Forward-Looking Statements
Certain information included in this Form 10-Q and other materials filed or to
be filed by us with the 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 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.
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 are intended to identify
forward-looking statements. These statements, and any other statements that are
not historical facts, 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, and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Acts").
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 contained 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 3, 2012). 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 reasonable, any of the assumptions could be incorrect, and there
can be no assurance that forward-looking statements will prove to be accurate.
Forward-looking statements speak only as of the date on which they are made.
Except as may be required by law, we do not undertake any obligation to modify
or revise any forward-looking statement to take into account or otherwise
reflect subsequent events or circumstances arising after the date that the
forward-looking statement was made.
General
This discussion and analysis should be read in conjunction with our interim
unaudited consolidated financial statements and related notes included in this
Form 10-Q in Part I, Item 1, and with the following items included in our Annual
Report on Form 10-K for the fiscal year ended January 3, 2012: the audited
consolidated financial statements and related notes in Part IV, Item 15, the
"Risk Factors" included in Part I, Item 1A and the cautionary statements
included throughout the report. 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 taken as a whole.
As of August 10, 2012, we operated 173 upscale, casual, full-service dining
restaurants: 158 under The Cheesecake Factory® mark, 14 under the Grand Lux
Cafe® mark and one under the RockSugar Pan Asian Kitchen® mark. We also
operated two bakery production facilities.
The Cheesecake Factory is an upscale, casual dining concept that offers more
than 200 menu items including appetizers, pizza, seafood, steaks, chicken,
burgers, pasta, specialty items, salads, sandwiches, omelettes and desserts,
including approximately 40 varieties of cheesecake and other baked desserts.
Grand Lux Cafe and RockSugar Pan Asian Kitchen are also upscale, casual dining
concepts offering approximately 200 and 80 menu items, respectively. In
contrast to many chain restaurant operations, substantially all of our menu
items (except certain desserts manufactured at our bakery production facilities)
are prepared on the restaurant premises using high quality, fresh ingredients
based on innovative and proprietary recipes. We believe our restaurants are
recognized by consumers for offering value with generous food portions at
moderate prices. Our restaurants' distinctive, contemporary design and decor
create a high-energy ambiance in a casual setting. Our restaurants typically
range in size from 7,000 to 15,000 interior square feet, provide full liquor
service and are generally open seven days a week for lunch and dinner, as well
as Sunday brunch.
In January 2011, we announced our initial expansion plans outside of the United
States. We entered into an exclusive licensing agreement with a Kuwait-based
company to build and operate The Cheesecake Factory restaurants in the Middle
East. The agreement provides for the development of 22 restaurants over five
years in the United Arab Emirates, Kuwait, Bahrain, Qatar and the Kingdom of
Saudi Arabia, with the opportunity to expand the agreement to include other
markets in the Middle East and North Africa, Central and Eastern Europe, Russia
and Turkey. This licensing agreement includes an initial development fee, site
and design fees and ongoing royalties on our licensee's restaurant sales. The
transaction also includes an agreement to supply bakery products branded under
The Cheesecake Factory trademark to such restaurants. We expect to open as many
as three locations in the Middle East in fiscal 2012, but do not expect these
openings to have a material impact on our financial results in fiscal 2012.
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Overview
In addition to being highly competitive, the restaurant industry is affected by
changes in consumer tastes and discretionary spending; changes in general
economic conditions; public safety conditions; demographic trends; weather
conditions; the cost and availability of food products, labor and energy; and
government regulations. Accordingly, as part of our strategy we must constantly
evolve and refine the critical elements of our restaurant concepts to protect
our competitiveness and to maintain and enhance the strength of our brands.
Our strategy is driven by our commitment to guest satisfaction and is focused
primarily on menu innovation and operational execution to continue to
differentiate ourselves from other restaurant concepts, as well as drive
competitively strong performance that is sustainable. Financially, we are
focused on prudently managing expenses at our restaurants, bakery facilities and
corporate support center. We are also committed to allocating capital in a
manner that will maximize profitability and returns. Investing in new
restaurant development that meets our return on investment criteria is our top
capital allocation priority with a focus on opening our restaurant concepts in
premier locations within both existing and new markets.
In evaluating and assessing the performance of our business, we believe the
following are key performance indicators that should be taken into
consideration:
† Comparable Restaurant Sales and Overall Revenue Growth. Changes in
comparable restaurant sales come from variations in guest traffic, as well as in
check average (as a result of menu price increases and/or changes in menu mix).
