Good morning. My name is Jeff Bernstein, and I'm the restaurant and food service distribution analyst here at Barclays. Our next fireside chat is with the Cheesecake Factory. With us on stage from Calabasas Hills, California, we have David Gordon, immediately to my left, president, and Matt Clark, CFO. By way of background, for those not familiar, if that's possible, the U.S. portfolio of the Cheesecake Factory is led by the namesake Cheesecake Factory brand, which has 220 or so restaurants, as well as 50 or so North Italia units. Those are both traditional casual dining, or I should say probably polished casual dining. And they also have 40 Flower Child units, which are more fast casual concept up and coming, and they do have involvement in other smaller brands as well. So it's a portfolio company. They have shared, actually, some initial thoughts on 2026.
Their guidance for next year is for 4%-5% revenue growth. That's supported by a low single-digit 1%-2% type comp growth, and the rest comes from kind of new unit contribution leading to 5% or so net income growth, but we wanted to thank Cheesecake Factory for joining us, David and Matt in particular. I've got a number of questions for them, but then I will stop and open it up if there are any questions in the audience. So with that said, thank you very much, Cheesecake Factory, for joining us in ice-cold New York on the tree-lighting day today, so for those that are keen to head across town, I wouldn't do it any time after now.
It's our pleasure. Thanks, Jeff.
Yeah.
Thanks for the advice.
So we had a few bigger picture questions just on the consumer because you have a pretty good glimpse at it based on the variety of brands that you operate. And there's been lots of talk lately of maybe not just doing a broad brush on the consumer, but different cohorts are feeling differently. So whether it's by age or by income or by ethnicity, I'm wondering whether you even have that degree of data and whether or not you've seen any change in trend. Obviously, we'd love to hear your broader consumer thoughts, but just whether there's buckets within there that are performing better or worse. Love to hear your thoughts.
You want to start?
Sure. Yeah. Thanks for having us today. Generally, Jeff, I think it's been stable, just slightly softer. I don't think there's any one cohort that is moving the dial for us. Certainly, Cheesecake Factory particularly has probably the broadest demographic appeal in the industry, and so it would take a lot for any one category to move the dial, but speaking even more across our portfolio, we have seen continued strength in Flower Child, which is our fast casual that you mentioned, and overall, just not the volatility that would indicate that there's pressure on the consumer, just slightly slower spending, so restaurants are known to be cyclical. There are other factors in play, and certainly whether it's tariffs or the government shutdown, but we feel very confident in our ability to navigate this environment.
The P&L resiliency that we're seeing in our business due to the input costs and the predictability of the sales continues to move us forward in a way that we think is very positive, regardless of whatever's driving that current environment across the industry.
It is interesting that with Flower Child, you do now have a fast casual brand. Many of their fast casual peers have talked about a material slowdown of late. So encouraging to see that the Flower Child brand is holding up as well as it is.
Thank you.
And actually is quite strong, if I remember, from the third quarter results.
Yeah. Just to touch on that, I think that we Flower Child is very differentiated, we feel, from the rest of "just fast casual dining." It's an elevated experience. The breadth of menu is relatively broad. The demographic of guests like Cheesecake Factory is very, very broad. The off-premise mix is about 55%. Dinner is 35%. So I think it's not your traditional fast casual. And that's one of the reasons we think it's outperforming and will continue to be a great growth vehicle moving forward.
I've been to a few, but the fact that you go in there and place an order, but then they're actually preparing that dish for you rather than scooping it out of the traditional assembly line definitely puts it more elevated. And then there's a question on the broader industry sales. In this industry, food away from home, your biggest competitor is food at home, I would think, from a bucket perspective. And there's been recent concerns across the industry that menu pricing that was taken in response to inflation has been tremendous across the industry, and maybe that's given the upper hand to food at home. So I'm just wondering how you think your restaurants are positioned in that pricing debate versus the industry and whether you feel any puts and takes with food at home.
Generally, we think about the restaurant business as transactional or experiential. Certainly, we could agree that on the transactional side of the business, there might be some price competition, but generally speaking, even with Flower Child and all of our other concepts, we're more on the experiential side, and we don't really see the trade-off between somebody making food at home and buying their groceries versus wanting to go out. And the price point is differential enough that 1% or 2% is not going to swing that, and we've tracked that historically over the two decades I've been with the company, and we've seen very little correlation, so I don't think that plays in our space.
