© 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 Fourth Quarter Fiscal 2021 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Etienne Marcus, Vice President of Finance and Investor Relations, you may begin your conference.
Thank you, Emma. Good afternoon, and welcome to our fourth quarter fiscal 2021 earnings call. On the call 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 facts and are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results could be materially different from those stated or implied in forward-looking statements as a result of the factors detailed in today's press release, which is available on our website at investors.thecheesecakefactory.com and in our filings with the Securities and Exchange Commission. All forward-looking statements made on this call speak only as of today's date and the Company undertakes no duty to update any forward-looking statements. In addition, during this conference call, we will be presenting results on an adjusted basis, which exclude impairment of assets and lease terminations, acquisition-related contingent consideration, compensation and amortization expense, as well as a reserve for uncertain tax positions. 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 briefly review our fourth quarter results and provide a financial update. With that, I'll turn the call over to David Overton.
Thank you, Etienne. We had another solid quarter with fourth quarter total revenues reaching a new all-time high mark despite the surge in COVID-19 cases towards the end of the year. Comparable sales at The Cheesecake Factory restaurants increased 7.7% relative to the fourth quarter of fiscal 2019 and continue to outperform both the KNAPP-TRACK and Black Box casual dining indices, reinforcing our confidence in the strength of the brand and our ability to take market share. Once again, our operators manage their restaurants very well during the quarter with sequential improvements in food efficiencies, labor productivity and hourly staff and manager retention. And we believe our operating results would have been in line with expectations, but for the softer sales trend during the last two weeks of the quarter, which coincided with the Omicron surge. Our first quarter sales trends have started strong. In fact, we have further increased our gap to the casual dining industry since the most recent quarter. The Cheesecake Factory fiscal 2022 first quarter comparable sales through February 15 are up 24.3% versus the prior year. Looking ahead to 2022, our development pipeline remains robust as we look to further accelerate our unit growth. However, while all the sites that we have been working on remain in our pipeline, we are cognizant of the current environment and the effects supply chain, governmental and local jurisdiction permitting approvals are having on timing of the openings. As such, we now expect to open as many as 17 to 19 new restaurants in fiscal year 2022, including as many as five Cheesecake Factory restaurants, five to seven North Italias and as many as seven other FRC restaurants, including three to four Flower Child locations. We also currently expect one Cheesecake Factory restaurants to open internationally under a licensing agreement. We believe that we have made strategic investments to best manage through the continued volatile environment, while positioning ourselves to achieve our long-term goals of driving both comparable sales growth and 7% unit growth across our brands. We remain committed to managing structural and permanent cost pressures to protect our four-wall margins over time. To that point, we are currently in the process of rolling out our new Cheesecake Factory menu, which includes approximately 3.25% menu price increase in total that will put our year-over-year menu pricing increase at 4.75%. We will continue to monitor the inflationary environment to determine what level of pricing will be needed during our next menu rollout. I remain as confident as ever that our best-in-class operators will continue to effectively manage through this volatile operating environment, and with our development pipeline in place and solid comparable sales trends across our brands, we are well positioned to continue to take market share. With that, I'll now turn the call over to David Gordon.
Thank you, David. We continue to be focused on our commitment to excellent service and hospitality through the selection, training, the retention of high-quality staff, and believe this to be foundational to achieving our longer-term goal of growing comparable sales, particularly in this challenging operating and staffing environment. To that end, during the fourth quarter, we drove sequential increases to both our Cheesecake Factory manager and hourly staff industry-leading retention rates, contributing to the improvement in year-end staffing levels relative to 2019 as compared to where we began the quarter. Following that, in January, we saw a 10% to 15% increase in staff hiring compared to the Q4 trend. Combined with improved retention rates, we have increased our total hourly staffing by 2% already from just the end of 2021. Correlated to our improvement in staffing, we drove sequential improvements in our guest satisfaction metrics. Importantly, all our dine-in Net Promoter Scores improved, including [pace of] experience, staff service and hospitality and food quality. The Cheesecake Factory off-premise channel trend can remain solid with fourth quarter sales accounting for 27% of total sales. The annualized fourth quarter average weekly sales for this channel continued to trend close to twice the 2019 annual levels. As I shared previously, with the strength of our sales performance, we have shifted our marketing for The Cheesecake Factory restaurants, primarily back to brand-based messaging to raise the profile of The Cheesecake Factory brand, while continuing to upgrade and enhance our marketing and technology platforms. Moving this effort forward, we launched our refreshed website just two weeks ago along with a more contemporary look, the more commerce forward platform delivers a better guest experience with the goal of driving higher conversion rates and average order values for online ordering. We also migrated our e-mail database to a more robust CRM system to work hand-in-hand with the rewards program, for which we are now planning to launch the pilot in the middle of the year. Now turning to North Italia. Fourth quarter comparable sales grew a robust 14% versus 2019. That trend has carried into 2022 with quarter-to-date through February 15 comparable sales up approximately 38% versus 2021 levels with off-premise comprising approximately 15% of sales at North. FRC drove similarly strong topline performance during the fourth quarter. We continue to be confident in the developing brands in our portfolio and their ability to contribute to our unit growth. And lastly, I'd like to thank all of our teams for their continued passion and efforts in navigating through a constant wave of consumer and business headwinds over the past 23 months, while continuing to deliver delicious and memorable experiences for our guests. With that, I'll now turn the call over to Matt for our financial review.
