Good afternoon. My name is Emma, and I will be your conference operator today. At this time, I would like to welcome everyone to The Cheesecake Factory Second Quarter 2022 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. Thank you. Etienne Marcus, Vice President of Finance and Investor Relations, you may begin your conference.

Thank you, Emma. Good afternoon, and welcome to our second quarter fiscal 2022 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 impairment of assets and lease terminations and acquisition-related contingent consideration, compensation and amortization expense. 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. 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 results and provide a financial update. Following that, we’ll open the call for questions. With that, I'll turn the call over to David Overton.

Thank you, Etienne. We were pleased with our overall sales performance with second quarter sales finishing within our expected range, despite an increase in COVID-19 cases and consumer headwinds. Comparable sales at The Cheesecake Factory restaurants increased 4.7% in the second quarter of 2022, relative to the second quarter of 2021 and 13.1% versus the second quarter 2019. And once again, we outperformed the broader casual dining industry. Our restaurants remain extremely busy with annualized unit volumes at The Cheesecake Factory restaurants reaching $12.3 million for the quarter. These industry-leading volumes demonstrate that The Cheesecake Factory continues to be one of the most differentiated casual dining concepts. Our unwavering focus on menu innovation, service, hospitality, and operational excellence enables us to maintain broad demographic appeal and relevance. On Saturday, we are launching our newest flavor of Cheesecake, Classic Basque Cheesecake, a unique, crustless cheesecake with a burnt top and an ultra-creamy, custard-like center. The Cheesecake Factory’s version is a classic recipe, covered with fresh berries and whipped cream. In addition, our new summer menu rollout began this week, as we lean into one of our key competitive differentiators, our distinctive menu, to drive incremental sales. Turning to development. All of the sites we have been working on remain active in our pipeline. However, opening dates continue to be affected by supply chain challenges and permit approval delays. As such, we now expect to open as many as 15 new restaurants in fiscal year 2022, including four Cheesecake Factory restaurants, four North Italia’s, and seven other FRC restaurants, including three Flower Child locations. We also currently expect one Cheesecake Factory restaurant to open internationally under a licensing agreement. Despite these timing challenges, which are out of our control, we remain on track to achieve our annual unit growth goal of 7% next year. As I stated on our last earnings call, I recognize that the environment is dynamic and we continue to face substantial challenges marked by high commodity inflation, a tight labor market, and further supply chain disruptions. Despite headwinds, we remain committed to protecting our four-wall margins over time. And we will adjust pricing to support this objective. To that point, we are in the process of implementing a 4.25% price increase with our summer menu change, and we will continue to closely monitor the inflationary environment to determine what level of additional pricing may be needed. With that, I'll now turn the call over to David Gordon.

Thank you, David. Our solid sales results for the quarter highlight our best-in-class operators' proven capability to execute effectively and to capture incremental sales. Operationally, our teams managed their restaurants well, exceeding our expectations across key performance indicators, including food efficiency and labor productivity. Our ability to adequately staff restaurants has been imperative to our operational execution and to capturing those incremental sales. While we continue to encounter some pockets of staffing challenges, our overall staffing levels continue to improve throughout the quarter. Specifically, June hourly applicant flow increased to record levels well above pre-pandemic totals, contributing to the highest number of hourly new hires in any single month so far this year. Combined with improvement in our industry-leading retention, we now have 3% higher hourly staffing than pre-pandemic levels. And as of July, hourly staffing needs are at record lows. We believe our staffing success is a key contributor to the sequential improvement of our dining guest satisfaction scores. Industry research continues to confirm the importance of service to the guest experience and overall restaurant performance. The Cheesecake Factory off-premise channel trend remains solid, with second quarter sales accounting for 20% of total sales and the annualized second quarter average weekly sales for this channel continuing to trend close to twice the 2019 annual levels. Now turning to North Italia. Second quarter comparable sales grew 12% versus 2021 and 22% versus 2019, with improvements in all dayparts and all geographies. Annualized unit volumes for North Italia mature locations averaged over $9 million for the quarter. Despite the impact of high inflation, second quarter four-wall margin improved to 16.4% for the adjusted mature locations. For the total brand, the four-wall margin is near 13% as we made progress towards our goal, as our pricing strategy is effectively one quarter ahead of The Cheesecake Factory's. FRC drove similarly strong topline and profitability performance during the second quarter. Additionally, two weeks ago FRC opened the first brick-and-mortar location of Fly Bye, their newest fast-casual dining concept, offering Detroit-style enhanced stretch pizza and crispy chicken. Fly Bye started as a pop-up ghost kitchen inside one of the existing FRC culinary dropout locations during their early stages of the pandemic. Sales for the first two weeks are exceeding our expectations. And FRC plans to open one more Fly Bye later this year. Both locations that are currently open are in the Phoenix market. We continue to believe differentiated concepts and emerging brands FRC develops will drive meaningful growth moving forward. And with that I will now turn the call over to Matt for our financial review.

