Ladies and gentlemen, thank you for standing by and welcome to The Cheesecake Factory’s Fourth Quarter Fiscal 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker today, Stacy Feit, Vice President of Investor Relations. Thank you. Please go ahead.

Thanks, Chantal. Good afternoon and welcome to our fourth quarter fiscal 2019 earnings call. On the call today are David Overton, our Chairman and Chief Executive Officer; David Gordon our President; and Matt Clark, our Executive Vice President and Chief Financial Officer. Before we begin, let me quickly remind you that during this call items will be discussed that are not based on historical facts and are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results could be materially different from those stated or implied in forward looking statements. As a result of the factors detailed in today’s press release, which is available on our website at investors.thecheesecakefactory.com and in our filings with the Securities and Exchange Commission. All forward-looking statements made on this call speak only as of today’s date, and the company undertakes no duty to update any forward-looking statements. In addition, throughout this conference call we will be presenting results on an adjusted basis. An explanation of our use of non-GAAP financial measures and reconciliations to the most directly comparable GAAP measures appear in our press release on our website as previously described. David Overton will begin today’s call with some opening remarks and David Gordon will provide an operational update. Matt will then take you through our financial results in detail and provide our outlook for the fourth quarter and the full year of 2020. With that, I’ll turn the call over to David Overton.

Thank you, Stacy. Comparable sales at The Cheesecake Factory restaurants again outperformed the casual dining industry during the fourth quarter. Our operators executed very well with particular strength in labor management, which contributed to solid restaurant level profitability. This drove bottom line results of the core business within our guidance range. During the fourth quarter we also met our 2019 development objectives. We opened 3 Cheesecake Factory restaurants, including Grand Rapids in Michigan, where we have seen incredible pent-up demand as well as Coral Gables in Orlando, Florida. We opened the North Italia restaurant in Charlotte and 2 Flower Child locations opened in the McLean, Virginia and Dallas. In addition, 3 Cheesecake Factory restaurants opened internationally, under licensing agreements during the fourth quarter, including the first location in Macau and the fifth location in Mexico and the fourth location in Saudi Arabia for a total of 6 locations opened during fiscal 2019, as expected. Looking ahead to 2020, we continue to expect our unit growth to meaningfully accelerate with the opening of as many as 20 new restaurants, including 6 Cheesecake Factory locations, and 6 North Italia restaurants, and 8 restaurants within the FRC subsidiary, which now includes 4 Flower Child locations, given a shift and timing of 1 new unit. We also continue to expect as many as 4 Cheesecake Factory restaurants to open internationally under licensing agreements. This planned unit growth supports our 8% total revenue growth objective. I’d like to take a moment to thank our teams together we accomplished so much in 2019. The Cheesecake Factory was recognized as one of the top restaurant brands for both food quality and ambiance and the Nation’s Restaurant News Consumer Picks survey. Just yesterday we also named The Fortune Magazine’s 100 Best Companies to Work for list for the seventh consecutive year. We again, we’re the only restaurant company on the list. And finally, we closed on the acquisitions of North Italia and Fox Restaurant Concepts, reinforcing our leadership position in experiential dining. We continue to believe the combination of our companies will drive long-term value for our shareholders, guests and staff members. With that, I’ll now turn the call over to David Gordon.

Thank you, David. During the fourth quarter, we continue to drive year-over-year increases in both, manager and hourly staff retention, which we believe go hand in hand with delivering great guests experiences, and ultimately comp store sales performance. We are so proud to be able to recognize as a great place to work underscoring our position as a best-in-class employer, which will continue to be crucial to our future success. Our industry-leading retention and engagement as well as an even sharper focus on service and hospitality, contributed to sequential increases in our guests’ satisfaction metrics across both the dining and off-premise occasions. And we’re continuing to drive momentum in our off-premise business, which comprised 17% of Cheesecake Factory sales in the fourth quarter. We also saw a year-over-year growth in our online ordering platform for pickup orders. Overall, we remain pleased with how well the Cheesecake Factory resonates with off-premise guests, and how differentiated our offering continues to be in an increasingly competitive market. The off-premise channel has also served as a great testing ground for marketing initiatives as we’re applying these learnings to the business more broadly to drive comp store sales. We’re planning to continue to test a variety of additional marketing levers in 2020 as we look to continue to increase unaided awareness of the Cheesecake Factory and further lean into convenience. Specifically, we were encouraged by the initial results of the TV campaign we ran last year and are planning to do another test later this year. Secondly, we recently rolled out limited reservations in our locations nationwide. One of the biggest hurdles for our guests can be our long wait times. So we’re hoping this additional convenience will encourage guests who are more pressed for time to dine with us. Based on the deliberate approach…

