particular report around reservations. That is probably where you are going to be able to get a little bit more data than anecdotal from us. I think that as far as restaurants reopening, when it comes to the larger chains, I think that they are opening more or less in concert with us, if not faster in the beginning. Obviously, a lot of people were opening as fast as they possibly could and we were really being very prudent about how we opened and making sure that number one, it was safe for guests and staff. But overall, I think most of our neighbors, especially if they are larger chains, are opening and generally hitting the same capacity restrictions that we are.

Thank you.

Your next question comes from the line of Jeffrey Bernstein from Barclays. Your line is open.

Thank you very much. One clarification and then a question just on the stats you gave with the stores that were at 50% indoor seating, the 33 units. You are saying if they are doing a down 13% comp and they are hitting a 17.5% restaurant margin, obviously that is quite impressive. I'm just wondering if you can talk about the relationship going forward between comp and margin as we model from here, or maybe said a different way, what would be the margin for example in Q3 if the comps for the system stayed at the down 32%? Just seems like you are hitting margins with significantly reduced comp. So it seems like a meaningful opportunity, but just trying to figure out the relationship between those two as a rule of thumb. And then I had one follow-up.

Hi, Jeff. It is Matt. I think again just to reiterate where we are at from a cash flow perspective, which you can kind of back into margins on from current sales level, the company-wide perspective is we are breaking even on a cash flow basis. So I think as you model through that, you will kind of figure out where the margins are and certainly the ability of us to go from there to, which is a negative 32% to a negative 13%, you can kind of correlate the flow-through. I mean, we typically target between 20% and 40% flow-through, depending on the situation. And as we add back sales, we will recapture those levels.

Okay. And then separately, just on below the restaurant level on the G&A line specifically. I'm just wondering as you look into the back half or what you have experienced over the past few months, how much of that is core spend or maybe what has been reduced most aggressively, how should we think about the G&A spend as we look forward based on current sales levels?

I think our objective is to align the business as best as possible, but also realize that there is a lot of uncertainty and a hopeful bit of optimism that things stabilize in the first half of next year and so we will try to balance being cost conscious and keeping the resources that we need. I think that the total G&A that we saw in Q2 has some noise in it, just because of timing of different expenses that we were unable to cut as fast, etc. But I think it is a good proxy for the absolute dollars for the back half of the year.

Great. Thank you.

Your next question comes from the line of Matthew DiFrisco from Guggenheim. Your line is open.

Thank you. I just have a two-part question here. With respect to looking ahead at the brands you acquired, North Italia obviously has been bifurcated and seems to be the one you want to grow. COVID hit the North Italia brand and it appears a little bit more dependent on retail traffic. How does COVID and a post-COVID world maybe change your view of the portfolio in the brands that grow? I ask because I see Flower Child, I think you moved it into a different category with Grand Lux and away from the Fox Restaurant Concepts reporting. Does that represent maybe Flower Child in a post-COVID world could be a higher priority for growth?

So Matthew, this is Matt. First of all, I don't think it has changed our long-term outlook on any of them. I think we are still very bullish across the portfolio. North's performance has been really pretty similar to Cheesecake Factory, comps are running very smoothly and margins are running smoothly. So we feel like that is a good indicator of the strength of the brand and that is what limited capacity and so I think the returns there are going to still be strong and it will still continue to grow. The segment reporting is just really an accounting piece. Flower Child has probably been outperforming a little bit relatively because it is a fast casual and obviously had a bigger piece of off-premise going forward and we want to continue to grow that brand as well. So, I wouldn't read anything into where it was placed but we really are still supportive of growing all of those brands. In fact, we have a couple of Flower Child openings coming up potentially depending on the market conditions here in the back half of the third quarter and we continue to move forward with some of the North locations. So it is all going forward.

And Matt, just to clarify, the timing of the segment change happened in concert with our 10-K filing. So it wasn't this quarter, we were just trying to provide a little bit more information in the press release to provide clarity around the segment reporting, sometimes it is mixed in the SEC filings.

Okay. That is very helpful. And then I guess just, did you say Flower Child was positive or is positive right now?

No, I said it was running a little bit better than the other brands. It is still down but obviously had more off-premise business to begin with. And so it has been a little bit higher than the other brands.