Thank you, David. As David Overton alluded to in his opening remarks, we, along with the broader casual dining industry, experienced a deceleration in sales relative to 2019 towards the end of the quarter, which coincided with the Omicron surge. Specifically, fourth quarter comparable sales at The Cheesecake Factory were running at 10.6% going into the third week of December relative to fiscal 2019 compared to the full quarter results of 7.7%. In addition, we incurred approximately $3.8 million of incremental costs related to COVID-19 sick time, paying 100% of restaurant management quarterly bonuses and higher natural gas expenses, with none of these impacts factored into our initial outlook for the quarter. We estimate the impact from the slower sales versus prior trend during the last two weeks of the year, coupled with the incremental costs I just outlined, to be about $0.16 to $0.21 of earnings per share for the quarter. Importantly, aggregate commodities, wage inflation and many of our key business indicators for the quarter largely came in line with our expectations, speaking to our ability to appropriately navigate the ongoing business environment as we head into 2022. Now to some specific details around the quarter. Fourth quarter comparable sales at The Cheesecake Factory restaurants increased 33.8% year-over-year and relative to 2019 period, comp sales were up 7.7%. Revenue contribution from North Italia and FRC totaled $129.7 million. North Italia comparable sales increased 37% year-over-year and were up 14% versus the 2019 period. Sales per operating week at FRC, including Flower Child, were approximately $104,000. And Including $17.5 million in external bakery sales, total revenues were $776.7 million during the fourth quarter of fiscal 2021. Moving to expenses. As usual, I'm going to provide year-over-year detail. But of course, note that the significant disparity in revenues, given the greater impact from COVID in the fourth quarter last year drove some abnormal year-over-year variances. Cost of sales increased by 10 basis points, primarily driven by slightly higher commodity inflation than menu pricing. Labor declined 220 basis points, primarily reflecting sales leverage and partially offset by higher wage rates and training costs. Other operating expenses declined 320 basis points, primarily due to sales leverage relative to the prior year period. Note that versus our expectations, we had over $3.4 million in incremental costs associated with the items I outlined earlier in this line item. This translated to about 45 basis points of impact to margins. G&A as a percentage of sales declined 120 basis points, also primarily due to sales leverage as well as tight cost controls. Pre-opening costs were $3.9 million in the quarter compared to $2.8 million in the prior year period, a total of four restaurants opened during the fourth quarter this year versus three in the prior year period. In the fourth quarter, we recorded a $17.5 million non-cash impairment charge primarily related to five restaurant locations. We also recorded $6.9 million in acquisition-related expense as well as a $4.7 million reserve for uncertain tax positions. Fourth quarter GAAP diluted net income per common share was $0.04 and adjusted net income per share was $0.49. Now turning to our cash flow and balance sheet. The company generated approximately $94 million of cash flow from operating activities during the fourth quarter. Excluding the $37 million and payroll tax repayment related to the CARES Act, the company generated nearly $250 million in cash flow from operating activities for the year. This performance enabled us to end the year with total available liquidity of approximately $430 million, including a cash balance of approximately $190 million and $240 million available on our revolving credit facility. Total debt outstanding at the end of the year was $475 million, including $345 million of 0.375% convertible senior notes due in 2026 and $130 million drawn on our revolving credit facility. CapEx totaled $18 million during the fourth quarter for required maintenance and new unit development. While we will not be providing specific comparable sales and earnings guidance, given that the operating environment continues to be very dynamic, we want to provide some thoughts on our underlying expectations for 2022, including some of the timing nuances. Let me begin by reiterating what David Overton mentioned earlier. We remain committed to protecting our longer-term four-wall margins and will take appropriate actions, including additional menu pricing to offset structural and permanent costs as needed. However, as we have previously noted, we will likely continue to absorb short-term cost fluctuations driven by the current environment. First, with respect to sales. Based on extrapolating current trends and assuming no further material impacts from virus surges, we would anticipate total revenues for the year could be approximately $3.3 billion to $3.4 billion, with Cheesecake Factory AUVs reaching over $12 million. Note that this includes the impact of the 53rd operating week we have this year. Next, for fiscal year 2022, we now expect commodity inflation of low-double digits on an annual basis. Specifically, we are modeling for year-over-year commodities pressure to lessen as we go through the year, starting with mid-teens pressure in the first quarter and ending with mid to high single-digit pressure for the fourth quarter. On an absolute cost per unit basis, we are modeling commodities to be fairly stable through the year with the variability in inflation, driven primarily by the comparison to the