The Cheesecake Factory Incorporated (CAKE) Q2 2011 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Second Quarter 2011 The Cheesecake Factory Earnings Conference Call. My name is Alicia, and I will be your operator for today. [Operator Instructions] As a reminder, this conference call is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Ms. Jill Peters. Please proceed.

Thank you. Good afternoon, and welcome to our second quarter fiscal 2011 earnings call. I'm Jill Peters, Vice President of Investor Relations. With us today are David Overton, Chairman and Chief Executive Officer; and Doug Benn, Executive Vice President and Chief Financial Officer. Before we begin, let me quickly remind you that during this call, items may be discussed that are not based on historical fact and are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those stated or implied in forward-looking statements as a result of the factors detailed in today's press release, which is available in the Investors section of our website at www.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. David will start off the call today with some opening remarks. Doug will then take you through our operating results in detail and provide our outlook for the rest of the year. Following that, we'll open the call to questions. Now I'll turn the call over to David.

Thank you, Jill. Our strong business momentum continues with our sixth consecutive quarter of positive comparable sales. We saw gains across the board. Guest traffic increased as we continued to take market share. Menu mix improved again in the second quarter, which allowed us to effectively capture our menu price increases. Geographically, we saw strength across a number of key markets, including California, Florida, the Midwest, the Southeast of Texas. These are regions where we have a significant presence, and each one delivered at or above average comparable sales. As we saw in the first quarter, all day parts were up again in the second quarter, with the midafternoon and late-night shoulder periods continuing their considerable increases. We also saw a significant sequential improvement in comparable sales at the Grand Lux Café. Overall, trends in our business are strong and consistent. Our outlook for sales in the second half of the year is on track. The popularity of our brands, the innovation and the relevance of our menu, our relentless focus on quality and service, and commitment to delivering an exceptional guest experience, these are the sales drivers that we continually focus on. They're also the reasons behind our nearly $10 million in average unit volumes and our ability to maintain a favorable competitive position. In the category of things we can't completely control, is the current volatility in rising food prices. But what we can do and what we are doing is managing our business to offset these pressures without sacrificing quality. Our team is the best in the business, and they did an excellent job of managing our cost structure both at the restaurants and at corporate to deliver earnings that were again above plan. We opened our newest Cheesecake Factory restaurant in Short Hills, New Jersey earlier this week. It's a premier location and one that we've been interested in for quite some time. It's the second of 7 openings that we're planning for this year. Looking forward, we've got a good number of sites in the pipeline for 2012 that we're currently working on. It's too early to get into specifics for next year, except to say that our goal is to increase the number of new openings. As always, we're focused on A+ sites that can deliver our required returns. One of the many constants about our company over the years is our ability to generate a significant level of cash. This year will be no different, and we're confident in our outlook. As a result, we're significantly increasing the targeted amount of cash that we're returning to shareholders through share repurchases this year. Doug will get into the details. So at this time, I'll turn the call over to him.