I think more so in some of the other areas at a lower price point where it's a much more direct trade-off between what it might cost you at home and what it might cost you to go out.
We've covered the company for more than a couple of decades now, and I've been in lots of meetings with you, and I'm just curious, is there something that investors don't fully appreciate, or you find you get asked that is less relevant, or maybe you don't get asked and you think you should be getting asked, or is the story as transparent as it can be, and at this point, you feel like investors fully appreciate all the components of it?
I think today it's a very strong story as a portfolio company. I think that Cheesecake Factory continues to be a brand that's loved by America with 217 locations today. We just opened up two new restaurants, one in the suburbs of Houston, one in the suburbs outside of Tampa. And in their first week, they both did roughly $400,000. So there's a lot of growth still ahead for Cheesecake Factory, number one. And then I think we have a unique portfolio today that other restaurant concepts don't have, to have something as strong as Flower Child as a fast casual concept that is very much in the tradition of Cheesecake Factory, making everything fresh from scratch, very experiential, the high touch of service that you talked about earlier. And then the other experiential brands like North Italia, where we believe there could be 200 north.
I think there's good white space today for North Italia for a high-end casual made fresh from scratch Italian concept that people really consider their local independent neighborhood Italian restaurant. Most consumers, guests don't know that it's associated with Cheesecake Factory, and its AUV is at roughly $8 million. It's doing very, very well, so I think the industry today, the street is starting to understand that as a portfolio company, there's a lot of runway and growth ahead, and probably as a casual dining concept, there's nobody else doing what we're doing today. We do believe that experiential dining is not going away. Younger people today, their dollars want to be spent on experiences versus transactions. They understand what great food tastes like. They grew up with the food channel, and all of our concepts are based and rooted in high-quality food and great experiences.
Interesting that you just said that the first, these two stores you just opened were doing $400,000 in the first week. My quick math, that's a $20 million run rate AUV.
They'll come down from there.
It will come down from there. It will come down. But the fact how you can even be prepared for that to come in in the first week, I mean, it must be crazy to see what happens. I'm sure it eases, but.
We have a lot of experience.
Giving everyone a good experience that first time is so important. One other question that we get just on the broader industry, and I'll shift to more cheesecake specific, but GLP-1s come up a lot in discussion. A couple of years ago, it was a very popular topic, and then it kind of faded for a while. Now it seems to be ramping back up again, whether it's because people believe that the prices are coming down, insurance is covering it more, it's in a swallowable format versus a shot potentially. I mean, it just seems like I've spoken to others who say this is the most formidable diet that we've ever had to battle against, and you guys are known for very large portions, abundance.
Just wondering how you think about it, whether or not the data that you see gives you concern in the next number of years or how you see this playing out?
As much as we're known for abundance and large portions, I think we're also known for choice. Cheesecake Factory has a SkinnyLicious menu that we've had for 15-plus years. It makes up 7%-9% of our total sales. That's a great option for somebody maybe who's still going to come out and want to dine. We believe that even people that are on a GLP-1 are still going to want to go out to dinner. Like that Saturday night with your family or a date night, you're still going to come out and have an occasion and an experience versus just, again, a transaction. We don't necessarily feel like it's going to have a negative impact on us. We haven't seen that negative impact.
I think the industry has seen maybe an overall pullback in alcoholic beverage sales, which we have seen for the past 24 months or so. It sort of has leveled off. But as much as the alcohol has leveled off, total beverage rates haven't decreased at all. Our cheesecake sales continue to be 17% of sales. People are still coming. They're indulging when they want to indulge. But if they don't want to indulge and have leftovers the next day, not only can they get SkinnyLicious, but we just rolled out our Bites and Bowls menu. And the bites are relatively, I guess, relatively smaller portions. We've seen people actually add those to their entrée, not trade down to them. And our new bowls are great for a lunch occasion.
Again, yes, they may be a smaller portion than your typical cheesecake meal, but still great value in a very, very, very large bowl. We haven't seen a change in behavior. We think we can meet whatever that change in behavior may be in the future. When there have been other fads or trends in the past, we sort of haven't seen it affect us negatively either.
