Good day, ladies and gentlemen, and welcome to The Cheesecake Factory Second Quarter 2017 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 turn the conference over to Ms. Stacy Feit, Senior Director of Investor Relations. Ma'am, you may begin.

Thanks. Good afternoon, and welcome to our second quarter fiscal 2017 earnings call. On the call today are David Overton, our Chairman and Chief Executive Officer, and Matt Clark, our Executive Vice President and Chief Financial Officer. David Gordon, our President, is currently traveling and will not be on the call today. 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. In addition, during this call, we will be discussing earnings per share on an adjusted basis, which excludes impairment and lease termination. David Overton will begin today's call with some opening remarks. Matt will then take you through our operating results in detail and provide our outlook for both the third quarter of 2017, as well as our current thoughts on the full fiscal year. Following that, we'll open the call to questions. With that, I'll turn the call to David.

Thank you, Stacy. As we communicated in June, the second quarter sales environment was softer than we anticipated. We saw volatility in week-to-week sales trends indicative of uncertainty on the part of many consumers. We were also impacted by unfavorable weather in the East and the Midwest. However, our best-in-class operators effectively managed the business. Four-wall labor productivity and food efficiency improved year-over-year and we are on plan in spite of softer sales. This enables us to maintain solid restaurant margins to protect profitability. Our industry-leading average sales volumes of $10.7 million underscore The Cheesecake Factory's relevance. Ongoing menu innovation is a significant contributor to these volumes. To that end, the celebration of National Cheesecake Day this past Sunday and Monday, we introduced our newest desert Celebration Cheesecake. Consumer and media response of the new cheesecake surpassed our expectations. Our marketing team secured a record 65 broadcast TV segments, achieved over 285 million media impressions and generated tremendous social media engagement, making this our biggest cheesecake launch in the company's history. And we celebrated even bigger this year by giving our guests the opportunity to enjoy a complementary slice of cheesecake during their next dine-in visit. Turing to off-premise, we are continuing our national delivery rollout. At present, delivery via third-party partner is offered in about 60% of our locations, and we believe we will ultimately get to approximately 90%. At the same time, we are working on further improvement to our to-go process, including online ordering capability, which could be in pilot by the end of the year. Given the strong affinity for The Cheesecake Factory, we have discussed the opportunity to further leverage the power of the brand in the consumer packaged goods channel. We now have The Cheesecake Factory cupcake and cookie mix for sales at Walmart stores nationwide as well as the cheesecake mix at Walmart and a number of other grocers. Initial consumer response has been very strong, and we have additional products slated to launch later this year and into 2018. Looking ahead to the balance of 2017, we continue to expect to open as many as eight company-owned restaurants. This includes our first location in Canada scheduled to open in Toronto in November as well as our second RockSugar. We now expect as many as four restaurants to open under licensing agreements internationally in 2017. This includes our first location in Hong Kong, which opened in May, and has sustained very strong sales volume, as it continues to generate quite a bit of excitement. With that, I'll now turn the call over to our new CFO, Matt Clark, for our financial review.

Well, thank you, David. It's good to be here. Total revenues for the second quarter of 2017 were $569.9 million, reflecting a comparable sales decline of 0.5% at The Cheesecake Factory restaurants. Half of our regions remained positive during the quarter. However, we did see more variability in performance from region-to-region and within markets. External bakery sales were $13.1 million in the second quarter. Cost of sales decreased approximately 10 basis points year-over-year in the second quarter of 2017 to 22.6% of revenues. This was driven by favorability across various categories. Labor was 33.9% of revenues, an increase of about 70 basis points from the second quarter of last year. A majority of the increase was attributable to higher hourly wage rates as expected. Other operating costs were 24.1% of revenues, up 50 basis points from the prior year, the majority of which was due to higher utilities and repairs expense versus the second quarter of 2016. G&A was 6.2% of revenues in the second quarter of fiscal 2017, down 20 basis points from the same quarter of the prior year. This decline was primarily driven by a lower bonus accrual, partially offset by higher legal fees. Pre-opening expense was approximately $1.3 million in the second quarter of 2017 versus $2.3 million in the same period last year. We had one relocation in the second quarter of 2017 compared to one opening in a new market the same quarter of the prior year. Our tax rate this quarter was just under 22%, and adjusted earnings per share was $0.78. Cash flow from operations for the first six months of 2017 was approximately $114 million. Net of roughly $53 million of cash used for capital expenditures and growth capital investments, we generated about $61 million in free cash flow through the…

