Earnings Call Transcript - CAKE Q1 2021

Operator, Operator

Good day, and thank you for standing by. Welcome to The Cheesecake Factory First Quarter Fiscal 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. Please be advised that today’s conference is being recorded. Thanks. Good afternoon and welcome to our first quarter fiscal 2021 earnings calls. 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 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. 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 first quarter results and provide a financial update. With that, I'll turn the call over to David Overton.

David Overton, CEO

Thank you, Stacy. Following an uncertain start to the year, given the impact of dining room closures and capacity restrictions, March served as a positive inflection point in our sales trend as restrictions eased and consumer spending generally increased. By mid-March, nearly all Cheesecake Factory restaurants and our other concepts had some level of indoor dining capacity open. We saw significant pent-up demand across the country and also saw some benefits from the earlier spring break vacation timing. At the same time, we continue to drive strong off-premise sales volumes, which equated to over $4 million on average per unit on an annualized basis at the Cheesecake Factory restaurant based on average weekly off-premise sales during the first quarter. Our operators did a tremendous job managing the dine-in and off-premise sales levels, delivering delicious memorable experiences for our guests and also exceeding our expectations across our key performance indicators. This drove a strong end to the first quarter and a solid start to the second.

David Gordon, President

Thank you, David. The playing field leveled for us in March due to COVID-related dining restrictions in many of our key markets, and in addition, as vaccination progressed, we saw incredible pent-up demand for the experiential dining occasions we provide. Cheesecake Factory restaurants, having reopened indoor dining rooms, generated average weekly sales in March that equated to approximately $11.5 million on average per unit on an annualized basis, outpacing 2019 average unit volumes. This compared to approximately $10.4 million on average for the entire first quarter, including the stronger March period. Strong sales trends continued into the second quarter, with quarter-to-date through April 27 comparable sales at the Cheesecake Factory restaurants up 7% versus 2019, including the most recent week at the same level. Based on average weekly sales quarter-to-date of approximately $222,500, this equates to approximately $11.6 million on average per unit on an annualized basis. On average, Cheesecake Factory locations are operating at approximately 60% indoor dining capacity, with approximately two-thirds total on-premise capacity including patios. We continue to believe the magnitude of these sales volumes underscores the tremendous brand affinity for the Cheesecake Factory. Our continued strong performance in the off-premise channel has supported these sales volumes, with off-premise comprising approximately one-third of total sales quarter-to-date. On an absolute basis, this equates to nearly $4 million on average per unit on an annualized basis, based on second quarter-to-date average weekly off-premise sales. We curtailed our off-premise marketing, as sales significantly strengthened in March and April. We believe the appeal, quality, and increased awareness of our offering has enabled us to drive the highest level of off-premise sales dollars and maintain the highest level of off-premise sales when indoor dining rooms reopen, relative to our publicly traded casual dining peers. Our ability to sustain off-premise sales around these levels for over a year reinforces our belief that a meaningful increase in off-premise sales could be a longer-term sales driver for the Cheesecake Factory as we emerge from the pandemic. Turning to North Italia. Currently, all locations have indoor dining rooms open. We've seen strong pent-up demand from guests wanting to return to the restaurants, but we have also continued to drive solid off-premise volumes, second quarter-to-date of approximately 20% of sales. North Italia second quarter-to-date through April 27, comp store sales are up approximately 8% versus 2019 levels. We continue to believe North Italia's performance during the pandemic reinforces the long-term potential for the brand.

Matt Clark, CFO

Thank you, David. First quarter comparable sales at the Cheesecake Factory restaurants increased 2.8% year-over-year. Relative to the 2019 period, comp sales were down 10.4% for the quarter but just 2% lower in March. Off-premise represented approximately 43% of total Cheesecake Factory restaurant sales during the first quarter. Revenue contributions for North Italia and FRC totaled $87.5 million. North Italia comparable sales increased 5% year-over-year and were down only 5% versus the 2019 period. Sales for the operating week at FRC, including Flower Child, were approximately $80,700, including $16.7 million in external bakery sales, totaling revenues of $627.4 million during the first quarter of fiscal 2021.