Yep. And with only 28 days, I guess, left in this year as we now embark on 2026, you've given some color on your expectations, which give you credit for that. Others tend to wait until February or March when they already have a couple of months in. So appreciate the transparency. What are you most excited about for next year? I mean, is there something that you're building upon from this year or what gets you most excited for the portfolio in 2026?
We're certainly excited about the growth. We're going to open 25 restaurants this year. We'll open 26 next year. So the growth potential continues to be something that's unique in casual dining today across our portfolio of concepts. At Cheesecake specifically, we're going to continue to innovate on the menu. We are already working on what our winter menu change is going to look like. We have some great new Bites and Bowls that we'll probably roll out in the winter. And we're excited about the rewards program. We're about two years into that program today. We built a very strong team internally who are doing a lot of work analyzing and understanding all the guest data that we've acquired to this point. We have more guests in the program than we would have anticipated thus far. The guests that are in the program are highly engaged.
They have a higher check average. They have a higher frequency. They have a higher NPS score. So we know that they're appreciating the program and they're enjoying the benefits of making reservations. And being in the program is the only way to make a reservation at Cheesecake Factory. They get a published slice of reward of a slice of cheesecake on their birthday. And as we've analyzed the data, we've been able to have a one-on-one marketing relationship with guests to drive some incrementality. And our goal is to drive one to two more visits a year from our average guests. We think we can do that through the program. And we're currently in development of an app that we will roll out in the first half of next year.
And that app will allow easier access to make reservations, easier access to place a to-go order, repeat your previous order, easier tracking of your rewards. So if you were to have rewards in your wallet and you had geolocation turned on as an example and you were at the mall, we could send you a notification to say, "Hey, Jeff, did you know you still have a complimentary slice sitting in your cheesecake wallet? Do you want to come in and join us today?" And even a potential pay-at-the-table feature. So our goal through the app is to make the guest experience as seamless as possible and give people a real compelling reason to be willing to download an app onto their phone today.
We know that real estate on somebody's phone is tough to come by, but we think that the development we're doing today will make the app pretty compelling for people.
If you think about everything David just said, right? Like, 2024 was a really strong year for the company. 2025 is going to be even better. So we're in a position where we're able to play strategic offense now, right? Accelerating the unit growth, investing in the app, investing in menu innovation, investing in our people. And so at a point in time where maybe there's some inflection in the industry, I don't think Cheesecake Factory has ever been in a stronger position. And you mentioned a lot in terms of what you're excited about. When you made a comment of one to two more visits, what is the average frequency of a cheesecake? I don't know whether you're talking about one to two more visits from somebody who's already higher frequency. Like what buckets?
That's our average guest that's coming four to six times a year.
Four to six, and if they're in this program, you hope to get one to two. Obviously, we have other restaurants talk about these programs. They drive a higher check. They drive greater frequency. Want to get as many people into that as possible. How are you going about putting more and more people into that without just turning it into one of these programs like everybody else has, where you're just bombarding with emails?
As you know, we don't like to do things the way everybody else has. One of the unique attributes about the program is the way it's designed is that it's not a points-based program, and it's not a dollar spend-based program. It's more of a surprise and delight based on your previous behavior. We also don't have table tents on the table. We have really increased awareness through our social channels. And it's worked, right? Our total population, although we haven't shared how many people are in the program, is exceeding what we would have thought it would have been at this point. We're going to continue down that path. Even as recently as the past quarter, we saw the amount of folks that were signing up higher than what we would have anticipated. We plan to have that continue through next year.
Yep. The pay at the table, was that something specific to just these loyalty members, or is that a separate option that the average customer is going to have the ability? Because that seems to be able to turn a table, and you guys have the opportunity to get them.
We'll see. We certainly will probably start with something designed within the app itself. We know that that can be the biggest point of friction for somebody. No matter how great your meal was, if it's taking 10 minutes to get your check and another five to process your check, that can be really frustrating for people, and we want to make that as easy as possible.
I think if I look back over the past six quarters or so, Cheesecake has been fairly consistent from a comp growth perspective, which we're going to talk about unit growth, but investors love to talk about comps. So that six quarters to be up low single digit, very consistent. The industry has been a little bit choppier. Just wondering how you think about the ability to accelerate that. I know for years it was always very difficult because you didn't have empty seats. So what is the opportunity to sustain or accelerate that, or those key initiatives that you just highlighted for 2026? So those are the biggest opportunities to drive traffic. I think so. I think also, really, if you think about the three legs to the stool in terms of key restaurant touring, I would add operations to that, right?
