Good afternoon. My name is Brianna, and I will be your conference operator today. At this time, I would like to welcome everyone to The Cheesecake Factory Incorporated First Quarter 2024 Earnings Conference Call. Please note that this call is being recorded. [Operator Instructions] I would now like to turn the call over to Etienne Marcus, Vice President of Finance and Investor Relations. Please go ahead.

Good afternoon, and welcome to our first quarter fiscal 2024 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, we will be presenting results on an adjusted basis, which exclude 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 first quarter financial results and finish up with some commentary on our outlook for the second quarter and full year 2024 before opening the call up to questions. With that, I'll turn the call over to David Overton.

Thank you, Etienne. We were pleased with our first quarter results with revenues finishing near the high end of our expected range and superior operational execution contributing to better than projected profitability, resulting in 20% year-over-year growth in adjusted earnings per share. The Cheesecake Factory restaurants' comparable sales and traffic once again meaningfully outperformed the industry, underscoring the strength of consumer demand for our brand and demonstrating our ability to capture market share. Execution within the restaurant 4 walls was outstanding, with our operators delivering better than planned results across several key areas. This performance, combined with slightly better than expected input costs, resulted in consolidated 4-wall margins of 15% and adjusted net income margin of 4% for the quarter, both exceeding expectations. On the development front, we successfully opened 5 restaurants in the first quarter, including 2 North Italian restaurants, 2 FRC restaurants and 1 Flower Child location and 1 Cheesecake Factory restaurant opened in Mexico. Additionally, subsequent to quarter end, another Cheesecake Factory opened in Asia. With the 5 restaurant openings in the first quarter, we remain on-track to open as many as 22 new restaurants in 2024, including as many as 3 to 4 Cheesecake Factories, 6 to 7 North Italias, 6 to 7 Flower Childs and 6 to 7 FRC restaurants. Before I turn the call over to David Gordon, I'm proud to share that The Cheesecake Factory has been named one of Fortune Magazine's 100 Best Companies to Work For, for the 11th consecutive year. 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 as an employer of choice in our industry. With that, I will now turn the call over to David Gordon to provide an operational update.

Thank you, David. Our solid performance for the quarter showcases our operations team's proven ability to execute at the highest levels and effectively manage their restaurants. To this point, our operators exceeded our expectations in labor productivity, food efficiencies, wage management and perhaps most importantly, in both hourly and management retention rates, which were already industry leading, and for the quarter, finished at the highest levels in the past 5 years. As we've said before, we believe our staffing success is a key contributor to the improvement in our guest satisfaction scores. After all, our people are our greatest resource and enable us to deliver delicious, memorable experiences for our guests each and every day. Supporting this viewpoint, our internally measured Net Promoter Score metrics during the quarter remained near record highs across both dine-in and off-premise channels, including pace of experience, staff service and food quality. These positive guest satisfaction trends further support The Cheesecake Factory's continued outperformance relative to the industry with comparable sales and traffic exceeding the Black Box Casual Dining Index by 330 basis points and 440 basis points, respectively. Now, turning to sales trends. Cheesecake Factory off-premise sales remains steady at 22% of sales for the first quarter, in line with the 2023 average percentage of sales. North Italia first quarter comparable sales increased 3% from the prior year, resulting in annualized AUVs of $7.7 million. Restaurant level profit margin for the adjusted mature North Italia locations was 14.2%, up 120 basis points from Q1 of 2023. Other Fox Restaurant Concept's annualized AUVs were $7.3 million. Next, I'd like to provide an update on Flower Child. We remain as enthusiastic as ever about Flower Child's potential, with sales continuing to grow nicely across the concept. In fact, Q1 comparable sales for Flower Child were the…