Sharon Zackfia, Analyst

Hi, good afternoon. Congratulations, by the way, on the return to positive concepts. Great. It's making me hungry. So I guess the question on off-premises. I think if I'm doing the math correctly, it seems like off-premises average weekly sales were actually up in April relative to the June quarter of last year. I just want to confirm if that's accurate and only down kind of slightly, actually from the March quarter, even as restaurants have really rebounded on-premises?

Matt Clark, CFO

Hey, Sharon. This is Matt. I think your math is pretty close. I mean, we'll double-check for you. But I would say that for us, the key is it's been extremely consistent. You know, we're right around that $4 million mark on an average unit volume per year. So I think your math is probably right, and it's definitely moving in the right direction.

Sharon Zackfia, Analyst

Thanks for that. And then a follow-up question on labor. Are there any catch-up investments on the labor side that we should think about for the remainder of this year? I mean, it seems like your labor, if you look at a per operating week, is kind of well under the improvement you've been seeing in sales, even on a two-year basis. So just wondering if there's some sort of big catch-up there, if you're seeing some sort of extended wait times in the locations that maybe wouldn't be sustainable longer term?

Matt Clark, CFO

No, I don't think there's any specific investments. I mean, we definitely are seeing sales increase, which means that we're hiring and we'll need to do training as we normally would when running into the spring season. So I think that that's relatively consistent. Oftentimes, when you see a surge in sales like this, you get a little bit more leverage initially than you think you do. And you might end up with some very favorable labor metrics. But in general, we're happy with the productivity that we have, and it's reflective of our historical productivity as much as anything else.

Sharon Zackfia, Analyst

Okay. Great, Thank you.

Nicole Miller, Analyst

I think I heard this properly, because you say you curtailed marketing around off-premises. If so, do you curtail at the marketplace level, where they were doing that on your behalf or some marketing that you were doing yourself?

David Gordon, President

Hi, Nicole, it’s Dave Gordon. We curtailed the sort of the end of March to April. And as we elaborated, we really didn't see any impact on sales at all and saw some very strong sales here just in the past few weeks. When it comes to the DoorDash marketing, things like top-of-app preference and some of our normal considerations we get as an exclusive partner haven’t changed. But any promotional activities, meaning discounting off of cakes or anything like that, those are the activities that we stopped.

Nicole Miller, Analyst

All right, great. And then within spur level margin, what's the marketing percentage I guess, kind of embedded? What was it in 1Q and what might it be for this year? And is that amount more or less than the last year? Thank you.

Matt Clark, CFO

Well, as you think about direct marketing, Nicole, this is Matt, you know, it was just sort of overall marketing. There's obviously some of the commissions that we include in that for the delivery piece of it. But for the direct marketing piece, you know, we're really pretty much in line with where we have been historically, in that 0.5% to 0.6% range overall, for the first quarter. That was sort of our plan for this year. You know, I think that we'll evaluate the sales trends, and we'll adapt, but that's consistent with where we've been, and where we were in the first quarter.

David Tarantino, Analyst

Afternoon. Matt, I was wondering if you could give us a little bit of context on what margins could look like in the second quarter if this positive trend you're seeing in your business continues. Any sort of framework you could offer would be helpful.

Matt Clark, CFO

Sure. This is Matt. I think we've always taken the sales-first approach during the pandemic. And I think, while a lot of companies were targeting getting margins back faster, our goal has always been to get back to 2019 margins at 2019 sales levels. So I think that is still a very good initial take. And what we've talked about historically is that when you get to that level and you go above that with sales, a flow-through of about 30% is probably within the range that we've performed historically. So I think, depending on where the sales levels are, that will give you sensitivity as to where the restaurant-level margins could be. And then I think we tried to give very specific G&A guidance. Roughly, you're going to have pre-opening in the same ballpark that it was. So I think you can kind of get to a total from there.

David Tarantino, Analyst

Got it. And then David, I was wondering if you could comment on the current staffing environment that the industry is seeing and what you're doing to make sure your restaurants remain fully staffed and operational the way you want them to be treated?