different price points in the corresponding quarters in 2021. The labor market also continues to be dynamic with a lot of moving parts. Inclusive of known minimum wage increases, we are currently modeling net total labor inflation of about 5% when factoring in wage rates, channel mix as well as other components of labor. Other operating expenses, which in total has less inflationary pressure than labor is expected to start the year around 25.5% of sales and with the benefit of pricing over time, we would anticipate we could end the year at about 25% of sales with the middle two quarters roughly between those points. We anticipate G&A to be approximately $50 million for the first quarter and ramp up to $55 million by the fourth quarter, which as a reminder, includes an extra week this year. We are assuming pre-opening of about $19 million for the year to support our development plans with approximately three-fourth of the expense occurring in the back half of the year. Finally, we expect about $90 million in depreciation for the full-year, and we are using a tax rate of approximately 13% for modeling purposes. Given the complexity involved with all of these moving parts, I will also provide a little bit more detail to help with the first quarter. First, if we take a similar approach to the full-year and extrapolate our current sales trends for the balance of the quarter, assuming no further material disruptions, we would anticipate Q1 to be between $770 million and $790 million in total revenue. Next, as David mentioned, we are currently rolling out a 3.25% menu price increase, which will give us a total of 4.75% year-over-year menu pricing increase. This level of pricing is consistent with the range we had anticipated taking for this menu change and with our objectives of both growing comparable sales and supporting four-wall and enterprise-level profit margins. On the incremental pricing, based on the timing of the rollout, it is weighted approximately 50% in the first quarter for an effective full Q1 rate of just under 4%. With the difference in commodities inflation by quarter noted previously as well as the timing of our pricing actions and Q1 sales trends, we would expect our four-wall margins to be at their lowest levels of the year in the first quarter and around 2 percentage points below 2019. Keep in mind that the first quarter historically has lower margins overall than the annual average due primarily to sales leverage and we would still expect that trend to follow this year. Also note that given our increased scale and leverage, we would anticipate the enterprise operating margin to be much closer to 2019 than the four-wall in the first quarter as we leverage G&A, depreciation and pre-opening. We would also anticipate taking another menu price increase towards the middle of the third quarter, as is our historical norm. If inflation trends were to remain in line with our current assumptions, which are higher than our prior assumptions, we believe we may need to take close to an incremental 2% menu price increase to regain our 2019 four-wall margin by the back half of 2022. However, we believe given the volatility in the commodities market and the potential for some degree of reset, it is prudent to remain flexible while maintaining a long-term lens with respect to our margin recapture. With regard to development, we plan to open as many as 17 to 19 new restaurants this year, most of them in the second half of the year. We would anticipate approximately $150 million in CapEx to support this level of unit development as well as required maintenance on our restaurants. With the filing of our 10-K and related compliance certificate associated with our revolving credit agreement, we also anticipate that the company will be in a position to resume capital distributions to shareholders in future quarters and our Board of Directors is actively evaluating strategies in this area. In closing, it is important to note that despite the ongoing challenges in the environment, our best-in-class operators have maintained a hallmark of operational consistency that The Cheesecake Factory is known for. This has helped enable our business to remain remarkably resilient and supporting the ongoing consumer demand for our brands. While current inflation in our industry is unprecedented, we believe the scale of our business, combined with a strategic pricing plan can deliver solid earnings per share and help recover profit margins in 2022, while importantly, protecting our brands to enable long-term market share gains. With the breadth of our high-quality growth vehicles, we also believe we are one step closer to achieving our 7% unit growth objective. With that said, we'll take your questions.
[Operator Instructions] Your first question today comes from the line of Sharon Zackfia with William Blair. Your line is now open.
Hi, good afternoon. I guess a couple of questions around the inflationary dynamic. I was struck by your comment that the year-over-year increases was really just a reflection of the year-ago comparisons when you're looking at that inflation on the commodity side and the unit cost you're projecting are relatively stable. Does that mean you're actually seeing stabilization in the unit cost as we speak? And then secondarily, it sounded as if – and I just want to clarify that you are willing to kind of defend your four-wall margins if you need to in the second half of the year with incremental price in the third quarter. I just want to make sure I understood that correctly. And if you could comment on how you've seen the elasticity of demand as you've taken price increases over the past year?
