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OFFON

THE CHEESECAKE FACTORY INCORPORATED

(CAKE)
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Cheesecake Factory Incorporated : INC Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

08/04/2021 | 05:05pm EDT

Forward-Looking Statements

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



These statements may be contained in our filings with the SEC, in our press
releases, in other written communications, and in oral statements made by or
with the approval of one of our authorized officers. These statements are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, as codified in Section 27A of the Securities Act
of 1933, as amended (the "Securities Act"), and Section 21E of the Securities
Exchange Act of 1934, as amended (together with the Securities Act, the "Acts").
This includes, without limitation, statements regarding corporate social
responsibility and in our corporate social responsibility (CSR) report, the
effects of the COVID-19 pandemic on our financial condition and our results of
operations, including our expectations with respect to our ability to reopen and
keep open our restaurants, our fiscal 2021 outlook, financial guidance and
projections and statements with respect to the acquisition of North Italia and
Fox Restaurant Concepts LLC ("FRC") and expectations regarding accelerated and
diversified revenue growth as a result of the acquisition of North Italia and
FRC, as well as expectations of our future financial condition, results of
operations, sales, cash flows, plans, targets, goals, objectives, performance,
growth potential, competitive position and business; and our ability to:
leverage our competitive strengths, including investing in or acquiring new
restaurant concepts and expanding The Cheesecake Factory® brand to other retail
opportunities; deliver comparable sales growth; provide a differentiated
experience to customers; outperform the casual dining industry and increase our
market share; leverage sales increases and manage flow through; manage cost
pressures, including increasing wage rates, insurance costs and legal expenses,
and stabilize margins; grow earnings; remain relevant to consumers; attract and
retain qualified management and other staff; manage risks associated with the
magnitude and complexity of regulations in the jurisdictions where our
restaurants are located; increase shareholder value; find suitable sites and
manage increasing construction costs; profitably expand our concepts
domestically and in Canada, and work with our licensees to expand our concept
internationally; support the growth of North Italia and the FRC brands; and
utilize our capital effectively. These forward-looking statements may be
affected by various factors including: the rapidly evolving nature of the
COVID-19 pandemic and related containment measures, including the potential for
a complete shutdown of our restaurants, international licensee restaurants and
our bakery operations; demonstrations, political unrest, potential damage to or
closure of our restaurants and potential reputational damage to us or any of our
brands; economic, public health and political conditions that impact consumer
confidence and spending, including the impact of the COVID-19 pandemic and other
health epidemics or pandemics on the global economy; acceptance and success of
The Cheesecake Factory in international markets; acceptance and success of North
Italia, the FRC brands and our other concepts; the risks of doing business
abroad through Company-owned restaurants and/or licensees; foreign exchange
rates, tariffs and cross border taxation; changes in unemployment rates; changes
in laws impacting our business, including laws and regulations related to
COVID-19 impacting restaurant operations and customer access to off- and
on-premises dining; increases in minimum wages and benefit costs; the economic
health of our landlords and other tenants in retail centers in which our
restaurants are located, and our ability to successfully manage our lease
arrangements with landlords; unanticipated costs that may arise in connection
with a return to normal course of business, including potential negative impacts
from furlough actions; the economic health of suppliers, licensees, vendors and
other third parties providing goods or services to us; the timing of new unit
development; compliance with debt covenants; strategic capital allocation
decisions including any share repurchases or dividends; the ability to achieve
projected financial results; economic and political conditions that impact
consumer confidence and spending; the resolutions of uncertain tax positions
with the Internal Revenue Service and the impact of tax reform legislation;
adverse weather conditions in regions in which our restaurants are located;
factors that are under the control of government agencies, landlords and other
third parties; the risk, costs and uncertainties associated with opening new
restaurants; and other risks and uncertainties detailed from time to time in our
filings with the SEC. Such forward-looking statements include all other
statements that are not historical facts, as well as statements that are
preceded by, followed by or that include words or phrases such as "believe,"
"plan," "will likely result," "expect," "intend," "will continue," "is
anticipated," "estimate," "project," "may," "could," "would," "should" and
similar expressions. These statements are based on our current expectations and
involve risks and uncertainties which may cause results to differ materially
from those set forth in such statements.

                                       21

Table of Contents


In connection with the "safe harbor" provisions of the Acts, we have identified
and are disclosing important factors, risks and uncertainties that could cause
our actual results to differ materially from those projected in forward-looking
statements made by us, or on our behalf. (See Part II, Item 1A of this report,
"Risk Factors," and Part I, Item 1A, "Risk Factors," included in our Annual
Report on Form 10-K for the fiscal year ended December 29, 2020.) These
cautionary statements are to be used as a reference in connection with any
forward-looking statements. The factors, risks and uncertainties identified in
these cautionary statements are in addition to those contained in any other
cautionary statements, written or oral, which may be made or otherwise addressed
in connection with a forward-looking statement or contained in any of our
subsequent filings with the SEC. Because of these factors, risks and
uncertainties, we caution against placing undue reliance on forward-looking
statements. Although we believe that the assumptions underlying forward-looking
statements are currently reasonable, any of the assumptions could be incorrect
or incomplete, and there can be no assurance that forward-looking statements
will prove to be accurate. Forward-looking statements speak only as of the date
on which they are made, and we undertake no obligation to publicly update or
revise any forward-looking statements or to make any other forward-looking
statements, whether as a result of new information, future events or otherwise,
unless required to do so by law.