Thank you. And our first question comes from John Glass with Morgan Stanley. Your line is now open. John Glass - Morgan Stanley & Co. LLC: Thanks very much. Matt, I guess, or David, with the benefit of time now, last quarter you talked about weather and the consumer and now you're looking to third quarter with maybe some continued softness. First, I guess, maybe how would you quantify the shortfall in the second quarter between weather and the consumer? And do you think now exiting this weather period, this is just more of a macro issue? And then related to that, historically you haven't been a promotional brand, you haven't done a lot of short-term things to drive sales. Are you thinking any differently about how you might drive sales, if this is the new normal or this at least is the current normal from an operating environment?

Hey, John, I think let's just cover the comp cadence, if you will, for the quarter. April was okay. Obviously, we had the benefit of the Easter shift. And then May, I think we saw some of the deceleration that the industry did and it was combined with the weather. And I think June ended up in the middle. And so, if you want to really think about the run rate to give context, it's probably, if you factor all of those pieces out, somewhere around the minus 1%. The weather was probably about just a half-a-point for the quarter, but we had the Easter benefit and so some of those things are combined. When we look at that environment, definitely the more economic focused consumer is probably where the challenge is. You can see the level of activity in the industry around deals and that may pertain to your second question. I think for us that people may not realize the true value of The Cheesecake Factory not just in the portion sizes but in some of the price points that really are very attractive, if not very competitive, even in today's environment. And so I don't know that we need to do deals or promotions. I think effectively communicating some of the price points that we have on our new special card or the value that's in our Happy Hour would be competitive enough. And so maybe that's where we need to focus is on some of those communications, but not necessarily in running short-term promotions or limited-time offers. John Glass - Morgan Stanley & Co. LLC: All right. And just to that point, how do you plan on communicating those lower – the attractive existing price points on your menu? Is that an advertising issue, is that direct response, how do you do that?

Yeah. I think it is mostly going to be through social media, through our website, through e-mail. I think those are the communication vehicles that are effective today. And I think making sure that we're just adding that piece to really what you see a lot of times when people are in social media with The Cheesecake Factory are the amazing shots of all of our great food. And we just want to make sure that we also get through the message that anybody can come in and enjoy that at a reasonable price. And so, those vehicles I think we've always been a word of mouth company. Today social media is the word of mouth, and we think that can be effective and so it's probably a combination of that. John Glass - Morgan Stanley & Co. LLC: Okay. Thank you.

Thank you. And our next question comes from David Tarantino with Baird. Your line is now open. David E. Tarantino - Robert W. Baird & Co., Inc.: Hi. Good afternoon. Just a couple of questions on the sales. Can you maybe talk about what you're seeing regionally or whether the issue is concentrated in certain regions or if it's broad-based and perhaps comment on whether it's weekday or weekend or both? That'd be helpful.

Sure. I think the general slowdown has been broad-based, although it seems like the Southeast, the Midwest and Northeast, kind of the upper right quadrant of the country is a little bit slower. We still had half of our regions that were positive. California continues to be among the stronger regions. Texas was very good for us, the Northwest. So it's a little bit – the slowdown is a little bit everywhere, but just maybe a little bit more in that Eastern side of the country. With respect to the day parts and the day of the week, I think mid-day week, the lunch part is probably a little bit softer, but we're not talking about a significant driver, it's just marginally softer than other areas. And so, again, I think that speaks more to a consumer-driven reflex than it does anything that we're doing with the brand, and we're executing on all the pieces that we want to. So we still see lines at the door on the weekends and at night, and I think it's just a little bit across the board. David E. Tarantino - Robert W. Baird & Co., Inc.: Great. That's helpful. And then, Matt, does it diagnose the issues here? You're pointing to a lot of macro factors. I guess, what's making you comfortable that it's not something specific to the brand? I know we've seen some weakness elsewhere, but we have also seen some of the metrics be stable. So how do you diagnose that, and how can you be sure that there's not something specific to Cheesecake Factory going on here?