Yes, thank you, David. Total revenues of The Cheesecake Factory for the second quarter increased 3% to $431 million. Restaurant revenues reflect the 1.2% increase in total restaurant operating weeks due to the opening of 2 new restaurants during the trailing 15-month period, plus a 1.7% increase in average weekly sales. Overall, comparable sales of The Cheesecake Factory increased 2.3% and were flat at Grand Lux Café. Guest traffic was positive and our average check was up over 1%. We are implementing an approximate 1.25% menu price increase at The Cheesecake Factory in our summer 2011 menu change, lapping a 0.7% menu price increase from the summer of 2010. The new menu will begin rolling out in August, giving us about 1.9% in menu pricing as we enter the fourth quarter. At the bakery, external sales were $14.2 million, about flat versus the prior year. As expected, cost of sales increased 100 basis points to 25.5% of revenue for the second quarter of 2011. We continued to experience higher food costs related to certain non-contracted items, particularly dairy and fresh fish, in addition to pressure from shrimp and a number of grocery items. Labor was 32.4% of revenue for the second quarter, down 10 basis points from the prior year. Our direct restaurant operating labor was about 20 basis points better than the second quarter of last year, due to overall productivity gains. Other operating costs and expenses were 24% of revenues for the second quarter, flat with the second quarter of last year. And G&A expenses were 5.6% of revenues for the second quarter, as we leveraged G&A by about 10 basis points. Depreciation expense for the second quarter of 2011 was 4.1% of revenues, down 20 basis points from the prior year period. The favorability stemmed primarily from the faster rate of depreciation on corporate and IT investments over the past few years. Preopening expense was $1.1 million in the second quarter of 2011 versus $0.6 million in the same period last year, in support of a higher number of expected openings in the third quarter of this year relative to last. Net interest expense was $1.1 million in the second quarter of 2011, down significantly from $10.5 million in the second quarter of last year. Interest expense in the second quarter of last year included a $7.4 million payment to unwind an interest rate collar on our revolving credit facility. Interest expense is also lower this year because we had 0-funded bank debt. Our tax rate for the quarter was 27.4%, in line with our expectations. Our liquidity position continues to be strong with a cash balance of about $59 million at quarter end. Cash flow from operations for the first 6 months of the year was approximately $94 million. Net of roughly $30 million of cash used for capital expenditures, we generated about $64 million in free cash flow through the end of the second quarter. We used our free cash flow to repurchase about 1.5 million shares during the quarter, at a total cost of approximately $44.4 million. Year-to-date, we've returned about $95 million in cash to shareholders through share repurchases. That wraps up our business and financial review for the second quarter of 2011. Now I'll spend a few minutes on our outlook for the balance of the year. 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. 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, known weather influences and the effect of any impacts associated with holidays. As a reminder, 2011 is a 53-week year for us with the extra week falling in the fourth quarter. Our assumptions for the full year reflect this. For the third quarter of 2011, we estimate our range of comparable sales between 1.5% and 3%, consistent with our trends in the first 6 months of the year. Based on this assumption, our estimate per diluted earnings share is between $0.36 and $0.39. There are a couple of factors that influence our third quarter earnings estimate. We expect 4 new restaurant openings during the third quarter, impacting the timing of preopening expense charges, as well as pressure from increases in food cost, which will persist as expected into the third quarter, contributing to total cost of sales being up 70 to 90 basis points higher than the third quarter of 2010. We continue to believe that food cost will moderate on a comparative basis in the fourth quarter and expect total cost of sales to be 35 to 55 basis points lower in the fourth quarter of 2011 versus the prior year period. This moderation is predicated on 3 things: First, mitigation of dairy costs on a comparative basis from the peaks that we experienced in the fourth quarter of 2010. Secondly, that we'll get a full quarter's benefit from the higher summer menu pricing that we're putting in place now. And lastly, that there'll be less impact from higher bakery cost of sales, since bakery sales are expected to be a lower percentage of total sales in the fourth quarter. Our cost of sales expectations for the fourth quarter will contribute to estimated diluted earnings per share between $0.50 and $0.55, based on an assumed comparable sales range of between 1.5% and 3%, consistent with our results and expectations for the first 9 months of the year. While we usually don't give specific guidance for the third and fourth quarters, the fourth quarter is implicit at this point in the year. And with the volatility in the commodities markets, we think it's important to provide you with as much information as possible to help you better understand our business. For the full year 2011, we expect diluted earnings per share to be between $1.62 and $1.70. This includes our assumption that total cost of sales for the year are expected to be about 45 to 65 basis points higher than 2010. Food costs are at their highest point in more than 20 years, and no one is immune to the cost pressure. The related impact to our total cost of sales will affect our earnings per share this year by about $0.11 relative to 2010, yet our full year earnings guidance has not changed, and in fact, we've brought the midpoint up again this quarter. We're able to absorb this pressure by actively managing our overall cost structure by increasing our efficiencies through $3 million to $5 million in planned cost savings and through the higher menu price increase taken this summer. Our outlook for comparable sales growth in the second half of the year has not changed. Our run rate is strong and stable, and we are confident about a 1.5% to 3% range for the next 6 months, consistent with the first half of the year. As a result, our assumed comparable sales range for the full year is between 1.5% and 2.5%, which reflects both guest traffic and average check growth. We now expect our tax rate to be between 27% and 28% for both the third quarter and for the year. Our projection for capital spending this year is now $75 million to $85 million, in support of our planned 7 new restaurant openings in 2011 as well as expected early 2012 openings. As noted in our press release today and as David mentioned earlier, we are increasing our target for share repurchases in 2011 to a range of between $125 million and $150 million. We have executed very well in our share repurchase program to date, completing about $95 million in repurchases already this year. And as I'm sure you'll recognize, there's a benefit to repurchases that are made earlier in the year, so we're pleased that we're just about achieved our original goal and have been able to expand our target to return even more cash to shareholders this year. With that said, we'll take your questions. [Operator Instructions]

[Operator Instructions] Your first question comes from the line of John Glass from Morgan Stanley.

