Excellent. Welcome everyone, John Ivankoe with JP Morgan. I wanna thank The Cheesecake Factory management team for sponsoring an absolutely terrific dinner last night at North Italia.
It's our pleasure.
If everyone hasn't had the opportunity to visit the concept yet. You know they do a great job with food and service, but I think even with high expectations, those expectations will be terrific. Flower Child, which we didn't have a chance to eat in, but I have, you know, before, you know, previously Austin, for example, an absolutely beautiful design concept, and I think everyone would agree is a next generation offering that is very consumer focused in terms of food and service. Thank you. I thank you again for that.
You know, it really does highlight, you know, how much creativity and capability there is in The Cheesecake Factory organization, both existing within the legacy Cheesecake Factory Corporation, but also Fox Restaurants, you know, which was acquired in the fourth quarter or first quarter, whichever you announced, late 2019, early 2020, after, you doing a joint venture, in involvement with Sam Fox. You're to be in the North Italia and Flower Child business. There's a lot via that you have and, you know, it's interesting, there are different ways to approach multi-concept management within casual dining. Some, like the Darden model, is a very scale driven, you know, business.
Other businesses, you know, are maybe more creative focused and really focusing on the, you know, capabilities within each individual concept, including allowing each concept to buy many of their own ingredients, many of their own products that are maybe similar, but different, you know, than some of their neighboring concepts. I wanted, you know, just, you know, get a sense of how Cheesecake, you know, is managed and if, you know, and if your opinion, if that is optimal management and how, you know, this multi-concept approach. I think you have 16 concepts.
If you consider every single location r ather than just the concept.
Absolutely.
Yeah.
You know, still, you know, happens to be, you know, in some, you know, obviously hugely different, you know, revenue contribution in the company, you know how that may evolve.
I think that, we have maybe a blended approach to the two that you talked about.
Right.
We wanna be able to leverage our scale as much as we possibly can when it comes to purchasing, supply chain, IT infrastructure, HR resources, human capital resources, et cetera. The way we've structured the deal is unique and different than what may be typical. That is, that Sam and his team at FRC are running the majority of the FRC concepts out of Arizona with their management team. Once something becomes what we believe could be nationally scalable and could be successful across the country, we take it under our Cheesecake Factory operational umbrella, and we start designing, building the concepts, and then operating them.
Early on, we put an operator from The Cheesecake Factory in the concepts that we think can be growth concepts to learn them soup to nuts, and then take a little bit of what they've learned at The Cheesecake Factory in their career, and perhaps help operationalize some parts of the business that we think can run a little bit more effectively. Being very careful to keep the unique culture of each one of those concepts intact. Like, going to a North Italia and going to a Flower Child should feel very unique.
Yes. Absolutely.
We're not trying to Cheesecakeize all of these concepts.
Right. Yeah.
Having Sam and his management team in place, I think is key to that success.
You know, I realized as I made the introduction, let's talk about your concepts. I didn't introduce David Gordon, the company's president, Matt Clark, the company's CFO. As we're talking, just to make sure that we know , you know, who we have on stage. Is it at the point where even compensation, how managers are compensated are different, how store level, you know, people are different? Is it down to that level where each concept really has their own human resource practices?
We're careful, and a good example would be at North. We've taken some of the Cheesecake Factory practices, such as the equity program at Cheesecake, where we've been very successful for our GMs and our executive chefs and kitchen managers to be on a five-year equity plan. We decided at North that we wanted to do the same thing that would be important to the long-term growth for those people that were at North. We want each one of the concepts to be able to grow from within as much as they can. We don't wanna really cross-breed and take Cheesecake Factory management at the lower levels and all of a sudden have them working as store managers in the other concepts, because we think over time that will perhaps dilute some of that culture that's been created there.
Things like a car allowance, some of the bigger programs that we have at The Cheesecake Factory where we can add them and have them work in the other concepts, we will. Probably not for Flower Child, right? It's a smaller concept. Doesn't require the same size management team. Perhaps doesn't require some of those same attractors to work there for that younger generation that maybe is working at North.
Right.
We take each one and make that decision based on the concept's identity.
