Good afternoon. My name is Kelly, and I will be your conference operator today. At this time, I would like to welcome everyone to The Cheesecake Factory First Quarter Fiscal 2019 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the prepared remarks, there will be a question and answer session.
Thank you. I would now like to turn the call over to Stacy Feit, Vice President of Investor Relations. Please go ahead.
Thanks, Kelly. Good afternoon, and welcome to our Q1 fiscal 2019 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. 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 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 then take you through our financial results in detail and provide our outlook for the Q2 and the full year 2019. With that, I'll turn the call over to David.
Thank you, Stacy. Comparable sales growth at The Cheesecake Factory Restaurants of 1.3% and adjusted earnings per share were at the higher end of our expectations for the Q1. We posted positive sales results and outperformed the industry benchmarks in all of our key geographies. Strong performance within the off premise channel and across our marketing initiatives contributed to these top line results. Operating performance within the 4 walls was solid across the key metrics we measure, including sales productivity, food, efficiency, labor productivity, overtime and flow through.
During the Q1, we opened the first location of Social Monk Asian Kitchen, our new fine fast casual concept. So far, guest response has been great with positive feedback on the cuisine, design and ambiance. Subsequent to quarter end last month, we opened The Cheesecake Factory in Oxnard, California, which is about halfway between Los Angeles and Santa Barbara. We opted to build a smaller restaurant approximately 5,500 Square Feet to determine if this business model can capture sufficient productivity and efficiencies in a smaller footprint. If we are successful, we would look to export the model to our international partners as it could support additional real estate opportunities, particularly in Asia where larger locations are difficult to find.
For 2019, we continue to expect to open as many as 6 Cheesecake Factory restaurants, including the Oxnard location. We also continue to expect as many as 5 restaurants to open internationally under licensing agreements in 2019, including the Monterrey, Mexico location that opened during the Q1. The year is off to a great start, and we look forward to continuing to deliver memorable experiences to our guests, bringing The Cheesecake Factory to new markets, both domestic and abroad, and positioning the company for additional long term growth potential. With that, I'll now turn the call over to David Gordon.
Thank you, David. In addition to the strong operational execution during the quarter, we also saw both manager and staff retention strengthen even further during the Q1, both on a year to date and year over year basis, contrary to the industry, which continues to face increasing turnover. We believe our staffing success is contributing to the consistent trend in our guest satisfaction scores as industry research continues to confirm the importance of service to the guest experience and the overall restaurant's performance. As David mentioned, continued momentum in the off premise channel as well as some effective marketing initiatives contributed to our solid comp store sales performance during the quarter. Our off premise business continues to grow, comprising over 16% of total sales during the Q1 of 2019.
We believe this is being driven by our differentiated positioning, high quality made fresh from scratch menu and value proposition supported by our creative on brand marketing. Our experience in the delivery channel has confirmed findings from our own consumer research that aided awareness of The Cheesecake Factory is very strong. Consumers love our brand and their interest in dining with us is very high. We do, however, have an opportunity to increase unaided awareness. In today's world with so much noise and distraction, we want to more frequently remind people about The Cheesecake Factory to attain top of mind status.
To complement the publicity we receive, we are utilizing a number of additional marketing channels, including year round paid search and social advertising, influencer marketing and our enhanced partnership with the American Express Gold Card. We also continue to execute creative campaigns in the off premise channel, including collaborative marketing with DoorDash, like our recent April Fools Day campaign, in which 10,000 people received $25 of free Cheesecake Factory delivery. We garnered great publicity from this campaign, including over 40 national and local broadcast segments and coverage in major online sites, including Today, People, Eater, Thrillist and USA TODAY. All 10,000 rewards were claimed within just 8 minutes, underscoring the tremendous affinity for The Cheesecake Factory brand. And we saw a sustained increase in delivery sales following the offer.
We believe these efforts will continue to contribute to comp store sales growth moving forward. And with that, I'll now turn the call over to Matt for our financial review.
Thank you, David. Comparable sales at The Cheesecake Factory Restaurants increased 1.3%, which was at the higher end of our expectations for the Q1. Including $12,900,000 in external bakery sales, total revenues were $599,500,000 Cost of sales was 22.7 percent of revenues, a decrease of about 30 basis points from the Q1 of last year, reflecting menu pricing leverage. Labor was 36.2 percent of revenues, an increase of about 40 basis points from the same period last year. This is primarily attributable to higher hourly wage rates and management labor.
