The Cheesecake Factory Incorporated (CAKE) Q2 2010 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Second Quarter 2010 The Cheesecake Factory Earnings Conference Call. My name is Sally, and I will be your operator for today. [Operator Instructions] I would now like to turn the conference over to your host for today, Jill Peters. Please proceed.

Thank you. Good afternoon, and welcome to our Second Quarter Fiscal 2010 Earnings Call. I'm Jill Peters, Vice President of Investor Relations. With us today are David Overton, Chairman and Chief Executive Officer; and Doug Benn, Executive Vice President and Chief Financial Officer. Before we begin, let me quickly remind you that during this call, items may be discussed that are not based on historical fact and are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those stated or implied in forward-looking statements as a result of the factors detailed in today’s press release, which is available in the Investors section of our website at www.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 statement. David will start off the call today with some opening remarks. Doug will then take you through our operating results in detail and provide our thoughts on the third quarter fiscal 2010 as well as an update on the full year. Following that, we'll open the call to questions. Without further delay, I'll turn the call over to David.

Thank you, Jill. We're pleased to report another quarter of positive comparable sales at both The Cheesecake Factory and Grand Lux Café. The economy is still sluggish, and the recovery seems to have slowed. This is evident in the Federal Reserve's actions last week, reducing its outlook for the economy. In addition, consumer confidence in July declined. Consumers appear to be cautious about spending, with concerns about global instability and the recent stock market volatility stated as reasons for the caution. However, in spite of this, we delivered very solid sales and earnings results for the quarter. Our better-than-expected comparable sales in the second quarter were driven by guest traffic gains of 1.4%. Consumers are very selective today about where they dine out, more so than they've ever been. Quality service and value for the overall experience a guest receives are no longer nice to have; they're necessities. Our ongoing high guest satisfaction scores are one indicator that we're doing more than just meeting the needs of our guests. Our comparable sales performance and cost savings increase helped drive 22% growth in earnings per share this quarter. We now anticipate realizing slightly more in savings than we originally expected this year from our cost management initiatives that we implemented in 2009. As for development, we expect to open an 8,500 square foot Cheesecake Factory in Bridgewater, New Jersey next month, which will be our final new restaurant openings for the year. Beyond 2010, we're optimistic about the fact that we're starting to see more availability of high-quality restaurant sites than we have in the recent past. These aren't just typical mall sites; they're a variety of site types, including freestanding, in line and specialty centers. We don't require only new mall development or expansion of malls for site opportunities. For example, if a large retailer closes, the space can be carved up into several pieces, which opens up additional opportunities for us. Right now, it's too early to pinpoint the number of new restaurants we expect to open in 2011, but as we have more on definitive development plans for next year, we'll share that with you. With that, I'll turn the call over to Doug.

