Cheesecake Factory (The) Barclays 19th Annual Global Consumer Conference
Review the key takeaways and the transcript of this earnings call.
- The Cheesecake Factory operates approximately 220 Cheesecake Factory restaurants, 50 North Italia units, and 40 Flower Child fast casual units.
- The company projects total revenues of approximately $4 billion in 2026 with a net income margin of roughly 5.4%.
- They plan to open up to 26 new units this year, aligning with a long-term goal of 7% unit growth.
- The company reported close to 6% comparable sales growth in the past quarter, driven by nearly three points of traffic growth.
- Cheesecake Factory's restaurant margin reached a decade high, approaching 20%, with Flour Child also in the 20% range.
- Commodity inflation is manageable, with favorable dairy prices offsetting elevated beef costs, and labor inflation is stable at low to mid single-digit levels.
- The company spends about 1.2% of sales on marketing, primarily focused on the rewards program and social media investments.
- Internationally, the company grows at a pace of three to four units per year through licensed operators, focusing on control and long-term investments.
- Capital expenditures for the year are around $200 million, with two-thirds allocated to unit growth and one-third to maintaining existing restaurants.
- Free cash flow is expected to cover increased CapEx, and the company pays dividends of about $15 million and repurchases shares around $10 million.
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Transcript
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Morning, and thank you for joining us. My name is Jeff Bernstein, and I am the restaurant and food service distribution analyst at Barclays. I did recently announce my plans to retire, which is actually happening at the end of this month. I guess I'm the official outgoing analyst, with the next analyst still to be named. But it's bittersweet. I guess they threw me a party to say goodbye, so this is great. I want to welcome all to day one of our 19th Annual Global Consumer Conference. I think even more importantly, this is the first year where we have combined our two consumer conferences. We've got the Back to School Consumer Staples Conference, which has historically held this spot, and we have our Eat, Sleep, Play, Shop Consumer Discretionary Conference.
Within my world, we have 14 restaurant and food service distributors here with us. That's the most we've ever had. I think the combination of staple and discretionary is going to work really well. Of those, today we have Cheesecake, BJ's Restaurants, and Kura Sushi. Tomorrow we have Bloomin' Brands and Dine Brands and First Watch Restaurant Brands, Sysco, Texas Roadhouse, Wendy's, US Foods, Yum! Brands, and Wingstop. Then day three, all by themselves, we have Performance Food Group. We hope you find the next three days a good use of time, and we get to chat in the halls between meetings. But at this point, I'd love to introduce our first presenting restaurant company, which is The Cheesecake Factory. So with us on stage this morning from Calabasas Hills, California, we have Matt Clark to my immediate right. He's the CFO. We have Etienne Marcus to his right, who's the VP of Finance and IR.
By way of background, if it's possible for those not familiar, The Cheesecake Factory U.S. portfolio is led by 220 or so Cheesecake Factory restaurants and 50 North Italia units, along with 40 Flower Child fast casual units. And they have other brands in their portfolio as well. So it is a portfolio company. Looking at 2026, and again, we are moving our way through it quite quickly, but their guidance projects total revenues of approximately $4 billion and an updated net income margin of roughly 5.4%. They're opening up to 26 new units this year. That kind of aligns with management's long-term goal for 7% unit growth. So we want to thank Cheesecake Factory very much for joining us.
I will kick it off with some questions, and hopefully you have a chance to see Cheesecake, if not now, but otherwise throughout the halls today. So thank you very much for joining us this morning as our first restaurant company here.
Well, thank you for having us, and thank you for being a great partner for many years. We wish you only the best as you move to the next part of your journey.
Thank you. I'll still be visiting The Cheesecake Factory.
We'll never be apart. A guest for life.
A guest for life. I had a couple of broader consumer discretionary questions because I think you have a pretty good look at what's going on with the consumer. I'd love to just start with that, maybe the health of the consumer broadly and maybe by cohort. Just wondering, what do you even look at to assess and whether you see any change in trend, whether it's by age group or by income or by ethnicity, how you would assess the current environment?
Well, I think for our namesake concept as well as the rest of our portfolio, it has been strong. I think that the consumer has money to spend. Maybe they are a little bit more discerning with where they spend it. You have to execute well. You have to meet them where they are at with the value proposition for whatever that means for you. Obviously, with The Cheesecake Factory, part of that is the large portions, for example. You still have to have price points that matter, though. So I think it is a winnable scenario, albeit not easy. We do track a lot of data, and we, I think, have a benefit of having multiple types of concepts in many geographies. We do see ourselves continuing to attract, I think, importantly, younger guests.
I know there has been some concern about that cohort, for example, but particularly with the launch of our app at The Cheesecake Factory earlier this year as well as some of the social media that we have been doing, we know we are bringing in new, younger guests as well as continuing to refill the funnel across the broad demographic. So I think it is steady. I think there is market share to be had, but I think that restaurants in general are performing as well as any consumer sector, and probably casual dining better than most, as I think what guests are really looking for is experiences. And we provide great experiential dining opportunities for people to come together and have a little escape from life. And our own recent research points directly to that.
That is great and very encouraging, obviously. As you think about the broader restaurant industry, there is always talk of the battle between food at home, and now we are with our staples brethren right upstairs, so I will not speak too loud, but versus food away from home. We have always said that food away from home is going to continue to take share from food at home. Do you think the most recent value focus across the industry has given that upper hand to food away from home? Or often we will hear the staple sale. People are trading down into food at home at this point.
Yeah. We like to believe that we are more staple-like than we have ever been before. But if you look at the long-term trends of where consumers are spending their share of wallet, it continues to increase for food away from home. We joke about the fact that people do not know how to cook anymore. But they also grew up watching the Food Network and all of those attributes about socialization. You even see that in mall traffic today, that the younger guests want to go back to the mall to have those social events. So I think there are multiple contributing factors. I think you are right, Jeff, on the value piece. A lot of that is optics, but that first view that a guest might have to say, "Can I afford to go out? Do I feel like the company is respecting my price points?" They usually trade up.
But it is about making sure that the consumer has that choice when they come into your restaurant, that they can decide do they want to have a piece of cheesecake or do they just want to have a salad and the free bread, and that is their choice for that day. So I think value has been important, but I also think there is a huge experiential component that is also continuing to go on and probably grow.
Yep. Right. You have been in the seat for quite a while. An investor misunderstanding, what questions do you get, whether it is today or over the past year, that surprises you? Or questions that you do not get that you say, "You know what? You should be asking about this aspect of our business." What surprises you either way?
Well, I think the biggest surprise, if you go back a year or 9 months, when we were in the middle of a government shutdown and traffic was pressured, it was about where is the recovery? Can you get the positive traffic? Now I would say it is surprising in my long tenure here, the question is, well, how much traffic can you get and how sustainable is it, right? So the dynamic has completely shifted, and I think a lot of that is what we are doing, and a little bit of that is some spark from social media. So they want to understand, our investors want to understand how much of it is in your control, where can it be in the future, and all of the attributes around sort of the growth algorithm sort of permanently shifting to the upside.
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