The below discussion and analysis, which contains forward-looking statements,
should be read in conjunction with our interim unaudited condensed consolidated
financial statements and related notes in Part I, Item 1 of this report and with
the following items included in our Annual Report on Form 10-K for the fiscal
year ended December 29, 2020: the audited consolidated financial statements and
related notes in Part IV, Item 15; the "Risk Factors" included in Part I, Item
1A; the "Management's Discussion and Analysis of Financial Condition and Results
of Operations" included in Part II, Item 7; and the cautionary statements
included throughout this Form 10-Q. The inclusion of supplementary analytical
and related information herein may require us to make estimates and assumptions
to enable us to fairly present, in all material respects, our analysis of trends
and expectations with respect to our results of operations and financial
position.



COVID-19 Pandemic



We are subject to continued risks and uncertainties as a result of the outbreak
of, and local, state and federal governmental responses to, the COVID-19
pandemic which was declared a National Public Health Emergency in March 2020. We
experienced significant disruptions to our business as suggested and mandated
social distancing and shelter-in-place orders led to the temporary closure of a
number of restaurants across our portfolio while the remaining locations shifted
to an off-premise only operating model on an interim basis. In the second
quarter of fiscal 2020, certain jurisdictions began allowing the reopening of
restaurant dining rooms, and we began to reopen dining rooms across our
concepts. While restrictions on the type of permitted operating model and
occupancy capacity continue to change, nearly all of our restaurants were
operating with no indoor dining restrictions.



We cannot predict how long the COVID-19 pandemic will last, whether vaccines
will be effective at eliminating or slowing the spread of the virus or variants,
whether it will reoccur or whether variants will spike, what additional
restrictions may be enacted, to what extent we can maintain sales volumes during
or following the resumption of mandated social distancing protocols or mask
mandates and what long-lasting effects the COVID-19 pandemic may have on the
restaurant industry as a whole. The extent of the reopening process, the
potential impact of the COVID-19 pandemic on consumer spending behavior, and our
ability to continue to adequately staff out restaurants will determine the
significance of the impact to our operating results and financial position.


General


The Cheesecake Factory Incorporated is a leader in experiential dining. We are
culinary forward and relentlessly focused on hospitality. We currently own and
operate 301 restaurants throughout the United States and Canada under brands
including The Cheesecake Factory®, North Italia® and a collection within our FRC
business. Internationally, 28 The Cheesecake Factory® restaurants operate under
licensing agreements. Our bakery division operates two facilities that produce
quality cheesecakes and other baked products for our restaurants, international
licensees and third-party bakery customers.



Overview



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



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Investing in new Company-owned restaurant development is our top long-term
capital allocation priority, with a focus on opening our concepts in premier
locations within both new and existing markets. We expect our acquisition of
North Italia and FRC to further accelerate and diversify our growth
opportunities. For The Cheesecake Factory concept, we target an average
cash-on-cash return on investment of approximately 20% to 25% at the unit level.
We target an average cash-on-cash return on investment of approximately 35% for
the North Italia concept and 25% to 30% for the FRC concepts. Returns are
affected by the cost to build restaurants, the level of revenues that each
restaurant can deliver and our ability to maximize the profitability of
restaurants. Investing in new restaurant development that meets our return on
investment criteria is expected to support achieving mid-teens Company-level
return on invested capital.



Our overall revenue growth is primarily driven by revenues from new restaurant
openings and increases in comparable restaurant sales. Changes in comparable
restaurant sales come from variations in customer traffic as well as in average
check.


For The Cheesecake Factory concept, our strategy is to increase comparable
restaurant sales by growing average check and stabilizing customer traffic
through (1) continuing to offer innovative, high quality menu items that offer
customers a wide range of options in terms of flavor, price and value, (2)
focusing on service and hospitality with the goal of delivering an exceptional
customer experience and (3) continuing to provide our customers with convenient
options for off-premise dining, as we believe there is opportunity for a
longer-term increase in our off-premise mix as we emerge from the COVID-19
pandemic. We are continuing our efforts on a number of initiatives, including a
greater focus on increasing customer throughput in our restaurants, leveraging
our gift card program, working with a third party to provide delivery services
for our restaurants, increasing customer awareness of our online ordering
capabilities, augmenting our marketing programs, enhancing our training programs
and leveraging our customer satisfaction measurement platform.



Average check is driven by menu price increases and/or changes in menu mix. We
generally update The Cheesecake Factory restaurant menus twice a year, and our
philosophy is to use price increases to help offset key operating cost increases
in a manner that balances protecting both our margins and customer traffic
levels. We have targeted menu price increases of approximately 2% to 3%
annually, utilizing a market-based strategy to help mitigate cost pressure in
higher-wage geographies. Currently, our menu pricing is at the higher end of
this range.



