Cheesecake Factory Inc (CAKE) Q3 2026 Earnings Call Transcript

Hello everyone. Thank you for joining us and welcome to the Cheesecake Factory Incorporated Earnings Call for Q3 of 2026. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Etienne Marcus, VP of Finance and Investor Relations. Etienne, please go ahead.

Good afternoon and welcome to our third quarter fiscal 2026 earnings call. On the call with me today are David Overton, our Chairman and Chief Executive Officer, and Matt Clark, our Executive Vice President. Before we begin, let me know historical facts and our considered forward-looking statements within the meaning of the private actual results to forward-looking statements as a result of the factors detailed in today's all forward-looking statements made on this call speak only as of today's date and the company undertakes no duty to in addition during this conference call we will be presenting results on an adjusted basis overton will begin today's call with some opening remarks we'll then review our third quarter before opening up the call thank you etienne we delivered an

outstanding third quarter with revenues once again exceeding one billion dollars this marked our second consecutive quarter of record revenue while margins and earnings also finished well above our expectations. The Cheesecake Factory restaurants led our performance delivering comparable sales growth of 15.2 percent and annualized unit volumes of more than $13.9 million. Comparable sales and traffic growth meaningfully outperformed the broader casual dining industry, underscoring healthy demand for our brand and continued market share gains. Culinary innovation continues to be an important contributor to our sales growth and a key point of differentiation. Bowls and bites are performing well and helping increase frequency. Our broad, made-from-scratch menu allows us to respond to changing guest preferences and offer compelling choices across a wide range of price points. Our rewards program, app, and broader marketing efforts are also driving awareness and engagement across the digital and social channels. We are especially encouraged by the traction we are seeing with our younger guests. The Cheesecake Factory has always had broad appeal, and our ability to attract the next generation of guests reinforces the enduring relevance of the brand. Our impressive sales performance together with exceptional operational execution drove solid flow through and margin expansion. The Cheesecake Factory's restaurant level profit margin increased 240 basis points year over year to 18.7 percent turning to development we opened six restaurants during the third quarter including two cheesecake factories one north italia one flower child and two frc restaurants subsequent to quarter end we opened two flower child restaurants and One Henry. With 16 restaurant openings so far this year, we remain on track to open as many as 26 new restaurants in 2026. Looking ahead to 2027, we plan to open as many as 27 new restaurants across our portfolio. In summary, we are extremely pleased with the quarter and performance of the Cheesecake Factory. At the heart of this success is what has always set us apart, delicious made-from-scratch food, exceptional hospitality, and memorable dining experiences. We are excited about the opportunities ahead and remain focused on delivering profitable growth and long-term shareholder value. With that, I will now hand the call to David Gordon to provide an operational update.

Markable sales results this quarter once again demonstrate the strength of our best-in-class operators and their ability to consistently execute at a high level and capture incremental sales, resulting in another record for annualized unit volumes in what is typically our slowest quarter. sales growth was driven predominantly by outstanding traffic growth outperforming the black box casual dining index by the improvement has been broad-based days of the week and our premise remaining stable at approximately 21 percent of sales this performance reinforces our conviction and our strategy and reflects our continued focus on several key priorities by industry-leading retention and the ongoing growth and evolution of our cheesecake with a highly differentiated brand and the breadth and visual appeal of our menu naturally lends itself to engaging and shareable social content. We are increasingly leveraging these attributes to create culturally relevant moments, amplifying organic engagement and discovery and extending the reach of the brand beyond our existing guest space. It's a meaningful opportunity to introduce the Cheesecake Factory to new audiences and ultimately drive incremental restaurant taken together we believe these efforts create a powerful combination our marketing initiatives are bringing guests through our doors while our operators are executing at a high level to deliver the distinctive cheesecake factory experience that drives repeat visits and builds long-term guest loyalty reopening in wichita is another great example of the affinity for the brand the restaurant generated tremendous guest enthusiasm operating weeks reinforcing the opportunity we see to continue expanding the Cheesecake Factory successfully into new markets. Now turning to our other concepts and comparable sales adjusted mature North Italia locations was 13.2 percent prior year. The change was primarily driven by sales and positioning North Italia for sustainable long-term growth. Our new menu which was recently rolled out includes new offerings and more accessible price points that make North Italia more approachable to a broader range of guests. We've also refreshed our happy hour program with more attractive price points, new shareable selection of beverages to deliver compelling value while building on the atmosphere that make North Italia. We are meaningfully increasing our media investment in two markets to expand the brand awareness and introduce North Italia to a broader audience into guest trial and conversion. We're beginning to implement a kitchen management system designed to improve kitchen coordination and execution, supporting a more consistent and efficient guest experience. These initiatives address the areas where we see the greatest opportunity at North Italia. We believe they provide the right framework to support improved performance over time and strengthen the brand for the long time. Performed extremely well and And once again, meaningfully outpaced the fact increased 11% to 18% drove annualized AUVs of $5.1 million. The restaurant level profit margin for the adjusted mature flower child locations was 20.2% in the quarter. An improvement of 280 basis points in consistency of flower child's performance. We believe the concept is well positioned for a meaningful acceleration in unit growth. Over the past year, we have invested in the real estate pipeline, leadership team, and operating infrastructure needed to support the brand's next phase. Foundation increasingly in place, FRC portfolio, and the other in Salt Lake City. Let me turn the call over to Matt.