Well, thank you, David. Total revenues of The Cheesecake Factory for the quarter were $418.9 million compared to the prior year second quarter, an increase of 2.7%. Restaurant revenues reflect a 1.3% increase in total restaurant operating weeks, primarily from the opening of two new restaurants during the trailing 15-month period, plus a 1.6% increase in average weekly sales. Overall, comparable sales of The Cheesecake Factory and Grand Lux Café restaurants increased 1.6% for the quarter. By concept, comparable sales increased 1.6% and 0.9% at The Cheesecake Factory and Grand Lux Café, respectively. As we discussed previously, sequential sales comparisons at both concepts were impacted in the second quarter by holiday shifts and by heavy Gift Card redemptions in the first quarter. In terms of the components that comprise comparable sales, traffic was up 1.4%, as David mentioned. We had another 1.4% in pricing, stemming from an effective menu price increase of about 0.6% in our winter 2010 menu change. However, a portion of our menu price increase wasn't realized in the second quarter because of ongoing check management by guests, particularly with regard to beverages. Looking ahead, we plan to implement a 1% effective menu price increase in our summer 2010 menu change, which will give us about 1.6% of menu pricing entering the fourth quarter of this year. At the bakery, external sales were $14.1 million, down slightly versus the prior year. Cost of sales increased slightly to 24.5% of revenue for the second quarter of 2010 compared to 24.3% in the same quarter last year. The 20 basis point increase was due primarily to pressure from dairy and cheese costs, as expected, offset by pricing leverage on commodity costs and savings from our cost of sales initiatives. Total labor was 32.5% of revenue for the second quarter, down 60 basis points from 33.1% in the prior year. This decrease was attributable to overall productivity gains from our operational initiatives and leverage from positive comparable sales. Other operating costs and expenses were 24% of revenues for the second quarter of 2010, down 30 basis points from 24.3% in the second quarter last year. Savings from our cost management initiatives and comparable sales leverage, plus lower workers' compensation and general liability insurance, were partially offset by expected slightly higher marketing costs due to timing. Our cost savings initiatives benefiting cost of sales, labor and other operating expenses, were at the top of our expected range in the second quarter, resulting in year-over-year savings of about $3 million during the quarter. Moving on to G&A expenses. They were 5.7% of revenues in the second quarter, down 80 basis points as compared to the second quarter of 2009. The majority of this favorability came from lapping the accrual related to our Chairman and CEO's retirement plan reported in the second quarter of last year. Depreciation expense for the second quarter was 4.3% of revenue, down 30 basis points versus the prior-year period. This positive comparison was driven by lower depreciation resulting from the impairment charge we recorded in the fourth quarter of 2009 as well as positive comparable sales leverage. Operating margins in the second quarter of 2010 improved 180 basis points to 8.9%, putting us on track to surpass our intermediate-term goal of returning to 2007 operating margin levels. We now expect to achieve our goal by the end of this year, a year earlier than we originally anticipated. Interest expense includes $7.4 million to unwind the remainder of our interest rate collar as compared to a charge of $3.3 million for a similar expense in the prior-year quarter. The remainder of the interest expense line was $1 million lower in the second quarter of this year due to a lower balance on our revolving credit facility. We decided to unwind the entire remaining $100 million interest rate collar this quarter rather than unwinding just the portion relating to the amount of debt we repaid. We eliminated the risk of waiting to unwind the collar, as we believed it would likely cost us more to wait and to do it in the future. As a result, we no longer have any interest rate collars in place on our remaining debt balance. During the second quarter, we repurchased 670,090 shares of our common stock at a cost of $17.4 million in the open market and under our 10B51 plan. We have approximately 6.7 million shares remaining in our current share repurchase authorization. Our liquidity position continues to be solid, with a cash balance of $86 million at quarter end, despite using some of our cash to fund our share repurchases, pay down our debt balance by $30 million and unwind the interest rate collar. Cash flow from operations for the first six month of the year was approximately $76 million. Net of roughly $18 million of cash used for capital expenditures, we generated about $58 million in free cash flow in the first half of the year. That wraps up our business and financial overview for the second quarter of 2010. Now I'll spend a few minutes on our outlook for the third quarter of 2010 and our current thoughts on the full year. As we've done in the past, we continue to provide our best estimates for earnings per share ranges based on realistic comparable sales assumptions. Our comparable sales assumption factors in everything that we know as of today, which includes quarter-to-date trends, what we think will happen in the weeks ahead, known [audio gap] (0:14:49.5) and the effect of any shifts associated with holidays. As has been our practice, we do not plan to give any more specifics on third quarter-to-date comparable sales trends on this call. With that said, for the third quarter of 2010, we estimate diluted earnings per share between $0.31 and $0.33 based on an assumed range of comparable sales between flat and positive 1%. Although we did not talk specifically about the second half of the year in April when we last provided our outlook for 2010, our implied comparable sales assumption for the back half of the year has not changed. Macro indicators have been soft and are slowing, as David mentioned. In addition, we're lapping a more difficult comparison in the third quarter. This suggests that it's prudent to be cautious and certainly, there is no externally driven reason to increase our assumptions at this time. Earnings per share for the third quarter will be impacted by a few items: First, we're expecting the dairy pressure that we saw in the second quarter to continue, driving higher year-over-year cost of sales. Additionally, pre-opening expenses will be higher on a year-over-year basis due to our new restaurant opening scheduled for August. There were no new restaurant openings in the third quarter last year. And finally, we're expecting additional marketing expenses in the third quarter, primarily, again, due to timing. These three items combined impact third quarter earnings per share by about $0.04. For the full year 2010, we now expect diluted earnings per share between $1.32 and $1.38 based on an assumed comparable sales range of between positive 1% and 1.5%. This represents our best estimate as of today, assuming no significant decline in the economy. Additionally, by the time we get to the fourth quarter, we would be lapping our toughest comparable sales comparisons of the year. With about 60% of our commodities contracted for 2010, we still expect food cost inflation to be between flat and up 1% this year. This reflects lower contracted prices for our proteins, offset by slightly higher expected dairy and fish costs. Our full year EPS also reflects a slightly higher expectation for cost savings from the initiatives that we implemented in 2009. We now expect to realize between $10 million and $12 million in savings in 2010, up from the previous range of $8 million to $10 million. Year-to-date, we have realized about $8.5 million in savings. We continue to expect our tax rate to be between 29% and 30% in 2010, and our projection for capital spending in 2010 remains at $45 million to $50 million. In closing, the key takeaways from our 2010 full year outlook are that: One, we still expect to see slightly positive comparable sales in the second half of the year; secondly, our earnings per share range implies operating margins of between 7.5% and 7.7% in 2010, so we anticipate doing better than our initial intermediate-term goal of returning to 2007 operating margin levels of 7.3%; and finally, the midpoint of our EPS sensitivity for the year reflects a healthy 26% growth in earnings per share as compared to 2009. With that said, we'll take your questions. In order to accommodate as many questions as possible, please limit yourself to one question and then re-queue with any additional questions.

