Thank you for standing by. My name is Cindy and I will be your conference operator today. At this time, I would like to welcome everyone to the Cheesecake Factory 2023 Quarter Two Earnings Call. [Operator Instructions] Thank you. I will now turn the call over to Etienne Marcus, Vice President of Finance and Investor Relations.

Good afternoon and welcome to our second quarter fiscal 2023 earnings call. On the call with me 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 fact 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, during this conference call, when discussing comparable sales, we will be referring to comparable sales on an operating week basis, unless specifically stated otherwise. We will also be presenting results on an adjusted basis, which excludes impairment of assets and lease terminations and acquisition-related expenses. 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 review our second quarter results and provide a financial update. Following that, we'll open the call to questions. With that, I'll turn the call over to David Overton.

Thank you, Etienne. During the second quarter, we made measurable progress towards our stated objective of returning our profit margins back to pre-pandemic levels. Combined with our increased scale, we were able to deliver our highest adjusted net income dollars and adjusted earnings per share generated in any one quarter in the company's history. We believe this is indicative of the opportunity we have to enhance shareholder value through continued growth of both our top and bottom line. Despite a slightly softer sales environment, the Cheesecake Factory restaurants continue to generate industry leading annualized unit volumes averaging $12.4 million for the quarter. Comparable sales for the second quarter increased 1.5% from the prior year, and 14.1% versus 2019. Comparable sales versus 2019 continued to outperform the Casual Dining segment them demonstrating the strength and resilience of our namesake brand. Our focus on menu innovation remains a key point of differentiation, contributing to our broad consumer appeal and high degree of relevancy. To that end this past Sunday, we commemorated National Cheesecake Day by introducing our newest cheesecake flavor Cookie Dough Lover's Cheesecake with Pecans and are in the midst of rolling out our latest Cheesecake Factory menu across the country. Execution within the restaurant four walls was outstanding with our operators delivering better than planned results across several key performance indicators, including labor productivity, and wage management, driving solid flow through for improved profitability. This combined with favorable input costs resulted in adjusted net income margin of 5% for the quarter exceeding our expectations. On the development front, we opened the Cheesecake Factory and two FRC restaurants during the second quarter while all of our sites in the pipeline remain active. We continue to experience some delays in opening dates due to various challenges primarily beyond our control, particularly construction and permit approval delays. As a result, the company now expects to open as many as 20 new restaurants in fiscal 2023, including as many as six cheesecake factories, five North Italias, and nine FRC restaurants, including three Flower Child locations. We continue to anticipate two to three Cheesecake Factory restaurants to open internationally under licensing agreements. As we look ahead, we remained intently focused on delivering exceptional food quality, service and hospitality, the hallmarks of our success to drive long-term profitable sales growth. We will continue to leverage our competitive strengths including the scale of our business, our differentiated brands, best-in-class operators, and balance sheet to drive shareholder value and market share gains. With that, I'll now turn the call over to David Gordon, to provide some additional details on operations and marketing.

Thank you, David. Our people are our greatest resource and enable us to deliver excellent service and hospitality and delicious memorable dining experiences for our guests. We believe we are uniquely well positioned to attract, train, and retain high quality staff members and our best-in-class operators. And we remained sharply focused on maintaining our competitive edge by investing in our people to support ongoing improvements across all three facets of staffing. Last October, we resumed our in-person Restaurant Management Development program held at our Southern California corporate support center. Over the last 10 months, we have hosted over nine training conferences attended by over 800 managers and our training investments are paying off. With our second quarter guests satisfaction scores at the Cheesecake Factory improving both sequentially and year-on-year. In fact, all key dine in and takeout guest satisfaction metrics have surpassed the second quarter 2019 levels. We also had another quarter of strong staff retention, with restaurant management and hourly staff attrition rates, effectively returning back to our industry leading pre-pandemic levels. And lastly on the staff recruitment front. Following our recent recognition for having made Fortune Magazine's 100 Best Companies to Work For list for the 10th consecutive year. We were also just named to Fortune's best workplaces for Millennial's list for 2023. We believe these accolades support our position as an employer of choice in the restaurant industry. And our relentless focus on staffing will drive improvements in service to guest's experience, and ultimately overall restaurant performance. Moving to sales trends, comparable sales across our portfolio of concepts remain positive, with predominantly stable guests purchasing behaviors. Cheesecake Factory off-premise sales for the second quarter totaled 22% of sales just below first quarter levels. Additionally, on-premise incident rates remained above 2019 levels, with no material change to daypart…

