The Cheesecake Factory Incorporated (CAKE) Q2 2012 Earnings Report, Transcript and Summary

Jill S. Peters - Vice President of Investor Relations David M. Overton - Chairman, Chief Executive Officer and Chairman of Enterprise Risk Management Advisory Committee W. Douglas Benn - Chief Financial Officer and Executive Vice President Matthew Eliot Clark - Senior Vice President of Finance and Strategy

Joseph T. Buckley - BofA Merrill Lynch, Research Division John S. Glass - Morgan Stanley, Research Division Will Slabaugh - Stephens Inc., Research Division Jeffrey Andrew Bernstein - Barclays Capital, Research Division Michael Kelter - Goldman Sachs Group Inc., Research Division Matthew J. DiFrisco - Lazard Capital Markets LLC, Research Division Matthew J. DiFrisco - Oppenheimer & Co. Inc., Research Division Brian J. Bittner - Oppenheimer & Co. Inc., Research Division David E. Tarantino - Robert W. Baird & Co. Incorporated, Research Division Mitchell J. Speiser - The Buckingham Research Group Incorporated Nicole Miller Regan - Piper Jaffray Companies, Research Division Sharon Zackfia - William Blair & Company L.L.C., Research Division Bryan C. Elliott - Raymond James & Associates, Inc., Research Division Robert M. Derrington - Northcoast Research Peter Saleh - Telsey Advisory Group LLC Stephen Anderson - Miller Tabak + Co., LLC, Research Division

Good day, ladies and gentlemen, and welcome to the Second Quarter 2012 Cheesecake Factory Earnings Conference Call. My name is Chanel, and I'll be your operator for today. [Operator Instructions] And as a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to Ms. Jill Peters.

Good afternoon, and welcome to our second quarter fiscal 2012 earnings call. I'm Jill Peters, Vice President of Investor Relations. On the call today are David Overton, our Chairman and CEO; and Doug Benn, our 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 facts 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 statements. 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 outlook for the rest of the year. Following that, we'll open the call to questions. And with that, I'll turn the call over to Dave.

Thank you, Jill. We've now had 10 straight quarters of positive comparable sales, and this was another quarter where we experienced strength across geographies and dayparts. We lost a very healthy 2.1% in comparable sales from a year ago, maintaining our 2 years trend of about 4%. Our business continues to perform at levels that are healthy, stable and predictable. Our guest traffic continues to grow as we increase our market share. In contrast, multiple industry data points show that guest traffic has been declining for almost a year. In addition, our comparable sales were pretty steady throughout the quarter in contrast to somewhat volatile industry trends. Trends like these validate our strategy of differentiation to menu innovation, food quality and superior service. These are the levers we use to drive sales and they're sustainable. We believe that we don't need to discount to attract guests, and our results demonstrate that discounting from others isn't negatively impacting us. The strength of our business leads us to an important step in our commitment to increasing shareholder value. Today, we announced that we will pay our first ever cash dividend. We are confident that the significant amount of cash that our restaurants generate affords us the opportunity to both a growth company and also enhance returns for our investors through dividend. Finally as to development, we continue to expect to open as many as 7 to 8 new restaurants in the U.S. this year. I know many of you are interested in an update on Grand Lux Café, with the newest location having opened 2 weeks ago. The restaurant looks great with a completely redesigned interior and patio that make the restaurant more approachable for guests. And at about 8,700 square feet, the restaurant is also quite a bit smaller in size than our existing locations. Based on what we've seen during the initial couple of weeks, the concept is being accepted by guests and we're also doing some local restaurant marketing to help build the awareness of this concept. We will continue to evaluate the results from Cherry Hill and look for sites that would be appropriate for future Grand Lux Café locations. Internationally, the first of multiple plan Middle East locations is on track for opening in mid-August in Dubai Mall. Discussions with other potential partners around the world are also progressing, so we continue to feel good about the opportunity for expansion of our brands overseas. I am enthusiastic about The Cheesecake Factory becoming a truly global brand and the role international expansion will play in our future growth. Now I'll turn it over to Doug.