If I could ask a question on the commodities and the outlook, I guess it's a 2-parter for a 1-question total. One is, what is your gross food cost inflation, Doug, now for the year? So not with the pricing, but what's the gross basket up now? And what did you think it was up last quarter? And second part of that is, I guess, your guidance last quarter was, stands if you kind of held the pricing with your lapping rolls off. You're going to take the 70 basis points. Now you're taking an incremental, say, 50 basis points. Your guidance has only changed to the upside. And so have you actually raised your food cost inflation assumption this quarter versus last quarter or being conservative? Maybe if you could answer that.

Sure, I'll be glad to. Our food -- our cost of sales inflation we would now would think would be around 4% for the year. So we previously, in April, thought it was 3.5%, which we said would be 2.5% in the back half of the year and 4.5% in the front half of the year, so 3.5% blended. So it's ticked up a bit. And the reason that we were trying to focus in order to help you frame, I guess, the impact on the P&L, we gave you an expected range of pressure on the cost of sales line in our prepared remarks, which I'm sure you heard. Now with respect to the pricing that we are currently implementing, 1.25% which is about 0.5% higher than what we were replacing, that's included in the guidance that we gave. It's what's helping to offset the cost of sales of pressure that has been -- is a little bit higher, as I mentioned, than what we had originally thought in April. And really, it's offsetting $0.11 of drag on earnings per share this year. So despite that drag, we've been able to continuously raise the midpoint of our annual earnings per share guidance rate -- range. And at the midpoint, we now expect 17% earnings per share growth as compared to the prior year. But that's baked into the guidance that we gave for the year.

Your next question comes from the line of Jeffrey Bernstein from Barclays Capital.

Just one follow-up on that question and then a separate one. The follow-up just relates to the pricing. I'm just wondering how much you've tested in particular markets? And perhaps, what you think it would -- I mean, you gave some color around the food cost. But what that pricing will do in terms of further leverage on the labor line, which you've managed to still drive in this quarter? So if you could just give some color on the labor outlook for the back half and what the total restaurant margin forecast would be, assuming that increased pricing. And then the other -- the follow-up question was just on the unit growth. I know, David, you mentioned, I guess 7 units this year. Just wondering whether you can give some color in terms of the site challenges, whether those prevailed. Sounded like you have a more favorable outlook as we look to '12, and they don't have anything locked. But if you can give some color in terms of how many perhaps your team could handle in 2012 and what type of acceleration you might expect, based on what you see at this point, that will be great.

I don't know that the market is changing, meaning that landlords are really starting to build. I think that's still, we're being told, is 13. The sites that we've gotten this year and the sites that we're looking at next year, we're looking at 19 at this moment. I'm sure I don't think we'll do 19. But we believe that we'll do more than we have this year. We're doing very well. But until we get a little further along in our process, I don't want to throw out a number. But we're anticipating more than we have this year. There are some good sites coming up and changes and stores are going out and then landlords looking for new tenants, and so on and so forth. It's not so much brand new construction. So in terms of what we can handle, we can really pretty much handle what we want. I mean, if we really wanted to do 20, we have the capabilities and I'd have no problem doing them. But well, we're not going to do 20s, but certainly I'm hopeful for double digits.

And back to your question about the pricing and the effect on labor and really other operating expenses, I think was your question, the margin. We would expect for the year that our labor line could be -- will be leveraged, and will be leveraged in the third quarter as well. So we would expect labor cost to be lower in the third quarter, but probably will be higher in the fourth quarter but lower for the year. And will be higher in the fourth quarter primarily -- you have to remember last year, we had some onetime benefits from the HIRE Act and from lower equity compensation, due to higher forfeiture rates that are impacting labor for the fourth quarter. But at the midpoint -- here's the way to look at the margins for the year. At the midpoint of our guided range for the third and the fourth quarter, we will see some improvements in our overall operating margins for the year despite the fact that we expect higher cost of sales by about 50 basis points, and despite the fact that we will see higher preopening costs by 20 basis points. We still should see some improvements in margins at the midpoint of our cost of sales or some small improvement in margins, overall. And that's also taking into account this year-over-year improvement that's muted or mitigated some by the fact that we have these onetime labor cost savings in the fourth quarter last year.

