10-Q 1 cake-20240402x10q.htm 10-Q
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 2, 2024

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 0-20574

THE CHEESECAKE FACTORY INCORPORATED

(Exact name of registrant as specified in its charter)

Delaware

51-0340466

(State or other jurisdiction

(I.R.S. Employer

of incorporation or organization)

Identification No.)

26901 Malibu Hills Road

Calabasas Hills, California

91301

(Address of principal executive offices)

(Zip Code)

(818) 871-3000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:

Title of Each Class

    

Trading Symbol

    

Name of Each Exchange on which Registered

Common Stock, par value $.01 per share

CAKE

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes   No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

    

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No 

As of April 30, 2024, 50,958,407 shares of the registrant’s Common Stock, $.01 par value per share, were outstanding.

THE CHEESECAKE FACTORY INCORPORATED

INDEX

 

Page
Number

PART I

FINANCIAL INFORMATION

Item 1.

Financial Statements:

Condensed Consolidated Balance Sheets (Unaudited)

1

Condensed Consolidated Statements of Income (Unaudited)

2

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

3

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)

4

Condensed Consolidated Statements of Cash Flows (Unaudited)

5

Notes to Condensed Consolidated Financial Statements (Unaudited)

6

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

16

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

25

Item 4.

Controls and Procedures

26

PART II

OTHER INFORMATION

26

Item 1.

Legal Proceedings

26

Item 1A.

Risk Factors

26

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

27

Item 5.

Other Items

27

Item 6.

Exhibits

28

Signatures

29

PART I — FINANCIAL INFORMATION

Item 1.        Financial Statements.

THE CHEESECAKE FACTORY INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

April 2,

January 2,

    

2024

    

2024

(Unaudited)

ASSETS

Current assets:

Cash and cash equivalents

$

60,220

$

56,290

Accounts and other receivables

75,559

103,094

Income taxes receivable

 

19,838

 

20,670

Inventories

 

65,469

 

57,654

Prepaid expenses

 

62,486

 

63,090

Total current assets

 

283,572

 

300,798

Property and equipment, net

 

793,810

 

791,093

Other assets:

Intangible assets, net

 

251,771

 

251,727

Operating lease assets

 

1,310,319

 

1,302,150

Other

198,168

194,615

Total other assets

1,760,258

1,748,492

Total assets

$

2,837,640

$

2,840,383

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$

61,383

$

63,152

Gift card liabilities

 

196,236

 

222,915

Operating lease liabilities

147,380

134,905

Other accrued expenses

249,502

239,699

Total current liabilities

654,501

660,671

Long-term debt

 

470,551

 

470,047

Operating lease liabilities

 

1,243,276

 

1,254,955

Other noncurrent liabilities

136,874

136,648

Total liabilities

2,505,202

2,522,321

Commitments and contingencies (Note 7)

 

 

Stockholders’ equity:

Preferred stock, $.01 par value, 5,000,000 shares authorized; none issued

Common stock, $.01 par value, 250,000,000 shares authorized; 107,875,007 shares issued and 50,972,401 shares outstanding at April 2, 2024 and 107,195,287 shares issued and 50,652,129 shares outstanding at January 2, 2024

1,079

1,072

Additional paid-in capital

 

921,133

 

913,442

Retained earnings

 

1,235,666

 

1,216,239

Treasury stock inclusive of excise tax, 56,902,606 and 56,543,158 shares at cost at April 2, 2024 and January 2, 2024, respectively

 

(1,824,493)

 

(1,811,997)

Accumulated other comprehensive loss

 

(947)

 

(694)

Total stockholders’ equity

 

332,438

 

318,062

Total liabilities and stockholders’ equity

$

2,837,640

$

2,840,383

See the accompanying notes to the condensed consolidated financial statements.

1

THE CHEESECAKE FACTORY INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

(Unaudited)

Thirteen

Thirteen

    

Weeks Ended

Weeks Ended

April 2, 2024

    

April 4, 2023

Revenues

$

891,223

$

866,114

Costs and expenses:

Food and beverage costs

 

203,253

 

206,224

Labor expenses

 

320,930

 

311,528

Other operating costs and expenses

 

233,541

 

230,929

General and administrative expenses

 

60,366

 

54,069

Depreciation and amortization expenses

 

24,756

 

22,955

Impairment of assets and lease termination expenses

2,083

2,242

Acquisition-related contingent consideration, compensation and amortization expenses

1,121

1,189

Preopening costs

 

5,880

 

3,052

Total costs and expenses

 

851,930

 

832,188

Income from operations

 

39,293

 

33,926

Interest and other expense, net

 

(1,761)

 

(1,880)

Income before income taxes

 

37,532

 

32,046

Income tax provision

 

4,341

 

3,996

Net income

$

33,191

$

28,050

Net income per share:

Basic

$

0.70

$

0.58

Diluted (Note 10)

$

0.68

$

0.56

Weighted-average shares outstanding:

Basic

 

47,749

 

48,694

Diluted

 

48,662

 

49,778

See the accompanying notes to the condensed consolidated financial statements.

2

THE CHEESECAKE FACTORY INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

Thirteen

Thirteen

   

Weeks Ended

   

Weeks Ended

April 2, 2024

April 4, 2023

Net income

$

33,191

$

28,050

Other comprehensive (loss)/gain:

 

 

Foreign currency translation adjustment

 

(253)

 

147

Other comprehensive (loss)/gain

 

(253)

 

147

Total comprehensive income

$

32,938

$

28,197

See the accompanying notes to the condensed consolidated financial statements.