Sure. Dave, I think we have two points of reference broadly, internal and external. So internally, obviously, David, we have a variety of operating metrics that we track to ensure quality and execution. And our teams are laser-focused on that and really haven't been better. So we know we're delivering the food, the experience and all of those attributes internally. We also do research on guest visitation. And one of the other things that we're seeing there is our frequent guests are coming in actually more often. So everything we're doing is resonating with our core guests, and I think speaks to the destination component of Cheesecake Factory. What it looks like to us, and I think it's really supported by the rapid increase in the deal activity that started, I think more in the middle of Q2 and is continuing, is that those guests that are a little bit more – I'll just call them economically focused. We can see that that's where some of the traffic pressure has been for us. Right? So I think, again, that goes to the communicating the value piece of it rather than being something that we're not executing on in the four walls. David E. Tarantino - Robert W. Baird & Co., Inc.: Thank you.

Thank you. And our next question comes from Brian Bittner with Oppenheimer & Company. Your line is now open. Brian Bittner - Oppenheimer & Co., Inc. (Broker): Thanks. Hey, guys. Just a couple of questions. On the third quarter EPS guidance, it's down 9% to down 15% on the down 1% to 2% comp. Is that a relatively normalized algorithm on that kind of a comp decline going forward? Is there anything that changes, assuming sales wouldn't get better, just trying to think about EPS cadence going forward? Is there anything that said improves on the cost side going forward after this quarter? Or is that the right algorithm on that type of comp?

Yeah. I think you have to take each instance and maybe not generalize in terms of an algorithm. Obviously, every quarter has their unique components, whether it's pre-opening or the sales levels in that quarter or the rate of inflation for commodities or anything like that. Right? So what I think the math suggests is that a 1% change in comp store sales is $0.12 to $0.13 annually. That's a short-term approach. Right? So, obviously, we'll work to manage the cost structure appropriately to protect margins going into 2018. We're doing an excellent job managing our flow through today, but we're not going to kneejerk and impact the brand in a negative way. So when we look into third quarter, if you kind of look at our prior expectations of a 1% to 2% comp and you do the math on that, I think you get to about the $0.10 that you're talking about, Brian. So, beyond that, obviously, it will depend on each quarter. I think in the fourth quarter, you're looking up lapping the 53rd week. So each of those is going to have a different perspective. I wouldn't necessarily read into that. Brian Bittner - Oppenheimer & Co., Inc. (Broker): Okay. And just on the sales again. I mean, with all the data that you have internally and all the things that you run to understand your sales patterns, I mean, are we at a – I know it's early on, but are we at a point where this retail environment weakness is maybe just sideswiping your guys business a little bit and there needs to be some understanding of how to protect against that? Or does your data suggests maybe something else and just the higher-end consumers are a little shaky?

No. I think the higher-end consumer is in pretty good shape. Again, what our research would suggest, as those guests that are our core guests and we skew a little bit higher on the income scale for that are going to the mall as much or more than they used to. Again, there may be some guests that are a little bit more focused on the current environment for them and economics that aren't. We're not seeing that degree of variability that some maybe other concepts are when it comes to performance in mall or out of mall. I think that the other data we've seen from an industry perspective, whether you're looking at Black Box or Knapp-Track or the credit cards, as you see a deceleration in the quarter of about 3% in total restaurant spending. So that doesn't suggest to us when we look at both from our brand perspective and the broader industry perspective that there's anything from that mall component to us that is relatable to other concepts or retail traffic, our guests are still coming to us as a destination. Right? If you look at the gap in retail traffic to where we're at, it's not really relatable in our minds. Brian Bittner - Oppenheimer & Co., Inc. (Broker): Okay. Thank you.

Thank you. And our next question comes from Sharon Zackfia with William Blair. Your line is now open. Sharon Zackfia - William Blair & Co. LLC: Hi. Good afternoon. I guess, maybe a question for David. Just as you think about the softer environment, how does that affect your thought process as it relates to development for 2018 and beyond?

Well, we're still being very critical about the sites that we sign up for and we're looking – we still have a lot of possibilities. But we're obviously just being even that much more careful. Other than that, I think we're still trying to collect as many great sites as we can. We're working on the cost of The Cheesecake Factory themselves and how to take some cost out only because construction costs have gone up 3% to 5%, and they're even hard to find a good contactor so we're addressing that as well as making sure that the malls are truly A malls and their sales are stable and strong. So, other than that, Sharon, I don't know that I can give you any other changes that we have in mind. Sharon Zackfia - William Blair & Co. LLC: I guess, maybe a follow-up. Are you seeing any better terms with the mall developers at this point?

