Ladies and gentlemen, thank you for standing by, and welcome to The Cheesecake Factory First Quarter Fiscal 2020 Earnings Conference Call. I would now like to hand the conference over to your speaker today, Stacey Feit. Thank you. Please go ahead.
Thanks, Sadarius. Good afternoon, and welcome to our Q1 fiscal 2020 earnings call. On the call today are David Overton, our Chairman and Chief Executive Officer David Gordon, our President and Matt Clark, our Executive Vice President and Chief Financial Officer. We are dialed in from a remote location, so we appreciate your understanding as we work through this call. 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, throughout this conference call, we will be presenting preliminary results on an adjusted basis. These preliminary financial results do not include impairments of the company's long lived assets, goodwill and other intangible assets and the revaluation of contingent consideration associated with the acquisition of Box Restaurant Concepts as well as corresponding tax effects as a result of the impact of COVID-nineteen, all of which are currently being evaluated.
While these items are non cash in nature, the impact on reported results is expected to be material. The filing of the company's quarterly report on Form 10 Q will be delayed due to this impairment analysis and revaluation. An explanation of our use of non GAAP financial measures and reconciliations to the most directly comparable GAAP measures appear in our press release on our website as previously described. David Overton will begin today's call with some opening remarks and David Gordon will provide an operational update. Matt will then briefly review our Q1 results and provide a current financial update.
With that, I'll turn the call over to David Overton.
Thank you, Stacey, and everyone on the line for joining us this afternoon. We hope you and your families are staying healthy and safe during these trying times. It goes without saying that COVID-nineteen and the containment measures are having an unprecedented impact on the restaurant industry. This forced us to change the way we do business overnight. Our teams have done a tremendous job shifting to an off premise only operating model and executing in the face of significant adversity.
We have seen these off premise sales volumes accelerate and I want to thank all of our staff members for their commitment to keeping our business running and continuing to serve our guests. I also want to extend our gratitude to our international partners as well as our vendors for ensuring that our restaurants are supplied with our key ingredients and the necessary items to keep our staff members and guests safe. We have implemented meaningful cost savings measures, none more difficult than the furloughing of a significant number of our staff members. We have also reduced board, executive and corporate support staff compensation, eliminated non essential spending and suspended new unit development for now. We have balanced these actions with planning for an eventual reopening of our restaurant dining rooms, although social distancing restrictions are expected to impact on premise dining for some time.
By maintaining our restaurant management teams, field leadership and adequate corporate support, we believe we are well positioned for a strong restart. With a number of states now reopening or communicating their plans to soon open, we have shifted to planning for the reopening of our dining rooms. We will execute our plans within the guidelines of local jurisdictions at a varying pace across the country and with an enhanced focus on social distancing and other appropriate health and safety precautions. The size of our restaurants and our flexible seating layouts will uniquely enable us to ensure ample levels of social distancing while maintaining sufficient seating capacity to generate what we believe could be meaningful sales volumes. Our teams have been nimble and innovative in the COVID-nineteen environment and we believe their execution of our reopenings will be similar.
Given the dynamic situation, we are constantly reevaluating our reopening schedule and currently plan to open several Cheesecake Factory restaurant dining rooms in multiple geographies as soon as next week. We will share key learnings and best generating the strong off premise sales volumes that our restaurants have been producing. In the over 40 years since our founding and our tenured leadership team has weathered numerous economic downturns, including 9eleven and the Great Recession. While we have never experienced anything quite like this, I believe that our steadfast commitment to running this company with the long term in mind, coupled with our recently strengthened liquidity position will enable us to continue to effectively manage through and ultimately emerge from this crisis even stronger as we have proven in prior cycles. So with that, I'll now turn the call over to David Gordon.
Thank you, David. First, I'd like to echo David's gratitude for our teams and everything they are doing to continue to live our purpose of nurturing bodies, minds, hearts and spirits during this difficult time. Our restaurant management teams mobilized to adapt to changes that we never could have fathomed before. And their loyalty to our guests, communities and their fellow staff members has been second to none. As David mentioned, we are currently operating an off premise model.
Pre COVID, we had a very established and strong business in the off premise channel, generating sales volumes, the size of many standalone restaurants. For the Q1 of fiscal 2020, off premise sales accounted for approximately 22 percent of Cheesecake Factory sales, reflecting the acceleration that began from the social distancing and shelter in place orders. Since then, we have seen sales volumes accelerate with average weekly sales nearly doubling from 1st quarter off premise levels, including a solid lift to average check as well. On an annualized basis, recent weekly Cheesecake Factory off premise sales would equate to nearly $4,000,000 per unit on average, and we are seeing the strength across both the lunch and dinner day parts. Digital currently represents approximately 80% of sales and our own online ordering platform eclipsed delivery for the first time since its launch in 2018.
As a reminder, this is our most profitable sales channel. We've enhanced our curbside pickup process in place at most of our restaurants. Our operators have found a good rhythm with it and our guests seem to love it as it provides an even safer way for them to enjoy their Cheesecake Factory experience at home. With regard to delivery, as most of you are aware, late last year, we renegotiated and extended our exclusive delivery agreement with DoorDash, which further improved the economics of the delivery business for us, while maintaining our marketing support, including our preferential positioning on the DoorDash app. Maintaining our top of app placement within the delivery radius of our restaurants has been incredibly important and differentiating during COVID-nineteen and we continue to believe that we are competitively well positioned in the delivery channel.