3

THE CHEESECAKE FACTORY INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)

For the thirteen weeks ended April 2, 2024:

    

    

    

    

    

    

Accumulated

    

Additional

Other

Common Stock

Paid-in

Retained

Treasury

Comprehensive

  

Shares

  

Amount

  

Capital

  

Earnings

  

Stock

  

Loss/(Income)

  

Total

Balance, January 2, 2024

107,195

$

1,072

$

913,442

$

1,216,239

$

(1,811,997)

$

(694)

$

318,062

Net income

33,191

33,191

Foreign currency translation adjustment

(253)

(253)

Cash dividends declared common stock, net of forfeitures, $0.27 per share

(13,764)

(13,764)

Stock-based compensation

680

7

7,691

7,698

Treasury stock purchases, inclusive of excise tax

(12,496)

(12,496)

Balance, April 2, 2024

107,875

$

1,079

$

921,133

$

1,235,666

$

(1,824,493)

$

(947)

$

332,438

For the thirteen weeks ended April 4, 2023:

 

    

    

    

    

    

Accumulated

    

Additional

Other

Common Stock

Paid-in

Retained

Treasury

Comprehensive

Shares

Amount

Capital

Earnings

Stock

Loss/ (Income)

Total

Balance, January 3, 2023

106,323

$

1,063

$

887,485

$

1,170,078

$

(1,765,641)

$

(982)

$

292,003

Net income

28,050

28,050

Foreign currency translation adjustment

147

147

Cash dividends declared common stock, net of forfeitures, $0.27 per share

(13,929)

(13,929)

Stock-based compensation

628

6

5,938

5,944

Treasury stock purchases, inclusive of excise tax

(12,376)

(12,376)

Balance, April 4, 2023

106,951

$

1,069

$

893,423

$

1,184,199

$

(1,778,017)

$

(835)

$

299,839

See the accompanying notes to the condensed consolidated financial statements.

4

THE CHEESECAKE FACTORY INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Thirteen

Thirteen

Weeks Ended

Weeks Ended

    

April 2, 2024

    

April 4, 2023

Cash flows from operating activities:

Net income

$

33,191

$

28,050

Adjustments to reconcile net income to cash provided by operating activities:

Depreciation and amortization expenses

24,756

22,955

Impairment of assets and lease termination expenses

 

850

 

(14)

Deferred income taxes

3,006

3,192

Stock-based compensation

 

7,649

 

5,902

Changes in assets and liabilities:

Accounts and other receivables

31,124

38,013

Income taxes receivable/payable

 

832

 

(118)

Inventories

 

(7,818)

 

(3,428)

Prepaid expenses

 

605

 

14

Operating lease assets/liabilities

 

(7,789)

 

(3,777)

Other assets

(6,417)

(3,592)

Accounts payable

 

3,831

 

(4,543)

Gift card liabilities

 

(26,677)

 

(27,902)

Other accrued expenses

9,605

10,283

Cash provided by operating activities

 

66,748

 

65,035

Cash flows from investing activities:

Additions to property and equipment

 

(37,110)

 

(37,962)

Additions to intangible assets

 

(227)

 

(182)

Other

(19)

(18)

Cash used in investing activities

 

(37,356)

 

(38,162)

Cash flows from financing activities:

Common stock dividends paid

 

(12,823)

 

(13,182)

Treasury stock purchases

 

(12,496)

 

(12,376)

Cash used in financing activities

 

(25,319)

 

(25,558)

Foreign currency translation adjustment

 

(143)

 

72

Net change in cash and cash equivalents

3,930

1,387

Cash and cash equivalents at beginning of period

 

56,290

 

114,777

Cash and cash equivalents at end of period

$

60,220

$

116,164

Supplemental disclosures:

Interest paid

$

4,155

$

2,184

Income taxes paid

$

677

$

693

Construction payable

$

11,224

$

4,255

See the accompanying notes to the condensed consolidated financial statements.

5

THE CHEESECAKE FACTORY INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.   Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts of The Cheesecake Factory Incorporated and its wholly owned subsidiaries (referred to herein collectively as the “Company,” “we,” “us” and “our”) and are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). All intercompany accounts and transactions for the periods presented have been eliminated in consolidation. The unaudited financial statements presented herein include all material adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for the fair statement of the financial condition, results of operations and cash flows for the period. However, these results are not necessarily indicative of results that may be achieved for any other interim period or for the full fiscal year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to the rules of the Securities and Exchange Commission (“SEC”). The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended January 2, 2024 filed with the SEC on February 26, 2024.

We utilize a 52/53-week fiscal year ending on the Tuesday closest to December 31 for financial reporting purposes. Fiscal year 2024 consists of 52 weeks and will end on December 31, 2024. Fiscal year 2023, which ended on January 2, 2024, was also a 52-week year.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions for the reporting periods covered by the financial statements. These estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent liabilities. Actual results could differ from these estimates.

Geopolitical and Other Macroeconomic Impacts to our Operating Environment

Beginning in 2021, our operating results were impacted by geopolitical and other macroeconomic events, causing supply chain challenges and significantly increased commodity and wage inflation. Some of these factors continue to impact our operating results in fiscal 2024, contributing to significantly increased commodity and other costs. We have also encountered delays in opening new restaurants primarily due to delays in permitting and landlord readiness, as well as supply chain challenges.

The ongoing impact of geopolitical and macroeconomic events could lead to further shifts in consumer behavior, wage inflation, staffing challenges, product and services cost inflation, disruptions in the supply chain and delay in new restaurant openings. Climate change may further exacerbate a number of these factors. For more information regarding the risks to our business relating to the geopolitical and macroeconomic events, see “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the fiscal year ended January 2, 2024.