One of the reasons that we have been so consistent the past few years is because of the great retention that we've had in the restaurants, really best in class. The ability to meet the expectations or exceed the expectations of consumers in today's environment is paramount to being successful, right? We really think about great operations, menu innovation, and now the third piece of that being the rewards program, all playing a part in being able to continue to have consistent low single-digit comp sales. We're never going to be a large traffic growth story because we're so busy.
But as long as we can maintain the consistency that you talked about over the last two years going forward, that will definitely enable the positive flywheel of the margin accretion that we've had, the high cash flow, and the ability to invest in accretive new unit growth.
And you mentioned seeing more sign-up into your program than you even anticipated, and that's without tents. So the word is getting out there without you necessarily pushing it hard, but leads me to think about marketing, which you're of significant size and scale, especially with the dollars you're doing per unit. If you were so inclined, you could do more in marketing. Like how do you think about the progression of marketing, or is it the case that you don't need to drive more interest?
Your restaurants are full, so therefore it might be detrimental to all of a sudden be having too many more people coming at one time.
Our plan today is really around the rewards program to drive the marketing, to be able to see the ROI on those marketing dollars. That's one of the most valuable things about having a program is that we can deliver something to you and decide and track your behavior and really look at whether or not the ROI on either just an offer that we maybe fed to you or just even an awareness play. If you're somebody that's only come for dinner for the past 12 months, as an example, and we're trying to drive you to a lunch occasion, we may send you an awareness campaign that we have lunch portions, lunch prices, and we just rolled out bowls as an example. Then we track your behavior for three months and see you still haven't come, and we're going to feed you up perhaps an incentive, right?
There could be a complimentary slice of cheesecake if you come in Monday through Thursday, spend $40 at lunch, and that's really the best way to spend dollars on marketing that you can actually see that ROI. I'm going to know whether or not you came back in. I'm going to know what I offered to you, and we really feel like that's the best use of our marketing dollars today.
What is the average? You said $40 at lunch. I'm assuming that's, I don't know if that's not a per person.
That was just an example.
But what's the per person like average check at lunch versus dinner?
It's probably about 20%-30% less, 20% less at lunch, so the average check is $30 at Cheesecake Factory today for all occasions.
Got it, but lunch could be presented with presumably in the low 20s.
Depending. I mean, that's the goal with the bowls, right, is to give people lots. We've always had lunch portions on our menu, but they were our current menu items just in a little smaller portion. The bowls give us some really new unique items. The price points from $13.95-$18.95, which is a really good lunch value when you think about going to a fast casual and spend that much money, if not more, on a bowl today.
Yep. Right. And then the unit growth, which is much more, well, you guys are consistent with comps, but for the industry, it's a much more consistent way to drive top-line growth. And you talk about, I guess, 6%-7% annual net unit growth. Now, it's somewhat deceiving because you're the big brand cheesecake. When they open up a store, it's different than North Italia or Flower Child. So I know translating new unit growth into revenue growth is an adjustment that needs to be made there. But your confidence in to be able to sustain that 6%-7%, it sounds like you're in that range now, the 25-26 type units. But how do you think about that new versus existing markets when you have a portfolio of brands?
I can imagine this is a much more interesting process than years ago when it was just Cheesecake Factory.
Sure. I think we feel really confident about the long-term strategy because each one of the concepts on their own provide a unique opportunity for a landlord, right? They're very diverse concepts. A Cheesecake Factory can be from 6,500-10,000 sq ft, go into just about any type of center and feeds everybody in America. North Italia is around 6,000 sq ft, a little bit smaller, could go right next to a Cheesecake Factory if a landlord was looking to have more than one concept of ours in their project, which they like because the AUVs of all of our concepts per sq ft are just above national averages. And then you could have a 3,500 sq ft Flower Child in that same project. So the diversity of the portfolio gives us a lot of strength.
We really see the pipeline looking out two, three years from now continuing to be a very viable pipeline. We believe there could be 200 North Italias domestically, up to 700 Flower Child, and up to 300 Cheesecake Factories. And we're, as I said earlier, only at 217 today. And then there's some other younger brands that we're still testing portability of. Culinary Dropout today, there's 15 Culinary Dropout. We just opened in California for the first time, two locations in the past few months. They've done very, very well. And they're hitting our return profile. And if you can make money in California, you can do well just about anywhere in the country. The guest reaction to that has been really, really strong so far. And The Henry is another concept. There's eight today. We just opened in Houston, the first one. It's exceeding our sales expectations.