Sure. Sharon, this is Matt. And I think those are probably the most pertinent questions we'll get. So thank you for leading off with that. The first thing I would say is with regards to the commodities inflationary environment, we are somewhere around 60% to 65% booked for the year, which is pretty close to where we would normally be, right? Normally, we'd be around 67%. And so we have much better visibility than we did a couple of months ago and to where the markets are headed. I think as you've probably heard with a lot of companies, there might have been some hope, which is not a business plan, but there were some hope that things would come down quicker. But we are projecting it to be relatively stable and we have a few things that may help it over time. So we feel good about that. It's basically accepting that there's been some inflation, but locking in some of the risk right and booking it, and then secondarily to your point, being willing to take the pricing to protect that. And that's certainly where we're at. If you think about our pricing for the quarter versus where the inflation is in mid-teens for the first quarter, I don't think we would have ever contemplated taking enough pricing for that as this just doesn't make that much sense as we progress through the year, get closer to double digits and then even into the single digits. That's going to make a lot more competitive sense with retaining guests while getting the margins. Once we get through the first quarter, really, as we look forward, it's not a perfect crystal ball, but it's a lot closer to 2019 second quarter through fourth quarter combined with progressive improvements quarter-to-quarter.
Great. And then have you seen any consumer bulk as far as the price increases?
Historically, the ability for Cheesecake to take pricing has been very strong. The varied menu, anything from $7.95 to $30 and the ability for guests to share in 16 years here through a lot of different cycles have never seen us not get the pricing that we're going after. And frankly, we're targeting, and I think to the benefit of our ability to execute our supply chain's ability to manage effectively, pricing slightly below both grocery and our competitive set. So if anything, we're going to be in a better position relative to consumers coming out of this than most companies in our space. And we feel good about the past year and specific to your question.
Okay. Thank you.
Your next question comes from the line of Brian Mullan with Deutsche Bank. Your line is now open.
Hey, thank you. Just a question on the dine-in business at the core Cheesecake Factory brand sales per week basis, that was down about mid-single digits in the fourth quarter recovery sequentially or improvement sequentially from the third quarter and you had to deal with Omicron. So as you think about operating in a normal environment for a 12-month period, can you discuss your degree of optimism specifically that those dine-in volumes come all the way back to what they were or even perhaps exceed?
Sure. This is Matt again. I mean just looking at the simple math, 11 weeks through the fourth quarter, we're running at 10.6 Cheesecake Factory comps versus 2019. Per our specific prepared remarks, if you extrapolate out the current sales trends for the year, it gets to a Cheesecake Factory AUV over $12 million or so. I think just by stating that we feel good about the sales trends. The thing that we've seen time and time again through the multiple stages of the pandemic is that every time the brand actually comes back a little bit stronger than before. The pent-up demand continues to build. The execution of our teams relative to the competition has only made us better and more resilient. And I think that the dine-in business is what obviously has regrown with the off-premise kind of remaining stable. So we haven't lost that, but we continue to recapture over time the dine-in to support that level of business.
Okay. Thank you.
Your next question comes from the line of David Tarantino with Baird. Your line is now open.
Hi, good afternoon. Matt, I was wondering if you could maybe piece together how you're building the revenue outlook that you commented. And I guess my first question is what exactly do you mean by extrapolating current trends? Is that something you're seeing in the most recent weeks? Or is that your quarter-to-date trends? And then I may have a couple of follow-ups related to that.
Yes. I think to be fair – David, it's Matt. We're looking more at the last three to four weeks. The first week or two were still sort of in the Omicron holiday situation. But as we look at where we've gotten to in this quarter, and if we effectively seasonalize that sales performance on a dollar basis, that's what we mean by extrapolating current trends. Hopefully, that makes sense to you.
Understood. Yes. And then I guess, maybe it would help if you told us what that would imply from a comps perspective for the Cheesecake Factory and potentially even for North Italia if that's relevant, but if you could give us some sense for what level of comp would be embedded in that estimate?
Well, we're sort of in a funny space because I'm trying to figure out what comp people want to talk about, whether it's 2019, which is now three years ago or 2021, which in the first quarter still has some of the noise, we're trying to help with that by giving the sort of the AUV at the $12 million. I mean, I think if you're referring to 2021, we're really – it's still early to say what that total number would be, and we're not giving guidance specifically on a comp number because I think the comparisons become a little bit muddy with all the moving ups and downs of the virus.
Got it. But I guess, if you could maybe confirm, our math would suggest that if you're looking relative to pre-pandemic levels, you'd see or need to see a pretty meaningful step-up from Q1 to the rest of the quarters. And one, could you confirm that? And I guess, two, is it mainly just coming off the Omicron impacts? Or you assuming something else is in there?
Yes. I mean, so generally thinking after we lap the Q1 downturn last year, right? We would assume that we would at least fully capture pricing in Qs 2, 3 and 4 relative to 2021.
Got it. Okay. Thank you for that.
You're welcome.
Your next question comes from the line of Brian Bittner with Oppenheimer. Your line is now open.
Thank you. Good afternoon guys. So as we stand here today, I guess your commodity outlook is a little higher than originally expected for 2022. And your labor outlook seems to remain in line and you're taking this upcoming price increase that gets you to a 4.75% price factor. So I guess assuming that your cost outlook is correct, are you saying that all these pieces add up to being able to achieve the 2019 operating margin levels in 2022? Is that kind of how we should take your comments? And if things get a little bit worse, you need to take the 2% price increase later in the year?
