The Cheesecake Factory Incorporated (CAKE) Q4 2015 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to The Cheesecake Factory, Incorporated Q4 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Matt Clark. Sir, you may begin. Matthew Eliot Clark - Senior Vice President-Finance & Strategy: Thank you. Good afternoon, everyone, and welcome to our fourth quarter fiscal 2015 earnings call. I'm Matt Clark, Senior Vice President of Finance and Strategy. On the call today are David Overton, our Chairman and Chief Executive Officer; David Gordon, our President; and Doug Benn, our Executive Vice President and Chief Financial Officer. Before we begin, let me quickly remind you that during this call, items will be discussed that are 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 be materially different from those stated or implied in forward-looking statements as a result of the factors detailed in today's press release, which is available on our website at investors.thecheesecakefactory.com and in our filings with the Securities and Exchange Commission. All forward-looking statements made on this call speak only as of today's date and the company undertakes no duty to update any forward-looking statements. David Overton will begin today's call with some opening remarks. Doug will then take you through our operating results in detail and provide our outlook for both the first quarter of 2016 as well as our thoughts on the full fiscal year. Following that, we'll open the call to questions. And with that, I'll turn the call over to David. David M. Overton - Chairman & Chief Executive Officer: Thank you, Matt. In the fourth quarter of 2015, we again delivered consistent and dependable results with comparable sales still measurably above the casual dining industry as a whole, and earnings per share greater than both our guidance and expectations. Overall, we are quite pleased that we delivered on all of our objectives: the solid growth in comparable sales, new units, operating margins, and earnings per share. In fact, 2015 represented a milestone year for us on a number of fronts. We recorded over $2 billion in sales for the first time, and now operating 200 restaurants domestically across three concepts. Our international licensees opened three new Cheesecake Factory restaurants including two new markets bringing the total to 11 international licensed locations. The average unit volume for The Cheesecake Factory domestic restaurants continued to grow to over $10.6 million and our operations team effectively managed through a tough labor environment helping the profit margin expansion. So while similar to recent years, the economic environment remains relatively slow and uncertain, our company is effectively moving forward with its growth plans. We are navigating the challenging landscape by continuing with our successful recipe of menu and design innovation and operational excellence that is served to make The Cheesecake Factory one of the most differentiated restaurant concepts in the casual dining industry. Our menu is as relevant today as ever with options like our popular new Super Foods selections complemented by 50 varieties of legendary cheesecake providing guests both with healthy options as well as the indulgences that they crave. At the same time, we are maintaining our historically high guest satisfaction scores, which is a key point as the guest experience remains one of our top priorities while we manage our business for the long term. Looking forward to this year, we still expect to open as many as eight company-owned restaurants, including one Grand Lux Cafe. Our long-term objective with respect to development is to open restaurants in premier locations that can achieve our targeted returns. And we remain highly selective in order to continue to create value as we work toward our target of 300 domestic Cheesecake Factory restaurants. Internationally, we expect as many as four to five restaurants to open this year under licensing agreements based on the information we currently have. For the first time, each of our three licensees has at least one opening plan, including the first Cheesecake Factory restaurant in China at Disney Town within the Shanghai Disneyland Resort. I remain confident that we are well positioned for 2016 and beyond. Our operations team is strong and deep, and our global growth continues with a significant improvement in our international presence planned for this year. We are executing on our operating plan, making good strategic investments, and allocating capital appropriately to drive our targeted returns and grow shareholder revenue. With that, I'll turn the call over to Doug for our financial review. W. Douglas Benn - Chief Financial Officer & Executive Vice President: Thank you, David. Total revenues at The Cheesecake Factory for the fourth quarter of 2015 were $526.8 million. Revenues reflect the comparable sales increase of 1.1% at The Cheesecake Factory restaurants. External bakery sales were $16.3 million in the fourth quarter. Cost of sales decreased approximately 150 basis points year-over-year in the fourth quarter of 2015 to 23.8% of revenue. This was driven primarily by expected favorability in dairy and seafood costs, plus lower-than-forecasted poultry prices, partially offset by higher costs for meat. Labor was 32.8% of revenues, an increase of about 30 basis points as compared to the fourth quarter of last year. The majority of the variance was attributable to higher wage rate consistent with our expectations. Other operating costs were 23.7% of revenues, down 40 basis points from the prior year. A continued benefit from lower natural gas prices combined with some favorability across other cost categories supported these results. G&A was 6.8% of revenue in the fourth quarter of fiscal 2015, up 100 basis points from the same quarter of the prior year. The variance primarily related to a higher corporate bonus accrual and was in line with prior guidance. Preopening expense was $7.1 million for the fourth quarter of 2015, versus $5.5 million in the same period last year. We had six new restaurant openings in the final quarter of 2015 compared to five restaurant openings in the same period of 2014. Our tax rate this quarter was approximately 27%, within our expected range and commensurate with the prior year. Cash flow from operations for 2015 was approximately $235 million. Net of roughly $154 million of cash used for capital expenditures, we generated about $81 million in free cash flow for the year. That wraps up our business and financial review for the fourth quarter of 2015. It was a clean quarter, fairly consistent with our expectation, and completed a solid financial year for us. Now I'll spend a few minutes on our outlook for the first quarter and full year of 2016. 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 and the most current input cost information we have at this time. 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 and the effect of any impacts associated with holidays or weather. For the first quarter of 2016, we are estimating diluted earnings per share between $0.59 and $0.62 based on an assumed range of comparable sales between 1.5% and 2.5% at The Cheesecake Factory restaurants. As previously noted, we are lapping a strong comparable sales increase of 4.2% in the first quarter of 2015. However, we are having a solid start in 2016 and we also have slightly higher pricing in place compared to last year. So when we incorporate all the factors, we end up with a 1.5% to 2.5% range provided. With respect to the full year of 2016, we are maintaining our estimated comparable sales range of 1.5% to 2.5% which is consistent with our performance during the last six months of 2015 and our expectations for the first quarter. The diluted earnings per share sensitivity associated with this comparable sales range also has not changed from our prior guidance and is between $2.56 to $2.68 for the full year. Note that fiscal 2016 is a 53-week year for us and our estimates include the impact from the additional week. On the cost side, we expect food cost inflation to be about flat in 2016. Some areas such as produce and dairy are expected to be higher whereas we currently expect lower seafood and poultry costs versus 2015. We are also planning for wage inflation of approximately 5% in 2016. As we previously discussed, about half of the increase is coming from governmentally regulated minimum wage and tip credit increases, representing approximately $11 million in incremental labor costs this year. So, the key components of our core margins in 2016 will be the flat year-over-year cost of sales inflation combined with the impact from significantly higher labor rate. These, together with our diligent cost management, menu pricing and benefit from international growth, result in an expectation for slightly expanding operating margins at the high end of our guidance sensitivity. Regarding our corporate tax rate, we expect it to be about 28% for 2016. Our total capital expenditures this year are expected to be between $100 million and $110 million for as many as eight planned 2016 domestic openings as well as expected openings in early 2017. We anticipate returning substantially all of our free cash flow to shareholders in the form of dividends and share repurchases. With that said, we'll take your questions. In order to accommodate as many questions as possible, please limit yourself to one question and then re-queue with any additional questions.

