Ladies and gentlemen, thank you for standing by, and welcome to The Cheesecake Factory's fourth quarter fiscal 2019 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. I would now like to hand the conference over to your speaker today, Stacy Feit, Vice President of Investor Relations. Thank you. Please go ahead.
Thanks, Chantelle. Good afternoon, welcome to our fourth quarter fiscal 2019 earnings call. On the call today are David Overton, our Chairman and Chief Executive Officer, David Gordon, our President, and Matthew Clark, 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 facts 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, the company undertakes no duty to update any forward-looking statements.
In addition, throughout this conference call, we will be presenting results on an adjusted basis. 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 take you through our financial results in detail and provide our outlook for the first quarter and the full year 2020. With that, I'll turn the call over to David Overton.
Thank you, Stacy. Comparable sales at The Cheesecake Factory restaurants again outperformed the casual dining industry during the fourth quarter. Our operators executed very well, with particular strength in labor management, which contributed to solid restaurant-level profitability. This drove bottom-line results of the core business within our guidance range. During the fourth quarter, we also met our 2019 development objectives. We opened three The Cheesecake Factory restaurants, including Grand Rapids, Michigan, where we have seen incredible pent-up demand, as well as Coral Gables and Orlando, Florida.
We opened a North Italia restaurant in Charlotte, and two Flower Child locations opened in McLean, Virginia and Dallas. In addition, three The Cheesecake Factory restaurants opened internationally under licensing agreements during the fourth quarter, including the first location in Macau and the fifth location in Mexico and the fourth location in Saudi Arabia, for a total of six locations opened during fiscal 2019 as expected.
Looking ahead to 2020, we continue to expect our unit growth to meaningfully accelerate with the opening of as many as 20 new restaurants, including six The Cheesecake Factory locations, six North Italia restaurants, and eight restaurants within the FRC subsidiary, which now includes four Flower Child locations, given a shift in timing of one new unit. We also continue to expect as many as four The Cheesecake Factory restaurants to open internationally under licensing agreements.
This planned unit growth supports our 8% total revenue growth objective. I'd like to take a moment to thank our teams. Together, we accomplished so much in 2019. The Cheesecake Factory was recognized as one of the top restaurant brands for both food quality and ambiance in the Nation's Restaurant News Consumer Picks survey. Just yesterday, we were also named to Fortune Magazine's 100 Best Companies to Work For list for the seventh consecutive year.
We again were the only restaurant company on the list. Finally, we closed on the acquisitions of North Italia and Fox Restaurant Concepts, reinforcing our leadership position in experiential dining. We continue to believe the combination of our companies will drive long-term value for our shareholders, guests, and staff members. With that, I'll now turn the call over to David Gordon.
Thank you, David. During the fourth quarter, we continued to drive year-over-year increases in both manager and hourly staff retention, which we believe go hand in hand with delivering great guest experiences and ultimately comp store sales performance. We are so proud to have been recognized as a great place to work, underscoring our position as a best-in-class employer, which will continue to be crucial to our future success. Our industry-leading retention and engagement, as well as an even sharper focus on service and hospitality, contributed to sequential increases in our guest satisfaction metrics across both the dine-in and off-premise occasions. We're continuing to drive momentum in our off-premise business, which comprised 17% of The Cheesecake Factory sales in the fourth quarter. We also saw year-over-year growth in our online ordering platform for pickup orders.
Overall, we remain pleased with how well The Cheesecake Factory resonates with off-premise guests and how differentiated our offering continues to be in an increasingly competitive market. The off-premise channel has also served as a great testing ground for marketing initiatives, as we're applying these learnings to the business more broadly to drive comp store sales. We're planning to continue to test a variety of additional marketing levers in 2020 as we look to continue to increase unaided awareness of The Cheesecake Factory and further lean into convenience. Specifically, we were encouraged by the initial results of the TV campaign we ran last year and are planning to do another test later this year. Secondly, we recently rolled out limited reservations in our locations nationwide.
One of the biggest hurdles for our guests can be our long wait times, we're hoping this additional convenience will encourage guests who are more pressed for time to dine with us. Based on the deliberate approach we're taking and the results of our initial test, we expect our guest throughput to be consistent. We also have some additional in-restaurant traffic-driving initiatives, as well as continued collaborative marketing campaigns across day parts with our delivery provider planned for later in the year. At the same time, we're also focused on continuing our stable four-wall margin performance as we work to maintain our food efficiency and overall effective labor management in 2020. Turning to our consumer packaged goods business, we recently announced Cheesecake Factory branded ice cream, which will be a first in ice cream to include real cheesecake ingredients right in the mix.