No, Brian. So yes, let's just make sure we walk through that. This is Matt. Just to make sure that everybody gets that math. The first part, you're correct. So the commodities are, I don't know, call it, 2% to 3% higher for the year in our current outlook than when we had our last call. And so in order for us to compensate for that, if those commodities stay at that elevated level, we would need to take – normally, we take 1.5%, let's say, in the summer to lap around. We'd probably need to take 2% in the summer to fully offset that and recoup the 2019 margins. But also just to be clear, really we're not attempting to do that in the first quarter because at the 15% – 14% commodity inflation, we don't feel like it's appropriate nor with the timing of our pricing have enabled it, right? So we're really talking about more the second quarter through the fourth quarter about recapturing those. Now if commodities come back to where we were before and it's only a couple percent decline, then we'd be just lapping our pricing over. So that's sort of the toggle that we're looking at. Does that make sense?
It does. And I think the bottom line is you remain committed to achieving those 2019 operating margins this year, I guess, is the point?
That's 100% our goal for this year. And again, it is a little bit more just timing. I just reiterate, it wouldn't make sense to try to price for that in the first quarter alone, given the uncertainty and some of the movement in commodities, as well as just maintaining a competitive balance for where we want to be. But we feel good that over the course of the next six months, we'll get a lot more clarity about where that will be and we'll be able to effectively roll it in. We'd actually at a lesser level than we did this time, right? So we rolled in 3.25% on a six month basis. So we feel like the ability to get to 2% is very viable.
Great. And just a quick following up just a model question. You talked about net labor inflation of about 5% this year. So how do you want us to think about translating that into our models as we model kind of same-store labor costs? Do you want to imagine that 5% inflation? Or is there some variances or differences in how the actual costs are going to flow through?
Well, two things, Brian, we're not necessarily fans of the operating dollar approach because of the differences in our brands and some of the components, right? So we're thinking about helping people model it as a percentage of sales. So roughly speaking, in those quarters where we have close to 5% pricing, you're roughly neutral on a percentage of sales. However, you've got to go back and make sure you look at the other quarters commentary, which I don't have in front of me. Sometimes there were anomalies, I think like in the third quarter, particularly with pretty high group medical, right, which would not be included in our outlook for this year. And so those kinds of pieces will lead to you.
Great. Thanks, Matt.
Your next question comes from the line of Jeffrey Bernstein with Barclays. Your line is now open.
Great. Thank you very much. Two questions. One, I'm just wondering if you can talk bigger picture about mall traffic in general. Obviously, you guys are heavily penetrated in typically higher end malls. It seems like through the pandemic, there were concerns around slowing traffic. Now we're hearing things about maybe a resurgence from a traffic perspective. So Dave, I was hoping maybe you could just share your thoughts in terms of the mall positioning today versus two, three years ago from the health of the platform broadly speaking? And then I had one follow-up?
Sure, Jeff. This is David Gordon. To your earlier point about early on in the pandemic and the pressures that were felt at the mall, I think that – we proved out during that time that Cheesecake Factory is a destination and continues to be a destination by the sales that we were attributed early on in the pandemic. And as traffic continues to come back to malls, we only can build off of the great traffic that we saw coming purely for a destination. So it'll be pre-pandemic, and we had talked about maybe a lunch part daypart being a little bit softer in some of the places where we saw lesser traffic. We've done a good job of building awareness around lunchtime. And as traffic comes back, we would hopefully anticipate that we'll continue to take market share because of the execution that's happened in all the restaurants off-premise and on-premise during that time. So we feel good about our positioning. We feel good about looking for a sites only, whether that be at a mall or outside of a mall. We'll continue with that historical strategy and move forward.
Understood. And then just a follow-up. I think you mentioned, the Board is keen to discuss return of capital to shareholders once, I think, you said the revolver is paid off in this first quarter. So I'm just wondering, the pros and cons. I'm assuming we're talking about share repurchase versus dividend. But maybe any early thoughts in terms of what the thought process is there. And presumably, I guess, at this point, you're not assuming share repurchase of any kind in the 2022 guidance that you offered? Or is that still remain to be seen?
Hey, Jeff. It’s Matt. Good question. I think everything is on the table. Just to clarify, we will exit the sort of pandemic restrictions of the covenants, but we do still have the 130 on the revolver. So that is an option, too. Obviously, the interest rates are low, even with some of the movement up. I think that to be fair, the Board's first focus has been around the dividend reinstatement, but they're also supportive of anti-dilutive repurchase, at least, right. We have an equity compensation plan and to be able to begin to make sure that we're just offsetting that piece of it. I think some form of both of those are on the table in future quarters for this year.
Understood. So similar to the strategy you guys have pursued prior to holding that return?
I think so, maybe just in the beginning, particularly a little bit lighter on the repurchase component, particularly given that we have another avenue with the revolver to pay down and also that our growth has increased, there will be more CapEx. So I think just as an emphasis point, it's dividend first, followed by maybe some support from share repo anti-dilution.