And our first question comes from John Glass of Morgan Stanley. Your line is now open. Please go ahead. John Glass - Morgan Stanley & Co. LLC: Thanks very much. Can you maybe give us the underlying – the fourth quarter and the first quarter, the underlying pricing and the underlying traffic numbers. The broader question is, it looks like on a two-year basis, right, your sales are accelerating against tougher comparisons versus the fourth quarter. And I'm just trying to understand is that a traffic driven acceleration or is that really more about the timing of pricing or some other elements within the comp? W. Douglas Benn - Chief Financial Officer & Executive Vice President: Yeah. Let's talk first about how the fourth quarter turned out. We had 1.1% positive comps. There was about 2.5% pricing in that number and we had positive mix of about 0.5%. So traffic was down 1.9%. You should keep in mind that there were some holiday shifts that affected guest traffic and overall sales in the fourth quarter that we previously mentioned expecting to see and those shifts did occur. And the shifts impacted the fourth quarter traffic by approximately 70 basis points or so. Halloween shifted to Saturday, Christmas to a Friday, plus we lost December 30 which is a strong day for us, moved into 2016. So, that's what was driving the traffic in the fourth quarter. As we look forward to 2016, I think we would expect for the year to have about 2.5%-plus pricing in the menu and with comp store sales expectations of between 1.5% and 2.5% that would lead you to conclude that the traffic, I guess, also depending on mix. But traffic, we would expect it to be flat to down about 1%. John Glass - Morgan Stanley & Co. LLC: That's helpful. And then just one other, does the earlier Easter benefit the first quarter? Is that one of the factors you're incorporating and how much so? I know spring break is a big swing factor for you in that first quarter and second quarters. W. Douglas Benn - Chief Financial Officer & Executive Vice President: Yeah. We incorporated that. It's really pretty small this year. The Easter break might benefit us a little bit in the first quarter, and we've incorporated what little bit that is, but not a lot. And we've also incorporated the weather that has happened so far into the guidance that we gave. We had the storms, whenever they were, two or three weeks ago in the Atlantic Seaboard that definitely impacted comp store sales. John Glass - Morgan Stanley & Co. LLC: Got you. All right, thank you. W. Douglas Benn - Chief Financial Officer & Executive Vice President: You're welcome.

Thank you. And our next question comes from Jeffrey Bernstein of Barclays. Your line is now open. Please go ahead.

Great. Thank you. One follow up on that last question just in terms of the comp that you're seeing thus far in the first quarter. I'm just wondering because it does seem like it's a pretty healthy acceleration. Is there any other unusuals to be called out in there whether there's anything geographically speaking? Day part, day of the week or it just seems like whether there's maybe holiday and gift card redemption or anything along those lines to lead to such a sharp reacceleration in trend? W. Douglas Benn - Chief Financial Officer & Executive Vice President: Nothing in particular, now I did mention that December 30 moved into this year. So we started off the year very strong. And then, the storms happened so that brought that down a little bit and I guess just factoring in everything that we know, that's we think were 1.5% to 2.5% for the quarter. I can't think... David M. Overton - Chairman & Chief Executive Officer: Hey, Jeff, no, I think the thing is our business has been pretty consistent and sometimes you have the arbitrary dates that define our fiscal reporting calendar that Doug is referring to, but from a geographic standpoint, we remain pretty consistent. From a day part, we remain pretty consistent. So, sometimes, I think it's just these shifts that move it a little bit quarter to quarter but nothing inherent in the business.

Got it. And then, just separately you mentioned the unit growth outlook for 2016 includes one Grand Lux. Just wondering if you can give us an update as you think about another, perhaps, high-growth brand, I know you often contemplate Grand Lux and RockSugar. Those don't necessarily seem like they're, at this point, looking to be second big national brands. I'm just wondering if there's any other update. I know you talked about fast casual concept in the past or something to supplement whether internally developed or acquired. Any updates on that front? W. Douglas Benn - Chief Financial Officer & Executive Vice President: I would say no real updates. Just to reiterate, we are actively looking externally at other restaurant concepts as opportunities to be able to increase our growth runway and that's what you're referring to. Fast casual is interesting to us, although fit and growth potential are our key priorities. We're also seriously evaluating internally-generated growth opportunities, so not only potential external investment, but also something that we would internally generate. And then we've talked about – and we're working on all these things simultaneously, Jeff. Consumer packaged goods opportunities. We've always done that with cheesecakes, and we think there's potential to continue to do that by attaching our name to other high quality products that are consistent with our brand.

