Good day, ladies and gentlemen. And welcome to the First Quarter 2015, the Cheesecake Factory Incorporated Earnings Conference Call. My name is Steve, and I will be your operator for today. [Operator Instructions]. As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Jill Peters. Please proceed.

Good afternoon, and welcome to our first quarter fiscal 2015 earnings call. I am Jill Peters, Vice President of Investor Relations. Joining me on the call today are David Overton, our Chairman and Chief Executive Officer; David Gordon, our President; and Doug Benn, our Executive Vice President and Chief Financial Officer. Before we begin, let me quickly remind you that during this call, items will be discussed that are not based on historical facts and are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results could be materially different from those stated or implied in forward-looking statements as a result of the factors detailed in today’s press release, which is available on our website at investors.thecheesecakefactory.com and in our filings with the Securities and Exchange Commission. All forward-looking statements made on this call speak only as of today’s date and the Company undertakes no duty to update any forward-looking statements. David Overton will begin today’s call with some opening remarks; Doug will then take you through our operating results in detail and provide our outlook for both the second quarter of 2015 as well as the full year; following that, we’ll open the call to you questions. And with that, I’ll turn the call over to David.

Thank you, Jill. We had an exceptionally strong first quarter, delivering our best comparable sales increase in the past decade which we leveraged into earnings per share growth in excess of 25%, making a solid start to 2015. Our performance was strong across the board with positive comparable sales in all geographies. We also saw strength across day parts and stability in weekdays versus weekends as well as mall versus non-mall performance. Guest traffic returned to positive territory. And while it’s difficult to parcel out the impact from the initiatives that we discussed with you last quarter, directionally we’re on track and expect some of our strong sales trend to sustain itself into the second quarter. As to development, we continue to plan for as many as 11 company-owned restaurants to open this year across the U.S. in the mix of new and existing markets with three openings expected in the second quarter. We are creating value for shareholders through appropriate capital allocation that is generating returns that meet our objectives. Internationally, we are now planning for as many as three new restaurants to open this year under licensing agreements, the first of which opened in Mexico City last month. One of the Middle East openings originally planned for this year moved into early 2016. In closing, I will note that we were honored to be named to Fortune magazine’s list of the 100 best companies to work for. This is our second consecutive year and the only restaurant company to make the 2015 list. This recognition speaks to our culture and our incredible people and we believe it should continue to support our ability to attract and retain talent. With that, I will now turn the call over to Doug for the financial review.

Total revenues for the Cheesecake Factory for the first quarter of 2015 were $518 million. Revenues reflect an overall comparable sales increase of 4.2% at Cheesecake Factory restaurants. External bakery sales were $12.1 million in the first quarter. Cost of sales decreased 40 basis points year-over-year in the first quarter of 2015 to 24.4% of revenues. The favorability was primarily attributable to lower seafood and grocery costs and secondarily, favorability in a variety of other items. The benefit was partially offset by expected higher meat and poultry cost. Labor was 33% of revenues, down 10 basis points as compared to the first quarter of the prior year. As expected, we had pressure from group medical insurance costs in the first quarter, which was more than offset by leverage on the higher level sales. We do not begin to lap last year’s higher group medical expense until the second quarter. Other operating costs were 23.8% of revenues, down 20 basis points from the prior year. The favorability was driven primarily by lower utility cost as we lap the spike in natural gas prices in the prior year first quarter. G&A was 6.4% of revenue for the first quarter, down 10 basis points from the same quarter of the prior year. The favorability related to lapping a legal settlement in the prior year quarter, partially offset by a higher corporate bonus accrual and higher equity compensation costs. Pre-opening expense was $1.5 million in the first quarter of 2015 versus $2.2 million in the same period last year. We had no restaurant openings in the first quarter of this year and one in the year ago period. Our tax rate this quarter was 27.4%, within our expected range. Cash flow from operations for the first quarter of 2015 was approximately $65 million. Net…

[Operator Instructions]. And stand by for your first question which comes from the line of John Glass from Morgan Stanley. Please go ahead.