Thank you, David. Let me first provide a high level recap of our second quarter results versus our expectations I outlined last quarter. Total revenues of $866.2 million were just under the low end of the range although the sequential improvement on a year-on-year basis throughout the quarter. Adjusted net income margin of 5% was above our expectations relative to our sales. G&A and depreciation combined as a percent of sales were in line with expectations. And we returned $23.1 million to our shareholders in the form of dividends and stock repurchases. Now turning to some more specific details around the quarter. Second quarter sales at the Cheesecake Factory restaurants for $652.5 million. Comparable sales increased from 1.5% versus the prior year and 14.1% versus 2019. Sales for North Italia were $65.9 million, a 17% increase over prior year supported by comparable sales growth of 8% versus prior year. Comparable sales versus 2019 increased 30%. FRC including Flower Child average weekly sales were [$114.7000]. Other FRC sales totaled $65.7 million up 10% from the prior year, and sales per operating week were $142.3000. And external bakery sales were $15.4 million during the second quarter of fiscal 2023. Now moving to year-on-year expense variance commentary. As we have seen our cumulative pricing catch up with inflation. We realized measurable year-on-year improvement across several key line items in the P&L. Specifically, cost of sales decreased 130 basis points driven by higher menu pricing and commodity inflation despite lapping favorable dairy contracts in the second quarter of 2022. Labor decreased 130 basis points predominantly driven by pricing leverage, partially offset by hire management labor driven by higher staffing levels. Other operating expenses decreased 10 basis points, mostly driven by pricing leverage, partially offset by marketing costs related to launching the rewards program. G&A…

[Operator Instructions] Your first question comes from the line of Brian Mullan from Piper Sandler.

Hi, thank you. Just a question on the same-store sales results at the core cheesecake brand. Could you just take us through the traffic, the menu price and the mix please for the quarter? And then on the menu price piece, how do you expect the rest of the year to progress you know, strategically you're going to continue to solve for margin recapture or conversely, some of the industry traffic trends maybe give you any pause about taking more price. Just any thoughts would be great?

Sure, Brian. This is Matt, it's a good question. Probably top of mind for most investors, just on the actual data, the pricing was about 10.5%, roughly for the quarter. The mix was a negative 5.4% and then the traffic was a negative 3.7%. As we talk about before the mix has some to do with the change year-on-year in the off-premise while being very stable, still a little bit heightened in Q2 of last year. And the way that we count guests causes some of that negative mix impact. And the other part really was the higher purchasing behavior in Q2, of 2022. We're still running above, pre-pandemic levels of what we call into the race was how much alcohol, dessert or appetizers guests are buying. But obviously last year, the so called revenge buying was in place and we saw heightened levels. For the remainder of the year, we're contemplating lapping our summer menu pricing with a 2% level versus the 4.25% we had. So, we'll see it diminish from the 10.5%, I think it'll go to you know, I don't know at 10.9ish in the third quarter. And then 7.5% or so weighted in the fourth quarter, because remember, we did the catch up at the beginning of December. So, the balance of that will go into next year with more like 5%, because we'll lap over some of that catch up pricing that we had in the fourth quarter and exit. I think though importantly, to your question, Brian, and maybe this is the most pertinent part of it, and how we're thinking about it. Certainly, there was just a very difficult optical lap in the second quarter for cheesecake. And we had exceptional sales volumes in the second quarter of last year driven by some of that post COVID surge, as we look at the quarter kind of how we came out versus our expectations. Really May was a little bit softer, maybe a couple of percent in terms of the timing and trying to figure out that seasonality of the new normal. And then we had a couple of delayed openings, obviously that contributed to it. But really June looks good. As we think about how we performed, we exited the quarter closer to mid-single digit comps most of the difference there being in traffic. So, we actually think our traffic is in pretty good shape going forward. And that's what we're expecting to see as we go through the third and fourth quarter. So, we are taking less pricing than we have been. And I think that will support it. But I think, the underlying business trends going into the third quarter are very strong. And we're pleased with that we're going to keep doing what we're doing.