Great. Thank you.
Your next question comes from the line of John Glass with Morgan Stanley. Your line is open.
Thanks very much. First, Matt, as you think about 2022, stimulus played a role in 2021. I think if you said $12 million AUVs and that's, I think, over 53 weeks, it would assume that average weekly sales are on par with what you experienced during 2021. Do you think there was a benefit? Or as you look back at the data, do you think is there a risk that you got excess demand in the second and third quarter of last year that you don't repeat? Or how do you think about the role of stimulus played last year and how you think about revenue growth or AUV growth during 2022?
Sure, John. I think AUVs will be over $12 million, to be honest, and that's probably excluding the extra week. We don't anticipate that we'll be at the same level of 2021. We are comping up now, and we anticipate that, that will be true, at least at the pricing level, even once we lap the full reopening. We're just noting the confidence in the off-premise that we've recaptured and built on that we don't think we're going to lose that piece of it. I don't think stimulus made much of a difference to us. The biggest thing that we saw if you look at the cadence of the comps last year was the reopenings, right? And so as soon as you saw a wave of reopening, our comp stepped up and then we're just remarkably consistent throughout the different periods of time, absent really the Omicron surge. So I think that we're going to see positive build on AWS for The Cheesecake Factory and really for all of our brands.
Thank you. If I follow up, the operating margins at the North Italia segment actually sequentially improved even though the Cheesecake margins were under pressure. Is that dynamic about just maturation of stores you're sort of getting some benefit. How do you think about their margins in 2022 versus the core business? Could that end up being a positive, if you will, as those stores you've opened more recently start to mature? How do you think about that?
Well, I would say, first of all, it was in a big focus for David and David and the North team coming out of the summer because they had kind of gotten to a point where they could stabilize and focus it. It's a smaller brand. The staffing challenges were greater. So the team put a lot of work into building momentum going into 2022. Our supply chain team did some work. I mean, frankly, we would have thought we would be more integrated from a supply chain, if it were not for the pandemic, right? So we are just beginning some of the work to be able to support those margins. And I think that's starting to show from a maturation standpoint, as you noted, John. And then also the strength of the sales. I mean, really, the fourth quarter north, I think, stood above everybody and they leveraged it well. So we're cautiously optimistic. There's work to be done there, but it's clearly headed in the right direction.
Got it. Thank you.
Your next question comes from the line of Dennis Geiger with UBS. Your line is now open.
Thanks for the question. And thanks for the commentary on the staffing situation and then the gains you've made in recent months. I'm wondering if you could talk, though, a bit more about the impact in the 4Q maybe from staffing and from impacts to operating hours and how that impacted sales, presumably, that represents a tailwind as you move through the year. And then just kind of building on that, just wondering how much more staffing you feel from here is needed, maybe if any more staffing from here is needed. I'm curious what that looks like? Thank you.
Thanks, Dennis. This is David Gordon. Certainly, those few weeks where the surge was pretty relevant out in the restaurants. We saw some probably larger staffing pressures than we had all the way back to the beginning of the pandemic. Not to the point that we had to really make any adjustments to our hours or close for any particular day part, maybe a restaurant here or there that opened or closed and now we're early in a particular day, but nothing that was systemic. And what we're seeing now coming out of that certainly is the uptick in staffing that I talked about in the prepared comments. And if that were to continue here in the next few months with that continued positive trend, and I think I mentioned that in January, hiring an increase 10% to 15% from the Q4 average. So if that were to continue, we'd be sitting in a really strong place. And certainly, in no way are any of our staffing needs prohibiting any potential sales at this point. I think we feel really good about the restaurants being in a solid staffing position and enabling really strong execution, whether that's for dine-in or for off-premise.
That's helpful. And then just one more. I think, Matt, you spoke to sort of the recovery that you've seen after each wave sounds particularly encouraging. Just wondering with this latest wave as we think about the recovery restrictions easing. Anything more to share sort of on customer behaviors, impacts to day parts or anything else that you would call out that's been particularly interesting, just over the recent weeks that maybe you hadn't seen in previous reopening waves? Thank you.
Yes, Dennis. It's Matt. It's an interesting question. I would say that for sure, we have seen with some of the public announcements recently about lifting mask mandates and the like, that there is a pretty fast correlation to guest traffic. And I think people were heating the medical advice over the holidays and people got sick and they stayed home and they quarantined. And as soon as in the jurisdiction, we see them lifting that or speaking more positively about case declines, the sales come back really fast. And so we feel like the trajectory is very positive. I don't know. It's also noteworthy that our off-premise continues to be very sticky despite that. I mean that's kind of what we're saying. We think we can recapture the on-premise dining and keep the off-premise. So we're seeing both of that happen, which I think is a really positive outlook.
Great. Thanks guys.
Your next question comes from the line of John Ivankoe with JPMorgan. Your line is now open.