You know, that, we'll say Cheesecake for a minute, but, you know, North Italia, I think the total number of units, I think, is in the mid-30s, a fairly similar, correct me, fairly similar.
33. Yeah.
Fairly similar number at Flower Child in coincidentally. North Italia is said to have a 200-unit potential, which is close to where Cheesecake is today. you know, how is Flower Child, how is Flower Child's potential and are there other things, for example, like Culinary Dropout or Blanco or, you know, The Henry, you know, that you really have aspirations for at this point?
Yeah. we have stated publicly that we think there can be the 200 North Italia domestically. We haven't talked how many we believe there can be at Flower Child. We do believe it will be a national concept. This year, we're taking it under The Cheesecake Factory operational umbrella
Yeah.
We'll be again designing them, building them, and growing them. The other concepts, you know, we're gonna continue to evaluate them. Culinary Dropout, probably the next lead horse in that race.
Yeah.
We'll be opening three this year, expanding into Georgia, gonna be in Charlotte. In some new markets, where we'll really test to see if the high sales volumes we've seen in Arizona and Texas translate into some of the new geographies. That's really the litmus test for us. If these concepts work in many different geographies, that allows us to feel like, and of course, the margin structure and all those other things are in place, they can be a national brand. Culinary Dropout and Blanco, as you mentioned, is another one that we're pretty excited about.
Culinary Dropout, I've been in North Scottsdale. Fantastic. Big, very large format restaurant. Cheesecake Factory, large, everyone knows, large format restaurant. Flower Child, kinda, you know, I mean, more typical for casual dining and North Italia kind of in the middle. It's interesting, you know, do you consider that you have specific expertise in large format or is your business to the point where, hey, you can scale brands based on the available square footage of a site that you like?
I think B, right?
Okay.
Now that we have this portfolio, whether it's a 3,500 sq ft Flower Child, the typical older-
National.
old school 10,000 sq ft Cheesecake, but you know.
Yeah.
We're opening Cheesecakes today that are 7,500 sq ft, 8,500 sq ft, more typically than the old days w hen we were opening up 10,000 sq ft-12,000 sq ft North at around 6,000 sq ft sort of gives us something really nice in the middle. Culinary Dropout, if you go to the Domain, as an example.
Oh, yeah.
That one there is 7,500 sq ft.
Okay.
It too can flex from probably 7,500 sq ft all the way up to the huge large format that's in Tempe, as an example.
Yeah.
That's close to 10.
Okay.
We're working through Sam and his team on additional opportunities that we have a concept called Doughbird, and it's more like 4,000 sq ft-5,000 sq ft. We really wanna have the ability to flex in the occasion, you know, the type of the restaurant and the real estate, and we think that that's competitive. We're going into developments, and they want two or three of our restaurants.
Right.
Right? That critical mass, that scalability, we think is a competitive advantage.
You know, we're obviously talking about it professionally, you know, within JP Morgan, of, you know, how. Like, what return to office or a lack thereof, office occupancy, what have you, cities versus suburbs. You know, I remember gosh, 20+ years ago, I think you were looking at a unit in Columbus Circle in. I mean, I don't know, like late nineties. Tell me if I'm wrong about that. You know.
No, there was a couple of Manhattan sites.
Maybe like Times Square was always kinda like, "Can we do it? Can we do it?" You guys were a much smaller company obviously then. You know, do the city start. Is it, "Hey, this is interesting, and this is starting to open up," and you can now get sites that five years ago you couldn't and perhaps would've been more expensive?
You know, our real estate strategy is always, you know, if it's an A site, we're gonna look at it no matter where it is. Whether it's deep in the suburbs now because we have the smaller footprint of a Cheesecake Factory, or if it happens to be in a quote, unquote, "urban market," if it's a great location, we're gonna look at it. We're not gonna be, you know, sitting back and saying, "No, it's too urban." You know, some of the urban markets have certainly been challenged throughout COVID.
Right.
To your point, people are coming back to work. Some parts of the country a little slower than others. If it's a great site, you know, we have a large portfolio, and maybe it's not a Cheesecake Factory.