So we're going to be testing Culinary Dropout and The Henry here to really see its portability in the long run and see if we think they too could be national sit-down high-end casual concepts.
Got it. Both of those are more traditional higher-end casual dining. So it would be Flower Child is the fast-casual brand in the conversation.
That's right.
Yep. The restaurant margin side of things and the cost that go with it, I think you talked about maybe modest upside to the 25-35 basis points that you had projected for 2025, if I got that right. But there is a headwind to close the year. Obviously, it's volatile quarter to quarter. But just the drivers and sustainability, the opportunities, I mean, how do we think about this over the next few years relative to that kind of promise for this year and maybe where those potential savings would come from or the margin expansion could come from?
Yeah, I think it's been a great story for investors over the past 24 months of the margin recovery. And we always talk about the long game. And obviously, through COVID and the inflation, we were more careful with pricing.
And I think that that's paid off as we've been more stable on the sales front, coupled with the fact that you've seen the labor environment be better and Cheesecake best in class, right? That's enabled us to have really improved labor productivity over time, cross-training, lower overtime, less training dollars. And then layer on that a more predictable and benign commodities environment, really again supported by our unique strategic moat of the broad menu. And we have such a broad menu that we have a really broad market basket as well. And no one category has moved up or down. So I think the combination of all of those factors has really played well. I think we're sitting in a really great spot with four-wall margins. Looking into next year, there's probably slightly more tailwinds than headwinds at the moment for us at least.
And we're thinking we could deliver another 25 basis points on the four-wall. Labor, again, through the third quarter, the retention continued to improve year over year. So some of that will benefit us in the first half of the year. And while beef remains elevated, I know that's a broader pressure point in the industry. With our market basket, you've got areas like dairy, which have come down significantly, offsetting that. So I think we're in a good spot. We feel good about the stability of the business and the predictability of the business and continued margin accretion really driven by productivity, not by pricing. And just to level set, the 25-35 basis points you're talking about this year and 25 basis points next year, that is off of the base of what that you're looking at today. So what is the absolute percentage?
I think for the Cheesecake Factory, we'll be like mid-17s today. So that would put us right in the sweet spot of that 17%-18% and continue in there. Total company this year will probably be maybe just under 16%. So that will get us over that threshold. And we talk long-term about being 16%-18% with a little bit of headwinds for the newer concepts because of the growth. But from a total company perspective, right in that range.
Right. Now that you do own a variety of brands, the different things you see across different brands, like Cheesecake has a slightly higher margin. Perhaps it has a slightly more consistent top line. I mean, do you now maybe it gives you greater appreciation for the Cheesecake Factory, but the different things you see across different brands that lead to the margins being different, or do you think over time those margins are going to be or can be similar?
From traditional economists, I think like Econ One, there's supply and demand within the restaurant space. And I think if you push too hard on margins or if you take too much pricing or take something away from the guest, then ultimately you'll run into trouble. So we really believe in that 16%-18%. It enables us to hit the return profiles that we want for an ROIC perspective. I think certainly Flower Child has the potential and already is at the higher end or slightly above that range. And if we can drive that margin via guest traffic, we certainly would be able to do that. But we feel good about that 16%-18% in the long term.
Got it, and the cost components, and it's nice to hear there's slightly more tailwinds. I think you said slightly more tailwinds than headwinds. I think you've talked about for 2026, low to mid-single digit for both commodity and labor, and what does that compare to specifically in 2025 to demonstrate maybe less of a headwind in 2026? Like where are you ending up for 2025?
It would be very similar in a lot of respects, right? I mean, I think that we have seen the labor market, particularly wage inflation, actually come down. It's still positive, right? 3% to 4%, but it's come down from where we thought it would be at the beginning of 2025 and remained very stable. I think on the commodities front, as we look forward, really it is just the beef category that has escalated and everything else remains very consistent. It kind of has a little bit of the shadow of the teens years that we saw from the financial crisis where it was a very stable, very productive U.S. agricultural complex.
What percentage of your commodity basket is beef?
13%-15%. Pretty much all categories, right? Dairy, fish, poultry, beef, grocery, produce, they're all about the same percentages. So we're very balanced.