Okay. Thank you for it. And all very helpful. And then just follow-up on the development outlook your release mentions, some construction challenges, some permit approval delays. I know that's not unique to, but I'm just wondering, is one of those two dynamics, a bigger factor versus the other or one might expect? Would you expect one of them to improve more quickly than the other? I'm kind of have seeing the context of understanding this year has been impacted? Do you want investors thinking that next year, you could potentially get to that 6% to 7% net growth and 2024 or will these issues be with you a bit longer?

Hi, Brian. This is David Gordon. Great question. And as David Overton mentioned, the up to 20, for this year puts us I think, at about 6.3% to 6.5% unit growth for this year. So, we still feel confident in that 7% number for next year, when we look at our pipeline for next year. Most of the delays are not really on the construction sites for us, little bit more in the permitting, whether that's a local permit in a city, or something more broad. And as far as equipment as we've stayed on the path, I think we've done a terrific job of ensuring that we have what we need for the openings again for the pipeline next year. So, it's more about cities being a little bit slower, more new people in jobs than previous. And then just being a little less quick to be able to do what we need, but over time, would continue to hope that that's only going to get better. And there's nothing internally that will keep us from hitting those targets.

Thank you.

Your next question comes from John Park from Wells Fargo.

Hi, good afternoon guys. Just look at the restaurant margins by banner looks like cheesecake - nearly outperform in terms of the recovery this quarter, I guess, what's kind of driving outsize growth? And can you kind of help us think about how much North Italia and other FRC are kind of being dragged down by the growth that they're seeing?

Sure, yes, we were pleased, really pleased with the Cheesecake Factory margin recovery. If you think about the timing of the pricing, versus inflation, we took that extra 3% at the end of last year. And we're seeing that flowed through, I think year-on-year, cake was up 330 basis points. So pretty much 100% flow through on the pricing. So, I think that's great to see. Part of the difference between the concepts is growth. As you noted, usually that's about a 2% or so delta, depending on how many openings, but that's a good sort of rule of thumb. I think the other component of that for North was that we did some of the catch up pricing actually in the second quarter. So, we didn't even get the full benefit of that yet. So there's even another probably 1% lag, I think just on the pricing front. So, we think all of our concepts are really well positioned on the recovery front. We're still building on that, it's not like we're declaring victory, because we want to continue to increase it. But, we think that we're making the right decisions, and we've made a lot of progress.

Okay. Can you just remind us what pricing was at North Italia this quarter?

I think what we'll do about 4%.

Thank you.

Your next question comes from Dennis Geiger from UBS.

Great. Thank you. First question, if I could, wanted to ask a little bit about delivery and sort of what you've seen there, from a mix perspective, how that's changed at any change with demand, and any other opportunities that you've identified within that channel?

Thanks, Dennis. It's David Gordon. We continue to see very stable activity. Now the off-premise at 22% in Q2, just a percent below where we were in Q1. Deliveries still makes up about 9% to 10% of that mix. 7% of it is phone or walk up, and then the remainder is made up of online ordering. So as we said, I think we may have said last quarter, we need to extend our exclusive agreement with DoorDash, which continues to give us a really preferential marketing position as well as a very strong commission rate. That means that all of our off-premise sales including the DoorDash sales are not in any way margin dilutive. So, we feel good about the fact that they will hold on to those sales would continue to see that remain, this summer tends to be the slowest time for delivery sales overall. So that 1% down from where we were last quarter is the same type of behavior would have seen last year. But we feel really good about the ongoing partnership. And also, the integration we have with DoorDash on the reward side, which is allowed guests to go ahead and use the incentives the rewards also on DoorDash.

Appreciate that David does one more if I may. Now just wanted to follow-up on the mid-single June exit that you spoke to definitely a solid number and it seems like that's maybe a good run rate that you're thinking about going forward. Just as you talked about some seasonality in earlier months. Just curious. I guess maybe on a multiyear basis if you guys still think about that anymore, just how to think about, that over the coming months, and it's just kind of that June exit, on a one year basis is a good way to think about the go forward as we think about those, those trends? Thank you.