Thank you, David. We closed our 2019 where we anticipated. The completion of the acquisitions and the associated accounting impacts created some expected noise in the fourth quarter results. And there were also some inconsistency in the Street models. So I want to take a moment to briefly summarize our fourth quarter results. Cheesecake Factory comp store sales were within our expectations. Solid operational execution enabled us to continue to stabilize restaurant-level margins at The Cheesecake Factory, excluding the impact of lease accounting. This drove bottom line results for the core business within the $0.61 to $0.66 range we provided on our last call, when using the underlying tax rate assumption in our guidance range. In addition, the impact from the recent acquisitions to fourth quarter results was also within the $0.12 to $0.15 range we provided. With respect to North Italia, specifically, restaurant-level margins were impacted by about 300 basis points to 400 basis points from the timing and classification of certain expenses versus the acquisition close. This is a fourth quarter specific impact given the closing of the acquisition and will not continue into 2020. Now for the details on the consolidated results. Fourth quarter comparable sales at the Cheesecake Factory restaurants increased 0.6% including an approximately 30 basis points negative impact from weather related and other temporary closures. Revenue contribution from North Italia and FRC, including comparable restaurant sales growth at 4% at North Italia, and approximately $90,000 in sales per operating week at FRC, totaled $92 million, and including $19.3 million in external bakery sales, total revenues were $694 million during the fourth quarter. Cost of sales was 22.8% of revenues, a decrease of approximately 20 basis points from the fourth quarter of last year, reflecting menu price leverage. Labor was 36.2% of revenues, an increase…

[Operator Instructions] Your first question comes from Sharon Zackfia with William Blair. Your line is open.

Hi, good afternoon. I guess a question around the marketing and the limited reservations. I guess the first question is, how are you getting the word out on the limited reservations? And I think you said you’re starting to roll that out. So if you could kind of clarify where it is and kind of what that process might look like? And then, you know I remember, while other concepts have obviously done this, how are you managing that from a throughput perspective? Are you just assuming, you know, certain table churns and restaurants and tables open up or are you actually going to hold tables if you can talk to us about that?

Hi, Sharon this is David Gordon. Thanks for the question. So today, limited reservations are live in all restaurants across the country. We launched nationally just a few weeks ago and when I say, limited, we’re able to manage throughput due to the fact that they’re limited. It’s not that you can maximize every seat in the restaurant with reservations every day of the week. So every time slot throughout the week, we’ve allocated a certain amount of tables to be available for reservations. And at the same time, let guests know that they can always walk in so that they’re not under the impression that we’re only taking reservations. And they’re all available through Yelp. And so we’re marketing that through Yelp, you can go into our website and see reservations are now available. And anytime you go on to Yelp and look up Cheesecake Factory, you’d be able to make a reservation right through Yelp with one click right on the site.

Is there any thought of doing a tagline on the TV marketing?

We’re still evaluating what the market is going to look like, because we are going to do some additional TV marketing. We haven’t decided yet what the marketing might exactly look like. So we’ll see.

Okay, thank you.

Your next question comes from John Glass with Morgan Stanley. Your line is open.

Thanks very much. Two related questions, perhaps. Just on the fourth quarter, I know you said both for CAKE and the acquisition costs were within expectations. But can you just reconcile, I think you said $0.61 to $0.66 and then you said $0.12 to $0.15. I don’t know, if you add those together, it gets to be less than the number you just reported. So maybe if there’s a way just to reconcile it to understand how this fits versus what you thought? And then I just want to make sure I understand your view on restaurant margins next year with FRC, it’s neutral to margins except for the lease accounting, and that’s 50 basis points, or is the 50 basis points just on their margin, if you could just explain what you mean by that?