Recent Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which updates reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. The amendment is effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendment should be applied retrospectively to all prior periods presented in the financial statements. Management is currently evaluating this ASU to determine its impact on our disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which updates income tax disclosures related to the rate reconciliation and requires disclosure of income taxes paid by jurisdiction. The amendment also provides further disclosure comparability. The amendment is effective for fiscal years beginning after December

6

15, 2024. Early adoption is permitted. The amendment should be applied prospectively. However, retrospective application is permitted. Management is currently evaluating this ASU to determine its impact on our disclosures.

2.   Fair Value Measurements

Fair value measurements are estimated based on valuation techniques and inputs categorized as follows:

Level 1: Quoted prices in active markets for identical assets or liabilities
Level 2: Observable inputs other than quoted prices in active markets for identical assets and liabilities
Level 3: Unobservable inputs in which little or no market activity exists, therefore requiring the us to develop our own assumptions

The following tables present the components and classification of our assets and liabilities that are measured at fair value on a recurring basis (in thousands):

    

April 2, 2024

    

Level 1

    

Level 2

    

Level 3

Assets/(Liabilities)

 

Non-qualified deferred compensation assets

$

100,610

$

$

Non-qualified deferred compensation liabilities

(100,420)

Acquisition-related contingent consideration and compensation liabilities

(26,300)

    

January 2, 2024

    

Level 1

    

Level 2

    

Level 3

Assets/(Liabilities)

Non-qualified deferred compensation assets

$

94,136

$

$

Non-qualified deferred compensation liabilities

(93,979)

Acquisition-related contingent consideration and compensation liabilities

(25,495)

The following table presents a reconciliation of the beginning and ending amounts of the fair value of the acquisition-related contingent consideration and compensation liabilities categorized as Level 3 (in thousands):

    

Thirteen

    

Thirteen

Weeks Ended

Weeks Ended

    

April 2, 2024

    

April 4, 2023

Beginning balance

$

25,495

$

28,565

Change in fair value

 

805

 

719

Ending balance

$

26,300

$

29,284

The fair value of the acquisition-related contingent consideration and compensation liabilities was determined utilizing a Monte Carlo model based on estimated future revenues, margins and volatility factors, among other variables and estimates and has no minimum or maximum payment. The undiscounted range of outcomes per the Monte Carlo model utilized to determine the fair value of the acquisition-related contingent consideration and compensation liabilities at April 2, 2024 was $2.6 million to $235.4 million. Results could change materially if different estimates and assumptions were used.

The fair values of our cash and cash equivalents, accounts and other receivables, income taxes receivable, prepaid expenses, accounts payable, income taxes payable and other accrued liabilities approximate their carrying amounts due to their short duration.

As of April 2, 2024, we had $345.0 million aggregate principal amount of Notes outstanding. The estimated fair value of the Notes based on a market approach as of April 2, 2024 was approximately $304.6 million and was determined based on the estimated or actual bids and offers of the Notes in an over-the-counter market on the last business day of the reporting period. The decrease in the fair value of the Notes was primarily due to a decline in our stock price from the date of the issuance of the Notes. See Note 5 for further discussion of the Notes.

7

3.   Inventories

Inventories consisted of (in thousands):

    

April 2, 2024

    

January 2, 2024

Restaurant food and supplies

$

32,023

$

32,283

Bakery finished goods and work in progress (1)

 

23,051

 

16,230

Bakery raw materials and supplies

 

10,395

 

9,141

Total

$

65,469

$

57,654

(1)

The increase in bakery finished goods and work in progress inventory is primarily driven by a build-up of weeks on hand to improve our supply resiliency.

4.   Gift Cards

The following tables present information related to gift cards (in thousands):

    

Thirteen

Thirteen

Weeks Ended

Weeks Ended

April 2, 2024

    

April 4, 2023

Gift card liabilities:

Beginning balance

 

$

222,915

 

$

219,808

Activations

20,567

18,598

Redemptions and breakage

(47,246)

(46,498)

Ending balance

 

$

196,236

 

$

191,908

Thirteen

Thirteen

Weeks Ended

Weeks Ended

    

April 2, 2024

    

April 4, 2023

Gift card contract assets:

Beginning balance

$

19,111

 

$

19,886

Deferrals

2,424

2,410

Amortization

(3,936)

(3,929)

Ending balance

$

17,599

 

$

18,367

5.   Long-Term Debt

Revolving Credit Facility

On October 6, 2022, we entered into a Fourth Amended and Restated Loan Agreement (the “Loan Agreement” and the revolving credit facility provided thereunder, the “Revolver Facility”). The Loan Agreement amends and restates in its entirety our prior credit agreement. The Revolver Facility, which terminates on October 6, 2027, provides us with revolving loan commitments that total $400 million, of which $50 million may be used for issuances of letters of credit. The Revolver Facility contains a commitment increase feature that, subject to certain conditions precedent, could provide for an additional $200 million in revolving loan commitments. Our obligations under the Revolver Facility are unsecured. Certain of our material subsidiaries have guaranteed our obligations under the Revolver Facility.

As of April 2, 2024, we had net availability for borrowings of $236.5 million, based on a $130.0 million outstanding debt balance and $33.5 million in standby letters of credit under the Revolver Facility.