Our strategy is to grow guest traffic by continuing to offer innovative, high
quality menu items that offer guests a wide range of options in terms of flavor,
price and value. In addition, we focus on service and hospitality with the goal
of delivering an exceptional guest experience.
Our philosophy with regard to menu pricing is to use price increases to help
offset key operating costs in a manner that balances protecting both our margins
and guest traffic levels. With regard to our menu mix, it has been influenced
by a couple of factors, including a slight reduction in the number of guests
ordering non-alcoholic beverages. Additionally, with our menu continually
evolving, we experience some shifting of menu preferences as our guests try new
items. This shifting can also have an impact on menu mix, and, therefore, on
our check average. Over time, and as the economy strengthens, we expect menu
mix to stabilize, allowing us to capture more of the menu price increases we
implement.
Comparable restaurant sales growth, in addition to revenue from new restaurant
openings and increases in third-party bakery sales, drive our overall revenue
growth. In the future, we expect royalties from international locations also to
contribute to our revenue growth.
† Income from Operations Expressed as a Percentage of Revenues
("Operating Margins"). Operating margins are subject to fluctuations in
commodity costs, labor, restaurant-level occupancy expenses, general and
administrative expenses ("G&A"), and preopening expenses. Our objective is to
gradually increase our operating margins by capturing fixed cost leverage from
comparable restaurant sales increases, maximizing our purchasing power as our
business grows, and operating our restaurants as productively as possible by
retaining the efficiencies we gained through the implementation of cost
management initiatives.
By efficiently scaling our restaurant and bakery support infrastructure and
improving our internal processes, we work toward growing G&A expenses at a
slower rate than revenue growth over the long-term, which should also contribute
to operating margin expansion. However, G&A as a percentage of revenues may
vary from quarter to quarter.
† Return on Investment. Return on investment measures our ability to
make the best decisions regarding our allocation of capital. Returns are
affected by the cost to build restaurants, the level of revenues that each
restaurant can deliver and our ability to maximize the profitability of
restaurants through operational execution and disciplined cost management. Our
objective is to deploy capital in a manner that will maximize our return on
investment.
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Results of Operations
The following table sets forth, for the periods indicated, information from our
consolidated statements of comprehensive income expressed as percentages of
revenues. The results of operations for the interim periods presented are not
necessarily indicative of the results to be expected for any other interim
period or for the full fiscal year.
Thirteen Thirteen Twenty-Six Twenty-Six
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
July 3, 2012 June 28, 2011 July 3, 2012 June 28, 2011
Revenues 100.0 % 100.0 % 100.0 % 100.0 %
Costs and expenses:
Cost of sales 24.4 25.5 24.5 25.3
Labor expenses 32.1 32.4 32.5 32.6
Other operating costs and
expenses 23.9 24.0 24.1 24.3
General and administrative
expenses 5.8 5.6 6.2 5.7
Depreciation and amortization
expenses 4.1 4.1 4.1 4.1
Preopening costs 0.7 0.2 0.6 0.3
Total costs and expenses 91.0 91.8 92.0 92.3
Income from operations 9.0 8.2 8.0 7.7
Interest and other
(expense)/income, net (0.2 ) (0.3 ) (0.2 ) (0.3 )
Income before income taxes 8.8 7.9 7.8 7.4
Income tax provision 2.6 2.2 2.3 2.1
Net income 6.2 % 5.7 % 5.5 % 5.3 %
Thirteen Weeks Ended July 3, 2012 Compared to Thirteen Weeks Ended June 28, 2011
Revenues
Revenues increased 5.6% to $454.7 million for the thirteen weeks ended July 3,
2012 compared to $430.7 million for the thirteen weeks ended June 28, 2011.
Restaurant sales increased 6.3% to $442.9 million compared to $416.5 million in
the prior year second quarter. Comparable sales at The Cheesecake Factory and
Grand Lux Cafe restaurants increased by 1.7%, or $7.0 million, from the second
quarter of fiscal 2011, driven primarily by average check growth, as well as an
increase in guest traffic of 0.5%. The Cheesecake Factory and Grand Lux Cafe
restaurants become eligible to enter our comparable sales calculations in their
19th month of operation. At July 3, 2012, there were eight The Cheesecake
Factory restaurants not yet in our comparable sales base.