Margins are subject to fluctuations in commodity costs, labor, restaurant-level
occupancy expenses, general and administrative ("G&A") expenses and preopening
expenses. Our objective is to recapture our pre-COVID-19 pandemic margins when
we recapture our pre-COVID-19 annual sales levels, and longer-term to drive
margin expansion, by leveraging incremental sales to increase restaurant-level
margins at The Cheesecake Factory concept, leveraging our bakery operations,
international and consumer packaged goods royalty revenue streams and G&A
expense over time, and optimizing our restaurant portfolio.

We plan to employ a balanced capital allocation strategy, comprised of:
investing in new restaurants that are expected to meet our targeted returns,
repaying borrowings under our Revolving Facility (as defined below) and
reinstating our dividend and share repurchase program, the latter of which
offsets dilution from our equity compensation program and supports our earnings
per share growth. At present, our dividends on our common stock and share
repurchases are suspended. Our ability to declare common dividends and
repurchase shares in the future will be subject to financial covenants under the
Amended Credit Agreement (as defined below), among other factors.



Longer-term, we believe our domestic revenue growth (comprised of our targeted
annual unit growth of 7%, in aggregate across concepts, and comparable sales
growth), combined with margin expansion, planned debt repayment and an
anticipated capital return program will support our long-term financial
objective of 13% to 14% total return to shareholders, on average. We define our
total return as earnings per share growth plus our dividend yield.



                                       23

  Table of Contents

Results of Operations



The following table presents, for the periods indicated, information from our
condensed consolidated statements of income/(loss) expressed as percentages of
revenues. The results of operations for the interim periods presented are not
necessarily indicative of the results to be expected for any other interim
period or for the full fiscal year.




                                                      Thirteen         Thirteen        Twenty-Six       Twenty-Six
                                                     Weeks Ended      Weeks Ended      Weeks Ended      Weeks Ended
                                                    June 29, 2021    June 30, 2020    June 29, 2021    June 30, 2020
Revenues                                                    100.0 %          100.0 %          100.0 %          100.0 %

Costs and expenses:
Cost of sales                                                22.0             24.4             21.8             23.4
Labor expenses                                               35.7             41.5             36.1             39.5
Other operating costs and expenses                           25.9             41.1             27.3             31.8
General and administrative expenses                           6.3             12.1              6.6              8.7
Depreciation and amortization expenses                        2.9              7.6              3.2              5.1
Impairment of assets and lease expiration                       -              0.8              0.0             21.3
Acquisition-related costs                                       -              0.4                -              0.3
Acquisition-related contingent consideration and
amortization                                                  1.5            (0.3)              0.9            (0.6)
Preopening costs                                              0.4              0.7              0.5              0.6
Total costs and expenses                                     94.7            128.3             96.4            130.1
Income/(loss) from operations                                 5.3           (28.3)              3.6           (30.1)
Interest and other expense, net                             (0.6)            (0.9)            (0.5)            (0.4)
Income/(loss) before income taxes                             4.7           (29.2)              3.1           (30.5)
Income tax provision/(benefit)                                0.3           (10.1)              0.4            (9.3)
Net income/(loss)                                             4.4           (19.1)              2.7           (21.2)
Dividends on Series A preferred stock                       (1.8)            (1.2)            (1.4)            (0.4)
Direct and incremental Series A preferred stock
issuance cost                                                   -            (3.5)                -            (1.1)
Undistributed earnings allocated to Series A
preferred stock                                             (0.4)                -            (0.2)                -
Net income/(loss) available to common
stockholders                                                  2.2 %         (23.8) %            1.1 %         (22.7) %



Thirteen Weeks Ended June 29, 2021 Compared to Thirteen Weeks Ended June 30, 2020




Revenues



Revenues increased 159.9% to $769.0 million for the fiscal quarter ended June 29, 2021 compared to $295.9 million for the comparable prior year period, primarily due to the effect of the COVID-19 pandemic on prior year sales.


                                       24

Table of Contents


The Cheesecake Factory comparable sales increased by 150.0%, or $356.2 million,
from the second quarter of fiscal 2020 and increased 7.8% from the second
quarter of fiscal 2019. The increase from fiscal 2020 was primarily driven by
increased customer traffic of 202.7% primarily due to the impact of the COVID-19
pandemic in the prior year, partially offset by a decline in average check of
52.7% (based on a 55.7% negative change in mix partially offset by an increase
of 3.0% in menu pricing). We implemented effective menu price increases of
approximately 1.5% in both the first quarter of fiscal 2021 and third quarter of
fiscal 2020. Sales through the off-premise channel comprised approximately 31%
of our restaurant sales during the second quarter of fiscal 2021 as compared to
79% in the second quarter of fiscal 2020 as many customers have returned to
on-premise dining, whereas consumer behavior had shifted towards the off-premise
channel during the prior year period due to the pandemic. However, off-premise
sales mix of 31% remains elevated versus the pre-pandemic level of 16% during
the second quarter of fiscal 2019. The Cheesecake Factory average sales per
restaurant operating week increased 146.9% to $225,452 in the second quarter of
fiscal 2021 from $91,314 in the second quarter of fiscal 2020. Total operating
weeks at The Cheesecake Factory restaurants increased 1.9% to 2,691 in the
second quarter of fiscal 2021 compared to 2,640 in the prior year. North Italia
comparable sales increased approximately 182% from the second quarter of fiscal
2020 and increased approximately 10% compared to the second quarter of fiscal
2019. North Italia average sales per restaurant operating week increased 152.0%
to $132,824 in the second quarter of fiscal 2021 from $52,718 in the second
quarter of fiscal 2020. Total operating weeks at North Italia increased 25.7% to
328 in the second quarter of fiscal 2021 compared to 261 in the prior year.