Thank you, David. Now let's review our financial results for the second quarter and our thoughts about the remainder of 2012. Total revenues at The Cheesecake Factory for the second quarter increased 5.6% to $454.7 million. Revenue growth reflects an overall comparable sales increase of 1.7%. Comparable sales increased by 2.1% at The Cheesecake Factory and declined 2.9% at Grand Lux Café. In addition, we had a 4.4% increase in total restaurant operating weeks due to the opening of 8 new restaurants during the trailing 15-month period bought the 1.9% increase in average weekly sales. At the bakery, external sales were $11.8 million, down about $2.4 million from the prior year. In spite of this, the bakery's profitability was up solidly as compared to the prior year period. Cost of sales decreased 110 basis points to 24.4% of revenue for the second quarter. We continue to experience better than anticipated favorability, primarily from non-contracted dairy and produce, as well as some benefit from fish. Labor was 32.1% of revenue in the quarter, down 30 basis points from the prior year. In a continuation of what we experienced in the first quarter, we saw favorability from lower group medical costs in part due to lapping high cost in this area over last year. This was partially offset by higher payroll taxes, which we expected and discussed on previous conference calls, as well as other related -- labor-related costs. Other operating costs and expenses were 23.9% of revenues for the second quarter, down 10 basis points from the second quarter of the prior year. We saw a reduction in debit card transaction fees as anticipated, as well as favorability from lower utility costs, partially offset by higher repair and maintenance costs. G&A was 5.8% of revenues for the second quarter, up 20 basis points from the prior year. The majority of the increase stemmed from a higher corporate bonus accrual versus last year. And depreciation expense for the second quarter of 2012 was 4.1% of revenues, flat with the prior year period. Preopening expense was $3 million in the second quarter of 2012 versus about $1.1 million in the same period last year. We had 1 new restaurant opening during the second quarter of this year and none in the comparable period last year. Interest and other expenses reflected approximately $419,000 in proceeds we received from a life insurance contract related to our deferred compensation plan. Our tax rate this quarter was within our expected range at 29.2% versus 27.4% in the second quarter of last year. In summary, we had a very good quarter. We outperformed the industry on comparable sales and guest traffic growth. We executed well and delivered 140 basis point improvement in four-wall operating profits, leading to a 21% growth in earnings per share. Moving on, our liquidity position continues to be solid. Cash flow from operations for the first 6 months of 2012 was approximately $74 million. Net of roughly $36 million of cash used for capital expenditures, we generated about $38 million in free cash flow through the second quarter of 2012. During the second quarter, we used our cash to repurchase 543,502 shares of our common stock at a total cost of approximately $16.7 million. That wraps up our business and financial review for the second quarter of 2012. Now I'll spend a few minutes on our outlook for the third quarter of 2012 and an update on the full year. As we've done in the past, we continue to provide our best estimate for earnings per share ranges based on realistic, comparable sales assumptions. These assumptions factor in everything we know as of today, which includes quarter-to-date trends, what we think will happen in the weeks ahead, the effect of any impact associated with holidays and known weather influence. For the third quarter of 2012, we estimate diluted earnings per share of between $0.47 and $0.49 based on an assumed range of comparable sales between 1.5% and 2.5%. This is consistent with our performance in the first half of this year, as well as our expectations for full year comparable sales. With respect to the full year 2012, we are raising our diluted earnings per share assumption to a range of $1.87 to $1.93. This reflects the flow-through from our better-than-expected performance in the second quarter. Our earnings growth expectation of 14% to 18% this year is in line with our longer-term mid-teens earnings per share growth objective, and is based on assumed comparable sales growth for the year of between 1.5% and 2.5%. Now a few comments on commodity costs. Our food cost expectations have moderated a little more since our last earnings call, and we now expect food cost inflation of between flat and up 1%. With menu price increases of around 2% factored into our earnings per share sensitivity range for the full year and taking into account the impact from bakery cost of sales, we would expect to see leverage on the cost of sales line of somewhere between 60 and 80 basis points in fiscal 2012. As to our corporate tax rate, we continue to expect it to be between 28.5% and 29.5% this year. Before we move on to your questions, I would like to spend a few minutes talking about capital allocation. As David mentioned, we took a significant step with the initiation of a dividend. We are confident that our cash flows can fund our objectives, which include the continued investment in new restaurant openings and returning capital to shareholders in a balanced way through dividends, as well as through share repurchases. We can achieve these goals without incurring debt and while maintaining a comfortable cash balance. The first dividend payment of $0.12 per share will be made on August 21, 2012, to shareholders of record at the close of business on August 8, 2012. On an annualized basis, a quarterly payment of $0.12 per share equates to a payout of approximately 25% of our net income for fiscal 2012. We believe this is a meaningful starting point and our goal is to grow our dividend over time. As noted in our press release, the dividend represents an incremental return of capital to shareholders. We continue to target about $100 million in share repurchases for this year. Lastly, I will note that our CapEx expectations for the year have come down a little bit to a range of between $95 million and $105 million. With that said, we'll take your questions [Operator Instructions].