In fact, over a third of our delivery orders are coming from new guests and we have roughly doubled our weekly new delivery guests since February. We believe these statistics coupled with even higher dessert incident rates are strong indicators of how differentiated The Cheesecake Factory offering is in the delivery channel. We have also seen sales accelerate at North Italia and the FRC concepts. Both have done a tremendous job with their marketing, including innovative family meal offerings like North Italia's fresh pasta kits, which speak to the handcrafted nature of the brand and enable guests to maintain that experience at home, complemented by a great assortment of crafted cocktails for takeout where allowed. FRC has seen similar success.
Each of their pre ordered family meal programs have sold out and have also seen great guests response to their creative add on cocktail options. Currently, 32 locations across our concepts, including 3 Cheesecake Factory restaurants are temporarily closed. And before I turn it over to Matt, I'd like to share some pre COVID business highlights as our Q1 was off to a very strong start before the onset of the virus. Cheesecake Factory comp store sales growth was both ahead of plan and outperforming the broader casual dining industry, which drove solid restaurant level margin results through February. Our operations were hitting on all cylinders with some sales lift from our national rollout of reservations and some other marketing initiatives as well as strong labor productivity, retention and food efficiency performance.
We were also honored to have The Cheesecake Factory again recognized as the 2020 Harris Poll Equity Trend Casual Dining Brand of the Year, underscoring the strong guest affinity for the brand. While there is still uncertainty with respect to the duration of the COVID-nineteen pandemic, when and under what conditions all of our dining rooms will be able to reopen, and ultimately how COVID-nineteen may impact guest behavior and the economy longer term. What we do know is that we have an incredibly strong team, culture and brands that our guests love and can't wait to come back to. We look forward to the day when our business returns to normal. The tenure of our teams provides us with a distinct competitive advantage and we look forward to the reopening of our dining rooms.
We believe our best in class operational execution coupled with the fact that a majority of our operators saw the company through the last recession positions us well to recapture unit volumes post COVID. And with that, I'll now turn the call over to Matt for our financial review.
Thank you, David. Since Q1 financial results are truly in the rearview at this point, I will just provide a brief recap and spend the balance of our time on our COVID-nineteen financial update. 1st quarter comparable sales at The Cheesecake Factory Restaurants declined 12.9%, reflecting approximately 3% sales growth through February, offset by a 46% decline in March with the onset of COVID-nineteen. Revenue contribution from North Italia and FRC totaled $84,100,000 North Italia comparable sales growth was 5% through February, but was offset by a 48% decline in March with the onset of COVID-nineteen, which drove a 1st quarter comparable sales decline of 12%. Sales per operating week at FRC were approximately 85,400 And including $13,800,000 in external bakery sales, total revenues were $615,100,000 during the Q1 of fiscal 2020.
Cost of sales increased 20 basis points, driven primarily by produce inflation and a slight change in mix associated with the acquisition of North Italia and FRC. Labor increased 2 50 basis points, which was primarily attributable to costs associated with maintaining our full restaurant management team in the reduced sales environment as well as higher group medical insurance costs reflecting both higher large claims activity and the costs associated with health care benefits for our furloughed staff members. Other operating expenses increased 170 basis points, due primarily to sales deleverage, partially offset by a lower restaurant variable compensation accrual. And G and A increased 60 basis points, also reflecting sales deleverage partially offset by a reduction in the corporate variable compensation accrual. Pre opening costs were approximately $3,100,000 associated with the opening of 1 North Italia and 1 Flower Child prior to COVID-nineteen.
Finally, during the Q1, we reported $4,000,000 in COVID-nineteen related expenses, primarily related to health care and meal benefits for our furloughed staff members captured in the labor and other operating expense lines on the income statement. GAAP diluted net loss per share was 0 point included $324,000 in lease termination expense associated with 2 restaurants closed late last year, $1,200,000 in acquisition related costs and $1,900,000 in acquisition related contingent consideration, compensation and amortization, adjusted diluted net income per share for the Q1 of 2020 was 0 point 0 $4 Now turning to our balance sheet and cash flow. We ended the Q1 with $81,000,000 in cash $380,000,000 in debt. This reflects cash used in operating activities of approximately $33,000,000 from the working capital impact related to COVID-nineteen, CapEx of just under $16,000,000 payment of the dividend declared prior to COVID-nineteen of approximately $16,000,000 and the $90,000,000 revolver draw. As we announced last month, we meaningfully enhanced our liquidity and financial flexibility with a $200,000,000 convertible preferred investment from work.
As of April 30, our cash balance was approximately $260,000,000 In addition, we entered into an amendment on the revolver that provides for leverage and interest and rent coverage ratio covenant relief through the Q1 of fiscal 2021. For the next 15 months, we anticipate an average interest rate of approximately 3.25 percent, and we have optimized our working capital with the support of our vendors. To date, we haven't encountered any material supply disruptions and our supply chain remains intact. On average, our open Cheesecake Factory restaurants are cash flow breakeven at the $4,000,000 level under the off premise model. With respect to rent, this assumes payment of our common area maintenance fees and property taxes, which together are approximately $1,000,000 per week and an equivalent percent of sales rent multiplier with our pre COVID levels.