Right.
Maybe something else will work in the bottom of an office building a little bit better than The Cheesecake Factory may have.
Well, you have. Your Cheesecake Factory, Michigan Avenue, went in the mid- 90s, right?
Right.
I mean, that's.
Long time ago.
A long time, yeah. That's a, y eah, as we say, like that's what. Yeah, so it's shown that it's kinda worked in a number of different ways. Of course I ask, you know, this question in the context, 7% square footage in an industry where people say, "Oh, casual dining, full service is mature, full service is built out." It's easy to, you know, kinda say that, you know, from the outside. As you kind of think about, you know, just your company , you know, 7% is certainly on the higher end of where your peers is maybe, you know, even I'd have to look, you know, where Texas Roadhouse, for example, you know, would grow. That has its own, you know, kind of site profile.
You know, talk about, you know, kind of the placement of that 7% top-down number, bottoms-up number. How did you arrive? Like, why 7% the right number versus 5% or 10%?
Yeah, yeah. No, I think it's a, it's probably an average, right? I mean, as David said, we're site specific. You know, when we built that up, if you think about it from both bottoms up, we're thinking about each brand, where it's at in its life cycle, how many units can open. So like North Italia, we have a huge runway. But operationally, you're only gonna get to maybe 20%-25% unit growth annually to support that, to hire the managers, to hire the staff, et cetera. You know, that puts that brand in a 6% or 7% unit growth right now, right? For example, Cheesecake Factory is a much more mature concept. We're at two-thirds of the unit build-out. It's probably gonna grow at that 2%-3%. That puts it at a 5% to 6% annual.
We took each brand. We kind of said, where are they, and how much can we grow? You know, on the flip side of it too, we look at it and say, in aggregate, we think that there's a lot of opportunity to gain market share and experiential dining. If we could grow at 8% or 9% because the brands take off and we could fuel that, I think that's a potential too, right? That isn't a limiting factor. Even if we think about, you know, full service being mature, it's not getting easier for independents to maintain their positioning, and that's what a North Italia feels like. It feels like your independent local Italian restaurant. We think that runway is actually much greater. It's more that that's where we sit today in terms of our scale and the life cycle of each of the brands.
It is interesting. I mean, you take The Cheesecake Factory growing 2% or 3%, the amount of cash it generates. I mean, you guys have always done a good job of keeping the assets up. In other businesses that are truly venture stage, I mean even, you know, like incubation, you know, kind of venture stage. I mean, it's. You know, how do you? It's, you say, okay, it's a, like a CPG company with a venture portfolio in it. Like, it is just like, you know, what you're doing is unlike what, you know, what anyone else is doing. Certainly from a modeling perspective, and you know this, it's hard.
Yeah.
You know? Like, you know, like, how do you... I mean, you know, from a CFO and, you know, expectations and the fact that even the timing of restaurants and when they open, my unit on Lincoln Road, that No Fault of Your Own is six or nine months later.
Sure.
-probably than what you wanted. Like, you know, in terms of, you know, you know, hitting your algorithm on an annual basis, is there a way, you know, to kind of "reduce risk," reduce volatility, have more predictability in these results, given the fact of, as we said, 16 brands, some are mature, some are kind of venture? There's just, like they're just p arts of the business that are beyond your control in any given quarter and even any given year.
I think it's interesting. I've gotta separate it into two parts. On an internal perspective, just to help people with that, the unit economics for FRC North, the margin profile should be, you know, similar to The Cheesecake Factory when we get to the level that we wanna be, right. Maybe 1% or 2% better. Italian's a little bit simpler. If people simply modeled the entire portfolio at The Cheesecake margins, and then we do provide sort of that $1,200 sq ft sales perspective, you're gonna get pretty close. The big piece on the predictability, which I think is really sort of the linchpin for us, is on the aggregate margin piece, not so much about the portfolio, but about the timing of the input costs over the last year and the pricing actions.
We actually kinda have the same philosophy with North, with Flower Child, as with Cheesecake Factory. There was a little bit of catch-up to do. You know, I think if we see the input costs, we've seen labor over the past couple months be much more stable. If that continues and we don't have another big factor like a war, that alone, I think, gets us back into the a narrower range of expectations, more so than when the openings happen the portfolio itself.