Thank you, David. During the second quarter, along with the broader restaurant industry, we faced substantially higher inflationary headwinds than we had initially anticipated. Specifically, commodity inflation was 200 basis points higher, primarily driven by spot pricing in the dairy and produce categories. In addition, hourly wage inflation, utilities, and restaurant repairs and maintenance were higher than expected. These combined costs totaled approximately $13 million or $0.24 of EPS in the quarter and account for the majority of the variance to expectations. Turning to some specific details around the quarter. Second quarter comparable sales at The Cheesecake Factory restaurants increased 4.7% year-over-year. Revenue contribution from North Italia and FRC totaled $146.5 million. North Italia comparable sales increased 12% year-over-year. Sales per operating week at FRC, including Flower Child, were approximately $116,000, and including $14.2 million in external bakery sales, total revenues were $832.6 million during the second quarter of fiscal 2022. Now moving to expenses. Cost of sales increased by 250 basis points, primarily driven by significantly higher commodity inflation and menu pricing. Labor increased 90 basis points, predominantly driven by higher wages, compared to the prior year period. Other operating expenses increased 40 basis points, primarily driven by higher utility costs, which are mostly inflation-related and lapping lower general insurance claim activity. G&A as a percentage of sales declined 30 basis points, primarily due to a lower bonus accrual. Preopening costs were $2.9 million in the quarter, compared to $2.8 million in the prior year period. We opened two restaurants during the second quarter versus three openings in the second quarter last year. Finally, in the second quarter, we reported an after-tax $0.8 million charge, primarily associated with FRC acquisition-related items. Second quarter GAAP diluted net income per common share was $0.50. Adjusted net income per share was $0.52. Now turning to our cash flow and balance sheet. The Company generated approximately $54 million of cash flow from operating activities during the second quarter, with ending total available liquidity of approximately $433 million, including a cash balance of about $195 million and over $238 million available on our revolving credit facility. Total debt outstanding remained at $475 million. CapEx totaled approximately $17 million during the second quarter for new unit development and maintenance, and we completed approximately $11 million in share repurchases and returned just over $14 million to shareholders via our dividend during the quarter. While we will not be providing specific comparable sales and earnings guidance, given the operating environment continues to be very dynamic, we will provide our updated thoughts on our underlying assumptions for the balance of 2022, including some timing nuances similar to last quarter. Based on our second quarter performance, more recent trends and including the impact the latest COVID-19 virus resurgence is having, we continue to anticipate total revenues for the year to be between approximately $3.32 billion to $3.37 billion, with Cheesecake Factory AUVs reaching $12 million. As a reminder, this includes the impact of the 53rd operating week in fiscal 2022. Taking a similar approach for the third quarter, we would anticipate total revenue to be between $785 million and $805 million. Next, for the year, we now expect commodity inflation of about 14% to 15% on an annual basis, which represents approximately a 200 basis point to 300 basis point increase over our prior outlook and is directionally in line with headline CPI increases we observed during the quarter. We are now modeling year-over-year commodities pressure to be around 1% higher than the annual average in the third quarter and around 1% lower than the annual average for the fourth quarter. The labor market also continues to be dynamic with many complex moving parts, inclusive of known minimum wage increases; we are modeling net total labor inflation of about 5% for the back half, when factoring latest trends in wage rates, channel mix, as well as other components of labor. Given the inflationary outlook for energy and services, we now expect other operating expenses to be in the low to mid-20% range for the third quarter, and with the full benefit of pricing, we still anticipate ending the year at approximately 25% of sales in the fourth quarter. As David mentioned, we remain committed to protecting our longer-term four-wall margins. However, there remains measurable risk associated with cost fluctuations driven by the current environment. Given the additional inflationary pressures we are experiencing, we are in the process of implementing about a 4.25% menu price increase, which as previously anticipated, is measurably above our current level and is supportive of our margin objectives. The additional menu price increase will put the year-over-year pricing close to 7.5% once fully deployed. Keep in mind, the third quarter will only receive about half the benefit of the incremental price based on the timing of our menu rollout. We now anticipate G&A for Q3 to be around $52 million and approximately $55 million to $56 million for the fourth quarter, which as a reminder includes an extra week this year. Our preopening assumption remains unchanged at $18 million for the year to support our development plans, with approximately $6 million in the third quarter and $7 million in the fourth quarter. Finally, we expect about $91 million in depreciation for the full-year and for modeling purposes we're using a tax rate of 9% to 10% for the balance of the year. With regard to development, we plan to open as many as 15 new restaurants this year, with three currently planned to open in the third quarter. We would now anticipate approximately $140 million in CapEx to support this level of unit development, as well as required maintenance on our restaurants. Note that this includes some CapEx for locations that have shifted into 2023. In addition, keep in mind that we have reinstated our stock buyback program and have declared two dividends. In closing, despite the many unprecedented challenges encountered during the first half of this year, we are still progressing towards our primary financial objectives for 2022. Specifically, we may be starting to see some early signs that inflation has peaked, including the lowest level of year-over-year wage inflation so far this year, and acommodities outlook in which we are more booked now about 75% for the back half and that calls for approximately 250 basis points of declining inflation between now and the end of the year. If these trends continue, coupled with our higher menu pricing, we will still be on track to exit this year with four-wall margins at 2019 levels. In addition, even including the impact of sales the latest virus resurgence appears to be having, not dissimilar to the earlier Omicron and Delta waves, the midpoint of our total annual sales outlook has remained unchanged from the beginning of the year at approximately $3.35 billion. Thus, with the strength of our operations team, our brands, and our balance sheet, we believe we remain well positioned to take market share and grow shareholder value over time. And with that said, operator, we'll now take questions.