I wonder if we could talk a little bit just about the sales progressing during the quarter. The industry started off strong and sort of faded. So, wonder if you experience out or maybe didn’t; it sounds like your comps are remaining strong. And I wonder how much of that you attribute to what you’ve been doing in your restaurants versus the industry. I understand you outlined initiatives last quarter. But it seems like it would be pretty soon to expect those to have really impact to traffic but maybe believe different and you could explain that.

Sure. So, sales trends for the quarter were positive throughout the quarter with January marking the strongest month of the quarter, similar to industry trends. Where I do think we differed from the industry is our February and March were very similar and consistent with each other. We did not see the same slowdown in March that the industry did; in fact our sales in February and March were steady. And actually March was slightly higher than February. And as far as the sales initiatives that we’ve been working on, I think it is a little early to have seen a lot. We continue to work on the things that we outlined. I don’t know if lot of that has borne fruit yet but I think that we are making great progress on moving forward on a lot of these things.

And what was the traffic during the quarter, if you have let me asking?

So, the mix for the quarter, traffic was up 0.9%. So, we had 4.2% comps; 0.9% traffic; about 2% price; and menu mix was very favorable, plus 1.3%.

And your next question comes from the line of Jeffrey Bernstein from Barclays. Please go ahead.

Just one follow-up on that question and one separate question in terms of the commentary on the comp. I know David you had mentioned I guess the momentum continued into the second quarter. Considering I guess the relative strength you saw in February and March, I was surprised that the guidance for the second quarter seems like you’re playing it on the more conservative side again, looking for I guess the 1.5 to 2.5. Just wondering, is it more what you anticipate in terms of timings of things going forward or what you’ve seen thus far in April? I know in your prepared remarks, you kind of talk about everything you know as of today but it just seems that would be more of a deceleration in the second quarter relative to maybe what you saw at the second quarter.

Yes, let me talk to where I think we are from a run rate perspective coming out of the first quarter. It’s difficult to precisely determine where we are but we think we’re roughly 2.5%. So, in the second quarter, we’re guiding to the 1.5% to 2.5%. In the first quarter, weather was a significant factor in the first quarter of 2015; that was a significant factor in the first quarter of 2014. And when you net all that together which I don’t like to do with weather but I almost feel like I have to this time, basically the weather impact on the first quarter was very, very small, favorable to the quarter, quarterly comp by about 10 basis points. But there were a couple of other things that impacted quarter, particularly with respect to holiday shifts that impacted comp store sales very favorably during the quarter. For instance, the New Year’s Eve shifting into the first quarter as well as the timing of New Year’s Eve being on Wednesday that was very significant to comp-store sales comparisons in the first quarter as well as the Easter holiday and spring break shifting forward into the first quarter from the second quarter. That was very helpful to us. So, if you put those two things together that’s about 1.5% of sales and if you add another 10 basis points or so of favorability that we got from weather, then you can take that away from the 4.2% and that’s how we kind of arrive at roughly 2.5% as our run rate. So, we’ve used that as the high end of our comp store sales guidance for second quarter.

And then my other question was just looking back to last quarter, there was a lot of talk around labor. You talked about maybe turnover had picked up and you are going to have to pay more to kind of keep your best people which is obviously a good thing to do. I’m just wondering if there is any update on that or you are going to mention at the time that maybe you take more aggressive pricing in the second half of ‘15 to perhaps set some of the installations and if there is any update on either the labor side or the pricing for the back half of ‘15?

On the labor side, I think that we know that we’re going to be managing more wage rate inflation than what we’ve seen in the past. In fact, we have in our plan now the expectations for 3% wage rate inflation which includes minimum wage increases. So that is still what our expectations is for the year for four, five years prior to this year. We only saw maybe 1% wage rate inflation. So we are expecting to see more pressure from that. We factored that into our guidance for the year that we gave. What we haven’t factored in is any additional menu pricing that we might take. As we talked about before, always trying to balance capturing guest traffic and offsetting cost pressures; we are considering taking more pricing than historical this summer when it comes around and perhaps again next year in light of the cost headwinds that we have and that’s particularly related to the ongoing wage rate pressure. Really also in light of industry conditions; I think the other restaurant operators also appear to be taking a little more pricing than normal in this environment. I think restaurant companies are going to have to be somewhat more aggressive in pricing. So, we haven’t made any decisions yet with specifically what we’re going to do with respect to pricing but we know that that’s a part of the solve, if you will, for higher wage rate inflation.