David Overton, CEO

Sure, David. Well, I think historically, as you know, our culture has always been what we believe a competitive advantage for us and a reason that we're an employer of choice. Once again, we’ve been named three years in a row on the Fortune 100 Best Places to Work. Fortunately, we made the strategic decision on the management staff inside to keep all of our managers in place, which is enabling us to be able to execute as well as the operators are executing today. Just purely from a metric standpoint, we're at about 96% of our staffing levels pre-COVID. So, I don't know that we have as much catch-up to do, perhaps as some others in our space. We've always paid a very competitive wage. We have a very strong career continuum that shows advancement opportunities. We've also taken this opportunity to bring back a couple of our recruiters to help at the hourly level in the restaurants so they can stay focused on operations. So, we're really good about our plan in place. We don't really feel like the current staffing situation is going to have a negative impact on sales moving forward. Our operators are doing a great job retaining the people that we have, and that's been something that we've talked about since the beginning of COVID that retention will be key once we get to this point. And so, that will continue to be a focus, and the strong retention we saw in the first quarter, we were hopeful and anticipate we will move through the rest of the year.

David Tarantino, Analyst

Thank you for that. And do you think this dynamic is going to lead to an escalation in labor costs in order to retain or attract the right talent? Are you considering chasing this with more dollars? Or do you think that will be required?

David Overton, CEO

I think we'll always be smart about how we chase it. If we're in a competitive place, we're certainly not going to lose our really good people over some small incremental increase that a restaurant has to pay somebody. But we're going to be smart and competitive about it. We have a lot of analytics that allow us to see what the market is paying. So that individual restaurant in any particular market knows what's happening right around them, and they can be appropriately competitive.

Matt Clark, CFO

David, this is Matt. I would just add to that, one of the things that's really important about how you measure the pay at the hourly level is the total paycheck that's being brought home in addition. And obviously, we're in a fortunate position to fully employ people for the hours that they want to work. And so certainly that is going to help us with people as they're able to get more hours and sort of be fully staffed, if you will. The other thing we've seen, as many have in the industry, is a slightly higher check average, which also helps from a server's productivity and their tip amounts relative to the hours worked. And so I think that helps too.

David Tarantino, Analyst

Right. Thank you very much.

Brian Mullan, Analyst

Just a question about North Italia. I know you've spoken about the potential for 200 units or so over the long-term, if you were to assume that the brand can go in every market where there's a Cheesecake Factory. Can you talk about your degree of confidence today and that 200 units potential? Is there some threshold number of units or even some threshold number of successful launches in certain geographies where your confidence goes up or down relative to where it is today? Just any thoughts on that would be great.

David Overton, CEO

Thanks, Brian. This is David. Our confidence remains very strong and very high on North in all geographies. We opened here in Birmingham, Alabama and we opened a second location in Miami, and we continue to see great guest demand and great reviews. So, there hasn't been a market that we moved into yet where it's caused us to pause and say perhaps that 200 number is not realistic. We think it certainly is realistic. We could continue to grow North at about a 20% growth rate, and we've seen that guests are responding to it in a very favorable way. So, we're very, very bullish on the future.

Brian Mullan, Analyst

Thanks. And then a follow-up question, which is similar, just about our Flower Child in North Italia. Confidence is very high to scale nationally. How do you define your confidence in Flower Child's ability to scale now nationally, maybe relative to how you feel about North Italia? And what are you looking to learn from your openings over say the next one to two years?

David Overton, CEO

I guess very similar. We've seen again, Flower Child open in Oklahoma City of all places. One of the busiest openings they've had since Flower Child's inception. So, we feel good about, again, consumer guest demand, and it's been a little bit more of a lifestyle brand. It's done well outside of Arizona, whether again, that’s in Texas, Oklahoma City, Florida, California, you name it. So, we think that it will continue to grow and is working in different geographies. As I stated earlier, some of the learnings from the pop-up that happened in Arizona a few months ago are the type of things that we'll continue to look at employing, if that makes the guest experience easier, faster, more convenient, along with the, obviously, delicious menu, which thus far continues to do very well. We're launching new menu items at Flower Child on a relatively regular basis, and they continue to resonate with guests as well.