Under the Revolver Facility, we are subject to the following financial covenants as of the last day of each fiscal quarter: (i) a maximum ratio of net adjusted debt to EBITDAR (the “Amended Net Adjusted Leverage Ratio”) of 4.25 and (ii) a minimum ratio of EBITDAR to interest and rent expense (“EBITDAR Ratio”) of 1.90. The Amended Net Adjusted Leverage Ratio includes a rental expense multiplier of six. As of April 2, 2024, we were in compliance with all the foregoing covenants in effect at that date.

8

Borrowings under the Loan Agreement bear interest, at the Company’s election, at a rate equal to either: (i) the sum of (A) adjusted term SOFR (as defined in the Loan Agreement, the “Term SOFR Rate”) plus (B) a rate variable based on the Amended Net Adjusted Leverage Ratio, ranging from 1.00% to 1.75%, or (ii) the sum of (A) the highest of (x) the rate of interest last quoted by The Wall Street Journal as the prime rate in effect in the United States, (y) the greater of the rate calculated by the Federal Reserve Bank of New York as the federal funds effective rate or the rate that is published by the Federal Reserve Bank of New York as the overnight bank funding rate, in either case, plus 0.50%, and (z) the one-month Term SOFR Rate plus 1.00%, plus (B) a rate variable based on the Net Adjusted Leverage Ratio, ranging from 0.00% to 0.75%. The Company will also pay a fee variable based on the Net Adjusted Leverage Ratio, ranging from 0.125% to 0.25%, on the daily amount of unused commitments under the Loan Agreement. Letters of credit bear fees that are equivalent to the interest rate margin that is applicable to revolving loans that bear interest at the adjusted SOFR plus other customary fees charged by the issuing bank. We paid certain customary loan origination fees in conjunction with the Loan Agreement.

We are also subject to customary events of default that, if triggered, could result in acceleration of the maturity of the Revolver Facility. Subject to certain exceptions, the Revolver Facility also limits distributions with respect to our equity interests, such as cash dividends and share repurchases, based on a defined ratio, and sets forth negative covenants that restrict indebtedness, liens, investments, sales of assets, fundamental changes and other matters.

Convertible Senior Notes

On June 15, 2021, we issued $345.0 million aggregate principal amount of convertible senior notes due 2026 (“Notes”). The net proceeds from the sale of the Notes were approximately $334.9 million after deducting issuance costs related to the Notes.

The Notes are senior, unsecured obligations and are (i) equal in right of payment with our existing and future senior, unsecured indebtedness; (ii) senior in right of payment to our existing and future indebtedness that is expressly subordinated to the Notes; (iii) effectively subordinated to our existing and future secured indebtedness, to the extent of the value of the collateral securing that indebtedness; and (iv) structurally subordinated to all existing and future indebtedness and other liabilities, including trade payables, and (to the extent we are not a holder thereof) preferred equity, if any, of our subsidiaries. The Notes were issued pursuant to, and are governed by, an indenture (the “Base Indenture”) between us and a trustee (“Trustee”), dated as of June 15, 2021, as supplemented by a first supplemental indenture (the “Supplemental Indenture,” and the Base Indenture, as supplemented by the Supplemental Indenture, the “Indenture”), dated as of June 15, 2021, between the Company and the Trustee.

The Notes accrue interest at a rate of 0.375% per annum, payable semi-annually in arrears on June 15 and December 15 of each year, beginning on December 15, 2021. The Notes will mature on June 15, 2026, unless earlier repurchased, redeemed or converted. Before February 17, 2026, noteholders will have the right to convert their Notes only upon the occurrence of certain events. From and after February 17, 2026, noteholders may convert their Notes at any time at their election until the close of business on the second scheduled trading day immediately before the maturity date. We will have the right to elect to settle conversions either entirely in cash or in a combination of cash and shares of our common stock. However, upon conversion of any Notes, the conversion value, which will be determined over an “Observation Period” (as defined in the Indenture) consisting of 30 trading days, will be paid in cash up to at least the principal amount of the Notes being converted. The initial conversion rate is 12.7551 shares of common stock per $1,000 principal amount of Notes, which represents an initial conversion price of approximately $78.40 per share of common stock. The conversion rate and conversion price will be subject to customary adjustments upon the occurrence of certain events. In addition, if certain corporate events that constitute a “Make-Whole Fundamental Change” (as defined in the Indenture) occur, then the conversion rate will, in certain circumstances, be increased for a specified period of time. As of April 2, 2024, the conversion rate for the Notes was 13.5979 shares of common stock per $1,000 principal amount of the Notes, which represents a conversion price of approximately $73.54 per share of common stock. In connection with the cash dividend that was declared by our Board on May 7, 2024, on May 21, 2024 we will adjust the conversion rate (which is expected to increase) and the conversion price (which is expected to decrease) of the Notes in accordance with the terms.

The Notes are redeemable, in whole or in part (subject to certain limitations described below), at our option at any time, and from time to time, on or after June 20, 2024 and on or before the 30th scheduled trading day immediately before the maturity date, at a cash redemption price equal to the principal amount of the Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, but only if the last reported sale price per share of our common stock exceeds 130% of the conversion price on (i) each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the trading day immediately before the date we send the related redemption notice; and (ii) the trading day immediately before the date we send such notice. However, we may not redeem less than all of the outstanding Notes unless at least $150.0 million

9

aggregate principal amount of Notes are outstanding and not called for redemption as of the time we send the related redemption notice. In addition, calling any Note for redemption will constitute a Make-Whole Fundamental Change with respect to that Note, in which case the conversion rate applicable to the conversion of that Note will be increased in certain circumstances if it is converted after it is called for redemption.