Got it. And then just lastly, any update on the technology front? I know we've talked about maybe pay-at-the-table would lead the charge for Cheesecake Factory. I'm just wondering how that's performing and if there's anything else on deck in terms of technology rollouts for 2016. David M. Overton - Chairman & Chief Executive Officer: Well, thanks, Jeff. We do feel great about the mobile payment app, CakePay. We currently have it fully tested in three locations. And we're working out some of the finalities of our deal. And in the second quarter, coming up here pretty shortly, we're going to roll it out nationally. And so far, it's been a great user experience, a great guest experience, and that we feel like it certainly can enhance somebody's experience towards the end of their meal and give them that convenience to be able to pay whenever they'd like. So we're excited to get that launched. Also, I think I mentioned in the past some of our server training initiatives, and we'll be rolling that out in the second quarter of this year across the company, so all of our new servers coming on board will take part in our new server training program, which has an enhanced focus on service and hospitality. And even our current staff is learning some of those modules just in the next three weeks, as we roll out all of our current servers some of that enhanced training as well. And we're using a lot of new technology to be able to take the time that formally was used up to teach them the menu for an increased focus on service and hospitality to ensure that we're really staying contemporary with guest needs today and specializing our service to every guest expectation. W. Douglas Benn - Chief Financial Officer & Executive Vice President: And, Jeff, since you asked about technology, I just thought I'd mention. We've had a big win recently, not really guest spacing, but we have installed end-to-end encryption in every one of our restaurants today such that now, we don't have any customer credit card data in our possession. So if our system was breached in some way, they wouldn't be able to get at customer credit card data, and this was just a – it was a big project for us, a big win and really enhances the security of our systems.

Understood. Good to know. Thank you.

Thank you. And our next question comes from David Tarantino of Robert W. Baird. Your line is now open. Please go ahead. David E. Tarantino - Robert W. Baird & Co., Inc. (Broker): Hi. Good afternoon. Doug, I wanted to come back to the question on the comp trajectory in Q4 and then the changes seen in Q1. And I guess, if I look back at the past couple of fourth quarters, the performance gap versus some of the industry benchmarks on the traffic side has been, I guess, not what we're used to seeing from Cheesecake Factory. So I'm wondering if you have any thoughts on why that would be the case. Is there anything structural around the fourth quarter, whether it's mall-related traffic or shopping-related traffic that you think could be a structural headwind for the quarter that may be weighs down the fourth quarter and may be doesn't carry over into the first quarter? W. Douglas Benn - Chief Financial Officer & Executive Vice President: Yes. The thing that I can think of, and we've been looking at it this over the last three or four years that we've been seeing, we know that there's a trend in our business and I think for other casual diners as well, but particularly for us, there's been a traffic shift, more of a traffic shift to after Christmas as opposed to between Thanksgiving and Christmas over the past three years. So our year ended this year on December 29. So we had one fewer after-Christmas days this year than we had last year and that's a really big day for us. So that's one thing that I can think of and that moves the needle more than you think it does. So we do see that trend. Matthew Eliot Clark - Senior Vice President-Finance & Strategy: I think it's coupled with the gift cards, Dave. We continue to take market share with gift card sales and if you get a good amount of redemptions. And again, when we look at the comparison versus the benchmarks, we tend to add together quarters to try to smooth out some of those arbitrary reporting dates, right. So if you look at for the entire year of 2015, where did we have a improvement in our traffic from the prior year and so it balances out over time. So I think it's a good question around the quarter. But we try to get rid some of those calendar and day shifts when we look at it. David E. Tarantino - Robert W. Baird & Co., Inc. (Broker): Great. And just to follow up. Doug, you referenced this a couple times but I don't think you quantified the impact of that one post-Christmas day shifting into the first quarter. How much did that cost you in Q4 and I guess conversely help you in Q1? Matthew Eliot Clark - Senior Vice President-Finance & Strategy: We talked about it – I think he mentioned the total impact, David, was about 70 basis points. More than two-thirds of that was just the Christmas shift, but it's also hard to specifically quantify when you start with a strong week just that day alone. So I think it's a combination of the two factors of the specific component plus just kind of a momentum post holidays and people get back into the malls. David E. Tarantino - Robert W. Baird & Co., Inc. (Broker): Great. Thank you very much.