Let's talk about as reported, now I'm just trying to find my numbers here in front of me. Fiscal 2022, The Cheesecake Factory brand, it's at 77% of revenues. If Matt please correct me, 12.5% store margin. North Italia, which is meant to be the higher margin business, 10.5% store margin. FRC ex- Flower Child, it's 14% store margin. Flower Child is in with your bakery, that kinda gets a little confused. You know, here, you know, here we are, you know, again, I'm just gonna kinda point maybe away from you, is like we're talking about a mid-teens margin business.
Yeah.
One is, you know, The Cheesecake Factory is 300 basis points away. North Italia, relative to what it's meant to be, is 800 basis points away. This is the right? It's the opportunity in your story and your stock.
Yeah.
What you spend a lot of time talking about.
Yeah.
When do we get to these? You know, let's talk about The Cheesecake Factory, let's talk about North.
Yeah.
Like, when is like the point where you say, "John, model mid-teens," you know, 'cause that's where we're gonna go.
No, it's perfect. It's perfect lead-in, because you said 300 basis points for The Cheesecake Factory. We took about 3% incremental pricing in December, right? I mean, that math was pretty clear to us as purely driven by the inflation in the second and third quarters of last year relative to the pricing that we had taken.
Right.
The key is what's inflation going to look like in 2023, and just keeping up with that. In December, we were slightly ahead of the 2019 Cheesecake Factory margins, right? We feel like we've done that catch up, and if the input costs are more stable, we're going to see a lot more stable results from our end. Same thing actually with North Italia. We actually took some significant pricing in the fourth quarter and have another round there. We took the same philosophy. I mean, nobody knew exactly what was going to happen when we went from 2% inflation in January of 2022 to 9%, you know, in June. Our commodities for last year were 15%-16%.
Right.
I mean, I wouldn't have ever guessed that could have happened.
Right.
You know, when we look at the pricing, this puts us even still a couple of percent behind the market, so we feel good. We have some latent pricing potential and, you know, we're gonna close that gap. You know, we feel like, look, long term, if you look at the sales from last year, you can see that the brands are thriving. This is not a problem with the brands. As long as we're at or below the market level of pricing, then, you know, we should be good.
Discuss first quarter, second quarter pricing plan. I mean, you mentioned North Italia. I think you have something coming up, if not already, you know, at The Cheesecake Factory. Is that increase enough, you know, as we kinda look for fiscal 2023?
Yep.
You know, is that enough to kinda get us to where we want to go?
We think mid-single digits total inflation, right? When we're talking about the entire basket of commodities, labor and other OpEx. We took, what, 3.5%, you know, basically married the last year Q1 pricing for The Cheesecake Factory.
Yeah.
That would say if we get to the summer and things have continued the same, you know you're in a 1%-2% level. You're back to kind of a normal cadence, 'cause that would get you around the 5%-6% total pricing necessary. You know, we feel that that's realistic. The commodities outlook for us, you've got the 10%-12% in the first quarter 'cause you're really lapping pre-war, right? There's a big hurdle there. For the back half of the year, we think it's 3%-4% if things don't change.
Yeah.
Wages are at the lowest level of inflation for us in five or six years in heading into the year. You know, those indicators to us are, you know, saying that the business is heading to a better, a more stable environment.
The economy is not at the lowest level of wage increases in five to six years. Does that just mean last year was just so extreme? Like, do they say?
The last two years have been-
They're like, "Hey, I don't like my 2%-3% wage increase. I wanna be 7%." I mean, do they look at it year-over-year, or how do they feel about-
Yeah.
How do they feel about something like this?
I think there was a lot of catch-up.
Right.
That happened in the, in the market. You're talking about 10%-12% wage increases over a one-year period in the middle of the pandemic, right? To kind of right-size things. Keep in mind, what we're seeing too is for The Cheesecake Factory, we have 4 times the number of applicants per open position as we did last year.
Yeah.
There's definitely a flight to quality.
Yeah.