Your next question comes from the line of David Tarantino from Robert W. Baird. David Tarantino - Robert W. Baird & Co. Incorporated: I just got a quick, quick clarification on the traffic and check in the quarter. Could you give us those metrics? And then I have a follow-up.

Sure. The comps were up 2.1% for the quarter. The traffic was up 0.9%, which was improvement over where we were in the first quarter. And the average ticket was up 1.2%. So we were real pleased about the continued expected increase in the average ticket, especially, and that was really due. We've talked about nonalcoholic beverage sales in the past, and both our incident rate and our sales dollars for nonalcoholic beverages continued to show improvements in the second quarter, continued stabilization as expected. And that's what's helping to drive that average check higher, as we expected it would, and helping us to capture now almost all of what pricing we've put into the menu. David Tarantino - Robert W. Baird & Co. Incorporated: Great, that's helpful. The follow-up question is just really -- perhaps if you could give some color on the pace of traffic or comps during the quarter? And maybe how you exited the quarter? And just generally, how pleased you are with the run rate you're on. I know positive traffic is nice, but the pace of the recovery seems pretty steady, so I'm just wondering your overall thoughts on that. And maybe if you could comment broadly about the state of your consumer and what you're seeing out there and if you're seeing any hopeful signs that things could get even better from here.

Okay, well that's -- first of all, the month-by-month during the quarter, there really wasn't a lot of variability within the months of the quarter. June was the strongest month, which is similar, I think, to comments that maybe other restaurant operators are making. It was our easiest -- it was the easiest comparison, at least for us. But there wasn't a whole lot of variability. What we really like about our comp store sales trend is exactly what you said, David, is that they've been steady. They've been steady in this range that we've had for, I would, say 6 or 8 months. And just to give you a little bit of perspective on our comp store sales and what they do to drive our profitability, with respect to a 2% comp store sales gain for us at a $10 million average unit volume, if you did the math on that, you would get that, that's a $50,000 increase for every restaurant for the quarter. So it's a material increase. If our average unit volumes were say, $3.3 million, it would take 6% comps to get to that same $50,000 increase. So I guess what the point I'm trying to make, is that $50,000 is a big sales increase at 2% comp, and is maybe part of the reason why we get overall better margin leverage on comp store sales, like 2% or even lower than 2%.

Your next question comes from the line of Larry Miller from RBC Capital Markets.

My question was sort of a tangent to that prior question, and really wanted to look at it a different way. I would think this sounds a little bit like the historical Cheesecake Factory, that we're starting to get to that point where you guys are thinking about comps really only equal in price. But it seems to me that there'd still be some opportunity to recapture some capacity, am I thinking about that right? And then, I'd also like to hear a little bit about the other side of the P&L, if there's any more cost-save opportunities more than that $3 million to $5 million over the next couple of years, that we might be able to work into the earnings model?

Yes. Well, Larry, I think that you've got to look at the last 6 quarters, we've had pretty decent traffic growth in each of those quarters. I mean it's not 3% or 4%, but it's close to 1%. It's somewhere between 0.5% and 1%. So the fact that we're able to get that and we're able to increase our average check, because guests are managing their checks less and starting to maybe buy nonalcoholic beverages and other things more than what they were. But all of our day parts were up, and that's part of what's helping us being able to drive guest count. Shoulder periods were actually up the most. In fact, shoulder period, which we call the midafternoon and the late night, are up more than twice the percentage of our comp store gains for the entire system. So that speaks to the fact that guests are moving out of peak period into shoulder periods, which is good for our ability to continue to grow traffic. So we are not making the statement, "We don't think we can continue to grow traffic." I think that we would look to be able to grow traffic over the next number of years by, pretty easily by -- certainly the capacity is there to be able to allow us to grow traffic by a decent amount in the continuing future, as well as get our average check. And then the other part of the question?

It was about cost savings, Doug.

Incremental cost savings, okay. We're just now starting to implement the $3 million to $5 million. We talked about at being a second part -- a second half of the year mainly. So it's starting to go into effect now. It's on track. There are certainly other things that we can do to save cost, but they won't be big. There are always things that we can do to get better. But specifically, what we have identified today is $3 million to $5 million.

