© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good afternoon. My name is Emma, and I will be your conference operator today. At this time, I would like to welcome everyone to The Cheesecake Factory, Inc. First Quarter 2023 Earnings Conference Call. [Operator Instructions].
Etienne Marcus, Vice President of Finance and Investor Relations, you may begin your conference.
Good afternoon. and welcome to our first quarter fiscal 2023 earnings call. On the call with me today are David Overton, our Chairman and Chief Executive Officer; David Gordon, our President; and Matt Clark, our Executive Vice President and Chief Financial Officer.
Before we begin, let me quickly remind you that during this call, items will be discussed that are not based on historical fact and are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results could be materially different from those stated or implied in forward-looking statements as a result of the factors detailed in today's press release, which is available on our website at investors.thecheesecakefactory.com and in our filings with the Securities and Exchange Commission. All forward-looking statements made on this call speak only as of today's date and the company undertakes no duty to update any forward-looking statements.
In addition, during this conference call, when discussing comparable sales, we will be referring to comparable sales on an operating week basis, unless specifically stated otherwise. We will also be presenting results on an adjusted basis, which excludes impairment of assets and lease terminations and acquisition-related expenses. An explanation of our use of non-GAAP financial measures and reconciliations to the most directly comparable GAAP measures appear in our press release on our website as previously described.
David Overton will begin today's call with some opening remarks, and David Gordon will provide an operational update. Matt will then review our first quarter results and provide a financial update. Following that, we'll open the call to questions.
With that, I'll turn the call over to David Overton.
Thank you, Etienne. We entered 2023 with positive momentum and carried forward that trend to deliver a solid first quarter with our top and bottom line performance in line with expectations. First quarter consolidated revenues increased 9.1% over the prior year to $866 million. Despite the record rainfall in California, our largest market, The Cheesecake Factory restaurants comparable sales increased 5.7% and versus prior year and 14.9% versus 2019, and North Italia comparable sales increased 9% versus prior year and 30% versus 2019.
Demonstrating the strength and the resilience of our broader portfolio, we delivered positive first quarter comparable sales growth across all of our concepts. The extensive and growing appeal of our differentiated concept supports our belief that we are uniquely well positioned to capitalize on the continued favorable consumer demand for experiential dining.
Execution within the restaurants 4 walls was outstanding with our operators driving solid flow-through to support profitability. This, combined with input costs consistent with our projections resulted in adjusted net income margin of 3.5% for the quarter at the high end of our guidance.
On the development front, we opened 2 FRC restaurants during the first quarter, including Flower Child. While we continue to experience some delays in openings due to supply chain challenges and permit approval delays, at this time, we still expect to open as many as 20 to 22 new restaurants in fiscal year 2023, including 5 to 6 Cheesecake factories, 5 to 6 North Italia and 10 FRC restaurants, including 3 to 4 Flower Child locations. Additionally, we anticipate 2 to 3 Cheesecake Factory restaurants to open internationally under licensing agreements.
As we look ahead, we remain intently focused on delivering exceptional food quality, service and hospitality, the hallmarks of our success to drive long-term profitable sales growth. At the center of our execution capability are our people, the driving force of our company who enable us to deliver delicious, memorable experiences for our guests every day.
To that end, we are honored to have been named to Fortune Magazine's 100 Best Companies to Work For list for the tenth consecutive year. This recognition is a testament to our strong culture industry-leading training and commitment to our employees. We believe these attributes will continue to differentiate us as an employer of choice.
With that, I'll now turn the call over to David Gordon to provide some additional details on our operations and marketing.
Thank you, David. Our extensive and innovative menu and unwavering commitment to deliver excellent service and hospitality has made The Cheesecake Factory one of the most differentiated restaurant concepts in the casual dining industry for over 45 years.
A key contributor to our success has been our distinct competitive advantage in staffing. Our ability to attract, train and retain highly dedicated staff members and best-in-class operators. We believe maintaining our industry-leading position in staffing is foundational to achieving our longer-term growth objectives. Our staffing levels remained healthy during the quarter. Applicant flow was robust, and our industry-leading attrition rates further improved.
In fact, in the first quarter, our hourly attrition declined by nearly 25% versus the prior year. We believe our retention trends were a key contributor to the sequential and year-over-year improvement in Net Promoter Scores and service and food quality levels for The Cheesecake Factory restaurants.
Importantly, North Italia's attrition levels are nearing Cheesecake industry-leading levels, despite not having the national presence and brand recognition that Cheesecake Factory enjoys, which we believe affirms the effectiveness of the practices and programs we've implemented over the past few years. As we think about further accelerating the growth of North Italia, the ability to leverage well-trained tenured managers and staff will facilitate our efforts to scale into new and existing markets.