And we have some stakeholders that talk about 50-plus%. So it's nice to have a diversified portfolio there. And mitigating this from a pricing perspective, you talked about not wanting to be too aggressive on price, Economics 101. I think you said where you're ending this year at like 3.5%. Your thoughts around pricing power into 2026? Some people use it as a gauge just to hold the margin flat. Others say, "We don't mind if pricing's below inflation." Like what's the thought process around how much pricing to take structural versus cyclical inflation? Like how do you think about what pricing to take?
In the long term, we really track the overall industry, both government data, but also we do our own independent tracking of two dozen national competitors from fast casual to high-end dining because Cheesecake competes with everybody in 75 different markets. And we really target to be at the middle or below as one of our guiding posts. The other one is we do want to protect margins over the long term. It's not any quarter to quarter or anything moving like beef or something like that. So that's another component of it. We also don't want to impact guest traffic if we don't have to, right? So these are the triangulations that every, I think, business goes through. It's a little bit of art and a little bit of science.
I think Cheesecake Factory benefits from the broad menu because we have price points from $7 or $8 Bites to $35 steaks, and so I think that helps. But overall, we think that it's an environment that will get us to that 2.5%-3% sort of normalized pricing level. But in addition to that, if you think about the Bowls and Bites, that effectively we're reducing the price that the consumer is seeing, right? So it really probably feels more like a 2% to the consumer coming into the restaurant, and I think that's a great place to be. That's below inflation. It's below where wages are growing at, and it's below what we see in the total competitive environment, and so that sounds like a good spot to be in right now.
Driving traffic with some of those bowls and bites at a perhaps slightly lower average check, presumably you're okay with a slight negative mix shift if it's driving the traffic and that's what the consumer is looking for.
Exactly.
We've got a few more minutes. I've got a number of additional questions, but I figured I'd take a pause and see if there's any questions in the room for Cheesecake Factory management.
Nope.
Good. Well, I can continue there. The corporate costs, we talk a lot about at the restaurant level, but whether it's, I guess, build costs at the restaurant level, but how do you think about that and G&A, which presumably if you're driving a strong top line, it plans to get leverage on the G&A line, or what's the puts and takes in terms of walk us through the build cost details and the G&A outlook going into next year or the next few years?
Yeah, I think the revenue outlook for next year. We've been cautious while we did provide it. We took into account the current environment and that might extend into the first quarter or two of next year. So right now we're thinking G&A as a percentage sales flattish to this year. Again, long term, I think we still would target that 6% as being the appropriate level for our business. The good news is that it's very predictable and manageable, right? And the key there is overall from a company perspective, continuing to improve the margins. I think from a build cost perspective, we've been doing a great job actually seeing CapEx budgets come in below this year's target and being very predictable as well.
The environment itself is really lined up well, I think, for an operating company like ourselves and provide our investors with clear guidance around the returns that they can expect for those new unit builds. Generally, I think once the consumer environment improves a little bit, then we'll show a little bit more leverage. In the meantime, I think we'll continue to focus on execution.
And we get questions on North Italia just because it tends to show more trends similar to the broader industry, maybe a little bit more volatile, maybe it's less recognized or whatnot, but it has comp negative the past couple of quarters. I'm just wondering how you think about plans to reaccelerate it when it's only of a certain size. Like what initiatives do you use or do you not really change your strategy at all because you believe this is just kind of the broader industry trend? Like how do we think about reaccelerating North Italia?
I think that maybe we're a little more exposed to the broader industry trend. We've seen lunch come down just a tiny bit. The people are looking to pull back. As we talked about earlier when we first started talking here today, we're seeing a little bit of a pullback at lunch, right? So we're not going to not address that. We actually have rolled out a price fixed menu at a $25 price point that allows a guest to get an appetizer and an entrée for lunch at North that's running right now through the end of the year. So we're not going to sit idly by, right? We want to give people a compelling reason to come in, but we're not going to change the core concept, right? This is a cycle we're currently going through.
We still feel like that North has a ton of runway, still loved by guests, still averaging $8 million AUVs. We just opened up in Omaha, Nebraska, first one there about a week and a half ago. It's exceeding our sales expectations. Our opening in Boise, Idaho, a few months ago was one of the busiest ones we've ever had in a brand new market. So it's very compelling. People seem to really love it. So we're going to stick to our knitting and make sure that we're serving delicious food that people really can't get anywhere in other casual Italian concepts, still have unique, highly designed experiential restaurants. And that's our long-term strategy.