Other operating costs were 25.6 percent of revenues, up 80 basis points from the same period last year. This is due to the additional non cash rent associated with the adoption of the new lease accounting standard. In addition, we also had higher marketing costs as expected, although these were offset by favorability in our workers' comp and general liability insurance comparison. G and A was 6.5% of revenues in the Q1 of fiscal 2019, down 20 basis points from the same quarter of the prior year. Pre opening expense was approximately $2,100,000 in the Q1 of 2019 versus $1,100,000 in the same period last year.
Our first Social Monk Asian Kitchen location opened during the Q1 of 2019, plus we incurred costs associated with the Oxnard opening. We had no openings in the same period last year. And our tax rate this quarter was approximately 6%. Excluding the loss on our minority investments in the 2 Fox restaurant concepts, which is primarily driven by high preopening costs given their unit growth levels. As expected, adjusted earnings per share was $0.62 Cash flow from operations was approximately $33,000,000 Roughly $13,000,000 of cash was used for capital expenditures and $14,000,000 for growth capital investments in the 2 Fox Restaurant Concepts.
And we returned nearly $26,000,000 to our shareholders via our dividend and share repurchase program. That wraps up our financial review for the Q1. Now I'll spend a few minutes on our outlook for the Q2 and full year 2019. 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 effect of any impacts associated with holidays or weather.
For the Q2 of 2019, we are estimating adjusted diluted earnings per share between $0.80 $0.84 based on comparable sales in a range of 1.5% to 2.5 percent at The Cheesecake Factory Restaurants. This comp sales range assumes an estimated 50 basis point positive impact from the shift of Easter and the associated spring break vacations into the Q2 this year from the Q1 last year. Turning to full year 2019, we continue to expect comparable sales in a range of 1% to 2% at The Cheesecake Factory Restaurants, in line with our longer term target. On the cost side, we continue to expect food inflation for our 2019 market basket to be approximately 1% to 2% and wage inflation of about 6%. For modeling purposes, we now anticipate a 2019 tax rate of approximately 9%.
In turn, we now estimate adjusted diluted earnings per share between $2.58 $2.70 As a reminder, our anticipated Q2 and full year EPS ranges exclude our portion of any loss from the operations of the Fox Concepts as well as any one time integration costs associated with the anticipated acquisition of North Italia. With regard to capital allocation, we continue to expect our cash CapEx in 2019 to be between $90,000,000 $100,000,000 to support our anticipated unit growth and ongoing maintenance needs. We continue to expect to provide approximately $20,000,000 to $25,000,000 in growth capital to the 2 Fox Restaurant Concepts prior to the anticipated acquisition of North Italia. In closing, our solid first quarter results support our consistent expectation for operating performance for the remainder of 2019. Our underlying sales trend is in line with our longer term target for The Cheesecake Factory brand.
We are executing on our plan to stabilize and grow net income margin over time, which we believe coupled with prudent capital allocation should drive long term profitability growth. With that Ted, 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?
Your first question comes from the line of Sharon Zackfia from William Blair. Please go ahead. Your line is open.
Hi, good afternoon. A couple of questions actually on North Italia. Could you give us any update on how the new openings have been going and any kind of thought process on how you're seeing geographic portability play out with that concept?
Hi, Sharon. It's David Gordon. So far, actually there's a North Italia that is opening today in Dallas at the Union and that will take the total restaurant number up to 18. And as the restaurants have opened across the country, the affinity has been very strong. So, they've moved into outside of Arizona, as I said, into Texas.
The restaurants here in California continue to beat expectations. And the most one of the most recent openings actually all the way out in Florida has been the most successful opening that they've had to date in the first about 6 weeks that they've been open. So thus far the portability appears to be very, very strong and certainly the guest feedback has been very, very positive.
And then separately on Social Monk, I know it hasn't been open that long, but is there anything you can share there? And what is the thought process on opening number 2 there? Do you sit and wait and watch a while? Or is there something in the hopper already?
This is David, Sharon. I don't think we have to wait too long. We are working on some points of food cost and labor. The sales have been great. We've been very happy with that, how it's received, the decor, the food, all that seems to be quite successful.
So we're as soon as we can get our labor and food costs down a little bit, we'll start looking for the second one. We don't think it's going to take a long time to prove it out because it's pretty simple, straightforward. It's just all down to profitability in the end.
