The Cheesecake Factory Incorporated (CAKE) Q3 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to The Cheesecake Factory Q3 2012 Earnings Conference Call. My name is Casey, and I'll be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I'd now like to turn the call over to Ms. Jill Peters. Please go ahead.

Thank you. Good afternoon, and welcome to our third quarter fiscal 2012 earnings call. I'm Jill Peters, Vice President of Investor Relations. On the call today are David Overton, our Chairman and Chief Executive Officer; and Doug Benn, our Executive Vice President and Chief Financial Officer. David is joining us by phone, as he is traveling today. 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 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 both the fourth quarter of 2012 and our initial thoughts on 2013. Following that, we'll open the call to questions. With that, I'll turn the call over to David.

Thank you, Jill. Our business continues to be healthy, stable and predictable. We've now had 11 consecutive quarters of positive comparable sales, and this was another quarter where we experienced broad-based strength with positive comparable sales in every geographic region and sales increases in every day part. As we reflect on the quarter, there are a few takeaways: we delivered comparable sales that were at the high-end of our expectations; we made meaningful gains in guest traffic during the quarter; and September was strong. This is markedly different from the volatility in the casual dining industry where multiple data points show another quarter of comparable sales that were about flat in guest traffic declines. Our determined focus on driving sales even during the busiest shifts and maintaining high quality in food and service are key success factors. People want a consistently good experience and they know they can depend on us to deliver it. As to development, we expect to open as many as 8 new restaurants in the U.S. this year. We have 2 openings slated for November and another 2 locations planned for December. The restaurant openings to-date include the new Grand Lux Café in Cherry Hill, New Jersey. I know many of you are interested in hearing an update. As we've talked about it in the past, this location was completely redesigned to make it more approachable for guests. In about 8,700 square feet, it's quite a bit smaller in size than our existing locations. Guests are responding well to the new design and to the menu, which we have put a lot of innovation into over the past year not only at this location but across the entire Grand Lux Café concept. The results from Cherry Hill gives us confidence to move forward with Grand Lux in different markets using this current format. We are building our pipeline of new sites, and we have a couple of locations for Grand Lux that we are considering. Internationally, the first Middle East location operated by our licensee opened in Dubai Mall in August. The restaurant is in the prime location in the mall, opposite an aquarium that draws enormous crowds. The opening was much anticipated and the demand for the brand is tremendous with long wait times. We expect this location will be very successful. Our global expansion is off to an excellent start. The next opening in the Middle East is currently planned for November in Kuwait, and a second Dubai location is expected to open by the end of this year. In addition to the Middle East, discussions with other potential partners around the world continue to progress. We are both optimistic and excited about the opportunity for expansion of The Cheesecake Factory brand overseas. Looking ahead to 2013, we currently expect to open as many as 8 to 10 new company-owned restaurants. This includes 2 or 3 relocations as we capitalize on opportunities to optimize where our restaurants are located as leases expire. Real estate dynamics change over time and there are some restaurants that we can relocate to better sites, in more vibrant trade areas. In addition, we expect as many as 4 locations to open internationally based on the current information we have at this time. Now I'll turn the call over to Doug.