Thank you, David. Let me first provide a high-level recap of our Q1 results versus our expectations I outlined last quarter. Total revenues of $891 million finished towards the high end of the range we provided. Adjusted net income margin of 4% exceeded the 3.5% guidance we provided. And we returned $25.3 million to our shareholders in the form of dividend and stock repurchases. Now turning to some more specific details around the quarter. First quarter total sales at The Cheesecake Factory restaurants were were $668 million, up 2% from the prior year. Comparable sales declined 0.6% versus the prior year. In line with the industry, our Q1 sales were negatively impacted by inclement weather, predominantly in January, with trends improving thereafter through the end of the quarter. Total sales for North Italia were $70.9 million, up 12% from the prior year period. Other FRC sales totaled $74.2 million, up 8% from the prior year, and sales per operating week were $140,600. Flower Child sales totaled $34.5 million, up 10% from the prior year, and sales per operating week were $83,700. And external bakery sales were $14.9 million, flat from the prior year. Now moving to year-over-year expense variance commentary. In the first quarter, we continued to realize some year-over-year improvement across several key line items in the P&L. Specifically, cost of sales decreased 100 basis points, primarily driven by higher menu pricing than commodity inflation. Labor as a percent of sales was essentially flat year-over-year. Other operating expenses decreased 40 basis points, primarily driven by reduced costs in areas such as utilities and to-go related expenses. G&A increased 60 basis points, mostly driven by higher staffing and legal costs. Depreciation increased 10 basis points as a percent of sales. Pre-opening costs were $5.9 million in the quarter compared to…

We'll now begin the question-and-answer session. [Operator Instructions] Our first question comes from David Tarantino with Baird.

Matt, just first a quick clarification question related to your assumptions. You mentioned that you're assuming that the trends you saw in February and March would be the kind of run rate you're assuming in the guidance. So could you just elaborate on what you saw in February and March? And then I have a follow-up.

Sure. So, David, it's Matt. So if you think about the quarter and Cheesecake Factory comps were the negative 0.6. And what we had said on the last call was the impact from those 2, 2.5 weeks of weather in January was about 1.5% to 2% for the entire quarter, right? So the net of those 2 things being kind of what we saw in the back half of the quarter. So low single-digits, positive.

Got it. Okay. And that is what you would be embedding in your second quarter guidance?

Correct.

Got it. Okay. And then I guess a lot of companies recently have been talking about consumer softness, and I just wanted to get your thoughts on what you're seeing from a consumer perspective? I know you saw improved trends at the end of the quarter, but as you kind of step back and look at where you are year-to-date and what you're seeing on the transaction side, or however you want to look at it, can you talk about kind of the strength of the consumer spending environment and any observations on that front would be helpful.

Sure. And I'll just preemptively answer the next question around the specifics on pricing, traffic and mix, because it's part of, I think, that answer, right. So pricing leveled down for us because we dropped off that one-time incremental pricing from December '22. So pricing was at 5.2. The mix was a negative 4.3, which showed a slight improvement over the fourth quarter, but as we predicted, was still a piece of the equation. And so that left traffic at a negative 1.5. All of that traffic piece was related to the January weather. So effectively, we've been running flat traffic now for 2 quarters. And so, to answer, I think the question we see the consumer that's coming in our restaurants being very steady. We haven't veered off of that trajectory for a while. And week to week, it's been predictable. So, wherever that is, it's not a bad place at all for us.

Your next question comes from Katherine Griffin with Bank of America.

I wanted to ask first about the 4-wall margin, a little bit better than expected, as you said. So I was wondering if you could just further clarify. I think you mentioned input cost, but sort of where the upside came from? And then second part of the question is just, is this kind of the right level we should be thinking about for the remainder of the year?

Sure, Kathy. It's Matt. So, I think just going back to the last answer for David on the sales trends, I mean, I think having that steady, predictable, historical Cheesecake pattern, our operators just did a fantastic job delivering flowthrough on the sales. So a lot of it just goes to the ability to execute in a normalized environment. You know, we saw commodities were, as in what like roughly flat-ish, but within the predicted range, utilities were slightly better. I mean, natural gas obviously is low, but I think the most important part of that is just execution and being able to manage the business with a very predictable sales pattern. So that helped a lot. If you think about the rest of the year, every quarter is a little bit different, right? There's seasonality and things. So those numbers might not be the absolute same quarter-to-quarter. Typically, you do see a little bit of a tick up, and the absolute number for Q2, and then it comes back down in Q3 and goes back up a little bit in Q4. So it moves around. But I think on a full year basis, it's probably close to it somewhere in that ballpark.

And then I was curious about the Flower Child purchasing and being integrated with the Cheesecake supply chain. Can you quantify or just maybe frame what the margin savings from that are?

You know, it's meaningful. I don't know that we are going to give a specific answer, but we've done a lot of work in the protein area, which is high cost, and we feel really good that the contributions from that, it's a little bit of a tricky answer because we've done so many other things, like David talked about putting in the kitchen system, some of the other efficiencies, they're kind of all blended together, but certainly the margins have moved measurably higher, and we feel very good about accelerating that growth based on the results that we're seeing.