Hi, thank you. I guess when you go back and you look at the closures in your trade areas or maybe even your malls itself, that you thought were relevant to you and actually maybe at one point, actually had Cheesecake Factory, like your customers before they close. I guess, how impactful do you think that was? In other words, when we do think about 2022 versus 2019, how much effective supply relevant to Cheesecake Factory, do you think actually came out of the market?
John, this is Matt. I don't know that it’s moved. I mean what I can say is that they're not reopening that quickly. So the open opportunity or the market share opportunity, I think for 2022 continues frankly, for any small or midsized operator and we talked to many of them still. There's no urgency to getting back into the game when you see labor and commodities like this. So the restaurants that closed next to us two years ago are still closed. So I think that just bears that the opportunity. The sales momentum that we've built was not because more people closed, but it continues because the dynamic is there's more people that want to go out to eat than restaurant capacity, and it's not coming back quickly.
Yes. Understood. And obviously, equipment delays and permitting delays and any number of things would...
Exactly. I mean all of them just try to build a new restaurant. If you don't have the scale and the capabilities that The Cheesecake Factory has, well, good luck to you.
Yes. Understood. And maybe a little bit related to that, as we look and we can talk about this over any time period that you want, maybe we can talk about it in current time. How disparate is the performance across the chain? I mean, is there a tight grouping of restaurants from a sales performance perspective, 2022 versus 2019? Is it still very wide? I mean are there a certain number of restaurants that are actually still pulling down your comps that could potentially contribute in the near future?
Yes, to the last part. The biggest thing that we continue to see is that some of the urban and travel areas are depressed, right. And while they may still be doing pretty decent volumes, a downtown location might be doing $12 million, but it may be doing $16 million before, right? So there's – I would say I haven't looked at the exact math. But when we looked in the fourth quarter, which I'm imagining it similar, it was a 2% to 3% opportunity for those just to get back to breakeven because they were negative. The rest of it, we do see, I think, very strong performance in suburban malls. I mean people have to the question earlier, have returned and – but that's pretty broad-based that’s across the country. So I think the single biggest thing is really the urban tourist areas and opportunity there. If what we're hearing that people are starting to book flights and hotels again, could help us out in the back half.
Thank you.
Your next question comes from the line of Lauren Silberman with Credit Suisse. Your line is now open.
Thank you. First, I just want to clarify the trends that you're seeing in recent weeks, how do those underlying trends compare to pre-Omicron levels?
Lauren, its Matt. We have gotten pretty much right back to where we were pre-Omicron in the latest period.
Great. Thank you. And on pricing, the 4.75% menu price, which as you said, below what we're seeing across the industry growth rate. Definitely appreciate being prudent. Do you see any risk to not taking more price now if we start to see more consumer elasticity at price really across the entire consumer landscape?
I think that where our positioning is enables us to be flexible. Like I said, we take pricing twice a year. We've done it for three or four years, whatever it is at this point. Now we've always been effective in capturing it. And the difference we're talking about is 50 basis points, doesn't concern us at all. We'll be smart about where we place it. We've got the menu variation. So we're not talking about a big gap. We're just talking about seeing the T leaves a little bit longer. It's not like we need to take 3% or 4% more.
Got it. And then just on off-premise versus on-premise, off-premise, you talked about nearly 2x pre-COVID. It seems pretty steady over the last few quarters. How are you thinking about the growth of on-premise versus off-premise from here? Do you expect opportunities for continued off-premise growth versus on-premise outperforming as you continue to capture just how you're thinking about those components.
Lauren, this is David Gordon. Certainly, as we've said since the beginning of the pandemic that we feel that the off-premise growth is sticky and our expectation that we built into the plan for this year is for that to remain. So we're not looking to necessarily need to outsize where we currently are today. We'd be happy to currently to continue to be in the high-20s to mid-20s with off-premise. We think we can continue to do that, and we will continue to do that as the capacity continues to grow back inside the restaurants as well. So that's where we stand today, and we're anticipating throughout the remainder of the year.
Thank you, guys.
Your next question comes from the line of Brian Vaccaro with Raymond James. Your line is now open.
Thanks. Good evening. I guess just to close the loop on quarter-to-date. I just wanted to make sure my math is right. If I take your one-year comps that you've disclosed at various times. It seems like the quarter-to-date two-year on Cheesecake is up 1.5%, 2% versus that period in early 2020 before COVID hit. Is that right?
Brian, honestly, we can call back up with you on that one. I don't have 2022 year in front of me.
Okay. But you did just say you're back to a pre-Omicron trend, and I wanted to make sure that's versus a pre-COVID trend. So you're suggesting that you're somewhere close to 10% versus a pre-COVID trend?
I think the best way to think about – the best way, in my opinion, given all of the different comp variations over the years, right? Because you've got moving holidays, you've got weather, you've got the Super Bowl, et cetera. Where we are at today brings us back to the pre-Omicron AUV trend. So you always have to seasonalize adjusted, et cetera. But it basically would get us back to the same AUV levels that we were running pre-Omicron.