If certain corporate events that constitute a “Fundamental Change” (as defined in the Indenture) occur, then, subject to a limited exception for certain cash mergers, noteholders may require us to repurchase their Notes at a cash repurchase price equal to the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date. The definition of Fundamental Change includes certain business combination transactions involving us and certain de-listing events with respect to our common stock.

The Notes have customary provisions relating to the occurrence of “Events of Default” (as defined in the Indenture), which include the following: (i) certain payment defaults on the Notes (which, in the case of a default in the payment of interest on the Notes, will be subject to a 30-day cure period); (ii) our failure to send certain notices under the Indenture within specified periods of time; (iii) our failure to comply with certain covenants in the Indenture relating to our ability to consolidate with or merge with or into, or sell, lease or otherwise transfer, in one transaction or a series of transactions, all or substantially all of our assets and our subsidiaries, taken as a whole, to another person; (iv) a default by us in our other obligations or agreements under the Indenture or the Notes if such default is not cured or waived within 60 days after notice is given in accordance with the Indenture; (v) certain defaults by us or any of our significant subsidiaries with respect to indebtedness for borrowed money of at least $20,000,000; (vi) the rendering of certain judgments against us or any of our significant subsidiaries for the payment of at least $25,000,000, where such judgments are not discharged or stayed within 60 days after the date on which the right to appeal has expired or on which all rights to appeal have been extinguished; and (vii) certain events of bankruptcy, insolvency and reorganization involving us or any of our significant subsidiaries.

If an Event of Default involving bankruptcy, insolvency or reorganization events with respect to us (and not solely with respect to a significant subsidiary of ours) occurs, then the principal amount of, and all accrued and unpaid interest on, all of the Notes then outstanding will immediately become due and payable without any further action or notice by any person. If any other Event of Default occurs and is continuing, then, the Trustee, by notice to us, or noteholders of at least 25% of the aggregate principal amount of Notes then outstanding, by notice to us and the Trustee, may declare the principal amount of, and all accrued and unpaid interest on, all of the Notes then outstanding to become due and payable immediately. However, notwithstanding the foregoing, we may elect, at our option, that the sole remedy for an Event of Default relating to certain failures by us to comply with certain reporting covenants in the Indenture consists exclusively of the right of the noteholders to receive special interest on the Notes for up to 180 days at a specified rate per annum not exceeding 0.50% on the principal amount of the Notes.

As of April 2, 2024, the Notes had a gross principal balance of $345.0 million and a balance of $340.6 million, net of unamortized issuance costs of $4.4 million. Total amortization expense was $0.5 million during both the first quarter of fiscal 2024 and fiscal 2023. The effective interest rate for the Notes was 0.96% as of April 2, 2024.

6.   Leases

Components of lease expense were as follows (in thousands):

    

Thirteen
Weeks Ended

    

Thirteen
Weeks Ended

    

April 2, 2024

    

April 4, 2023

Operating

$

37,391

$

35,372

Variable

22,463

22,199

Short-term

43

42

Total

$

59,897

$

57,613

10

Supplemental information related to leases (in thousands):

Thirteen

Thirteen

Weeks Ended

Weeks Ended

    

April 2, 2024

    

April 4, 2023

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows for operating leases

$

37,361

$

35,702

Right-of-use assets obtained in exchange for new operating lease liabilities

14,574

9,499

7.   Commitments and Contingencies

Within the ordinary course of our business, we are subject to private lawsuits, government audits and investigations, administrative proceedings and other claims. These matters typically involve claims from customers, staff members and others related to operational and employment issues common to the foodservice industry. A number of these claims may exist at any given time, and some of the claims may be pled as class actions. From time to time, we are also involved in lawsuits with respect to infringements of, or challenges to, our registered trademarks and other intellectual property, both domestically and abroad. We could be affected by adverse publicity and litigation costs resulting from such allegations, regardless of whether they are valid or whether we are legally determined to be liable.

At this time, we believe that the amount of reasonably possible losses resulting from final disposition of any pending lawsuits, audits, investigations, proceedings and claims will not have a material adverse effect individually or in the aggregate on our financial position, results of operations or liquidity. It is possible, however, that our future results of operations for a particular quarter or fiscal year could be impacted by changes in circumstances relating to lawsuits, audits, proceedings or claims. Legal costs related to such claims are expensed as incurred.

8.   Stockholders’ Equity

Common StockDividends and Share Repurchases

On February 15, 2024, our Board declared a quarterly cash dividend of $0.27 per share that was paid on March 19, 2024 to the stockholders of record of each share of our common stock at the close of business on March 6, 2024. Future decisions to pay or to increase or decrease dividends are at the discretion of the Board and will be dependent on our operating performance, financial condition, capital expenditure requirements, limitations on cash distributions pursuant to the terms and conditions of the Loan Agreement and applicable law, and such other factors that the Board considers relevant. (See Notes 5 and 12 for further discussion of our long-term debt and dividends declared subsequent to April 2, 2024, respectively.)

Under authorization by our Board to repurchase up to 61.0 million shares of our common stock, we have cumulatively repurchased 56.9 million shares at a total cost of $1,824.2 million, excluding excise tax, through April 2, 2024, with 0.4 million shares repurchased at a cost of $12.5 million, excluding excise tax, during the thirteen weeks ended April 2, 2024. Our objectives with regard to share repurchases have been to offset the dilution to our shares outstanding that results from equity compensation grants and to supplement our earnings per share growth.