Thank you. And our next question comes from Nicole Miller of Piper Jaffray. Your line is now open. Please go ahead. Nicole M. Miller Regan - Piper Jaffray & Co (Broker): Thanks. Good afternoon. Could you give some more specific examples or learnings of what you are seeing with the technology that you have in test? I think you said three stores. I'd be kind of curious about two things: who is using it and how are they using it? Is everyone checking out or what percentage of people are checking out? And then is there anything you've factored in the guidance as you roll it out nationally? Like would there be a topline or a margin benefit? Thank you. Matthew Eliot Clark - Senior Vice President-Finance & Strategy: I'll start with the second half of the question. There's nothing that we've modeled out for this year. And we see it being used by all guests actually across different age demographics, whether it's somebody young and millennial or a little bit older. We're currently not incentivizing the use of the app. So all of the adoption is coming from just awareness within the four walls of the restaurant and our staff informing the guest that the option is available. So we've made a decision that we're going to have soft rollout across the nation, and we're not going to roll with any incentive to download the app, and we're going to see where that takes us. And then from there we'll decide to move forward with any sort of offers, a slice of cheesecake or whatever, to go ahead and incentivize adoption, we may decide to that. But the numbers are pretty much in line with what we would have expected thus far. And just to reiterate, the app, again, is solely for mobile payment. And what we've been most excited about is the ease of use for the guest from downloading the app while they're in the restaurant, the actual usage, and enabling them to be able to leave whenever they want. And I think the feedback we're getting from them has been very, very positive. Nicole M. Miller Regan - Piper Jaffray & Co (Broker): Thanks. And just a last generic question, it would be helpful to hear the perspective of the team on the current environment. What would you suggest to us sitting here in our roles as key indicators to look at for overall casual dining trends, whether it's GDP or wage inflation or consumer confidence? Could you just talk to us a little bit about the current environment, please? W. Douglas Benn - Chief Financial Officer & Executive Vice President: I would just tell you that I think that the current environment is a continuation of what it has been for quite a while, which is there's slow growth in the economy. That seems to be continuing from our perspective, but it's not robust growth. So we have slightly negative traffic, for instance. I think that if we had a little bit more robust economic activity, then we would. So I would just say that we continue to outperform the rest of casual dining industry, but it is a very soft growth environment. Nicole M. Miller Regan - Piper Jaffray & Co (Broker): Thanks.

Thank you. And our next question comes from Keith Siegner of UBS. Your line is now open. Please go ahead.

Thanks. Doug, I want to ask about G&A. As we finish up 2015, G&A as a percentage of revenue is higher than it's been in quite a few years. So when we think about the next couple of years, assuming that we're in this sort of, let's say, similar as 2016 macro environment, comps in 1.5% to 2% range, EPS growth maybe holds in this level. How should we be thinking about G&A over the next couple years? And against that question, do you do any big analysis to think about benchmarking, cost-cut opportunities, anything along those lines? Thanks. W. Douglas Benn - Chief Financial Officer & Executive Vice President: Well, I would say that you think about G&A for 2016 and looking forward as flat to slightly leveraged against sales. Our goal is to grow G&A at a slower rate than sales growth. And so with the sales growth that we had today really flat is about what we can expect. It was up significantly this year, as you know, because we had really no bonus accrual in the numbers in 2014, and we have bonus accruals in the numbers for 2015. And the other part... Matthew Eliot Clark - Senior Vice President-Finance & Strategy: I think structurally, Keith, one of the things that is just optics with the gift card business that has grown, the way the accounting work is that some of those slotting fees in some of the markets and third-party channels are captured within G&A. So we certainly do benchmark, and that's an area that we focus on. But what we do is we carve out what we call the core G&A from some of the other components like the gift card expense or, like Doug said, the bonuses can go up and down in any year, or one of the areas of pressure has been in the equity compensation, but now we've stabilized that. So I think Doug's outlook is spot on as many of these factors have stabilized in the past couple of years.

Thank you.

Thank you. And our next question comes from Karen Holthouse of Goldman Sachs. Your line is now open. Please go ahead. Karen Holthouse - Goldman Sachs & Co.: Hi. Thanks for taking the question. In the past, you've drawn a pretty close relationship between how the higher income consumer is doing and particularly as that relates to stock market volatility, which you're clearly experiencing right now. And curious if you've seen anything in your trends that suggest that consumers' behavior is actually changing and then I have a follow-up after that. Matthew Eliot Clark - Senior Vice President-Finance & Strategy: I think our outlook and what we said is that it's a pretty solid start. So we have said that, Karen. It's a great question and the market is volatile and obviously we can only surmise that in the short-term people are still coming into our restaurants and so we feel good about that. Karen Holthouse - Goldman Sachs & Co.: And then can you just remind us if historically you've seen any comp impact from either Olympics years or election years? And if so, is that already built into your guidance? Matthew Eliot Clark - Senior Vice President-Finance & Strategy: Yes and yes. Another good question and we did build that in. And certainly there is – you know normally a minor impact when you look at it across the entire quarter, but that's factored in. W. Douglas Benn - Chief Financial Officer & Executive Vice President: Yes. And things like when they have the major debates, those are going to be – the last election cycle, those are not good days for restaurants. Karen Holthouse - Goldman Sachs & Co.: Yes. Thank you.

Thank you. And our next question comes from Steve Anderson of Maxim Group. Your line is now open. Please go ahead.

You answered most of my questions during the call, but I think I wanted to get on to the international side of the business. As you continue to grow that line item, is there a point at which you would like to start breaking it out since you're still getting maybe about $0.01 to $0.015 of EPS incremental per restaurant? Matthew Eliot Clark - Senior Vice President-Finance & Strategy: Yes, we will definitely start breaking it out, and this year will be the first year that we've had international royalties from all three of our licensee partners, and we'll break it out soon. It probably won't be in 2016, but it will be very soon thereafter once we're getting – once it's very difficult to figure out the exact royalties and where they're coming from, we'll break that number out.

And are you still seeing a lot of those locations, and I know some of them are in the Middle East, and I know that some of the restaurant concept stores have reported that there has not been a great deal of impact just yet, but can you comment on what's going on the international locations if you're still comping positive? Matthew Eliot Clark - Senior Vice President-Finance & Strategy: Yes. I think we're still seeing very strong results, especially in the Middle East. So some of what you may be hearing out there, just softness in the region, we really haven't experienced yet. We opened in Lebanon last year, and that was a very successful opening. So the Middle East stays really, really strong for us.

Okay. Thank you.

