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. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press the pound key. Thank you. I would now like to turn the call over to Stacy Fite, Vice President of Investor Relations. Please go ahead.
Thanks, Kelly. Good afternoon, and welcome to our first quarter 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 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, 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 second quarter 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% in adjusted earnings per share were at the higher end of our expectations for the first quarter. 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 four walls was solid across the key metrics we measure, including sales productivity, food, efficiency, labor productivity, overtime, and flow through. During the first quarter, we opened the first location of Social Monk Asian Kitchen, our new fast fine 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 six Cheesecake Factory restaurants, including the Oxnard location. We also continue to expect as many as five restaurants to open internationally under licensing agreements in 2019, including the Monterrey, Mexico location that opened during the first quarter. 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 first quarter, 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 first quarter 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 eight minutes, underscoring the tremendous affinity for The Cheesecake Factory brand. 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.
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 first quarter. Including $12.9 million in external bakery sales, total revenues were $599.5 million. Cost of sales was 22.7% of revenues, a decrease of about 30 basis points from the first quarter of last year, reflecting menu pricing leverage. Labor was 36.2% 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% 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&A was 6.5% of revenues in the first quarter of fiscal 2019, down 20 basis points from the same quarter of the prior year. Pre-opening expense was approximately $2.1 million in the first quarter of 2019, versus $1.1 million in the same period last year. Our first Social Monk Asian Kitchen location opened during the first quarter of 2019. Plus, we incurred costs associated with the Oxnard opening. We had no openings in the same period last year. Our tax rate this quarter was approximately 6%. Excluding the loss on our minority investments in the two Fox Restaurant Concepts, which is primarily driven by high pre-opening costs given their unit growth levels, as expected, adjusted earnings per share was $0.62.
Cash flow from operations was approximately $33 million. Roughly $13 million of cash was used for capital expenditures, and $14 million for growth capital investments in the two Fox Restaurant Concepts. We returned nearly $26 million to our shareholders via our dividend and share repurchase program. That wraps up our financial review for the first quarter. I'll spend a few minutes on our outlook for the second quarter 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 second quarter of 2019, we are estimating adjusted diluted earnings per share between $0.80 and $0.84, based on comparable sales in a range of 1.5%-2.5% 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 second quarter this year from the first quarter last year. Full year 2019, we continue to expect comparable sales in a range of 1%-2% at The Cheesecake Factory restaurants, in line with our longer-term target. We continue to expect food inflation for our 2019 market basket to be approximately 1%-2%, and wage inflation of about 6%. For modeling purposes, we now anticipate a 2019 tax rate of approximately 9%.
We now estimate adjusted diluted earnings per share between $2.58 and $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. We continue to expect our cash CapEx in 2019 to be between $90 million and $100 million to support our anticipated unit growth and ongoing maintenance needs. We continue to expect to provide approximately $20 million-$25 million in growth capital to the two Fox Restaurant Concepts prior to the anticipated acquisition of North Italia. 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. 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?
At this time, I would like to remind everyone, in order to ask a question, please press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press the pound key. 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. Far, actually, there's a North Italia that is opening today in Dallas at The Union, and that'll take the total restaurant number up to 18. As the restaurants have opened across the country, the affinity has been very strong. They've moved into outside of Arizona, as I said, into Texas. The restaurants here in California continue to beat expectations. 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 six weeks that they've been open. Thus far, the portability appears to be very strong, and certainly, the guest feedback has been very positive.
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 two 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're 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. 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, it seems like you've now settled into the low single-digit comp range, and we've got stable pricing within there. It seems like you and many of your peers are in a position where you're still dealing with some significant margin compression. Just 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. Then I had one follow-up.
Hey, Jeff, this is Matthew Clark. I think when you look at the P&L for the first quarter as well as the full-year guidance, we believe that we can keep restaurant margins flat to last year. I think we are drawing a line in the sand. There is some optics, obviously, with some of the lease accounting, netting that out, we obviously had some movement from what used to be an interest line item into other OpEx depreciation into other OpEx. Really, when you adjust for that, I think we are in this environment at the 3% pricing and 1%-2% comp range, able to manage it to at least flat going forward. That's been our objective. I think we're meeting that when you take away the accounting component of it.