Restaurants become eligible to enter the comparable sales base in their 19th
month of operation. At June 29, 2021, there were two The Cheesecake Factory
restaurants and four North Italia restaurants not yet in the comparable sales
base. International licensed locations and restaurants that are no longer in
operation, including those which we have relocated, are excluded from comparable
sales calculations.


External bakery sales were $15.4 million for the second quarter of fiscal 2021 compared to $14.7 million in the comparable prior year period.



Cost of Sales


Cost of sales consists of food, beverage and bakery production supply costs
incurred in conjunction with our restaurant and bakery revenues, and excludes
depreciation, which is captured separately in depreciation and amortization
expenses. As a percentage of revenues, cost of sales was 22.0% and 24.4% in the
second quarters of fiscal 2021 and 2020, respectively, reflecting a shift in
sales mix within the restaurants, a lower proportion of third-party bakery
revenues and pricing leverage.



Labor Expenses


As a percentage of revenues, labor expenses, which include restaurant-level
labor costs and bakery direct production labor, including associated fringe
benefits, were 35.7% and 41.5% in the second quarters of fiscal 2021 and 2020,
respectively. This decrease was primarily due to deleverage in the prior year
when costs associated with the COVID-19 pandemic, including maintaining our full
restaurant management team and healthcare benefits for our furloughed staff
members, were incurred in the reduced sales environment.



Other Operating Costs and Expenses




Other operating costs and expenses consist of restaurant-level occupancy
expenses (rent, common area expenses, insurance, licenses, taxes and utilities),
marketing, including delivery commissions, other operating expenses (excluding
food costs and labor expenses, which are reported separately) and bakery
production overhead and distribution expenses. As a percentage of revenues,
other operating costs and expenses were 25.9% and 41.1% in the second quarters
of fiscal 2021 and 2020, respectively. This variance was primarily driven by
sales leverage, partially offset by increased restaurant-level incentive
compensation expense.

G&A Expenses



G&A expenses consist of the restaurant management recruiting and training
program, restaurant field supervision, corporate support and bakery
administrative organizations, as well as gift card commissions to third-party
distributors. As a percentage of revenues, G&A expenses were 6.3% and 12.1% in
the second quarters of fiscal 2021 and 2020, respectively. This variance was
primarily driven by sales leverage, partially offset by higher corporate
incentive compensation expense.

                                       25

Table of Contents

Depreciation and Amortization Expenses




As a percentage of revenues, depreciation and amortization expenses decreased to
2.9% in the second quarter of fiscal 2021 from 7.6% in the comparable prior year
period due primarily to sales leverage.



Impairment of Assets and Lease Terminations




During the second quarter of fiscal 2021, we recorded no impairment of assets
and lease terminations expense. In the second quarter of fiscal 2020, we
recorded impairment of assets and lease terminations expense of $2.4 million
related to lease termination costs for one The Cheesecake Factory restaurant
which closed in July 2020.

Acquisition-Related Contingent Consideration, Compensation and Amortization Expenses/(Benefit)




In the second quarter of fiscal 2021, we recorded $11.4 million of
acquisition-related contingent consideration, compensation and amortization,
primarily related to the impact of an amendment to the Acquisition agreement
that, among other things, extended the measurement period through fiscal 2026.
In the second quarter of fiscal 2020, we recorded a benefit of $0.9 million of
acquisition-related contingent consideration, compensation and amortization,
reflecting changes in the fair value of the deferred and contingent
consideration and compensation liabilities, partially offset by amortization of
acquired definite-lived licensing agreements.

Preopening Costs

Preopening costs were $2.8 million and $2.1 million in the second quarters of
fiscal 2021 and 2020, respectively. We opened two North Italia and one Other
location in the second quarter of fiscal 2021 compared no restaurants in the
comparable prior year period. Preopening costs include all costs to relocate and
compensate restaurant management staff members during the preopening period,
costs to recruit and train hourly restaurant staff members, and wages, travel
and lodging costs for our opening training team and other support staff members.
Also included are expenses for maintaining a roster of trained managers for
pending openings, the associated temporary housing and other costs necessary to
relocate managers in alignment with future restaurant opening and operating
needs, and corporate travel and support activities. Preopening costs can
fluctuate significantly from period to period based on the number and timing of
restaurant openings and the specific preopening costs incurred for each
restaurant.

Interest and Other Expense, Net




Interest and other expense, net was $4.7 million and $2.6 million for the second
quarters of fiscal 2021 and 2020, respectively. This increase was primarily due
to the termination of our interest rate swap.

Income Tax Provision/(Benefit)

Our effective income tax rate was 7.4% and 34.5% for the second quarters of
fiscal 2021 and 2020, respectively. The decrease resulted primarily from a
higher proportion of employment credits in relation to pre-tax income/(loss) in
the first half of fiscal 2021 and a benefit in the prior year arising from the
expected carryback of our anticipated fiscal 2020 loss to prior years when the
federal statutory rate was 35%.