Okay. And at Cheesecake Factory, I want to just ask about the segment margins and looking at the quarter, I think still down, call it, 250 bps versus the fourth quarter of 2019, AUV is up 5%. I know there's a lot of noise in the numbers. But could you help us bridge that differential between temporary or onetime pressures versus structural differences. And just help us with the path towards recovering historical margins at the Cheesecake segment specifically?
Sure. So I would say, first of all, obviously, the impact from the last two weeks and the flow-through there was pretty material. I would say that could be 1.5% of that delta. The second big piece is the commodity inflation relative to pricing. Remember, we said we'd be at about 6% versus a 3% level pricing. So you're talking about another 75 basis points right there. So that's probably 2.25. The other difference really, I would say, comes down to the manager bonus and COVID pay that we noted was around 45 basis – 50 basis points. So you're talking about the Omicron impact, the commodity inflation compared to pricing and timing and then some onetime costs. And hopefully, that gets you back to kind of in the ballpark.
Okay. That's helpful. And then last one, I just wanted to ask about the other operating cost line, specifically. I know you caught out some pressure points in the fourth quarter. It sounded like it was mostly natural gas within that specific line item, but correct me if I'm wrong on that. But I guess your guidance for first quarter getting into the mid-25s if I heard correctly, would suggest that whatever was in Q4 that pushed the number higher is expected to come lower. Am I interpreting that correctly? And if so, can you illuminate us on sort of what those underlying dynamics could be there?
Yes. Some of it is the natural gas, as you call out. Some of it is that does happen to be where we capture the restaurant level incentive piece. And essentially for all of 2021, we just paid at 100% compared to a performance base, which would impact some of that. And some of it is just seasonality of what you see in Q4 versus the first quarter. And some of it is pricing leverage compared to the inflation. Those line items, things like rent and occupancy really don't have any inflation. They're just associated with the sales levels. And so we should be getting some leverage as we move up to 5% pricing in an area that's maybe 1% to 2% inflationary comparatively.
All right. Thank you. I'll pass it along.
[Operator Instructions] Your next question comes from the line of James Rutherford with Stephens Inc. Your line is now open.
Thanks very much for the question. And I know there's been a lot of questions on sort of the recent trends, but I just want to tackle this from a different angle, if I could. You mentioned that you've taken the last few weeks of trend and seasonalize that to get the AUV that you talked about, which is $12 million or greater for the year. If I just do simple math, that $12 million is about 13% higher than what you did in 2019, that $10.7 million in 2019. So is it too much of a stretch to say that your comments would imply that in the last few weeks, you are running something in the low double-digit percentage greater than 2019 levels here in the last few weeks. I'm just trying to kind of reconcile some of those comments if I could please?
Yes. I think what we're saying is we – our expectation is that The Cheesecake Factory AUVs will be over $12 million. And you have to take into consideration seasonal trends as to where we would be in 2019 versus that. And also, as we've noted, it includes the expectation that we're flowing through the pricing and capturing that. So in this year, as we speak right now, we're anticipating around a 5% pricing level. So that builds on whatever trends we were pre-Omicron surge.
Okay. Thank you.
Your next question comes from the line of Nick Setyan with Wedbush Securities. Your line is now open.
Hi, thank you. I apologize for delivering this margin trajectory in 2019 in the context of 5% pricing. I think you said Q1 starts at about 200 basis points below Q1 2019. Please correct me if I'm wrong. But say we start at about 13.5%. Prior to the price increase in early Q3 would still be below the Q2 2019 number in terms of year level margins. Then we'd be at or above in the second half. Is that a correct interpretation?
Hey, Nick. It's Matt. I think that's pretty close, right? So in the second quarter, we're probably not fully offsetting that commodities, although we're getting closer. So I think you're pretty spot on with that. Then by the time we get to Q3, it's going to be roughly close. If all else being equal and everything that we think is going to happen, happens. And then in Q4, it could be slightly above. So I mean, I think that, that's right on your comments.
Okay. Perfect. In Q3, the 2% incremental price, what's that – what's falling off when you take that 2%...
1.5%. Falling off, yes.
Got it. And then just a clarification in Q4, what was pricing – menu pricing?
In the quarter, it was 3% for Q4.
Okay. Thank you very much.
I think just to kind of hit on a point that Nick just made, our strategy here is really, again, to reiterate, commodity inflation of mid-teens percent isn't something that any company is going to really want to price for. But as we get into a double-digit to single-digit scenario and we can execute on our plan if we need to take slightly more pricing, our goal is with stabilization of sales trends to exit the scenario, the pandemic and margins equal to or greater than on a four-wall basis for Cheesecake Factory than 2019.
There are no further questions at this time. This concludes today's conference call. Thank you for attending. You may now disconnect.