Our share repurchase program does not have an expiration date, does not require us to purchase a specific number of shares and may be modified, suspended or terminated at any time. Share repurchases may be made from time to time in open market purchases, privately-negotiated transactions, accelerated share repurchase programs, issuer self-tender offers or otherwise. Future decisions to repurchase shares are at the discretion of the Board and are based on several factors, including current and forecasted operating cash flows, capital needs associated with new restaurant development and maintenance of existing locations, dividend payments, debt levels and cost of borrowing, obligations associated with the Fox Restaurant Concept (“FRC”) acquisition agreement, our share price and current market conditions. The timing and number of shares repurchased are also subject to legal constraints and covenants under the Loan Agreement that limit share repurchases based on a defined ratio. (See Note 5 for further discussion of our long-term debt.)

11

9.   Stock-Based Compensation

We maintain stock-based incentive plans under which incentive stock options, non-qualified stock options, stock appreciation rights, restricted shares and restricted share units may be granted to staff members, consultants and non-employee directors. The following table presents information related to stock-based compensation, net of forfeitures (in thousands):

Thirteen

Thirteen

Weeks Ended

Weeks Ended

    

April 2, 2024

    

April 4, 2023

Labor expenses

$

2,495

$

2,362

Other operating costs and expenses

78

75

General and administrative expenses

5,076

3,465

Total stock-based compensation

7,649

5,902

Income tax benefit

1,908

1,474

Total stock-based compensation, net of taxes

$

5,741

$

4,428

Capitalized stock-based compensation (1)

$

49

$

42

(1)It is our policy to capitalize the portion of stock-based compensation costs for our internal development department that relates to capitalizable activities such as the design and construction of new restaurants, remodeling existing locations and equipment installation. Capitalized stock-based compensation is included in property and equipment, net on the consolidated balance sheets.

Stock Options

The weighted - average fair value at the grant date for options issued during the first quarter of fiscal 2024 and 2023 was $12.45 and $15.76 per share, respectively. The fair value of options issued was estimated utilizing the Black-Scholes valuation model with the following weighted-average assumptions for the first quarter of fiscal 2024 and 2023, respectively: (a) an expected option term of 6.9 and 6.7 years, (b) expected stock price volatility of 41.9% and 45.2%, (c) a risk-free interest rate of 4.3% and 4.0%, and (d) a dividend yield on our stock of 3.1% and 2.7%. Stock option activity during the thirteen weeks ended April 2, 2024 was as follows:

Weighted-

Average

Weighted-

Remaining

Average

Contractual

Aggregate

    

Shares

    

Exercise Price

    

Term

    

Intrinsic Value (1)

(In thousands)

(Per share)

(In years)

(In thousands)

Outstanding at January 2, 2024

1,550

$

45.75

3.8

$

0

Granted

 

81

34.91

Exercised

 

Forfeited or cancelled

 

(156)

50.26

Outstanding at April 2, 2024

1,475

$

44.68

4.3

$

164

Exercisable at April 2, 2024

 

1,233

$

45.90

3.6

$

0

(1)Aggregate intrinsic value is calculated as the difference between our closing stock price at fiscal period end and the exercise price, multiplied by the number of in-the-money options and represents the pre-tax amount that would have been received by the option holders, had they all exercised their options on the fiscal period-end date.

There were no options exercised during both the first quarters of fiscal 2024 and 2023. As of April 2, 2024, total unrecognized stock-based compensation expense related to unvested stock options was $2.2 million, which we expect to recognize over a weighted-average period of approximately 2.6 years.

12

Restricted Shares and Restricted Share Units

Restricted share and restricted share unit activity during the thirteen weeks ended April 2, 2024 was as follows:

Weighted-

Average

    

Shares

    

Fair Value

(In thousands)

(Per share)

Outstanding at January 2, 2024

 

2,886

$

40.28

Granted

 

726

34.77

Vested

 

(364)

48.99

Forfeited

 

(58)

36.34

Outstanding at April 2, 2024

 

3,190

$

38.11

Fair value of our restricted shares and restricted share units is based on our closing stock price on the date of grant. The weighted average fair value for restricted shares and restricted share units issued during the first quarter of fiscal 2024 and 2023 was $34.77 and $39.94, respectively. The fair value of shares that vested during the thirteen weeks ended April 2, 2024 and April 4, 2023 was $17.8 million and $15.2 million, respectively. As of April 2, 2024, total unrecognized stock-based compensation expense related to unvested restricted shares and restricted share units was $67.6 million, which we expect to recognize over a weighted-average period of approximately 3.3 years.

10.   Net Income Per Share

Basic net income per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period, reduced by unvested restricted stock awards. As of April 2, 2024 and April 4, 2023, 3.2 million and 2.8 million shares, respectively, of restricted stock and restricted stock units issued were unvested and, therefore, excluded from the calculation of basic earnings per share for the fiscal periods ended on those dates.

Diluted net income per share is computed by dividing net income by the weighted-average number of common stock equivalents outstanding for the period. Common stock equivalents for the Notes are determined by application of the if-converted method, and common stock equivalents for outstanding stock options, restricted stock and restricted stock units are determined by the application of the treasury stock method.

Thirteen

Thirteen

Weeks Ended

Weeks Ended

    

April 2, 2024

    

April 4, 2023

(In thousands, except per share data)

Net income

$

33,191

$

28,050

Basic weighted-average shares outstanding

47,749

48,694

Dilutive effect of equity awards (1)

913

1,084

Diluted weighted-average shares outstanding

48,662

49,778

Basic net income per share

$

0.70

$

0.58

Diluted net income per share

$

0.68

$

0.56

(1)Shares of common stock equivalents related to outstanding stock options, restricted stock and restricted stock units of 2.4 million and 1.9 million for April 2, 2024 and April 4, 2023, respectively, were excluded from the diluted calculation due to their anti-dilutive effect. No shares of common stock equivalents related to the Notes were included in the diluted calculation due to their anti-dilutive effect.