Yes. This is Matt. Yes - as I said, in the prepared remarks, I mean, it is still a little bit inconclusive, right with any one data point. And so, we always, I think of caution, again, that we continue to try to triangulate against 2019 and prior year absolute run rates, but there is some variability, right. So there's been changes in holidays, you have five day differential now, and you're comparing operating weeks. And so that - it's a little - it is a little bit tricky. And I think that that, reinforces the need to be to be agile, and the great job that our operators did, managing with their forecasting of sales and driving flows through was exceptional. I think that the beginning of the stability started last year, kind of in the August, September timeframe, if I remember correctly. And so, we feel like, you know, that mid-single digit run rate is appropriate that's what we've been seeing. And that's what I think are outlook, kind of encompasses, if you will.

It's great. I appreciate that. Thanks Matt.

Your next question comes from Joshua Long from Stephens Inc.

Great. Thank you for taking my question. Curious, if we go back to your comments Matt on the predictability of the financial performance, it sounds like as you kind of get away from maybe some choppier periods, whether that was really in the quarter, or maybe 4th of July, as some of your peers have talked about the traffic sounds to be relatively falling in line with your expectations. And then, to your point, even though you might have had some one-time items in there that maybe lowered the absolute revenue, it feels like the actual store level performance is kind of falling in line. Is that, am I understanding that point right, in terms of just how you're thinking about the predictability of the model?

I think that's right. I mean, again, there continues to be some potential abnormalities and lapping numbers, right. So, I think that exists. But in the absolute terms, I think the last quarter was the most predictable that we've seen in the cake business in three and a half years. And that goes for both, I think the top and the bottom line. The input costs are not as volatile as they have been, thinking particularly about the COGS and the labor inflation, and the moderation that we've seen. And the fact that that gives us some confidence that continued improvement in core costs, with the stability of the top line is very achievable. So, I think that that's the variability has narrowed dramatically over the course of the last six months. And I think that's a real testament again, to our teams, benefiting from the environment. And we're just hopeful that that continues.

That's helpful. Thank you. When we think about trends by geography, daypart, or kind of maybe from a mix basis, it sounds like those are also pretty consistent as well. Anything to call out there that either surprising or maybe that you've noticed, within the context of the - yes the overall results?

Yes, I mean, when we look at things like daypart mix, it's within like 0.1%, each of them versus 2019, for example, right. So it's really close, we continue to see sort of that movement back to consistent historical trends. I don't know, it's possible that some of the heat has been a negative in some areas. And I've heard some other commentary around that that's kind of unique and challenging. Obviously, there's no value of usage and about half the country right now. So given our results, and those factors, I think we feel even better.

Thank you.

Your next question comes from Brian Vaccaro from Raymond James.

Hi, thanks. And good evening. I just wanted to circle back on the Cheesecake Factory comps. And I think you said you saw a little softness in May, curious what you'd attribute that to. And then I appreciate the mid-single digit comp comment exiting the quarter. I'm curious what that looks like on a comp versus '19 basis. Is that an improvement versus the up, 14% versus what you saw in the first half of the year?

Yes, so I think Brian. This is Matt. The first point really, in May, it was around our expectations. I mean, trying to sort of model like we were saying, year-on-year, there was a certain cadence last year, there was a certain cadence year before and they've all been different. So, I think mostly that was around our internal expectations about how do, you figure out this new second quarter pattern. I don't know that on absolute terms, it was better or worse, because that's just hard to say. But I think versus our expectations, we improved as we went through the quarter. And I think, roughly the sort of 14% to 15% versus 2019 is kind of our thinking still, right. I mean, I think it's the stability of that is sort of back in line. And, and I think it just represents mid-single digits as compared to prior year.

All right, thank you. That's helpful. And then, on the margin front, you expressed confidence in recovering sort of your and recapturing pre COVID margins. And certainly good to see some of the improvement in North Italia. But, and I hope my quick math is right on this, but it looks like Cheesecake segment margins may be still down about 90 basis points versus '19. I guess the question is, what are some of the key drivers from here that would allow Cheesecake segment margins to fully recapture pre COVID levels in your view?