[Operator Instructions] Our first question comes from Joe Buckley of Bank of America.

Could you talk a little bit in more detail about the same-store sales increase? You referenced traffic being up a couple of times and I think you were running about a 2% price factor. So was mix somewhat negative than -- just spell out some of the details on that if you could, please?

Certainly, Joe. Our traffic for the quarter was up 0.5%. Our average ticket was up, our average check was up 1.2%. So our average check did improve this quarter from -- it was up 0.5% in the first quarter and again, it's up 1.2% this quarter. With respect to the traffic, I think that the way that we look at that, we take a somewhat of a macro view when looking at our traffic results. And relative to notable industry data points, I think David mentioned casual dining overall had -- really had guest traffic decline. And we're pleased to be able to continue to increase the number of guests coming to our restaurants, and we know that we're continuing to take share. So I think that we maintained or perhaps even expanded slightly the gap between our traffic growth and that of the industry in the second quarter.

Okay. And then maybe just one more if I could. You commented favorably on the food cost outlook for this year. Obviously, the crop news from the Midwest is in the headlines everyday. What -- can you extend some coverage early into 2013? Or how are you thinking about 2013 from a food cost perspective?

Well, I think we can -- we are doing -- we're constantly negotiating and talking with our suppliers. I think for -- in order to put any numbers around that at this point in time is really too early to say anything definitively. Certainly, the droughts that have happened will not help, but we're constantly working with our vendors on what we can do to potentially extend some contracts that we have. And if that is a -- we think that's a smart thing to do, we will.

Your next question comes from John Glass, Morgan Stanley.

Two perhaps, related questions. One is, there's seemingly an improving gap between average weekly sales and comp or an improvement I should say, relative to prior trends. So can you talk about some of the new stores that have opened the last 15-month period and kind of performance, particularly some of the smaller format stores? And have you seen trends improve even more in the last couple of openings you've done? Can you also talk about Grand Lux? I know there's a new one opened now, but in the context of what happened to the comps, is it -- one of the big stores that were down and so it's really not representative of the comp base. Or how do you look at their existing base of Grand Lux in the context of that negative comp?

Sure. The first question had to do with...

New store productivity.

Yes, the new stores. Well, new stores, I don't know that there's any change from what we've said before about our new stores. The restaurants that we've opened over the last 3-year period of time, which includes the smaller format restaurants, are all doing well and on a per -- on a productivity sales per-square-foot basis at about 10% higher than the average of all the other restaurants. So the new restaurants are performing better, and that's probably why you're seeing that average weekly sales change compared to comp store sales. With respect to Grand Lux, and we've talked about this before, and I think you were -- well, walking down the right path there, John. With only 13 units in operation, variability is obviously, greater location by location and quarter-to-quarter. The sales performance at the higher volume locations such as in Las Vegas obviously, have a big impact on what drives comp sales in any particular quarter for the entire concept. And I would really -- the way that we look at this, I would guide you not to look too closely at just one quarter. We look at a longer-term horizon. And if you look back over the last 12 months, the Grand Lux comps have been basically flat. So we look at that as right on industry trend. And this isn't meant to be an off to Grand Lux, but almost no concept including Grand Lux has the brand awareness that The Cheesecake Factory has. And The Cheesecake Factory is performing at levels that are well above average. So it's really not a too fair of comparison to be their sister company. But Grand Lux comp store sales results in the trailing 12 months, I think, have been more in line with what you're seeing from the industry. And The Cheesecake Factories had been higher.

Our next question comes from Mr. Will Slabaugh, Stephens.

Yes, I just wanted to dig in a little bit more on the trends you've been seeing as far as the menu mix goes. And just in particular on beverages, deserts, how that's played out over the past year or so. And more curious, what sort of negative menu mix you've been lapping versus what you think you will be lapping out here going forward?

Well, the -- like we talked about, the average check did improve this quarter. So there was a significant improvement in menu mix and hence, the check average. I'll reiterate what I said before. I think I've said before about menu mix is it certainly will ebb and flow over time. And perhaps, this quarter, since we didn't have as significant a menu change in February, there might've been less shifting around of the menu and more of a settling in and enabled us to get more of our menu pricing that we had taken. But with that said, lower incident rates on nonalcoholic beverages, we're still seeing some of that. And we do, as you know, make extensive or make menu changes to our menu twice a year. Sometimes they're extensive, sometimes they're entirely new menu categories, such as SkinnyLicious. So it's natural to see that there's going to be some movement or shifting around in the menu as guests try new items or find new favorites. So we're very happy that the menu mix improved some this quarter. But what we're really focused on, and as we said many times before, is to continue to take market share and growing our guest counts and the menu mix will eventually take care of itself.