You have some concerns about the environment. What we've learned over 4.5 decades is employees look at their paycheck. How much money did I take home? Not necessarily the actual percent off. If you're a server, you're making really good money at Cheesecake Factory the way tipping is today. If you're a line cook, you wanna get your hours.
Yeah, right.
We provide those hours, and so they look and say, "I'm making what I need to make. And if I go to an independent, y ou know, I may not get that. They may close Mondays and Tuesdays. Might have to work a second job. I think we're seeing some of that play out to our benefit as being employer of choice.
Your quality of your workforce is back to 19 or, you know, how is it? You know, applications or applicants are one thing, but quality of applicants are another, especially now.
I think over the past six months, dramatically improved.
Yeah. Okay.
You know, in the middle of the pandemic, were we hiring people with no experience? Yeah, I think everybody was hiring people with no experience, right?
Yeah. Yeah.
This is how you hold a knife.
Yeah.
This is how you work in a restaurant. Today, I think there's a lot of people that have moved back into the hospitality industry. People that had left, they were working in an Amazon warehouse or trying to sell insurance or just thought they were gonna do something different. We're seeing much more strong, experienced-based people that are applying today.
Okay. Understood. The price increases, you know, that we're taking, I mean, they're very cost-based, obviously there's what the consumers feel good about, what the consumer can bear. You know, there's obviously demand component, you know, to price as well. How are you seeing your current elasticity? The consumer, just like with wages, not just looking at year over year, they're looking at the absolute tickets of managing their ticket, looking at it's like, hey, i t's what their total take-home pay is. What you said on labor is almost the exact same way that maybe customers look at the ticket, is I love cheesecake, but this is a big ticket. I'm gonna come one less time a year. That happened, that would matter to you.
Sure.
You know, for, especially for our core customers. How is a consumer, when we're talking about pricing as if it's just like a number, how is the consumer feeling about, you know, the relative value of the brand?
Yeah, I mean, I think that when we look at the particularly the government data, our pricing is 3%-4% less than average. I think our value proposition is holding up well. We never direct people when they come into The Cheesecake Factory. I mean, that's just sort of been one of the, you know, the pieces that David Overton has been so strong. We don't put table times, we don't do anything like that. People are gonna come in and choose. We have so many price points. If you wanna get an appetizer for $12.95, it's probably enough to feed you, right? That to us is part of the magic. We look at incident rates, they are the same as they have ever been.
In fact, dessert is 1% higher you know, than pre-pandemic. In the fourth quarter, year-over-year, with 9% pricing, we have exactly the same purchase behavior as we did in 2021.
Your, I think this is out of your K. Correct me if I'm wrong in this. Your Cheesecake Factory ticket as reported, $29.40 in 2022, $29.30 in 2021, $28.90 in 2020. Is that right that it's been flat over a couple of years, or do I have my table wrong?
That's a total. What happens, and we've had this question with the whole mix of the off-premise and on-premise.
I mean, because it's interesting because you're like, "Hey, listen, the effective price is...
What, you know, the on-premise is a couple of dollars, you know, less than that.
Yeah.
The off-premise, when it was, you know, 32% was weighting the average ticket higher because of the way that we calculate it.
Okay.
It has been, yes. If you were to say on-premise, I mean, it was 23%, 24%, now it's 26%, 27% after the past couple of years.
You know, again, getting back to the, you know, the art of the restaurant, which you guys really do so beautifully. You know, again, it's especially how you see the kitchen staff all interact. I mean, it's really a beautiful thing to see.
You know, when I hear things last night like, oh, The Cheesecake Factory has 1,500 SKUs and 230 menu items and 70 sauces made on-premise, of course, it's very easy for me to be an analyst and say, "Listen, this industry has benefited so tremendously, you know, on focusing on efficiency, of doing fewer things better, or focusing, you know, the 80/20 rule." It's like, "Hey, listen, you know, let's, like, really focus on the, you know, on the, on the, maybe the 20% of items that 80% of customers order and just do a better job with those than anything else." There's like... You guys are different than the rest of the industry in terms of what your approach has been.