Twenty-Six Weeks Ended June 29, 2021 Compared to Twenty-Six Weeks Ended June 30, 2020




Revenues

Revenues increased 53.3% to $1,396.4 million for the first half of fiscal 2021
compared to $911.0 million for the comparable prior year period, primarily due
to the effect of the COVID-19 pandemic on prior year sales.

                                       26

Table of Contents


The Cheesecake Factory comparable sales increased by 52.0%, or $369.3 million,
from the first half of fiscal 2020 and decreased 1.2% from the first half of
fiscal 2019. The increase from fiscal 2020 was primarily driven by increased
customer traffic of 40.3% primarily due to the impact of the COVID-19 pandemic
in the prior year period and average check growth of 11.7% (based on an increase
of 3.0% in menu pricing and an 8.7% positive change in mix). Sales through the
off-premise channel comprised approximately 36% of our restaurant sales during
the first half of fiscal 2021 as compared to 41% in the first half of fiscal
2020. However, off-premise sales mix of 36% remains elevated versus the
pre-pandemic level of 16% during the first half of fiscal 2019. The Cheesecake
Factory average sales per restaurant operating week increased 50.1% to $206,012
in the first half of fiscal 2021 from $137,286 in the first half of fiscal 2020.
Total operating weeks at The Cheesecake Factory restaurants increased 1.0% to
5,369 in the first half of fiscal 2021 compared to 5,314 in the prior year
period.



North Italia comparable sales increased approximately 63% from the first half of
fiscal 2020 and increased approximately 3% compared to the first half of fiscal
2019. North Italia average sales per restaurant operating week increased 50.7%
to $121,061 in the first half of fiscal 2021 from $80,348 in the first half of
fiscal 2020. Total operating weeks at North Italia increased 14.5% to 631 in the
first half of fiscal 2021 compared to 551 in the prior year period.

External bakery sales were $32.1 million for the first half of fiscal 2021 compared to $28.5 million in the comparable prior year period.

Cost of Sales

As a percentage of revenues, cost of sales was 21.8% and 23.4% in the first half
of fiscal 2021 and 2020, respectively, reflecting a shift in sales mix within
the restaurants, a lower proportion of third-party bakery revenues and pricing
leverage.

Labor Expenses

As a percentage of revenues, labor expenses were 36.1% and 39.5% in the first
half of fiscal 2021 and 2020, respectively. This decrease was primarily due to
deleverage in the prior year when costs associated with the COVID-19 pandemic,
including maintaining our full restaurant management team and healthcare
benefits for our furloughed staff members, were incurred in the reduced sales
environment.

Other Operating Costs and Expenses

As a percentage of revenues, other operating costs and expenses were 27.3% and
31.8% in the first half of fiscal 2021 and 2020, respectively. This variance was
primarily driven by sales leverage, partially offset by increased
restaurant-level incentive compensation expense.

G&A Expenses


As a percentage of revenues, G&A expenses were 6.6% and 8.7% in the first half
of fiscal 2021 and 2020, respectively. This variance was primarily driven by
sales leverage, partially offset by higher corporate incentive compensation
expense.

Depreciation and Amortization Expenses


As a percentage of revenues, depreciation and amortization expenses decreased to
3.2% in the first half of fiscal 2021 from 5.1% in the comparable prior year
period due primarily to sales leverage.

Impairment of Assets and Lease Terminations

During the first half of fiscal 2021, we recorded impairment of assets and lease
terminations expense of $0.6 million related to lease termination costs for two
Other restaurants, one of which closed during the fourth quarter of fiscal 2020
and one that closed at the beginning of the first quarter of fiscal 2021. During
the first half of fiscal 2020, we recorded $194.3 million of impairment of
assets and lease termination expense related to the impairment of goodwill,
trade names, trademarks and licensing agreements associated with the Acquisition
and long-lived assets for one The Cheesecake Factory, one North Italia, two
Other FRC and four Other restaurants, as well as lease terminations costs for
one The Cheesecake Factory restaurant which closed in July 2020.

                                       27

Table of Contents

Acquisition-Related Contingent Consideration, Compensation and Amortization Expenses/(Benefit)


In the first half of fiscal 2021, we recorded $11.9 million of
acquisition-related contingent consideration, compensation and amortization,
primarily related to the impact of an amendment to the Acquisition agreement
that, among other things, extended the measurement period through fiscal 2026.
In the first half of fiscal 2020, we recorded a benefit of $5.4 million in
acquisition-related contingent consideration, compensation and amortization,
primarily due to a decrease in the fair value of the contingent consideration
and compensation liabilities related to impact of the COVID-19 pandemic.

Preopening Costs


Preopening costs were $6.6 million and $5.2 million in the first half of fiscal
2021 and 2020, respectively. We opened one The Cheesecake Factory, three North
Italia, one Other FRC and one Other location in the first half of fiscal 2021
compared to one North Italia and one Other location in the comparable prior year
period.

Interest and Other Expense, Net


Interest and other expense, net was $7.4 million and $4.1 million for the first
half of fiscal 2021 and 2020, respectively. This increase was primarily due to
the termination of the interest rate swap.