If I could squeeze in a quick follow-up. I'm just wondering how the smaller plates in SkinnyLicious items you introduced last year play into that? Is that something we should expect you to expand or bring in or if you're still very comfortable around how that's performing?

We're real comfortable around how SkinnyLicious is performing. As you know, you're very aware, as you just mentioned in your question, that we differentiate ourselves through menu innovation, and SkinnyLicious has been in effect now. We've had it out for 9 or 10 months, and it continues to do well. I think the guests love the menu. They love having more options. So when we do more of that, I don't know if we have an entirely new menu category on the horizon for the next number of months. But we are certainly continuing to make changes to our menu twice a year, and there'll be a new menu change to go out next month, that we'll put more new items on the menu and take a few items off, and that's what we do and what we're known for and what's differentiated us.

Our next question comes from Jeffrey Bernstein, Barclays.

Great. Just the first question's just related to the unit pipeline, just based on how long it takes for you to build these sites. I guess as you have some early indication on 2013 obviously, without too much granularity, I'm just wondering directionally versus the 7 to 8 you're seeing in the U.S. in '12, should we expect more of a meaningful uptick, just being in the U.S. or is perhaps the fact that you're still prudently selective in terms of your approach, is it more difficult to see a path to meaningful reacceleration with real estate site selection the way it is?

Well, I would say that we're still going to be selective, and we still have the high desire to want to build more restaurants because that's our #1 -- we initiated a dividend today, but the #1 way we would want to allocate our capital is to build great, high probability of high-return restaurants. So we're looking constantly.

Yes, we are seeing some more building. Right now, there are 4 new malls and several remodels that are happening. So I think we're seeing landlords start to slowly pick up, and that will bode very, very well for us. We probably have as many signed up for 2014 as we do for '13. But we're still trying to fill '13 and take every site that we can.

Is there a ballpark estimate relative to the 7 to 8 as to how many we should think about in terms of acceleration?

I think it's too early to give you that. We will when we can.

Okay. And on that same path, international, I know you mentioned the first unit in the Middle East, I believe you said in August. Are we still on track? I think it was supposed to be 3 in the back half of the year? Is that...

It's possible. Again, the construction is not in our control. They are building. I know the one will open on their date, which I believe is going to be August 16 or something or 17. And the other 2 are under construction, and we'll just have to see if they keep up. It's much -- building there is much different than it's building here, and our partner's the one who is building them. But if it doesn't hit exactly, it will be very, very close because all 3 are under construction.

But then there's the path to 2013, I guess, is an uptick from what you had hoped to be 3 in '12, is that safe to say?

Yes, I believe so. Again, we are dealing with things that we'll understand better as we go along. But in terms of the deals that we've okayed, so for instance, we are at least drawing the plans for Beirut, I don't know if they've signed it. There are other cities that we've gone to visit and other people that we're negotiating with. So it's hard for me to give you a number right now. But I do believe you'll see an uptick from this year.

And if I can just ask one more question. The marketing spend, it seems like some of your higher-end peers are starting to spend more on marketing and to pursue different channels. I know you guys do one-offs. But I'm just wondering what the spend is for this year and perhaps where you think the biggest initiative or opportunity to drive traffic through marketing might be?

Well, the spend this year is not any more for us than what it's been in prior years. It represents about 0.5% of sales. And we don't use marketing in the same way that most other companies do. We use marketing as really a support and a building block for our brand. Our marketing is not offer-driven. So many marketing efforts you see from other companies is very offer-driven. And any promotion that we do is unique to us and is done in a way that we feel is appropriate for our brand. So we use a lot of social media, and that -- those -- we've been increasing that nicely. We now have 2.7 million Facebook fans. We try to get publicity. An example of that is some local TV network, morning show, cooking demos that we're on, Jimmy Kimmel Live, some other nationally syndicated shows. So that's -- those are some things that marketing is doing for us. One of the other things that marketing has worked on and has been very successful with is expanding our distribution of gift cards, particularly as the holiday season will be upon us and before we all know it, and expanding the distribution of gift cards into the drug and mass merchant retailers where we didn't have any presence before. So that -- we'll see how that does with respect to gift card sales in the holiday season. And then the last thing I mentioned that I know that you all have your calendar marked with a big x on July 30, which is National Cheesecake Day, where we roll -- we're rolling out our brand-new Cheesecake that day, the OREO Dream Extreme Cheesecake, which we think is going to be a nice seller for us. And our Facebook fans get to come in and enjoy that at half price on July 31. So that's -- those are the things that our marketing's doing. I'll mention one other thing.