We're not really – I think we get some of the best with the best terms out there because we still are attracting people to come to the malls. The mall owners want entertainment and they want restaurants and they want to bring bodies into their malls and we're still a prime candidate for that. And street deals, if you go out of the malls, they're really even harder to make for reasons you might guess, but we're working on those as well. So I don't think we'll get better deals. We just want to make sure that we get the best sites. Sharon Zackfia - William Blair & Co. LLC: Okay. Thank you.

Thank you. And our next question comes from Gregory Francfort with Bank of America. Your line is now open.

Hey, two questions. Just one on the two store closures during the quarter, what was the reason for those two? And then just going back to the question on the regions, if we look at the industry data, I think California is still outperforming the averages, but for the last two years has been top, second, third and now is more middle of the pack. Is that something that you've seen or has your gap versus the competitors in California widened? Is California outperforming on a relative basis or is it maybe that it's slowed, but it's still outperforming? Just the question on California versus the rest of the regions will be helpful.

Sure. So I think, Greg, we had one lease that was in Miami that expired.

Yeah. And they are remodeling their whole project. We didn't really think it was right for us. We've been on a month-to-month for a while to make sure the landlord could present the project and how it was going to change and take two years of construction, which would do us no good. In the end, we thought we could find a better site for that part of Miami, and that's why we gave up our lease because it was just not going to be to our advantage to stay.

The other one was the relocation. We actually just moved within the Hackensack. We got a brand new restaurant in that mall...

Riverside.

...in Riverside. We're really excited about it. It's doing phenomenal. So I think that's that piece of it. I think with respect to California, we continue to see it being a stronger market and outperforming. We don't know how others are doing here. But from an economic standpoint, it's still strong. I do think it stepped down just a little bit from where it was. But since every other geography took a little bit of a haircut, California still remains one of our strongest markets.

Got it. Thank you.

Thank you. And our next question comes from Will Slabaugh with Stephens, Inc. Your line is now open.

Thanks, guys. I had a question on the cost side on labor and productivity. It looks like in the past two quarters, despite the mid single-digit wage inflation, I have your labor dollars per store only up about 1% to 1.5%. Can you talk about what you're doing there to offset the inflation? And then as we look to the back half of the year and then next year, how sustainable that type of limited growth in the dollar per store is?

Well, I think what you're seeing is just the excellent management of flow through within our four walls. The teams obviously are focused on that. And with the variability in the sales, I think it's even more impressive. So, what that 1 percentage increase reflects is the 5% of wage inflation. But obviously, net of the sales pressure, you're going to be a little bit more tight with your scheduling of hours. And so I don't think there is anything beyond that. Two, I do think that that's sustainable. I think we've proven both from a leverage up and down perspective that we are able to manage to those targets. And remember, on average, we're still running $10.7 million locations. So I think we've got a little bit more buffer to make sure that we can manage to that targeted flow through than maybe some other locations do.

Great. And if I could follow Dave's commentary, you'd mentioned this in California that this was an issue, but I wanted to double-check as you rolled out calorie counts in June across the rest of the country that there is no impact there?

We have not seen any behavioral impact. We just celebrated National Cheesecake Day, and I got to tell you our guests were ordering a heck of a lot of cheesecake. So I'm not sure that they're concerned. I think David says and I think we believe this is still true that when people go out to eat, they want to get everything, all the calories that they're ordering and paying for. And so, we across the platform haven't seen any impact from the calorie counts.

Great. Thank you.

Thank you. And our next question comes from Matt DiFrisco with Guggenheim. Your line is now open.

Thank you. I'm sorry if I missed this. But did you guys mention what the price and the traffic was in the quarter as well as the Grand Lux comp?

We didn't, so you didn't miss it. But the Grand Lux comp was a negative 1.3%. At Cheesecake Factory, we had 2.2% pricing, and traffic was a negative 2.4%, so then mix was just slightly negative as well.

And then how about the outlook for price going forward, are you going to run sort of 2.3%, is that a good proxy for the back half of the year?

Yeah, I think on a weighted average, 2.3% is a good estimate.

Okay. And then just looking at that number of license store openings. I guess, it looks like that will come in the back half of the year. Is there an earnings benefit in one of the quarters sort of an upfront cost with these stores? Are they kicking into realization of a upfront licensing fee that you might have on your deferred revenue or in your balance sheet that's going to now flow through the income statement? Is there any earnings benefit from having these open more so than just an existing licensing agreement?