Let me first provide adjusted EBITDA. Let me turn to our $110 million taken together.

We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question is from the line of John Tower with Citi. John, your line is now open. Please go ahead.

Great. Thanks for taking the questions. Maybe starting off, I was just wondering on the labor cost side, you had mentioned, obviously, you've seen some leverage year over year. It did expand by about 7.5%, I believe, year over year in the quarter. I'm just curious if you feel comfortable with that run rate going forward in terms of either percentage growth or even on a per week basis. And, you know, from an incentive standpoint, I think you'd also mentioned in the other OpEx line, there wasn't some incentive compensation. So maybe if you could speak to how to think about breaking that out.

Just to take it out of us, we are taking the opportunity to reinvest in our business. And in particular, I think we feel good. We caught up. I mean, so making sure that I think, you know, relative to the mix of the total company, Cheesecake Factory obviously outweighing makes the dollars per week look a little bit different. But if you do it by the concept, I think we're feeling good.

And maybe just going to the marketing side, obviously, you guys have had quite a bit of success, it looks like, through social channels. And it sounds like you're dipping your toes in a little bit on a market-by-market basis at North Italia. Can you just maybe, I think historically the companies kind of shied away from marketing, and I think as a percentage of sales, it's a much lower number than a number of the competitors in the marketplace. How are you thinking about that growing over time?

Hey, John, this is David Gordon. Good to hear from you. Thank you for the question. I think that first off, you know, Cheesecake Factory has always been a word of mouth business, right? Number one for us is to make sure that we're executing as well as we possibly can. And so people continue to want to, creators are doing a terrific job doing that. Because as you know, has been to leverage the new and to make sure that the nation of those new members continues to grow. Great momentum. And that being all the data that we've been able to gather over the continue to offer personalized offers for guests who are second quarter. We continue to see strong adoption of the app, strong engagement, and it will continue to have a growth. That's the digital ordering or just direct guest engagement and communication through the app. So rewards will continue to remain a pretty important factor in the Cheesecake marketing trajectory. Certainly the social engagement in the quarter was strong. Cheesecake continues to be a highly differentiated brand of our menu, really shareable content. So we'll continue leveraging that visual. We feel it's appropriate and promise that have been key to our long-term success and driving sustainers in the business, experiential dining is something that we believe for you to want and desire, and we can deliver and execute because of those operators and their passion for executing for all of our guests, whether they're visiting for that first time because they heard about us in the social channel, or they're coming for their hundredth time, we're going to continue to earn their loyalty.

Your next question comes from the line of Andrew bearish with jeffries andrew your line is now open please go ahead hey guys um yeah amazing results just um it kind of feels like october's been you know a little softer for the industry i mean it's not a not a big month but just wondering if you would kind of provide any thoughts on the start to 4q and i know you mentioned some calendar stuff matt with halloween on a saturday and Christmas and New Year's. Can you just try to kind of frame up what you think the impact of those may be as well?

Hey, Andy, sure. This is Matt. But maybe I'll take this opportunity to contextualize the Q4 guidance and help people understand how we're seeing and that we'll be able to be sticky for Cheesecake Factory given the holidays and how we get to the, you know, we feel pretty good.