Well, Brian, first of all, I think your math is correct, right. So that, I think that is true in the second quarter, I think that there are a couple of areas that we believe will help us continue to close the gap, maybe not as fast as we've seen in the last quarter or two with that level of incremental pricing. But as we continue to carry, I mean, taking 2% in the summer is probably a little bit more than we might have historically, there might have been one and a half, where we're seeing also wage - inflation rates that are below pre-pandemic levels. So again, I think we see the opportunity to be able to really leverage a little bit in the labor and the COGS line items as we move forward. The other comparison piece here is in the marketing and rewards. There is a little bit of expense there associated with the launch that we incurred, both it incurred in the second quarter. And we anticipate that will also be the case in the third and fourth. I think longer term as David Gordon mentioned, we believe that it will be margin neutral, but obviously, the initiation and the customer acquisition costs, and that's probably in the 30, 35 basis point range for the second quarter on the back half of the year.

All right. That's great color. And then Matt, I just wanted to ask about the labor line specifically and sales were a little life. But Labor sort of came in line and looks like it was quite a bit below versus the first quarter. Are there any, one-time items or non-recurring adjustments that are worth highlighting? And just more color kind of fundamentally on what drove that favorability? Are you seeing guessing you're seeing improvements and overtime improvements and hiring you know, hiring costs and training costs, et cetera? But any color you could provide there would be great? Thanks very much.

Well Ryan, first of all, you did a better job selling it than we possibly could, because it's all of those improvements that you noted. But really the predictability of the sales component the stability of that. We did have better productivity year-on-year, one of the things we've been really focused on upgrading wise is on the forecasting and templating of labor. And the team has done an exceptional job improving upon that in this environment. And so, we've seen a lot of efficiencies, I can tell you there are no one-time benefits that we have in there. Our group medical was basically on plan. All items were pretty much normal. I think that we were just in an opportunity to take advantage of the better staffing and execution that David Gordon talked about.

Yes. Hi, Brian, This is David Gordon. Our continued improvement in retention is certainly part of that, that's paying off. So we look at Q2 of 2023 versus last year, we continue to have improvements. And we're really are back to sort of our pre-pandemic best-in-class at staff. And most importantly, I think it's a management level. That leads only to better operations over time, which leads to improved productivity. And our applicant flow continues to get better quarter-after-quarter. I think last reporting period, we had about 29 applicants for every hiring need. That's up to about 34 for every hiring need today. And the quality of applicant continues to be people that have previously been in the industry, versus at this time last year when we were probably still hiring people who didn't have experience. So, the longer those staff stay with us gives us the ability to continue to cross train them, make them more productive in the restaurants. And you take that combined with the more predictive sales environment and allows our operators to really maximize productivity and maximize labor and as you pointed out, reduce overtime.

Thank you very much.

Your next question comes from Sharon Zackfia from William Blair.

Hi, good afternoon, I wanted to circle back to the rewards program. And I know it's early. But can you kind of give us your game plan on how you expect that to evolve over this year? And clearly, I'm assuming the goal is to incent frequency mean, given others experience with other kinds of programs, when do you think that would start to become manifest?

Sure, Sharon. Hi, it's David Gordon. As - you probably recall that the program's design is really around published offers unpublished offers, and then marketable offers. And our longer term goal is to be able to leverage the data and the insights, to engage with guests and really drive incremental sales while maintaining those restaurant level margins. And since we only launched the full program in June, I would say that, we're taking time now to really analyze that data. And we'll be doing that all throughout Q3. And then we'll look at where we might want to start some pinpointed marketing to drive some incremental visits in the fourth quarter. But more than likely, it's really next year, that we would start leveraging it completely, and have enough data that we think it would be very meaningful to be able to drive the right type of offers into the right channels at the right time to drive some incrementality whether that's a part occasion, or incident occasions. So, we're looking forward to be able to do that fully next year.

And is there kind of an omni channel model where somebody can get recognized if they order through DoorDash or is it just if they come in or get to go and the brick and mortar?

No, it's also through DoorDash. That was one of the early things that we put together with DoorDash with the ability for somebody to be able to participate and drive value through DoorDash. So its omni channel anyway, guests want to use it.