Thank you. And our next question comes from Brian Bittner of Oppenheimer & Co. Your line is now open. Please go ahead. Brian J. Bittner - Oppenheimer & Co., Inc. (Broker): Thanks. Just want to ask about COGS margins in 2016. What is your food cost trend expectation built in for 2016 and what is your menu pricing expectation? W. Douglas Benn - Chief Financial Officer & Executive Vice President: Yes, let's go first to menu pricing, because that will drive the whole thing. In the fourth quarter, we had about 2.5% pricing in our menu. As we look to 2016, the menu change that we're going through now or we'll very soon be going through, we're going to take between 1.3% and 1.4% of pricing and about 1% is going to be rolling off. So when that menu gets completely rolled out, which will be near the end or late in the first quarter of the year, we'll have about 2.8% to 2.9% of pricing in our menu until the summer time rolls around for the next menu change. Brian J. Bittner - Oppenheimer & Co., Inc. (Broker): Okay. And what is your food cost expectation? Deflation or slight inflation, what's your thought on...? W. Douglas Benn - Chief Financial Officer & Executive Vice President: No, we would expect cost of sales to be lower as a percentage of sales for the year. Matthew Eliot Clark - Senior Vice President-Finance & Strategy: So basically, about a flattish inflationary... W. Douglas Benn - Chief Financial Officer & Executive Vice President: Flat inflation and 2.5% plus, because we haven't talked about what we're going to do in the summer menu change and is this replacing the 1.5% that's already in there. So let's just say 2.5% plus for the year of menu pricing and really very little inflation in the commodity cost basket. Brian J. Bittner - Oppenheimer & Co., Inc. (Broker): Okay. So the COGS margin should be improved year-over-year? W. Douglas Benn - Chief Financial Officer & Executive Vice President: Will be improved. Brian J. Bittner - Oppenheimer & Co., Inc. (Broker): Okay. All right. Thanks.

Thank you. And our next question comes from Jeff Farmer of Wells Fargo. Your line is now open. Please go ahead.

Thanks. You touched on it, but your menu mix was up almost 1% in 2015. I think that's the highest number, in at least according to my model, seven or eight years. So I'm just curious what the drivers were of that better mix number and how we should be thinking about that number in 2016. Matthew Eliot Clark - Senior Vice President-Finance & Strategy: I think that jives with what we have here. And one of the things we continue to see every quarter is that the dessert sales are strong. And so I think the guest utilizing the full menu and they're experiencing Cheesecake Factory to the fullest, and that's really a positive. It's really hard to predict because it does go up and down. We think this is a classic case of reverting to the mean and as Doug gave guidance earlier on guest traffic, we typically model it out roughly flat until we see otherwise.

All right, and then just real quick, following up on Brian's question about flat commodity basket inflation for 2016. Based on the level of COGS capability you saw in Q4 2015, it looks again you're probably entering the first half of 2016 with some pretty nice deflation. So to the extent that you can put some color on that in terms of the magnitude of deflation that you think you might see in the first half of the year? Does that tail off to sort of flattish in the back half of the year? Any color on cadence would be helpful in terms of matching up pricing and commodity basket deflation for us to sort of back into COGS numbers. W. Douglas Benn - Chief Financial Officer & Executive Vice President: Yes. The cadence for next year I would smooth it out throughout the whole year, flat from the start of the year. The deflation that you saw in the fourth quarter of this year is we have a totally new contract in place for a lot of these commodities in the first quarter and we know what we're going to be paying in 2016 and now it's being compared to 2015, obviously. And so what happened in the fourth quarter doesn't necessarily have anything to do with what's going to happen in 2016. But we are right now around two-thirds to 70% contracted for the year 2016, so we know what we're going to be paying on a lot of our commodities that we're buying. And in dairy, for instance, we are about 50% contracted which is much more contract than we have been generally during, like, by February of any given year. So we've locked in a lot of our cost of sales and we feel right now that compared to what we had in 2015 that that number is flat.

That's helpful. Thank you. W. Douglas Benn - Chief Financial Officer & Executive Vice President: You're welcome.

Thanks. And our next question comes from Joseph Buckley of Bank of America Merrill Lynch. Your line is now open. Please go ahead.

Thank you. Just a couple questions. You mentioned gift cards a couple of times. Can you give the year-over-year change in gift card sales for the fourth quarter? W. Douglas Benn - Chief Financial Officer & Executive Vice President: Yes. So we won't give it for the fourth quarter. Why don't we just do it for the whole year? But it's largely driven by the fourth quarter obviously, because that's when Thanksgiving or right before Thanksgiving through the end of the year is when we sell the vast majority of our gift cards. But in 2015 gift card sales were up about 10% compared to last 2014. Matthew Eliot Clark - Senior Vice President-Finance & Strategy: And 2014 was up about 23% from the previous year as well.

Okay. That's helpful. And then on the pricing, you mentioned you're a little bit more as the new menu is rolled out. Are you doing anything with regional pricing on this menu? Have you given more thought to that? W. Douglas Benn - Chief Financial Officer & Executive Vice President: Well, we have always done – had different pricing in some instances, like in Hawaii and in San Francisco, we've done that for quite a while. As our wage rate pressures have become more regionalized, we have decided to start slowly differentiating some more of our pricing. So for competitive reasons, we won't say specifically what we're doing, but the pricing of, say, 2.85% once we get through the first quarter of the year is not necessarily the same across every geography.

Okay. That would be the blended rate, though, Doug, the 2.85%? W. Douglas Benn - Chief Financial Officer & Executive Vice President: That's a blended rate, yes.