That's interesting because earlier I know you said that you could put a North next to a Cheesecake and many consumers don't even, why would anybody really even know that unless they're in our business? But you would think there would be some, sort of puts and takes as to whether or not it is a positive to try and use the Cheesecake loyalty program to try and bring in North or get somebody who spend at one or get benefit of the other. So how do you think about exposing the relationship between them or using the benefits of one to help another?
I think for now we're going to keep them segmented. It's interesting when we did some early research and asked people what they thought about a chain of restaurant versus an independent, there's this clear 50-50 split. There are people who love independent restaurants and would never go to a chain and others who love chains because of their consistency. So I think there's a balance there. Today it's working very well as its own independent concept. Down the road, as it gets bigger and obviously people are going to recognize it as a chain when they're much more than 42 across the U.S., we can talk about whether or not we would do something, whether it's allowing access to using gift cards at different concepts, et cetera. But today, that's not where we're at.
David, in the last couple of minutes, I know for years it was the focus is all about the U.S. business and it still is, but there is a strong international portfolio. Being that it is a licensed portfolio rather than a company-operated portfolio, it is a smaller contribution, but presumably a very high margin. How should we be thinking about the international contribution over the next few years? Where have you had the greatest success? Where do you perhaps take a little bit more of a cautious view, but the growth rate on international?
Yeah, we're really happy with all three of our international partners, so we're sitting at 35 restaurants internationally today. 17 of those are with Alshaya in the Middle East. We're looking forward to getting another restaurant open with them next year, and then the rest are split between Maxim's in Asia and Alsea in Mexico. The brand continues to resonate really, really well internationally. Certainly, the events around the world over the past five years have been challenging for all of our partners, so that growth slowed down just a tiny bit, but we would still anticipate opening three to five international restaurants a year with those partners. And we'll always continue to explore other opportunities to continue to grow international, whether it's with those partners or with other partners that come to the table that have a strong operational presence in a particular market.
Yep. Just lastly, as we think about capital allocation, $200 million plus CapEx range, I'm wondering whether that's a good annual run rate and how we then think about your other uses of cash, how you balance dividend versus share purchase in the thought process and leverage levels, even if modest, your thoughts around that?
Sure. Yeah, I mean, I think at least in the near term, I think we said for 2026, $200 million-$210 million because we're going to grow a little bit more. So I think that correlation is a good proxy going forward. This year we'll generate about $350 million of adjusted EBITDA. So obviously much more cash flow than is going into CapEx. We do have the dividend. I think the board regularly evaluates whether it would be a good time to start increasing that. Given the margins that have really fully recovered post-COVID, we've kept it flat for a while. So that's one option. We certainly want to be opportunistic buyers of our own stock where we believe there's intrinsic value opportunity for our shareholders there, as well as to offset the dilution from the equity plan. So you'll see that as part of our play.
We have one piece of the original convertible bond that we did that will come due in June of 2026. We're keeping it right now because it's basically free money, but we'll extinguish that in June, so generally, the answer is we're creating enough free cash flow to do it all. We're growing and we're distributing a significant amount to our shareholders, and from a leverage perspective, at one to one and a half times adjusted debt EBITDA feels really good. Feels like that's the optimal cost of capital with the really low interest rates on the convert. It seems to be the sweet spot for us, so overall, a great position in our balance sheet and in liquidity right now.
Great. I should just close by asking because I know you guys are viewed as a forward-looking concept. David, what are you most excited about on the menu? What's the next new trend for the Cheesecake Factory? Is there something in the pipeline we should be looking forward to?
We won't share our secrets, but I will say that the Bites and Bowls have done well. We're going to continue as we look to the winter menu change to probably add some more Bites and Bowls items that we think will add great value, but also traditional Cheesecake Factory will be craveable and delicious.
That's great. Well, it's almost lunchtime. So we want to thank Cheesecake Factory. We want to thank David and Matt for joining us coming in from California. You're around throughout the day. Hopefully, Ambrose will get a chance to see management. Hope you have good meetings. Thank you guys very much.
Thank you.
Thanks very much.
Appreciate it.
Thank you.