Cheesecake Factory (The) 2026 Q3 Earnings Call

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, 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 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 acquisition-related items, impairment of assets and lease termination expenses, and other items. Explanations of our use of non-GAAP financial measures and reconciliation 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 third quarter financial results and provide commentary on our financial outlook before opening up the call to questions. With that, I'll turn the call over to David Overton.

Thank you, Etienne. We delivered an outstanding third quarter with revenues once again exceeding $1 billion. 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% 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%. 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.

Thank you, David. Our remarkable 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 of the year. Importantly, our sales growth was driven predominantly by outstanding traffic growth of 9.5%, outperforming the Black Box Casual Dining Index by an impressive 940 basis points. Additionally, the improvement has been broad-based across geographies, day parts, days of the week, and channels, with off-premise remaining stable at approximately 21% of sales. This performance reinforces our conviction in our strategy and reflects our continued focus on several key priorities. Best in class operational execution supported by industry leading retention, menu innovation, and the ongoing growth and evolution of our Cheesecake Rewards and marketing efforts.

The Cheesecake Factory is 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 base. This provides a meaningful opportunity to introduce The Cheesecake Factory to new audiences and ultimately drive incremental restaurant traffic. 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. Our latest Cheesecake Factory opening in Wichita is another great example of the affinity for the brand.

The restaurant generated tremendous guest enthusiasm, delivering impressive sales during its first operating weeks, reinforcing the opportunity we see to continue expanding The Cheesecake Factory successfully into new markets. Now turning to our other concepts. North Italia third quarter annualized AUVs totaled $7.2 million, and comparable sales declined 3%. Restaurant level profit margin for the adjusted mature North Italia locations was 13.2% for the quarter versus 15.7% for the prior year. The change was primarily driven by sales deleverage. As I outlined on our last earnings call, we are advancing a number of targeted initiatives aimed at improving sales performance 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 designed to enhance value and make North Italia more approachable to a broader range of guests.

We have also refreshed our happy hour program with more attractive price points, new shareable dishes, and an expanded selection of beverages to deliver compelling value while building on the atmosphere, hospitality, and energy that make North Italia special. We are meaningfully increasing our media investment in two markets to expand the brand awareness and introduce North Italia to a broader audience. These efforts will allow us to test our ability to translate increased awareness into guest trial and conversion. Lastly, we are beginning to implement a kitchen management system designed to improve kitchen throughput, order coordination, and execution, supporting a more consistent and efficient guest experience. Collectively, 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 term.

Flower Child performed extremely well and once again meaningfully outpaced the fast casual segment. Third quarter comparable sales increased 11%, with two-year comp sales growth accelerating to 18%. The sales performance drove annualized AUVs of $5.1 million. Restaurant level profit margin for the adjusted mature Flower Child locations was 20.2% in the quarter, an improvement of 280 basis points from the prior year. Given the strength and 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 of growth. With that foundation increasingly in place, we expect to further accelerate development beginning next year. Lastly, we expanded the FRC portfolio with two Culinary Dropouts, one in Omaha and the other in Salt Lake City.

With that, let me turn the call over to Matt for our financial review.

Thank you, David. Let me first provide a high-level recap of our third quarter results versus our expectations I outlined last quarter. Total revenues were over $1.033 billion, meaningfully above the high end of the range we provided. Adjusted net income margin was 5.1%, and adjusted diluted earnings per share was $1.02, both finishing well above our expectations. We returned $16.6 million to our shareholders in the form of dividends and stock repurchases. We also generated quarterly net income of $61.3 million, and adjusted EBITDA increased 38% from the prior year to $98.7 million, marking another quarter of strong earnings growth. Now, turning to some more specific details around the quarter. Third quarter total sales at The Cheesecake Factory Restaurants were $754.4 million, up 16% from the prior year. Total sales for North Italia increased 11% to $93 million.