Brian Mullan, Analyst

Thank you.

John Glass, Analyst

In the markets that are in different stages of reopening, is the to-go business in the most reopened markets at the same percentage or dollar amount as it is in California, where the reopening has been slower? How do you view the potential for growth in the strong off-premise business of $4 million? Is that where you want it to be to ensure you can accommodate incoming dining guests, or do you believe there is still room for growth even at these high levels?

David Overton, CEO

Well, I'll start, John, by saying that it is stable across all those geographies. So even in the markets that have expanded capacity, whether that's 50% or 75%, they're still seeing the high off-premise volumes. And we'd be happy if that's where it stayed. I don't know that we're looking to grow that exponentially outside of what we're doing inside of the restaurant. We know that we can handle the capacity the way it is today. As the restaurants are even at almost 100% capacity maybe in Texas or Florida, our ability to handle the off-premise business gives us confidence. As we said before, because of the design of the restaurants, our ability to easily execute that off-premise business is why we're keeping it a part of it. The teams are doing a good job, and the guests are having good experiences. So I would anticipate moving forward, we're hopeful that we'll keep what we have. And we'd be happy if that was the case.

John Glass, Analyst

And then just as a follow-up on the unit development pipeline across the portfolio. I think you talked historically about a 7% growth target. Do you think you’d get there in '20? How soon do you get there? Do you think that’s a '22 event? It's a real estate development, and you're ready for that, or maybe direct side to that given the target so far?

David Overton, CEO

I think, John, we're imagining 2022, that's what we're targeting. They have opened the real estate team, outsourcing sites right now towards that target. I think we feel good about that, and then growing from there. I don't think we really look for upside to that number because there is a rate of growth that's appropriate for each of the brands, and we want to make sure that we're sourcing at top sites as we always have and sourcing the right people for those locations and growing at the rate operations can handle. So that feels like the right number to us today on a future basis.

Andy Barish, Analyst

I wanted to discuss your dining business, which you mentioned has about 66% of sales from patios, and it seems that dining sales are currently at a similar percentage as they were before COVID. Is it possible for that sales figure for dining to increase significantly from where it stands today, or do your spacing measures and other actions limit that potential?

Matt Clark, CFO

This is Matt. When we analyze the figures, for those restaurants that increase from about 50% to 75%, the total comparable increase can exceed 10%. So there is definitely potential for growth. Currently, we have around nine or ten locations at 25%, but we are nearly split between 50% and 75%. We observe that moving from 50% to 75% results in a significant improvement. Going beyond 75%, I expect there may be some diminishing returns, but there still should be a positive outcome.

Jon Tower, Analyst

I wanted to follow up on the earlier marketing question. When considering the discounting in the off-premise channel, is it true that this situation is only temporary? Additionally, how do you plan to approach marketing in the future? Will it focus more on building brand awareness and maintaining high levels of awareness rather than on discounting? I have a few more questions if that's alright.

David Overton, CEO

Sure, Jon. I think you nailed it. Yes, it's about brand awareness. It's about making sure our social presence remains strong, and our search engine optimization remains strong. As long as we are not in a position where we're going to need to be doing that type of promotion, it will be about brand awareness for Cheesecake Factory and for North as well, to continue that brand awareness as it continues to grow.

Jon Tower, Analyst

Okay. And then just on the G&A front. And thanks for the quarterly guidance here. But how should we think about growth going forward over time, as unit growth ramps, this step up of roughly $47 million a quarter in 2021? Is that the first step up, a few more ahead, as you kind of reach that sustained level of 7% growth? Or are we kind of thinking that this is a slightly modest level of growth going forward? I think you've given guidance in the past as a percentage of sales, but it escapes me at the top of my head.