Our next question comes from Brian Mullan with Piper Sandler

Just I actually wanted to follow-up on Flower Child. It's some encouraging stuff you just mentioned. Could you just remind us what kind of AUVs and maybe lower-level margins you're targeting there on the new development, if you could incorporate some of the good work you've done and just reference? And then is there a long-term target you'd be willing to discuss in terms of the long-term opportunity? Can this be a national brand one day if things break right?

Sure Brian. This is David Gordon. I think I'll answer your last question first. And that is, yes, we believe that it can be a national concept. Part of the reason that we've taken it more fully under our umbrella and leveraged things like the supply chain team is because we have a very strong belief in the concept. You know, Q1 AUVs, the run rate of those are $4.4 million, average unit volume. So they've been very, very strong. The new markets have been very strong. Just opened a new Flower Child in Plano in Texas, which is an existing market, but very happy with the sales there thus far. So we think it's very promising. We're excited to open up 6 to 7 more this year and that continued growth moving into next year and the years beyond.

And then just a question on California with the implementation of the new legislation on April 1. I know it's a different segment of the industry, but just wondering if you've observed anything worth calling out at all on the labor side whatsoever, or if you'd expect to?

This is David. I think it's still early, but we haven't seen anything thus far. But we continue to remain an employer of choice, are able to continue to pay the wages, and see the same wage trends in Q1 that we saw at the end of last year, which is a very stable staffing environment. We think that our employee value proposition is very strong. So we're going to monitor it as we have been, and we'll see what comes throughout the next quarter. But more likely it's going to have an impact on QSR and not so much on, certainly, Cheesecake Factory and even the fast casual like Flower Child at this point.

Our next question comes from Brian Vaccaro with Raymond James.

Just circling back on the comp components at Cheesecake Factory, Matt. I think you said the mix was down in the low 4s, obviously a much larger drag versus your -- your peers and what we're typically hearing. Can you just remind us what the pieces of what's driving that kind of what the underlying dynamics are there? And then how you see that playing out or normalizing over the next few quarters?

Sure. That's right. It's in the low 4s. About 1% of that is just the optics of the to-go and how we count that. So, you're about 3%. And just as a reminder for everybody, that's about half of what it was really 9 months ago. So what we saw is really outsized purchasing, things like alcohol attachments in '21 and '22. So we're still currently running, we call them incident rates, right. It's how much of each type of product the guests are buying. Slightly above 2019 levels. So people aren't really regressing. They're just returning to, I think, normal behaviors. So we anticipated that it would be at this level in Q1. So it's pretty predictable. So we feel good about our estimates going forward. Q2 will probably come down even a little bit more, Q3 a little bit more. By the time we get to Q4, it's going to be pretty close to normal in our models today.

And on the margin front, I wanted to ask about on labor, labor per operating week, at least on our math, was down between 1% and 2% year-on-year, it looked like. Can you even speak to some of the efficiencies? Is there any way to quantify some of the efficiencies that you're seeing? I know sometimes that can be difficult. And then within other OpEx, also some pretty nice leverage, despite some of the rewards marketing in that line, too. So is there anything worth calling out or highlighting in that line?

Well, on the labor part, Brian, this is Matt. We are seeing extremely good retention levels at the hourly level as well as the management level. And so that does drive basically productivity, but also very specific areas like overtime, like training, where we're seeing year-over-year improvements that are meaningful. I think on the other ops line, as we noted, I mean, natural gas certainly is a little bit of it. And I think that we have some savings that we've been driving through our supply chain and some of the to-go supplies and things like that. So it's been a focus obviously, the other OpEx was a little bit bumpy, so we've been paying attention to that, and I think our efforts are paying off.

Our next question comes from Jim Salera with Stephens.

I wanted to drill down a little bit on North Italia. Can you just walk through the daypart trends, maybe how customers are interacting with the brand, lunch versus dinner daypart?

Sure. Jim, this is David. I think that it's been pretty steady and stable. It's probably about a 35%-65% mix lunch to dinner at North and has been that even prior to our acquisition. One of the areas of growth at North I think that's interesting to point out is just the off-premise growth over time. Off-premise sales at North were 14% in the quarter, which I think is the highest quarter that we've had. So we're pretty excited to see that. I think our partnership with DoorDash some of the marketing benefit we get has been helpful at the North, but as far as daypart mix, it's been pretty steady and remains very steady.