Thank you, David. Now let's review our financial results for the third quarter, talk about our thoughts for the remainder of 2012 and take an initial look at 2013. Total revenues at The Cheesecake Factory for the third quarter increased 5.4% to $453.8 million. Revenue growth reflects an overall comparable sales increase of 2.5%, driven by increases in guest traffic of 1.5%. Comparable sales increased by 2.9% at The Cheesecake Factory and declined to 2% at Grand Lux Café. In addition, we had a 4.5% increase in total restaurant operating weeks due to the opening of 10 new restaurants during the trailing 15-month period, plus a 1.4% increase in average weekly sales. At the bakery, external sales were $15.9 million, down about $1.2 million from the prior year due in part to lapping a significant increase in third-party bakery sales in the prior year. Cost of sales decreased 80 basis points to 24.6% of revenue for the third quarter. We continue to experience better-than-anticipated favorability primarily from dairy and produce as well as some benefit from fish. In addition, we saw a mixed shift benefit at the bakery. Labor was 32.1% of revenue in the quarter, down 20 basis points from the prior year. In a continuation of what we experienced in the first half of the year, group medical costs were lower in the third quarter. In addition, bakery labor was favorable. These line items were partially offset by higher payroll tax costs, which we expected, and as we have discussed in past quarters. Other operating costs and expenses were 25.1% of revenues for the third quarter, up 40 basis points from the third quarter of the prior year. This was driven by higher workers' compensation expense resulting from an increase in claims activity, slightly higher repair and maintenance expenses as well as the timing of marketing expenses, some of which shifted into the third quarter from the first half of the year. These were partially offset by lower debit card transaction fees. G&A was 4.9% of revenues for the third quarter, down 60 basis points from the prior year. The majority of the decrease stemmed from legal cost recoupment which we expected and appropriately considered in our third quarter guidance. Preopening expense was $2.4 million in the third quarter of 2012 versus about $4.3 million in the same period last year. We opened 2 new restaurants during the third quarter of this year and 4 in the comparable period of the prior year. Interest and other expenses were higher by $500,000 due to market changes impacting investments used to support our deferred compensation plan as well as a slightly higher retirement rate of restaurant assets. Our tax rate this quarter was 27.8%, keeping the year-to-date rate within our expected range of 28.5% to 29.5%. In summary, we had a solid quarter, another where we outperformed the industry on comparable sales and guest traffic growth. And we managed our cost structure to leverage our sales growth and deliver 36% growth in earnings per share. Moving on, our liquidity position continues to be strong. Cash flow from operations for the first 9 months of 2012 was approximately $127 million. Net of roughly $68 million of cash used for capital expenditures, we generated about $59 million in free cash flow through the third quarter of 2012. During the third quarter, we used our cash to repurchase 530,450 shares of our common stock at a total cost of approximately $17.4 million, and we used $6.4 million to make our first dividend payment. That wraps up our business and financial review for the third quarter of 2012. Now I'll spend a few minutes on our outlook for the fourth quarter of 2012 and our initial thoughts on 2013. 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 influences. For the fourth quarter of 2012, we estimate diluted earnings per share of between $0.50 and $0.53. I will remind you that there was an extra week in the fourth quarter of 2011 which was a big earnings week for us. Our earnings per share range is based on an assumed range of the comparable sales between 1% and 2%. We are lapping a very strong 2.7% comparable sales increase from the fourth quarter of last year. We are always -- also expecting the debate and election day to have an influence on sales. That being said, the midpoint of our comparable sales sensitivity range represents an acceleration on a 2-year basis and puts our full year 2012 comparable sales at about 2%. Our earnings range for the fourth quarter will contribute to overall earnings per share growth expectations of 14% to 16% in 2012 as compared to 2011 which was a 53-week year. This level of earnings per share growth is in line with our longer term mid-teens earnings per share growth objective. Importantly, we expect to continue growing our operating margins in 2012, making further progress toward recapturing our peak margins. Based on the earnings per share sensitivity we provided, operating margins should increase between 60 and 70 basis points in 2012. We maintain our food cost inflation expectations of flat to up 1% for fiscal 2012, and we continue to expect our tax rate to be between 28.5% and 29.5% for the year. Our capital expenditures for the year are now in a range of between $85 million and $95 million, and our share repurchases are expected to be in a range of between $90 million and $100 million. With respect to 2013, our initial thoughts on the year are as follows: as David mentioned, at this time, we plan to open as many as 8 to 10 new restaurants next year. Our total capital expenditures are expected to be between of $115 million and $125 million for planned 2013 restaurant openings as well as expected openings in early 2014. Internationally, we expect our licensee to open as many as 4 new restaurants in 2013 which require no capital investment on our part. For the full year 2013, we are currently estimating diluted earnings per share in a range of $2.10 to $2.18 based on an assumed comparable range of comp store sales of between 1.5% and 2.5%. We delivered annual comparable sales increases of about 2% each year for the past 3 years. Importantly, these comparable sales increases have had a strong guest traffic component. Our current sales expectations for 2013 are consistent with this stable, healthy performance. In terms of food cost inflation, we're planning for between 3% and 5% inflation in 2013. As to our corporate tax rate, we expect it to be in a range of between 29% and 30% for 2013. We anticipate the majority of our free cash flow, after capital expenditures, to be used for dividends and share repurchases. With that said, we'll take your questions. [Operator Instructions]

[Operator Instructions] Please stand by for your first question which comes from the line of John Glass of Morgan Stanley.

It's a 2-parter -- Doug, just first on the unit openings, 8 to 10 units, but you said that included 2 to 3 relocations. So it's really a net of 6 to 7 or whatever. First of all, is that correct as you think about it? And is that going to be a pattern going forward as the store base ages that you're going to have to start doing the relo? Are you going to count those as kind of openings? That's the part one. And then part two is if you look at the new store productivity or the gap between comp store sales of 2.5% and average weekly sales of about 1.5% or 1.4%, that gap is negative and it hasn't been that negative in the past. Is that just a function of a closure or some specific item? Or is that more indicative of the stores you've opened recently?

Okay. Sure. So next year, we see, as David mentioned, and I talked about, 8 to 10 A sites that meet our criteria. At least that's how many we have right now for next year, and that's after opening 8 restaurants this year. We -- it just so happens that 2 or 3 of those sites are in areas where we have an opportunity to optimize our portfolio and relocate a restaurant. So you can look at openings on a net basis, as you described. But if you do, keep in mind that anytime we choose not to renew a lease and to relocate a restaurant, the economics are always accretive to us, so that -- so in a way, it's similar to opening a new restaurant or is, at least, a partial -- at least, it's like a partial opening from an earnings per share perspective. Just to give you a little more color, the strength of our brand gives us this opportunity to optimize our portfolio from time to time when real estate dynamics change. We're looking at leases that are coming up for renewal and making a decision as to whether there are -- an opportunity to be seized, to relocate a restaurant that could do even better and have far more productivity, perhaps, in a more vibrant trade area that now exists. With respect to your other question about average weekly sales and comp store sales growth, I'm glad you asked it in that manner because that's the way I generally think about it when there is that kind of gap is that -- what I want to know is what is the performance of the newer restaurants that are not in the comp store sales base? And our newer restaurants that are not in the comp store sales base that have opened over the last 3 years, which represents about 10 locations, are doing very well. In fact, looking at the new restaurant openings during that period of time, they're doing about 10% higher in sales per square foot and sales per seat in -- than the average restaurant. So the difference between comp store sales growth and average weekly sales growth is not attributable to the performance of new restaurants. The gap is driven by the difference in operating versus fiscal week comparisons. It goes back to the fact that those 2 things are different than each other because of the 53rd week last year which is shifting the calendar some by 1 week. So the revenue number used for an average weekly sales growth calculation is a fiscal period number. But in order for the comp store sales to be truly comparable, that number, for comp store sales purposes, is an operating week number comparing like-operating weeks. So when you look at average weekly sales and comp store sales now, you're comparing really apples to oranges because the -- and that's the reason comp store sales growth is greater than average weekly sales growth because that shifting of a week -- if you remember in the first quarter, that occurred also but to an even greater extent than this difference. But it was the opposite. It was that the fiscal week growth, the average weekly sales growth, was greater than the comp store sales growth.