Got it. Just on North Italia, in terms of timing, I'm assuming it's still perhaps late Q3 or Q4, 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? 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 purposely 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, and we're just getting ourselves ready. The close, it looks like it would be right at the end of the third quarter as we talked about. Roughly, depending on performance, $150 million would be the payment due at that point in time, essentially the financials would roll into us on a consolidated basis.
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. 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. If there's one or two new things we want to add to the menu, we may. Operationally, it's a very sound business and the restaurants run very well. 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 could give us the breakdown between pricing mix and traffic, that would be helpful. Also, confirm that the Easter drag in the first quarter was similar to the benefit that you expect in the second quarter. 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%. A couple of things, 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. We're effectively getting large checks, which are multiple people. We, in effect, net that against the traffic today. We had about 50 basis points, I think. We thought maybe it was going to be a little bit more, 10-20 more than that, but it was about a 50 basis point impact in the first quarter, and that's exactly what we are estimating to flip back in the second quarter. When we look at that, David, traffic looks like it's below 1% negative, which is where we've been tracking.
Great. Thanks for that. 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 a $23 average check, which I guess in the world of casual dining is pretty high. 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, if you think you'll meet any resistance as you push up towards 25 and beyond.
Well, David, this is Matt again. I think it's art and science. As we've talked about before, we're constantly watching the competition and where they're at. I've been with the company almost 14 years, our relative position has not changed at all compared to all of the competitors that we track nationally. I think we see everybody sort of moving in lockstep to protect margins. We've seen pricing come up. I think Jeff asked a question earlier about that. I think companies are moving to make sure that they protect their margins. I don't think relatively we'll 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. You can get appetizers for $5-$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. Then the last thing I would say about that, in average check, obviously it's distorted a little bit by the significant growth in the off-premise business, that's part of what's driving it higher. The other thing is it's differentiated across geographies. As everybody knows, pricing is becoming a little bit more different in those higher cost areas. 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? Do you have key initiatives that you're putting in place around training or something else that's causing that? I guess when did that inflection start to happen? Was it two quarters ago, three 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. Our practices over time, being a great places to work on the Fortune list, obviously is something we're very proud of, and part of our culture. It's who we've always been. We did put a concerted effort, probably about 18 months ago, to really focus on retention in the first 90 days and to really look at our staff members that were churning really too early in their employment. We did put some practices in place for our management teams around engaging with those people that had 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.
Actually, even giving them the hours that we had told them that we were going to give them during hiring. I think that's been beneficial. I think we're doing a better job in those first 90 days. 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%. The culture of The Cheesecake Factory remains 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.
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, we certainly can follow up with you.
Got you. Thank you.
Your next question comes from the line of Joshua Long from Piper Sandler. 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. 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. 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 The Cheesecake Factory, when you walk in, everything that that guest experiences is 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 first couple of weeks that the restaurant has been open, I'd say that it's currently exceeding our sales per square foot expectations.
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. We've been able to execute the menu really well. It's been promising thus far. Again, it's early. It's only a couple of weeks. We feel good about what we've seen in the first two weeks.
Great. Thank you for that. As you've spent 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 first quarter. Those trends are similar to what they have been. We just see that in the markets that, whether we're mature in those markets or in some of the newer markets that we launched towards the end of last year, the popularity of delivery continues to grow, and the guests continue to be as pressed, if not more pressed for time than they have been in the past. 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, 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 JP Morgan. 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. Obviously you're going even deeper into some non-traditional digital channels. I wanted to see how that marketing spending is shifting between traditional and digital. In terms of basis points and 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. I would say we're early stage in learning about that. 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. What we are doing does have a good ROI. How far you can go with that in these digital areas, I think, is new. We don't yet know what that is. 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. Those things are very tangible.
Where that goes, like I said, will be determined. 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. 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. Influencers want to visit our kitchens and do tours with our kitchen managers and post about them and talk about it. Our food is so Instagrammable and very photogenic, I guess you could say. 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?
I think in 2019 or somewhere, carving out things like the gift cards , so we've talked about that since January. Think about just marketing spend, we're probably just under half a percent, and historically, it's been less than that. 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 addressed through additional menu insert, like I know SkinnyLicious played a value role whenever you launched 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 two, when our guests understand that, they know the value is there, not only in the portion size, but the quality and that combination. 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've partnered with DoorDash, and it'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 a free slice of cheesecake. That has been a vehicle we've used just to reintroduce it. I think we've always put value on there. We will continue to do that. We'll continue to add items that are between $5 and $10. 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 Matthew 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? 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?