Inspired by our legendary cheesecakes, seven flavors will be available at retailers nationwide beginning this month. We generated tremendous attention from the initial story that People Magazine broke, with more than 600 million media impressions, including follow-on pieces in Thrillist, Delish, and Cosmopolitan. Our official announcement yesterday has driven another significant wave of publicity and social media engagement. Finally, the integration of North Italia continues to proceed smoothly. In fact, we saw manager and staff retention increase following the close of the acquisition, and we drove strong performance with fourth quarter comparable sales up 4%, continuing the trend of meaningful industry outperformance. With that, I will now turn the call over to Matt for our financial review.
Thank you, David. We closed out 2019 where we anticipated. The completion of the acquisitions and the associated accounting impacts created some expected noise in the fourth quarter results. There were also some inconsistencies in the Street models. I want to take a moment to briefly summarize our fourth quarter results. Cheesecake Factory comp store sales were within our expectations. Solid operational execution enabled us to continue to stabilize restaurant level margins at The Cheesecake Factory, excluding the impact of lease accounting. This drove bottom-line results of the core business within the $0.61-$0.66 range we provided on our last call when using the underlying tax rate assumption in our guidance range. In addition, the impact from the recent acquisitions to fourth quarter results was also within the $0.12-$0.15 range we provided.
With respect to North Italia specifically, restaurant level margins were impacted by about 300 to 400 basis points from the timing and classification of certain expenses versus the acquisition close. This is a fourth quarter specific impact, given the closing of the acquisition, and will not continue into 2020. Now for the details on the consolidated results. Fourth quarter comparable sales at The Cheesecake Factory restaurants increased 0.6%, including an approximately 30 basis points negative impact from weather-related and other temporary closures. Revenue contribution from North Italia and FRC, including comparable restaurant sales growth of 4% at North Italia, and approximately $90,000 in sales per operating week at FRC, totaled $92 million. Including $19.3 million in external bakery sales, total revenues were $694 million during the fourth quarter.
Cost of sales was 22.8% of revenues, a decrease of approximately 20 basis points from the fourth quarter of last year, reflecting menu price leverage. Labor was 36.2% of revenues, an increase of 40 basis points from the fourth quarter of last year. This is primarily attributable to higher hourly wage rates, as expected. Other operating costs were 26% of revenues, up 200 basis points from the same period last year. This is primarily due to the additional non-cash rent associated with the adoption of the new lease accounting standard across our concepts. There were also a variety of puts and takes in other areas, including planned higher marketing costs and unfavorable workers' comp insurance at The Cheesecake Factory. Pre-opening expense was approximately $6.3 million in the fourth quarter of 2019 versus $5.1 million in the same period last year.
We had six openings across concepts in the fourth quarter of 2019 versus three openings in the same period last year. G&A was approximately 6.8% of revenues in the fourth quarter of fiscal 2019, as expected. It was up 50 basis points from the same quarter of the prior year, given an unfavorable year-over-year comparison, incremental bonus accrual, and some minor deleverage from the FRC acquisition in the quarter. On a full year basis, G&A as a percentage of sales was consistent with our expectations. Finally, during the fourth quarter, we recorded a pre-tax charge of $18.2 million, which was primarily comprised of non-cash impairment of four restaurants, as well as lease termination expense associated with Grand Lux Cafe Austin and RockSugar Oak Brook, which discontinued operations on December 31st, as their performance was not meeting our expectations.
Excluding the impairment, as well as other special items, which included a $52.7 million gain on investment in unconsolidated affiliates, $2.1 million in acquisition-related costs, and $1 million in acquisition-related contingent consideration, compensation, and amortization. Adjusted earnings per share for the fourth quarter of 2019 was $0.58, which was well within our expectations. Cash flow from operations for fiscal 2019 was approximately $226 million. Roughly $74 million was used for capital expenditures, and we returned $112 million to our shareholders via our dividend and share repurchase program. We also ended the year with $290 million drawn on a revolving credit facility, slightly less than the level we had anticipated. 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 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 effects of any impacts associated with holidays or weather. In addition, we're providing some additional direction to assist in your modeling of the consolidated company. This will not be an ongoing practice, but given the transactions, we thought this would be helpful in aligning your 2020 assumptions. For the first quarter of 2020, we estimate adjusted diluted earnings per share between $0.69 and $0.74, based on comparable sales in a range of 1%-2% at The Cheesecake Factory restaurants and total revenue of approximately $715 million-$720 million. Turning to full year 2020, we are estimating comparable sales in a range of 1%-2% at The Cheesecake Factory restaurants and total revenue of approximately $2.9 billion.