Okay. And then patio utilization was actually going to be one of my questions, given how wacky the weather has been over the spring and summer. I mean, is there any metric you can provide on kind of how patio utilization has looked more broadly, for Cheesecake Factory this year versus last year?

I don't have right in front of me, we've been talking about how to measure that in the heat and sort of that side of things, right, because it's a little trickier. I mean, we're better at measuring it when it's raining, because that's a clear closure. I mean, we know, in sort of the absolute perspective that - those locations that typically drive greater patio sales have been impacted. I don't have a specific number on that I think, ready to quote on that.

Okay. Thank you.

Your next question comes from Brian Harbour from Morgan Stanley.

Yes, thank you. Good afternoon. Matt some of the mix are drivers that you explained earlier, do you think those will kind of start to even out in the second half of the year? Do you see those continuing?

Yes, the planning team and I were talking about that quite a bit to make sure that we have good perspective, because obviously, that's a component of revenue that is, historically extremely stable. Yes, I think whatever variability, there is, an off-premise will continue to be a funny thing for us, because of the way we counted. The other components of it, as we look at the last year sequentially continue to move together to sort of historical levels. So, I think that piece was around 3% in the second quarter, based on the current trend that was about 4% in the first quarter. So, we think it'll be probably two and one in the third and fourth quarters, sort of variants versus historical patterns, and then kind of be back to a more normal perspective next year.

Okay, sounds good. Maybe just kind of North Italia to - you had strong same-store sales, or could you comment just on some of the newer units, how they're doing from a revenue ramp perspective also, maybe just from kind of a margin perspective. And then you alluded to other actions to address North Italia margins, which it sounds like part of that is just price, but was there anything else there that you're doing?

Hi, Brian. This is David Gordon again. I think that what we see it at North is more typical of the rest of the industry versus what we see at cheesecake when we open up in a new market. It's more of a gradual ramp up. And we really look to be at our full sales potential probably by the third year in a North Italia. Whereas Cheesecake Factory opens up generally some of its highest volumes and then over time settles into where it would be in the long-term. On the margin side, as Matt mentioned, we have another price increase in October right at the end of October for North Italia. But more importantly, I think the margin progress we've made thus far has come through bit through supply chain. And we have more work to continue to do there to leverage the scale of Cheesecake Factory supply chain and distribution in North Italia. We've also started incorporating North a lot of the analytics that we use at Cheesecake Factory and dashboards, for operational trends to allow them to increase productivity, and also seating capacity to make sure that they're leveraging - they take a lot more reservations in North Italia than the cheesecake, but to ensure that they're balanced in their reservations, percentage versus walking guests. And I think that that's going to continue to help over time.

Right. Just to add on one thing to what David was talking about with the sales, one of the things we see too is, when we go into a market, maybe open two or three, it really helps that in three years later, kind of all of it starts to coalesce when we were doing our business review recently, we were looking at some of those just pre COVID openings in the Washington, DC and Virginia area. And we have three restaurants there that, two years ago, were saying, Boy, we need to do some work. And because we're used to Cheesecake Factory, we look at that now. And they're practically at the same unit volumes as the rest of the North system. And their margins are great. And so, it really is, I guess tracking to that pattern that David talked to, right. And I think that's what gives us confidence to keep opening as we've seen kind of market-to-market, those growth opportunities really started to pan out as we stabilized post pandemic.

Okay. Thank you.

Your next question comes from Andy Barish from Jefferies.

Hi guys. Just circling on or adding on to that actually, it sounds like Flower Child is kind of by year end going to come, in-house as well. I know, it's not as big as North, but you expect that, to kind of have some noticeable benefits as you - work your way through '24?

Hi Andy. This is David. We do and we've been working this year on incorporating more aspects of Flower Child under the Cheesecake Factory umbrella made some really strong improvements there on supply chain integration as well. We're actually building the next two Flower Child and designing the next two that will open this year. So, we feel very positive that by the end of the year, we would be fully under our umbrella and our development teams and new restaurant opening teams will be leading the charge as we continue to grow Flower Child and we continue to think it has great potential as a high end fast casual concept that's very uniquely positioned out there in the marketplace.

Thanks. And then I'm just testing on. On the labor side again, I know there's been a couple of questions on it. But in terms of the mid-single digit guide for labor increases in the 3Q, is that all wage or are there still some hours being added or is there productivity? That's kind of, netting out some improvements against any of those factors just a little bit more color on that would be helpful?