Okay. And then just on the app, currently, I think you said it's in three restaurants. Can customers just pay with the app? Can they use it as a call-ahead feature to get on the list for a table before they get there? Is there any loyalty aspect to it being contemplated? Matthew Eliot Clark - Senior Vice President-Finance & Strategy: Currently, it's just for mobile payment, and obviously you can do the menu, you can look at videos of the menu, if you wanted to, same functionality as you would on our website. It does have the capability to do both of the things that you mentioned, whether it's a loyalty program down the road and it can be enhanced in many ways. Currently, that's not the view that we're taking. Currently, we're looking to use it as a mobile payment app. It's taken us a while to build it out because we do want to have some of the functionality that you're speaking of down the road if we decided to go in that direction. But for this initial launch and for this year, it will be solely as a mobile payment app.

Okay. That's very helpful. Thank you.

Thank you. And our next question comes from Matthew DiFrisco of Guggenheim Securities. Your line is now open. Please go ahead.

Thank you very much. Guys, can you just help me out with a couple of questions on the Grand Lux. I might have missed it, I apologize. Did you say what the same-store sales was at Grand Lux? W. Douglas Benn - Chief Financial Officer & Executive Vice President: We didn't, but they were, what, minus 0.8%. Is that right? Matthew Eliot Clark - Senior Vice President-Finance & Strategy: Yes. David M. Overton - Chairman & Chief Executive Officer: Yes.

Okay. Minus 0.8% and then in the eight openings for next year, are any of those going to be Grand Lux? Matthew Eliot Clark - Senior Vice President-Finance & Strategy: One of them is going to be Grand Lux.

Okay. Then looking at those stores as well, the format of them, almost all these stores this year, I think everyone but one was over 10,000 square feet, closer to 11,000 square feet. And prior year it was actually the opposite. You were closer to 9,000 square feet. So what's the world looking like ahead as far as you're at 200 restaurants now. You're going to have 300 restaurants as your planned goal I guess still is. Are we going to see more 11,000 square foot? Is that what the environment is opening up to and the world looks like it's out there or are you going to sort of revert back to that 9,000 square foot store? Matthew Eliot Clark - Senior Vice President-Finance & Strategy: I think the three... David M. Overton - Chairman & Chief Executive Officer: We're the happiest with around between 8,000 square feet, 8,500 square feet. Sometimes when there's a space, you have to take the space and that's just the way it is, because if somebody got moved out or that's what the landlord had. But if we were to build it ourselves, probably between 8,000 square feet, 8,800 square feet, we can go as low as 7,200 square feet with Cheesecake. But there has to be a reason for us to go to 10,000 square feet, 11,000 square feet since we do so well per square foot with the 8,000 square feet. But they're all different, Matt. And we're not in control of the exact square footage investments that are build-to-suit.

Understood. Okay. That's very, very helpful. And then the last question, I guess, Doug, with respect to sort of looking at the progression of the year in the earnings growth, the first quarter obviously looks like it was – is going to be greater growth than we had all expected or at least implied by our estimates. You're not taking price until the later part of the quarter, and structurally it sounds like the labor pressure turned January 1, it was driven by government increases. So, I'm just wondering why there wouldn't be even more – if you're doing this type of earnings growth in the first quarter, why wouldn't the margin outlook improve dramatically as the year goes on and you take on this greater pricing? And commodities are more favorable, because – am I correct to assume the labor has already turned the calendar – it turned, and you guys are seeing that wage pressure that you would expect, and it's not going to get progressively worse as the year goes on? W. Douglas Benn - Chief Financial Officer & Executive Vice President: Well, we're going to have 5% wage rate inflation for the whole year and about half of that happened at the first part of the year, and the rest will happen throughout the year. So we'll have wage rate pressure stacked into those numbers for the whole year. And...

What's the... W. Douglas Benn - Chief Financial Officer & Executive Vice President: ...only half of it came in on January 1.

What region comes in in the middle of the year? I know California was... W. Douglas Benn - Chief Financial Officer & Executive Vice President: Overall wage rate inflation, I'm not talking about minimum wage here. I'm talking about maybe just overall wage rate inflation over time, there's just general wage rate inflation that is pretty substantial and we've talked about that before. It's not just the minimum wage.

Okay. Okay. That explains a lot. Last question, just with respect to what you've seen so far in certainly California, it sounds like you guys haven't taken your price yet. You will at the back half of your incremental price in the back half of this quarter. But what's the world looking like as far as it sounds like most of your peers have taken price in that region up already. It doesn't seem like the traffic has slowed. Are you winning share or is the overall industry still holding on pretty well given the minimum wage increase and some of your peers taking up price once the calendar changed? W. Douglas Benn - Chief Financial Officer & Executive Vice President: California is one of our strongest markets. I don't know if that directly answers your question, but we're not seeing weakness in California at all. Matthew Eliot Clark - Senior Vice President-Finance & Strategy: And the pricing doesn't roll out by geography. The pricing rolls out by groups of restaurants that can be across the country all within the same week. So it's not as though we roll out all of California all at one time at the start of the year.

Excellent. Thank you, guys. W. Douglas Benn - Chief Financial Officer & Executive Vice President: You're welcome.

Thank you. And our next question comes from Andy Barish of Jefferies. Your line is now open. Please go ahead.

Hey, guys. Just one last housekeeping on the cadence of openings for 2016, how are you thinking about that? W. Douglas Benn - Chief Financial Officer & Executive Vice President: One in the first quarter and probably one or two in the second quarter, but mainly backend loaded the rest of them.

Thank you. W. Douglas Benn - Chief Financial Officer & Executive Vice President: You're welcome.

Thank you. And our next question comes from Will Slabaugh of Stephens, Inc. Please go ahead.