[Operator Instructions] Your first question comes from the line of John Glass with Morgan Stanley.

I just want to, and maybe I didn't do the math quick enough in my head, but have you changed your back half of the year earnings guidance? I know that there's been some pushes and pulls in terms of maybe some higher costs like food and you've got some accelerated benefits or greater benefits from cost savings and you didn't change your comp guidance. So is it fair to say you really didn't change your earnings outlook, therefore, in the back half, just you're getting there differently?

We changed it by about a penny. The earnings outlook for the whole year changed by $0.04, and $0.03 was the upside in the second quarter. So we did change it by about a penny.

Your next question comes from the line of Jeff Bernstein with Barclays Capital.

In terms of a clarification, I know you're not giving specific July comp trends. I don't know if you can give any color in terms of the sequential trends throughout 2Q. I know you've been highlighting the signs of consumer slowdown but whether or not that means you guys have seen it or whether you've seen something throughout the quarter in terms of consumer habits or whatnot. Just trying to gauge something, perhaps, within the quarter rather than in July.

Sure. I don't want to talk about specifics of month-by-month for the quarter. We continue, in the quarter, to track very closely to our forecast. So the months where we expected softer comps because of holiday shifts or because of hard comparisons, well we got softer comps, and those where we expected to have stronger comps, we got stronger comps. So we didn't see anything unusual in the quarter that was really, strongly externally driven. I think our comments about the environment are more macro in nature and not necessarily specific to our business and is part of just being cautious for the future, I think. If you're saying were our June comp store sales lower than what they were in May, the answer to that is yes. Do we expect them to be lower than they were in May? The answer to that is yes. So there's nothing that happened in June that caused an alarm to go off that said our sales had split a lot.

Understood. And then, otherwise, just, David, I guess you made a comment on unit openings and hard-to-gauge specifics around 2011 just yet, but some of you are encouraged that there are more sites available. Without specific numbers, should we expect a meaningful acceleration from the three in 2010, given the better real estate market and the more sites available? Or might it still be in kind of that low-single-digit range?

Well, I think on our last call, we said that we were juggling about 12 to 15 sites -- or 10 to 12 sites and that we didn't know how many of those would open in '11 or '12. But we're looking at many stages at quite a number of sites, more than we did in 2010. So I'd love to give you a number, and I think when we get a little further along, we'll have that, but because we're in a number of lease negotiations right now, with some, really, very interesting sites.

Your next question comes from the line of Matt DiFrisco from Oppenheimer. Matthew DiFrisco - Oppenheimer & Co. Inc.: Can you give us some color on price and average check? It sounds like -- I jumped on, missed the first couple of minutes. Sounds like you were talking a little bit about the bar or drinks. I just was curious how the comp in the quarter looked as far as price, how much you had in there. Then the average check, are you seeing, still, the instrumentality from the Small Plates offering? And then, Doug, you made the comment about commodity costs. I'm curious if you have any meaningful price implied in your comp assumptions and your COGS outlook in the back half of 2010.