While this assumption is not equivalent to our full base rent, it takes into account a variety of rent deferral structures for the Q2 that we have negotiated or are currently in discussions with our landlords on. When taking into account the fixed costs associated with our closed restaurants, a reduced G and A level, an assumption for necessary maintenance CapEx and interest expense, our current cash burn rate is approximately $3,250,000 per week. This does include continuing to carry all of our restaurant management teams. However, it does not reflect an additional $1,000,000 per week associated with health insurance and daily meals that we are providing to our furloughed staff, which we anticipate continuing through June. While we will not be providing guidance, given the level of uncertainty associated with the virus and the reopening of the economy, we want to provide you with some of our thinking around how the reopening of our dining rooms may look.
Our base case assumes that once dining rooms reopen, we will be operating under capacity restrictions for some time as social distancing protocols remain in place. In this phase, we would anticipate off premise mix to remain elevated as in store volumes begin to rebuild, consistent with what we have seen in China's ongoing recovery to date. We believe over time, off premise volumes will moderate somewhat as consumers become more comfortable going out again and on premise sales continue to build. While the extent and duration of the impacts of COVID-nineteen on our industry and the economy are unknown, we are cautiously optimistic that the environment could normalize about a year from now and enable us to recapture 2019 unit volumes in that timeframe, likely with some degree of a permanent increase in off premise sales. However, if the reopening does not follow that type of trajectory, we believe that we have additional levers to pull to further reduce our cash burn.
With the additional capital we raised, plus a currently anticipated $40,000,000 cash inflow in fiscal 2021 from the NOL carryback provision in the CARES Act, we believe we would have sufficient liquidity to endure an off premise only operating model for the next 18 months to 24 months, should that be necessary due to ongoing COVID related business disruption. With regard to capital allocation, to preserve liquidity and in conjunction with the terms of the credit facility amendment, the Board has suspended a quarterly dividend on our common stock as well as share repurchases. As David discussed, we have also suspended new unit development until more clarity on the restaurant industry operating environment emerges. We anticipate approximately $5,000,000 of necessary maintenance CapEx per quarter and this is incorporated in the estimated cash burn that I discussed. In closing, the durability of our business has been proven in both strong and challenging times.
While the Great Recession isn't a perfect proxy for COVID-nineteen, our sales trends recovered 1 year earlier than the broader casual dining industry at that time and set us up for meaningful outperformance the following few years. At the same time, we effectively managed costs and preserved cash during the last downturn, enabling the business to generate significant free cash flow in both 2,008 and 2,009. While COVID-nineteen has caused a much more rapid and deep sales decline, we believe we are making the right business decisions to drive a similar market share trajectory and margin, earnings and cash flow recovery once we emerge on the other side of this pandemic. With that said, we'll take your questions. In order to accommodate as many questions as possible, please limit yourself to one question and then re queue with any additional questions.
Operator?
And your first question comes from the line of Nicole Miller with Piper Sandler.
Thank you and good afternoon. That is one of the better layouts, if I may say, to understanding the phased approach and what things might look like in the near term and the long term. What I was wondering is the states have varying phases or mandates. So will you run each store individually kind of around those, let's call them state at the highest level mandates? Or would you revert to maybe the most strict standards in the initial phase to better align the portfolio in terms of process and procedures?
Thank you very much.
Thank you, Nicole. Hi, it's David Gordon. Our strategy is going to be as the local mandate or state level mandate is enacted. We will take a look at what requirements are within that particular jurisdiction. But at the same time, we're hoping to have what we consider to be consistent operating procedures across all of the restaurants with the safety of our guests and staff being 1st and foremost.
So although a particular jurisdiction might not mandate, as an example, masks on staff members, our stance will be that at least in the near term, we will have masks on all of our staff members so they can feel safe across the country. So our approach will be, we'll learn as we open in each one of those markets. As David Overton mentioned, we'll have a few restaurants open next week. We'll learn from those, see how guests and staff are responding, but we'd like to have consistent operations across all of the restaurants nationally.
Your next question comes from the line of David Tarantino with Baird.
Hi, good afternoon. I hope everyone's doing well. I guess my first question is, Matt, I just wanted to clarify the implications for your same store sales or comps quarter to date. I know you mentioned the $4,000,000 or approaching 4,000,000 dollars on off premise sales, but could you quantify what that means for same store sales so that we're all on the same page on what that means and how that's developed, I guess, as the quarter has moved on here?
Sure. It's it relates to about a negative 65% or so. It is, I think, consistent with the broader industry improved over the quarter, and we're running sort of mid 70s in terms of average weekly sales at this point in time. Does that give you enough color, David?
Yes. That's good. I guess at the low point at the end of March, what was the number just so that we can gauge how much we've how much improvement you've had, I guess, over the last 4 or 5 weeks?
Yes. When we put out the initial press release, we're running an AUV sort of average of about $3,000,000 and that was a negative 75%, give or take.
Got it. Okay, perfect. Thanks. And then I guess my question on this off premise surge that you've seen, I think you mentioned that you're optimistic you can hold on to maybe a higher mix of off premise on the other side of this. And I just wonder kind of what you're seeing inside the data that would give you confidence you could do that.
And then secondly, what types of adjustments to the operating model or to the menu or the overall approach might you need to make to support a higher off premise business longer term as the dine in comes back?