I'm like, I'm not saying it's not the right one, but other than it's just a, you know, kind of a statement of fact. Are we? The technology and what can be done on off-premise and just how, you know, the there's been some capabilities that have been added overall in food service that didn't exist in the seventies, eighties, and like the nineties and what the business is built on. I mean, you guys really, you are a scratch kitchen.
We are.
Really.
We are.
Chopping big cases of uncut, unclean produce come in. You guys are like, you know, it's serious.
Yeah. Yeah.
I mean, it's any fine dining restaurant.
I think when you sit down and you taste it, that's the reason that we have the highest average unit volumes in the industry. That's the reason that that choice across that menu and the no-veto vote that we've talked about for so long is the reason that sales volumes are what they are at The Cheesecake Factory. We're at the same time, though, not gonna not look for opportunities to increase productivity.
Yeah. Yeah.
Right? An example we give frequently is that we pound a lot of chicken in our restaurants, right?
Yeah. Yes.
Chicken comes in, comes in in a breast, and we have to get it down to an inch, right?
Right.
We've actually now pushed that down to our supplier and said, "How can we find ways to take some of that productivity challenge that's in the restaurant, reduce some labor cost, and make sure that that offset on the cost side of that poultry, doesn't inflate the overall cost of sales, and we get a benefit in the restaurant?" You know, that complexity also keeps competition at bay.
Yes.
Right? We can all name the competitors who increased to 150 menu items over the past 10 years are now talking about getting back down to 50.
Yes.
In the long run, that's probably gonna have an impact to their overall sales.
Yes. understood that. In terms of the, you know, the people that are attracted to the kitchen, in some cases, it's simplification is making the job easier for, you know, the staff and allowing them to do the most value-added activities, for example. Is any like coming out? I mean, as we, you know, as that's kind of been a top-down approach, I mean, is there, like, any upwelling from some of the operators that exist at the store level saying, "Hey, listen, I have ideas of how we can be better, faster, more consistent, maybe even, and put something better on the plate.
All of the systems at The Cheesecake Factory over the past 30 years have been created by the operators in the restaurants.
Okay.
It wasn't Bain, McKinsey didn't show up and say, "Here's how you should be running the restaurants." Like, they're all internally grown systems and processes.
Right.
We have a lot of mechanisms within the structure today that allow people to bring up their best ideas. They get shared directly under my email or it shows up in David Overton's. It's, and people, whether it's a menu idea or a simplification process or a way to make any process easier and better, we include also all the way down to the hourly staff to be able to be a part of that discussion. I think part of the employee value proposition at Cheesecake, and when we talk about growth, what we didn't really talk about is, you know, human capital's gonna be the linchpin for all of us in this industry moving forward. Our employee value proposition, being on the great place to work for list from Fortune for nine years in a row. It's also the quality.
People wanna work somewhere that they can be very proud of, especially Gen Z and Gen X, they're proud to work in a kitchen that's a scratch kitchen. I think that helps us with attraction and then keeping people, because, you know, when their family asks them where they work, they can sit up proudly and say, "Hey, did you know everything's made fresh from scratch?" It makes a difference on the employee side, too.
It was an interesting comment that you said about Sam, and this is going to be a bad paraphrase, you know, but have the customer flow and the revenues first, and you can always go back and, you know, kind of solve the profitability or the cost problem after. Is that, you know, like, is that a multi-year journey? I mean, are there things like, again, I mean, I want to get back to that, you know, that The Cheesecake Factory, you know, kind of margin of, you know, of 12.8%. In terms of, hey, you know, we need to be faster, we need to be better, we need to be tighter, you know, less waste, you know, less, you know, comp, whatever you wanna call it.
You know, Are there any big ideas that kind of exist in the store? You know, it's gonna increase or is it just gonna be just a series of, hey, we just need to be incrementally better at a lot of different things?
I think that we've always had the incrementally better at a lot of different things approach over time. That doesn't mean we aren't willing to look at any new technology that may come around that may make it easier, faster, better, as long as it doesn't compromise the guest experience. You know, typically we'll get asked about tablets on tables. Like, that would be really easy. Why don't you go to eight tables in the station and just put a tablet there and let the guests... Well, that's not high- touch hospitality.