Yes. With respect to the components of the comp store sales, so we're up 1.6%, 1.4% is traffic and price in the quarter was about another 1.4%. So we didn't have 2.8% comp. So some of the price was a negative mix shift impacted our ability to get all of that price. And we mentioned guests managing their checks by buying fewer beverages, and that's primarily non-alcoholic beverages, and really, also trading down some around the menu. And I would look at the trading down, there's at least a positive aspect of that. The trading down is what we have allowed our guests to do as they navigate our menu. We've provided them with options. If they want to order Small Plates & Snack item and pay a little less, they can; or if they want to order off the specials menu and get an item that might cost a couple dollars less than what something off the main menu would cost. So they are doing some of that. So some trading down, fewer beverages sales. Laconic beverage sales, interestingly enough, continue to be pretty stable. It's really the non-alcoholic beverage sales. And the second part of your question, I forgot. Matthew DiFrisco - Oppenheimer & Co. Inc.: Price within your outlook for -- the commodity outlook that you made the reference to as well as your comp guidance of the 0% to 1%. How much of that has implied the 1.4% price continuing through that?

Well, starting in the fourth quarter, the pricing, actually, that's in the menu actually will be a little bit higher than that; it'll be 1.6% because we're going to take a 1% price increase in August that is replacing a 0.8% price increase. So there'll be 1.6% of price in the menu. Then the question is what will happen with our mix shift. And when you compare 1.6% pricing to a commodity cost outlook inflation of, say, 1%, we would expect cost of sales for the year to be about flat. And there won't be any leverage there because some of that check management that's going on with respect to non-alcoholic beverages is with high-margin items. So if there's less Coca-Cola or iced tea being purchased, some of that will keep our cost of sales from being leveraged, if you will, by a greater menu price increases than the rate of inflation on commodities.

Your next question comes from the line of Destin Tompkins with Morgan Keegan. Destin Tompkins - Morgan Keegan & Company, Inc.: A quick follow up to that question on, I guess, the negative menu mix that you were seeing. Do you anticipate that you may be getting to anniversary some of maybe the trade-down consumers have been doing? Can you get a sense of when you take this additional 1% of pricing with the summer menu that some of that may stick more so than what happened in the second quarter?

It could. I think I would say, first of all, that the 1.2% negative menu mix in the quarter is roughly the average of what we've been running over the last, say, eight quarters, so it's not unusually high. And I think that it could improve and one of the things that I would point to in thinking that it could improve is that we're lapping pretty soon when we put the kids' menu in. So when we put the kids' menu in last year, there was a lower beverage cost associated with the kids' menu. So when that laps around, that will probably help cause less pressure on the menu mix. I don't know how big that is; it's probably not really big, but that's one thing I could point to, to where we'll might see better menu mix. Destin Tompkins - Morgan Keegan & Company, Inc.: Okay, thank you. That's helpful. And then you mentioned outside of the holiday shifts and some of the other items that sales were tracking essentially in line with your expectations. Is there anything you're seeing differently from maybe a day part mix or geographic trends-wise that would stand out to you?

Day parts, we're up on every day part. We're up more on the day parts probably that sell the most, for instance, maybe the shoulder periods, they fell off the most during the toughest of the economic times. So they're coming back a little stronger. Geographically, we're still seeing very strong sales in Florida. We remain solidly positive there. Some operators are commenting about weakness in Texas; that's still very strongly positive for us. California and the Southwest were slightly negative. Those were the softest markets throughout the recession, and those economies are probably a little less stabilized than some other markets. While California is our softest market, it's only down 1%. So if 1% is as bad as it gets, that's not that bad. So the worst market we have is down 1%. Destin Tompkins - Morgan Keegan & Company, Inc.: Great. And then lastly, you mentioned some of the dairy pressure that you saw you saw in the second quarter and expect in the third quarter. Are you looking into 2011 at this point overall for commodities? And do you have a read or are you looking to lock in anything at this point?

It's a little early and we are looking to lock in where we can, but it's a little early to be able to get a lot of good pricing because the further out you are from when the contract begins and ends, the more risk that has to be priced into what a vendor is willing to do for you. So while we just had a meeting the other day with our purchasing folks, and they're were working very diligently on what next year looks like. I would say that overall that we probably expect to see some overall pressure on commodities next year that's a little greater than the 0% to 1% that we're seeing this year. But again, it's pretty early.