13

11.   Segment Information

Our operating segments, the businesses for which our management reviews discrete financial information for decision-making purposes, are comprised of The Cheesecake Factory, North Italia, Flower Child, the other FRC brands and our bakery division. Based on quantitative thresholds set forth in Accounting Standards Codification (“ASC”) 280, Segment Reporting, The Cheesecake Factory, North Italia and the other FRC brands are the only businesses that meet the criteria of a reportable operating segment. The remaining operating segments (Flower Child and our bakery division) along with our businesses that do not qualify as operating segments are combined in Other. Unallocated corporate expenses, capital expenditures and assets are also combined in Other.

Segment information is presented below (in thousands):

Thirteen

Thirteen

Weeks Ended

Weeks Ended

    

April 2, 2024

    

April 4, 2023

Revenues:

The Cheesecake Factory restaurants

$

667,794

$

656,000

North Italia

70,874

63,303

Other FRC

74,229

68,640

Other

 

78,326

 

78,171

Total

$

891,223

$

866,114

Income from operations:

The Cheesecake Factory restaurants

$

86,071

$

78,386

North Italia

3,170

4,606

Other FRC

6,292

8,711

Other (1)

 

(56,240)

 

(57,777)

Total

$

39,293

$

33,926

Depreciation and amortization expenses:

The Cheesecake Factory restaurants

$

16,843

$

16,018

North Italia

1,971

1,467

Other FRC

2,425

1,927

Other

 

3,517

 

3,543

Total

$

24,756

$

22,955

Impairment of assets and lease termination expenses:

The Cheesecake Factory restaurants

$

1,859

$

93

North Italia

Other FRC

55

Other

224

2,094

Total

$

2,083

$

2,242

Preopening costs:

The Cheesecake Factory restaurants

$

1,758

$

1,448

North Italia

2,002

446

Other FRC

1,724

721

Other

396

437

Total

$

5,880

$

3,052

Capital expenditures:

The Cheesecake Factory restaurants

$

18,881

$

23,213

North Italia

9,930

6,131

Other FRC

3,418

5,165

Other

4,881

3,453

Total

$

37,110

$

37,962

14

    

April 2, 2024

    

January 2, 2024

Total assets:

The Cheesecake Factory restaurants

$

1,524,583

$

1,571,943

North Italia

366,776

346,810

Other FRC

 

406,451

 

399,038

Other

 

539,830

 

522,592

Total

$

2,837,640

$

2,840,383

(1)

Thirteen weeks ended April 2, 2024 and April 4, 2023 include $1.1 million and $1.2 million, respectively, of acquisition-related expenses. These amounts were recorded in acquisition-related costs and acquisition-related contingent consideration, compensation and amortization expenses in the consolidated statements of income.

12.   Subsequent Events

On May 7, 2024, our Board declared a quarterly cash dividend of $0.27 per share to be paid on June 4, 2024 to the stockholders of record of each share of our common stock at the close of business on May 22, 2024.

15

Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements

Certain information included in this Form 10-Q and other materials we have filed or may file with the Securities and Exchange Commission (“SEC”), as well as information included in oral or written statements made by us or on our behalf, may contain forward-looking statements about our current and presently expected performance trends, growth plans, business goals and other matters.

These statements may be contained in our filings with the SEC, in our press releases, in other written communications, and in oral statements made by or with the approval of one of our authorized officers. These statements are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as codified in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (together with the Securities Act, the “Acts”). This includes, without limitation, statements regarding corporate social responsibility (“CSR”) and in our CSR report, the effects of geopolitical and macroeconomic factors on our financial condition and our results of operations, financial guidance and projections, as well as expectations of our future financial condition, results of operations, sales, target growth rates, cash flows, quarterly dividends, share repurchases, corporate strategy, plans, targets, goals, objectives, performance, growth potential, competitive position and business, and statements regarding our ability to: leverage our competitive strengths, including developing and investing in new restaurant concepts and expanding The Cheesecake Factory® brand to other retail opportunities; maintain our aggregate sales volumes; deliver comparable sales growth; provide a differentiated experience to customers; outperform the casual dining industry and increase our market share; leverage sales increases and manage flow through; manage cost pressures, including, increasing wage rates and insurance costs, and increase margins; grow earnings; remain relevant to consumers; attract and retain qualified management and other staff; increase shareholder value; find suitable sites and manage increasing construction costs; profitably expand our concepts domestically and in Canada, and work with our licensees to expand The Cheesecake Factory internationally; support the growth of North Italia, Flower Child and Other FRC restaurants; and utilize our capital effectively. These forward-looking statements may be affected by various factors including: economic, public health and political conditions that impact consumer confidence and spending, including rising interest rates, periods of heightened inflation and market instability, and armed conflicts; supply chain disruptions; demonstrations, political unrest, potential damage to or closure of our restaurants and potential reputational damage to us or any of our brands; pandemics and related containment measures, including the potential for quarantines or restriction on in-person dining; acceptance and success of The Cheesecake Factory in international markets; acceptance and success of North Italia, Flower Child and Other FRC concepts; the risks of doing business abroad through Company-owned restaurants and/or licensees; foreign exchange rates, tariffs and cross border taxation; changes in unemployment rates; increases in minimum wages and benefit costs; the economic health of our landlords and other tenants in retail centers in which our restaurants are located, and our ability to successfully manage our lease arrangements with landlords; the economic health of suppliers, licensees, vendors and other third parties providing goods or services to us; the timing of our new unit development and related permitting; compliance with debt covenants; strategic capital allocation decisions including with respect to share repurchases or dividends; the ability to achieve projected financial results; the resolution of uncertain tax positions with the Internal Revenue Service and the impact of tax reform legislation; changes in laws impacting our business; adverse weather conditions in regions in which our restaurants are located; factors that are under the control of government agencies, landlords and other third parties; the risks, costs and uncertainties associated with opening new restaurants; and other risks and uncertainties detailed from time to time in our filings with the SEC. Such forward-looking statements include all other statements that are not historical facts, as well as statements that are preceded by, followed by or that include words or phrases such as “believe,” “plan,” “will likely result,” “expect,” “intend,” “will continue,” “is anticipated,” “estimate,” “project,” “may,” “could,” “would,” “should” and similar expressions. These statements are based on our current expectations and involve risks and uncertainties which may cause results to differ materially from those set forth in such statements.