Very helpful.

And, yeah, just on putting this kind of same-store sales number up, you know, I assume it's coming at all, like all hours and shoulders and late night, but, you know, to your point on capacity at peak, yeah, is there something, you know, we're sort of missing that's allowed this kind of huge number in addition to some of the things you've already highlighted?

Well, as we noted in the prepared remarks, I mean, the key point is every day of the week. It was every day part, you know, as you might imagine, a little bit less. But, you know, we've talked about the capacity before. Well, we ran a nearly $14 million AU, the slowest quarter of the year for the rest of the average size.

Your next question comes from the line of John Ivanko with JPM.

John, your line is now open. please go ahead hi thank you very much uh the question was on development for fiscal 27 and you may have said this but i i just wanted to um make sure i can clarify some numbers so in fiscal 26 fiscal 26 we had five cheesecake factories eight north italians seven flower childs and six non-frc so i mean looking at these numbers these results which obviously speak for themselves it would seem like you would have a significant opportunity to just not only step up flower child but maybe even find some more opportunity for cakes um but i i asked that in the question that your aggregate development 27 versus 26 is just up a single unit 27 versus 26 um in 20 in 26 so i just want to get it um and i i guess just the coincidence that the years and the numbers are the same. I just want to get a sense of exactly what the numbers, you know, kind of read underneath the surface. And if there's kind of a good guide, because we all have the model at this point, there's a good guide or thinking in terms of how much further fiscal 28 could perhaps accelerate as you are signing deals currently today for that out year.

Thank you. sure john this is david gordon certainly uh 26 matching 26 next year i think is a good mix we're being the flower child to be able to do that as we possibly can and i think we're in a good place to do that to your point of cheesecake factory there really is a site available uh we to your

festival it gives us confidence that we need everything we've done in the past the cheesecake factory to open up and can i ask how many flower childs are you expecting in 27 and where will Will that leave us on potentially a run rate for the brand beyond 27 in terms of annual openings?

That would be roughly, John, this is Matt, roughly 25% increase year over year at that midpoint. And, you know, we feel ready to do that with the people, work that has been done. And, you know, if that is successful, then we should be able to continue that.

That's great. Thank you, guys.

Your next question is from the line of Jim Solera with Stevens. Jim, your line is now open. Please go ahead.

Hey, guys. Good afternoon. Thanks for taking our questions. Very encouraging to hear about all the new guests coming into the restaurants. I was hoping you could share some details about frequency, types of things they order off the menu. Matt, I think you touched on this a little bit, but have you seen any restaurants, you know, sort of hit the ceiling on capacity and what that might look like, even if it's during a specific day part where you can only, you know, service a certain number of guests?

Yeah, this is David. As far as capacity goes, historically on those busiest shifts at two o'clock at night, and, you know, we're open late night, the cheesecake factor on the weekends, so there still is even capacity than $20 million a year in AUVs. They're mentioning that as well throughout the quarter, 17% on the delivery business as well, so there's opportunity. Sorry, I think I said 17% on the – just real quick, I want to clarify on the off-premise that 21%. 17% is the continued dessert sale.

Just one thought on – one question on marketing. As you lean more into social, can you just walk us through as a kind of percentage of spend? Should we see the brand marketing support kind of match their contribution to the portfolio? or is there maybe a tilt towards you know flower child and maybe some of the lesser known brands given that cheesecake factory you know people are discovering it for the in you know kind of rediscovering in social media is i feel like much more prominent in sort of the you know consumer's mind that they know that brand versus some of the other ones they might not have as much familiarity with example although it's a new market people have been going to kansas city cheesecake factory

for years and the awareness of the brand is much stronger. So we might have an elevated spend at the newer concepts, especially in those new markets.

Your next question is from the line of Sharon Zakvia with William Blair. Sharon, your line is now open. Please go ahead.

Hi, thanks for taking the question. I wanted to delve a little bit into the younger demographics that you've been so successful with, with the core concept over late. Do you have any metrics on how durable kind of that customer is? And are you seeing kind of repeat metrics there that would be similar to other cohorts of Cheesecake Factory customers?