Matt Clark, CFO

Yes, this is Matt. Jon, I think, although, that's probably how I would talk to it for the future, right? I think, given kind of the uncertainty in our sales level, we thought it was better to be a little bit more prescriptive on the dollars. Really, in the backup, we think that gets us to, and depending on what the sales levels are, a run rate that is consistent with our target. If I extrapolate out, originally our target was about 6.5%, improving a-tenth a year from there that will put our target for 2022 at 6.4% of sales. So I think that's an easier concept to work with and then improving a-tenth a year from there and ultimately getting to 6%.

Jon Tower, Analyst

Great. Lastly, with demand being very high in the off-premise channel, what are your thoughts on increasing prices on the delivery menu specifically? Currently, it seems to be around low single digits, about 2% to 5%. Why not make that transaction either margin or profit friendly, or even neutral to positively impact in-store transactions?

Matt Clark, CFO

Jon, this is Matt. Again, I think the way we think about it is agnostic to the guest experience. I mean, I think that David has grown this company targeting absolute guest satisfaction. We think that if it's basically margin neutral, it's a fair proposition and will drive the business, and we'll make our money that way. That's where we're at today. The more that other companies take more pricing, the better off we're going to be actually, is where we sit. So I think it's a little bit of a contrarian view, but it seems to be working pretty well for us.

John Ivankoe, Analyst

Hi. Thank you. A slight follow-up on the pricing question, and then a second one, if I may. On the pricing side, I mean, have you looked at your overall commodity basket? I mean, there's pressure in a number of different places, both on the raw commodities and I guess the cost to distribute them and process them as well. Looking at 2021 versus 2019, for example, if there's anything that's catching your attention here that might necessitate filling up your pricing that, in the previous questions, that you might not need to take.

Matt Clark, CFO

Yes, John. This is Matt. I believe it's a good long-term question, and we'll keep an eye on the environment. It's difficult to predict. The commodities markets remain very volatile, but the futures markets seem to indicate a return to more normal levels. Fortunately, our supply team has done an excellent job over the past 12 months in maintaining consistent and predictable levels. As I review our baskets, including produce, dairy, meat, seafood, and fish, they all range from plus 5% to minus 5% year-over-year, resulting in a weighted average of about 2%. We're in a solid position with about 75% of our contracts secured for the year. As you know, we adjust our pricing twice a year, and we will assess where the contracts start to form for the next year.

John Ivankoe, Analyst

That's perfect. In the past, you guys have given very specific comments on relevant supply in your specific trade areas or maybe your specific center that you're in. Could you update those? I mean, has the number of relevant supply or competitors closed round you in other words, are you seeing less relevant supply in the near-term? And if you can comment whether you think those spaces will be filled with restaurants over the next 12 months or so, if there's activity from a lease perspective in those sites? And how many of those sites maybe you can fill with your own brands?

Matt Clark, CFO

John, this is Matt. It's a good question. Just to be honest, we did do a quantitative study in the fall. We followed it up more anecdotally with our boots on the ground. Indeed, there is a little bit of a mini wave of closures in January, right because of those that didn't make it out of the holiday season, but it was not a big, big number. There are a lot of locations that we might look at or getting calls about today. If anything, there was a little bit more relief on the supply side near us, but we don't have that quantified.

Jeffrey Bernstein, Analyst

Great. Thank you very much. Two questions. Just the first one, a follow-up on the to-go business or off-premise. I think you mentioned in the first quarter it was 43%. And then I believe it's now down to a third of sales in April. So I'm just wondering, I know you mentioned you're obviously hoping to hold those levels. I'm just wondering what level you're referring to because it looks like as things reopen, you know, the premise slipped, and maybe you can talk about it in terms of dollars. I'm just curious where you think it settles, relative to where it was before. Just to try to figure out how much incremental sales you think you can hold on to from to-go even if you got the in-store back to 100?

Matt Clark, CFO

Sure, Jeff. This is Matt. To address your question about the financial aspect, we've experienced a substantial growth of over 10% from Q1 to now. This increase has primarily come from on-premise sales, while off-premise sales have remained stable. Consequently, we are seeing a shift in that mix. However, we are maintaining the annualized off-premise AUV figure of $4 million and have been able to recapture on-premise sales during this time.

Jeffrey Bernstein, Analyst

Got it. What was the number of pre-COVID relative to that $4 million? I believe it was sub $2 million or....