We now expect North Italia and FRC to contribute approximately $425 million in revenue in 2020, given some shifts in the timing of new openings. On the cost side, we continue to expect food inflation for our 2020 market basket to be approximately 2%, and hourly wage inflation of about 5.5%. With regard to the specific expense lines on a consolidated basis in the P&L, we would expect some slight leverage on the cost of sales line. We anticipate some slight deleverage on the labor line given our wage rate inflation assumption. We expect other operating expenses as a percentage of sales to be relatively consistent with fiscal 2019 results. We expect G&A as a percentage of sales to be roughly in line with the fiscal 2019 levels and anticipate some slight leverage in D&A.
In total, operating margins before pre-opening would then be expected to be fairly consistent year-over-year at the midpoint of our range. Based on our anticipated new unit openings, we expect approximately $23 million in pre-opening expenses, about 60% of which we expect in the back half of the year. We continue to expect North Italia and FRC's operating income to cover the approximately $8.5 million in interest expense associated with the acquisition financing, and therefore, continue to expect the acquisitions to be approximately neutral to EPS in fiscal 2020, excluding acquisition-related costs. To reiterate, margins of the acquired concepts were impacted by the timing and classifications of certain expenses versus the acquisition close, which was specific to the fourth quarter.
Our expectations for North Italia and FRC margins remain consistent with our initial modeling, besides an incremental 50 basis point net impact from lease accounting, which reflects some additional non-cash rent expense, partially offset by some favorability in D&A. Finally, we anticipate a 2020 tax rate of approximately 9%. Based on these assumptions, we are estimating adjusted diluted earnings per share between $2.70 and $2.86 for fiscal 2020. Note that this range is on an adjusted basis, excluding an estimated $2 million in acquisition-related costs and $1 million in contingent consideration, compensation, and amortization per quarter each. With regard to capital allocation, we expect our cash CapEx in 2020 to be between $130 million and $140 million to support anticipated new unit growth across the concepts and ongoing maintenance needs. We will also have a $17 million cash outflow for deferred consideration associated with the acquisitions.
In closing, we made significant strides in 2019 to position the company for long-term profitable growth. We stabilized four-wall margins at The Cheesecake Factory, achieved our earnings per share objective in every quarter of the year, and completed the acquisitions of North Italia and FRC, reinforcing our leadership position in experiential dining. Looking to 2020, we are executing on our strategic roadmap to build The Cheesecake Factory sales and maintain margins, drive performance at North Italia and FRC, and accelerate our unit growth, while continuing our capital return programs to maintain a balanced capital allocation strategy and maximize long-term value for our shareholders. 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 queue with any additional questions.
Your first question comes from Sharon Zackfia with William Blair. Your line is open.
Hi, good afternoon. I guess a question around the marketing and the limited reservations. I think you said you're starting to roll that out, so if you could kind of clarify where it is and kind of what that process might look like. Then I remember, while other concepts have obviously done this, how are you managing that from a throughput perspective? Are you just assuming certain table turns and tables open up, or are you actually going to hold tables, if you could talk to us about that.
Hi, Sharon. This is David Gordon. Thanks for the question. Today, limited reservations are live in all restaurants across the country. We launched nationally just a few weeks ago, and when I say limited, we're able to manage throughput due to the fact that they're limited. It's not that you can maximize every seat in the restaurant with reservations every day of the week. Every time slot throughout the week, we've allocated a certain amount of tables to be available for reservations, and at the same time, let guests know that they can always walk in so that they're not under the impression that we're only taking reservations, and they're all available through Yelp. We're marketing that through Yelp.
You can go onto our website and see reservations are now available, and anytime you go onto Yelp and look up Cheesecake Factory, you'd be able to make a reservation right through Yelp with one click, right onto the site.
Is there any thought of doing a tagline on the TV marketing?
We're still evaluating what the marketing's going to look like, because we are going to do some additional TV marketing. We haven't decided yet what that marketing might exactly look like. We'll see.
Okay. Thank you.
Your next question comes from John Glass with Morgan Stanley. Your line is open.
Thanks very much. Two related questions, perhaps. On the fourth quarter, I know you said both the cake and the acquisition costs were within expectations, can you just reconcile, I think you said 61 to 66, and then you said $0.12 to $0.15. I don't know if you add those together, it gets to be less than the number you just reported. Maybe if there's a way just to reconcile that so we understand how this fits versus what you thought. Then Matthew, I just want to make sure I understand your view on restaurant margins next year with FRC. It's neutral to margins except for the lease accounting. That's 50 basis points, or is the 50 basis points just on their margin? If you could just explain what you meant by that.
Sure, John. The first part is the best way I would sort of triangulate this, and we do provide sort of the non-GAAP table, but to try to put those pieces together. Probably the one piece that is not in the non-GAAP to get to the $0.58 to try to get back to it, was the interest expense, which we had sort of added in when we said the $0.12-$0.15. I think if you adjust for that, you're going to be right where we thought we would be, if that makes sense.