Your next question comes from the line of Joseph Buckley from Bank of America. Please go ahead.

Doug, maybe just a follow-up on the pricing question. Is regional pricing being considered as you approach the summer, the summer menu shift and typical pricing action?

It’s one of many things we’re considering Joe.

Okay. And Doug, you’re the second person in this round of conference calls this week to mention higher pricing becoming more common in casual dining. And I guess I’m curious that we don’t see that yet in the data we collect. But are you getting that from some of the industry sales tracking services or is that just an observation from the field?

I think we’re getting it from a number of sources, just articles that are being written, things that are out there in the press where we’ve heard pretty clearly that others are being more aggressive on pricing than what they have been in the past. Chipotle’s a good example; they’re more aggressive on pricing than what they had been. And that maybe as was a couple of quarters ago but they have been more aggressive.

Just one more quickly if I can; where are you on dairy, and was dairy a benefit year-over-year in the first quarter, I’m not sure if you’ve mentioned that in the commodity rundown but maybe just update us where you are in terms of coverage on dairy.

It was not a lot of -- was not a big benefit for us in the first quarter. In fact, the real spike in dairy cost didn’t start to impact us a lot until the second, third and fourth quarter of last year. So we would certainly expect to have lower dairy costs in the second, third, and fourth quarter of the year and for the entire year. With respect to where we are from a contracting standpoint, what we’re trying to do is obviously get the lowest cost that we can but also add more predictability and certainty and therefore trying to be more under contract than using different approaches and thought processes about what we might be willing to do to contract or use dairy, butter futures to hedge. We’re currently 55% contracted for dairy for the full year; and last year, we were at this point in time roughly 40% contracted. So more contracted than we were last year at this time and we’d like to get that up closer to the 65% that we’re contracted for the whole Company and will -- we’re working diligently to get that done.

And your next question comes from the line of David Tarantino from Robert W. Baird. Please go ahead.

I have a couple of questions, one is the same-store sales foot from underperforming the industry in the fourth quarter to outperforming the industry in the first quarter and just wondering if you had an explanation of why the big reversal from Q4 to Q1. I guess if you look at it today, is there something looking back on Q4 that might have been an anomaly because Q1 looks more like the historical pattern that you’re seeing but any context or color on that reversal in trend would be great. Thanks.

I just think our sales are more consistent just across the board. So, in an environment where things are -- I think we said this in the fourth quarter as a hypothesis and I think it’s proven itself out a little bit, is that as things are really good, we don’t outperform the industry quite as much or we perform with the industry; and when things are a little tougher like February and March as compared to January, I think we outperform the industry by a further margin. So that would be what obviously…

And then Doug, I guess from a higher level perspective, the guidance for the year assumes much less earnings growth in the last three quarters versus what you’ve just reported for the first quarter. And I know there’s an assumption that the same-store sales won’t be as strong as what you just reported. But is there anything else on that cost lines that’s worth highlighting that might prevent the -- or sort of limit the growth that you’ll see in the rest of the year versus what you did in the first quarter?

No, I can’t really think of anything, if you want to -- this may help a little bit. So, we raised the high-end of our guidance by $0.07 and our first quarter amount that we were above the high-end of our range was $0.06, but it’s really not $0.06 because there was a couple of pennies in there of timing. So, we had some legal expenses that we didn’t incur in the first quarter that we would expect to incur somewhere in the last part of the year. We had some marketing that was shifted out of the first quarter and will be -- wasn’t in the first quarter or will be incurred sometime during the last half of the year. So, on raising our guidance, we raised it by about $0.04 related to the amount above the high-end of guidance that we were in the first quarter and then about $0.04 more from lower expected commodity costs today than what we had when we gave our initial -- our last guidance for the year. So that’s another $0.04. And then there is about $0.01 go on the other way related to corporate bonus accrual. So that’s how we arrived at the -- I don’t know if anything unusual that’s going on really in the second half of the year other than the fact that I think we raised our guidance by a good bit more than just what we beat the first quarter by.

Your next question comes from the line of Matthew DiFrisco from Guggenheim Securities. Please go ahead.

I just got a couple of follow-up questions with respect to the mix or the comp composite there. That 1.3, what was that and do you think that can continue, what was the driver to that?