Okay. That's great. And if I can ask a follow up just on the new units, I believe slight beat versus street plus reiterated guidance which is all great. Are you seeing the permitting environment improve or anything behind the scenes? Maybe you guys have kind of extended out expectations. I know when we've talked with other operators, some of them still have some permitting issues and other ones seem to have gotten around that. So any color there will be helpful.

Sure. I think we feel confident in the up to 22 restaurants this year and permitting in some cities maybe still a slight challenge, but nothing like it was 12 months ago. Latest update was we had a restaurant in Houston that was having permitting challenges, but those are moving quickly. So some of those tougher cities maybe are still a little bit of a challenge but nothing is going to keep us from hitting the target for this year and certainly so much more stable than they were even 12 months ago from permitting to equipment, supplies, et cetera, and even labor force to actually work on construction, we feel pretty confident.

Our next question comes from Jon Tower with Citigroup.

Maybe I'll just start on the marketing side. I know as a percentage of your total revenue it stepped up by about 30 basis points in 2023 or about $10 million in total. And I think for some of the 10K suggested rewards was a big driver of that. But I'm just curious to get your thinking around the spend in 2024, and do you feel like there's any sort of need to respond in terms of building up your brand awareness in front of consumers in the face of what's going on across the industry with many other casual dining concepts out there blasting the airwaves right now with kind of price point promotions and building brand awareness that way?

Well, I think I'll just start by addressing again the second half of your question. This isn't the first time that we've seen our competitors have a heightened promotion environment and we are pleased with our performance historically during those times. And even if we look at what, as Matt said towards the end of the quarter, how strong our traffic was, we certainly are not going to change our promotional environment and become the concept that's doing more discounting because of what we see in the marketplace. So, our plan is to stick to our knitting, continue to learn from the rewards program, continue to look at all 3 phases of that program, the published offers and the marketable offers throughout time, and leverage the data as we continue to gather it, to be as strategic as possible with our marketing to build on the one-to-one relationship that we're hoping to continue to have with our guests to drive some incremental revenue throughout that rewards program and do it at a level that's margin neutral for us.

Got it. In terms of thinking about the rewards program itself, I know you had mentioned it's early days and you're not necessarily, or at least you talked about the idea of having relatively low expectations for it. However, it seems to be exceeding the expectations in terms of sign-ups and such. Can you just talk about perhaps how it might be impacting, are you seeing greater frequency of use from these consumers early on in the program, or are you seeing greater spend when they're coming in versus what you were anticipating?

Sure. Without getting into too much detail, I can tell you that our early results certainly see some incremental visits and see some new guest visits. So we find that to be very promising. We have a high email opt-in rate, well above 90% for those guests that are engaging with the program. We see our NPS scores for guests that are in the program being even better than our already highest NPS scores that we've seen historically. So everything about the program thus far seems to be trending in a very, very positive fashion, and we're excited to be able to share more once we decide to do that in the coming quarters.

Got it. And then just last one for me, maybe, Matt, you can touch on what was going on with G&A in the quarter. I think you had guided at the higher end of the range of $58 million, and it came in closer to $60 million. What might hit that during the period?

Yes, really, Jon, it's Matt, we had some legal settlement. There's about half of that delta, and then there's a little bit of timing. I think we're going to be fine for the year. We'll make that back up. But just a few things that came in that we anticipated at different periods during the year. So it was really non-core spending.

Our next question comes from Jeffrey Bernstein with Barclays.

First question is on the unit growth outlook. It's great to hear that you did 5 in the first quarter, 5 in the second hopefully, and pretty steady in the back half. That's quite an anomaly. I was just wondering, as you think about going into next year and not looking for guidance per se, but would you expect that you could accelerate the number of openings next year? And if so, which brand do you see having the strongest demand now that you have more of a portfolio to choose from, just wondering which brand you see as having the greatest upside as we think going into next year?

This is David again. Well, we're certainly not going to get too far over our skis and talk about how many we might have for next year, but I think what's most important is that whether it's North Italia, Flower Child or Cheesecake Factory, the demand for those concepts from landlords remains very, very high. So we're still getting a site real estate opportunities, and we have enough brands, including culinary dropout to be able to fit the needs of those landlords everywhere from 3,500 square feet all the way up to 10,000 square feet. So that's why we have such a positive outlook on the potential for next year and certainly still feel pretty good about our unit growth target of 7% annual unit growth.