Your next question comes from the line of Lauren Silberman from Credit Suisse. Your line is open.

Thank you. Assuming I heard correctly, you are maintaining an impressive 90% of elevated off-premise volumes in the restaurants that are open for dine-ins. So can you share the demographics of the off-premise versus the on-premise customer, the overlap in audiences and any commentary regarding new customers you brought into the system over the last several months for both to-go and delivery?

Sure, Lauren. I would say it is an interesting question. You know, we don't typically do that type of data research, but we have captured some of it over time and really the guest demographics for dine-in and off-premise are remarkably similar. It is just a different occasion. So, we tend to skew slightly more educated, slightly more affluent, slightly more tech savvy and those attributes are all similar across each of the channels that our guests are using. And I think one of the things that we have tried to do is move more to the online ordering piece of it. Certainly that has been working and so I think there is affinity for all of the different types of ways that our guests can reach The Cheesecake Factory.

Okay. And then, any thoughts on how you are thinking about that run rate mix of on-premise versus off-premise in a post-COVID environment?

It is tricky to know. I mean I think that for us it's a $4.2 million question. We believe that it will be sticky. I think we were pleasantly surprised at the levels that we are maintaining right now, but I think it is very difficult to know where exactly that will land. I think that guest behavior does get permanently modified after periods of three to six months out. So, it is good to be elevated, it is just a matter of where it lands.

Your next question comes from the line of James Rutherford from Stephens Inc. Your line is open.

Thank you. My question is purely a follow-up from the last couple of questions. It is around the off-premise business. I think last quarter you gave a stat, correct me if I'm wrong, that over a third of delivery orders were from new customers and directionally understand your ability to retain those customers. That speaks to the brand's ability to come out of the pandemic with higher unit volumes than before. So just, is there a way to quantify that ability to retain those new customers?

I don't think we stated that a third of the customers were new customers. We may have said that last quarter, so we get that data through DoorDash. All the new customer acquisition data comes through DoorDash and they share with us whether or not we have higher repeat rates. I think last quarter we did state that we saw some really good repeat order rates from first-time DoorDash guests. Some of the promotions we have run throughout this time in off-premise have been free delivery if you have never ordered from Cheesecake Factory before. So, we are able to track those for those types of promotions, seeing positive return rates from those specific guests.

I would also say that we have seen that the average customer order value both increased during Q2. So those guests were coming back more frequently and spending more money. Those are both good leading indicators.

Got it. That is very helpful. Thank you.

Your next question comes from the line of Brian Vaccaro from Raymond James. Your line is open.

Hi, thank you. Good evening. Just a few from me. On the international side of the business, could you provide some color on how many units were impacted, where does that stand currently and how sales are performing when you reopened and also any form of relief that you are providing to your international partners?

Sure, Brian. So all of our partners are sort of up again, subject to social distancing regulations and opening and closing throughout the quarter. Right now, as of this call, I believe all the restaurants are open. Some of them may have restricted capacity, some may be on the delivery-only model, the majority have dining rooms open and have seen relatively consistent sales. I would say that the Asia locations are a little bit ahead of the other markets. We have seen in China some volumes recently recovering with comps trending negative 10%, so that is a really good positive sign. The Middle East are a little bit more up and down depending on what the capacity restrictions are and probably in Mexico, the recovery is a little bit behind the U.S., but all of those restaurants are open in Mexico as well.

And for Q2, Brian, the preponderance of the sites and partners were provided relief given the circumstances.

Okay. Thank you. And then also, the 19 units that remain closed — I think you said it was 19 earlier in the call — how are you thinking about the timeline on reopening those units and how many might be permanently closed?

It is actually 16 that are currently closed and a good slate of them are set to open here in the next couple of weeks and then we will assess the performance of the others and then determine what we would do moving forward.

Great. And then one bookkeeping for you Matt, the $11.7 million of COVID costs, could you help us allocate that between the cost lines, COGS, labor and other OpEx? Thank you.

Yes, it is about 60% labor, 20% cost of sales and 20% other operating expense.

Perfect. Thank you.

And there are no further questions at this time. Ladies and gentlemen, this does conclude today's conference call. Thank you for participating. You may now disconnect.