Your first question today comes from the line of Nicole Miller with Piper Sandler. Your line is now open.

Good afternoon, and thank you so much for the update. Clearly a lot, I guess you should call it outside of your control, so asking a question in the bucket of inside of your control. Can you talk about development? I mean, I was revisiting some past recession periods and probably for different reasons at that time it was Cheesecake growth and it did slow in this case, now it's North Italia, that's really the growth engine. So how do we think about if things were to weaken what you want to do in terms of the growth opportunity in the short-term there, please.

Hi, Nicole. It's Matt. I'll just start kind of on a financial perspective. We have $195 million in the bank, we believe in the long-term unit economics of these brands. We are building on the margin improvements in all of them. And we believe that we're going to move forward with all of our development goals at this point in time. We've purposely kept the balance sheet remarkably strong, and we really believe that if there is a downturn, it will be shorter and shallower, and that there will be a lot of market opportunity to take, and then maybe that will be a good turning point. And so all of the sites that we have, we continue to move forward with. In aggregate, as we look at across the next couple of years, I don't think I've seen a time where we had more sites in total that we were moving forward with. So we really don't have any plans to pull back or see the need to do so at this point.

And then just can you remind us of the cohort, I guess, by income profile? I'm thinking specifically at Cheesecake, but if you have it for North Italia as well, of course, cross-sell brands. We're trying to understand a lower income versus higher income user and then the frequency of those cohorts. Is there anything you could share on that, please?

Sure, Nicole. This is Matt again, I think the first thing is we definitely skew higher income, higher education, higher tech-savvy, we're on average over $100,000 in income. Obviously, particularly for Cheesecake Factory, all of the locations are in the best neighborhoods in the entire country. And so we're surrounded by the best neighborhoods, as well as usually business foot traffic. And so I think we're probably as insulated as anyone. I would say the same for North and FRC, it shares a very similar cohort in that regard. We do get some special occasion guests, but what we've seen historically is those guests still want to come in for an anniversary or birthday regardless, right? Because you still need to treat yourself even in a downtime. So I think that we are in a good position, and I'll just remind everybody, we still have tremendous value in the Cheesecake Factory menu too. We have items ranging from $5 or $6 to $30 and the large portions may get incredibly shareable. And so people can navigate with our menu, I think in a very different way. And certainly the last thing, because I think this question will come up too, what we have seen historically if there is a little bit of a dip is reminding people that our number one competitor are the white tablecloth independent mom-and-pop restaurants, and I think we probably will be able to take some market share, because we’re keeping so much value and the prices that those groups have had to take, and their menu is substantially more than what we're taking. And so if anything, we're in a better competitive spot than before.