And this is David, John. The number that we gave you is where we are today. We did want to give a number on this call. We're still working on more sites, and we really have as many sites for '14. We're probably juggling 10 sites even at this time for '14 because landlords are starting to remodel and build more. So it's taking them a while to gear up, but we're seeing positive signs from the real estate community that will be very good for us.

Your next question comes from Joe Buckley of Bank of America Merrill Lynch.

Thanks for the color on September sales and the regional day part strength. The traffic increase was pretty impressive. Can you talk about what drove that? I think you're starting -- you're filling some of those shoulder periods that we spoke about in the past.

Yes. Well, yes. when you look at our day parts, Joe, we have 4 day parts that we measure: lunch, dinner, midafternoon and late-nights. So the 2 shoulder periods, midafternoon and late-night, the growth rate in sales for those are greater than the lunch and dinner growth in sales. All 4 day parts were up, but the shoulder periods were up a little bit more.

Okay. And you mentioned a marketing shift into this quarter, did you do anything unusual to drive that traffic? And how will that year-over-year marketing spend look in the fourth quarter?

I think in the fourth quarter, I would say we'd be back more to a normalized spend rate for marketing. We did, and I -- we've mentioned before that we did a test in marketing this fall in one of our markets, and it was a unique campaign in that it was purely focused on brand awareness. There was no offer, no call to action, no real copy in the ads. The ads were very much in big, bold Cheesecake Factory style and we used primarily radio and billboard, outdoor. We did some in-mall advertising for a couple of months on one market just to see how customers would respond to that. So that's where the money was spent and it was -- it's really not anymore for the entire year, it was just more of a shift from the first half of the year into the third quarter. And we learned that a branding campaign like this can definitely move the sales needle, but we're still evaluating which parts of the campaign worked best in determining how to move forward with respect to possible future campaigns of this type.

Your next question comes from Jeffrey Bernstein of Barclays.

Just 2 quick ones. First is on the follow-up on the unit growth, the pipeline for 2013. I'm wondering if we can get more color in terms of whether it'd be new versus existing or how many of those are the smaller footprint you've talked about in the past, and whether you're getting any better receptivity or worse, perhaps, from landlord allowances whatnot. Just trying to figure out what the limitations are to perhaps accelerating that number. And then separately, I was just looking for a little color on the commodity basket. I know you've said for '13, up 3% to 5%. Just wondering the degree of visibility you have on that? Perhaps what percent is locked or how much pricing you think you would take within that comp to offset it?

I can -- the first half would be -- most of the stories are 8,500 square feet, a few 7,200, a few larger ones. But 8,500 seems to be a good number as we move into the suburbs. Those are all -- some are in brand-new cities and a couple of them in other cities, but the hard number is the hard number. And we are getting the same kinds of deals from landlords since we're still the highest grossing casual dining restaurant out there. I think we still play an important role. And in many sites, we're considered a mini-anchor. Did that answer it or did I leave something out?

So it sounds like you're saying most of those -- of them, the relocations -- that most of those are in new cities? But not in selling at existing markets?

I don't have my list right with me but I would -- but a number are in new cities. But it doesn't really matter that much to us whether they're new or old, but we are starting to go into some new ones. We do have Sarasota, I think we have Green -- I forget now, is it Greensboro, or is it the other Green?

Greenville.

The site in South Carolina. But we have some new cities and some second sites in the old cities.

So these are the smaller -- most of them on the smaller...

Again, we don't really think about that much anymore because as we said many times, the 8.5 -- the 8,500 most of them do close to $10 million. So it's really -- it's not like they're doing $15 million, but they can do quite a bit more than $1,000 a square foot. So unless there's really a major reason that's really the size that we build, we do have that 7,200 to go in even smaller locations and they've actually done extremely well. So -- but yes, that is what we're building and there -- I don't -- there might be one 10,000 square footer in there.

In terms of just the commodity?