[indiscernible] the followers.

Yes, 2.7 million Facebook fans. But -- we are also -- we are testing a little bit of traditional marketing in one of our markets that has 4 or 5 restaurants just to see whether that actually moves the needle, and where we don't have any results for that. In fact, it hasn't even started yet.

Our next question comes from Mr. Michael Kelter, Goldman Sachs.

One of the things that you said in the opening remarks, which struck me was your comment that you wanted cake to become a truly global brand. And I guess my question is, if this is where a lot of the future growth is to come from down that... [Audio Gap] [Technical Difficulty]

Okay, the next question comes from Matthew DiFrisco of Lazard.

I just want to circle back and get some clarity on the 2Q same-store sales. I think you came into the quarter and I didn't hear you specifically say what the price was in 2Q as part of the 1.7% average check?

It was -- we had a little over 2% of price in our menu. Matthew J. DiFrisco - Oppenheimer & Co. Inc., Research Division: So then you had a negative mix effect, I presume?

Yes. It's less negative mix effect than we had been having, but yes, it was negative mix effect.

Because I guess I'm looking at the intercompany bakery sales and it looks like you had one of the largest increases in a long time, $4 million more than you did in 2Q of last year. I guess that would imply about a $1 million -- a 1% same-store sales boost, as far as just purely from the cakes. Was there something that offset that or is it a migration to lower average check products that you're marketing?

Well, intercompany bakery sales are ones -- one of the -- we have changed, first of all, the way that we're distributing our cakes. And so some of that inventory is inventory now that is with a third-party that's en route to the restaurant, if you will. So it's -- there's intercompany sales. I see what you're trying to do, Matt, but it doesn't work out that way directly on in any particular point in time because intercompany sales are just that, they represent really inventory.

Okay. So it's not a proxy then for dessert sales?

It's not a proxy for dessert sales, but I'm not trying to imply the dessert sales aren't very strong. Dessert sales are very strong.

Okay. And then can you help us with the preopening? It looks as though there was a large amount from only 1 store in the quarter. Obviously, you opened the Grand Lux days within the third quarter. So could you sort of help me and maybe spoonfeed what the preopening could be in the third quarter given that so much of it looks like it fell in the second quarter?

Yes, I certainly could do that. I think you latched right onto it because you've got to keep in mind that there's other factors that can impact the preopening in any one quarter. For example, when openings are occurring in subsequent quarters, relocation, the expenses, we -- any managers that we're putting on our bench to build our bench during -- go into preopening cost. So it's not perfectly just related obviously, to the number of openings in any particular quarter, but I think if you look at the, in the third quarter and the rest of the year, preopening roughly in the neighborhood of $2.7 million is what we would expect in the third quarter and in the fourth quarter, about $3.7 million.

And we have Mr. Michael Kelter back on the line.

Sorry about that, guys. I'm not sure what happened. It's your comments earlier about becoming a truly global brand, and that's where a lot of the future growth may come from and your #1 priority for free cash deployments towards new unit development, is there any intent to build company-owned units outside the U.S. or at least take an equity stake so you could participate in the future growth of the Cheesecake brand economically? Or is this really going to be just the franchise effort over time?

Well, the first one's a licensing effort, as you know. So any subsequent agreements that we reach, that we certainly wouldn't rule out the possibility of being a joint venture partner. I don't think, as David has said before, that we really wanted to be a joint venture partner in areas of the world that we would consider volatile like the Middle East or maybe Mexico that there are more volatile. In other areas of the world, if it worked out to where our partner was agreeable, we could do that. But our model -- and I think our primary desire is to license. Now other -- let's just take Canada or Puerto Rico or maybe some other areas where we might actually operate the restaurant in those areas without a partner, we probably would. There are -- Singapore, we've been to Singapore. We might operate the restaurant there ourselves. So there could be places where we don't have partners and we do have our capital involved and that would be just one of our restaurant openings that we would put in our development schedule.

And then the other thing I wanted to ask, your -- just a little more insight into your thinking as it relates to the dividends, the comments in, the prepared remarks so that you plan to grow the dividend over time. Is that in dollars or do you intend to tease up the payout ratio over time from the initial 25% to some higher percentage? How are you guys thinking about it?

We're thinking about growing that in dollars in some way along with the way that our net income grows over time. So I think we'll say we're growing it -- we're looking mainly at growing it in dollars. I'm sure that maybe the net income payout ratio could change a little bit over time, but the thought is that we would pay out the increases over time in real dollar terms.