You know, the data that we have of the guests that are coming in on frequency, we're about, what we have seen, so the organic social entry, the day parts, and the days of the week.

Okay. And then Matt, could you give us the traffic and ticket for the quarter?

Sure. It was 2.4% pricing.

Right. Thank you. Your next question is from the line of Chris O'Cull with Baird. Chris, your line is now open. Please go ahead.

Thanks, and congrats on the strong results. I had a follow-up question related to what's changed in the business. I mean, I've always considered Cheesecake Factory having strong execution, especially as it relates to menu innovation and service. And those aspects of the business seem relatively consistent. Marketing spending also hasn't changed materially, but the effectiveness of that spending clearly has improved. Can you just help us understand what you're doing differently today in marketing than you were a year ago and why it seems to be resonating more with consumers?

We're engaging in the organization 12 months ago and made it really well with guests.

Okay, that's helpful. And then just one more. Matt, sales flow through at the restaurant level looked lower in the third quarter than in the second, and that's despite the sharp acceleration in sales, and if you adjust for those one-time bonuses. So how should we think about flow through rate in the fourth quarter at the restaurant level?

Sure, Chris. That's a great question, and we're happy to pretty. I think we had talked about Q2 being hyperproductive at that 35% rate. It would be similar.

Your next question is from the line of Sarah Senatore with Bank of America. Sarah, your line is now open. Please go ahead.

Thank you. I just wanted to follow up, I guess, maybe a question on that, not the margin flow through, but on the 4Q sort of the outlook and fiscal 27 on kind of unit count versus comp and trying to reconcile those. I think certainly in 2027, it sounds like since you're opening more flower jobs, maybe that lower AUV is a bit of a headwind. If I think about the comp implied for 4Q, it seems like it's deceleration, still very, very strong, but maybe not that 15%, maybe something more in the high singles. And then again, looking out to 2027, the revenue guide is fairly similar, I think, to what, you know, what you'll end up doing this year. But the mix of stores a little bit different. So I guess if you could give any kind of help on that, you know, on balancing those two things. And then just quickly on the converts, this is the first time I think your stock has been well above the conversion price. I know I think you can't call until 2028, but any thoughts on that. Thank you.

Sure, Sarah. You know, our guide for a deceleration of the, you know, typically 25 to 30 percent busier in those weeks, some tapering level, and we'll continue to update as we see the trends, you know, continue into next. Obviously, as you noted, in the money, that's the dilution that is predominant in the guidance that we've given for waste. So a little bit of that is respected to the equity comp, but most of it is with regards to the convert. What we're talking about stock is that, and we'll see how that plays out over financial flexibility with the cash flow that we for our bondholders. We're having hope to continue to just produce results that keep the bond in that territory.

Got it. Thank you. And then just on the, okay, I understand. So the weighted sales, I think I was doing the math wrong on 4Q. So I understood. Thank you for that clarification. And then, you know, on the outlook, right, you said you're lapping, you know, but I guess as you expect, you know, one of the things that we've seen is kind of a positive virtuous cycle where, you know, your revenues go up and your spending goes up. You know, I guess, is there, I don't know, any thought on how, you know, the ROI or ROA on some of these advertising may shift and allow you to maybe maintain faster, you know, greater momentum than perhaps you have in the past?

Yeah. So let's contextualize it this way. If you take out sort of, you know, and we're talking about a normalized environment again, what we need to be maybe talking about a 3% or plus cost in time, you know that.

Your next question comes from the line of Jeff Farmer with Gordon Haskett. Jeff, your line is now open. Please go ahead.

Thank you, Matt. I think you just mentioned a low 3% mix at cheesecake. That looks like that's the highest number in years. I might have missed it, but can you help us understand what drove that?

But the Cajun salmon, it's important to know when you look at why guests are coming in the experiential nature.

To phrase it, 26, relative to what you've done in prior years, you just talked about the success of the Cajun salmon. But have you guys, is it sort of measurable in terms of what the increase in menu innovation has been? And then how should we think about that pace of menu innovation as you get into 2027?