Matt Clark, CFO

It was around $1.7 million, or $1.8 million depending on the range.

Jeffrey Bernstein, Analyst

Got it. So if you were to maintain that extra like north of $2 million, obviously, it would be huge on your CV base. But can you talk about maybe the margin opportunity on that? I would think that off-premise was a slightly lower margin because you have less apps and desserts and drinks and stuff, and some fees for delivery. But obviously, you're leveraging your fixed cost. I am just wondering where the margins could go if you were to hold onto that extra $2 million or so of incremental to-go sales? Thank you.

David Overton, CEO

It's relatively neutral margin for us, right? So we've got a great relationship on the delivery front and that continues to be a very consistent 40%, online ordering 30% and pickup 30%. We do take a little bit of extra pricing, as was referenced, low single-digit for delivery. When you put all of those pieces together, the off-premise business basically ends up around the same margin as on-premise. So we're pretty agnostic about where we drive the sales as long as we're getting them.

Brian Bittner, Analyst

Thank you. With your Cheesecake units trending 7% above 2019 levels, it is showcasing just incredible demand out there. Just curious how you want to think about what, if any, stimulus impact may be in there or maybe perhaps there's evidence that you are seeing, like off-premise, etc. that suggests this strong trend that you're seeing for the same thing is actually sustainable. So just your thoughts there?

David Overton, CEO

It's a tough question, and nobody really knows for sure. Typically, we see a lesser impact from stimulus compared to those who are at a lower price point. However, looking at the trends, the last four weeks have shown remarkable consistency, which is a key indicator for the Cheesecake Factory. I'm interested in the statistics, analyzing the time of day, day of the week, and geography. When I observe that aggregated numbers are behaving in a notably stable manner week after week, I consider that a very positive sign. While I can't say this is permanently sustainable, it certainly looks like the momentum is there even without the stimulus funds.

Brian Bittner, Analyst

That's great color. And my follow-up is just going back to the differences in capacity in Cheesecake Restaurants like in California versus Texas and Florida. Are you in fact seeing really big differences in same-store sales versus 2019 levels across your portfolio, simply based on capacity differences on the indoor dining? Or are you actually seeing pretty similar trend across your asset base?

David Overton, CEO

You know, certainly when there's capacity differences, the difference between 50% and 75%, you know that comp difference is high single digits, right? So there is a big difference. There was no question. While we opened up a little bit more, particularly on the busy nights, say Friday through Sunday brunch, we're absolutely able to capture more business.

Brian Bittner, Analyst

So what is kind of the average comp, if you can tell us for, you know, the store base that's in that top quartile on capacity?

David Overton, CEO

It's been moving frequently. We haven’t observed it over a long period because you would need to take a sort of a vintage. However, I would say that we are roughly 50/50 right now, between 50% and 75% dining, and the variation is high single digits. You can extrapolate from there.

Dennis Geiger, Analyst

I wanted to ask another one on the dining business. I think Matt, you just spoke to dayparts, days of the week consistency very recently, and maybe I missed it. But I'm curious if kind of the last couple of months if you've seen different behaviors around dayparts days of the week than you saw maybe six months ago or than you've seen historically. If that's the case, how do you think about that going forward, and maybe what that can do to the dining business, at least kind of over the medium term, if you're getting folks to come at different dayparts and have different days of the week than they normally would?

Matt Clark, CFO

Yes, I mean, I think, first and foremost, as we reopen, you just see that the weekends, the numbers get stronger, because that's where the on-premise demand has always been and what produces capacity, it does limit. One of the things that I would point out that I think is a good positive for us is the biggest growth we've had in dayparts, if I look at the most recent trends, is the mid-afternoon. So, lunch was even slightly bigger than dinner too. Those have been two areas rebuilding the shoulders. The other thing I would say is that from a comp perspective, we are seeing outsize performance in the middle of the week. So that's also positive because we're the areas of pressure have been found for us at the middle of the day in the middle of the week. We are seeing outsized gains there recaptured, so I think those are both.