Sure, John. So the first part is, you know, the best way I would sort of triangulate this and we do provide sort of a non-GAAP table that to try to put those pieces together. You know, that probably the one piece that is not in the non-GAAP that to get to the $0.58 to try to get back to it was the interest expense, which we sort of added in when we said the $0.12 to $0.15. So I think if you adjust for that, you’re going to be right where we thought we would be if that makes sense. The second part is, the 50 basis points versus our initial modeling, not compared to sort of year-over-year comparisons was the impact of lease accounting for just the North and FRC pieces. So, you know, our total company basis, it’s not material and is within the guidance that we’re providing right now.

Okay, thank you.

Your next question comes from Joshua Long with Piper Sandler. Your line is open.

Great, thank you for taking the question. Labor management was mentioned a couple of times in the prepared comments. So I think you might be able to update us there. You’ve had some initiatives in place now and curious if you’ve gained some more learnings or if those have been able to expand a bit in terms of, you know, where they’ve been either rolled out or how they’re being executed at the store level to help support those strong labor margins?

Sure, Josh this is Matt. I think you know, the biggest things we’ve been focused on, we continue to make traction on, those include improvements and retention. Obviously, again, you know, being named number 12 on the list this year for Fortune is great and a reflective of our ability to attract and retain those employees, so that continues to be a driver for us. I also think wage management here we saw a slight tick down in the fourth quarter closer to 5% versus the 5.5%. So that was a part that made it effective for us. Overtime management was solid all year. And this is just about, you know, good operations and good systems and practices, right. So we’re just continuing to refine our ability to track and manage those key pieces and making sure that we’re not paying more, but the right amount for overtime, not overpaying with the overtime and keeping people, because that helps manage the training and you know, all of the costs associated with bringing somebody else on board. So we saw positive movements in all of those areas that we’ve been working on this year.

Great, very helpful. And one quick one on the CPG section, if we might. Curious on – great to see then product expansion there. Curious if you could get updates in terms of where you – how far you’re penetrated with that segment either in outlets or just how you’re framing up the potentials for growing that side of the business?

Sure, Josh this is David. So currently products are for sale that over 70 retailers nationwide. The brown bread that we launched last year is doing incredibly well. Our sales last year doubled our sales in 2018 just on one product. The launch of the ice cream, which is happening here at the end of the month and in the next month is going to be strong national distribution at launch. There’ll be a broad set of retailers representing thousands of doors including Kroger, Albertsons, Safeway, Target. So I think most importantly, what we’ve seen is that, there are folks out there who continue to be excited about the brand, and sharing the affinity and love for Cheesecake Factory with these different products. And we continue to see growth in just about every sector. And the ice cream I think is ingenuitive and different and innovative, which is what we are at Cheesecake Factory. So, we’re excited to get that launched. We think that there’ll be great demand for it.

Great, thank you.

Your next question comes from David Tarantino with Baird. Your line is open.

Hi, good afternoon. My question is about the comps for the core Cheesecake Factory business. And first I was wondering if you could break out the check in traffic components of that for the backward looking quarter for Q4? And then I guess my main question is, you know, following you know, a couple of soft quarters in the back half of last year, wondering if you could just maybe walk us through your thoughts on why the 1% to 2% guidance for this year makes sense and what you’re particularly focused on in terms of driving the traffic to achieve that number?

Sure, David. This is Matt. So that to just cover off the technical piece on the Cheesecake comp for the quarter, pricing was 3.2%, there was a positive mix of 1.2% and traffic was the delta there. And obviously, within the mix piece as we’ve said before, the significant part of that is related to how we capture the off-premise and the driver there. So it’s probably a little bit of noise. So net-net, it was pretty consistent with the third quarter and kind of then that relates to your second part of the question, you know, certainly in this quarter, as we look at it, I think you’re seeing some positivity in casual dining. You know, and I think we do move a little bit with the industry. I also think, you know, specifically to what we’re working on as David Gordon commented on, we are increasing our marketing efforts. I think we’ve seen good results when we’ve done that, I think there was good ROI. So I think that’s one piece of it. I think another piece on the reservations, while we’re anticipating to manage the throughput there, that’s something different for us, and I think an opportunity. So when we look at what we’re doing, and then the environment, which doesn’t feel that much different, we feel like we can build a little bit of on where we have been. We also continue to have great sales with our delivery in off-premise business and continue to grow that. So we are incrementally doing things to move up from the run rate that we were at. I think, you know, as we move into the back half of the year, we’ll have to watch and see what the environment is like to make sure that the things that we’re doing are enough to continue to build upon the run rate that we’re at.