Yeah.
The second part is the 50 basis points versus our initial modeling, not compared to sort of year-over-year comparisons, was the impact of lease accounting for just the North and FRC pieces. On a total company basis, it's not material and is within the guidance that we're providing right now.
Okay. Thank you.
Your next question comes from Joshua Long with Piper Sandler. Your line is open.
Great. Thank you for taking the question. Labor management was mentioned a couple of times in the prepared comments, so just curious if you might be able to update us there. You've had some initiatives in place now, and curious if you've gained some more learnings or if those have been able to expand a bit in terms of where they've been either rolled out or how they're being executed at the store level to help support those strong labor margins.
Sure, Josh. This is Matt. I think the biggest things we've been focused on, we continue to make traction on. Those include improvements in retention. Obviously, again, being named number 12 on the list this year for Fortune is great and reflective of our ability to attract and retain those employees. That continues to be a driver for us. I also think wage management. We saw a slight tick down in the fourth quarter, closer to 5% versus the 5.5%. That was a part that made it effective for us. Overtime management was solid all year. This is just about good operations and good systems and practices, right?
We're just continuing to refine our ability to track and manage those key pieces of making sure that we're not paying more, but the right amount for talent, not overpaying with the overtime and keeping people because that helps manage the training and all the costs associated with bringing somebody else on board. We saw positive movements in all of those areas that we've been working on this year.
Great. Very helpful. One quick one on the CPG section, if we might. Great to see the product expansion there. Curious if you could give updates in terms of how far you penetrated with that segment, either in outlets or just how you're framing up the potential for growing that side of the business.
Sure, Josh. This is David. Currently products are for sale at over 70 retailers nationwide. The brown bread that we launched last year is doing incredibly well. Our sales last year doubled our sales in 2018 just on that one product. The launch of the ice cream, which is happening here at the end of the month and into next month, is going to be strong national distribution at launch. There'll be a broad set of retailers representing thousands of doors, including Kroger, Albertsons, Safeway, Target. I think most importantly, what we've seen is that there are folks out there who continue to be excited about the brand and sharing the affinity and love for Cheesecake Factory with these different products, and we continue to see growth in just about every sector.
The ice cream, I think is ingenious and different and innovative, which is what we are at Cheesecake Factory. We're excited to get that launched. We think that there'll be great demand for it.
Great. Thank you.
Your next question comes from David Tarantino with Baird. Your line is open.
Hi. Good afternoon. My question's about the comps for the core The Cheesecake Factory business. First, I was wondering if you could break out the check and traffic components of that for the backward-looking quarter for Q4. I guess my main question is, following a couple of soft quarters in the back half of last year, I was wondering if you could just maybe walk us through your thoughts on why the 1% - 2% guidance for this year makes sense and what you're particularly focused on in terms of driving the traffic to achieve that number.
Sure, David, this is Matt. Just to cover off the technical piece on the Cheesecake comp for the quarter, pricing was 3.2%. There was a positive mix of 1.2%, and traffic was the delta there. Obviously, within the mix piece, as we've said before, a significant part of that is related to how we capture the off-premise and the driver there. It's probably a little bit of noise. Net-net, it was pretty consistent with the third quarter and then that relates to your second part of the question. Certainly, in this quarter as we look at it, I think you're seeing some positivity in casual dining, and I think we do move a little bit with the industry. I also think, specifically to what we're working on, as David Gordon commented on, we are increasing our marketing efforts.
I think we've seen good results when we've done that. I think there's good ROI. I think that's one piece of it. I think another piece on the reservations, while we're anticipating to manage the throughput there, that's something different for us and I think an opportunity. When we look at what we're doing and then the environment, which doesn't feel that much different, we feel like we can build a little bit upon where we have been. We also continue to have great sales with our delivery and off-premise business and continue to grow that. We are incrementally doing things to move up from the run rate that we were at.
I think, as we move into the back half of the year, we'll have to watch and see what the environment is like to make sure that the things that we're doing are enough to continue to build upon the run rate that we're at.
Thank you for that. Just one quick one on pricing. What is the level of pricing that's assumed in your outlook?
3% is our basic estimate for 2020.
Great. Thank you very much.
Your next question comes from Gregory Francfort with Bank of America. Your line is open.
Hey. Thank you very much. I had two questions. The first is just on labor and wages. I think you said hourly wages would be up 5.5% this year. Can you maybe walk through some of the big offsets in terms of efficiencies or programs you're putting in place on that front? The other question I had was industry focused, and I know you guys don't like talking quarter to date, but it's been kind of hard to ignore how strong casual has been in January. I'm wondering if you just have any thoughts on kind of what's going on in the industry. Just maybe if there's been an industry shift and what's driving that'd be great. Thank you.