Okay, great. Thank you. Your next question comes from the line of Jeffrey Bernstein from Barclays. Please go ahead. Your line is open.
Great. Thank you very much. Two questions as well. The first one just on restaurant margin more broadly. I mean, it seems like you've now settled into the low single digit comp range and we've got stable pricing within there.
But it seems like you and many of your peers are kind of in a position where you're still dealing with some significant margin compression. I was wondering where you draw the line on degradation and maybe what you could do to mitigate that pressure, if there was anything in terms of specific buckets where you see opportunity or whether you'd be willing to take more price or how you go about handling it when the cost pressures are as challenging as they are? And then I had one follow-up.
Joe, this is Matt Clark. I think when you look at the P and L for the Q1 as well as the full year guidance, we believe that we can keep restaurant margins flat to last year. And so that I think we are drawing a line in the sand. There is some optics obviously with some of the lease accounting. And so netting that out, we obviously had some movement from what used to be an interest line item into other OpEx depreciation into other OpEx.
And so really when you adjust for that, I think we are in this environment at the 3% pricing and 1% to 2% comp range, able to manage it to at least flat going forward. So that's been our objective. I think we're meeting that when you take away the accounting component of it.
Got it. And then just on North Italia, in terms of timing, I mean, I'm assuming it's still perhaps late 3Q or 4Q, but how do you see the transaction playing out in terms of the terms, the payment, and any changes you anticipate making upon closing of the deal, whether it be operations or menu or anything specific? Or have you really had control of much of that brand for the past year or so? And therefore, we really shouldn't expect any real change when all of a sudden you have full ownership? Thanks.
Hey, Jeff. This is Matt again. I think we're still evaluating the financing. We have good options. I think capital relatively is accessible.
We have a very strong balance sheet. Purposefully to be able to do things like this when we see the opportunity. I don't think it will be complicated for us. We have a little bit of time left or just getting ourselves ready. So the close, it looks like it would be right at the end of Q3.
As we've talked about, roughly depending on performance, dollars 150,000,000 would be the payment due at that point in time. And then essentially the financials would roll into us on a consolidated basis.
And then just operationally, Jeff, this is David Gordon. Everything that's going on at North today is why guests love it so much. We will, however, look to leverage our supply chain scale, our IT infrastructure, some of our HR practices, whatever we can do to add more value to the concept, we will. And over time, we'll see what happens with the menu, but the menu is delicious today and we'll do everything we can to make sure that it stays that way. And if there's 1 or 2 new things you want to add to the menu, we may.
But operationally, it's a very sound business and the restaurants run very, very well. So, we feel good about how they're being handled today and we still think there's some things that we can do to add a lot of value across the
bigger company. Thank you very much.
Your next question comes from the line of David Tarantino from Baird. Please go ahead. Your line is open.
Hi, good afternoon. Matt, first a clarification or mechanical question on comps. If you give us the breakdown between pricing mix and traffic that would be helpful. And then also confirm that the Easter drag in the Q1 was similar to the benefit that you expect in the Q2? And then I have one real question after that.
Sure. Well, that's a real question. Pricing was 3%. The mix was a positive 0.8 and traffic was negative 2.5. Couple of things to remember was we've talked about the mix at the positive 0.8.
It's directly attributable to the growth in the delivery and off prem for us and the way we capture the data. So we're effectively getting large checks, which are multiple people. We had in effect net debt against the traffic today. And then we had about 50 basis points, I think. We thought maybe it was a little going to be a little bit more 10 to 20 more than that, but it was about 50 basis point impact in the Q1, and that's exactly what we are estimating to flip back in the Q2.
So when we look at that, David, we sort of traffic looks like it's below 1% negative, which is where we've been tracking.
Great. Thanks for that. And then I guess a big picture question about the check and check growth. I think this year at The Cheesecake Factory, you'll be crossing over $23 average check, which I guess in the world of casual dining is pretty high. And I know your quality justifies that.
But just wondering how you think about the increases in the absolute level of that average check over the next several years? And if you think you'll meet any resistance as you push up towards 2025 beyond?
Well, I think, David, this is Matt. Again, I think it's art and science. And as we've talked about before, we're constantly watching the competition and where they're at and have been with the company almost 14 years. And our relative position has not changed at all compared to all of the competitors that we track nationally.