As you heard from David, our sales trends across our portfolio of concepts remain strong, and we continue to see stable guest purchasing behaviors. To this point, The Cheesecake Factory off-premise sales for the first quarter totaled 23% of sales for the third consecutive quarter. Additionally, we do not see any material changes in on-premise incident rates over the past year, with incident rates remaining above 2019 levels and daypart mix not changing materially.
Fox Restaurant Concepts also continued to drive strong results, with annualized AUVs of $7.9 million. We remain confident in the developing concepts in our portfolio and their ability to contribute to our growth.
Turning to marketing. As I've previously shared, we've been developing a rewards program for The Cheesecake Factory. The overarching objective is to leverage data analytics and insights to more effectively engage with our guests on a one-on-one basis and drive incremental sales. We initially launched a pilot of the rewards program last June in Houston, followed by a second pilot launch in Chicago last November. We've had strong operational execution, and as a result, have accomplished our pilot goals, with our acquisitions and member activity rates exceeding our expectations.
We purposefully have taken a very measured and deliberate approach in designing Cheesecake Rewards to ensure it is consistent with our marketing strategy while targeting our desired financial objective of driving profitable sales growth. At this time, we're planning for a midyear national launch of our new rewards program.
And with that, I will now turn the call over to Matt for our financial review.
Thank you, David. Let me first provide a high-level recap of our Q1 results versus our expectations I outlined last quarter. Total revenues of $866.1 million were at the midpoint of the range.
Adjusted net income margin of 3.5% was at the high end of the range. We continued to diligently manage G&A and depreciation, which combined as a percent of sales were flat with prior year. And we returned $25.6 million to our shareholders in the form of dividends and stock repurchases.
Now turning to some more specific details around the quarter. First quarter sales at The Cheesecake Factory restaurants were $656 million an 8% increase over the prior year. Comparable sales increased 5.7% versus the prior year and 14.9% versus 2019. It is worth noting that as a result of fiscal 2022 having 53 weeks, the strong sales week between Christmas and New Year's Day shifted into the fourth quarter of 2022 from the first quarter of 2023. Due to this calendar shift, that high volume sales week was replaced with an average sales week in the first quarter, negatively impacting our first quarter revenues by approximately $10 million in comparison to the first quarter of fiscal 2022.
Sales for North Italia were $63.3 million, a 20% increase over prior year, supported by comparable sales growth of 9% versus prior year. Comparable sales versus 2019 increased 30%. For FRC, excluding Flower Child, sales totaled $68.6 million up 17% from the prior year, and sales per operating week were $152,200. FRC, including Flower Child, average weekly sales were $118,800 and External bakery sales were $14.9 million during the first quarter of fiscal 2023.
Now moving to year-over-year expense variance commentary. Cost of sales increased 10 basis points, driven by slightly higher commodity inflation than menu pricing. Labor decreased 130 basis points, predominantly driven by pricing leverage and slightly lower medical insurance expenses. Other operating expenses increased 50 basis points, mostly driven by deleverage related to the revenue impact from the fiscal calendar shift. G&A remained flat as a percentage of sales.
Preopening costs were $3.1 million in the quarter compared to $1.8 million in the prior year period. We opened 2 restaurants during the first quarter versus no new openings in the first quarter of 2022. And in the first quarter, we reported a pretax charge of $3.4 million related to impairment of assets and lease termination expense and FRC acquisition-related items. First quarter GAAP diluted net income per share was $0.56. Adjusted net income per share was $0.61.
Now turning to our balance sheet and capital allocation. The company ended the quarter with total available liquidity of approximately $355 million, including a cash balance of about $116 million and approximately $239 million available on our revolving credit facility. Total debt outstanding was unchanged at $475 million in principal. CapEx totaled approximately $38 million during the first quarter for new unit development and maintenance.
During the quarter, we completed approximately $12.4 million in share repurchases and returned just under $13.2 million to shareholders via our dividend. While we will not be providing specific comparable sales and earnings guidance, given the operating environment continues to be very dynamic, we will provide our updated thoughts on our underlying assumptions for the second quarter and full year 2023.
For Q2, based on our quarter-to-date performance, most recent trends and assuming no material operating or consumer disruptions, we anticipate total revenues to be between $870 million and $890 million. Next, at this time, we expect effective commodity inflation of high single digits for Q2. We are modeling net total labor inflation of about mid-single digits when factoring in the latest trends in wage rates, channel mix as well as other components of labor.
Based on these assumptions, we anticipate net income margin of approximately 4.75% for the second quarter of fiscal 2023, at the midpoint of the revenue range I previously outlined, and this includes the elevated year-over-year commodities.