Thanks, David. It's David Gordon. Some of what would lead us to believe that we could sustain, if not close to sustain some of the off premise business is that, as I mentioned in my opening remarks, we've seen growth in new guests from DoorDash. So we're reaching some guests that we hadn't previously, and we're pretty pleased with the reorder rates we've even seen from those guests. So we would anticipate that will continue to happen.
As far as the menu goes, we'll continue to leverage the full Cheesecake Factory menu. We know that that's one of the things that the guests are appreciating about being able to order, whether it's online or through DoorDash, whether they're picking it up, is that the most the majority of the menu is available. So once the restaurants open, they'll reopen with their full menu. And operationally for off premise, our teams have been doing everything from moving to a texting model where possible so guests can stay in their car and we text them, telling them we're about to bring it out to make it easier for them, everything we can do to make it as contact free as possible, including having obviously open parking lots would make that easier or a line for people just to pull their car up. Some guests even choose just to open their trunk and we put the food right in their trunk.
So some of those learnings have been great. And where we can, we'll adapt those even once the restaurant is fully open, whether that's at a 50% capacity or whatever is mandated by the jurisdiction.
And then David, do you think it ever makes sense, economically or operationally to do your own delivery at these types of volumes? I guess what are your thoughts on
that? Hey, David. This is Matt. I don't think so. I mean, I still think that we're very happy with DoorDash and they're really best in class.
That's a completely different business, frankly. And I think it takes your focus off of being great restauranteurs. And I think you lose something in that friction between operating 2 different businesses.
Great. Thank you very much.
Your next question comes from the line of Jon Tower with Wells Fargo.
Great, thanks. I was just curious if you could talk about perhaps the competitive landscape in the malls themselves. I think a fairly significant headwind to your traffic over time has been competitive encroachment within the malls. And obviously, right now, many malls are not open. But maybe you can discuss how you expect the competitive set within those malls to look once the economies reopen?
I mean, is there a good mix of independents in those malls? And then I have a few other questions, if I may.
John, this is Matt. It's a really interesting question. And I think partly, we'll just have to wait and see. It could be very different by every location. In some instances, you have very strong national players that are in there that we believe will bring critical mass back to those malls and that will be a good thing.
I think in other instances, as you noted, you have some one off chef driven restaurants that may not make it through this cycle, and we'll see where that goes. I think one of the important things on the mall side of it for us though that has proven to be a real advantage in this cycle is we have fantastic parking, great access, really enabled us to operate the frictionless delivery or the pickup that David Gordon was talking about. And with our own doors and operating hours, I think maintaining that connection to the guests has been super important. I mean, we essentially operate just like any high street location even though we happen to be in those malls. And so I think we'll see what the competitive landscape is, but I think that it will be good to have as many reopening as possible to bring that traffic back to the malls.
And I think we hope that everybody in the restaurant industry has a positive experience coming out of this.
Okay. And then just on the rent relief side from the landlords, how long should we expect this to run through? Is it a certain sales level that you're expecting per box when you can go back to prior rental agreements? Or have you negotiated new terms? It sounds like that's something that's going on across the industry right now with different operators and landlords.
I'm just curious to see what you guys are doing.
Yes, it's pretty dynamic. I don't think anybody really knows, right, because we can't project what this cycle will do and how quickly sales will come back. So I think it's a little premature to be predicting new types of arrangements rather we're mostly talking to them about temporary relief in this environment and making sure that we are good partners and we all come out on the other side. I think as we noted, the volumes that we're doing are covering the CAM and tax and a good percentage, if not all, of the percentage rent. And I think we can come pretty close, certainly at 50% occupancy type of situations to covering our base rent in those types of scenarios for sure.
Okay. And then just last one on this. David Gordon, you had mentioned on the call just earlier the idea of seeing good reorder rates through the delivery channel. And I'm just curious to know how you expect to keep that going once we move out of this COVID landscape, specifically. Is there anything you're doing to incent people to come back to The Cheesecake Factory brand?
Are you gathering emails that you weren't having or you didn't have before and therefore can contact them more regularly?
I think our strategy will be to continue to partner with DoorDash on the delivery side around some of the marketing we've done, that maybe is a little more unique than we've done in the past to drive some of that off premise. Over the past few weeks, we've done some very specific lunch promotions, which I think we've talked about even in the past on some of these calls to try and target some lunch business. And we've seen some good spends on that. So we'll continue to partner with them to look for ways to do that. We've been building our email database now for a while, and we'll continue to market as appropriate, not just to drive that off premise, but also to make sure guests are aware of in restaurant dining when we open, that the full menu will be available.
And as I stated also in my opening remarks, we had just started taking some limited reservations before all this hit. And we think that that will be a great advantage to guests as they feel more comfortable to come back into the restaurants through reservations. And so as we do that, we'll be getting their guest information as well and be able to reach out to them from a marketing perspective.
Yes. I used the reservations. They were great. So I look forward to using it again when the restaurants open up again. So thank you very much.
Thank you. We look forward to it too.
Your next question comes from the line of John Glass with Morgan Stanley.
Thanks very much. You made some hard decisions about furloughing a bunch of staff going into this. How do you think about the startup cost of going back to a dine in operation? 1, do you think staff is still available? 2, do you have to bring them on in advance?
Or can you sort of phase in staff according to volume, so you don't really see a deleveraging or increasing cash burn rate?
If I get one follow-up after that.