Yeah, 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. I don't know if you consider a couple of tenths to be de minimis or material, but I don't think it's moving the P&L one way or the other, to be honest.
I guess, the full year margin guidance of flat, that is for EBIT. 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 first quarter? 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? 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. There's 20-30 basis points that was down below the EBIT line that went above the EBIT line. We're kind of saying, if you take that in totality, really the core business margin is flat. 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. I'm just curious, how have you guys been able to do that?
I think it's a couple of things. 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, keeping, and training people right. I think that we're very good at that, and I think that's a differentiator long term. As we've said, sort of a core tenant is to be continuously improving in that. 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 overtime year-over-year. I think it's initiatives like that. I think it begins with making sure we have the right people and we retain them.
If we can utilize that first piece to make sure that we're fully staffed, that's the next component of it. It's just really driving off of those core foundations.
Just one more 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 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. 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'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 questions on labor costs, if I could. I think last year, you saw outsized pressure on health insurance in the first quarter, and was that a benefit this year? If so, could you quantify it? 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 costs in that line?
I think group medical, when we're looking back at last year, it was a little bit high in Q1. Really, Brian, the bigger impact was really in Q2. 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, I know that was where the bigger impact was, and then 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 first quarter.
Okay. Matt, when you mention wage inflation up 6%, can you confirm that that's specific to hourly labor? What % would hourly labor be of your total labor dollars in a given year?
Brian, yeah, that is correct. The wage inflation, when we look at it from an hourly perspective, and of the total P&L, I would say that hourly is in the low 20%. It's roughly two-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, about two-thirds. The other 35%, I guess, what are you seeing in terms of managerial inflation, and inflation in insurance? If we tried to bucket the other 35%, might that inflation be 3%, 4%? Any help on that?
I think 3%-4% is a fair range today.
Great. Other OpEx line, just a quick one. You called out workers' comp and general liability in Q1. Can you quantify the favorability there? Was that unusually low this year? Or maybe you were lapping high costs last year. Can you remind us of that?
Mostly it was an improvement this year in the trends. Basically, it was, I'm going to say, in the 20-30 basis point range, and it kind of offset the earlier question about the delivery. It kind of netted out.
Okay, great. Thank you.
Sure.
Your next question comes from the line of Brian Bittner from Oppenheimer. Please go ahead. Your line is open.
Thanks. Hey, guys. As it relates to the full year guidance, it implies the second half is much lower EBIT growth than 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 second quarter 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. Certainly that's part of it. There are other puts and takes. I think there's timing of G&A as well. I think there's a little bit of timing of pre-opening. I think the biggest piece, particularly in the second quarter, 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. 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 first quarter, or how much it's been growing on its own?
It's about, off-premise in total was about 2% over the first quarter of last year.
Okay.
Grew from 14 to 16.
High, absolute term.
Yeah.
You're talking about as far as the mix of the business, right? Obviously.
Exactly.
Yes.
Exactly.
Got it. Thank you.
Your next question comes from the line of John Tower from Wells Fargo. Please go ahead. Your line is open.
Great. Thanks. First a clarification on the smaller footprint store that you opened in Oxnard, 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? If not, if it's only geared towards the international markets, why is that? 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. We'll see what happens over time. If we do think that we're operating it really, really well and we get the returns we want, could it possibly lead to some other sites over time? Who knows? That wasn't the original intent, but it also wouldn't limit us from 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. 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. We would look to continue to do that and not add any additional cost or any 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. 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 service and hospitality, as I mentioned when we opened the call. We've seen that online ordering number grow from about 10 to 11 up to the 13% it's at today. Delivery is roughly 30% of that total 16% off-premise that I talked about earlier.
Great, 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, I know they've ticked up their forecast for the year, but you've left that unchanged. 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. 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. Because of that balance, I think we've just been able to offset it across a couple of other categories. Nothing big moving up and down, but we're just staying right in that sweet spot of 1%-2%.
All right. Thank you.
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