Yes, yes. The commodity cost piece. As we said, we expect food cost inflation at this time and it's based -- it's to be up 3% to 5% next year. And we're taking into consideration the, obviously, the volatility of the commodities market. We know what we're contracted for already. Supply and demand dynamics, all those things you take into account. Our contracts are generally on a calendar year basis, so our purchasing team is right in the middle right now of contracting for next year. And at this point, with respect to where we are on contracting, we think we are where we should be at this point in time, and some products have been locked in. With respect to pricing on the menu, we're going to walk that fine line of balancing the desire to offset costs with our equal, or greater, desire to continue to have that gap between us and the industry with respect to guest traffic growth. So pricing will probably be, next year, in the neighborhood of 2%. So it -- we wouldn't expect it to entirely offset the expected cost of sales inflation. However, in spite of the expected cost of sales inflation and its impact on the cost of sales line, we believe we can continue to make progress toward growing overall margins next year, and we would see that overall margins incorporated into our guidance is somewhere of 10 basis points to 20 basis point improvement in overall margins despite the fact that we would think that cost of sales, as a percentage of sales, would be higher.

And Doug, just to clarify, did you say in the prepared remarks -- I know you said September was strong, and I know you'll often say the fourth quarter guidance is based on what you know today. But has there been any change in trend line of note in October? We've heard others talk about decelerating trends with the industry. I'm just wondering if you're seeing anything along those lines?

Well, we've incorporated anything that's happened in October into the guidance that we gave for the fourth quarter of 1% to 2%. So some of the trend you -- and some of the things that I did mention, I mentioned the presidential debates, and those are already over. So we know the exact impact of those and people -- when 50 million viewers who are watching the presidential debates, that might help you if you sell pizza or chicken wings maybe, but not full service restaurants. So we've incorporated all of that into the guidance that we gave.

Your next question comes from Michael Kelter of Goldman Sachs.

Yes. So I guess 2 things. The first, your prior 2012 guidance was 1.87 to 1.93, and that implied the new guidance is toward the bottom of that range. Can you talk about specifically what's changed or what didn't necessarily happen that would've gotten you to the top end as of the last time you spoke? And then separately, as you look forward into the fourth quarter and more importantly, into 2013, what are the major initiatives or new products that you see as meaningful traffic drivers from here?

Okay. Let's talk about the difference in the guidance. The primary difference in the guidance -- well, first of all, we've been experiencing for most of this year a tailwind with respect to cost of sales, at least, as they compare to last year. But most of the benefit of that lower cost of sales inflation came in the first half of the year. The biggest difference between the guidance we gave now for the fourth quarter and the implied guidance for the fourth quarter that we gave a few months ago, when we had our conference call then, is primarily dairy cost inflation versus our plan for the fourth quarter is higher than what we originally projected. That's the primary difference. Dairy costs are down for the year as a whole but starting in August, they began trending up year-over-year. So that's what I would say with respect to that. And as far as initiatives go, David can talk to this some, but our strategy has and continues to be to continue to differentiate ourselves through menu innovation, food quality, service standards and a high level of environment and ambiance that we provide to our guests. Those are the sales levers that we're using, and we're using them to drive full margin sales. So we don't have an initiative around discounting or any of that. So based on our, what I would call, out-performance of the industry especially when it comes to traffic growth, we believe this strategy is successful. We know we're making guests happy, we know guest counts are growing and we're maintaining the increases in guest satisfaction scores that we've enjoyed. So I would say for next year, looking at comp store sales expectations, we're expecting next year to be a lot like of this year from at least a macroeconomic standpoint. And our business has been healthy and our trends have been strong and we're confident that we can steadily grow our business.

Yes, I agree, Doug. That is truly our plan.

Well, the guest satisfaction scores that you referenced, and referenced in the release as well, what specific attributes are consumers rating you more highly on now? And were there scores that are still maybe an opportunity for you to improve?

Well, I would say to you that the scores that we talk about are the overall guest satisfaction scores. And then we have lots of detail beyond -- behind that. But as far as taste of food, levels of service, all kinds of different areas where we're evaluated -- and that allows us to create initiatives at the specific restaurant level. It's not the same everywhere, right? So if there's one restaurant that is consistently receiving low scores with respect to some particular metrics -- because we do enough of these survey results from guests that they're statistically significant. We get a lot of guest feedback. And so we know that if there's a particular restaurant or region that is struggling with the greet at the front desk or --

Pace of service.

-- yes, pace of service or whatever, then we can focus on that and it's -- so it's not an overall company-focused so much that we're seeing any one thing that we need to work on, but it's more specifically tailored to the individual restaurants.

Your next question comes from the line of David Tarantino of Robert W. Baird. David E. Tarantino - Robert W. Baird & Co. Incorporated, Research Division: Doug, just a quick clarification on your Q4 comps guidance. I think if I have my math correctly, you might be losing a little bit of pricing benefit moving from Q3 into Q4. So one, could you confirm the level of pricing you'll have? And then secondly, I guess you've pointed out a few negatives to start the quarter here. And I'm wondering what are some of the positives you're seeing that gives you confidence that you'll be able to deliver that as you look against the tougher comparison on the traffic side?