Now for the full year. Based on our year-to-date performance, more recent trends and assuming no material operating or consumer disruptions, we continue to anticipate total revenues for fiscal 2023 to be approximately $3.55 billion. We currently estimate total inflation across our commodity baskets, total labor and other operating expenses to be in the mid-single-digit range, moderating throughout the year. And given our unique growth expectations, we are estimating preopening expenses to be approximately $24 million.
As we have said earlier, our goal is to effectively offset inflation with menu pricing to support our margin objectives. Assuming we do so and consumer trends remain consistent and there are no other material exogenous factors, we continue to expect full year net income margin of approximately 4% at the revenue level I provided.
With regard to development, as David Overton highlighted earlier, we plan to open as many as 20 to 22 new restaurants this year across our portfolio of concepts, with approximately 80% of openings occurring in the second half of the year. And we continue to anticipate approximately $165 million to $175 million in CapEx to support this year's and some of next year's unit development as well as required maintenance on our restaurants.
In closing, our first quarter operating performance was the most aligned with our pre-pandemic trends to date, both on the top and bottom line. Specifically, our total sales, most key business drivers and overall profitability were all in line with our expectations. Importantly, our absolute sales trends remain solid and consistent with historical seasonality despite the ongoing noise and volatility impacting year-over-year comparisons still related to the pandemic environment.
And although environment remains dynamic with our solid top line performance, input costs gradually normalizing to more predictable levels and the strategic steps we have taken, we believe we are well positioned to return to generating our historically consistent operational and financial results. We are working hard to build on this momentum despite the macroeconomic uncertainty and believe the strength of our concepts and operating teams will continue to differentiate us through the balance of 2023 and beyond as has been the case for over 4.5 decades.
With that said, we'll take your questions. Operator?
[Operator Instructions]. Your first question comes from the line of Sharon Zackfia with William Blair.
I guess I'm curious, you did mention weather in the quarter. I don't know if it's possible to kind of quantify what you saw at Cheesecake Factory because if I do the math correctly, it seems like comps might have been more in the low single-digit range in the second half of the quarter. And I'm just curious if that's a weather-impacted dynamic and if you think underlying trends are healthier than that.
Sharon, it's Matt. I would say, just taking a step back, maybe more 20,000 feet, just the year-over-year comp, what you said is factually true. However, we saw significant variability last year in sales. Sometimes with the reopening trends, they moved to levels that we, at that time, said were not sustainable given that there had been some pent-up demand and I think increased buying per capita in the restaurants. And in other times, like in June and July where the industry saw it really received down because there was a significant case counts. So I think it is factually true, but it's a little bit of a, I think, narrow lens.
When we look at performance versus historical seasonality, kind of pre-pandemic levels, 2018, 2019, the quarter was pretty consistent. And so on an absolute basis, we felt really good about the predictability. We came in slightly above the midpoint of expectations for us. What I would say about the weather is that's probably what kept us maybe from being a little bit more towards the high end of our own expectations, right? Because a lot of that weather came in California, and it came in the second half of the quarter after our call. which obviously at that point in time had not been considered at all. So I think we feel good about the stability and predictability that we did see.
And then on loyalty, when you launch that, is there going to be any kind of concerted marketing behind the launch of loyalty. And you mentioned it exceeded expectations. I'm wondering were the expectations sign-ups? Or was it also some sort of increased frequency or spend post sign-ups?
Sharon, this is David Gordon. So to the second half of your question, it was increased our expectations around acquisitions and sales penetration, both. So we're happy thus far, certainly with the acquisition side, but as importantly, the actual use of the program whether that was the use of the reservation component or some of the published offers that we had rolled out during the pilot time both exceeded our expectations, which is why we feel good about a national launch coming up, hopefully, here in June. And as far as the marketing goes -- as far as the marketing goes, we'll be doing some national search engine optimization, marketing and awareness marketing, along with some in-restaurant marketing as well for the launch.
Your next question comes from the line of Joshua Long with Stephens.
Encouraged to hear the consistency in the model. You mentioned many times in your prepared comments about no real changes to consumer trends, consistent traffic, utilization across daypart, all very encouraging given the challenging macro backdrop. But just curious, as you think about that and take into consideration your outlook for commodity inflation, labor inflation, how does that inform your outlook for pricing over the course of the year? You had started taking up prices in the back half of last year. I think you were running about 10% for this quarter. And so just curious if your philosophy or outlook has changed as you've got a little bit more visibility into 2023?
Josh, this is Matt. It's obviously a very pertinent question, an area of focus and continues to be. We'll be reading the tea leaves, so to speak, and all of the data, I think, on a real-time basis, I think that was one of the big learnings actually from last year is that you need to be a little bit more nimble and agile and things happen. So it depends, right, I guess, is my point, if it stays the same or if it changes. So it's not, I think, a static answer. It's more of a dynamic one.