Your next question comes from the line of Destin Tompkins from Morgan Keegan. Destin Tompkins - Morgan Keegan & Company, Inc.: I wanted to follow up on your comments around the shoulder periods, and it sounds like you still see a lot of opportunity there and you're obviously seeing some success. What would you attribute -- kind of the most to your success there? And kind of how would you relate where the shoulder periods are today compared to maybe where they were 4 and 5 years ago?

The shoulder periods fill up as your primetime waits get longer. So if really -- if you're on a 1.5-hour wait rather than 45 minutes, you'll be busier for a half hour longer in the evening. And it's really the same at lunch. If you're running a longer wait in the heart of lunch, you'll have more people in your restaurant at 2:30 and 3:00 rather than an empty restaurant at 2:00. So it really is, as more people come into the restaurant, it naturally -- they'll naturally stay longer or they'll come a little early to avoid the wait, and that's just naturally there. We're not back to where we were in terms of the length of the waits. I mean obviously, many restaurants have very long waits. But if you look at the whole system, we still have room to be busier. So that's what we work on, and we work on that in all the ways that you know, people bring in, in every peak business in a restaurant.

Yes, I think that we -- when guest counts have fallen off over the last couple years, other than the last 6 quarters. Before that when they fell off, it mainly came out of shoulder periods. You've never gone into our restaurants at 7:00 on Friday night and seen an empty restaurant. So it's always been the shoulder periods where we've losses. That's where we'll be making it up, so that's why we focus on that, primarily. And as David said, it's the longer waits during the peak periods that's going to help us do that. Destin Tompkins - Morgan Keegan & Company, Inc.: I guess I was thinking more along the lines of Happy Hour programs and different promotional activities, is there anything specifically beyond just having longer waits that you're doing to drive those periods?

We have a Happy Hour. We've had one for almost a year now. It's not a huge Happy Hour, because we're not a sports bar and we only draw a certain crowd in. So we do have that, and that might have been a little help. We always had a bar program. Now, we have an official Happy Hour program. We're doing a little better with that in the previous program. We don't do any promotions. We don't do a late-night Happy Hour. We do lots of things on the web, but it isn't day-part specific. It's just trying to do more business in general. Destin Tompkins - Morgan Keegan & Company, Inc.: Okay. And then just one clarification if I could, Doug, on the fourth quarter cost of sales commentary that the one stipulation was mitigation of dairy. Would you -- are you anticipating that dairy would come down from an absolute basis? Or is that more based on a year-over-year inflation?

It's mostly year-over-year inflation now. On an absolute basis, we would assume that's coming down a little bit, but the majority of it is year-over-year.

Your next question comes from the line of Matthew DiFrisco from Lazard Capital Markets.

Doug, I just had a couple of questions. First, just to clarify some guidance. I think you said the tax rate was in line with expectations. Are you now looking at for the full year, sort of a 27.5% or so? I thought the prior guidance was between 28% and 29%.

It was, and so we're looking at right now between 27% and 28%.

Okay. And then also as far as -- can you give us some color as far as the 7 stores, when we're all said and done, are they all Cheesecakes or are they going to be maybe 1 RockSugar and what about maybe 1 Grand Lux?

All the 7 for this year are Cheesecake Factory. We will be planning a Grand Lux for next year, and we haven't made up our mind about RockSugar yet.

Okay. And then is there a -- can you give us some details as far as the size of those stores still to come? I saw the Short Hills mall being 10,000 square feet. I was curious on the future ones. Are they closer to it now?

No, they're a mix. I don't -- we don't really keep track, I mean in my head. But they're mostly 85. There are some 10. And we, as we've said, we try -- we're trying 7,200 in a market this year that we'll open in August. And if we like that and if it's balanced, there might be other markets that are excellent, but that we only can project 7.5 million.

That's great, okay. And then last question, there was a comment about the guidance for the fourth quarter. Part of the COGS outlook also incorporated bakery being, I believe, less of a mix. I'm just curious why do you expect bakery to be less of a mix in the fourth quarter?