Really the way that's going to play out is once they're open and they're generating revenue, we're going to get some benefits. Any of the upfront licensing fees or the way the accounting works is, is going to be spread over the life of the agreements in any event. And these are all existing partners. So we wouldn't think that there'd be any unusual up or downs with respect to the international business.

Okay. And then last bookkeeping question. Did you say you have $125 million remaining to still do for 2017, or that's your goal for 2017 on share repurchases?

That's for the full year.

Got it. Thank you.

Thank you. And our next question comes from Karen Holthouse with Goldman Sachs. Your line is now open. Karen Holthouse - Goldman Sachs & Co. LLC: Going back to some of the commentary from earlier on sort of where you're seeing the traffic weakness, if your current or sort of core user or heaviest user is actually seeing an increased frequency, on sort of the other end, do you think of it more as an issue of decreased frequency or are you actually seeing a growing impact from lapsed users?

I think that's a good question, Karen. I think you probably see a little bit of both. Most of that's research data so we're not actually tracking those individuals, but I think it's a little bit of an impact from both. Karen Holthouse - Goldman Sachs & Co. LLC: And then just thinking about going into 2018, how much of a headwind are we looking at from a G&A perspective just normalizing for bonus accrual next year?

Well, our objective every year is really to keep G&A as a percentage of sales flat. So we obviously need to look at all of those pieces and when we put our plan together, I would envision that would still be our objective. Karen Holthouse - Goldman Sachs & Co. LLC: Okay. Thank you.

Thank you. And our next question comes from Brian Vaccaro with Raymond James. Your line is now open. Brian M. Vaccaro - Raymond James & Associates, Inc.: Thanks and good evening. I just wanted to circle back on some of the guest satisfaction metrics and your comments around sort of the more economically or value-focused consumer. And I was just curious, have you seen any degradation in your value perception scores. One item we've noticed and continue to see is your food cost ratio in that 23% range, hasn't been down there in a long time. And then do you think you're leaving enough value on the plate for certain consumers?

Yeah. We haven't seen any degradation. We just know that that value is much more top of mind and that the competitive set is just broadcasting that message with a lot of noise. And so we haven't seen that. On the flipside, we just know that the environment has become increasingly competitive. With respect to the margin side of it, I think that's more a reflection of our excellent work in managing efficiencies. As you know, in the first quarter, we rolled out the Auto Par (33:40) which helps us to predict and manage the pre-work in all of the kitchens to make sure that we don't make too much or too little. And I think, over the years, our growth in size has enabled us to have more scale and purchasing power. So I think you are just really seeing the benefits of the work done there. Rest assured that the portion sizes haven't changed one bit. The quality of the product hasn't changed one bit. So I think that the guests see it that way. Brian M. Vaccaro - Raymond James & Associates, Inc.: Okay. And then one on the model. Matt, you mentioned – you just highlighted that third quarter, fourth quarter keep in mind some movements in pre-opening costs. Could you provide some help just so as outside looking in tough number, what do you expect quarterly or even on an annual basis for pre-opening this year? Thank you.

Sure. I think pre-opening for the full year is around $12.5 million. I think probably $3.5 million for the third quarter and so you can back into the fourth quarter. Brian M. Vaccaro - Raymond James & Associates, Inc.: All right. I'll pass it along. Thanks very much.

Okay.

Thank you. And our next question comes from Steve Anderson with Maxim Group. Your line is now open.

Thank you. You answered most of my questions. But I want to ask if you saw – you mentioned trying to keep some of your SG&A dollars even with sales. But I've noticed that you're still running core SG&A higher than you had, let's say, maybe about – maybe five or so years ago. Do you see any opportunity to maybe examine the SG&A line and see where you could see some savings opportunities?

Well, we're always looking to be as efficient as possible, whether in the four-walls or at the corporate office. Really the difference from what you would have seen five years ago and today is that the extreme growth of our gift card business and the utilization of some of the third parties that help in the retail channels and so the commissions associated with that go through the SG&A line. So when we look at true core SG&A, it's basically been flat. So that's one way of thinking about marketing, but we've managed the rest of it at the same level for as long as I've been here.

Okay. Thank you.

Thank you. 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.