And so I think we
see everybody sort of moving in lockstep
Jeff asked a question earlier about that. I
think Jeff asked a question earlier about that. I think companies are moving to make sure that they protect their margins. So I don't think relatively will be much different. The other thing I think about our menu is that we have so many options. Guests can really choose to spend whatever they want and you can get appetizers for $5 to $10 that are the equivalent of a full meal in many places.
I think when we look at the mix, we feel very good about the elasticity of our pricing power, how guests are navigating. They continue to order across the spectrum, which is very positive. And then the last thing I would say about that and average check, I mean, obviously, it's distorted a little bit by the significant growth in the off premise business. So that's part of what's driving it higher. And the other thing is it's differentiated across geographies.
And as everybody knows, pricing is becoming a little bit more different in those higher cost areas. And so I think that also plays into it. It's not the same everywhere.
Great. That's helpful. Thank you.
Your next question comes from the line of Gregory Francfort from Bank of America. Please go ahead. Your line is open.
Hey, guys. Thanks. I know you talked about the retention getting better. What do you think is driving that? And do you have key initiatives that you're putting in place around training or something else that's causing that?
And I guess when did that inflection start to happen? Was it 2 quarters ago, 3 quarters ago? I guess what was the timing on that shift?
Thanks for the question, Greg. This is David Gordon. The staff retention really stabilized around the middle of last year. And our practices over time being a great places to work on the Fortune list obviously is something we're very, very proud of and part of our culture is who we've always been. We did put a concerted effort probably about 18 months ago to really focus on retention in the 1st 90 days and to really look at our staff members that were churning really too early in their employment.
And we did put some practices in place for our management teams around engaging with those people that have just been hired, making sure that they were thoroughly trained properly by the right people at the right time and that we were meeting all their schedule flexibilities and actually even giving them the hours that we had told them that we were going to give them during hiring. And I think that's been beneficial. I think we're doing a better job in those 1st 90 days. And on the management front, we've always had very strong management retention. This year that continues to be the same and at the general manager level, I think so far this year it's an all time low.
I think it's 1% or 2%. So, the culture of Cheesecake Factory remains very, very strong. And I think the awareness of the brand and being on the Fortune Great Places to Work list has helped us and benefited us from an attraction standpoint. So those HR practices are just built into our DNA, but specifically around the 90 days that has made a bit of a benefit for us.
And maybe can you frame up how much that's changed in terms of 90 day retention?
I don't have those numbers in front of me, but we certainly can follow-up with you.
Thank you.
Your next question comes from the line of Joshua Long from Piper Jaffray. Please go ahead. Your line is open.
Great. Thank you so much for taking my question. I wanted to circle back to the comments made on the smaller footprint at the new Oxnard location. I'm just curious if there's been some evolution there, maybe some new learnings in terms of where some of that square footage has gone or been repurposed or just what you might be able to share with us there that gets you excited versus maybe previous iterations of becoming more efficient in your store footprint?
Well, this is David Gordon. As David mentioned, our intent originally was to see if the restaurant could operate as fluidly as the 7,200 or 7,500 Square Foot restaurant to help our international partners look for real estate sites, most specifically in Asia where the sites tend to be a little bit smaller. So we wanted to be able to prove out number 1, that we could execute the menu in a little bit of a smaller kitchen design. We wanted to prove out that the feel of A Cheesecake Factory when you walk in everything that that guest experiences are still there in 5,500 square feet that the wait times actually wouldn't be too excessive because the popularity we knew would still be there. In the 1st couple of weeks that the restaurant has been open, I'd say that it's currently exceeding our sales per square foot expectations.
And we've seen that we have more of probably an even flow of guests throughout the day. The wait times are not that much different than in some of our busiest openings we had at the end of last year, whether in Chattanooga, Tennessee or in Lubbock, Texas. And we've been able to execute the menu, really, really well. So that's been promising thus far. Again, it's early.
It's only a couple of weeks, but we feel good about what we've seen in the 1st 2 weeks.
Great. Thank you for that. And then as you spend more time with the off premise channel, any sort of learnings there that you've seen in terms of how guests are using your brand, whether in terms of frequency or menu? I know we've talked about in the past how usually multiple people higher average tickets. But curious if those trends have been relatively steady, any sort of read through you have in terms of just how the guest is engaging with your brand in that new channel?