Thank you for that. And then just one quick question on pricing. Are you still planning to or what is the level of pricing that’s assumed here in your outlook?

3% is our basic estimate for 2020.

Right. Thank you very much.

Your next question comes from Gregory Francfort with Bank of America. Your line is open.

Hey, thank you very much. I have two questions. The first is just on labor and wages. I think you said hourly wages will be up 5.5% this year. Can you maybe walk through some of the big offsets in terms of efficiencies or programs you’re putting in place on that front? And then the other question I had was, industry focused and I know you guys don’t like talking quarter-to-date, but it’s been kind of hard to ignore how strong casual has been in January? And I’m wondering if you just have any thoughts on kind of what’s going on in the industry? You know, just maybe there’s been an industry shift and what’s driving that? That’d be great. Thank you.

Sure, Greg. This is Matt. I’ll start with the second part. And you know, I think it’s always a little bit hard to know, out of the gate, I do think that there was a little bit of a benefit in the industry relative to the calendar, and certainly weather. You know, I know here in California, at this time last year, we had a significant amount of rain. And you know, it’s been pretty dry. I think that we’ve referred that, you know, I listened to your call with Malcolm and he said that maybe people were just ready to go out again, and you know, that could be part of it, for sure. So I think it’s probably a little bit of each of those, you know, I don’t think it’s any one material factor. And I think as I noted in answering another question that we you know, we do tend to move and capture some of the same benefits that the industry does. And I think that that’s, you know, baked into our first quarter expectations. You know, with respect to the wage piece, particularly I – you know, talking about how we ended the year is a lot of the similar attribute that we would attempt to continue with for the next part of the year. I think it’s getting increasingly hard for some restaurants it even gets staffed, you know, and yet we’re a best place to work and our retention is getting better. I think that in and of itself is a huge barometer of our ability to manage it. I think really focusing on the forecasting and staffing needs is underappreciated in a lot of circles, because that extra 0.5% to 1% of wage inflation or overtime is really the difference between being at 6% or 5% wage inflation and I think, you know, at 3% pricing and 2% commodities, you know, we can we can manage the P&L at that 5% to 5.5% wage inflation. So I think it’s a combination of those. And I think it’s just continuing to get better, versus trying to introduce something where we’re taking out a significant amount of labor that’s never been our focus, we want to also continue to drive sales.

That’s great. Thank you.

Your next question comes from John Ivanhoe [sic - John Ivankoe] with J.P. Morgan. Your line is open.

Hi, thank you. The question is actually on delivery. And here one thing that maybe I missed it in your prepared remarks is whether delivery on a per store basis was still up year-over-year in the fourth quarter of ‘19. If you expect it, you know, to be up in 2020. And, you know, as obviously the market and I think especially for you, you know, shifts to off-premise, you know, how you expect that, you know, to kind of protect the profitability or even increase the profitability, you know, that transaction is maybe the product mix might look a little bit different especially on the beverage side versus what happens within your stores?

Hi, John it’s David Gordon. We continue to see strong off-premise sales, they were 17% of sales in the fourth quarter of 2019. Per restaurant, we continue to see growth in off-premise. We continue to see growth in delivery, we think there’s opportunity for more growth moving forward. We feel good about the deal we have with our partner, and we feel good about the margin that we currently have on all of our off-premise business, wouldn’t anticipate that we’re looking to offset our current plan. I think our current plan is part of our ALP for this coming year, and we feel good about it there. We continue to do really creative marketing campaigns with DoorDash and with our online ability, and we see that as a traffic driver, a growth driver as well and we’ll continue to pull that lever throughout the year.

And okay, so just at DoorDash, it does sound like actually is up year-over-year on a per store basis. I think there was a change in the economics in terms of you basically paying them less, because you’re one of the original partners of them, has that affected you know, the kind of the money or the support that they give you in any way? You know, in a 2020 where might you contribute, you know, more to communicating the off-premise challenge – off-premise opportunity yourself?