So John, this is David. I'll start and maybe turn it over to Matt from a burn rate perspective. Our teams have done a terrific job of staying in communication with the staff throughout the past 6 weeks. So having the daily meal program in place in the restaurant has allowed the staff to come in if they'd like to every day and get a meal and reconnect with the management team and continuing the benefits for staff has been powerful as well. So not anticipating having a struggle to get the restaurants open at that 50% capacity level.
I know that hearing from staff even myself, there are a lot of people that want to get back to work that are excited to get back into that little more social environment as long as they know that it's safe. And I think as I stated in my opening remarks, that will be very important to us to make sure that safety is job 1, so the staff do feel comfortable to come back.
John, this is Matt. I think on the ramp up, we're going to be very careful to maintain, as David said, a safe environment. I don't think that because it is happening relatively quickly compared to what we imagined on the downside scenario that there's a lot of retraining to do, but there is some thought that needs to go into the phasing. Certainly, the part that will be tricky too will be predicting sales levels and making sure you're aligning appropriately and doing those types of activities and really getting in front of the supply chain, making sure that you can get all the right product there, including the appropriate PPE will be something that we're paying attention to. But I don't think there's a significant ramp up cost.
It's just make sure that we're going to be very careful to align to the sales levels and do the best that we can as it ramps back up.
And Matt, could you just high level what are the basic tenants of the preferred offering? I presume it's a payment in kind and not a cash payment. What's the conversion point, the dilution? Maybe just high level, what are the things we should understand about the preferred offering and the impact to earnings?
Sure. The dividend is $9,500,000 It's a cash or pick at the election of the company. But certainly, as we noted with respect to the amendment, we'll clearly be on the pick side of that for at least a period of time. The conversion price is 22, 23. Dollars So roughly at the offering, it was around 16.5% to 17% of the outstanding.
And the company has a conversion rate at 3 years out at 200%. Those are some of the key pieces. I'd be happy to go through any more of the specifics that you want offline, John, if there's more questions.
Thank you. That's helpful.
Your next question comes from
the line of Jeff Farmer with Gordon Haskett.
Thank you. You touched on it, but can you share with us what you expect to see with U. S. Mall reopenings in the coming weeks and how that impacts your own decision to reopen some of your restaurants?
Sure. Jeff, this is David. Our decisions will be based first on the jurisdiction. So whether that's again at the local or the state level, and then we'll assess whatever that date is and probably look to 7 to 14 days past that date. For the most part, thus far, it would appear that malls are very much in line with that same legislation.
So I don't think we're going to find ourselves in a situation where we want to do something different than the mall. But if we did, that would be fine as well. As Matt said, we have our own entrance. We have all the parking. And if we decided we want to open in a particular location even if the mall wasn't open yet, we certainly could do that.
And then unrelated, Matt, you mentioned it briefly, but how big resales and international licensing revenues been impacted by the virus over the last few months or COVID over the last few months in terms of looking forward over the back half of calendar 2020, any insight there in terms of I know it's not guidance, but any way we should be thinking about that moving forward?
Sure. I may try to give you a framework at least. It's a fair question. Certainly, you can anticipate that the restaurants of our licensees have been impacted similarly to what has happened in the United States. The good news is that in the Far East, our partner there, Maxim's, is starting to see some green shoots.
And we hope that, that trajectory will carry through to us. And again, I would say, we don't know where that ultimately would lead to, but they seem to be maintaining a good amount of off premise sales and are generally operating in 50% capacity restrictions, but that gets them to a good potential sales level. So I would think for the back half of the year, they would be ahead of us. Perhaps the Middle East would be sort of similar to the U. S.
In terms of that trajectory and Mexico a little bit behind. And so for this quarter, there's not a significant amount of revenue from that, but obviously, it would track to our performance for the back half of the year. The bakery is doing very well. We're pleased to say that they've managed through this exceptionally well, and the external demand continues to be at similar levels to where it was in the Q1. A little bit of movement among the channels that you as you might expect, food service down a little bit, but retail up a little bit.
So that would consistently perform, I think, through the back half as well.
All right. Thank you.
Your next question comes from the line of Gregory Francfort with Bank of America.
Hey, thank you very much. Can you just maybe talk a little bit how the consumer is using the business either from an off premise perspective in terms of like alcohol mixes or beverage attach even if you're seeing big shifts in terms of dayparts or kind
of days of the week that would be helpful? Thanks.
Sure, Greg. This is Matt. I'll start and then if David over to Gordon has some color, he can add that. Generally, it's pretty consistent. As we've mentioned before, we know that the whole menu gets used.
The things I would note about right now that could be a little bit different maybe is that dessert is even stronger. So as we talk about reorder rates or the guest affinity, we're seeing exceptionally strong dessert rates, which is good. We are piloting alcohol sales where we can and the approach that we can. It's not a big driver for us. It never has been.
But we're continuing to see a little bit of momentum as that's growing. I think the thing that the other part that's interesting perhaps is the average check, really both for the 2 digital platforms, whether that's our own online ordering or delivery, have both increased meaningfully and are more in that $45 to $50 range at this point in time. And I think that, that really goes to show around the value and the approach that maybe families are taking, ordering meals in at dinnertime, that seems to be something that we're seeing. And again, from a meal replacement perspective, I think The Cheesecake Factory, we've always said, performs very well. It's a great value.
Factory, we've always said, performs very well. It's a great value. You can get 2 entrees and an appetizer and the bread, and you're in that, that ballpark that I'm mentioning there and it feeds the family. So I think we're seeing a little bit what we expected to see. And I think we're pleased that as David Gordon noted that the return rates are as strong as they are.