Andy, it's Matt. We're really talking about wages, I mean, that makes up a preponderance of inflationary impact. And I think, there's always opportunities to offset some of that with productivity, but just from a pure inflationary environment. We're saying wage inflation is missing our budgets.

Is there a component of that Matt that you have off the top of your head on state mandates coming up and do you know July, September, those kinds of things?

Yes, it incorporates and in California. I think that there's some jurisdictions here that have some of that maybe LA County. I think one of the promising things on the wage inflation though, because, I mean, obviously, we've sort of said mid-single, from the beginning of this year, is it has ticked down, right. So, I would say that it went from more, higher mid-single to now lower mid-single, based on the actual realized way wage inflation that we're seeing. So, it is improving. Andy I think that is important to note, but it's still kind of sits within that that mid-range.

Very helpful. Thank you.

Your next question comes from David Tarantino from Baird.

Hi, good afternoon. First, I wanted to clarify just the traffic trend that you're seeing exiting, I guess what you saw exiting the second quarter and in the early part of this quarter that corresponds with the, I guess, the closer to mid-single digit comment that you made, Matt? I guess, is traffic still negative or I guess, how would you frame up what you're seeing more recently, over the last month and a half or so?

Well, we're going to comment on June, but you can extrapolate as for our guide, is kind of based on these theories. We don't talk about that inter quarter. But in June, we were at a mid-single digit comp. And really, but just the difference between the rest of the quarter was predominantly driven by traffic. So traffic was negative three, seven, for the quarter on a 1.5 comp. And so, it's getting pretty close. I mean, week-to-week, there can be differences based on holidays, or we're going to run National Cheesecake Day promotions or things like that. But, we'll see where we get to, but it's getting pretty close to break even.

Okay, great. And then, I guess my question is on your, your decision on pricing, I mean, your pricing levels, currently are among the highest in the industry year-over-year, and I know you, you are kind of late to catch up to the industry, so understandable. But I guess the decision to take more in August and even more than you've done historically. I guess, I guess why do that in a market that seems like traffic's pretty fragile, I guess what's the what's the objective there? Is it mainly just to recover margins? And I guess, how do you think about the risks of traffic and doing that?

Yes, I think it goes, David, part and parcel with what I just said. I mean, when we look at sort of the underlying traffic, it's pretty stable. In our business, the underlying purchase behavior is very stable, and in line are better than historical rates. And so, I feel like sort of our objective this year is to rebuild our profitability, and to develop the sales levers to grow off of this base, and really think about the rewards program and the operational execution, we're going to accomplish those things. We're still in our math, probably 2%, below the cumulative pricing of the industry since 2019. And so, year-over-year, as you noted, it's a little bit funny because of the timing of when we did pricing. But, I still feel like the inflationary impacts over the course of those four years has outpaced what we've done. And so, I think this helps us just get that last leg back. And in a situation and during a time period, where we feel like the business is very stable.

Great. Thank you.

The next question comes from John Ivankoe from JPMorgan.

Hi, thank you. I think I calculated something like 25 new units next year. And I wanted to get a sense of how you felt about the current pipeline and what you're seeing in terms of location quality? I mean, is it more competitive to get some of the best sites? Are you actually getting access to some of the best sites that were challenging from some time ago? And I'm curious, for the types of landlords that you have? Is your balance sheet even more coveted at this point? In other words, if you take less TI money, are you actually getting it back the other end, and betting -- than better overall lease terms? Thanks.

Hey, John. I'll let Matt touched on the balance sheet. But as far as the site potential, we feel good about the pipeline, as I said earlier, for 2024. The types of sites, the type of projects, to high-end projects, if it's a mall, being in a mall, still, we're going to let the best sites, a sites drive our decisions. And I would just say our portfolio of concepts really allows landlords to come to us and say, hey, we have these opportunities, what would be the best fit for this particular project, and between Cheesecake Factory north and our 3500 square foot Flower Child, or even a 10,000 square foot culinary dropout with a lot of options. So I think we're sitting in a really comfortable place to be able to hit that 7% growth rate next year and as we look forward.