Thank you so much. Appreciate it.

Your next question comes from the line of Sharon Zackfia with William Blair. Your line is now open.

Hi, good afternoon. I guess just talking about the consumer demand perspective. I think you're the first call I've been on as mentioned the new variant impacting sales. So can you kind of provide some color on what you're seeing there? And if there's any regionality to that? And then secondarily, within the quarter itself, it seems like you may have seen kind of a greater slowdown, if you will, towards the back half of the quarter than some of us had expected? Do you think you are starting to see some fallout from lower-income consumers? Is there anything you can look at from an average check perspective to see if there are fewer appetizers or fewer beverage attach? And then I guess lastly, just to kind of round all of this out, what are your thoughts right now on price elasticity of demand as you go into this next price round?

Sure, Sharon. It's Matt. I believe I've taken enough notes to cover all the points. I think all the questions are relevant and interconnected. To begin with, we've reviewed the last 16 months of sales, and there's a strong correlation with the virus's movement. When cases increase, sales tend to decrease, and vice versa. However, it's important to note that actual case numbers may be significantly underreported, as many people are testing at home. We've observed that when case numbers rise, sales drop, and when they decline, sales rebound, sometimes even surpassing sustainable levels. This pattern is similar to what we see during holidays when people go out and then stay in more the following days. We analyzed weekly trends over the past 16 months and found that our business often returns to pricing levels seen in 2019. During our last call in April, we noted that we were performing above those levels but didn't expect to maintain a 3% to 4% increase indefinitely, as current trends suggest otherwise. In January, for example, we started below expectations but recovered as the quarter progressed. By June, our performance was right on track with 2019 pricing levels. The fluctuations seem tied to varying case counts, especially in regions like California, where there's talk of reinstating mask mandates. We've noticed that sales dynamics change as cases rise and fall, but during recessions, the declines can be more generalized and consistent. However, we haven't seen any significant trade-down behaviors; average checks remain consistent with year-over-year trends, and attachments are holding steady, with desserts being a major contributor. While we expect flexibility in pricing, moving to a 7.5% increase will put us about 1.5% below the full-service average in June, which is likely to change as competitors adjust. Overall, we feel competitive, especially against independent restaurants that face greater inflation due to their lack of scale, which gives us an advantage in pricing and maintaining customer trends aligned with the 2019 pricing trend.

Okay. Thank you.

Your next question comes from the line of Jared Garber with Goldman Sachs. Your line is now open.

Thank you for your question. Matt, could you help us understand the components of the comparison, specifically the price and traffic mix? We're aware that for the Cheesecake Factory, the traffic and mix components are behaving differently as the off-premise business returns to normal. It would be helpful to get more insight into this, particularly if there are any declines in traffic. Additionally, I'd like to follow up on the discussions from the last few quarters regarding a loyalty or CRM program you have been developing. Can you provide an update on that and how it might help mitigate potential traffic losses in an environment where consumer spending is slowing down?

Sure, Jared. This is Matt. I'll answer the first part and then hand it to David Gordon. It is a little bit of a funny math as you pointed out with the whole to-go business and the way that we count it as one guest per transaction versus in restaurant, it's butts and seats. That being said, for the quarter, Cheesecake Factory pricing was 4.8%, and then traffic was actually then reported as a positive 5.7%, and the mix is a negative 5.7% there are direct washout, because essentially our comp was equal to the pricing. I can tell you that we continue to get a little bit more on premise. So I mean, actually, it is true. We have greater traffic in Q2 of this year than we did last year. So I think that, that continues to happen. I think also when we've looked at some of the research, there's a good percentage, and maybe a third of our last guests or more are still not even comfortable coming back in. So when we look at that gap, and we talked about that being around 90%-ish give or take at what point in time you're looking at it, of what the on-premise traffic recovery has been. If you look at the gap, it's really the last guests that still may not be comfortable. So even as we've talked about the movement between on-premise and off-premise, so long as we track to that $12 million AUV, we're going to be happy. We're agnostic and we just want to give great guest experiences. And so overall, we seem to still be tracking to the number that six months ago we laid out.