Right. So the pricing is -- a little over 2% of pricing was in the menu in the first half to 2/3 of the year. And then during the last 1/3 of the year including the fourth quarter, there's a little less than 2% of pricing in the menu. So we are lapping a tough comparison with last year. But what we do when we do our comp store sales guidance is we go through every day of the year, compare it with the previous year, whatever known weather influences we have or other things that are impacting our sales and we know what our trends have been. And that's how we have always come up with whatever comp store sales guidance we're giving. So it's -- as you -- when you're at 3.5 weeks or whatever into the quarter, you know what you've done so far, so that's a given. You know what that is and you factor that in as well as what the last 10 weeks of the quarter, on a detailed on a restaurant by restaurant basis are, with your best estimate. So when we do that math, we come up with 1% to 2%. David E. Tarantino - Robert W. Baird & Co. Incorporated, Research Division: Okay. Fair enough. And that may be a big picture in Grand Lux and the performance and the recent opening there. Perhaps, David, can you talk about kind of what the consumer feedback has been relative to what you've seen in the past? And if you could maybe give us a sense for the types of returns that the new design might deliver versus what you've seen in the past, and like, what makes you comfortable looking for new sites going forward?

Yes, I think people think it's an extremely comfortable, very, very pretty restaurant. It's very modern. We're really getting raves on the decor package itself, it has fireplaces. And so they like it and none of this old fashioned or too fancy or that I can't bring my kids. I think we're getting just the kind of response that we want. Doug, what have we come up with potential profits?

Yes. We would expect, David, that the Grand Lux concept produce similar returns to The Cheesecake Factory concept, and the real key is $1,000 per square foot in sales. So when we look at an 8,700-square foot restaurant and we make the comment that the restaurant is doing well, what we mean by that is that our projection, for full year -- so, it's a little tough. Again, you asked about comp store sales estimates for the fourth quarter. Well, this restaurant has -- the softer time of the year starts in September, when people go back to school. But if we put together a whole 52 weeks for this Grand Lux restaurant, we would think it's going to roughly do $1,000 a square foot. So with that, it ought to have returns that are commensurate with The Cheesecake Factory. David E. Tarantino - Robert W. Baird & Co. Incorporated, Research Division: Great. And then one want quick one. Do any of the 8 to 10 that you're planning for next year, are any of those Grand Lux or are they all Cheesecake Factory?

One might be, otherwise they should open early the next year. We're still working on a number of those.

The next question comes from Matthew DiFrisco. Matthew DiFrisco of Lazard.

The question I have is just one of the follow-ups. First is, with respect to that calendar shift, Doug, impacting the average weekly sales in same-store sales. Was it 2Q, then, that benefited or will 4Q benefit as far as having the, now, the 2012 beneficial calendar shift?

Well, the first quarter -- no, let me get this right.

Well, the third quarter just now had it. So it's either going to be the 2Q or 4Q.

The second quarter, there was a difference there, but it wasn't worth mentioning. And the fourth quarter will benefit.

The fourth quarter will benefit? Okay, because I was going to say, if you're doing 10% bigger volumes on a year-over-year basis, on the 8 or so stores that aren't in the comp base, that was a rather meaningful average weekly sales hit from the calendar shift then.

10% higher sales per square foot and sales per seat. Not 10% higher volume. There's a difference. Right? Because restaurants are generally 10,000 or 11,000 square feet. There's a different expected volume out of that size restaurant, and so I'd just be careful with that calculation.

Okay. But it'll be a positive -- what we should anticipate as a positive gap, it looks like, just on a pure calendar shift basis in 4Q?

Yes, yes. How big, Jill? It's not...

It's should definitely narrow by the fourth quarter.

Should definitely narrow. We'll be glad when the effect of the 53 week year goes away.

Right. Okay, but I just want to make sure that, that is a positive one, the shift. Moving over to '13 and looking at the comp guidance. I think you said you would expect somewhere in the realm of about a 2% price increase being carried through '13. And given your traffic trends, I would think it wouldn't be overly optimistic to say that you would remain somewhat positive. I guess, are you estimating then that this negative average check will persist through 2013 or are you just being somewhat conservative, this early on, looking into '13, as far as your 1.5% , 2.5% aggregate same-store sales number?

I would say that, what we've accomplished over the last 3 years is roughly 2% comps, plus or minus, every quarter for about 3 years. That's what happened. And we see the environment next year, the macroeconomic environment, as being very similar to 2012, where we can continue to grow our guest count. I don't know if it's going to be 1.5% a quarter, I wouldn't be as bold as to write that number down for expected guest count increases for a whole year. But an environment where we can continue to grow our guest count and where the mix is still in a state where it's somewhat offsetting the price that we're taking. So when we look at history, you look at the stability of our sales and what they've been over the last 3 years, and you factor in all that, what I think we're comfortable in saying right now is 1.5% to 2.5%. And I think that that's as accurate as we can get in either conservative or the other way.

I'm just trying to figure out if you're anticipating an average check, a negative average check throughout all of '13, for any particular reason. That's the root of my question as compared to the price.

No. We're not considering a negative. The average check has never gone down, that I know of. Not in years. So no, we're not considering a negative average check.

Okay, I meant mix. Sorry, but, okay.

Your next question comes from Brian Bittner of Oppenheimer & Co. Brian J. Bittner - Oppenheimer & Co. Inc., Research Division: I was wondering if you could just walk us through the economics for these relocations. I think you said that they're accretive to earnings. So I just want you to try to help me understand exactly why. And then kind of the second part of the question is -- just, in general, I mean, how do you view these net returns on using this incremental capital to build a store to replace a store that I guess you already have a significant amount of capital invested in?