I would just add, I think it's also great to see that the online ordering has increased the way that this has. I mean, we've been wanting guests to move to online ordering to remove some of the friction of calling in, whether it's waiting on hold or even calling the restaurant for the first time. So to see those numbers at nearly 40% is great and I would anticipate that will continue and make it even faster and easier for guests to order off premise.
Thank you.
Your next question comes from
the line of Dennis Geiger with UBS.
Great. Thanks for the question. Just wondering if you could highlight the improvement that you've seen from that March end of March trough through last week, I guess specifically sort of what's driving the acceleration in the momentum in recent weeks that you highlighted? I guess how much of it is coming from some of the initiatives that you've put in place as well as from greater awareness of the brand's off premise availability? Then maybe how much of it is coming from any kind of stimulus checks benefit that you've seen?
Thank you.
Sure, Dennis. This is Matt. I think it's all of the above. It's a little bit tricky. It's a very dynamic environment.
So to try to specify the amount from each of those pieces, I think, would be the illusion of precision. I think we've done a great job with our marketing, very on brand for The Cheesecake Factory, very specific things that we can offer like The Cheesecake, which I think has helped. I think that you've seen increased order rates. I know that we're doing very well in terms of sort of total wallet share on delivery. I think that we're best in class in that category on DoorDash.
So I think that goes to the affinity of the brand. Once we get people to use it, they tend to see the value that maybe they hadn't before. Certainly, like everyone else, we saw a little bit of a tick up with the stimulus checks. Easter was particularly strong, and so I think that, that helped. I mean, I think everybody was looking to celebrate.
We sold a ton of whole cheesecakes for that holiday. So I don't know that I would tell you it's any one thing. I think it's a combination of all of them.
Great. Thank you.
Your next question comes from the line of Andy Barish with Jefferies.
Yes. Quick clarification and then just a numbers question. On the 4,000,000 dollars average weekly sales, your breakeven at the restaurant level contribution, is that what you were discussing?
Exactly. Assuming the percentage rent on those sales, Andy.
Okay. And then can you give us a sense of run rate G and A at this point?
Yes. We've taken a meaningful amount through all of the movements that we've done, whether it's the salary reductions or the furloughing. I think that we believe we've taken the actions necessary to align the business to what would be the 50% occupancy plus off premise sales levels and trying to keep that in line in those periods. But we don't know really what that ramp up will look like and we'll have to continue to monitor the situation. I think on a weekly burn rate, it's around $2,000,000 to $2,500,000
Okay. And then just finally on the 32 temporarily closed locations, what are the circumstances behind that? Is that more regulatory or more your own economic release?
Predominantly, we looked at the ability to generate the appropriate level of off premise sales to support it. That was the biggest factor in evaluation.
And are those still in your comp base?
Just as a reminder, only 3 of those are Cheesecake Factory Restaurants.
Right. So the Cheesecake cost that I've noted is the entire Cheesecake base.
Thank you very much. Stay well.
Your next question comes from the line of Matthew DiFrisco with Guggenheim Securities.
Thank you. Appreciate all the detail you gave and glad you're all doing well. With respect to the reopening process and your success with getting people over to digital, Is there a potential there to maybe do something a little out of the box and look towards pre ordering sort of a follow on with the reservation optionality now, but also maybe advance ordering or sort of enticing people to use that more as sort of a labor savings? And then also I just wanted to ask, when you reopened, do you envision perhaps maybe doing a slimmer menu with your only going to have 25% capacity in the dining room? Does it make it a little bit harder to make available the full menu, the over 200 items in a kitchen when you really can't reach your full capacity in the dining room?
Hey, Matt, this is David. Great questions with your operations hat on. Certainly, we are going to offer the full menu. I think that that's the power of the brand and we want people to be able to come in and have the experience that they've had before, although a little bit safer. So we can execute that full menu.
Our plans right now are to open at the 50% capacity model. We're not anticipating opening dining rooms as of now at the 25%. So that will help us from an execution standpoint. And we're offering just about the full menu now and off premise at that $4,000,000 volume. So it's not that much different from what we're currently doing.
As far as ordering ahead, I don't think that's in our current roadmap. We'll continue to find ways to leverage technology certainly on the payment side to make that faster and easier and more non contact for guests on the check-in side as well. But for now, we wouldn't anticipate doing anything on the ordering side.
Okay. Thank you.
Thank you.
Your next question comes from the line of Jeffrey Bernstein with Barclays.
Great. Thank you. Two questions. First one, I guess, Matt, in terms of restaurant margin, for the Q1, it was just shy of 12%, but with comps down 13%, but clearly lots of moving pieces with the 1st 2 months followed by the 3rd month sharp swing. So just wondering if you could maybe share the margin specific to whether it's March where we know the comp like you said was down 46 percent or maybe some color on April margin with the comp down 65% or if you don't want to necessarily share a specific month, maybe some sensitivity framework to think about margin and ultimately earnings as we think about this comp recovery from where we
are today?
Yes. I mean, I guess, Jeff, the first thing I would say is really thinking about the comment on the $4,000,000 AUV levels being essentially at the breakeven, assuming that being percentage rent, and it gets you a starting point. And obviously, it depends on what the sales levels are that recover. I mean, that's a meaningful component of it. We are continuing to keep all of the management team, and so that will impact it as well.