Your next question comes the line of Brad Ludington with KeyBanc Capital Markets.

I just wanted to ask how we should kind of look at, what to expect with debt repayments and repurchases throughout the year. I mean, do you have really set goals for each of those? Or will it depend on share price levels and other factors?

Yes, we're going to allocate between $100 million and $125 million of capital to one or the other of those things this year. And so far, during the first two quarters of the year, we've used $60 million of that. It was 30-30; it was $30 million for share repurchases and $30 million in debt reduction. And I think you're right, going forward, if you look at the third and the fourth quarter, if I were modeling it, I would put $25 million to $30 million in each of the third and fourth quarter as either share repurchases our debt paydown. And the proportion of which of those it would be has, obviously, something to do with the stock price. Because we have a 10B51 plan in place, and as you might suspect, that plan says buy more stock when it's lower. So to the extent that we repurchase more shares, we'll repay less debt. But we'll get done at least another $50 million to $60 million worth of one or the other of those things throughout the rest of the year.

Your next question comes from the line of Larry Miller with RBC.

One was just about comp store sales in general, and I guess, historically, you always had a difficult time growing comps because you were running close to capacity and the store used to expect 1% to 2% comp store sales growth. But if I look back, it looks like you're off about maybe 8% or 10% from peak volumes. So if you did see traffic come back, is there any reason that we shouldn't -- there's a capacity not to grow comps in excess of the historical range?

I think that there definitely is the capacity to grow comps better than the historical range. In fact, I think -- I'm not sure where the 8% to 10% -- my math would show that we, over a two and a half year period of time, we lost almost 15% guest counts. It wasn't check average because our check average actually increased every year during that period of time. So we lost guests. So we have the capacity to gain those 15% guests back if you accept the premise of what's been done before can be done again. So we have the capacity in our units and if you just assume, say, 1%, or 1½% type of guest count growth over the longer term and 1½% to 2% pricing, you can easily conclude that if we get the menu mix and the customers' managing their check down a little bit, we can get 3% comps or better.

Okay. That actually leads right to my second question which was how comfortable are you taking that 1% price increase, given you're seeing that check management from that consumer?

It's an art and not a science, and we go through a very diligent process in determining exactly what you're talking about: achieving the balance between what we need to have to protect our margins and what we think that the guests will be able to accept. And I think it's working. I mean, we've had guest count increases in each of the last two quarters. So I think we're doing the right thing, but again, it's an art and not a science, and there's no way you really can tell until you do it. But we're comfortable, obviously, with what we're doing or we wouldn't have done it

Your next question comes from the line of Keith Siegner with Crédit Suisse. Keith Siegner - Crédit Suisse AG: Just a question on the marketing, you give us a little bit of information about the timing of the spend this year, and this quarter was a little bit lighter, next quarter is a little bit stronger. If you could just tell us maybe like what some of the plans are for this quarter. And then also, does this influence your same-store sales growth on a quarterly basis? Do you see the trends at the store in sales when you ramp up the spending? And could this lead to some of the volatility quarter-to-quarter in same-store sales?

Part of the marketing spend is we didn't spend the money in the first quarter, and we're spending a little bit more in the second quarter of what we would've spent in the first quarter and a little bit more in the third quarter. So it's largely timing. I would say for the year that we would expect our marketing spend as a percentage of sales to be about what it was last year, perhaps a tad bit higher, but pretty much about what it was last year. And your other question was?

Basically, can you see it in the weekly sales numbers that are coming in when you ramp up the spending? Is it tangible to the results as it's spent?

Well, what we see is redemptions. So largely what our -- just to remind you of just what our overall marketing philosophy is. It's continuing to focus on really three things: One, that we remain on brand and we don't do deep discounting, that's number one; number two is, focus on the guest engagement, in other words, doing The Great Glamburger Challenge, and the second quarter was a good indication of that; and then creating positive publicity. We've been on Entertainment Tonight, Jimmy Kimmel Live. We've recently been on a couple of episodes of the Food Network's Unwrapped show. So I think our marketing folks have done a great job of getting a lot of positive publicity for us. So those things are all hard to measure. Sure, they all contribute to our sales gains but when you have marketing activity in the second quarter of 2009, then you have marketing activity in the second quarter of 2010, it's awfully hard to really compute what kind of impact it has. Keith Siegner - Crédit Suisse AG: All right, that makes a lot of sense.