I think our perspective is that with the incremental pricing we took in December, we got close to the inflation over the sort of pandemic cycle, if you will, still left us maybe 1% or 2% behind the industry, which is where we strive to be for competitive reasons. Certainly, the cost environment, I think, has been a favorable outcome so far this year. And some of the underlying trends could continue to support improved performance in the back half of the year.
And as always, we'd rather take less pricing. So that would inform us if it continues to be that way. Our goal this year is to offset this year's inflation with this year's pricing. And so that math will continue to be a guiding factor as we go throughout the back half of the year.
Very helpful. I appreciate that. And one follow-up, if I can. In terms of the development outlook for the year, encouraged to see that. Can you talk about just the timing, cadence and the ability to get stores opened up in the current environment? And within that, is the plan still to work towards bringing Flower Child into the fold? I think in prior calls, we've talked about just kind of the progression of that relationship and probably bringing them in the brand into default from a infrastructure, logistics development perspective and kind of what that can do for the brand going forward?
Thanks, Josh. This is David Gordon. And we feel good, confident about those 20 to 22 openings throughout the year. The cadence will probably be that we'll open a few in Q2, a few more in Q3 and then the bulk of them will be in the fourth quarter sort of typical for the industry. But some of the supply chain challenges that were more pertinent last year have subsided for the most part. We feel very prepared for that amount of openings. The permitting is getting a little bit easier over time. So we're pretty confident in that number.
And at Flower Child, we continue down the integration path this year. Our teams here at the office, along with all the FRC teams are working through the plan that we constructed early on in the year, and we're on target to really be fully integrated by the end of the year, which was our goal at the onset and we would be the operating and opening all those restaurants utilizing the power of Cheesecake Factory and also all the supply chain components, IT components, all fully integrated along with most of the HR, which already has been. We did a lot of that work throughout the pandemic.
And Josh, this is Matt. Just one follow-up to the Flower Child point. I think it dovetails well with the financial performance. All along, our objective had been to prepare the brand for enhanced growth in conjunction with hitting the return hurdles on a consistent basis. And the team at Flower Child has done an amazing job utilizing some of the scale benefits David was talking about improving some of the costs in the supply chain, making some investments to improve the efficiencies of the restaurants. And we look at that and it really marries well with the initiative that we have to enable that growth.
Your next question comes from the line of Brian Harbour with Morgan Stanley.
Yes. Maybe just first, could you comment on the delivery business lately. And you're one of the few that, of course, still just has one delivery partner. Would it make sense at any point to consider adding other delivery partners?
Brian, this is David Gordon. Thanks for the question. Our total off-premise still remains very stable and strong at 23%, as we stated earlier for 3 quarters in a row now. And delivery has maintained 10% of that sales all throughout those quarters and remained incredibly consistent. We believe that we continue to execute incredibly well with DoorDash. They give us all the data analytics that we could possibly want. We have an ongoing relationship where we're meeting quarterly and going over performance metrics. And of course, we feel we have just a very strong deal structure when it comes to our commission and marketing support.
So we also would prefer to have just for ease of execution and consistency of execution, one partner, the complexities of having 2, 3, 4 partners in managing the incoming orders, which I know some others have moved to is not somewhere that we need to go because of the consistent sales and allows us to execute at a very high level, which I think allows us again to take market share because the operators can do such a good job and part of the reason that we're still maintaining that 23% overall off-premise sales.
Okay. And then maybe just a question on the cost side. OpEx is something that's still kind of been higher, at least on a year-over-year basis, Matt, I know you kind of called out the calendar shift impact. Is there anything else you think that's kind of impacting that, whether it's repairs and maintenance? Or do you think that will be kind of a greater source of -- could it be a source of leverage as we go through the rest of the year?
Brian, this is Matt. That's a good question. And Etienne and I have been talking about that line specifically because it does stand out as having a little bit more pressure us. And really, it comes down to 2 areas that I do think based on the absolute dollar trends we're seeing start to moderate. The first one is utilities. So I know that we saw the nat gas market capitulate here but the way that it rolls through all of the bills and the electric system, et cetera, it does take a couple of months. So compared to last year and even on our sort of quarter-to-quarter, in the first quarter did remain elevated, although we are starting to see that move, and I do think that, that will be a tailwind for us on a relative basis.
And as you said, R&M is the other one. It will be a sort of a dynamic year, as I said earlier, doing all of the comparisons because of the changes in the rate of inflation in different categories last year was so unprecedented and really, that piece of it didn't start until the second quarter. So I think, again, on a comparable basis, we're going to see some moderation of those expenses. But trailing into the first quarter of the year definitely will be the highest inflationary component for us compared to the rest of the year.