I think that nothing's really changed since our last call. Obviously, as Matt said, the check is a little bit higher, whether that's through delivery or even through the digital check through the online ordering channel. We also see the check higher there. Dessert sales are probably closer to 20% on delivery versus in restaurant, I think is about 17%, 17.5% for the Q1. So those trends are similar to what they have been.
But we just see that in the markets that whether we're mature in those markets or in some of the newer markets that we launch towards the end of last year, the popularity of delivery continues to grow and the guests continue to be as pressed for time than they have been in the past. And some of our successful marketing campaigns have been meaningful, along with being able to be at the top of the app with DoorDash and having the awareness of The Cheesecake Factory brand top of mind when somebody goes in just through the DoorDash app to begin with, along with the marketing that we've done with DoorDash has the TV marketing that they've done most recently, us being one of the featured brands has continued to grow that channel in a pretty strong and meaningful way.
Great. Thank you so much.
Your next question comes from the line of John Ivankoe from JPMorgan. Please go ahead. Your line is open.
Yes. Hi. Thank you. Maybe tying on to that last question, I thought it was interesting the conversation of driving not just aided awareness, but unaided awareness. And obviously, you're going into even deeper into some non traditional digital channels.
So I wanted to see how that marketing spending is shifting between traditional and digital. And in terms of basis points in sales, are you now seeing the specific ROI for marketing that it actually may make sense to increase marketing as a percentage
of sales going forward?
Hey, John, this is Matt. It's a good question and I would say we're early stage in learning about that. So I don't know that we're committed one way or another. I think we have always taken the approach that we're going to do marketing that does make good business sense for us. And so what we are doing does have a good ROI.
How far you can go with that in these digital areas, I think is new and we don't yet know what that is. But certainly just doing things like owning search for your name has proven we can track that directly. You can see the click through, you can see the engagement with guests, you know the behavior, you can see the online ordering rates for to go. So those things are very, very tangible. Where that goes, like I said, will be determined, but I think we feel good about continuing to spend some incremental money to drive that unaided awareness at least in the near term.
I would just add, John, as you know, we've never really done traditional marketing. So and today social and influencing and all the things you see are becoming a little bit more traditional. I think what's good for us is that people want to hear about our brand and influencers want to visit our kitchens and do tours with our kitchen managers and post about them and talk about it and our food is so Instagrammable and very photogenic, I guess you could say. So that really helps us when it comes to our presence in social and helping that level of awareness.
Could you remind me what your total marketing spend as you look at it, the whole component of it was in 2018 and what you think that might be in 2019 as a percentage of sales is fine?
Yes. I think in 2019 or somewhere, I mean, curving out things like the gift cards, John, we talked about that since in G and A, we think about like just marketing spend, We're probably just under 0.5% and historically it's been less than that. So we're just sort of creeping it forward.
Helpful. Thank you.
Your next question comes from the line of Will Slabaugh from Stephens. Please go ahead. Your line is open.
Thanks, guys. I had a
question on value. How are you thinking about value at The Cheesecake Factory brand? And if that's evolved at all as traffic continues to be pressured modestly negative in this type of industry backdrop? And whether that may eventually be through addressed through additional menu insert like Skinny Licious played a value role whenever you launch that or another way to communicate that everyday value that is on your menu to the guest?
I think over time, Will, you're right, we've used menu inserts to help remind guests. I think again, it's kind of similar to the unaided awareness component of marketing, if you will, because the value is always there. I think we're very confident that when you're buying a $6 or $7 appetizer at The Cheesecake Factory or even some of our dishes that people can share that are $15 or $16 and really a meal for 2. When our guests understand that, they know the value is there, not only in the portion size, but the quality in that combination. So sometimes I think we do work a little bit more to remind the guests of that.
Obviously, again, just to reiterate the obvious, we're not going to do couponing or LTOs or anything like that. We really have thought that it's been impactful when we partnered with DoorDash and that's a slightly different way to get guests to just recognize and to bring them in for special occasions or for everyday use when they can get something like free slice of cheesecake. So that has been a vehicle we've used just to reintroduce it. But I think we've always put value on there. We will continue to do that.
We continue to add items that are between $5 $10 And as we view that as being necessary, we'll continue to remind the guests maybe in the same way we have or maybe we'll come up with new ways.
Thank you.
Your next question comes from the line of Matt DiFrisco from Guggenheim Securities. Please go ahead. Your line is open.