Your next question comes from the line of John Ivankoe with JPMorgan. John Ivankoe - JP Morgan Chase & Co: Just if you could comment on guest satisfaction scores, especially as we kind of come into 2010 to the second wave of cost cuts? I mean how those are trending and if you could give us just some specific things in terms of value or overall satisfaction, or whatever factors that you think are the best leading indicator of your business, is the first question. And the second question is as the economy really started to slide, you guys did a great job of introducing small plates and snacks, at least I assume that was one of the many factors that allowed you to outperform during a very difficult time. I mean considering the economy's not doing what many of us thought it would've done six to 12 months ago, does that influence your future menu strategy in the near term in terms of adding more traffic in a way than it could be profitable like that initiative was?

Okay, I'll comment on guest satisfaction, and then maybe David can talk about the menu a little bit. But our guest satisfaction scores remain high. If you remember last year, we made progress every quarter with increasing our guest satisfaction scores compared to the previous quarter. And during the whole year, our year ended where we had guest satisfaction scores much higher than they were at the beginning of the year. So we're really pleased with that. Our expectation for this year is to maintain them or raise them a little bit over time. And year-to-date, we're slightly better than we were last year. So we have maintained our high level of guest satisfaction and even improved it just a little bit. And with respect to the menu, menu innovation is one of our competitive advantages and we have a new menu coming out here in just a few weeks. David, do you have comments about the – what you think about the menu?

Well, I think that between small plate and snacks and the special menu, there's 35 items. I mean that's as big as most restaurant menus altogether. So there's a lot of items there. Those items change, and we just changed out four or five small plate and snacks, we've added four or five special menu items that put great value and great creativity. So I think it's not that we need new menu categories as much as just keeping to make the things that we've already put on better, more exciting, new and fresh, beside making so many of the other items on our menu better. Plus, we've come out with some of the highest, best-selling cheesecakes in the history of our company just in the last year. So the new product development and creativity goes throughout the menu. I don't know that we need another category per se, but the innovation goes on and I think people are responding to it. John Ivankoe - JP Morgan Chase & Co: Great.

Your next question comes from the line of Mitch Speiser with Buckingham Research.

First on Grand Lux, the comp did slow a bit I guess from the first quarter, obviously a small base. Can you discuss maybe what is going on there vis-à-vis the first quarter?

Sure. And you nailed it really with the small base, because there's 13 restaurants in the group, and that means that restaurants that are very heavily impacted by holiday shifts, for instance, our Las Vegas restaurants and our Florida locations were very positive impacted by the positive holiday shifts in the first quarter and were negatively impacted by the negative holidays shifts in the second quarter. And because those restaurants make up such a big percentage of the total sales for the Grand Lux concept, that's why you saw Grand Lux have a more dramatic change in comp store sales that you saw from Cheesecake Factory.

Got it. And on development and the pipeline that you mentioned, David, maybe 10 to 12 you're working on in 2011, can you tell us if any of those are the smaller store format?

Yes. Right now, the 8,500 foot is our favorite restaurant size. As we've said in past calls, we've done so well with the Annapolis where we opened it, we thought we'd do $8 million, it can do $10 million, it could probably do $11 million. So to us, unless it's a very, very urban, potentially high-grossing site, we're going to build more and more of those 8,500s because basically, we're saving 15% to 20% on our investment and not limiting our sales potential. So the answer is yes, and we're looking forward to opening a 7,000, or 7,200 one that will again go in when we think we can do $7 million but we think that they'll be able to do $8 million or $9 million, even saving some more money. Now we're going to earmark, hopefully, one of the sites for 2011 with that smaller unit. But yes, the 8,500 is our favorite. But don't forget, many of the sites we take, they're coming in one size. We don't build that many build to suit. We're fitting in, in line, we're taking space that's available and if it's 9,200 or if it's 8,900, that's what we'll take because that's what's available if we like the site.

Thanks. And my last question was on California. I think California was comping positive the last couple quarters, can you confirm that? And is that slowdown just generally with the macros that you're seeing or was there any other impact on California slowing, if it did, in fact, slow?