Hi. Thanks, guys. This is actually Billy on. I wanted to ask a little bit about the competitive landscape. Do you feel that being a brand that doesn't really rely on promotions and/or discounting, I guess, was that a challenge for you recently with the prevalence of the discounting activity we saw amongst some of the full service players? Really just any type of qualitative commentary you can give there with your thoughts on the fourth quarter and maybe whether you feel comfortable saying that your comp might have been marginally better in absence of this activity. W. Douglas Benn - Chief Financial Officer & Executive Vice President: I think that we've been seeing that activity. I don't know that we even knew that there was an uptick in activity in the fourth quarter. I think that we've been seeing lots of promotions, lots of deals on and off for probably the last three years or four years, and the fourth quarter, I don't think, was any different. Do you have any...? Matthew Eliot Clark - Senior Vice President-Finance & Strategy: No. I would say it's probably forever we've seen that and stay focused on what we can control within the four walls and wouldn't be able to say in any qualitative way that that had any impact whatsoever.

Great. That's helpful. And just one quick follow-up if I could. Can you remind us of the alcohol mix? Is it still around that 10% to 12% range? W. Douglas Benn - Chief Financial Officer & Executive Vice President: A little closer to 13% and desserts being around 16%-plus, so we're about 30% between the two categories.

Perfect. Thanks, guys, and congrats on a good year. W. Douglas Benn - Chief Financial Officer & Executive Vice President: Thank you.

Thank you. And our next question comes from Brian Vaccaro of Raymond James. Your line is now open. Please go ahead. Brian M. Vaccaro - Raymond James & Associates, Inc.: Good evening and thanks for taking my questions. Just a couple quick ones for me. Back on the gift cards, can you remind us how many third-party locations your cards are sold in these days and if that number continues to grow? W. Douglas Benn - Chief Financial Officer & Executive Vice President: We have great distribution channels on those. We've never said how many there are, but they have definitely increased over time. And our placement within the distribution channels has been made better over time. So both of those things are healthy. Brian M. Vaccaro - Raymond James & Associates, Inc.: Okay. Okay. Thank you. And back to the fourth quarter comp, I just wanted to ask about regional trends. Can you talk about the sort of best and worst-performing regions and also give an update on Texas, are you still holding up pretty well in Texas as you were last time we had your call? W. Douglas Benn - Chief Financial Officer & Executive Vice President: Yeah. We had pretty consistent performance across all of our geographies and I mentioned earlier that our strongest markets are in California and in the Northwest. If you look at the Northeast, the Mid-Atlantic, you'd have to identify them as being our weaker markets, but they had positive comp store sales for the quarter. There is a pretty tight gap and we've said this before and there continues to be a pretty tight gap between our best performing regions and our worst performing regions and the gap is only maybe 4 percentage points of difference between the best and the worst. So geographies aren't that – it's not differentiated from each other that much. Texas continues to be a good market for us. It's maybe off a little bit from where it was, but it's still an excellent market for us. Brian M. Vaccaro - Raymond James & Associates, Inc.: Okay. That's very helpful. Thanks, Doug. Moving on to food costs. I wanted to ask about the fourth quarter COGS ratio, obviously lower than expected. Do you happen to have what the year-on-year deflation on the basket was in the quarter? I'm sort of asking in context of maybe any other savings that you might attribute maybe the auto par or other initiatives that might have drove some of the incremental favorability there? W. Douglas Benn - Chief Financial Officer & Executive Vice President: There was slight deflation in the quarter. I don't think it was big. What was it? Matthew Eliot Clark - Senior Vice President-Finance & Strategy: No. I think one of the big things though is remember a lot of things of – the high dairy and we sold a lot of cheesecakes in the fourth quarter. So I think you're seeing some of that flow through the P&L and finally impact us on the positive. Brian M. Vaccaro - Raymond James & Associates, Inc.: Okay. And on that auto par roll out, can you remind us how many stores that's in today or at the end of the fourth quarter and when that will be system-wide? Matthew Eliot Clark - Senior Vice President-Finance & Strategy: It's in about 15% of our restaurants still and we're taking some learnings from it and applying them to the rest of the country. But we still have some opportunities to work it out in a little more detail and make sure it's as refined as we want and in no way is it going to compromise the guest experience and make sure that it's [calling] proper production. So we're still looking forward to rolling it out. Don't have a clear timeline yet on when that might be this year. Brian M. Vaccaro - Raymond James & Associates, Inc.: Okay. All right. And then just quickly on the CapEx, for 2015, it came in a little higher than expected, I think, Doug. Can you kind of give some color on that – was cost per unit up significantly in 2015, or was it more the timing of the spend maybe on some 2016 units shifting in? W. Douglas Benn - Chief Financial Officer & Executive Vice President: Oh, some of it was the timing of the spend. I think we probably spent a little bit more on the restaurant we're opening in the first quarter last year than we expected to spend. The labor cost pressures that you're seeing in operating our restaurants are also having some impact on construction as well. So we are seeing a little bit of that in 2015. We also built a training center in California that cost us CapEx dollars over and above what we would normally spend, and that was part of what was driving it. Brian M. Vaccaro - Raymond James & Associates, Inc.: Okay. All right. Thanks. And maybe just one last housekeeping, do you happen to have stock-based comp handy there for the fourth quarter, Doug? W. Douglas Benn - Chief Financial Officer & Executive Vice President: I don't. David M. Overton - Chairman & Chief Executive Officer: No. We can get that... W. Douglas Benn - Chief Financial Officer & Executive Vice President: We can get that to you though. Brian M. Vaccaro - Raymond James & Associates, Inc.: Okay. Great. Thanks very much. W. Douglas Benn - Chief Financial Officer & Executive Vice President: You're welcome.

Thank you. And our next question comes from Jake Ivankoe (sic) [John Ivankoe] of JPMorgan. Your line is now open. Please go ahead.