Thank you. Just wanted to go back to the margins. I think you commented or you did not comment in the other operating expense line. You didn't call out delivery fees, some other restaurants have. Are they de minimis in there?
I mean, obviously, I know that you've got the lease accounting as a major factor on a year over year basis, but how would you characterize the delivery fees embedded in there as far as pressure? Can you quantify basis points?
Yes. I think it's a couple of tenths on a year over year basis. We want to be careful with how much we quantify given that there's questions around the sales and then there's questions around that and it may lead to some confidential information regarding the relationship we have with DoorDash. So I don't know if you consider a couple of tends to be de minimis or material, but I don't think it's moving the P and L one way or the other, to be honest.
And then I guess the full year margin guidance of flat, that is for EBIT. And if I were to look at that, there's some makeup you'd have to do then in the remaining quarters. Is there an implied greater price increase than what you took in the Q1? Or are you looking to add in the middle of the summer as you usually do?
When we think about that margin piece, Matt, part of that is not just in the EBIT, but it is in the makeup on how the interest moved out from below that, right? So I think we're right on track. I don't think we have to make up any more ground because we are sort of netting that accounting piece out of it. So there's 20 to 30 basis points that was down below the EBIT line that went above the EBIT line. So we're kind of saying if you take that in totality, really the core business margin is flat.
And then it shows up on the net income line, which we believe will be flat to better.
Okay. Thank you.
Your next question comes from the line of Jeff Farmer from Gordon Haskett. Please go ahead. Your line is open.
Great. Thanks. Matt, on the last earnings call, you noted that Cheesecake has been able to hold labor dollar for operating week growth. I think you said below wage rate growth. So I'm just curious, how have you guys been able to do that?
I think it's a couple of things. 1st and foremost and Jeff, thanks for the question. This is Matt. As David Gordon mentioned, really retention is a big driver. Efficiencies in the restaurant are only achievable if we're attracting and keeping and training people right.
And so I think that we're very good at that and I think that's a differentiator long term. As we said, sort of a core tenant is to be continuously improving in that. So if we can get just a little bit better with overtime as an example, I think in Q1, we were a little bit better in our staffing, which is driven by retention partly as well as scheduling, that drives a little bit better over time year over year. So I think it's initiatives like that. I think it begins with making sure we have the right people and we retain them.
And then if we can utilize that first piece to make sure that we're fully staffed, that's the next component of it. And so it's just a really driving off of those core foundations.
And then just one more, a follow-up on off premise. Have you guys or are you willing to share an estimate of what you think the off premise contribution is to your overall same store sales growth rate right now?
I mean, I think if you look at the math, it's obviously a little bit of a fungible pool, but I think that it's driving the positive comps. And I think that we would say that when you look at delivery and off prem increasing year over year at the rate that it is, that that's the piece that's increasing our total sales. All right. Thank you.
Your next question comes from the line of Brian Vaccaro from Raymond James. Please go ahead. Your line is open.
Thank you and good afternoon. Just a couple of questions on labor costs, if I could. So I think last year, you saw outsized pressure on health insurance in the Q1. And was that a benefit this year? And if so, could you quantify it?
And if you saw a normal level of claims in Q2, how much of a benefit would that be in year on year terms as you lap last year's heightened cost in that line?
I think Group Medical, when we're looking back at last year, it was a little bit high in Q1, but really, Brian, the bigger impact was really in Q2. So this year, Q1 is pretty comparable. I think we saw what I would consider to be relatively normal activity. I'd have to go back and double check for sure what the increase was in Q2, but I know that that was where the bigger impact was. And that is factored into the guidance that we've provided.
If you look at sort of the year over year EPS growth, obviously, much bigger in the Q2 guidance than what we achieved in the Q1.
Okay. And Matt, when you mentioned wage inflation up 6%, can you confirm that that's specific to hourly labor? And what percent would hourly labor be of your total labor dollars in a given year?
Brian, yes, that is correct. So the wage inflation when we look at it from an hourly perspective. And of the total P and L, I would say that hourly is in the low 20%. So it's probably 2 thirds of the labor line item. Obviously, you do have management labor increases too, but that's probably not at the same rate.
Right. Okay. So about 2 thirds. So the other 35%, I guess what are you seeing in terms of managerial inflation and inflation in insurance? I mean, if we tried to bucket the other 35%, might that inflation be 3%, 4% any help on that?
I think 3% to 4% is a fair range today.