Hi Jared, this is David Gordon. Just on the rewards program, we launched our pilot in mid-June. So we're about 30 days into the pilot thus far in the Houston market, which is comprised of five restaurants. Our pilot objectives were really to measure our ability to train the program well, to make sure all of the technology was working effectively, that guests could redeem in the methodology that we want them to have a great guest experience. And most importantly, understand the enthusiasm for the program. And the good news there is that we have over 20,000 just in that Houston market, which exceeds our own expectations. And our plan is to continue to measure the data and the ROI of the program throughout the remainder of this year, whether we decide to do another small beta this year is still to be determined, but our plan would still be to move forward at some point next year with a full launch of the program that all continues to go well.

Great. Thanks for the color.

Your next question comes from the line of Brian Bittner with Oppenheimer. Your line is now open.

Hey, good afternoon. Thanks for taking the question. Matt, I do just want to flush out the trends that you're seeing just given all the uncertainty we all have with where the consumer is headed and whether the consumer could or could not pull back. Since your disclosure on April trends, there was a pretty marked slowdown in comps, and your revenue came in at the very low end for Q2 of what you expected. And your third-quarter revenue guide I think implies trends do continue to slow from the second quarter. You can confirm that if you'd like. But the question is, are you saying that this is simply just a reversion to the mean and perhaps a return to normal seasonality as well maybe, and you just simply do not believe anything you're seeing in your business relates to more softness economically?

Brian, it's Matt. First of all, the big question is what consumers are going to do and how they're behaving. I don't think the situation is scarier now than it was back in March when the war was announced or when gas prices hit record highs in April. Those indicators have actually improved over time. The job market continues to show two job openings for every person seeking work, and anyone willing to work can find a job. We've noticed that lower-income workers are starting to return to the workforce, which suggests that there are other ways money could circulate to support the economy. Over the last five quarters, we believe things will revert to the mean. Historically, last December and January saw casual dining decline significantly, but it rebounded impressively and has fluctuated due to various factors. When we compare this to our size of company and past events, like the financial crisis, the data showed a more gradual decline across all our restaurants, rather than the variations we're seeing now. Current trends indicate that certain areas are maintaining their performance from three months ago, which suggests that the issue isn’t purely economic but rather due to other factors. That being said, there could be a slight slowdown, and I think the media has exacerbated the situation. Our guidance for the third quarter reflects that we are a few points lower than in June, mainly due to the virus affecting different regions. The most recent week shows improvement compared to prior weeks, indicating that consumers are not pulling back. The latest week is better than two weeks ago, which does not suggest a negative trend. While our net guidance for the quarter is a couple of points down, this is to accommodate the starting point. However, our full-year revenue guidance remains unchanged, reflecting our current outlook.

No, that's super helpful. Thanks for that. And just second question is, as you exit 2022 with four-wall margins that match 2019, which is kind of where you're leading us. If that does indeed occur, I guess, are you saying that 2023 EBIT margins would be positioned to nicely exceed 2019 EBIT margins? Is that kind of where you're going with this?

Our goal has always been to return four-wall margins to 2019 levels. If we achieve that, the math supports a significantly improved net enterprise EBIT margin, especially with lower G&A and depreciation costs. Assuming commodity inflation doesn't increase further and labor costs remain stable, we believe this is attainable. As David Overton pointed out, we are mindful of inflation, and we will adjust as necessary. It’s crucial to note that, similar to the Fed's approach, we have a dual mandate: to grow market share and to protect four-wall margins. At times, these objectives can conflict, and we are working to balance them effectively.

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

Great. Thank you very much. First question just following up on the last one. Just because I think you did just benchmark your third-quarter comp assumption relative to June. If you can maybe just share what the comp trends were by month through the second quarter? And what they were running in July just to frame the trend you saw through the second quarter and what you're assuming for the third quarter?

I don't recall the specifics from April. However, in June, we were aligning with our 2019-plus pricing plan, which was essentially reverting to the mean. By July, we found ourselves a few points below that. Our expectation for the third quarter is to see some recovery. Recently, we've noticed an improvement in trends, and we anticipate being close to that benchmark by the end of the quarter. Overall, it appears to be a bit of a U shape.