Comparable sales at The Cheesecake Factory restaurants increased 2.1% from the
prior year second quarter driven primarily by an increase in average check, as
well as improved guest traffic. We implemented effective menu price increases
of approximately 1.0% and 1.3% during the first quarter of fiscal 2012 and third
quarter of fiscal 2011, respectively. On a weighted average basis, based on the
timing of our menu roll outs within each quarter, The Cheesecake Factory menu
included a 2.3% increase in pricing for the thirteen weeks ended July 3, 2012.
This increase in menu pricing was partially offset by changes in menu mix due to
check management by our guests, as well as some shifting of menu preferences as
our guests try new items.
Comparable sales at our Grand Lux Cafe restaurants decreased 2.9% from the prior
year second quarter driven by lower guest traffic, partially offset by an
increase in average check. During the second quarter of fiscal 2012, we
implemented an effective menu price increase of approximately 1.2%. On a
weighted average basis, based on the timing of our menu roll outs within each
quarter, the Grand Lux Cafe menu included a 1.2% increase in pricing for the
thirteen weeks ended July 3, 2012. This increase in menu pricing was offset by
changes in menu mix due to check management by our guests, as well as some
shifting of menu preferences as our guests try new items.
We generally update and reprint our menus twice a year. As part of these menu
updates, we evaluate the need for price increases based on those operating cost
and expense increases of which we are aware or that we can reasonably expect.
While menu price increases can contribute to higher comparable restaurant sales
in addition to offsetting margin pressure, we carefully consider all potential
price increases in light of the extent to which we believe they will be accepted
by our restaurant guests.
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Additionally, other factors outside of our control, such as general economic
conditions, inclement weather, timing of holidays, and competitive and other
factors, including those referenced in Part I, Item lA, "Risk Factors," of our
Annual Report on Form 10-K for the year ended January 3, 2012, can impact
comparable sales.
Total restaurant operating weeks increased 4.4% to 2,225 for the thirteen weeks
ended July 3, 2012 due to the opening of eight new restaurants during the
trailing 15-month period. Average sales per restaurant operating week increased
approximately 1.9% to $199,100 in the second quarter of fiscal 2012 compared to
the second quarter of fiscal 2011.
Bakery sales to other foodservice operators, retailers and distributors ("Bakery
sales") decreased 16.9% to $11.8 million for the thirteen weeks ended July 3,
2012 compared to $14.2 million for the comparable period of last year due
primarily to a decline in sales to our warehouse club accounts. We strive to
develop and maintain long-term, growing relationships with our bakery customers,
based largely on our 39-year reputation for producing high quality and creative
baked desserts. However, it is difficult to predict the timing of bakery
product shipments and contribution margins on a quarterly basis, as the
purchasing plans of our large-account customers, who constitute a majority of
our bakery sales, may fluctuate.
Cost of Sales
Cost of sales consists of food, beverage, retail and bakery production supply
costs incurred in conjunction with our restaurant and bakery revenues, and
excludes depreciation, which is captured separately in depreciation and
amortization expenses.
As a percentage of revenues, cost of sales decreased to 24.4% in the second
quarter of fiscal 2012 compared to 25.5% in the comparable period of last year.
This improvement was primarily due to lower costs for dairy, produce and fish.
Our restaurant menus are among the most diversified in the foodservice industry
and, accordingly, are not overly dependent on a few select commodities. Changes
in costs for one commodity can sometimes be counterbalanced by cost changes in
other commodity categories. The principal commodity categories for our
restaurants include produce, poultry, meat, fish and seafood, dairy, bread and
general grocery items.
We attempt to negotiate short-term and long-term agreements for our principal
commodity, supply and equipment requirements, depending on market conditions and
expected demand. However, we are currently unable to contract for extended
periods of time for some of our commodities such as many dairy and certain fish
and grocery items (excluding cream cheese used in our bakery operations).
Consequently, these commodities can be subject to unforeseen supply and cost
fluctuations. Cream cheese is the most significant commodity used in our bakery
products. We have contracted for a substantial portion of our fiscal 2012 cream
cheese requirements and plan to purchase cream cheese on the spot market as
necessary to supplement our contracted amounts.
As has been our past practice, we will carefully consider opportunities to
introduce new menu items and implement selected menu price increases to help
offset any expected cost increases for key commodities and other goods and
services utilized by our operations.
We have taken steps to qualify multiple suppliers and enter into agreements for
some of the key commodities used in our restaurant and bakery operations.