Yeah, sure. We haven’t actually disclosed what our deal is. But I can tell you that in no way has the deal changed in regards to the marketing support that we’re getting. So you’ll still see that we’re top of the app. We’re right there on the top of the carousel, we will continue to be and they’ll continue to provide the same level of marketing support that they have historically.

Thank you.

Your next question comes from Andy Barish with Jefferies. Your line is open.

Yeah, on the cadence of openings as we look to 2020, you gave the preopening. Does the openings kind of match that 40:60 and does some of the Fox and North stuff kind of even things out a little bit maybe during the year?

Andy it’s Matt. I think, you know, not quite obviously as everybody does in the preopening, we do capture some other costs. We have the preopening, you know, department, we have some management bench. So, you know, instead of 40:60, it’s probably more like 30:70 or 25:75 in terms of the split, it will even out a little bit. But it’s, you know, it’s still going to be, I would say relatively back loaded in the fourth quarter. And again, that’s mostly Cheesecake Factory. So I would say the North and FRC will be a little bit more balanced with Cheesecake Factory pretty much in the back half.

And Thanks, Matt. And can you give us just a quick update on sort of your expectations on free cash flow priorities now that you know you have some debt on the balance sheet?

Yeah, that’s a great question. I mean, I think in the short-term, we – our free cash flow priorities are to build great return restaurants across our portfolio, and we have a lot of options to do that, as well as to continue to keep the maintenance up. So they look like new. You know, obviously, we announced we are maintaining the dividend where it’s at which we think is a pretty healthy yield. And then you get down to you know, share repurchases and I think debt pay down and it’s a little bit of a fungible pool in the short-term, we are actively evaluating that we’ll probably have another update in the next call, you know, to the degree to which we will pay down debt and/or buy back shares. I think it’s a little bit of both right now. And then we will see where we get to. I mean, obviously, rates are very, very low and attractive. And so we'll look at that and whether or not maintaining some level on the balance sheet makes sense in the longer-term as well. But we haven’t quite nailed that down yet. So for this year, it’ll be a balance between the two.

Thank you.

Your next question comes from Matt DiFrisco with Guggenheim Securities. Your line is open.

Thank you. Just two quick questions here with respect to Italia 125,000 looks like or about 126,000 the average weekly sale. Is that a good number sort of per quarter or is there some seasonality to consider in there is it a little higher and may be in the summer months?

You know, I think that’s probably pretty close. I mean, obviously now it’s a blend of some newer restaurants, North tends to ramp up in a different sort of trajectory than Cheesecake Factory just because of the brand awareness, but I think that’s probably a fair number for the time being. And it probably balances out during the year and when you have, you know, a good segment in Arizona and Southern California that benefits, you know, sometimes from the winter months, in fact, so I think, you know, I wouldn’t expect too much seasonality in that one.

Got it. And then looking at the Cheesecake brand as it matures, some other brands that are around your vintage, have started to talk a little bit more and use some capital towards relocations. And obviously, there’s been a lot of chatter about your correlation with lifestyle centers and retail in general. Is that – are there some opportunities for that? Have you already done that assessment of sort of things that are coming up on 10 years or where it’s not as costly, maybe to move to a new trade center within the market or are all your sites pretty much been vetted?

No, we will always consider lifestyle centers, new malls, most of our leases are 20 years. And when they come up, we see how we’re doing, what’s going on in the neighborhood, and what our options are, and we’re free to move and we’ve done that or renew our lease for usually an additional to 5s or another 10 years. So that’s how we do it.

So Matt, we’re constantly reviewing that and the opportunities as David said, we have done in the past, we got some great success and it’s on a case by case basis.

Okay. And then just going to the international side, you said 26 stores at the end of the period or at the end of the year. At last I think it was your predecessor used to speak about it, as far as about roughly a $0.01 per store that opened would contribute to the EPS line. That was in times when the tax rate is a little higher. How’s that sort of correlate now with the 26 or so stores? Is that sort of should we think about it accurately close to $0.30 of earnings on an annualized basis, maybe close to about 10% of your overall EBITDA?

I think I would stick with a $0.01 per share model. And you know, taxes are a little bit different, but our profile is a little bit different too and certainly as we talked about, you know, a couple of those locations in the Middle East are outsized performers. So I would stick with the $0.01 and the 26 stands for now.