Well, for all of last year, California was negative by about 4%, 3% to 4%. And in the first quarter of this year, was very slightly positive, meaning less than 1/2% positive. So it was minus 1%, so it did slip a little bit, and I don't have really any further insights to that.

Okay, thank you.

Your next question comes from the line of Steve West with Stifel Nicolaus.

Yes, hi, Matt Van Vliet on for Steve. I guess my question is have you seen any impact in sort of the Southeast region of, I guess vacationers either shifting their location, or just not coming? Have you seen specifics, whether it be on a week to week, or just certain locations in the area on…

In the Southeast, you said?

Yes, in the Gulf region.

The Gulf region. No, Florida and the whole Southeast remains very strong for us. I mean so we're not noticing anything.

Yes, we don't have anything on the Gulf. Birmingham is the only one in Alabama. So none of the cities that have problems with their beaches are affecting us. And Miami was strong. Maybe some of those people went to Miami, and that's why Miami and Florida were a little stronger. But they haven't negatively impacted us.

Your next question comes from the line of Peter Saleh with Telsey Advisory Group.

Just wondering if you guys could give us an update on labor turnover today, versus where it was at the peak? And then also, if you could just tell us where the incremental savings, the incremental $2 million is coming from, which line item?

Yes, the incremental savings is coming primarily on the labor line. And it's coming -- well, I would say, the majority of it, some of it in cost of sales, some of it in other operating expenses. And from a retention standpoint or a turnover standpoint, our statistics still remain very strong. They have come off some from the peak. We don't have the same retention rate maybe that we had a year ago, but still just immensely above what this industry normally sees from management and crew turnover. So we're not seeing a big turnover of people by any means.

Your final question comes from the line of Matt DiFrisco with Oppenheimer. Matthew DiFrisco - Oppenheimer & Co. Inc.: I might have missed this, but can you give us a little bit of guidance in something that sometimes the little here but it looks like it's been contracted a little bit, the bakery revenue? And the outside accounts, I guess it's been flat-to-down for the last couple of quarters. Curious how we're doing as far as acquiring maybe new accounts, new velocity through the existing accounts, what could you discuss about that?

Sure. Just to continued to remind you and ourselves, that the primary role of the bakery is to provide innovative and very high quality desserts for our restaurant. But with that said, they obviously, also have a second line of business which is to sell externally. And there's not a huge, long list of external customers. We sell a large amount to a few external customers. So bakery revenues are pretty difficult to predict because they can have spikes, or be down just by one customer deciding they're going to order a little bit less of something. So they're difficult to predict. And my expectation, I guess for the bakery is that our salespeople in the bakery keep doing a very diligent job that they're doing of keeping in touch with these customers and coming up with new dessert ideas like cupcakes and other things that really help them move the needle. This is a very competitive business we're in, but we've made some good strides recently. And they have not shown up necessarily on the comparative revenue line yet. And again, it's difficult to predict. But I think that we've got a solid plan for the bakery. Matthew DiFrisco - Oppenheimer & Co. Inc.: Okay. And I just – one last guidance question, if you can give us some insight into how we should look at what you guys view G&A like? The last two years, it's outpaced square footage growth as you've halted basically expansion. And your general and administration costs have continued to grow, though, after years of it lagging the top line growth. How should we look at you now as a company with potentially slower top line growth? And is there an ability to cut back some of the, maybe the framework for development of a faster growth company that might still be embedded in the G&A line?

Okay. Yes, sure. I think that our expectation for 2010 is different than our expectation with respect to G&A moving forward. For 2010, 2009, first of all, about 50% of what's in G&A is salary expense. In 2009, we held back on a lot of things that we did in 2010, such as give raises to people, such as infrastructure improvements that we need to do from an IT perspective and other things like that. So we're spending G&A dollars this year that are a big increase over 2009. Going forward, I would expect over the next three- to five-year period of time that our growth in G&A would be looked less than what our revenue growth was, so that we do get small, and it won't be tremendous leverage on G&A, but we will expect to have some kind of G&A leverage. Matthew DiFrisco - Oppenheimer & Co. Inc.: As soon as 2011?

Possibly as soon as 2011, yes.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect, and have a great day.