However, there can be no assurance that future supplies and costs for these
commodities will not fluctuate due to weather and other market conditions
outside of our control. For new restaurants, cost of sales will typically be
higher during the first three to four months of operations until our management
team becomes accustomed to optimally predicting, managing and servicing the
sales volumes at the new restaurant.
Labor Expenses
As a percentage of revenues, labor expenses, which include restaurant-level
labor costs and bakery direct production labor, including associated fringe
benefits, decreased to 32.1% in the second quarter of fiscal 2012 compared to
32.4% in the second quarter of fiscal 2011. Lower group medical insurance costs
were partially offset by higher payroll taxes and other labor-related costs.
Other Operating Costs and Expenses
Other operating costs and expenses consist of restaurant-level occupancy
expenses (rent, common area expenses, insurance, licenses, taxes and utilities),
other operating expenses (excluding food costs and labor expenses, which are
reported separately) and bakery production overhead, selling and distribution
expenses. As a percentage of revenues, other operating costs and expenses
decreased to 23.9% for the thirteen weeks ended July 3, 2012 from 24.0% for the
thirteen weeks ended June 28, 2011. This reduction was primarily due to lower
debit card transaction fees.
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General and Administrative Expenses
General and administrative ("G&A") expenses consist of the restaurant management
recruiting and training program, as well as the restaurant field supervision,
bakery administrative, and corporate support organizations. As a percentage of
revenues, G&A expenses increased to 5.8% for the thirteen weeks ended July 3,
2012 versus 5.6% for the comparable period of fiscal 2011 due primarily to a
higher fiscal 2012 accrual for corporate performance bonuses.
Depreciation and Amortization Expenses
As a percentage of revenues, depreciation and amortization expenses were 4.1%
for both the thirteen weeks ended July 3, 2012 and the comparable period of last
year.
Preopening Costs
Preopening costs were $3.0 million for the thirteen weeks ended July 3, 2012
compared to $1.1 million in the comparable period of the prior year. We
incurred preopening costs to open one The Cheesecake Factory restaurant in the
second quarter of fiscal 2012. No restaurants were opened in the second quarter
of fiscal 2011.
Preopening costs include all costs to relocate and compensate restaurant
management employees during the preopening period; costs to recruit and train
hourly restaurant employees; wages, travel and lodging costs for our opening
training team and other support employees; and straight-line minimum base rent
during the build-out and in-restaurant training periods. Also included in
preopening costs are expenses for maintaining a roster of trained managers for
pending openings; the associated temporary housing and other costs necessary to
relocate managers in alignment with future restaurant opening and operating
needs; and corporate travel and support activities. Preopening costs can
fluctuate significantly from period to period, based on the number and timing of
restaurant openings and the specific preopening costs incurred for each
restaurant.
Interest and Other (Expense)/Income, Net
Interest and other expense, net decreased to $0.8 million for the second quarter
of fiscal 2012 compared to $1.1 million for the comparable period last year.
This decrease was primarily due to $0.4 million in proceeds we received from a
variable life insurance contract used to support our Executive Savings Plan
("ESP"), a non-qualified deferred compensation plan. Interest expense included
$0.8 million in the second quarter of fiscal 2012 compared to $0.9 million for
the second quarter of fiscal 2011 associated with landlord construction
allowances deemed to be financing in accordance with accounting guidance.
Income Tax Provision
Our effective income tax rate was 29.2% for the second quarter of fiscal 2012
compared to 27.4% for the comparable prior year period. This increase was
attributable to a lower proportion of employment credits in relation to pretax
income primarily due to the expiration of the Hiring Incentives to Restore
Employment ("HIRE") Act retention credit at the end of fiscal 2011 and increased
state taxes in relation to pretax income.
Twenty-Six Weeks Ended July 3, 2012 Compared to Twenty-Six Weeks Ended June 28,
2011
Revenues
Revenues increased 4.8% to $890.5 million for the twenty-six weeks ended July 3,
2012 compared to $849.5 million for the twenty-six weeks ended June 28, 2011.
Restaurant sales increased 5.4% to $867.9 million compared to $823.5 million for
the same period of the prior year. Comparable sales at The Cheesecake Factory
and Grand Lux Cafe restaurants increased by 2.0%, or $16.4 million, from the
first half of fiscal 2011, driven primarily by an increase in guest traffic of
1.2%.