Our next question comes from Mr. Brian Bittner, Oppenheimer. Brian J. Bittner - Oppenheimer & Co. Inc., Research Division: Most of my questions have actually been answered here, but just I guess a housekeeping question. Can you -- you might have already said this, but did you give an outlook for the full year for G&A as a percentage of sales?

No, but let me tell you how we have talked about -- we haven't on this call, I don't think. We're looking, if you look toward the operating margins in general for the year, we would expect that we would see better operating margins this year by somewhere around 60 to 80 basis points. And most of that would come from better expected cost of sales. So if you break down the other line items, they all kind of net out where we would expect a little bit better labor, a little bit better other operating expenses, we will expect to be -- have a little higher preop and a little higher G&A than we had last year. So last year, I think for the year, we had some G&A of somewhere around 5.5%. We'll be -- we would project to be somewhere in the neighborhood of 20 to 30 basis points higher than that. Brian J. Bittner - Oppenheimer & Co. Inc., Research Division: And what's really driving that?

Well, a number of things. One is, and probably the most significant is a higher anticipated bonus accrual, so we would expect that to be a bigger part. And also equity compensation being a little bit more. And then if you remember last year, we had a 53-week year and a 14-week fourth quarter, and lapping the leverage in the fourth quarter of 2011 from that extra week is also going to have some pressure on the G&A line. Brian J. Bittner - Oppenheimer & Co. Inc., Research Division: Okay. And I guess just another quick question on the dividend. I mean, obviously, the cash flow generation of your unit base is very powerful. But just trying to understand the timing of the dividend. Is this something that's been thought about for a while or is this something that has kind of come up more in the shorter-term? I'm just trying to understand the timing of the dividend announcement a little bit more?

Sure. We've been considering whether we should pay a dividend for quite a while. And this has been discussed at the board level for probably the last year to 1.5 years. And what we wanted to do before we initiated dividend was to make sure that we didn't have other uses of the cash, that we will be able to continue the dividend indefinitely and that we felt that we would be able to grow it over time. So all of those things factored into the timing of when to do the dividend and the amount of the dividend. Really, we wanted to start off with a significant amount, but not an amount that was so high where we couldn't have a good opportunity to be able to grow that dividend with some materiality over time.

Our next question comes from David Tarantino, Robert W. Baird. David E. Tarantino - Robert W. Baird & Co. Incorporated, Research Division: First, a clarification on the guidance. I just wanted to confirm that you're using $0.52 for Q2 in your annual guidance?

We're using $0.51 in Q2 for annual guidance. We had a lot of internal discussion about that, even calling out that small amount there, but we did the last time we had this. So we did it for consistency purposes. So we're using -- that's the quote non-GAAP number. So the GAAP number would be $0.01 higher. David E. Tarantino - Robert W. Baird & Co. Incorporated, Research Division: Okay. And then I guess I wanted to ask a bigger picture question, how you're viewing the health of the U.S. consumer, your customer. You mentioned that traffic in the quarter was 0.5%, which is a little lower than you were trending in Q1 and Q4. And I'm just wondering how you're viewing that, the slight deceleration, while good on a relative basis, do you think that consumers are starting to slow down? Or maybe any thoughts that you could give on the trend line with respect to the economy would be helpful?

Yes, I would tell you that we are not seeing anything really significant there. The only thing that -- we don't spend too much time with the macroeconomy other than to read the same news that you do. What we concentrate on obviously, is what -- the things that we can control. And I know that under the things under our control, we have done a very good job of making happy guests. I mean, we have our guest satisfaction scores, I believe, in the last month were as high as they've ever been. So we're doing a great job with the guests that are coming in our restaurants. And our retention rates are very high. Our managers and our staff retention is very good. So we're really well-positioned to be able to continue to take market share. And that's -- I think that's important that we're in an environment where guest counts are not growing for many of the restaurants in our competitive universe, they are still growing for our concept. And on a -- just the slight deceleration this quarter, I don't see that much different in the macroenvironment that is cause to be concerned. I think it's a -- it has been and continues to be and probably will continue to be for a while, a very sluggish and slow recovery.

Our next question comes from the line of Mitch Speiser, Buckingham Research.

And on the cost of goods line, which was down 110 basis points or so, with bakery down a bit, can you give us a sense of how much that line was affected by lower bakery sales?

I would say probably 10 basis points or less.

Okay, so not too much. Great. And my next question's just on Grand Lux. And can you give us a sense of the 13 stores, maybe how many of them did comp negative in the quarter? And I know maybe about a year or so ago, I think there was maybe some talk about maybe some closures. If you could maybe give us an update on the Grand Lux portfolio?