Your next question comes from the line of Brian Bittner with Oppenheimer.
Matt, a question on the guidance. Is the same-store sales growth outlook still roughly 7% for the full year as kind of a building block within your '23 revenue guidance? And I ask that because it appears like you slightly tweaked the full year AUV targets, they were $13 million. Now they're $12.5 million to $13 million. So I'm not sure if that implies a minor tweak to the same-store sales outlook as well.
Brian, it's Matt. No, it's really the same. I mean, I think we used the words nearly $13 million before. So $12.5 million to $13 million, I mean I think it's more vernacular. Just on the outlook, because at least in our perspective, and I think the facts speak to this, the comps are so funny on a year-over-year basis. I think a better way to think about our expectations is in taking on looking at a little bit more of a long-term historical seasonal perspective and applying that going forward, right? And so we obviously model out a variety of different ways. We do the bottom up by restaurant, where we're looking at the individual restaurants and their local conditions. We do a top down. But in aggregate, it's really looking at the current conditions and saying, if things continue on a normalized basis, that gets us to the guide that we're providing.
Okay. And just my follow-up is on the margins. Last call, I think you pointed out that you anticipated second half commodity inflation to be in that roughly 4% range. I'm curious if that stays the same today? Have you seen any movements there? And you also said that you anticipated restaurant margins to be somewhere in kind of the low 14% range to get you to that 4% net profit margin. Is that still a consistent way you're thinking about the margins?
Yes, Brian. So in the second half, I think that's right. it's kind of the mid-14s for the year. It will move a little bit up and down, right? So if you did that same math, Q2 is going to be a higher restaurant margin, it always is, Q3 lower again, and Q4 a little bit higher. On the commodities front, our outlook really hasn't changed, right? So if you think about we kept the net income at the same level. I mean it does feel and look a little bit like things were getting better. But I think it's just too early to make a definitive call.
So you're seeing some progress in categories like eggs, obviously, chicken remains decent, but do you have some risk, I think, still in categories like ground beef, right? So to us, I would just keep it there. And if things get better, that will be good and maybe we'll take a little bit less pricing too, right? So it kind of nets out against each other.
So I think the big picture message here is we executed to our plan in the first quarter, right? The environment has returned after really 3 black swan events in 3 years to where you can have a little bit more predictability. We have the best operators in the business, and we think that the environment will enable us to execute in the back half of the year as well.
Your next question comes from the line of Brian Vaccaro with Raymond James.
Matt, on The Cheesecake Factory comps, could you just run us through the traffic, price and mix reflected in 1Q?
I will. But first of all, note that we said 3 Brians in a row. It seems like a statistical anomaly. But anyway, Brian Vaccaro, sure. So for Cheesecake Factory, pricing was a little bit over 10%. Traffic was a positive 1%. Mix was a negative 5.7%. Of the mix piece, just keep in mind, about half of that is just the way that we account, right, as everybody knows, for the to-go business. And so it was -- traffic was basically flattish year-over-year in an aggregate basis.
Okay. That's great. And I was going to ask you about mix specifically. Is it possible to help parse that out between like set aside the channel mix dynamics and try to isolate dine-in mix? And if you're seeing any changes specifically within the dine-in mix?
Sure. So of that, about half of it is the whole channel deal. The other piece, I would say, is attributable to the dine-in and predominantly because in last year's February and March, consumer behaviors, we just saw some outsized purchasing behavior. So this is right in line with our expectations. And I think as David Gordon noted earlier, all of our incident rates and purchasing behaviors per person remain measurably above the 2019 levels, but we do expect to see some bumpiness during the year, depending on what was happening in sort of the COVID trend. So it's about 50-50 in the first quarter with respect to those 2 components.
All right. And then I wanted to shift back to labor, if we could. And I think you said lower medical benefits. I think that's what you called out in Q1. Could you quantify that for us? And also, maybe more importantly, I heard your comments about improved staffing and lower attrition. I know last year, there's a lot of pressure from outside hiring, training and overtime costs. Any way to ballpark how much lower those costs were here in the first quarter?
Yes. So the Group Medical was better. I would tell you, it wasn't a huge driver of the labor piece. I mean it may be $1 million. I think that the biggest factors are around getting the attrition levels back to pre-pandemic or close to it. I mean it was a significant move from the teams that did measurably help to lower training over time and just general productivity. I don't have a specific number, but really the entire difference I would attribute to sort of efficiency of labor net of just that $1 million of Group Medical.