Got it. Just to clarify, I understand you mentioned 4.25 points possibly with the summer menu, leading to a total of 7.5%. However, I was wondering if you could provide insight into potential pricing in the third and fourth quarters. I recognize you're focusing on long-term business management, which suggests you're not rushing to completely offset inflation, as that may not be the best approach for long-term success. How do you assess the amount of inflation you'd like to offset while keeping that long-term perspective in mind?

Yes. Jeff, it's a good question. So I may have to check my math on this. So just I just want to clarify, the fourth quarter pricing will be 7.5%. The third quarter pricing will be around 6% on a weighted basis, because of when the menu rolls out, kind of, it’s got in the middle, okay? So 6% in the third quarter, and 7.5% in the fourth quarter. And our intention is that we're going to fully price for all of inflation, we think our business model is right on all of the other factors, productivity, et cetera, the guest demand obviously is there. And so we're executing the business model, so when you have input costs that are the sole reason that margins are being pressured, it’s logical to pass that pricing on in an environment where we're still below full-service dining, well below grocery. So we still have room to make that happen. And I would say keep in mind too, from sort of a strategic perspective, we may be a little bit behind, but that's kind of traditionally our way; we're more of a fast follower. You can see the progress in the North Italia margins; they’re about one quarter ahead of Cheesecake on the pricing. And as we noted, the goal for that brand was about 14% for the year to get to by the end of the year, because it's going to be a couple of points behind Cheesecake because of the growth. So it's getting pretty close and so it's working. We believe the pricing for Cheesecake will work. And we are pricing to these costs, if we see some degree of give back if natural gas can revert back to at least somewhere between an all-time high which is where it’s at and where it was. If some of the commodities stabilize, if our overtime gets better, because we remain fully staffed, then we have some room to grow on top of that.

Understood. And just lastly, I know you mentioned you're pretty well positioned with a higher income consumer and then pretty more affluent neighborhoods, I guess. But the fact that you're heavily mall-based, is there any change or the malls impacted any differently than just the broader well-to-do neighborhoods? I mean, I guess, from a mall traffic perspective, are they back to pre-COVID levels or are occupancy levels of the malls back to full strength just so that being within the mall, within those well-to-do neighborhoods, I don't know if you're any better or worse off than anybody else in that neighborhood? Thank you.

Jeff, this is David Gordon. I don't know that we've seen any market change from mall-based locations versus the rest of our locations. They remain consistent and strong. The tenancy in the malls remains consistent. We haven't seen any drop-off in retail as far as occupancy goes, and traffic has remained really strong and consistent.

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

Thanks very much. Recognizing you may not think you're there yet, but if the consumer continues to slow, what are the contingency plans? I remember from if this is the correct timing, small plates or small bites were introduced, I think that was pretty successful. That may still be around, forgive me for not knowing that; maybe that gets refreshed. How do you think about responding, understanding there's uncertainty out there? And you must have a plan if you need it is? What might that look like this time around?

Hey, John, it's Matt. I think it's definitely a relevant point, and rest assured that the management team is constantly evaluating our strategic responses to the environments. I think just to remind everybody that we came out of that recession with better margins and better sales than we went in. And I think the key, obviously, there's two sides of the coin; one is to ensure that you have value and you remain relevant, and we are able to put out menu items on a special card at different price points, whenever David wants to do that. And so we'll watch the environment, and certainly that's an easy thing for us to deploy again if that's what we wanted to do. As David Gordon talked about earlier, we're in the midst of piloting a rewards program. That would certainly be a new vehicle for us to be able to deploy that type of activity very surgically if we wanted to. And the third thing I would say on the value side is we were very successful during the pandemic running promotions when we never done that before. And so it is something where we built up a little bit more muscle. And if that were the case, we certainly could pull that as well. So I think we're going to have more at our disposal than we did before. We have more learnings than we did before and the ability to reach specific guests. So I feel confident that we can respond there. On the margin side, the key is that most expenses in the restaurant space are variable over time. And so it's the degree and the speed at which you can recover the variability of those margins, right? So even with rents, for example that we're on percentage rents in every case, and so it's going to move with sales. There are some moderately fixed components over the medium term. But the most important thing from an operation standpoint is to get alignment around that variability and to recapture that margin. So if we're shooting for 2019 margins, that would be our goal. Now it depends on how deep and how long any pullback is. But our goal would be to maintain that same level of margin over the medium term.