I think you'd go through the same calculation that we go through. What we look about, we look at it exactly that way. There's a sunk cost in the original store and then there's a brand-new investment to make in the new store. So if the original store is one that's been open for 15 or 20 years, and if sales have begun to wane a little bit or the trade area around that store is not one where we would look for and we would say it is a very vibrant trade area. But we would look very carefully at whether we could recover this additional investment that we're making. But we look at it, to some extent, as being the expansion or allowing our brand to be in areas that are the vibrant trade areas. I think that, that's an important consideration as well. So we look at all of those things and make a decision on what does the next 10 to 15 years look like, and would we rather make significant investments, maybe, in the current restaurant or would we rather spend a little bit more and have a brand-new restaurant in the new vibrant trade area. That's how we look at it. Brian J. Bittner - Oppenheimer & Co. Inc., Research Division: Yes, that makes sense. And I guess the EPS accretion is because of the higher sales you get?

Higher sales and higher profitability from the sale, sure.

Your next question comes from Sharon Zackfia from William Blair. Sharon Zackfia - William Blair & Company L.L.C., Research Division: I just had a couple quick clarifying questions. Doug, you mentioned, I think, some legal reserve or recoupment that helped in the G&A line. Could you let us know what that was and how much the dollar amount was?

I will just tell you that we had some legal costs that we had spent in prior quarters, that we were able to recover some of those costs and it amounted to in the neighborhood of $2 million. Sharon Zackfia - William Blair & Company L.L.C., Research Division: Okay. And then on marketing, as you're experimenting a little bit more. I mean, how should we think about that on a kind of cadence-basis going forward? Kind of really thinking about it as a percentage of sales, because it feels like maybe you're spending a little bit more and getting de-leverage on it. So I'm just going to figure out how you're assessing the return on your marketing.

Yes, there's no de-leverage on it. There might be in this quarter, but there's no de-leverage overall. In fact, we would look at marketing as -- we're spending about 0.5% of sales and I don't think we're going to make a decision to spend more than 0.5%. I think that what -- this test that we did in this market, what it did for us was help inform how we should spend the marketing dollars in future years that we've decided to spend, as opposed to whether we're going to spend more marketing dollars. As you know, we use marketing to support and to build our brand. And we use, primarily, social and digital media to engage with our guests and to reach them directly. And our following on sites like Facebook are growing exponentially. We have over 3 million Facebook fans today. And importantly, we have a high degree of engagement with those people. So social media is a big part of our marketing, and then, publicity is a big part of our marketing. We have had lots of publicity. Recently, lots of local network morning show, cooking demos, other nationally syndicated shows. David has done an interview on the radio that was very good. We had an article in the New Yorker magazine that maybe you saw, that compared the efficiency of The Cheesecake Factory and suggested it was a model for how the health care industry should be run. So digital media and publicity, and then deciding how to spend the rest of our marketing dollars in this test that we do, that helped inform those decisions. But it's not a decision to spend more on marketing.

Your next question comes from Bryan Elliott of Raymond James. Bryan C. Elliott - Raymond James & Associates, Inc., Research Division: A couple of things. One, I missed the breakout -- I think you usually give traffic, mix, pricing for Q3, the break out of the same-store sales.

Yes. That's 2.5% comps, traffic is 1.5%, average ticket increase was 1% and the menu pricing was about 1.9% in the quarter. So the mix, while improving slightly sequentially for the last 2 quarters, was negative 0.9%. I'll also add that those are the blended numbers. For The Cheesecake Factory, their traffic was up So, Cheesecake Factory concept alone, their traffic was up almost 2%, about 1.9%. Bryan C. Elliott - Raymond James & Associates, Inc., Research Division: Okay, all right. And somebody asked about the economics of moving the stores, relocating stores. Could I ask about the accounting for that? Is there going to be write-offs to buy out the rest of the lease, depreciation bumps or how should we think about that as we model '13 and beyond?

We've factored that in, it's on a case-by-case basis. Generally, the stores that we've decided to relocate, restaurants we decided to relocate, are ones that we've had for a while. So the book value is not as big a deal. But I would say that we factored all that into the guidance as we looked at it. Bryan C. Elliott - Raymond James & Associates, Inc., Research Division: Okay. And then back to the food cost a bit. So you talked about dairy starting to move up. Have you been able to contract dairy at all? Cream cheese into '13 yet or is that still maybe an uncertainty?

I think, this year, the reason that it moved up on us was the fact that we -- the only way it can move up and impact the fourth quarter, like I talked about, is because we weren't contracted. So we weren't fully contracted on a lot of our dairy, last year, because it was so outrageously high. So we will evaluate, when looking at dairy, to determine whether or not it should be contracted for or whether we should buy it, more on a spot basis, or if it contracted for, what portion of it should we contract for? Bryan C. Elliott - Raymond James & Associates, Inc., Research Division: Okay. And refresh my memory, cream cheese does correlate pretty tightly with raw milk prices which are pushing $20, right?

I think so. Butter more so than raw milk prices, but... Bryan C. Elliott - Raymond James & Associates, Inc., Research Division: Have you used current spot, and I guess -- milk's up 1/3 in 4, 5 months. And so if it stays there, and it seems likely to, with that -- let me ask the question now. If milk stays at $20 or goes a little higher, will that create a high likelihood that you'll be at the top end of your food inflation guidance range of 3% to 5%?