Comparable sales at The Cheesecake Factory restaurants increased 2.3% from the
first half of fiscal 2011 driven primarily by improved guest traffic, as well as
average check growth. On a weighted average basis, based on the timing of our
menu roll outs within each quarter, The Cheesecake Factory menu included a 2.0%
increase in pricing for the twenty-six weeks ended July 3, 2012. This increase
in menu pricing was partially offset by changes in menu mix due to check
management by our guests, as well as some shifting of menu preferences as our
guests try newer items.
Comparable sales at our Grand Lux Cafe restaurants decreased 1.3% from the first
half of fiscal 2011 driven by lower guest traffic, partially offset by an
increase in average check. On a weighted average basis, based on the timing of
our menu roll outs within each quarter, the Grand Lux Cafe menu included a 1.3%
increase in pricing for the twenty-six weeks ended July 3, 2012. This increase
in menu pricing was partially offset by changes in menu mix due to check
management by our guests, as well as some shifting of menu preferences as our
guests try newer items.
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Total restaurant operating weeks increased 4.2% to 4,437 for the twenty-six
weeks ended July 3, 2012. Average sales per restaurant operating week increased
approximately 1.2% to $195,600 compared to the same period of fiscal 2011. A
busy holiday week that usually falls in the first fiscal quarter was captured as
the 53rd week of fiscal 2011, thereby shifting a high-volume sales week out of
the first quarter of fiscal 2012 and replacing it with an average sales week.
This negatively impacted our average weekly sales in the first half of fiscal
2012 by approximately 0.9% and was partially offset by strong performance at our
newer restaurants not yet in our comparable sales base.
Bakery sales decreased 13.4% to $22.6 million for the twenty-six weeks ended
July 3, 2012 compared to $26.1 million for the comparable period of last year
due primarily to a decline in sales to our warehouse club accounts.
Cost of Sales
As a percentage of revenues, cost of sales decreased to 24.5% in the twenty-six
weeks ended July 3, 2012 compared to 25.3% in the comparable period of last
year. This improvement was primarily due to lower costs for dairy, produce and
fish.
Labor Expenses
As a percentage of revenues, labor expenses for the twenty-six weeks ended July
3, 2012 decreased to 32.5% compared to 32.6% in the comparable period of last
year. Lower group medical insurance costs were partially offset by higher
payroll taxes and deleveraging from the high-volume sales week shift to fiscal
2011 discussed in the Revenues section above.
Other Operating Costs and Expenses
As a percentage of revenues, other operating costs and expenses decreased to
24.1% for the twenty-six weeks ended July 3, 2012 from 24.3% for the twenty-six
weeks ended June 28, 2011. This decrease was primarily due to lower comparative
debit card transaction fees.
General and Administrative Expenses
As a percentage of revenues, G&A expenses increased to 6.2% for the twenty-six
weeks ended July 3, 2012 versus 5.7% for the comparable period of fiscal 2011
due primarily to a higher fiscal 2012 accrual for corporate performance bonuses
and an increase in the valuation of our Chief Executive Officer's retirement
benefit in connection with the extension of his employment agreement.
Depreciation and Amortization Expenses
As a percentage of revenues, depreciation and amortization expenses were 4.1%
for both the twenty-six weeks ended July 3, 2012 and the comparable period of
last year.
Preopening Costs
Preopening costs were $5.1 million for the twenty-six weeks ended July 3, 2012
compared to $2.9 million in the comparable period of the prior year. We
incurred preopening costs to open two The Cheesecake Factory restaurants in the
first half of fiscal 2012 compared to one The Cheesecake Factory restaurant in
the first half of fiscal 2011.
Interest and Other (Expense)/Income, Net
Interest and other expense, net decreased to $2.0 million for the first half of
fiscal 2012 compared to $2.5 million for the comparable period last year. This
decrease was primarily due to $0.4 million in proceeds we received from a
variable life insurance contract used to support our ESP. Interest expense
included $1.7 million for the first half of 2012 compared to $1.9 million for
the first half of fiscal 2011 associated with landlord construction allowances
deemed to be financing in accordance with accounting guidance.
Income Tax Provision
Our effective income tax rate was 29.0% for the first half of fiscal 2012
compared to 27.7% for the comparable prior year period. This increase was
attributable to a lower proportion of employment credits in relation to pretax
income primarily due to the expiration of the HIRE Act retention credit at the
end of fiscal 2011 and increased state taxes in relation to pretax income.