John, it’s David Gordon. Sorry, I would just add operationally that a good portion of our operations team, especially the field leadership team, experienced the 2008, 2009, 2010 recession; they're very nimble. We have best-in-class retention. So our operators, if we ever were at a point where we need to make any structural changes to how we were operating, are the best in the business. And we'll be able to flex appropriately if we ever got to that point in time.

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

Hi, thanks and good evening. It sounds like some of the sales decline or moderation you're seeing, you're attributing it to reemerging COVID concerns. I guess looking across regions, are there certain regions where that's less of an issue? And if so, are you seeing any changes in behavior or ordering patterns, et cetera, when customers are in your restaurant? And then also within the off-premise channel, can you comment on how delivery versus takeout is performing?

Sure, Brian. This is Matt. For instance, we initially experienced more pressure in Southern California and the Northeast, where the highest number of reported cases has been. Conversely, we saw less impact at first in areas like Florida and Texas. However, the situation can change; recently, I noticed some pressure in another location. When I checked the news, a local paper reported a summer surge, highlighting a significant increase in cases. It’s almost like we could serve as a sounding board for the CDC. You can see the effect; people can't dine out when they're unwell or are caring for sick individuals. We observed that there are currently twice as many people unable to work compared to the Omicron surge during the holidays — about 4 million people. That’s quite significant. In regions where things have remained stable, we haven’t noticed any changes in guest behavior regarding check averages, etc. This reassures us that guests are not downgrading their dining choices at our restaurants. Right now, it primarily comes down to foot traffic in those areas.

And the off-premise mix of that 25% remains very, very consistent, and delivery comprises 11%, phone and pickup is 8%, and online ordering is 6%. So almost right in line with the previous couple of quarters.

Your next question comes from the line of Jon Tower with Citi. Your line is now open.

Great. A few follow-ups, and I was hoping to run through here. Just hitting on the COVID flare-up stuff, you had mentioned that certain markets obviously it's showing up, but you didn't call out whether or not that's actually impacting your own staffing levels at the stores? So I'm curious if that is the case and then I've got a few more questions, if you don't mind.

Yes. Hey Jon, this is Matt. There's no doubt that our sick time is significantly higher than we expected. The primary reason for this is clear. During our operations leadership calls, I hear numerous accounts of this situation as it unfolds in the market. You can see it in our restaurants, where multiple managers and staff have called in sick this week. We are definitely experiencing this trend. Thankfully, we are positioned to manage it somewhat better, but it is also affecting the restaurants.

Okay. And then just kind of following up I think that John's question earlier in terms of your ability to respond to changes in the marketplace with calls to action. I mean, I think Matt you had mentioned earlier in the call you're seeing scenarios where cases move up, sales seem to go down. So how do you fight this going forward? I mean, you do have a much bigger media presence, social media presence done in the past and you have utilized promotions in the past, I think coming out of COVID to drive some traffic. So how quickly can you respond? And are you doing any of that yet?

Well, I'll tell you there's a couple of things. One, we just completed some consumer research, and so we'll be digesting that to understand a little bit more about how consumers are behaving and what they're thinking, and particularly around our brands. So we felt the timing was good to get back out and understand because, right, it's sort of a new paradigm with people. So I think we'll learn a little bit more about what we think would be effective. I think in aggregate, it's about understanding the trends in the individual markets and adjusting operationally to them, because at the end of the day, if we hit the $12 million AUV, which we're still believing we're on track to do, the volumes are there, whether it moves up or down 2% or 3% in any given month, that's really not going to dictate a big change in strategy for us other than potentially operationally, right? We need to get the margins. So if that causes us to be more or less efficient, we have to learn and we have to adjust to that. But in aggregate, if we continue to trend as we believe we are, to the 2019 plus pricing levels, then I think that the volumes are there. We just have to navigate around the ups and downs a little bit.

Jon, I would just add, this is David, on the promotions front that we meet on a weekly basis and look at the status of where we're at, and we can pull the lever on a promotion within two weeks. Whether that's something that we want to do off-premise, DoorDash only, or something for online ordering, so I think all of our learnings as Matt talked about earlier from the pandemic and the flexibility of our current playbook versus what we had prior to the pandemic puts us in a pretty strong place to be able to react pretty quickly to whatever fluctuations we see.