Yes, I don't have any update on any closures. As you know, we have written down, had some write-downs associated with 3 underperforming Grand Luxs. The Grand Lux volume, the average unit volumes are still very high in some of the highest in casual dining, almost as high as Cheesecake Factory. And there's, with that said, there's 2 very big volume locations. And the majority, I would say at least out of that 2.9% down, 1/2 of that or more was created from the Las Vegas locations. And so we had a mixed bag with the rest of the locations as far as whether their comps were up or down.

Okay. And I think my last question is just on the 50 basis points of traffic growth in the quarter. Was that for the entire system or was that for just The Cheesecake Factory brand?

That's the entire system. The Cheesecake Factory brand was up more than that.

Okay. Yes, because you usually share the component that's just on The Cheesecake Factory brand. Could you share those now or are you just talking for the entire system?

No, we usually only share the results for the entire system. We don't break it out, but The Cheesecake Factory brand, you can get an idea of what their traffic was based on their comp store sales were 2.1%, which was obviously, above the average of the 2 combined at 1.7%. So that difference is roughly what should be looked at for traffic growth for The Cheesecake Factory in addition to the line.

Our next question comes from Nicole Miller, Piper Jaffray.

I want to know where you're at on the technology curve. I know there's all these -- a long-standing history of back of the house initiatives. I'm wondering how you might interface with the consumer in terms of technology opportunities? Some of your peers are -- have different things on the table or for ordering, things of that nature. So I just was wondering what you might be considering in that arena?

Yes, we don't -- we're not doing anything or have any particular plans, particularly with respect to ordering. I don't know that we will ever get there with respect to ordering. Our menu is so complex and has so many modifiers. What the things that we are doing technology-wise in the restaurants is we're looking carefully at putting in online to-go ordering. That's something that we would consider doing and are strongly considering that now. We're looking at whether we should have wireless available in every restaurant that might allow us to do things like closed checks, but that's the future.

We're looking at all of the same things you're hearing about in the call than the ones that we think will work for us we'll move forward. But right now, we're still in a look and let's see mode.

Okay, great. And just one quick one, since you mentioned it, on to-go. Could you talk about what that is as a percentage of sales and how it's been trending?

Yes, it's -- there's not -- I don't know of any significant change in trends and what is it, about 10%?

Yes.

Our next question comes from Sharon Zackfia, William Blair. Sharon Zackfia - William Blair & Company L.L.C., Research Division: Two questions. Just one on the comp guidance for this quarter. I remember last year, I think you had a hurricane that dampened results in the September quarter. I think it was like 40 basis points. So just wondering if you're assuming that trends get better as you lap that or whether you're within that comp range right now? And then secondarily, I think earlier, the point came up that this year's margin expansion will almost entirely be from cost of goods sold, and that probably won't happen again next year. So if you could walk us through kind of the longer-term margin drivers on a 1.5% to 2.5% comp?

Okay, all right. Let's start off with the -- our expectations. So we said 1.5% to 2.5% for the third quarter, and that reflects our expectation of continued stable sales trends from what we've seen so far this year. And we go through a very thorough in-depth forecasting process, week by week, restaurant by restaurant. We know exactly what every restaurant did on every day last year and that would factor in the weather. In this year, we would factor in anything else that we think would matter like shifts of holidays or whether we thought the Olympics were going to impact our results this quarter. And when we factor all that in, we're -- what we're comfortable with now is that range we gave for the third quarter of 1.5% to 2.5%. So yes, we factored in whatever happened with hurricanes last year into the stock. And then... Sharon Zackfia - William Blair & Company L.L.C., Research Division: Longer-term margin drivers.

Longer-term margin driver. So this year, just to clarify what you said, Sharon, was that we are going to expect to improve margins this year on the labor line in addition to cost of sales and on the other operating expense line in addition to cost of sales. But you're right. Net-net, it's mostly coming from cost of sales because of the offsets from G&A and preop. Going forward, I think that there are -- if you look at where we are going to end up the year, we're just basically, the gains in cost of sales this year are -- the food costs are not low by any stretch of imagination. And our gains are just getting back a little bit of what we had to battle keep last year. So the way that we look at margins going forward is, let's take a normalized food cost environment, whatever that is, if this year's normal. Is next year normal? Was last year normal? Last year was much more aggressively higher. But in a normalized environment, we would expect to be able to get our margins back over time to our peak margin levels as our comp store sales continue to grow and we gain leverage off of those comp store sales as we've shown that we can do. Over the last 4 years, our margins have improved by almost 300 basis points. So it's hard to take any year in isolation of what's happening with respect to cost of sales in any 1 year. So I -- looking forward, one of the things that gives us -- makes us feel optimistic about our ability to be able to get the back of these margin levels is that the volumes that we're at today, we have higher margins than what we had when we were at these volumes before. So the cost-savings initiatives that we've put in place in a couple of years ago are allowing us to have a leaner cost structure, and we've been able to leverage that into margin, to higher margins and would expect to be able to continue to do that as our sales grow. Sharon Zackfia - William Blair & Company L.L.C., Research Division: Okay. And then I guess as follow-up on that. Does -- if we assume this stable to cost environment, which it never actually occurs, but if we actually assume that, it's like a 2% comp. Would that be on average like a 20 or 30 basis point margin expansion every year? It seems like it would be a little less than those 60 to 80 we're seeing this year. I'm just kind of establishing what the normalized could be.