Understood. And then just, Matt, you gave that low single digit, I think, the mid-single digit blended inflation for the full year. Just wondering if you can share specifically on the first quarter and the second quarter for both commodities and labor, just kind of where that settles out or where you're expecting it to settle out within that broad range that you gave for the full year, and the pricing, I guess, to offset that?

Yes, sure, Jeff. So first quarter the commodities were like 0 to 1 and labor was around the mid 4s. And I would say commodities for the second quarter, probably 1-ish. So just maybe a 0.5% more, something like that. I mean, it's obviously a little bit of illusion of precision here. And I would say labor is probably in the 4 to 5 range as well.

And the pricing that you'd expect.

So we're going to run probably about 4-ish.

Your next question comes from Brian Harbour with Morgan Stanley.

Matt, on kind of 4-wall margins, you had nice year-over-year improvement, right? Kind of in excess of, I think, what you'd previously hoped for, for this year. And it sounds like some of what you're seeing are structural drivers that could be sticky. Do you think that could continue in incoming quarters, maybe commodities pick up a bit, but what are some of the puts and takes on 4-wall margins, just bigger picture?

Yes. I mean, I think a lot of it is structural. Certainly, we fully caught up with pricing last year and so you're seeing some of that just benefit like cost of sales where the commodities have normalized and it's lapping. But a lot of it is operational execution, the stability of the labor force really driving productivity and flow-through in the 4 walls. And that certainly should be sticky. You know, I think our outlook expects that we will continue to have year-over-year margin gains throughout the balance of this year.

And how much did it kind of differ by brand? Did you see more of a swing for some of the non-Cheesecake brands, are some of those kind of starting to perform better or how should we think about brand mix in that?

I think it was pretty consistent to our expectations where we saw just everywhere a little bit better, right. You know, certainly Cheesecake is 75% to 80% of the business and so that's the single biggest driver. And those margins provide the most incremental dollars. But as David Gordon mentioned, Flower Child had very strong sales and delivered great margins in the quarter too. So, we're pretty pleased with the whole portfolio at this point.

Our next question comes from Lauren Silberman with Deutsche Bank.

And congrats on the quarter. Can you talk about whether you're seeing any differences across regions? And then specific to California, a lot of the restaurant industry raised prices in response to the wage rate, are you seeing any benefits from that or incremental pressure in the market at all?

Lauren, this is Matt. I mean, I don't think we've seen very big differences geographically other than the weather because that can certainly impact sectors for temporary, but it's pretty consistent. In California specifically, I don't think we've noticed a real difference. Again, I think as David Gordon mentioned, it's pretty early, so we'll see if that plays out. But generally speaking, I think business has been pretty consistent and predictable.

And then on just the North Italia margins, how are you feeling about the path to close the margin gap to Cheesecake?

Sure. Yes, I think we feel good about that. You know, if you kind of look at where it's at, it doesn't always sync up quarter-to-quarter because the pricing actions are different between the brands. And so, sometimes it can just be off a little bit. And certainly, on the total margin, we basically had 4 brand new restaurants in the quarter, 2 from really late in December and 2 that we opened. And so, as we've always said, the gap from the mature to the total with North can be 3% or 4% different just based on the cadence of the openings. So we feel like it's basically right on track and normalizes over the course of a full year.

Our next question comes from Dennis Geiger with UBS.

I just wanted to ask another on pricing and sort of anything you'd call out that you're seeing from a pricing perspective and any sort of resistance from the customer at all? And then, Matt, I think you gave the 2Q, as we think about rest of year on the pricing side, we just kind of assume continued moderation in that pricing level over the balance of the year?

Yes. I mean, I think just, I would still just use about 4%. I mean, we take it twice a year. We haven't finally decided, that's still in process, but I think just for modeling purposes, that's probably a good number. I mean, from our perspective, with flat traffic, obviously, the guests are coming in the door the same as they were before, despite the pricing. And so, I think that's a positive. We understand the mix. It's behaving like we thought it would be. So they're not changing their behaviors. It's kind of just normalizing. So, overall, I think that we think that our guests appreciate the value of Cheesecake Factory and North and all of our brands based on the quality, the portion sizes, all of the things that have endured for nearly 50 years, and people come back to their favorites, you know, and so, I think that's what's happening.

That's great. And one quick follow up, I guess, just on that point, Matt, and I think you talked to mix earlier, where I think both the alcohol and sort of broader attach, it's a little bit more lapping the exuberance from prior years, and you're still above 19. So it's essentially really not seeing any observable trade down behavior from any cohort of guests, forget alcohol, even sort of on sides, et cetera, just not seeing that, basically?