I would say, the 1st 2 months of the year, we were ahead of plan and on track for margins to be slightly ahead of the prior year. So you can kind of get to a math perspective in what March impact was on a relative year over year basis kind of doing a weighted average for that. But I think it's going to be very interesting. When you look at the different components, maybe some of this will help you, right? Cost of sales ought to be relatively in line.
There could be small amounts of deleverage depending on efficiencies, but should be pretty close. I think the other line item is probably in the medium term, 25% fixed and 75% variable. Certainly, it was more impacted in the Q1 because of the speed at which that happened, but that's probably the right ratio. And then I think aside from the management teams, you're talking about pretty much variable labor. And so those are the pieces that would move up and down a little bit depending on the sales recovery.
Got it. And then my other question was just broader look at the industry. And I know that the David's have been running restaurants for a long time, talking about Cheesecake being around for 40 plus years. But it does seem like the change you compete with are more often than not independents you might be competing with. It seems like they're facing a crisis like they've never seen before.
So just wondering what your thoughts are in terms of the future of kind of the bigger box, more upper end, more often than not independent, maybe the supply demand thoughts and or whether or not you think this actually leads to some better real estate opportunities following maybe some closures, whether for the Cheesecake or now that you have a whole portfolio of brands might turn into somewhat of a silver lining or a market share opportunity? Any thoughts on that would be great. Thank you.
Thanks, Jeff. Well, certainly, we hope that all restaurant tours and great restaurants out there are able to weather the storm. I think we know that some of them probably may not be able to do that. And if that leads to a change in market share or an opportunity to gain more market share because of a less competitive environment. We certainly are we feel poised to take that market share because of who we are, because of our high end experiential dining.
So we would anticipate that potentially that could happen. And from the real estate perspective, if those opportunities come about, we think that landlords would love to have any of our brands in any of those spots to continue to do the type of sales volumes that we've been able to do not just at Cheesecake Factory, but at North Italia or any of the other FRC brands that we believe could be good growth brands in the long run as well. So we'll take that approach and we'll see what comes our way, still be very site based in our decision making once we do decide that it's appropriate to start growing again based on the longer term outlook.
Thank you.
Your next question comes from the line of Catherine Fogarty with Goldman Sachs.
Great. Thank you. My question is more around with your talk with mall operators, how they are thinking about enacting social distancing? And if there's any nuances or anything that we should expect once malls reopen that might impact the way that your stores are running? And then a point of clarification, I appreciate that only 3 of the 32 restaurants are closed to our Cheesecake Factory, but could you give us a glimpse about the others, which brands they are there in locations that might take a longer time to come back just for modeling purposes?
Thank you.
I don't think they're in any particular locations that would take a longer time to come back. They are the Grand Luxe restaurants, 13 of those. And then there's a few others sprinkled in across the FRC concepts, some of the culinary dropouts that have a bigger footprint, obviously, where they are more social, where people come to gather and play games and that type of thing. But none that I think would have any significant difference. When a jurisdiction is able to open, we'll use that same methodology for those as well as will FRC.
As far as the malls go, we've seen a lot of, thus far, malls being pretty consistent with what they're planning to do for social distancing. So everything from offering hand sanitizer all throughout the mall to some malls limiting capacity to start, so not allowing everybody in, not allowing big groups in. Some of them, allowing people just to come in and shop and go, trying to make sure people don't just mill around. They've changed some of their configurations when it comes to gathering places, so maybe separating couches, that type of thing. And so that's just slowly happening now.
And it really doesn't have an impact for us. Thus far, the malls have been really cooperative, really helpful with us when it comes to the off premise and allowing us to have excess parking and whatever we need. And so far, as they're reopening, even allowing some retail businesses where they can to do curbside and pickup, they want to still be able to help us with the type of curbside and pickup volume that we've had as well. So thus far, they've been great partners through the process. And as they reopen, we would anticipate the same.
Great. And just a quick follow-up there. Have there been any talks about delaying the reopening of food courts, just given it's a little trickier to social distance there?
What we've seen so far is that even in the food courts that are open, there's probably any if there's a food court of 12, anywhere from 2 to 5 that are actually open. So not every business is open where they can, sort of the same approach that we're taking. They have generally removed tables in food court areas, so the people can just come and get whatever it is they want to get and keep moving along versus sitting in the mall.
All right. Well, thank you.
You're welcome.
Your next question comes from the line of Patrice Chen with JPMorgan.
Great. Thank you. My question is just on the commodity side. I know you guys have like a pretty wide range of items in the basket, but we've seen some volatility as you know in spot pricing, whether it be produce or beef. Can you just tell us maybe how that might flow through your COGS even going into next year?
And can you remind us what percentage of your basket is locked in at this point? Thanks.
Yes, Patricia, this is Matt. We're pretty much contracted. And since we were previously mostly contracted with the lower volumes, we certainly still maintain that high level. And we have had, I think, a very resilient supply chain. We have great relationships with our vendors, and we really haven't seen some of the ups and downs that others have.
I think it's a little early to really prognosticate about what the pricing impact is. Certainly, there could be some puts and takes, maybe some favorability if the demand remains low, but that may not happen. So I don't think we know for sure. And usually those conversations don't start happening until the summertime. But certainly, again, as we've said before, the long term outlook for the U.