Yes, 1.3 that’s the menu mix. Our results -- I’ll make another industry comment. Our menu mix results I think are consistent with industry trends, as I think the consumer today is generally willing to spend just a little bit more. So, we’re getting a little bit more out of the customers that are coming into our restaurants where we see it as in deserts. Definitely our desert incident rate continue to be up that positively impacts that mix; it allows us to retain most if not all of our menu price increases that we take and it helps offset other items where the incident rates are not on the rise such as non-alcohol beverages. So, people are going to move around the menu; they try different things and that changes the mix. And we believe that mix is going to ebb and flow over time, but we are very positive of mix this quarter, plus 1.3%.

Well, I was wondering if anything in the comp is explained if you could sort of quantify how much maybe the spring break coming into the end of March rather than Easter coming on April 20th and spring break shifting in April, that help your mix and your traffic at all that’s sort ….

Yes, that helped about 25 basis points or 30 basis points.

That’s very helpful. Did you say what the inflation was in 1Q in relation to the zero to one for the full year?

2% to 3%.

And then lastly, you said something about 60 basis points more in 2Q of G&A but then the last question you responded was saying that marketing and legal are going to be second half, second half. I am curious what is the 60 basis points in 2Q if you could tell us? Thanks.

So if I said second half, I meant second three quarters helped that. So some of the extra G&A in the second quarter has to do with legal expenses; some of it has to do with bonus accrual expectations being much higher for the second quarter this year than last year; some of it is, equity compensation being higher; and some of it frankly we talked about our gift card sales being so robust over the last couple of years. 25% increase in gift card sales in each of the last two years. And we expense the cost associated with those gift cards, the commissions we pay over a three-year period of time. So, there is more cost coming into the second quarter of this year related to the gift card sales than they were in the second quarter last year. So that’s in essence a lot of what that extra G&A is in the second quarter.

And your next question is from the line of Joshua Long from Piper Jaffray. Please go ahead.

I wanted to circle back; Doug, it sounds like you mentioned that the entire basket, you’re about 65% contracted. I wanted to confirm that piece?

That’s right, that’s 60% to 65% I would say.

And then, on the incremental opportunities for contracting area, are those tool sets or the teams that you -- we’ve talked about building out in 1Q; are those more or less set and so now it’s just a matter of kind of layering into that incremental contracting target that you had mentioned about maybe getting closer to that 60% or 65%; are there additional items that still need to be rolled out to make that happen?

Well, I would say that this whole process of the -- enhanced process we’ve put in place for managing commodity costs is very much of an art and not science. So, we are for instance actively evaluating opportunities for longer term fixed pricing arrangements on some products where we typically hadn’t thought in the dairy category that we could contract for before. So we’ve taken the next step. We’ve obtained bids; we’re evaluating them. There is not a slam dunk answer to that because you are watching the market and you are trying to decide what the best time to contract is. So, I would just say that we’re very actively managing dairy cost today. And we are also very open to considering other avenues of being more fixed or predictable about what their costs would be than we had been in the past.

That’s helpful. And then thinking about your labor outlook and the commentary around wage inflation expectations for the back half of the year. Is that similar to what we have talked about or maybe the same as what we have talked about in 1Q that 3% or as you’ve had a little bit more visibility now, have you tweaked that kind of expectations on the wage rate inflation in the back half of the year?

That’s the same as what we talked about last quarter at 3%. We’re going to have work at managing -- we talked about some labor initiatives that we were put in place last quarter and we’re really working with them; we’re going to manage that pretty actively to keep it at 3%.

And then last one from on the recent accolade of reaching one of the 100 best companies or places to work, congratulations on that. Is that maybe a little too soon to start thinking about how that could positively impact your recruiting practices or opportunities rather? I’m sure that you’ve always had an opportunity to look at some of the best talent, but does this create an incremental opportunity or maybe incremental visibility into acquiring and then retaining some of the best talent in the industry.

Certainly, it doesn’t hurt; this is our second year on the list. So, whenever we can and where ever we can in our recruiting process, make sure that people know that we are on the list, not only on the list this year but the only restaurant company on the list. We have been able to leverage that recognition pretty well last year and I think that it certainly will help us again this year.