Okay. And then last one, if I could just squeeze it in. Just on The Cheesecake Factory segment margins, Matt, I ran the quick math on Q1. And it looks like the segment was still down about 90 bps, maybe versus the first quarter of '19. And I know you took more pricing in February, but has that allowed Cheesecake margins to get back to pre-COVID levels maybe more -- in more recent months? And if not, maybe just remind us what's the bridge towards fully recovering those margins in '23?
Yes. And your math is correct. That's correct. We took a little bit higher-than-average pricing again in the first quarter. And keep in mind that as we noted, not just with the other OpEx, but the commodity inflation ran in the low double digits, right? So we expect it to not quite be there in the first quarter. I think the -- where we're at now with all of these pieces will enable us to be in the ballpark of where we want to be. There are a lot of variables that can change during that, right, sales levels, commodities can change, et cetera. But I think we're enabled to at least to be within striking distance for the past 3 quarters of the year.
Your next question comes from the line of Drew North with Baird.
Great. A lot of my questions have been asked already, but I'll follow up on unit development. It seems as though construction and permitting continues to be a challenge. So I guess my question is just your level of confidence of getting those 20 to 22 openings this year? And while recognizing you may not be looking to give specific guidance, wondering if you could just speak directionally about how the development pipeline is shaping up for next year? And if there's anything you're seeing from a build cost or real estate availability perspective that would make you look at the year differently than your longer-term algorithm?
Drew, this is David Gordon. We feel very confident about that 20 to 22 number for this year. And as we stated previously, a 7% overall unit growth is still something that we have great confidence in as we look towards next year. would still remain confident that, that 7% unit growth number is attainable and a target that we'll be working towards. We, as I said a little bit earlier, have not seen the same type of pressures on the supply chain and the permitting side. Things seem to be continuing to be a little bit easier as every month goes by, which is why we have that confidence in this year.
And Drew, this is Matt. Just one on the financial piece. We, as along with everybody else, have definitely seen CapEx inflation. For the most part, it's been kind of paralleled by the unit volume expansion with the pricing I think that in aggregate, it really depends on the geography, but in aggregate, we are hitting the return levels that we need to, to keep pace with our long-term expectations of 7% unit growth.
Your next question comes from the line of John Ivankoe with JPMorgan.
I know there's obviously been some -- a lot of comments around comps and the difficulty of kind of reading and accurate year-over-year. But I was hoping in the second quarter of '23, it would be relatively normal versus the second quarter of '22. And I just wanted to see exactly what comp guidance -- if I missed this, I really apologize. What comp guidance that you were inferring for the second quarter of '23? To us, it looks something like flat or maybe low single-digit positive.
And on that basis -- to clarify that. And on that basis, it looks like traffic year-over-year still pretty meaningfully down in second quarter '23 versus '22. And if that is the case, where you are seeing pockets of customer weakness? Who is the customer that is coming less to you year-over-year? And is it a geography type of store type of customer? Is it in certain dayparts? If you could just elaborate on that, it would be helpful.
Sure, John. This is Matt. So the first thing just kind of to clarify is, we're not giving specific year-over-year comps. We're just providing an aggregate revenue, but that's the framework is essentially looking at where we were in the first quarter, more particularly around historical seasonality and applying that to the second quarter and the full year. And the reason is when we actually look at the comps for Q2 last year, they were pretty distorted. And in April, specifically, I mean, compared to, say, July, there was about a 10% delta in the comp, right? So I mean that's a huge difference.
So I think you're going to continue to see -- and I think that was reflected really if you look at Black Box and KNAPP-TRACK. I mean we tend to outperform, but we tend to follow the curve. So I mean, our opinion is that based on our specific performance, we're going to continue to see some of that bumpiness and it's not normal on a year-over-year basis.
And really kind of looking at the first quarter, as I noted, our traffic was pretty close to flat. So in aggregate, that feels good. I think mathematically, you're right that what we're modeling out is probably a little bit of negative traffic in the second quarter. I think that's pretty consistent with all of the reports that I've heard. And it's not really specific in general. I think that's really just a comparison issue more so than an absolute sales pattern.
And I think the one thing that -- we've said this before, and it does continue to be true. The very urban locations are probably the areas with the most opportunity still. But generally, we see pretty consistent performance across our dayparts and across our geographies.
We used to talk about years ago of kind of when weakness would ever show up in a comp, it would be on the shoulders middle of the afternoon, late at night, Monday through Wednesday, that type of thing. Are those type of historical patterns coming back and maybe that's what's making '23 versus '22 still look unusual?
No, I don't think so. I mean I was just looking at our stat pack today and I mean all of the stat pack line up pretty consistently, within 0.5% of the mix of the total for each category. I really think if we go back and we look at the percentage movements by month last year, there was a lot of variability. It is a very big changes between February to March, March to April and then through to July, it was just a very big movement.