That's a good question, Matt. No, it is a good question, because it's bakery cost of sales are higher than restaurant cost of sales, so you just have to understand that in general. So while we don't expect bakery sales to be down in the fourth quarter, third-party sales, we actually expect them to be up a little bit. It's really primarily due to the extra week of restaurant -- the extra week in the fourth quarter, where restaurant sales are very robust in that extra week and bakery sales are more normal or really don't -- aren't impacted very much. So that's causing about a 1% shift in bakery sales as a percentage of total sales.

Your next question comes from the line of Brad Ludington from KeyBanc Capital Markets.

Most of them actually been asked already. But I wanted to touch on the August menu rollout. Are there going to be any new categories you're looking at or any surprises? Or is it just kind of maybe changing out some menu items on small plates in the regular menu when that comes out?

We have a policy that we don't talk about new items before the menu's rolled out, because we're probably the most copied casual dining restaurant out there. There will be some new things, as well as some items that we've taken on and put off the regular menu. So coming up, wait and see.

Your next question comes from the line of Joe Buckley from Bank of America Merrill Lynch.

Doug, could you elaborate a little bit more on the fourth quarter cost of goods sold outlook? I know you said it was more year-over-year than absolute changes, but talk about what happened last year in the fourth quarter with dairy cost. And are you a little bit more covered this year? How much -- I guess I'm asking how much visibility there is into the fourth quarter cost of goods sold outlook.

Well, the dairy costs are not contracted. So they spiked and were extremely high in the fourth quarter last year. And that's why we're confident in when we lap around this year that we won't have as big a spike as what there was last year in the fourth quarter. So it's mostly that. And then, so all the other non-contracted items, we have to use the same kind of spot process that we've been using. It's very difficult, because this is a very volatile cost of sales and food cost market as you know. And so we're using our best estimate for non-contracted items. We're looking at spot prices. We're looking at futures prices. We're using forecasts from our purchasing group, and that's pretty much all you can do with respect to non-contracted items. And then you come up with your cost of sales based on that. That's what we did in the second quarter, and we were spot on, maybe even a little bit under what we thought the increase in cost of sales would be in the second quarter. So we've been pretty close on our cost of sales prognostications.

Is there anything more that's covered by contract at this point than there was in April? Or is that pretty much the same?

Not, not really, pretty much the same.

Your next question comes from the line of Sharon Zackfia from William Blair. Sharon Zackfia - William Blair & Company L.L.C.: I had a quick question on the average weekly sales lagging the comp growth. And I was wondering if that was a function of the smaller format Cheesecake season opening and if that's a trend we should expect to continue.

No, I think it's purely a function of the fact that some of the restaurants that we've opened recently have lapped around a year. They're off of the honeymoon sales volume, although still doing very good volume, but off of its honeymoon sales volume. And that they're not yet in the comp store sales base because they've only been open just over a year as opposed to over 18 months. So I think that's the -- there's not much difference there, but that would make up almost the entire difference, because I asked that exact same question, Sharon. Sharon Zackfia - William Blair & Company L.L.C.: Is that something that we should expect to continue? Is there something that was really strong about, I guess it was Tucson [ph] and Delaware.

No, I think that as you grow more restaurants, that could become something that people will ask about, because our restaurants do generally open to very high volumes. And the idea would be that when the dust settles and the honeymoon period's over, obviously, it settles into volumes that are providing the returns that you're looking for, so. And that's what's happened on these restaurants, but they typically when they lap around a year, unless they didn't open strong, they're going to be down.

Your next question comes from the line of John Ivankoe from JPMorgan. Amod Gautam - JP Morgan Chase & Co: This is Amod Gautam for John. A couple of quick ones. One, could you just talk more about how you arrived at the decision to take pricing of 1.25%? Given your brand positioning, I would think you probably could take a little more and not have to bite the COGS pressure in the third quarter. And then second, and related to that, how much cash do you feel you'd be comfortable with for working capital purposes on your balance sheet?