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Non-GAAP Measures
Adjusted net income and adjusted diluted net income per share are supplemental
measures of our performance that are not required by or presented in accordance
with GAAP. These non-GAAP measures may not be comparable to similarly-titled
measures used by other companies and should not be considered in isolation or as
a substitute for measures of performance prepared in accordance with GAAP.
We calculate these non-GAAP measures by eliminating from net income and diluted
net income per share the impact of items we do not consider indicative of our
ongoing operations. We believe these adjusted measures provide additional
information to facilitate the comparison of our past and present financial
results. We utilize results that both include and exclude the identified items
in evaluating business performance. However, our inclusion of these adjusted
measures should not be construed as an indication that our future results will
be unaffected by unusual or infrequent items. In the future, we may incur
expenses or generate income similar to the adjusted items.
Following is a reconciliation from net income and diluted net income per share
to the corresponding adjusted measures (in thousands, except per share data):
Thirteen Thirteen Twenty-Six Thirty-Nine
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
July 3, 2012 June 28, 2011 July 3, 2012 June 28, 2011
Net income $ 28,399 $ 24,748 $ 49,121 $ 45,204
After-tax impact from:
Proceeds from variable life
insurance contract (1) (419 ) - (419 ) -
Adjusted net income $ 27,980 $ 24,748 $ 48,702 $ 45,204
Diluted net income per share $ 0.52 $ 0.42 $ 0.89 $ 0.76
After-tax impact from:
Proceeds from variable life
insurance contract (1) (0.01 ) - (0.01 ) -
Adjusted net income per share $ 0.51 $ 0.42 $ 0.88 $ 0.76
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(1) Represents the realization of proceeds from one of our variable life
insurance contracts used to support our ESP. This item is non-taxable and was
recorded in interest and other (expense)/income.
Fiscal 2012 Outlook
In fiscal 2012, we plan to open as many as seven to eight new restaurants. On a
year-to-date basis as of August 10, 2012, we have opened two The Cheesecake
Factory locations and one Grand Lux Cafe. In addition to these domestic
locations, our licensee plans to open as many as three The Cheesecake Factory
restaurants in the Middle East during the second half of this year. We estimate
diluted earnings per share for fiscal 2012 will be between $1.87 and $1.93 based
on the assumption that comparable restaurant sales will increase in a range of
between 1.5% and 2.5%. We currently expect food cost inflation of between flat
and 1.0% and a corporate tax rate of between 28.5% and 29.5%.
We expect cash capital expenditures in fiscal 2012 to range between $95 million
and $105 million. We also plan to repurchase up to $100 million of our common
stock, depending on Company performance and market conditions. On July 23,
2012, our Board of Directors approved the initiation of a cash dividend to our
stockholders. A quarterly cash dividend of $0.12 per share will be paid on
August 21, 2012 to the stockholders of record on August 8, 2012 of each share of
our common stock. Future dividends will be subject to Board approval. On an
annualized basis, this dividend payment equates to a payout of approximately 25%
of our estimated full year net income. Based on shares outstanding at July 25,
2012, the quarterly dividend payment will be approximately $6.4 million.
For the third quarter of fiscal 2012, we estimate diluted earnings per share
will be between $0.47 and $0.49 based on the assumption that comparable
restaurant sales will increase in a range between 1.5% and 2.5%.
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Liquidity and Capital Resources
The following table presents, for the periods indicated, a summary of our key
cash flows from operating, investing and financing activities (in millions):
Twenty-Six Twenty-Six
Weeks Ended Weeks Ended
July 3, 2012June 28, 2011Cash provided by operating activities $ 74.3 $ 94.1
Capital expenditures
$ (34.4 ) $ (30.2 )
Proceeds from exercise of stock options $ 17.9 $ 7.5
Purchase of treasury stock $ (57.5 ) $ (95.0 )
During the twenty-six weeks ended July 3, 2012, our cash and cash equivalents
increased by $0.2 million to $48.4 million. This increase was primarily
attributable to cash provided by operating activities and proceeds from
exercises of stock options, partially offset by treasury stock purchases and
capital expenditures.
For fiscal 2012, we currently estimate our cash outlays for capital expenditures
to range between $95 million and $105 million, net of agreed-upon up-front cash
landlord construction contributions and excluding $11 million of expected
noncapitalizable preopening costs for new restaurants. The amount reflected as
additions to property and equipment in the consolidated statements of cash flows
may vary from this estimate based on the accounting treatment of each lease.