Your next question comes from the line of Jeffrey Bernstein with Barclays..
Great. Two questions. The first one, just on the outlook as we think about a potentially slowing macro. I'm just wondering where you'd say your confidence is greater, whether it be maintaining the sales momentum with the leverage you potentially have or perhaps the margin gains that you've recaptured? I'm just wondering where you feel like you'd be better positioned to hold onto if trends were to slow as we move through the year? And then I had one follow-up.
Yes, Jeff, that's a really good question. I think it's very pertinent. This is Matt. I mean ultimately, our objective is always twofold, right? You want to try to protect or in our case, recapture margins and you want to protect traffic. I think, big picture, if we can have a more normalized situation this year, whether we $3.5 billion or $3.6 billion if we accomplish the margin objective and then we grow off of that base, we're going to be in a really good spot, right? I mean it will be a strong earnings and cash flow position.
And so to that end, based on what we're seeing today with the underlying labor market, in the commodities piece, it certainly feels like the margin profile lines up a little bit better than what we saw kind of coming out of the financial crisis. compared to the sales piece, right? And the ability for strong operating companies like ourselves to execute on that and to produce the bottom line that we're targeting feels like the environment has set up a little bit better for that side of the equation.
Understood. And then just following up on that margin comment. I think earlier you said you guys are kind of keen to get back to a certain restaurant margin. I think you said the mid-14s for the portfolio in '23. And it seems like your strategy would be to price to do so. So whatever would be necessary to get there. Like you just said, I guess, you're keen to get back to a certain margin. But is there any concern that new pricing with the limitation being the food at home now falling below food away from home and maybe a slowing macro that you'd be hesitant to take that incremental price and therefore, let the margin be below to hopefully preserve some traffic? Or is that really the bottom line that you are keen to price to hit a certain margin?
Well, I think -- again, this is Matt. So it's always both, right? And we try not to prioritize too much one over the other. I think at this point, we've taken the pricing that we needed to do that, right? So now it's about providing absolute guest satisfaction and making sure that it's worth it. It is -- I think because of the unprecedented level of inflation and the curves that we saw, it gets a little bit tricky to think about year-over-year at any point in time versus kind of looking period-to-period or quarter-to-quarter.
So now we may be lapping, I think, some of the rapid grocery store inflation. But those prices haven't come down, right? So they're just less inflationary. And if you stack it over time, we have priced less than the grocery stores have still to this day, right? So I think we're in a good position. I think we're poised to continue to strive to hit that margin target and if commodities are a little bit less, it will allow us to take a little bit less pricing. But I think we're balancing it pretty well right now.
Understood. So the pricing you've taken most recently allows you to hit what I think you previously projected, which would be 10% of the Cheesecake in the first half, and an easing to 6% and 5% in the third and fourth quarter, respectively. Is that what we should be modeling?
I think that's close. I think it might be 7 and 6 or something like that, but you're within 1%. And yes, we've already taken that.
Your next question comes from the line of Jon Tower with Citi.
Curious if you could dig into the loyalty program a little bit. Curious if you could shed light on how we should think about it from the way it's structured? Is it going to be a spend-based program, a frequency-based program? What sort of rewards can consumers expect? And what -- aside from driving frequency and some incremental spend, what else are you looking to gain from this?
Jon, this is David Gordon. Thanks for the question. I think there's really 3 components to the program. The first will be published offers, right, which would be things like access to reservations complementary slice of cheesecake on a member's birthday, those type of activities to support acquisition and just ongoing engagement. Then we would have unpublished offers that will be given throughout the year, and those are really designed to drive, as you mentioned, those incremental visits.
And then some key marketable moments. So that may be something around our -- what we used to be our traditional Treat or Treat Promotion around Halloween or National Cheesecake Day. And the program will be designed to be unique. So it won't be a points-based program. It won't be a spend-based program, more of a surprise and delight. We do know that access to reservations is an important component for people at Cheesecake Factory. We've historically been known for our long waits and we think that's a benefit that will certainly drive acquisition.
And we've seen so far very good usage of something that doesn't cost us anything on the margin side to be offering reservations to folks. So that's all along, our goal is to not have this program impact restaurant-level margins. And thus far, that's what we're seeing. So we'll be doing it in the unique Cheesecake Factory in fashion and the way we do most things. And hopefully, we'll be gathering enough data to be able to market specifically to guests to drive perhaps different time periods. So if you're only coming for lunch, we can talk to you and make sure that we offer you something and one of those marketable moments around dinner, et cetera. So we're excited to get started in June and use that data in a way that we haven't been able to before since we never had a traditional CRM program.
Got it. So to think about it from a high level in terms of spend, it doesn't sound like it will be super costly, but would this be additive to the current marketing spend that you have, which is fairly low relative to the peer set?