I think that the answer to that is somewhere around $50 million. So I don't -- I think just to be sure that we could pay all the bills every day, somewhere between $40 million and $50 million, so we're maybe just a little bit above that today. I always start off conversations about pricing by emphasizing that we're trying to achieve a balance when we look at pricing. Balances between capturing more guest traffic and offsetting cost pressures. And it's an art and not a science, because you really never know, right, how guests are going to react to higher prices, until you go through that process and put them in the menu. But we did see our cost of sales going up, we knew we needed to have more price to better protect our margins. And we felt that we had pricing power. And we felt that we should -- we were aggressive as we wanted to be without being overly aggressive. Is there more pricing power there for us? Sure. But I think that our desire is always to be followers rather than leaders, when it comes to pricing. And we allowed the news of higher food cost and -- that, I think, are fairly mainstream now to sink in with consumers. So they're seeing higher prices at grocery stores. And that's why we felt comfortable with taking 1.9, and we would rather not have been aggressive on pricing. You never stimulate guest counts by taking more pricing. So we took the pricing that we thought we needed. We were able to increase the midpoint of our range of earnings for the year. We're going to have good earnings growth for this year, despite the fact that we have higher food cost. But the most important thing is, we're going to have a very strong and healthy business as we enter future years. Amod Gautam - JP Morgan Chase & Co: Okay. And if I could just slip one more in. The ending second quarter share count, given the share repurchase?

Yes, are you asking what it is? Amod Gautam - JP Morgan Chase & Co: Yes.

The diluted shares outstanding for the quarter? Amod Gautam - JP Morgan Chase & Co: The diluted ending shares outstanding, not the weighted average.

I'd have to...

We can get back to you off-line.

I'd have to get back to you on that, yes.

Your next question comes from the line of Steve West from Stifel, Nicolaus.

A couple kind of outlooking questions here. I know international business isn't a big impact yet in recent time. But can you give maybe an update on that and how that's going? Are you seeing any delays with all the civil unrest in the Middle East? And as a follow on kind of to what Brad was asking on the menus, maybe not specifics, but with the health care plan to add calorie counts to menus here at some point, probably later this year, how are you guys thinking about that? And do you need to do anything reactionary for that?

Well, I can cover the calories. We have calorie counts in about 6 or 7 cities right now. And there has been really no change. Desserts have stayed strong. They haven't even moved around the menu. So again, we feel when people go out to eat, it's very celebratory and they're eating the foods they enjoy. At home, they will eat more low-cal foods. Having said that, we really have some very low-calorie items on the menu already. And I think people who want to eat that food find it very easily at the Cheesecake Factory. So we're not concerned about that. And if every area in the country would be -- have the same rules on that, it would actually be easier for us.

I actually too -- to add to that, we allow any substitution you want to do. So if you would rather have a broccoli than french fries, we'll do that. The fact is, most people would rather have french fries. So we do substitutions all the time. With respect to international development, that's going along as we had planned. We have 5 sites that have been identified for build-out. We don't know the exact timing of these build-outs yet. But certainly by sometime in the middle of next year, you will see the first sites in the Middle East. And I think that, that's exactly what we expected. So that's going along fine, as is the discussions with a number of other potential partners. None of which we have announced any kind of transactions with. But we are having discussions currently with potential, very highly qualified partners in other parts of the world as well.

Your next question comes from the line of Bryan Elliott from Raymond James. Bryan Elliott - Raymond James & Associates, Inc.: Since you let John Ivankoe ask 2, I'm asking 2. Just actually 2 clarifications. One, I just want to make sure I got the pricing right. So pricing in this quarter before the August rollout was what again?

We had about 1.4 in the menu. Bryan Elliott - Raymond James & Associates, Inc.: Okay, and we're going to be at about 1.9 by the fourth quarter. What's the weighted mix? What do you expect for Q3?

Not -- it will start rolling it out soon. But it takes a number of weeks for us to get this menu in every restaurant. So there'll be some impact in the third quarter but not a big one. Bryan Elliott - Raymond James & Associates, Inc.: So maybe 1.5, 1.6, something like that, okay. And the average check you mentioned has been driven, I think I heard that nonalcoholic beverages has been the main factor in allowing you the average ticket to get closer to menu price?

Yes, the improvement in nonalcoholic beverage mix, right, yes, the improvement. It's still not positive year-over-year, close to being flat year-over-year, which is allowing us -- so since it's not going down in every other menu category. Well, desserts in particular are still going up. We had a higher percentage of sales, dessert sales this quarter than we did last year in the second quarter. But the fact that the rate of decline of nonalcoholic beverage sales is decreasing has helped on our average ticket. Bryan Elliott - Raymond James & Associates, Inc.: Okay. And then lastly, did you -- I don't think we heard any preopening commentary. What kind of preopening numbers are embedded in the guidance now, given the timing of openings for Q3 and Q4?