That's a good point. So one of the things, and we've said this a number of times, 2% for us is $200,000 because we have $10 million unit averages. So we can get more leverage from 2% comps than a lot of other restaurant companies might be able to get. But that's probably still somewhere in the neighborhood of like 20 basis points.

Our next question comes from Bryan Elliott, Raymond James. Bryan C. Elliott - Raymond James & Associates, Inc., Research Division: Just a couple. One, I missed pricing. You gave us traffic and mix but what was the actual price factor in Q2?

A little better -- a little more than 2%. Bryan C. Elliott - Raymond James & Associates, Inc., Research Division: Okay. And you mentioned the Olympics, but just refresh our memory on what you have seen in past years for the Summer Olympics, what kind of behavior change, if any, you all have experienced?

Not a big behavior change, but I just kind of threw that out there as something you could consider when you're going through your comp store sales of the thought process.

Our next question comes from Robert Derrington, Northcoast Research.

Doug, could give us a little bit of -- or maybe David, this question is probably a little bit better for you. When we look at this year, you're opening a Grand Lux, which is a little bit smaller prototype. And when we look at Cheesecake longer-term, particularly as we look out to next year, do you envision that we'll begin to see some stores that are a little bit smaller, similar to what you've done with Grand Lux?

Well, actually, we've patterned Grand Lux after Cheesecake. These last stores we've opened in the last 3 years have been about either 7,200 or 8,500 because we have moved into some smaller markets. So that's worked very well for us. Those are the ones that are about 10% higher, and that's really what we patterned Grand Lux after.

Doug, does that relate to the slightly lower CapEx spend for this year? Does that fit in, in any way? Or can you explain to us why it's a little bit lower?

It's only lower relative to our last guidance.

Okay, all right. So it's not substantial?

No.

Our next question comes from Peter Saleh, Telsey Advisory Group.

Just wondering if you could elaborate a little bit. I know you had mentioned you were testing with some traditional marketing or media in the market. Could you just elaborate on that? Is that TV or is that something else?

What was the last part?

The additional marketing in that...

Yes, we have chosen one market that has 4 to 5 restaurants in it to do more traditional marketing like radio, billboard.

Right, but not television.

But not television. Oh, he asked about television?

Well, he asked in general, but I just wanted to make sure. It's not television. There's not enough restaurants in the market to do that.

Right. So we're -- we -- the way that we'll evaluate that is we'll look at the trends that those restaurants had coming in to the test, if you will, and then what kind of impact the tests have. And that we've even divided the restaurants up to where some of them are getting billboards, some of them are getting more radio, some of them are getting in-mall events that we're doing and we'll be able to measure not only the overall marketing, whether that worked well for us, but sort of within that, which parts of it worked best. And we'll just see if the -- that moved the needle enough to justify the cost.

And our last question will come from Steve Anderson, Miller Tabak. Stephen Anderson - Miller Tabak + Co., LLC, Research Division: And I know you talked about on the restaurant side that you're not seeing much of a macro impact. But on the bakery side, we sell to the wholesale clubs. So have you heard anything about doing it about any slowdown in sales on that channel?

Well, certainly, our -- we do a lot of -- a large percentage of our external bakery sales are to the wholesale clubs, and they make evaluations constantly on how much product they're going to buy or not. We haven't heard of any slowdown of their business. It's more of a negotiation on how many of our products they want versus how many of somebody else's products they want. So it's -- I don't think -- some of the slowdown, some of the bakery results that were a little bit lower than what they were last year had to do with the wholesale clubs. But not -- there's not a macro of trends there that I know of.

That concludes the Q&A session. And this concludes the conference call. Ladies and gentlemen, thank you for your participation. You may now disconnect. Have a great day.