Income Tax Provision/(Benefit)


Our effective income tax rate was 11.7% and 30.6% for the first half of fiscal
2021 and 2020, respectively. The decrease resulted primarily from a higher
proportion of employment credits in relation to pre-tax income/(loss) in the
first half of fiscal 2021 and a benefit in the prior year arising from the
expected carryback of our anticipated fiscal 2020 loss to prior years when the
federal statutory rate was 35%, partially offset by a reserve for an uncertain
tax position recorded in the first quarter of fiscal 2021 related to tenant
improvement allowances.

Non-GAAP Measures


Adjusted net income and adjusted net income per share are supplemental measures
of our performance that are not required by or presented in accordance with
GAAP. These non-GAAP measures may not be comparable to similarly titled measures
used by other companies and should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with GAAP. We
calculate these non-GAAP measures by eliminating from net income/(loss) and
diluted net income/(loss) per common share the impact of items we do not
consider indicative of our ongoing operations. To reflect the potential impact
of the conversion of our Series A preferred stock into common stock for the
period that it was outstanding prior to the conversion on June 15,2021, we
exclude the preferred dividend and assume all convertible preferred shares have
been converted into common stock. (See Note 9 of Notes to Condensed Consolidated
Financial Statements in Part I, Item 1 of this report for further discussion of
our preferred stock.) We use these non-GAAP financial measures for financial and
operational decision-making and as a means to evaluate period-to-period
comparisons. Our inclusion of these adjusted measures should not be construed as
an indication that our future results will be unaffected by unusual or
infrequent items. In the future, we may incur expenses or generate income
similar to the adjusted items.



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  Table of Contents

Following is a reconciliation from net income/(loss) and diluted net income/(loss) per common share to the corresponding adjusted measures (in thousands, except per share data):




                                                                            Thirteen          Thirteen         Twenty-Six         Twenty-Six
                                                                          Weeks Ended       Weeks Ended        Weeks Ended        Weeks Ended
                                                                         June 29, 2021     June 30, 2020      June 29, 2021      June 30, 2020
Net income/(loss) available to common stockholders                       $ 

17,073 $ (70,490)$ 15,798$ (206,653) Dividends on preferred stock

                                                     13,591             3,694             18,661              3,694
Direct and incremental preferred stock issuance costs                                 -            10,257                  -             10,257
Net income attributable to Series A preferred stock                               3,051                 -              3,123                  -
COVID-19 related costs (1)                                                            -            11,730              4,917             15,020
Impairment of assets and lease terminations                                           -             2,433                594            194,329
Acquisition-related costs                                                             -             1,068                  -              2,304

Acquisition-related contingent consideration, compensation and amortization expenses/(benefit)

                                                  11,357             (965)             11,907            (5,431)
Termination of interest rate swap                                                 2,354                 -              2,354                  -
Uncertain tax position related to tenant improvement allowances                       -                 -              2,471                  -
Tax effect of adjustments (2)                                                   (3,565)           (3,710)            (5,140)           (53,618)
Adjusted net income/(loss)                                               $ 

43,861 $ (45,983)$ 54,685$ (40,098)

Diluted net income/(loss) per common share                               $ 

0.37 $ (1.61) $ 0.35 $ (4.72) Dividends on preferred stock

       0.25              0.07               0.34               0.08
Direct and incremental preferred stock issuance costs                                 -              0.20                  -               0.22
Net income attributable to Series A preferred stock                                0.06                 -               0.06                  -

Assumed impact of potential conversion of preferred stock into common stock (3)

                                                                        (0.06)              0.22             (0.06)               0.35
COVID-19 related costs (1)                                                            -              0.23               0.09               0.32
Impairment of assets and lease terminations                                           -              0.05               0.01               4.11
Acquisition-related costs                                                             -              0.02                  -               0.05

Acquisition-related contingent consideration, compensation and amortization expenses

       0.21            (0.02)               0.22             (0.11)
Termination of interest rate swap                                                  0.04                 -               0.04                  -
Uncertain tax position related to tenant improvement allowances                       -                 -               0.05                  -
Tax effect of adjustments (2)                                                    (0.07)            (0.07)             (0.09)             (1.13)
Adjusted if-converted net income/(loss) per share (4)                    $         0.80    $       (0.90)    $          1.00    $        (0.85)

Represents incremental costs associated with the COVID-19 pandemic such as (1) additional sanitation, personal protective equipment, sick and vaccination

pay, and healthcare benefits associated with furloughed staff members.

(2) Based on the federal statutory rate and an estimated blended state tax rate,

the tax effect on all adjustments assumes a 26% tax rate.

Represents the impact of assuming the conversion of preferred stock into

common stock (8,126,001 and 8,862,280 shares for the thirteen and twenty-six

weeks ended June 29, 2021, respectively), resulting in an assumption of

54,902,770 and 54,837,353 weighted-average common shares outstanding for the (3) thirteen and twenty-six weeks ended June 29, 2021. Represents the impact of

assuming the conversion of preferred stock into common stock (7,019,521 and

3,509,761 shares for the thirteen and twenty-six weeks ended June 30, 2020,

respectively), resulting in an assumption of 50,893,967 and 47,333,583

weighted-average common shares outstanding for the thirteen and twenty-six

weeks ended June 30, 2020.