And then last – tying that back into China, the 4 that are max – Maxim’s managed. Is it correct to assume that those are probably nearly closed right now?

Actually, Matt this is David Gordon. The only restaurant that’s closed right now is in Shanghai, the Disney property is still closed. They’re looking to hopefully be open here by the end of the month. In Beijing and Macau, there are some limited hours that they’re operating under and Hong Kong as is normal hours right now. So they’ve certainly seen some pressure. There they wouldn’t anticipate that to be in long-term. But as we all know, I don’t know which way things are going to move for - move going forward. I think the fact that Disney is planning to open here at the end of February is a good time.

Of course. Thanks very much for the color.

Your next question comes from Dennis Geiger with UBS. Your line is open.

Great, thanks for the question. I’m wondering if you could provide any more commentary around upcoming throughput initiatives that you mentioned. And if there’s anything else beyond the opportunities that you called out with the reservations platform? And then just as it relates to the day part opportunities around delivery, anything more there as it relates to how you can take advantage of underutilized capacity within the restaurant through that delivery platform? Thank you.

Sure. Den, I mean, throughput is sort of by definition what the Cheesecake Factory does. I mean, I think our – you know, we run really, really busy restaurants. And, you know, our objective is to get a little bit faster all the time. Yeah, I think right now we’re focused on digesting the limited reservation, that’s a pretty big thing for us. We’ll see how that does. And we want to make sure that the guests experience is not impacted, other than positively for that. So as we have additional throughput initiatives we’ll certainly, you know, keep you posted. I do think you make a good point about, you know, the day parts. I think we have had a lot of success with the creativity of the delivery programs, and we’ll continue to look to drive different types of demand throughout the day or different parts of the week, even weekdays versus weekends. I think that’s important, and something that resonates in the power of our Cheesecake oftentimes helps us to accomplish that. So I think we will look to drive areas of convenience and to continue to broaden the shoulders of the business throughout the day parts with that vehicle for sure.

Thank you.

Your next question comes from Jeffrey Bernstein with Barclays. Your line is open.

Great, thank you very much. A couple of questions on comps, just one for the core. Cheesecake, it seems like more recently you’re comfortable with the 3% plus pricing. But with the traffic down to presumably 3% or 4%, I’m just wondering, your comfort with that mix, I don’t know whether you see a relationship one between the other or whether there’s any concern around affordability from a consumer standpoint or, you know, the ability to perhaps narrow that gap if that is a concern for you in the short-term?

Sure. Hey, Jeff, this is Matt. I think, you know, when we’ve analyzed it, you know, interestingly enough, we have moved over time to taking different pricing in different geographies based which are predominantly on the input costs and specifically around labor and minimum wage. And you know, one thing that gives me comfort that, that we’re not pushing the envelope is the fact that in some of the areas where we’ve taken more pricing, we’re doing better with respect to traffic, right. So I don’t know that there’s a one to one correlation per se. You know, the bigger drivers for us, oftentimes are construction of a mall and things like that they can really move, you know, a couple of locations significantly. The other thing for us that you know is true, is, we have such a broad menu, and I really pay attention to the mix and the wallet share that our guests are using and it’s very, very stable. So nothing trade out of people picking one thing or the other, we have items on there that are, you know, $11, $12 that are a full meal. So I think I think we do feel comfortable and also I would say is, you know, I think that in general, the level of pricing if you’re at a national footprint and I mean, those restaurant companies that have significant California and northeast presence, not just in the south and the middle of the country, you’re seeing 3% pricing as an average across that. So I don’t think we’re out pricing our competitors in any market. Certainly traffic is important. And we have drivers that we’re working on to prove that, but I don’t the pricing in and of itself is a negative.

Good to know it and realize that regional colors. That’s helpful. And then second in terms of North Italia, I know you mentioned that gets a rounded 4% comp in the fourth quarter in the slide deck it talks about a 6% for the full year. So I guess we don’t have the quarterly cadence or whatnot, but maybe can you talk about whether there has been a slowing trend or maybe I don’t know if you can share the components of that comp or how we should think about comparisons, because seemingly I guess earlier in the year, they must have been comping, you know, 7s and 8s or something along those lines? Any color around the North Italia sequential comps would be great.