Our estimate for capital expenditures for fiscal 2012 contemplates a net outlay
of $52 million to $58 million for as many as seven to eight restaurants expected
to be opened during fiscal 2012 and estimated construction-in-progress
disbursements for anticipated fiscal 2013 openings. These amounts are net of
estimated collections of up-front cash landlord construction contributions.
Expected capital expenditures for fiscal 2012 also include $25 million to $26
million for maintenance and capacity additions to our existing restaurants and
$18 million to $21 million for bakery and corporate capacity and infrastructure
investments.
At July 3, 2012, we had no borrowings outstanding under our $200 million
revolving credit facility ("Facility"). Availability under the Facility is
reduced by outstanding standby letters of credit, which are used to support our
self-insurance programs. As of July 3, 2012, we had net availability for
borrowings of $176 million, based upon a zero outstanding debt balance and $24
million in standby letters of credit. In addition, our Facility limits our cash
distributions with respect to our equity interests, such as cash dividends and
share repurchases, based on a defined leverage ratio. (See Note 3 of Notes to
Consolidated Financial Statements in Part I, Item 1 of this report for further
discussion of our long-term debt.)
On October 17, 2011, our Board of Directors increased the authorization to
repurchase our common stock by 10.0 million shares to 41.0 million shares.
Under this and previous authorizations, we have cumulatively repurchased a total
of 33.1 million shares at a total cost of $788.0 million through July 3, 2012,
including 0.5 million shares of our common stock at a cost of $16.7 million
during the second quarter of 2012. Our share repurchase authorization 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. Repurchased
common stock is reflected as a reduction of stockholder's equity.
On November 1, 2011, our Board of Directors approved the adoption of a trading
plan under Rule 10b5-1 ("10b5-1 Plan") of the Securities Exchange Act of 1934
(the "Act"), which was effective from December 5, 2011 through July 3, 2012.
This 10b5-1 Plan terminated on July 3, 2012, in accordance with its terms. On
May 30, 2012, our Board of Directors approved the adoption of a new 10b5-1 Plan
effective from July 5, 2012 through December 31, 2012.
On March 1, 2012, our Board of Directors approved the terms of a share
repurchase plan ("10b-18 Plan") under which we were authorized to repurchase
shares of our common stock in open market transactions in accordance with Rule
10b-18 of the Act, effective from March 6, 2012 through March 9, 2012. This
10b-18 Plan terminated on March 9, 2012, in accordance with its terms.
The timing and number of shares repurchased pursuant to the share repurchase
authorization are subject to a number of factors, including legal constraints
and financial covenants under our Facility that limit share repurchases based on
a defined leverage ratio. (See Note 3 of Notes to Consolidated Financial
Statements in Part I, Item 1 of this report for further discussion of our
long-term debt.) Shares may be repurchased in the open market or through
privately negotiated transactions at times and prices considered appropriate by
us. Purchases in the open market are made in compliance with Rule 10b-18 of the
Act. We make the determination to repurchase shares based on several factors,
including an evaluation of current and future capital needs associated with new
restaurant development, current and forecasted cash flows, including dividend
payments, a review of our capital structure and cost of capital, our share price
and current market conditions. Our objectives with regard to share repurchases
are to offset the dilution to our shares outstanding that results from equity
compensation and to supplement our earnings per share growth.
On July 23, 2012, our Board of Directors approved the initiation of a cash
dividend to our stockholders. A quarterly dividend of $0.12 per share will be
paid on August 21, 2012 to all stockholders of record on August 8, 2012 of each
of our common stock. Future dividends will be subject to Board approval. Based
on shares outstanding at July 25, 2012, the total dividend payment will be
approximately $6.4 million.
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Based on our current expansion objectives, we believe that during the upcoming
12 months our cash and cash equivalents, combined with expected cash flows
provided by operations, available borrowings under our credit facility and
expected landlord construction contributions should be sufficient in the
aggregate to finance our capital allocation strategy, including capital
expenditures, share repurchases and cash dividends, and allow us to consider
additional possible capital allocation strategies, such as the acquisition of
other growth vehicles.
As of July 3, 2012, we had no financing transactions, arrangements or other
relationships with any unconsolidated entities or related parties.
Additionally, we had no financing arrangements involving synthetic leases or
trading activities involving commodity contracts.
Recent Accounting Pronouncements
See Note 1 of Notes to Consolidated Financial Statements in Part I, Item 1 of
this report for a summary of new accounting standards.