I don't know the answer to that because, I would say, not necessarily. Because, while dairy is one of the bigger components of our cost of sales, we sell so many different things, and we have so many SKUs that no one SKU is that big of a percentage of the overall total.

Your next question comes from John Ivankoe from JPMorgan. John W. Ivankoe - JP Morgan Chase & Co, Research Division: So, just a couple of follow-ups, if I may, as well. Firstly, David, I think you said in the prepared remarks that you were driving throughput at peak day parts. I mean, just let me know if I heard that right or if there's anything structural or even tactical, I guess, as it may be, that you're doing to kind of drive day parts or drive day parts or drive traffic in day parts, that you're already full.

Yes. I think you heard us saying that each of our day parts were up, each of the geographical areas that we measure in the country we're up. So that everything was up and I think that's just from overall efforts, not from any focused effort on any one day part. John W. Ivankoe - JP Morgan Chase & Co, Research Division: Okay. Fair enough. And then secondly, I know we've been talking a lot about relocations, but I'm curious that maybe the preopening around those relocations are maybe much less than normal opening, being in a completely different market.

I think that's a great point. It should be. Right? Because there's restaurants being relocated and -- even the people movement, we might be able to just say, don't report here, go over here. And so I would think that preopening should be significantly less. John W. Ivankoe - JP Morgan Chase & Co, Research Division: Could you help us with maybe preopening dollars and the G&A dollars, next year, on that basis?

Not right now, I can't. We could do that offline.

Your next question from comes from Will Slabaugh from Stephens.

I heard you mention that, geographically, everything was up. Just wondering if there's anything worth noting, as far as differences go, geographically, especially just given the gas price fluctuations that we've seen across the country. If you're seeing something similar like you've mentioned previously, such as the strength in California, Texas, et cetera.

Go ahead, David.

No, I was going to defer to you on that.

Okay. So all 11 of the geographies that we measure were positive. And most of our markets were strong, including our biggest market, which is California, where if gas prices are high anywhere, I can guarantee you, they're high here. So that sort of -- the gas price correlation that you're talking about there doesn't really seem to hold a lot of water. Texas was very strong for us. I mean, we were strong across the board. Of course, there's an average. So some are higher than others, but California was a very good market for us and has high gas prices.

And a quick follow-up on the share count and the movements there. So you've repurchased $75 million year-to-date, and the share count actually hasn't moved a lot. So I'm wondering what the movements are going there. I know you've added some stock comp in there as well, and just wondering how we should expect that to move into Q4, then into 2013 as well?

Yes. You've got to be able to tell me the answer to the question on what will our stock price trade for to know the exact answer to that. Because, this quarter, our stock, for about 1/3 of the days, was over $35. And when the stock is higher, there are a couple of things that happen: There are more option exercises, which create dilution because; and under the treasury stock method of accounting, as the stock price increases there is more shares that have to be included in the denominator, so that causes dilution as well. So the answer to that question is, we've assumed in our calculations, some kind of stock price. And I'm not even sure exactly what we assume. We probably didn't assume it's going to go way up or way down. We'll probably assume that we'd stay right in some kind of tight range, because the range was pretty tight, but it was generally higher in the third quarter than what it had been. So the fourth quarter, on a WASO-basis, I can tell you that, roughly -- well, we have a range in our guidance, that I'm looking at here. But it's only a couple of hundred thousand share range. So right around 55 million shares, is what we think WASO is going to be at the end of the -- or not the end, but the average WASO for the quarter that we use for EPS purposes.

Your next question comes from Steve Anderson of Miller Tabak. Stephen Anderson - Miller Tabak + Co., LLC, Research Division: Just particularly one of your line items on interest and the nonoperating line. So it's a bit higher, last quarter, than it was in previous quarters. Is there anything we -- what can we attribute that to?

It was a little bit higher. One of the things I've said in my prepared remarks is that we had the -- we have an executive savings plan, that's non-qualified deferred compensation plan, and market swings impact that in a small way. And last year, I believe we had about $100,000-plus of the income associated with that in the third quarter, and this year, we had $100,000-plus of expenses associated with that. So that's couple of hundred thousand dollars. And the other difference that I mentioned was that we had a little bit of a spike, this quarter, in retirements of restaurant assets. So that there was write-off of some remaining book value of restaurant assets that we replaced in our existing restaurants, and that was the remainder. Stephen Anderson - Miller Tabak + Co., LLC, Research Division: Okay. And then looking at the -- as you open up more franchises, is there any time in the future you think you might be able to break that line up for international franchisee income?

We will, for sure. When that becomes a more meaningful number, it's just not a meaningful number yet, we will definitely break that. We'll break royalty income out on a separate line.

Your next question comes from Mitchell Speiser. Please go ahead, Mitchell, from Buckingham Research.

Great. Doug, can you just clarify that you said that you expect about 55 million shares as the fully diluted average share base for the fourth quarter?

For the fourth quarter. Right.