In connection with the “safe harbor” provisions of the Acts, we have identified and are disclosing important factors, risks and uncertainties that could cause our actual results to differ materially from those projected in forward-looking statements made by us, or on our behalf. (See Part II, Item 1A of this report, “Risk Factors,” and Part I, Item 1A, “Risk Factors,” included in our Annual Report on Form 10-K for the fiscal year ended January 2, 2024.) These cautionary statements are to be used as a reference in connection with any forward-looking statements. The factors, risks and uncertainties identified in these cautionary statements are in addition to those contained in any other cautionary statements, written or oral, which may be made or otherwise addressed in connection with a forward-looking statement or contained in any of our subsequent filings with the SEC. Because of these factors, risks and uncertainties, we caution against placing undue reliance on forward-looking statements. Although we believe that the assumptions underlying forward-looking statements are currently reasonable, any of the assumptions could be incorrect or incomplete, and there can be no assurance that forward-looking statements will prove to be accurate. Forward-looking statements speak only as of the date

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on which they are made, and we undertake no obligation to publicly update or revise any forward-looking statements or to make any other forward-looking statements, whether as a result of new information, future events or otherwise, unless required to do so by law.

The below discussion and analysis, which contains forward-looking statements, should be read in conjunction with our interim unaudited condensed consolidated financial statements and related notes in Part I, Item 1 of this report and with the following items included in our Annual Report on Form 10-K for the fiscal year ended January 2, 2024: the audited consolidated financial statements and related notes in Part IV, Item 15; the “Risk Factors” included in Part I, Item 1A; the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Part II, Item 7; and the cautionary statements included throughout this Form 10-Q. The inclusion of supplementary analytical and related information herein may require us to make estimates and assumptions to enable us to fairly present, in all material respects, our analysis of trends and expectations with respect to our results of operations and financial position.

Geopolitical and Other Macroeconomic Impacts to our Operating Environment

Beginning in 2021, our operating results were impacted by geopolitical and other macroeconomic events, causing supply chain challenges and significantly increased commodity and wage inflation. Some of these factors continue to impact our operating results in fiscal 2024, contributing to significantly increased commodity and other costs. We have also encountered delays in opening new restaurants primarily due to delays in permitting and landlord readiness, as well as supply chain challenges.

The ongoing impact of geopolitical and macroeconomic events could lead to further shifts in consumer behavior, wage inflation, staffing challenges, product and services cost inflation, disruptions in the supply chain and delay in new restaurant openings. Climate change may further exacerbate a number of these factors. For more information regarding the risks to our business relating to the geopolitical and macroeconomic events, see “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the fiscal year ended January 2, 2024.

General

The Cheesecake Factory Incorporated is a leader in experiential dining. We are culinary forward and relentlessly focused on hospitality. We currently own and operate 335 restaurants throughout the United States and Canada under brands including The Cheesecake Factory® (216 locations), North Italia® (38 locations), Flower Child® (31 locations) and additional brands within our FRC portfolio (42 locations). Internationally, 34 The Cheesecake Factory® restaurants operate under licensing agreements. Our bakery division operates two facilities that produce quality cheesecakes and other baked products for our restaurants, international licensees and third-party bakery customers.

Overview

Our strategy is driven by our commitment to customer satisfaction and is focused primarily on menu innovation, service and operational execution to continue to differentiate ourselves from other restaurant concepts, as well as to drive competitively strong performance that is sustainable. Financially, we are focused on prudently managing expenses at our restaurants, bakery facilities and corporate support center, and leveraging our size to make the best use of our purchasing power.

Investing in new Company-owned restaurant development is our top long-term capital allocation priority, with a focus on opening our concepts in premier locations within both new and existing markets. We plan to continue expanding The Cheesecake Factory and North Italia concepts, and in addition, our FRC subsidiary serves as an incubation engine,innovating new food, dining and hospitality experiences to create fresh, exciting concepts.

Our overall revenue growth is primarily driven by revenues from new restaurant openings and increases in comparable restaurant sales.

For The Cheesecake Factory concept, our strategy is to increase comparable restaurant sales by growing average check and maintaining customer traffic through (1) continuing to offer innovative, high quality menu items that offer customers a wide range of options in terms of flavor, price and value, (2) focusing on service and hospitality with the goal of delivering an exceptional customer experience and (3) continuing to provide our customers with convenient options for off-premise dining. We are continuing our efforts on a number of initiatives, including menu innovation, a greater focus on increasing customer throughput in our restaurants, leveraging our gift card program, working with a third party to provide delivery services for our restaurants, increasing customer

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