Sure, Greg, this is Matt. I'll start with the second part. I think it's always a little bit hard to know out of the gate. I do think that there was a little bit of a benefit in the industry relative to the calendar and certainly weather. I know here in California, at this time last year, we had a significant amount of rain, and it's been pretty dry. I think that we've heard that. I listened to your call with Malcolm, and he said that maybe people were just ready to go out again. That could be part of it for sure. I think it's probably a little bit of each of those.
I don't think it's any one material factor, and I think as I noted in answering another question, that we do tend to move and capture some of the same benefits that the industry does, and I think that that's baked into our first quarter expectations. With respect to the wage piece, particularly, talking about how we ended the year is a lot of the similar attributes that we would attempt to continue with for the next part of the year. I think it's getting increasingly hard for some restaurants to even get staffed, and yet we're a best place to work and our retention is getting better. I think that in and of itself is a huge barometer of our ability to manage it.
I think really focusing on the forecasting and staffing needs is underappreciated in a lot of circles because that extra half a percent to 1% of wage inflation or overtime is really the difference between being at 6% or 5% wage inflation. I think, 3% pricing and 2% commodities, we can manage the P&L at that 5%-5.5% wage inflation.
I think it's a combination of those, and I think it's just continuing to get better versus trying to introduce something where we're taking out a significant amount of labor. That's never been our focus. We want to also continue to drive sales.
That's great. Thank you.
Your next question comes from John Ivankoe with JP Morgan. Your line is open.
Hi, thank you. The question is actually on delivery, and one thing, and maybe I missed it in your prepared remarks, is whether delivery on a per store basis was still up year-over-year in the fourth quarter of 2019, if you expect it to be up in 2020. As obviously the market, and I think especially for you, shifts to off-premise, how you expect to protect the profitability or even increase the profitability of that transaction as maybe the product mix might look a little bit different, especially on the beverage side versus what happens within your stores.
Hi, John, it's David Gordon. We continue to see strong off-premise sales. They were 17% of sales in the fourth quarter of 2019. Per restaurant, we continue to see growth in off-premise. We continue to see growth in delivery. We think there's still opportunity for more growth moving forward. We feel good about the deal we have with our partner, and we feel good about the margin that we currently have on all of our off-premise business. Wouldn't anticipate that we're looking to offset our current plan. I think our current plan is part of our ALP for this coming year, and we feel good about it. We continue to do really creative marketing campaigns with DoorDash and with our online ability, and we see that as a traffic driver, a growth driver as well, and we'll continue to pull that lever throughout the year.
Okay, DoorDash, it does sound like actually is up year-over-year on a per store basis. I think there was a change in the economics in terms of you basically paying them less because you're one of the original partners of them. Has that affected the money or the support that they give you in any way in the 2020? Where might you contribute more to communicating the off-premise challenge or the off-premise opportunity yourself?
Yeah, sure. We haven't actually disclosed what our deal is, but I can tell you that in no way has the deal changed in regards to the marketing support that we're getting. You'll still see that we're top of the app. We're right there on the top of the carousel. We will continue to be, and they'll continue to provide the same level of marketing support that they have historically.
Thank you.
Your next question comes from Andy Barish with Jefferies. Your line is open.
On the cadence of openings as we look to 2020, you gave the pre-opening. Does the openings kind of match that, the 40-60, and does some of the Fox and North stuff kind of even things out a little bit, maybe during the year?
It is, Matt. I think not quite. Obviously, as everybody knows, in the pre-opening, we do capture some other costs. We have the pre-opening department. We have some management bench. Instead of 40/60, it's probably more like 30/70 or 25/75 in terms of the split. It will even out a little bit, but it's still going to be, I would say, relatively back-loaded in the fourth quarter. Again, that's mostly Cheesecake Factory. I would say the North FRC will be a little bit more balanced with Cheesecake Factory pretty much in the back half.
Thanks, Matt. Can you give us just a quick update on sort of your expectations on free cash flow priorities now that you have some debt on the balance sheet?
Yeah, that's a great question. I think in the short term, our free cash flow priorities are to build great return restaurants across our portfolio, and we have a lot of options to do that, as well as to continue to keep the maintenance up so they look like new. Obviously, we announced we are maintaining the dividend at where it's at, which we think is a pretty healthy yield. You get down to share repurchases and I think debt pay down, and it's a little bit of a fungible pool in the short term. We are actively evaluating that. We'll probably have another update in the next call to the degree to which we will pay down debt and/or buy back shares. I think it's a little bit of both right now. We will see where we get to.
Obviously rates are very low and attractive, we'll look at that and whether or not maintaining some level on the balance sheet makes sense in the longer term as well. We haven't quite nailed that down yet. For this year, it'll be a balance between the two.