Okay. Next, just a couple of questions about the fourth quarter and the calendar shift, just because there is that one less week. Can you maybe give us a sense of what your revenue or what the revenue guidance is implied from the earnings guidance? I know in prior quarters you have given us some sense of where you think revenues are going to come out.

Yes, we have. I think we did that in the first quarter when this was kind of like sort of a hard to understand little issue. I would say, that in the fourth quarter, that revenues somewhere in the neighborhood of $462 million to $470 million.

Okay. That's helpful. And are there any holiday shifts to take note of in the fourth quarter, just given how Christmas and New Year's fall versus a year ago?

Not a lot. Christmas is slightly favorable.

And I think my last question is just on -- David, I think you mentioned, 2014, you're already working on sites, maybe up to 10 or so. Are there any relocations that are likely in 2014?

I don't think so. I can't tell you right now. We're not talking about very many anyway. Half the company is, what, less than 10 years old, Doug?

Yes, something like that.

So about some of the sites that we've had since the early '80s, and because usually -- especially after we got going, we only signed 20-year leases. There's only a few that we could actually get out of when they came up. So I can't tell you at this moment, but we're not talking about a very big number here that people have to worry about. And that's just where we are in '14 right now. We're still working on -- even other things. So I was just letting you know that. Not only do we have these 10 sites we're juggling in '13, we have just as many in '14.

Okay. Great. And my final question is on Grand Lux, just given the negative comp. Was it driven by those particularly large stores? I think it was it Vegas or was it more of a broad-based decline?

No, I think you can chime in, Doug, but I think it's still the large stores that we have. When they don't do well, we really can't do well. Do you have any more of that, Doug?

Yes, the variability. The large restaurants do, obviously, have a very big impact. I would just say to you that you really wouldn't -- I wouldn't look just at one quarter. I'd look at a longer time horizon. If you look at the past 12 months, for instance, Grand Lux comps are down about a little more than 0.5% and the 2-year trend is improving. The other thing to keep in mind about Grand Lux is -- I think it's more a performer closer to the industry average, as compared to its sister concept that is doing so much better than the industry average. So that's how I would couch looking at Grand Lux. I think that the awareness of the Grand Lux concept is not the same as The Cheesecake Factory for sure, but it should build over time as we build more units.

Your next question comes from Keith Siegner from Crédit Suisse. Keith Siegner - Crédit Suisse AG, Research Division: Just one quick one for me. The Cheesecake closure at the end of the third quarter. Just wondering, is that part of a relocation program? Is that an actual closure? So are you going to replace it or have you already replaced it? And then a second question. When we think about kind of modeling the relocates into next year, how should we think about the timing? Do you hope to, say close the one store and open the relocate very soon thereafter? Will there be overlap? Will there be some drag between the 2? Anything along those lines would be helpful.

Yes, I think with respect to when we do -- I think that the way, Keith, that we look at that is try to close and open the restaurant in as close a proximity of time as we could. There's so many other considerations that are nonfinancial considerations that would have to go into that. But that would be -- to have one close one day and one open the next day would be the best thing that could happen. So that's what we would try to do. With respect to the restaurant you're talking about, our lease in Brentwood, which is in California, expired. And we made the strategic decision not to renew it. We're not calling it a replacement yet. Real estate dynamics have definitely changed, that restaurant opened in 1993. And we really see an opportunity to get a very premier site in that trade area. And as we always do, we're looking for that site. So that one's not called out as a relocation. We've talked about it in our 10-Q, about the fact that we made the strategic decision not to renew that lease. Really, that decision is immaterial to our results, immaterial to our comps, immaterial to the P&L in any event. So we will find another great restaurant site in that trade area, that more clearly reflects the vibrancy that we're looking for in that trade area, after this one that was 20 years old, as we chose not to renew the lease.

Your next question comes from Bob Derrington of Northcoast Research.

Doug, could you help on a couple of points? One, it looks like CapEx has come down each of the last 3 quarters. I think, early in the year, it was roughly $100 million to $110 million in April. Next conference call is $95 million to $105 million, and now it's $85 million to $95 million. Can you give us a little bit more color on what's going on within that line?

We get more and more visibility as the year goes on. We don't ever want to give a number at the beginning of the year that we're going to overspend. And we brought it down as we have more visibility into the month -- we built a number of restaurants that we said, at least on our revised estimate of 7 to 8, which I think we said back in, maybe its February, when we said 7 to 8. So we're going 8. It's not that we're building less restaurants. So we just have better visibility as it goes on, as to what exactly CapEx is going to be, and that's why it's changing.

Well, I just didn't know, Doug, whether it has something to do with either the capital outlay that was required for each restaurant or the give-back from landlords or how this played into it.

No, we've got that pretty much down to a science. We know, basically within a pretty tight range, what we're going to spend. And we know what the landlord allowances are, because that's what allows us to approve the deal at the economics that we need.

Got you. And then, as we look into 2013, could you give us any kind of color on the direction of operating week growth in the new year?

I didn't give you any of that. No.

Will you?

Yes, I don't have that right here now, but I would say that if you were to model out 8 to 10 new restaurants, I would put about 1/3 of them in the first half of the year and 2/3 of them in the second half of the year.

Thank you. Ladies and gentlemen, that does conclude your conference call for today. You may now disconnect. Thank you, once again, for joining and do enjoy the rest of your day.