And your next question from the line of John Ivankoe from J.P. Morgan.

David, I think it was in your prepared remarks that you mentioned that comps were balanced between weekend and weekday, lunch and dinner, if I heard you correctly. So that would suggest that you’re driving throughput at times of a day that you would have normally been at capacity. So, is that kind of true statement and that how much capacity kind of have you added to the box of whether it’s getting checks to the guests faster or serving them quicker as they sit down, what have you. So how substantial is that; do you have any thoughts?

David Gordon has been really working on that. So, I will let him answer.

We certainly did see the consistency across all meal periods. And the initiative that we rolled out across the field didn’t really out until March of this year to be fully rolled out. However, anecdotally what we have throughout March and we just had an meeting here with all of our ops team that thus far the focus on the throughput is certainly taken hold in the field. So, we’re hoping to see continued ability to drive traffic or grow traffic on those busier shifts through the initiatives that we talked about that we had implemented -- we’re implanting throughout the year. So, so far we refer as anecdotal but we feel confident that what we are rolling out is increasing our operators focus on those Friday, Saturday, Sunday shifts to increase throughput.

And even if it is anecdotal, how much capacity could that have added. I’m sorry to cut you off.

I don’t really have a solid number I could give you off the top of my head.

And secondly, and really just a housekeeping question at this point and maybe I’ve touched early. International unit opens for 2016, you kind of mentioned that unit in ‘15 slipped into ‘16; and could ‘16 at least as you currently look at it be a substantially bigger year than ‘15 in terms of units opened.

Yes, I think we could see as many as couple more.

And your next question comes from the line of Will Slabaugh from Stephens Inc. Please go ahead.

Just a question on same-store sales growth. We’ve seen a lot of the data out that’s indicated California and some of the areas have been considerably stronger than rest of the countries. So just curious on it if that was the case at The Cheesecake Factory and if there were any other shrinks or weaknesses across the country to call out?

It’s kind of more of the same story, we certainly saw that. All of our markets were positive but our strongest markets were California. I think that was the strongest and then there was Texas and the Midwest were also very strong. And then I think we talked on the last call about the Northeast. The Northeast was one of the weaker markets but still solidly positive for the quarter. So, you always have to have some market that’s the weakest market and that was it and that was despite the weather but I guess the weather happened in both years there. But they were solidly positive but over 1%.

And one quick on labor in the progression throughout the year. Do you expect to be in a position to hold flat as a percent of sales in the back half on the lower forecasted comps or do you think that once you lap over the group medical spike from last year, you might be able to actually get some leverage there on the labor line?

I think we’re going to get -- our numbers and forecast would show that we’re going to get some slightly positive leverage on labor for the year.

Your next question comes from the line of Robert Derrington from Wunderlich Security. Please go ahead.

Doug, could you help me understand something for a second? The trend in same-store sales for Cheesecake Factory versus what the average weekly sales have been, the spread between the two has gone from positive, meaning that average weekly sales actually were stronger than comps through much of last year in 2014 to now in Q4 and into Q1 average weekly sales are below comps; they were I guess lower by about 110 basis points here in the first quarter. Is there anything about the some of the new stores that are coming on that’s different or maybe some markets that aren’t performing as well that we should think about in modeling?

I think you exactly got the numbers right. Obviously, the average weekly sales for Cheesecake Factory restaurants increased by 3.1% and that’s 4.2% comp store sales. I think the gap is attributable to the fact that we’re building smaller restaurants. We don’t -- we’re not building smaller restaurants but most of them are smaller than 10,000 square feet and what we have commented on about our restaurants is that their performance on a sales metrics basis is better than the overall average for the Company. And that means sales per square foot and sales per seat, not total sales. So, if we build an 8,300 square foot restaurant and it does $9.5 million, we’re really happy and we have great returns but as far as what it does to average weekly sales, that’s declined.

I suspected as much but I’d really hear it from you than just guess on my own. Did you give us secondarily -- did you give us what the Grand Lux same-store sales trends was in the quarter?

We didn’t, but I can. Grand Lux was -- the comp store sales were minus 1.9%.

And our last question comes from the line of Joseph Buckley from Bank of America.

I am sorry. Someone asked my follow-up questions. So, I’m good. Thank you.