I think, John, this is Matt. On the balance sheet. I mean, certainly, it helps. Right? I think that the name Cheesecake Factory is even more important. And so, I think it's all of those attributes and we're bringing to centers, the types of activities, the entertainment sort of quality that the landlords want. I would say the generally the leasing environment is similar to what we may have expected historically, though, in terms of terms. Everybody asked that question. For a property that's basically around the same as we got before. We're still best in class. But it's not like it's uniquely better than it ever was for the top properties.

Thank you.

Your next question comes from Jeffrey Bernstein from Barclays.

Great. Thank you. Definitely encouraging to hear that the traffic trends that sounds like are approaching flattish to demonstrate that the brand is still driving the same consumer frequency. I'm just wondering whether you -- just because you are running, or we're running that north of 10% price. I was wondering if you measure the value scores on a regular basis. And he talked about guest satisfaction, which is wondering how you think about the value scores or how you measure them? What your most recent learnings have been just to make sure that the price hasn't intimidated the consumer? And then I had one follow up.

Thanks, Jeff. Its David. I should be doing annual attitude usage and awareness study. And we just actually completed that with our guests. And I'd say that our value scores are pretty stable. We also know that there's still a portion of guests that haven't come back yet, post COVID. I know we've talked about that before. And in the study, we saw that about 60% of our last guests have stated that they have an interest in coming within the next six months. So we're hoping to build upon some of those guests that still love us and maybe weren't comfortable to come back and dine yet. And when we feel good about that. But we haven't really seen, as Matt said, when he looked at incident rates or our desserts as a percentage of sales continued to be 17%. We don't really see anything in scores or behavior, that would give us pause. And I would just remind you that the breadth of the menu was just so strong and the breadth of price points continues to be so strong that it allows guests to really navigate that menu and use it in the way that makes sense for them from a consumer choice menu item. But also, just from a pricing standpoint, now they want to use the menu as well.

Understood. And that's actually my follow up question just because you now operate such a broad portfolio are involved with such a broad portfolio of brands, and you're servicing such a broad demographic, just wondering if you've seen any signs of change in behavior? And it actually sounds like you believe trends have actually strengthened to close the second quarter. But I'm just wondering, of course, your portfolio, have there been -- have you noticed any leading indicators to demonstrate any sign of the slowdown across the portfolio? Are you really just not seeing anything to demonstrate that across the portfolio just yet?

No, I think generally all of the concepts kind of trade, slightly higher end, but a broad array of locations and occasions. And so what you know, what I think we've seen for Cake has been consistent across all of all of it, Jeff, so like, really looking at Flower Child, as David Gordon mentioned, the sales continue to improve quarter-over-quarter. And so that's a primarily to go business, right, and fast casual, but we're seeing sort of the same resiliency and positive guest reception. So I mean, I just think that generally the consumer is in pretty good shape. Interestingly enough, right, the sort of talk in the news have switched in the past month as well away from doomsday to maybe it's off landing, and you'll look at the Michigan survey, and it's up significantly over the past couple of months. And so, I do think generally consumers are feeling better, and it's showing up.

Great. Thank you.

Final question comes from Jim Sanderson from North Coast Research.

Hi, thanks for the question. Wondering if you could walk through for North Italian to the breakout between traffic and check? And what type of price do you expect to carry through into the back half of 2023?

The traffic was positive 2%. Price was 8%, and the mix was negative 2%. And I think we would expect probably to carry about 8% pricing throughout the rest of the year.

Right. Any feedback on any change in alcohol mix, that you'd want to call out indication that the consumer might be trading down?

Jim, this is David. No, we really haven't seen that any of the concept, Cheesecake or North or the other FRC concepts that have a heavier bar mix to begin with. We haven't really seen any trade down law.

What is your alcohol mix on average, just across?

Well, that's a very broad question because it can be very different. So I think, Cheesecake historically is around that 13-ish range, but it can run all the way up. A culinary dropout might be in the low 30s or so. So it runs the gamut. I would say probably Flower Child is the lowest, that's in the low single digits, because it's really just something and you know, things like that. So it's all it depends on the concept, Jim.

All right. Thank you.

There are no further questions at this time. This concludes today's conference call and you may now disconnect.