David, menu innovation has been key to Cheesecake Factory for nearly 50 years now and the cadence of innovation has always been heightened. We're always looking for new ideas. We're always sharing new ideas. We're always working in our R&D kitchen to come up with what's next that we can put on the Cheesecake Factory menu. So that work is always being done and will continue to be done. The cadence is the two menu changes a year and that will be the same cadence moving into the next I wouldn't anticipate that that's going. Cajun salmon actually had been on the menu for a while. It wasn't even a new menu item. It had already been on the menu and decided to talk about it a little more loudly than they had before.

Your next question is from the line of Brian Vaccaro with Raymond James. Brian, your line is now open. Please go ahead.

Thank you and good evening. I just wanted to follow up on the other OPEX line in the quarter. You noted the $4 million of of incentive bonuses, obviously, in the third quarter. But is there a level of bonuses that you've layered into the fourth quarter guidance? So that's the first question. And then the second one, you know, if you look at the third quarter and you took the $4 million out, it still looks like the cost per week in other OPEX, that Cheesecake Factory, other OPEX was still up around 10%, maybe. Is that higher marketing that we're seeing?

Or are there any other one-time items to call out or maybe that's just line items that are tied to higher sales like credit card fees and rent etc yeah right I'll start with that one I think you nailed it it's just a higher sales levels we did also call it higher electricity on a rate basis that different some continuation of

that transpires in there okay and then if I may just on a follow-up with unit growth accelerating at Flower Child. Can you share more on what the balance looks like on building out existing markets versus entering new markets? And maybe you could just level set us on the unit economic targets for the brand, sort of targeted AUVs. I know the mature margin is around 20%, but AUVs, expected cost to build, that kind of thing. Thank you.

With the economics, and then David Gordon can talk about the build-out expectations. You know, right now, we continue to accelerate, and so, you know, at that level, the business is great, and we'll look to expand the 11 to 13 that we are planning for next year, but, you know, the momentum is continuing, is to continue to improve.

And, Brian, as far as the mix for next year, it's probably about 50-50, new to existing, and continue. We see some open in existing markets, so we're happy to follow up in new markets and get a second.

Your next question is from the line of Brian Bittner with Oppenheimer. Brian, your line is now open. Please go ahead.

Hey, thanks. It seems like based on your 27 guidance, you're still expecting a pretty solid year next year, even with a big first quarter. It still seems like, you know, positive comps against tough laps. And so the question is just as you analyze your sales data, you know, are you seeing evidence that you can share with us maybe other than the recent four months of momentum that really gives you the confidence that this won't prove to be just a sugar high for the brand? And what do you believe the biggest tool that you have to turn this traffic growth into sustainable business moving forward?

We've urged across many fronts, right? I think you go and you look at how the business is performing. As I noted, we continue per week with the new guests, but then we're also engaging with them and continuing to drive them to continue to grow the business as well.

We've done such a terrific job throughout the quarter and will remain really stable in the restaurants to be able to execute on the higher volume.

And just my follow-ups diving into that earnings flow through dynamic a bit more. Obviously, margins and earnings expanded nicely and not taking anything away from you on that. But on a 15% cheesecake comp, I think we would have expected a little more flow through. And I just want to dive into the labor segment with the cheesecake. When you look at the per operating costs, per week operating costs, they really accelerated the same percentage as the comp accelerated from 2Q into 3Q. So that's why leverage was about the same year over year in 3Q despite the way higher comps. So the question is, how do you want us thinking about these labor costs and the variability in them as comps naturally do fluctuate from here? And will there be an opportunity to maybe get more productive with this unprecedented higher sales level you're operating at now.

Yeah, I think, you know, making sure.

Your last question is from the line of Lauren Silberman with Deutsche Bank. Lauren, your line is now open. Please go ahead.

Thank you for fitting me in and congrats on the great results. I'd like to go back to the assumption on traffic being flat during the holidays and the last three weeks, given how busy you are. Is there an area where you can continue to drive positive traffic or are you just at full capacity, like any other times during the year where you're at peak capacity?

Yeah, Lauren, that's a fair question during those weeks, you know, I think in the other parts of it.

I understood. Then just on price, I think you mentioned Q3 was 2.4 and that Q4 is 3%, so just are you assuming 3% in Q4 and is that how we should think about 27? Thank you.

Yes, and a little bit of that was just the timing of year-over-year pricing, so update that as we get into the menu change cycle and we see work.

This concludes today's call. Thank you for attending. You may now disconnect.