Hi. Thank you. Just also two, I think, quick ones. First is on labor, and the 5% increase that you're expecting in 2016. I just wanted to get a sense as to how much of that was maybe placed in in back of house labor, and what you're doing to attract and retain those people in what's obviously very execution-intensive restaurant at this point and with wage cost being up 5%, if you actually have some opportunity to ease back the number of labor hours per operating week to labor hours per productive sales dollar, whatever you want to call it in 2016 to potentially moderate some of that cost? David M. Overton - Chairman & Chief Executive Officer: I'll start with the staffing environment. Certainly, it's one of the tougher staffing environments we've seen in the past five to maybe even 10 years. And primarily yes, in the kitchen, we rolled out at the end of last year the ability for staff to be able to use a mobile phone, a mobile device to apply, easing what it takes to apply and not having to go online to apply. And we're probably doing more creatively than we've done in the past whether that be going to job fairs, et cetera. But the most important tool we have is our best-in-class retention and we have our teams squarely focused on keeping the great people that they have, that are the type of highly productive people that you're talking about that could help with margins if we can be as productive as possible. So our field ops team is squarely, probably number one priority, keeping the great staff we have and then doing a great job of sourcing. We have an internal website for sourcing. We have a staffing matrix tool that I talked about last year that goes through every geography and shows where our competitors' pay rates are to ensure that not only are we paying fairly, but we're not overpaying in a tough staffing market. So, we have a lot of strong initiatives around staffing and hiring.

And is the business as efficient as it can be at this point, you've given that increase a lot of times that when there's a problem, companies can kind of find a cure in terms of reducing some of the effective labor cost. But is that an opportunity at this point, or should we not be focused on that? David M. Overton - Chairman & Chief Executive Officer: I'd say that our four-wall productivity within the restaurants is pretty strong, and it's something we – every year – a year doesn't go by where we don't ask ourselves if we can do better, benchmark our top performers and then try and move anybody that's in the bottom quartile up. That's been our strategy every year to be as productive as we can.

Very fair. Thank you. And then finally, in terms of insurance claims, obviously it's very volatile in 2014 and I think some quarters into 2015. Are we facing a more or less normal year in 2016 versus 2015 or is there any – maybe it's a crystal ball question but has the majority of volatility been taken out of the model as we kind of look at 2016 versus 2015 insurance volatility? David M. Overton - Chairman & Chief Executive Officer: I would say that you are right about 2015, there were a lot of ups and downs in group medical expense as we went throughout the year. But I think that the way – we feel the way that 2015 was is more normalized than what 2014 is, so what we've done, and we don't have the crystal ball and it is looking into a crystal ball, but we have budgeted our forecast that in our guidance is group medical, it's the same percentage of sales for 2016 as we had for 2015 which we think was a more normalized year.

That's perfect. Thank you.

Thank you. And ladies and gentlemen, we have time for two more questions. Our next question comes from Sharon Zackfia of William Blair. Your line is now open. Please go ahead. Sharon M. Zackfia - William Blair & Co. LLC: Hi. Good afternoon. David M. Overton - Chairman & Chief Executive Officer: Hi, Sharon. Sharon M. Zackfia - William Blair & Co. LLC: I hope David is calling in from somewhere fun. So a quick question, I guess, on the outlook for development. I know it's pretty early to have any kind of clarity on 2017, but you obviously surprised all of us with a slowdown this year. I didn't know if there is any color you can provide on kind of the prime real estate sites you looked for and whether there might be more opportunity to develop incremental locations in 2017. And then, any update on anything you might be doing with delivery in terms of the test this year would be helpful? W. Douglas Benn - Chief Financial Officer & Executive Vice President: I don't think I can give you a good guesstimate of our sites this year. We have lot of things we have happening both domestic and international. So give us another – some more months and maybe I'll be able to do that. And then, David, do you want to talk about delivery? David M. Overton - Chairman & Chief Executive Officer: Sure. We will likely test delivery this year with a few of the leading national partners that are out there, and really evaluate the potential sales lift versus whatever the incremental cost may be, and also certainly as we always do, look at the guest experience. We already do about 10% of our sales and takeout into those sales including Cheesecake. So we certainly feel as though the guest demands for delivery is there. And our brand has an affinity that lends itself well to go since we've always done such great sales. So, I would anticipate that probably by the second quarter, we'll have some tests launched and try and learn the most and decide what direction we would go moving forward. Sharon M. Zackfia - William Blair & Co. LLC: Okay. Thank you.

Thank you. And our next question comes from Paul Westra of Stifel. Your line is now open. Please go ahead. Paul Westra - Stifel, Nicolaus & Co., Inc.: Great. Thank you. Really just a clarity question, Doug. You mentioned something about store level margin expansion at the higher level of sensitivity. Can you make a flow through number on the comp, are you talking about the high end of your comp there, 2%, 2.5% and expect some store level margin expansion? W. Douglas Benn - Chief Financial Officer & Executive Vice President: At the high end of the earnings per share, so at the high end of the earnings per share guidance there would – there it's assumed that we have margin expansion at that and to get to the high end of the earnings per share guidance, at least one of the big drivers would be the comp. Paul Westra - Stifel, Nicolaus & Co., Inc.: Okay. Great. Fair enough. Then maybe one last time that maybe a follow-up question on sort of the regional maybe competitor reaction to specifically California and New York City tip wage – and New York state tip wage. Are you seeing any qualitatively significant pricing unit with independents and maybe that's some of the cause for your good performance as far as the topline in California? David M. Overton - Chairman & Chief Executive Officer: I think it's a little early to tell what our competitive intelligence says, California has always been priced higher by our competitors and can range by a few points just because the labor here is without the tip credit and the higher minimum wage. And so, you probably will just see a continuation of what you've seen previously. We'll be on the lookout for that, but it's a little bit early to tell.

Thank you. And I'm showing no further questions at this time. Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone have a great day.