Thank you.
Your next question comes from Matthew DiFrisco with Guggenheim Securities. Your line is open.
Thank you. Just two quick questions here. With respect to North Italia, $125,000 looks like, or about $126,000, the average weekly sale. Is that a good number per quarter, or is there some seasonality to consider in there? Is it a little higher maybe in the summer months?
I think that's probably pretty close. Obviously now it's a blend of some newer restaurants. North tends to ramp up in a different sort of trajectory than The Cheesecake Factory just because of the brand awareness. I think that's probably a fair number for the time being, and it probably balances out during the year, Andy, when you have a good segment in Arizona and Southern California that benefits sometimes from the winter months, in fact. I think I wouldn't expect too much seasonality in that one.
Got it. Then looking at the Cheesecake brand as it matures, some other brands that are around your vintage have started to talk a little bit more and use some CapEx towards relocations. Obviously, there's been a lot of chatter about your correlation with lifestyle centers and retail in general. Are there some opportunities for that? Have you already done that assessment of things that are coming up on 10 years, or where it's not as costly maybe to move to a new trade center within the market, or all your sites pretty much been vetted?
No, we will always consider lifestyle centers, new malls. Most of our leases are 20 years, and when they come up, we see how we're doing, what's going on in the neighborhood, and what our options are, and we're free to move, and we've done that, or renew our lease for usually an additional two, five or another 10 years. That's how we do it.
Matt, we're constantly reviewing that and the opportunities, as David said. We have done in the past. We've had some great success, and it's on a case-by-case basis.
Okay. Just going to the international side, you said 26 stores at the end of the period or at the end of the year. Last, I think it was your predecessor used to speak about it as far as about roughly $0.01 per store that opened would contribute to the EPS line. That was in times when the tax rate was a little higher. How does that correlate now with the 26 or so stores? Should we think about it accurately close to $0.30 of earnings on an annualized basis, maybe close to about 10% of your overall EBITDA?
I think I would stick with the penny per share model. Taxes are a little bit different, but our profile is a little bit different, too. Certainly, as we've talked about, a couple of those locations in the Middle East are outsized performers. I would stick with the penny and the $0.26 for now.
Tying that back into China, the four that are Maxim's managed, is it correct to assume that those are probably nearly closed right now?
Actually, Matt, this is David Gordon. The only restaurant that's closed right now is in Shanghai. The Disney property is still closed. They're looking to hopefully be open here by the end of the month. In Beijing and Macau, there are some limited hours that they're operating under. In Hong Kong is normal hours right now. They're certainly seeing some pressure. They wouldn't anticipate that to be in the long term, but as we all know, don't know which way things are going to move going forward. I think the fact that Disney's planning to open here at the end of February is a good sign.
Of course. Thank you very much for the color.
Your next question comes from Dennis Geiger with UBS. Your line is open.
Great. Thanks for the question. Wondering if you could provide any more commentary around upcoming throughput initiatives that you mentioned, and if there's anything else beyond the opportunities that you called out with the reservations platform. Just as it relates to the day part opportunities around delivery, anything more there as it relates to how you can take advantage of underutilized capacity within the restaurant through that delivery platform? Thank you.
Sure. I mean, throughput is sort of by definition what The Cheesecake Factory does. I think we run really busy restaurants, and our objective is to get a little bit faster all of the time. I think right now we're focused on digesting the limited reservations. That's a pretty big thing for us. We'll see how that does, and we want to make sure that the guest experience is not impacted other than positively for that. As we have additional throughput initiatives, we'll certainly keep you posted. I do think you make a good point about the day parts. I think we have had a lot of success with the creativity of the delivery programs, and we'll continue to look to drive different types of demand throughout the day or different parts of the week, even weekdays versus weekends.
I think that's important and something that resonates, and the power of our cheesecake oftentimes helps us to accomplish that. I think we will look to drive areas of convenience and to continue to broaden the shoulders of the business throughout the day parts with that vehicle, for sure.
Thank you.
Your next question comes from Jeffrey Bernstein with Barclays. Your line is open.
Great. Thank you very much. A couple of questions on comps. Just one for the core Cheesecake. It seems like more recently you're comfortable with the 3% plus pricing. With the traffic down presumably 3% or 4%, I'm just wondering your comfort with that mix. I don't know whether you see a relationship, one between the other, or whether there's any concern around affordability from a consumer standpoint or the ability to perhaps narrow that gap if that is a concern for you in the short term.