Well, we have here it's 4 -- at 4 in the third quarter and 2 in the fourth quarter. So there might be some shifting around that people would have to do if they had 3 and 3, so that's the shifting you do. Bryan Elliott - Raymond James & Associates, Inc.: Right. So -- but with that, will it be about even through the third and the fourth, will look close? Or the third will be higher?

I think the third would be higher for sure.

Your next question comes from the line of Keith Siegner from Crédit Suisse. Keith Siegner - Crédit Suisse AG: Just a quick question on Grand Lux. So I mean Grand Lux has been doing okay, but clearly not as good as The Cheesecake Factory. So in thinking about opening a unit next year, I'm just curious, the reason to open a unit next year, like how are returns on a new unit? Or what do you anticipate as returns on a new Grand Lux versus a new Cheesecake? And does that take away the opportunity to open a Cheesecake? And then, kind of tying this together, the move to make Grand Lux a little less grand? Any updates on that will be helpful too.

Well, we are designing a restaurant that will open next year on the East Coast. And that's exactly what we're doing. We're bringing it down to 8,500 square feet. We're bringing down some of the investment cost. We're making it a little more approachable, and that's what we're planning on doing. We're hoping that returns will be equal or very, very close, but we'll have to get that restaurant opened in order to verify that. But that's what we're working on, that's our goal. All we said was most likely, where a Cheesecake is, that a Cheesecake would open in an area before Grand Lux, that might not always be the case. But usually Grand Lux would be the second in an area. But with all the Cheesecake Factorys, that's going to be sort of the way it will be anyways. And what was in ...

I think that was it, unless there are more [indiscernible]. But the return expectations for Grand Lux that we would set for ourselves, and part of the reason we're making some of these modifications, is that they -- that we get the same kind of returns. We certainly have higher volumes out of Grand Lux. If you took the average volume of Grand Lux is where somewhere right at what Cheesecake Factory is. So very high-volume concept. Currently, the current ones don't have the same overall returns, some of them have much higher. But overall, we don't have the same returns. So we're working on why that shouldn't be, and we think we can get there. Keith Siegner - Crédit Suisse AG: Okay, that's very helpful. One quick follow-up if I can. In terms of Grand Lux variance across the units. Are the trends relatively similar? Or are you still seeing more weakness in particular locations?

Well, I think we said last quarter, it was only 13 units. The potential variability is very great quarter-to-quarter, with only 13 units in the base. And there's certainly a disproportionate impact from our very high-volume locations. And certainly, the 2 in Las Vegas are very high-volume locations, and we saw improvement in those locations this time. And so really, if you take those 2 locations out of the mix, Grand Lux or the other 11 restaurants in the system were up the same, pretty much as what Cheesecake Factory was.

Your next question comes from the line of Mitch Speiser from Buckingham Research.

You gave us some information on geography and the comps by geography. Were there any areas that were a little bit soft? And any reasons why they were soft? And if I could just maybe throw in a second question just on the dairy cost that will extend [ph] for the fourth quarter, are you expecting your overall dairy to be down on an absolute basis year-over-year? Or just less inflation?

We're expecting that to be down year-over-year, but that was not because we expect a huge falloff now. That's because it was so very high in the fourth quarter last year. As far as markets go, we talked about the markets that were strong. And particularly, we're really happy with the fact that California was well above the system average. And that's good for us because we have a lot of restaurants in California. But markets that we've talked about before like the Southwest, continue to be a little more challenging. Obviously, way below the average of the 2.1% for the system. And it's -- that's just a weaker economic environment. I think that most operators you talk to are having more trouble in the Southwest.

Your last question comes from the line of Nicole Miller Regan from Piper Jaffray.

This is Josh Long for Nicole. I have a quick one, but just any update to the thought or kind of the strategy or philosophy around eventually getting some Cheesecake Factory items out into the grocery channel? I know you guys do the Cheesecakes in kind of the big-club stores. But just kind of updated thoughts around there. I know quality of food has always been kind of the #1 focus on that.

It still is, Josh. We don't feel that the processes to freeze and to lengthen the shelf life, they won't meet our quality expectations. So at this point, there's been no change, and we have no plans on creating something for the grocery store shelf. Thank you all.

Ladies and gentlemen, thank you for participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.