(4) Adjusted net income per share may not add due to rounding.

Third Quarter Fiscal 2021 Update




Third quarter-to-date through July 26, 2021, The Cheesecake Factory restaurant
comparable sales increased approximately 61% and 10% compared to the comparable
period in fiscal 2020 and fiscal 2019, respectively. Third quarter-to-date
through July 26, 2021, North Italia comparable sales increased approximately 64%
and 10% compared to the comparable period in fiscal 2020 and fiscal 2019,
respectively.

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  Table of Contents

Fiscal 2021 Outlook

We currently estimate cost of sales inflation of approximately 3% in the second
half of fiscal 2021 and continue to expect government-mandated minimum wage
impacts to be more favorable than in recent years. However, there is some
uncertainty to overall hourly wage rate inflation given the more competitive
current industry labor environment. In addition, we estimate G&A of
approximately $47 million per quarter for the remainder of fiscal 2021.

We plan to open as many as 14 new restaurants in fiscal 2021, including two The
Cheesecake Factory restaurants, six North Italia restaurants and six restaurants
within our FRC business, which includes two Flower Child locations, and
anticipate approximately $16 million in preopening costs to support this new
unit development. Internationally, we now expect as many as two The Cheesecake
Factory restaurants to open under licensing agreements. We currently estimate
fiscal 2021 cash capital expenditures to be approximately $95 million.



Liquidity and Capital Resources




During the first half of fiscal 2021, our cash and cash equivalents increased by
$7.7 million to $161.8 million. The following table presents, for the periods
indicated, a summary of our key cash flows from operating, investing and
financing activities (in millions):




                                                             Twenty-Six         Twenty-Six
                                                             Weeks Ended        Weeks Ended
                                                            June 29, 2021June 30, 2020
Cash provided by/(used in) operating activities            $         130.4    $        (35.7)
Additions to property and equipment                                 (30.9)             (29.4)
Convertible debt issuance, net of issuance cost                      334.9                  -
Common stock issuance, net of issuance cost                          167.1                  -
Net borrowings/(repayments) on credit facility                     (150.0)               86.0
Series A preferred stock issuance, net of issuance cost                  -              189.7
Series A preferred stock, cash-settled conversion                  (443.8)                  -
Series A preferred stock dividends paid                             (18.7)                  -
Proceeds from exercise of stock options                               24.8 
              0.1
Common stock dividends paid                                          (0.3)             (15.8)
Treasury stock purchases                                             (4.6)              (2.9)



Cash Provided by/(Used in) Operating Activities

Cash flows from operations increased by $166.1 million from the first half of
fiscal 2020 primarily due to a lesser impact from the COVID-19 pandemic during
the first half of fiscal 2021. Our future cash flow performance will depend on
the evolving COVID-19 pandemic regulatory landscape, as well as economic
conditions and consumer behavior.

Property and Equipment

Capital expenditures were $30.9 million and $29.4 million in the first half of
fiscal 2021 and 2020, respectively. We opened five restaurants in fiscal 2021
comprised of one The Cheesecake Factory, three North Italia, one Other FRC and
one Other location, of which a significant amount of the development was
completed in fiscal 2020, compared to one North Italia and one Flower Child
restaurant during the comparable prior year period. We currently estimate fiscal
2021 cash capital expenditures to be approximately $95 million.



Convertible Senior Notes



On June 15, 2021, we issued $345.0 million aggregate principal amount of our
0.375% Convertible Senior Notes due 2026 (the "Notes"). The initial conversion
rate for the Notes is 12.7551 shares of common stock per $1,000 principal amount
of the Notes, which represents an initial conversion price of approximately
$78.40 per share of common stock. The net proceeds from the sale of the Notes
were approximately $334.9 million after deducting issuance costs related to the
Notes. (See Note 5 of Notes to Condensed Consolidated Financial Statements in
Part I, Item 1 of this report for further discussion of the Notes.)

                                       30

  Table of Contents



Common Stock Issuance



On June 15, 2021, we issued 3.125 million shares of our common stock for $175.0
million. In connection with the issuance, we incurred direct and incremental
costs of $7.9 million.



Revolving Facility



On March 30, 2021, we entered into an Amended Credit Agreement, which terminates
on July 30, 2024, and consists of a $400 million revolving loan facility (the
"Revolving Facility"), including a $40 million sublimit for letters of credit.
The Amended Credit Agreement also provides the ability to increase the Revolving
Facility in an amount not to exceed (a) during the Covenant Relief Period (as
defined below) $125 million and (b) thereafter, $200 million. The funding of any
such increases are subject to receipt of lender commitments and satisfaction of
customary conditions precedent. Certain of our material subsidiaries have
guaranteed our obligations under the Amended Credit Agreement.