Sure. Hey, Jeff, this is Matt. I think when we've analyzed it, interestingly enough, we have moved over time to taking different pricing in different geographies based predominantly on the input costs and specifically around labor and minimum wage. One thing that gives me comfort that we're not pushing the envelope is the fact that in some of the areas where we've taken more pricing, we're doing better with respect to traffic, right? I don't know that there's a one-to-one correlation per se. The bigger drivers for us oftentimes are construction of a mall and things like that can really move a couple of locations significantly. The other thing for us that is true is we have such a broad menu, and I really pay attention to the mix and the wallet share that our guests are using, and it's very stable.
I'm not seeing trade-out of people picking one thing or the other. We have items on there that are $11, $12 that are a full meal. I think we do feel comfortable. The last thing I would say is. I think that in general, the level of pricing, if you're at a national footprint, and I mean those restaurant companies that have significant California and Northeast presence, not just in the South and the middle of the country, you're seeing 3% pricing as an average across that. I don't think we're outpricing our competitors in any market. Certainly, traffic is important, and we have drivers that we're working on to improve that, but I don't think the pricing in and of itself is a negative.
Good to know. I didn't realize that regional color, so that's helpful. Second, in terms of North Italia, I know you mentioned, I guess, a rounded 4% comp in the fourth quarter. In the slide deck, it talks about a 6% for the full year. I guess we don't have the quarterly cadence or whatnot, but maybe can you talk about whether there has been a slowing trend or maybe, I don't know if you're going to share the components of that comp or how we should think about comparisons, because seemingly, I guess earlier in the year, they must have been comping sevens and eights or something along those lines. Any color around the North Italia sequential comps would be great.
Sure. It moved up and down a little bit. You're talking about a relatively smaller base compared to, say, like The Cheesecake Factory. You have restaurants that can kind of come in and move out. I don't think that it moved more than a percentage or two per quarter. There is some rounding in there. I think the pricing has been, we're not giving specifics, but it's been less than a Cheesecake Factory, so certainly positive traffic. Just in general, very consistent. I mean, the trends have been pretty consistent throughout the past two years, that we've really been tracking it, always within a couple percent of sort of the longer-term average.
Great. Thank you.
Your next question comes from Brian Bittner with Oppenheimer. Your line is open.
Thanks. Good afternoon, guys. Matt, thanks for all the 2020 forecasting information. It's helpful. As it relates to all the line items you did go through to get to the operating margins, which ultimately gets you to your EPS, can you just help us fully understand what's assumed from a financial synergies perspective that you have embedded in that from the acquisition? Can you just maybe talk about how much synergies are in those numbers, how you'll get there, and how quickly you expect to achieve it?
There's really not a lot of synergies baked in, Brian. Thanks for the question. As we noted sort of previously, the margins with the level of growth that's being undertaken at both North Italia and FRC, their blended margin profile happens to just be very similar to The Cheesecake Factory, right? The interesting thing when you look at the consolidated P&L, there's really not a lot of movement, and that doesn't factor in synergies. We've talked about the key aspect of this deal being about growth. I think that there are things that we need to do to help scale. There's areas that we can help improve on cost structure-wise, but that's not what we're focused on out of the gate. I think if you look at, for example, the North Italia integration, maintaining comp store sales, ensuring that the pipeline is there, the same thing applies for FRC.
That's really kind of a run rate basis there, and as we dig in more and have more color, we'll provide that, but it's not a synergy-based outlook.
Thanks. Just to confirm, you said the blended operating margins are similar to Cheesecake. Just to clarify a previous question, just so I understand, is the restaurant margins similar too, meaning will there not be any type of major mix impact to restaurant margins in 2020 as the acquisition folds in on a year-over-year basis?
That is correct. Again, keeping in mind the different sort of levels of growth, right? As we've talked about and in the presentations, the North Italia margins on a mature basis are slightly accretive to Cheesecake Factory, but they also just kind of consumed 50% growth in one year. You have to look at the blend of that. That's what I mean at this stage right now, the margin profile is very similar, and we wouldn't expect there to be much difference between the line items as I delineated, just slight ups and downs.
Okay. Thank you.
Your next question comes from Jeff Farmer with Gordon Haskett. Your line is open.
Great. Thank you. I believe you called out an increasingly competitive off-premise landscape. Assuming I heard that correctly, can you guys just provide a little bit more color on what you're seeing out there?
I don't know that we specifically called out. Maybe we just said it's everybody's in the off-premise game, I think is a good way to state it today. I think what we feel good about is that the offering that we have, the variety of our menu, the value of our menu plays really well for off-premise. Today, a family of four can easily order two entrees, one appetizer, and get our complimentary bread and feed themselves for $40 at $10 a person. We think that our offering's a little differentiated. Certainly, the cheesecakes are a big part of that as well. As others are entering into off-premise and maybe having to change how they're doing things a bit, it plays really well into what we've already been doing for 40 years.