Great. And then other OpEx line, just a quick one. Called out workers' comp and general liability in Q1. Can you quantify the favorability there? And was that unusually low this year?
Or maybe you were lapping high cost last year? Can you remind us of that?
Mostly it was an improvement this year in the trends. And basically, it was, I'm going to say, in the 20 to 30 basis point range and it kind of offset the earlier question about the delivery. So it kind of netted out.
Okay, great. Thank you. Sure.
Your next question comes from the line of Brian Bittner from Oppenheimer.
As it relates to the
full year guidance, it implies the second half is much lower EBIT growth in the first half. What's the main driver of that? Is that just the first half is lapping some of these issues like the Group Medical in the Q2 and the overtime issues you were seeing last year? Is that the main driver of the difference in profit growth year over year in first half versus second half?
Hey, Brian, it's Matt. And certainly, that's part of it. There are other puts and takes. I think there's timing of G and A as well. I think there's a little bit of timing of preopening.
But I think the biggest piece, particularly in the Q2, as we just talked about with the Group Medical as well as the legal piece, is the biggest driver in sort of the comparison of the first half to the second half.
Okay. And just on the off premise, just asking the question probably a different way. Are you able to just say how much that business grew
year over year
in the Q1 or how much it's been growing on its own?
It's about yes, off premise in total was about 2% over the Q1 of last year.
Okay. Grew
from 14% to 16%.
I absolutely have turned.
As far as you're talking about
as far as the mix of the business, right, obviously?
Exactly. Yes, exactly.
Okay. Got it. Thank you.
The next question comes from the line of Jon Tower from Wells Fargo. Please go ahead. Your line is open.
Great. Thanks. Just first a clarification on the smaller footprint store that you opened in Oxford, California. Is that a test to only see how a store like this works for international markets only? Or could this be applicable to domestic markets?
And if not, if it's only geared towards the international markets, why is that? And then separately, with off premise now reaching 16% of your sales mix, has the company explored moving some of this production in the kitchen out of the stores into either ghost or dark kitchens? Thank you.
Thanks for the question, John. No, the idea around opening the smaller footprint store was for the international restaurants and we'll see what happens over time. If we do think that we're operating at really, really well and we get the returns we want, could it possibly lead to some other sites over time, who knows. But that wasn't the original intent, but it's also going to limit us for looking a little bit further into it as we get closer to understanding how well we can do. I think that's most important is to understand what the returns could be.
And then because of the made from scratch kitchen that we have and the size of the menu, we're really not looking to do anything off premise or ghost kitchens. We can execute what we need to do off premise and even grow those sales in the kitchen designs that we have today due to their size. So we would look to continue to do that and not add any additional cost or any other additional complexity.
Thank you.
Your next question comes from the line of Peter Saleh from BTIG. Please go ahead. Your line is open.
Great. Thanks. I want to come back to the conversation around off premise. Can you guys give us an idea of how much of your off premise orders are now coming in digitally and if that is allowing you to remove any of the front of the house labor for taking some of those orders?
Sure. Online ordering was about 13% for Q1. And I don't know that it's going to currently offset any potential labor that's in the restaurant today. We're certainly set up to continue to drive great sales great service and hospitality, as I mentioned, when we opened the call. And we've seen that online ordering number grow from about 10% to 11% up to the 13% it's at today.
And delivery is roughly 30% of that total 16% off premise that I talked about earlier.
Great. And then just on the partnership with DoorDash, do you guys remain exclusive with DoorDash? Or are you considering partnering with other aggregators to expand the pool?
We do remain exclusive with DoorDash in our current contract for now.
Okay. Thank you very much.
Your next question comes from the line of Stephen Anderson from Maxim Group. Please go ahead. Your line is open.
Yes. As you take
a look at your commodity basket, among a lot of your peers, they've ticked up their forecast for the year, but you've left that unchanged. And so I want to see where you're seeing some benefit and maybe seeing some of your pressures?
Sure. We have probably a much broader market basket than most of our peers. So I think it moves up and down maybe less than they are. I think there's some short term pressure maybe in produce and a little bit of pressure in pork because of the swine flu. But because of that balance, I think we've just been able to offset it across a couple of other categories.
So nothing big, moving up and down, but we're just staying right in that sweet spot of 1% to 2%.
All right. Thank you.
And there are no further questions at this time. Thank you for joining. You may now disconnect.