Sure, you know, it moved up and down a little bit, you know, you’re talking about a relatively smaller base compared to say, like the Cheesecake Factory. And so you have restaurants that can kind of come in and move out. I don’t think that it moved, you know, more than 1% or 2% per quarter. So, you know, there is some rounding in there. I think the pricing has been – we’re not giving specifics, but it’s been less than a Cheesecake Factory, so certainly positive traffic and just in general, very consistent. I mean, the trends that have been pretty consistent throughout the past two years, that we’ve really been tracking it always within a couple of percent of you know, sort of the longer-term average.

Great, thank you.

Your next question comes from Brian Bittner with Oppenheimer. Your line is open.

Thanks. Good afternoon, guys. Matt, thanks for all the 2020 forecasting information, it’s helpful. As it relates to all the line items you did go through to get to the operating margins, which ultimately gets you to your EPS. Can you just help us fully understand what’s assumed from a financial synergies perspective that you haven’t met from the acquisition? Can you just maybe talk about how much synergies are in those numbers, how you’ll get there and how quickly you expect to achieve it?

You know there’s really not a lot of synergies baked in, Brian. Thanks for the question. You know that as we noted sort of previously, the margins with the level of growth that’s being undertaken at both North and FRC, their blended margin profile happens to just be very similar to the Cheesecake Factories, right. And so, you know, the interesting thing when you look at the consolidated P&L, there’s really not a lot of movement. And that doesn’t factor in synergies. We’ve talked about the key aspect of this deal being about growth. I think that there, you know, there are things that we need to do to help scale. There’s areas that we can help improve on, you know, cost structure wise, but that’s not what we’re focused on out of the gate. I think if you look at, for example, the North Italia integration, maintaining comp store sales, ensuring that the pipeline is there. The same thing applies for FRC. So that’s really kind of a run rate basis there and we know as we dig in more and have more color, we’ll provide that, but it’s not a synergy based outlook.

Thanks. And just to confirm, you know, you said the blended operating margins are similar to Cheesecake, is also the – just to clarify a previous question, just so I understand, is the restaurant margins similar to meaning, will there not be any type of major mix impact to restaurant margins in 2020 as the acquisitions bodes in on a year-over-year basis.

That is correct. Again, keeping in mind, the different sort of levels of growth, right. So as we talked about it in the presentations, the North Italia margins on a mature basis are slightly accretive to Cheesecake Factory, but they also just kind of consumed 50% growth in one year. So you have to look at the blend of that. So that’s what I mean at this stage right now, the margin profile is very, very similar, and we wouldn’t expect there to be much difference between the line items as I delineated just slight ups and downs.

Okay, thank you.

Your next question comes from Jeff Farmer with Gordon Haskett. Your line is open.

Great, thank you. I believe you called out an increasingly competitive off-premise landscape. Assuming I heard that correctly, can you guys just provide a little bit more color on what you’re seeing out there?

I don’t know that we specifically called out, maybe we just said it everybody’s in the off-premise game, I think is a good way to state it today. I think what we feel good about is that the offering that we have, the variety of our menu, the value of our menu plays really, really well for off-premise. So today, family of 4 can easily order 2 entrees and one appetizer and get our complimentary bread and feed themselves for $40, at $10 a person. So we think that our offering is a little differentiated, certainly the cheesecakes are a big part of that as well. So as others are entering into off-premise and maybe having to change how they’re doing things a bit, it plays really well into what we’ve already been doing for 40 years, and we’ll continue to do along with just a very solid execution and making sure that the guests experience is protected from food quality to the speed of delivery and everything else that we measure with every off-premise transaction.

Thank you. And I might have missed it, but did you provide the D&A guidance or expectation for 2020?

We said for 2020 that there will be slight leverage on D&A. You know, keep in mind that that’s some of the similarities with the lease accounting component where we’re getting a little bit more leverage with the acquisitions. There’s a little bit of cost and other OpEx. So a slight leverage there.

All right, thank you.

Your next question comes from Jon Tower with Wells Fargo. Your line is open.

Great, just a few for me. A quick clarification too. On the delivery mix did you get that for the period I know in past quarters you have an online ordering mix as well, if you don’t mind?

For the quarter with 17% was total off-premise, 35% of that was delivery, 13% online ordering and phone and walk-in about right around 50%.