Lastly, you mentioned DoorDash, and I understand you have a somewhat exclusive partnership with them, which seems to be beneficial for you. Considering the rapid growth of other brands, especially third-party delivery services, have you thought about expanding to other platforms or possibly increasing your prices in the delivery segment? You indicated earlier that there's about a 3% difference between your in-store and delivery menus, whereas competitors have a larger gap. I'm interested to know why you haven't considered raising prices in that area.

Certainly, as we continue to take pricing on the menu, it's also a conversation we have around our competitive advantage for delivery. And if we feel like we can hit the margin targets that were set out for in the sales without taking more than that 3% that's what we would prefer to do. If we find that we need to take more than that 3% differential to a differential to protect margins, we'll certainly discuss that and have the ability to do it moving forward if we wanted to. As far as the relationship with DoorDash, we do have an exclusive agreement, and we're still very happy with that agreement. Some of the marketing and our ability to pull the lever on that marketing as quickly as we like is because of that relationship and their nimbleness in working with us to get promotions launched and then communicate it out to the consumer. So we're still very happy; as you said, the economics are very favorable for us and we like the relationship, and our continued plan is to stay down that path for now.

Your last question today comes from the line of Andy Barish with Jefferies. Your line is now open.

Hey, guys. I hopped on a little late, but I heard David G's comments just on food and labor efficiency, yet obviously, some of the margin shortfall. Can you just kind of match that up? And is there something additional that could be worked on from a productivity perspective, or was it just the input costs higher-than-expected with less pricing?

Andy it's Matt, it was 100% related to the input costs versus the pricing. So the spot market and dairy and produce, kind of, went through the roof and natural gas and particularly some of the repairs and maintenance services, the supply and demand imbalance is so significant right now to get someone to come out and take care of the equipment, it's just costing that much more than what we had.

Got you. And then just following up on the logic beyond callouts and the virus surges. Last year obviously around this time, delta was surging, which did cause some sales issues and increased callouts with less staffing. How are you kind of baking the comparison into the projection here? I know there's a lot of noise obviously from the last couple of years, but just thoughts on that?

Yes. I mean, I think that's why, Andy, it's a Matt. So it's been a sort of back-and-forth to-date over the past six to nine months of that benchmark. What we have really seen mathematically now is that 2019 is the best benchmark and then adding the pricing to that. And so using that sort of eliminates the up and down last year and this year in those comparisons, because you're exactly right. I mean, what we saw last year and some of the lapping, if you think about just purely the year-over-year comp, is that June and July were probably the highest months of the year. And they were kind of through the roof, and then Delta hit and it came back; it probably dropped from the peak of early July to the trough of late August. It probably declined 5% or 6% just in that period of time. And so we see that that is the established, kind of, trend of how it goes through. And so that we're really looking at sort of 2019 plus pricing as being the best way to evaluate it.

Your next question comes from the line of Brian Mullan with Deutsche Bank. Your line is now open.

Hey, thanks. Just a question on capital allocation, just wondering if you could speak to the current parameters you're looking at when executing on the share repurchase program? Anything is different versus perhaps the pre-COVID philosophy? Just wondering if you want to be opportunistic when you think of the stocks undervalued or maybe just more programmatic and consistent?

Hey Brian, it's Matt. I think it's a bit of both. We're starting to engage, and we see this as a great time to act given where equities have been trading and our long-term confidence in the brand. We have a standard approach in place, which involves buying more when the stock is lower. However, we also take our time because we can't predict the market, and that's not our role. We don't want to be in and out of the market quickly; instead, we aim to build our position gradually. But we are definitely looking to buy in this market.

Okay, thanks. And then just as a follow-up, wonder if you could just give an update on the Flower Child brand, the key priorities there over say the next year or two? What factors are you watching most closely or looking at to see before you might want to accelerate the unit growth there? Or maybe separate it out like you have for North Italia?

Hi, Brian. This is David. We continue to be very bullish on Flower Child, the recent openings continue to perform well. I'd say that that's our priority is to continue to move into some newer markets and see what the guest reception is in different geographies and thus parts remain very positive. The team there has done a good job moving their margins in the right direction. We're focused on trying to leverage continued supply chain capability at Cheesecake Factory. And then on the people growth development side, we want to ensure that we have the right leadership in place if and when we decide to pull that lever and grow it a little bit quicker clip. But all signs for now remain very positive, and we feel good about the future of the brand.

Thank you. This concludes today's question-and-answer session and conference call. Thank you very much for attending. You may now disconnect.