We'll continue to do, along with just the very solid execution and making sure that the guest experience is protected from food quality to the speed of delivery and everything else that we measure with every off-premise transaction.
Thank you. Matt, I might have missed it, but did you provide the D&A guidance or expectation for 2020?
We said for 2020 that there would be slight leverage on D&A, keep in mind that some of the similarities with the lease accounting component, where we're getting a little bit more leverage with the acquisitions, and there's a little bit of cost in other OPEX, so slight leverage there.
All right. Thank you.
Your next question comes from Jon Tower with Wells Fargo. Your line is open.
Great. Just a few from me. A quick clarification. On the delivery mix, did you give that for the period? I know in past quarters you have an online ordering mix as well, if you don't mind.
For the quarter, 17% was total off-premise, 35% of that was delivery, 13% online ordering, and phone-in, walk-in, about right around 15%.
Great. Thanks. Now, on the questions, thinking about marketing, can you discuss how the company plans to fund this going forward? Obviously, this year it's more of a test, and you did some testing last year, but I think as a percentage of your sales, at least from a restaurant standpoint, it's under 25 basis points or so is at least what it was in 2018. I'm curious to hear from you where you think that might go over time, and how you expect to potentially fund it.
Well, we're moving it incrementally. We don't expect in any given year you're going to see a big driver. We do talk about every quarter the ups and downs, and I think it's probably gone up a couple tenths since that 25 basis points. In each year, it's moved up maybe a tenth. We're funding it through better execution in the restaurant, savings in other places. For one tenth of a percent, it's not like we have to do something significant to move it. As I noted, we feel like we've gotten good ROI. We have very effective marketing campaigns, effectively, they're going to pay for themselves. We wouldn't move it much faster than that.
Okay. Just focusing on the mall footprint side, it's been a big topic of discussion for your shareholders for a while in terms of the idea that a lot of malls are repurposing their footprint away from retail and towards restaurants and experiences. Can you maybe frame for us, based on your conversations, where we are in that cycle? How much more pain, potentially in the malls, will there be for you over the next several years?
I think we're probably 75% through. The math is roughly, it was high single digits as an allocation of square footage if you go back eight to 10 years. Now we're in the low 20%, they probably are going to target 25%+, so that would put us 75%-80% of the way through that. The good news is that the ones that they are refurbishing and changing out, they do happen to be where the Cheesecake Factories are because they're the best locations. The concentration of entertainment around us will benefit us in the long term. There's certainly some pain right now, and that's part of what we're going through in any given location. A lot of times it's not even just the fact that they're putting in new restaurants, it's just the construction process.
You might have a parking lot across the street from a The Cheesecake Factory one day, and the next month, it's basically a construction site and they're building a whole new parking ramp, for example. I don't think it's all bad. It's just a process. I think ultimately we'll find out that we're still in the best real estate, and that sort of concentration of options is a positive for most people. You're probably talking another two or three years of that cycle.
Okay. Then on that point, how likely are you to consider adding your own brands to the mix, given that you now have quite a portfolio to pull from?
Part of what we're looking at is diversification. I think it can work. Some of the brands that we have acquired, whether it's a North Italia or a Flower Child, they can work in malls, but that won't be a focus. We'll definitely want to be in more of a variety of places, that will help us with the ebbs and flows of real estate over time.
Awesome. Thank you.
Your next question comes from Katherine Fogerty with Goldman Sachs. Your line is open.
Great. Thank you. I have a clarification question, actually, on the DoorDash side. I see a number of free Cheesecake offers that you guys had last year. Is that considered in part of the marketing expense with DoorDash, or is that kind of a one-off separate arrangement?
If I heard you clearly, I think your question was, are some of the promotions you've seen, whether a free slice promotion or a percentage off, part of the marketing initiative? It can be. At times it is.
It can be funded by DoorDash as part of the regular marketing agreement, or it can be separate.
That's right.
Okay. If the promotional environment on third parties starts to pull back a little bit here and rationalize more, are you guys considering the potential to fund that yourself through maybe promoting delivery? Or is that something that you would not look to match?
This is Matt, Katie. As David Gordon mentioned, I think we have a set deal in place, we don't look to make it quite so promotional, if you will. It's really about driving unique experiences and capitalizing on the brand and long-term investment in the strategy. I think we feel really good about what we have done. I think our partner feels really good about what we have done, I wouldn't expect that to change.
Okay, great. If things do change a little bit, would you guys have flexibility to add another delivery partner if the promotional environment does pull back a lot, and maybe you're offered a better deal with somebody else? Would you be able to do that, or does your current agreement provide for exclusivity for the next couple of years?
I don't think that's something we're considering. We're very, very happy at this point in time.
All right. Thank you.
There are no further questions at this time. This concludes today's conference call. You may now disconnect.