Great, thanks. And then on the question, thinking about marketing. Can you discuss how the company plans to fund this going forward obviously this year, it’s more of a test and you did some testing last year. But I think as a percentage of your sales, at least from a restaurant standpoint, it’s under 25 basis points or so is at least, but it was in 2018. I’m curious to hear from you where you think that might go over time and how you expect to potentially fund it?

Well, we’re moving it incrementally. So we don’t expect in any, you know, given year, you’re going to see a big driver. I mean, we do talk about every quarter, the ups and downs. And I think it’s probably gone up a couple tenths since that 25 basis point, right so in each year it’s moved up maybe a tenth. And, you know, we’re funding it through better execution, the restaurant savings and other places, but for 0.1% it’s not like we have to do something significant to move it. And as I noted, we feel like we’ve gotten a good ROI. We’ve very effective marketing campaigns. And so, you know, effectively they’re going to pay for themselves, but we wouldn’t move it much faster than that.

Okay. And then just focusing on the mall footprint side, it’s been a big topic of discussion for your shareholders for a while in terms of the idea that a lot of malls are repurposing their footprint away from retail and towards restaurants and experiences. So can you maybe frame for us based on your conversations where we are in that cycle and how much more pain potentially in the malls will there be for you over the next several years?

I think we’re probably 75% through I mean the sort of the math is roughly it was you know, high single-digit as an allocation of square footage. If you go back 8 years to 10 years, now we’re in the low 20%. And they probably are going to target 25% plus and so that would kind of put us 75% to 80% of the way through that. And you know the good news is that once that they are refurbishing and changing out, they do happen to be where the Cheesecake Factories are because they’re at the best locations, right. So the concentration of entertainment around us will benefit us in the long-term. And there’s certainly some pain right now and that’s part of what we’re going through at any given location. And a lot of times, it’s not even just the fact that they’re putting in new restaurants. It’s just the construction process. And you might have a parking lot across the street from a Cheesecake Factory one day, and the next month, it’s basically a construction site and they’re building a whole new, you know, parking ramp, for example. So it’s not – I don’t think it’s all bad. It’s just a process. I think ultimately, we’ll find out that we’re still in the best real estate. And that sort of concentration of options is a positive for most people. And so you’re probably talking another two years or three years of that cycle.

Okay. And then on that point, how likely are you to consider adding your own brands to the mix given that you now have quite a portfolio to pull from?

Well, part of what we’re looking at is diversification. So I think it can work, some of the brands that we have acquired, whether it’s a North Italia or FRC, they can work in malls, but that won’t be a focus, we’ll definitely want to be in more of a variety of places. And that will kind of help us with the ebbs and flows of real estate over time.

Awesome, thank you.

Your next question comes from Katherine Fogertey with Goldman Sachs. Your line is open.

Great, thank you. I have a clarification question actually on the DoorDash side. You know, I see a number of 3 Cheesecake offers that you guys have that geared. Is that considered in part of the marketing expense with DoorDash or is that kind of a one-off separate arrangement?

If I heard you clearly, I think your question was, are some of the promotions you’ve seen whether are free slice promotion or percentage off part of the marketing initiative? It can be, at times, it is.

Okay. So it can be funded by DoorDash as part of the regular marketing agreement or it can be separate?

That’s right.

Okay. And if you know the promotional environment on third-party sets a pull back a little bit here and backlash more. Are you guys considering the potential to find out yourself through, you know, maybe promoting delivery or is that something that you would not like to match?

You know, this is Matt, Katie. As David Gordon mentioned, I think, you know, we have a set deal in place. And you know, we don’t look to make it quite promotional, if you will, it’s really about driving unique experiences and capitalizing on the brand and long-term investment in the strategy. So, you know, I think we feel really good about what we have done. I think our partner feels really good about what we have done. I wouldn’t expect that to change.

Okay, great. And you know, just it seems do changed a little bit, would you guys have flexibility to add another delivery partner if, you know, the promotional environment does pull back a lot and maybe you’re offered a better deals and deals would you feel or would you be able to do that or does your current agreement provide exclusivity for the next couple of years?

I don’t think that’s something we’re considering. We’re very, very happy at this point in time.

All right. Thank you.

There are no further questions at this time. This concludes today’s conference call. You may now disconnect.