Dennis Geiger, Analyst

That's helpful. And one more if I could. Just curious in your perspective on sort of mall traffic, competitor restaurants located within malls around your locations, if there's anything to share recently on what you've seen and the implications for your brands and then kind of your thoughts on the go-forward and the implications there for your brands?

Matt Clark, CFO

You know, we haven't recalculated that, but we did see some closures right after the holidays. Certainly, there is a little bit less competition near us. It seems to be quickly stabilizing, obviously with the trends. I would say just to comment on the mall traffic, I think there's a recent Wall Street Journal article that talked about the positive momentum in A properties for foot traffic. So, I think if anything, look, we've proven that in without them all being open, we can get the business. If they return some of their foot traffic, that's only going to be a net benefit for us.

James Rutherford, Analyst

Thanks for taking the question. You saw some leverage on your cost of sales line. I think you called out mix bakery sales in price, if I heard correctly, as the three drivers. There's been a few questions around commodities and menu price already. But when you put all that together, how should we think about that cost of sales line, the P&L going forward? And I have a follow-up please.

Matt Clark, CFO

Yes, it's probably slightly more beneficial than it will be over time because you do see some mix normalization. The pricing leverage is permanent, so we've had on that line item, right, because we've been balancing out the labor versus the commodity piece. So, you're going to get that permanently. We do maintain some degree of elevated dessert sales. In aggregate, we'll still see a favorable trend on commodities, maybe not quite as positive as we saw in the first quarter.

James Rutherford, Analyst

Okay. Thanks for that. And then for follow-up on Brian's question from a moment ago back, near-term or recent trends, I notice that you called out in prepared remarks the most recent week is also running 87% above 2019 levels, implying perhaps the results you are seeing are not so much one-time stimulus, but at the same time kind of week upon week you are seeing more say open up capacity which is propelling the overall comps. I'm just curious if you could share even just qualitatively looking at a specific geography or geographies, are you seeing the sales volumes hold up week-to-week or even build after opening? Or is the kind of stability or comp through April more a factor of more states are opening up fiscally? How that makes sense? That's kind of a question on the durability or recovery here.

Matt Clark, CFO

Yes. Sure, sure. From a capacity standpoint, it doesn't change too much in April, right? So, most of the California reopening occurred in March and that's obviously the point of inflection for us. But the demand piece of it there. So, mostly what we've seen is a very stable trend after reopening. We typically build slowly during this quarter with seasonality. From our consumer perspective, it looks and feels like people are going to want to get out and celebrate graduations and do some things like that. So, I wouldn't be surprised if we're following a relatively normal seasonal pattern. But again, these trends are still developing. April has been very consistent for us, which at least helps us manage and plan the business.

Lauren Silberman, Analyst

Thanks. Matt. I believe you might have mentioned you're seeing higher average checks. Can you expand on what customer behavior changes you're observing as restaurants reopen? But it makes more premium items, alcohol consumption, higher intrinsic, appetizer and dessert?

Matt Clark, CFO

Sure, it really is not necessarily the reopening per se. I mean, it's been going on since there's been the ability to dine in at all, or even if that's been on the patio. The guests are looking for experiences. I think we're just obviously, we are the experience or dining leader specifically in the Cheesecake Factory, North Italia, all of our concepts. People are just looking to have maybe a little bit more. Dessert sales have generally trended a little bit up. The amount of intrinsic rate on food items is slightly higher. So, it's just kind of a little bit across the board that people are looking to have this whole Cheesecake Factory experience.

David Gordon, President

Hi Lauren, this is David. They're very similar. So I think that was stated a little bit throughout the pandemic that the increase in some of the lunch business that we've seen in our off-premise promotions was very, very strong. So we saw a lift from that. But as far as ordering patterns, that high intrinsic rate of desserts, as Matt mentioned, we certainly see that when it comes to off-premise guests, whether that's delivery, online ordering, or calling in and picking it up. That average check is very similar. The average check is calculated a little bit differently, but it's maintained around $45 to $48 on the off-premise throughout COVID, and those elevated experiences around desserts have continued to stay strong now for 15 months.

Operator, Operator

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