Our goal would be able to keep it within the marketing spend and continue to be relatively low to the peer set, yes.
Got it. Okay. And then just shifting to development. Just thinking about this year, it seems pretty back half weighted. I think you said 80% of growth coming in the second half of the year. When looking beyond this year, and I'm not asking for guidance per se on numbers, but are we going to get back to a more normalized cadence of openings in 2024 and '25, to the extent you guys can shed some light on that?
Well, I think we can always hope that that's going to be the case. But for the past 25 years, the pretty typical cadence has been the back half of the year. So I wouldn't expect it to be -- I wouldn't expect it to be that much different. Who knows. Our pipeline, I think, is strong. We'd love to be able to shift some forward. But as we have more color around that, we'll certainly share that with you.
Your next question comes from the line of Jim Sanderson with Northcoast Research.
Just wanted to review briefly store count and unit growth goals. I think that compared to fourth quarter, I didn't see a lot of real net unit growth. I wanted to make sure I understood how the stores will flow into actual net growth by quarter.
Yes, Jim, this is Matt. It's a good question. We actually had 2 closures in the first quarter. So that's why it would look like it didn't net. We obviously, on an annual basis review of the portfolio and base decisions like that on timing of leases and cash flow outlook. And so it was just sort of a normal trimming and it usually happens at that time of year. So we're targeting the new openings, but we did have the 2 closures that would, on a total basis net against that.
I think as David Gordon noted, it's a couple in the second quarter, 2% to 3% in the third, something like that, is what we're thinking. And then the balance would be in the fourth quarter.
Okay. So the bulk of that will still be incremental to the fiscal year?
Yes.
Very good. Second question, if I could. I just wanted to make sure I understood the commentary on the flattish percentage of sales for G&A. Is that expectation baked into your second quarter guidance? Meaning, I think there was a dip down in G&A as a percentage of sales last year. Is that going to take place in the second quarter? Is that typical?
Yes. And that's really more about the leverage of the sales. We tend -- second quarter tends to be a little bit of the peak of average weekly sales. So it's not so much that the dollar spend changes, but to get just a little bit of leverage. So it should flow kind of similarly based on that.
Your next question comes from the line of Lauren Silberman with Credit Suisse.
I understand there's noise across channels that was looking at on-premise traffic, can you talk about where you're running relative to 2019? And presumably on-premise traffic is not fully back to pre-COVID so any color in terms of which dayparts or days might be running below are back to pre-COVID?
Sure, Lauren, this is Matt. It's been really consistent. So that again, that is true. We've sort of been in that 85% to 87% level of on-premise traffic for a while. It's almost identical to where we were in the fourth quarter is where we were in the first quarter. It's really not differentiated much based on day of week or stat pack. So it just seems to be kind of peanut buttered across that for lack of a more technical term.
Okay. And then I just have another one on loyalty. It seems like the loyalty is targeted at dining occasions. Is that fair? Is there any component to drive and potentially reward both on-premise and off-premise?
Sure, Lauren, this is David Gordon. It's actually both. We'd love to continue to drive dine-in traffic. But throughout the pilot period, we did test some marketing and promotions, specifically around online ordering, and we've been working with DoorDash to be able to integrate rewards members into the DoorDash platform which will allow us to make offers available to DoorDash members as well.
Great. And then just a final one, a follow-up on the mix trends you spoke about. Is there any sense of how we can think about when that starts to expect to normalize? Just thinking about the -- I guess, you guys have a better sense of the lapping of when attachment rates started to peak.
Well, we've had 3 quarters in a row, Lauren, and this is Matt, of 23% off-premise. So as a percentage, it seems like it's kind of been consistently in that range. And the average weekly sales seem to be growing at the same pace as pricing. So I think plus or minus percent based on seasonality. We do tend to see that the middle of the year months are a little bit less as a percentage. I think that's just based on consumer behavior and something that the whole industry sees. But sort of in that ballpark seems to be the stride that we've been in for almost a year now.
Your final question today comes from the line of Dennis Geiger with UBS.
I wanted to ask one more on underlying sales trends. I know you mentioned as some choppiness in the year ago period. But could you speak at all to sort of the recent months 2Q to-date sales if you compared it versus '19, presumably, that could take out some of the 2022 noise, if that's a fair way to think about it?
Sure. Again, I think for us, the way that we built up our forecast is based on looking at that sort of 2018 and 2019 seasonality perspective and applying that to the Q2 and balance of the year outlook. We've seen very steady sales in the first quarter of the year. And we feel good that the predictability of the business has enabled us to give a good perspective on the second quarter.
This concludes today's conference call. Thank you very much for attending. You may now disconnect.