No. I would say we're not. Yes, that's correct. Yes.

Our next question comes from Jim Sanderson with Northcoast Research.

I wanted to follow up a little bit more on G&A spending. I think the way guide is looking, that's going to outpace revenue growth for this year. But maybe you could talk a little bit more about how you're managing that line item? What we should expect as far as potential for leverage going forward?

Sure. You know like I said, for the quarter, we had a couple of items that were sort of out of pocket. But I think generally, our goal is to try to get back towards a 6% level. And sometimes just the timing of the spend versus the timing of openings where revenue can just be a little bit different on the margin side. So that is still our goal. I think we do a good job of managing the core functions of the business, and I'm pretty confident that we'll get that aligned in the next year or 2.

All right. And a quick follow-up question on North Italia. Could you provide traffic and check mix or traffic checks, of the 2?

Etienne, do you have that?

I do.

Okay.

Traffic was negative 1% for the first quarter. Price was 8%, and mix was negative 4%.

We would add the same comment where they were also impacted just like Cheesecake. So, I think we would have been in positive traffic territory if it weren't for the weather in January.

Our next question comes from Rahul Krotthapalli with JPMorgan.

I just wanted to ask, on the kitchen display system, can you discuss or quantify to the extent possible, how much of the throughput or ops efficiency impacted your earnings this quarter? And is this something new, or did you have something in place for a while on the lines of kitchen management system or is this a fully blown upgrade, and what was the pace of rollout?

This is David. Just for clarity, the kitchen display system is at Flower Child is where we rolled that out. We have had a kitchen display system at Cheesecake Factory for numerous years. So the full rollout was probably done at the beginning of the quarter at Flower Child, and we're not sharing any of the data at this point, but we do know that it's made some good strides and benefits for the guest experience with throughput, the dine-in experience being faster than it was previously and really allowing them to manage the throughput of off-premise and dine-in because at Flower Child, you're talking about a 55% off-premise mix. And one of our goals is to ensure that that high off-premise mix does not extend the dine-in time for any guests that are coming in and dining with us. So it's been very beneficial to this point. And it's fully rolled out at all the Flower Childs and we're including it in all the new restaurants as we open them as well.

Our next question comes from Brian Bittner with Oppenheimer.

I apologize if this has been addressed, but I'm going to ask it anyway. Just on the margins, the margin expansion was very impressive in light of a choppy sales environment out there. And I know you've talked a lot about some wins in the quarter that helped you outperform on the margin. But on that other operating expense line, the leverage there was pretty unexpected and positive. And I think you mentioned utilities, and I think you mentioned to-go item packaging. Are those pretty structural new opportunities that you are driving in that other OpEx line? And should we continue to expect this type of leverage in that line, because if you got it with sales slightly negative and now sales are going to be better than that, I'm just curious if we're still going to get a lot of margin expansion from other operating expenses.

So, Brian, I think you got most of that right. I think we would say, look, the utility costs can vary outside of the control of the company, so that's not necessarily a permanent structure. We'll see where that goes to. Certainly, supply chain savings will continue, but we're not factoring in any continued leverage in that line item at this point in time. If we can manifest and improve it, that'll be great, but I think we'll see how each quarter plays out. Certainly, we expect the cost of sales benefits to continue at a very meaningful rate. And we probably expect labor to be about equal, just like it was. So just kind of running through the P&L there.

And just on this flattish underlying traffic trend that you're speaking to, obviously, that's way better than the industry data. And this quarter your same-store sales were in line while many are missing. And I guess it just begs the question, what do you think is setting you apart from your peers? Is it simply your lack of exposure to that maybe lowering consumer, because obviously, as you know, most management teams are citing the low-end consumers. Is it just -- is your portfolio position such where that doesn't affect you as much or how would you unpack why you're driving such outperformance on the traffic?

Well, Brian, just an opinion, and David Gordon touched on it earlier when he was talking about the environments that we've seen in 50 years come and go with advertising and consumers or whatnot. And I think the reality is that if you execute really well with a really great product, people are going to pick you over your competitor. And so that's what you tend to see as a flight to quality, right? So if you're going out maybe a little bit less, but you're going to want that to be a really great experience. And so, I think that's what we deliver, and I think that's the big difference.

There are no further questions at this time. This will conclude today's conference call. Thank you all for your participation. You may now disconnect.