S. Agricultural complex is benign and we would continue to believe that it would be that.
Great. Thank you.
Your next question comes from the line of Brian Vaccaro with Raymond James.
Thanks and good evening. Just back to the pace of reopening, I think you said you expect to open a few units. And if all goes as planned based on what's been announced, I'm just curious how many or more broadly maybe what percentage of the system you think you could reopen by the end of May or perhaps the end of Q2? Any way to ballpark that for us?
Yes. Hey, Brian, it's Matt. It's a good question. And as we said, it's very dynamic. We're trying to keep that list as up to date as possible.
As we look at it right now, it could be 10% to 15% of the total capacity that's online by the end of May. As we noted, we're taking that extra week or 2 once the jurisdiction opens. And so certainly, our hope would be that as that continues to move forward, we would have a nice steady cadence of reopening on through June. But let's just say maybe 15% by the end of May.
All right, great. And then on the labor model, I just wanted to ask about the labor model in the off premise world that we're in. Can you share a little bit more, what does the kitchen and front of house staffing levels look like at a $4,000,000 AUV? Have you increased pay levels for hourly employees? And perhaps you could ballpark labor costs as a percent of sales in this environment?
Yes. I mean, it depends on the volume of the restaurant a little bit, right? As we've mentioned, we're utilizing fully our management teams. And then it really depends on the layout of the restaurant and the demand variability, how many hourly staff you need to bring in to cover the rest of the kitchen. Certainly, we're staffing in a very different environment to support the off premise model.
I think as we look at the overall labor percentage, we have a target, I would say, in aggregate that's somewhere around the low 40%, 40% to 42%. And again, that varies by jurisdiction, so that's a little bit of an average.
Okay, that's great. And then last one for me. Back to that, it's a bookkeeping question, but the $4,000,000 of COVID related costs, I think you said it's spread between labor and OpEx. Could you help allocate that just in broad strokes between the two lines? Thank you.
3 fourths of that is in labor, one fourth in OpEx.
Great. Thanks, Matt.
You're welcome.
Your next question comes from the line of Brian Bittner with Oppenheimer and Company.
Hey, guys. Matt, just as we think about the off premise business, can you help us understand what the contribution margins on that business as it builds incrementally, inclusive of the delivery build as well? So just as you've seen that build from say $3,000,000 to $4,000,000 what's the incremental contribution margin as extra dollars come on?
Yes. Brian, that's a really interesting question. I would just be honest with you. I don't think we're thinking about it that way yet until we're more in a steady state, right? I mean it's a little it's because you're dealing with too many dynamics about trying to grow the business and what kind of staff do you need to bring back on and what's the movement been between delivery and online ordering versus phone in.
And so I think it's hard to say with so many moving pieces in such a short period of time. I would say for sure that the online ordering margin is slightly better than the delivery. And so that's a positive for us. And then in a steady state environment, the dine in guest is in the middle between the 2 of them. But in terms of sort of incremental, I think that's more going to be relevant once we get the dining rooms back open and we think about that incrementality versus right now where it's blended together so much.
Okay. And just lastly, how does this environment just in general change the way you're thinking about unit growth for FRC in North Italia? Obviously, in the very near term, you're kind of handcuffed. But as we look out the next couple of years, should we revert back to your targets on how you're thinking about growing that business once this is over? Or does this impact how you think about the growth of those two segments?
Yes. I think in light of not having additional information, if we're assuming that the world returns to some degree of prior levels, then we would have the same commitments to the growth of all of our brands in that regard. To your point, in the short term, we're certainly I would probably use the word cautious right now and obviously in the cash preservation mode. And so it will be seen how quickly everything comes back. But as I noted, if it does, then we would have the same commitment that we did before.
Thank you, Matt. You're welcome.
Your last question comes from the line of Peter Saleh with BTIG.
Great. Thanks for taking the question. Can you guys remind us what percentage of maybe your square footage is typically used for patios? And if that percentage will be included in the 50% capacity that you intend to open?
So the patios are included in the 50% capacity. Even when there's not a 50% capacity restriction, just about every jurisdiction thus far has had the 6 foot social distancing restriction, and that would include on the patios. So our patios would then have the same probably every other table sort of feel when it comes to 6 feet apart with a little more flexibility because you're able to move those tables a little bit more than within the dining rooms.
And Peter, they represent about 15% of our productive square feet in
total. Okay, very helpful. Okay. In terms of I think you guys mentioned the you're seeing some new customers from DoorDash that you otherwise wouldn't have seen or just new customers. Can you give us a little bit of a sense of the profile of that guest, if you can?
How are they maybe different than your current customer profile?
We haven't really done an analysis yet on those guests. We're happy to have them and we're happy to have them continue to reorder. We haven't spent the time yet to really dig in and understand what may be unique and different about them. We certainly want to and understand that so we can reach out to market to more of them to see how we can get even more new guests on the platform and maybe that's directly through marketing first time orders through DoorDash, receive whether it's a slice of cheesecake, we've done some of those type of promotions in the past or a dollar off. So we'll continue to learn from what has worked.
And certainly, as we reopen restaurants, still make sure we can maintain close to the levels of off premise that we have now, and we'll do that through some strategic marketing.
All right. Thank you very much.
There are no further questions at this time. I would like to turn it back to our speakers for any closing remarks.
I just want to
thank everybody and hope everybody stay safe. Thanks for your time today.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.