Yes.
Doesn't mean we won't look at it.
Right.
I think having the portfolio of concepts gives us a greater opportunity to experiment perhaps the things that we might not do immediately at The Cheesecake Factory, but maybe we could test. As an example, One of the concepts at FRC, they're testing handhelds.
Right.
Would we use handhelds at Cheesecake? It's easy to say no right away.
Yeah.
The menu's too big.
Right.
It's overly complicated. If there are things we can figure out in the ecosystem of FRC that maybe we could translate to Cheesecake, we'll look at every opportunity to be more efficient.
Especially as that, you know, it used to be, you know, the waiter, waitresses wasn't comfortable in using handheld technology. Now, of course, they are.
That's all they do is look at the phone.
Yeah. That's certainly been a change relative to when they were first, you know, first introduced. Let's talk about the composition of your board. I mean, Roark is probably the single biggest restaurant, directly or indirectly, restaurants in the country. You know, they were on your board for nearly two and a half years. You know, recently added some, you know, capital markets, financial, real estate expertise, related, partially related to the Angelo Gordon company. It's kind of interesting, like, okay, these guys, like, maybe they're like these guys are kind of financial engineers. Janice Meyer, right, the dear friend, former number one ranked analyst within your company. It's like you guys are like, okay, listen, you have, some real Wall Street type financial thinkers that have been or are on your board. Is that...
Is there any influence, you know, that kind of comes out of that? There's like, hey, just keep on going out and running great restaurants and the stock is gonna take care of itself.
Well, I think, look, t he blend of operations and finance are the key pillars. We also have a couple of long-term operators that have been in the industry. You know, and I, and I think our business has become more complex. We have a portfolio, we are growing multiple brands. We're focused on capital allocation, the board spends a lot of time thinking about the dividend and the repurchase and building units. Making sure that what we're driving to ultimately is providing ROIC for the shareholders. Do they trust the operations team to get the margins back?
Yeah.
Yes. When you do that, then how are you gonna optimize the company? Somebody like Janice has a lot of experience understanding how Wall Street thinks about multiples, how can we get credit for it when we achieve what we want to achieve? I think that that blend and bringing in some of that expertise is based on the fact that we're not as simple as we used to be.
You know, I think it's like as we talk about new unit inefficiencies, especially, you know, when we talk like look at the North Italia margin, for example. We look at, you know, presumably we're gonna get a clean look at Flower Child relatively soon. You know, I mean, I think, you know, that concept of new unit inefficiencies in the margins is, you know, something that probably is gonna be very helpful.
Sure.
People say, "Hey, listen, this is an average business or this is potentially a very good business.
In that regard, the margin structure, while the ultimate profile looks and feels like Cheesecake, the initial does not.
Right.
That's a great point of differentiation. Cheesecake comes out and runs 125% of what we think AUVs will be, right?
Right.
North is at 75%. It takes three or four years to build up, to get the sales, to leverage it is a very different look and feel. It's much more traditional in that respect. Being able to do the math on that, I think you're right, would, you know, give people that perspective.
Just our final question, I mean, are there any misconceptions or, you know, just like, you know, Street believes one thing and you guys just see something different based on, you know, the facts that you have?
No, look, I mean, I think it's hard to understand running an operations-based restaurant company through the last three years. Most of our public peers are marketing-based companies.
Yes.
A lot of the margin leverage has been cutting marketing and stopping the discounting piece of it.
Yes.
How do they recover?
Yeah.
Do they now need to go back and do TV? I think for The Cheesecake Factory, you know, the pricing lag and trying to understand the timing of the pricing versus the inflation, people wanna just see it print, which is totally fair. You know, we have confidence that it's gonna get there. I think doing that math has been tricky for people understanding, you know, the lag effect of the pricing piece of it.
Yes.
We feel like we have caught up and, you know, we feel like we have great sales trends and, you know, and we're seeing better input costs and so in total it feels more stable.
Excellent. Thank you so much.
Thanks, John. Appreciate it.
Thank you.
Thanks, everybody.
Thank you.