The Amended Credit Agreement contains customary affirmative and negative
covenants, including limits on cash dividends and share repurchases with respect
to our equity interests, and restrictions on indebtedness, liens, investments,
sales of assets, fundamental changes and other matters. The Amended Credit
Agreement also contains customary events of default that include, among others,
non-payment of principal, interest or fees, violation of covenants, inaccuracy
of representations and warranties, bankruptcy and insolvency events, material
judgements, cross defaults to material indebtedness and events constituting a
change of control. The occurrence of an event of default could result in the
termination of commitments under the Revolving Facility, the declaration that
all outstanding loans are immediately due and payable in whole or in part and
the requirement of cash collateral deposits in respect of outstanding letters of
credit. As of June 29, 2021, we were in compliance with the covenants set forth
in the Revolving Facility. (See Note 5 of Notes to Condensed Consolidated
Financial Statements in Part I, Item 1 of this report for further discussion of
our long-term debt.)


During the first half of fiscal 2020, we increased our borrowings under our
Revolving Facility to bolster our cash position and enhance financial
flexibility. In the second quarter of fiscal 2021, we utilized a portion of the
net proceeds from our Notes and common share offerings to reduce the balance on
our Revolving Facility, such that at June 29, 2021, we had net availability for
borrowings of $240.1 million, based on a $130.0 million outstanding debt balance
and $29.9 million in standby letters of credit.



Series A Preferred Stock



During the second quarter of fiscal 2020, we issued 200,000 shares of Series A
preferred stock for an aggregate purchase price of $200.0 million to increase
our liquidity given the impact of the COVID-19 pandemic on our operations. In
connection with the issuance, we incurred direct and incremental costs of $10.3
million.

During the first quarter of fiscal 2021, we declared a cash dividend of $25.35
per share on the Series A preferred stock. During the second quarter of fiscal
2021, we paid $457.3 million in connection with the cash-settled conversion of
150,000 shares of our outstanding Series A preferred stock (effected through a
repurchase agreement), and the share-settled conversion of the remaining 50,000
shares of our outstanding Series A preferred stock into 2,400,864 shares of our
common stock, of which $13.6 million was deemed to be a dividend. (See Note 9 of
Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this
report for further discussion of our preferred stock.)

Cash Dividends

To preserve liquidity during the COVID-19 pandemic and in conjunction with the
terms of the Amended Credit Agreement, in March 2020, our Board suspended the
quarterly dividend on our common stock. Prior to this suspension, our Board
declared cash dividends of $0.36 per common share for the first quarter of
fiscal 2020. Cash dividends of $0.3 million paid in the first half of fiscal
2021 represent dividends previously accrued on restricted stock awards that
vested during the quarter. Future decisions to pay or to increase or decrease
dividends are at the discretion of the Board and will be dependent on our
operating performance, financial condition, capital expenditure requirements,
limitations on cash distributions pursuant to the terms and conditions of the
Amended Credit Agreement and applicable law, and other such factors that the
Board considers relevant.



                                       31

  Table of Contents

Share Repurchases


Under authorization by our Board to repurchase up to 56.0 million shares of our
common stock, we have cumulatively repurchased 53.1 million shares at a total
cost of $1,701.3 million through June 29, 2021 with 85,539 shares repurchased at
a cost of $4.6 million during the first half of fiscal 2021 to satisfy tax
withholding obligations on vested restricted share awards. Our objectives with
regard to share repurchases have been to offset the dilution to our shares
outstanding that results from equity compensation grants and to supplement our
earnings per share growth. Our share repurchase authorization does not have an
expiration date, does not require us to purchase a specific number of shares and
may be modified, suspended or terminated at any time.



To preserve liquidity during the COVID-19 pandemic and in conjunction with the
terms of our Amended Credit Agreement, in March 2020, our Board suspended share
repurchases. Future decisions to repurchase shares are at the discretion of the
Board and are based on several factors, including current and forecasted
operating cash flows, capital needs associated with new restaurant development
and maintenance of existing locations, dividend payments, debt levels and cost
of borrowing, obligations associated with the Acquisition, our share price and
current market conditions. The timing and number of shares repurchased are also
subject to legal constraints and financial covenants under the Amended Credit
Agreement that limit share repurchases based on a defined ratio. (See Note 9 of
Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this
report for further discussion of our repurchase authorization and methods.)


Cash Flow Outlook


We believe that our cash and cash equivalents, combined with expected cash flows
provided by operations and available borrowings under the Revolving Facility,
will provide us with adequate liquidity for the next 12 months.



As of June 29, 2021, we had no financing transactions, arrangements or other
relationships with any unconsolidated entities or related parties. Additionally,
we had no financing arrangements involving synthetic leases or trading
activities involving commodity contracts.



Recent Accounting Pronouncements

See Note 1 of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this report for a summary of new accounting standards.

© Edgar Online, source Glimpses

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Financials (USD)
Sales 2021 2 935 M - -
Net income 2021 92,8 M - -
Net Debt 2021 262 M - -
P/E ratio 2021 22,0x
Yield 2021 0,00%
Capitalization 2 210 M 2 210 M -
EV / Sales 2021 0,84x
EV / Sales 2022 0,73x
Nbr of Employees 42 500
Free-Float 46,2%
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Number of Analysts 18
Last Close Price 42,35 $
Average target price 55,00 $
Spread / Average Target 29,9%
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Managers and Directors
David M. Overton Chairman & Chief Executive Officer
David M. Gordon President
Matthew Eliot Clark Chief Financial Officer & Executive Vice President
Jerome I. Kransdorf Lead Independent Director
Alexander L. Cappello Independent Director
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