CAKE Q1 2026 Earnings Transcript

Image source: The Motley Fool.

DATE

Wednesday, April 29, 2026 at 5 p.m. ET

CALL PARTICIPANTS

• Chairman and Chief Executive Officer — David M. Overton
• President — David M. Gordon
• Executive Vice President and Chief Financial Officer — Matthew Eliot Clark
• Vice President, Investor Relations — Etienne Marcus

Need a quote from a Motley Fool analyst? Email pr@fool.com

TAKEAWAYS

• Total Revenues -- $978.8 million, meaningfully above the company's guidance range.
• Adjusted Net Income Margin -- 5.2% for the quarter.
• Adjusted Diluted EPS -- $1.05, reflecting double-digit growth year over year.
• GAAP Diluted Net Income Per Share -- $1.02 for the quarter.
• The Cheesecake Factory (NASDAQ:CAKE) Comparable Sales -- Increased 1.6%, outperforming the Black Box casual dining index by 40 basis points.
• The Cheesecake Factory Restaurant-Level Profit Margin -- 17.5%, up 10 basis points year over year.
• The Cheesecake Factory Average Annualized Unit Volume (AUV) -- $12.8 million, reaching a new all-time high.
• Off-Premise Mix -- Represented 22% of Cheesecake Factory sales, consistent with previous periods.
• Cheesecake Factory Q1 Price/Mix/Traffic Components -- Pricing was 3.3%, mix was negative 0.3%, and traffic was negative 1.4%, showing notable traffic improvement sequentially.
• North Italia Q1 Sales -- Totaled $89.5 million, up 7%; comparable sales declined 2% with pricing up 3%, mix up 1%, and traffic down 6%.
• North Italia Annualized AUVs -- $7.4 million for the quarter.
• North Italia Restaurant-Level Profit Margin (Adjusted Mature Locations) -- 14.8%, down from 16.6% due to sales deleverage and higher building costs.
• Flower Child Q1 Sales -- $52.6 million, up 21% from the prior year.
• Flower Child Comparable Sales -- Increased 10%, with two-year comparable sales up 15%.
• Flower Child Restaurant-Level Profit Margin (Adjusted) -- 19.6%, up 100 basis points year over year.
• Flower Child Annualized AUVs -- $4.9 million, a quarterly record.
• Other Fox Restaurant Concepts (FRC) Sales -- $104.5 million, up 20% from the prior year, with sales per operating week at $145,200.
• Henry (FRC) Average Weekly Sales -- Opened in Phoenix with over $280,000 per week and annualized AUV above $14 million in the first four weeks.
• External Bakery Sales -- $13.9 million for the quarter.
• Liquidity -- Ended the quarter with $601.6 million available, including $235.1 million in cash and $366.5 million from the credit facility.
• Total Debt Outstanding -- $644 million, including $69 million of 0.375% convertible senior notes due 2026 and $575 million of 2% convertible notes due 2030.
• First Quarter CapEx -- Approximately $43 million, supporting unit development and maintenance.
• Shareholder Returns -- $18.4 million in repurchases and $14.2 million in dividends.
• Preopening Costs -- $5.5 million versus $8.1 million for the prior year period, tied to fewer new openings (three versus eight previously).
• Q2 Revenue Guidance -- Management expects $990 million to $1 billion in revenue.
• Q2 Cost Commentary -- Commodity inflation and net total labor inflation both forecasted at low to mid-single digits; operating expenses to be about 20 basis points higher year over year due to increased marketing for Rewards app.
• Q2 Adjusted Net Income Margin Guidance -- Around 5.5% at the midpoint.
• Fiscal 2026 Revenue Outlook -- Midpoint estimate of approximately $3.91 billion with a +/-1% sensitivity range.
• Fiscal 2026 CapEx Guidance -- Estimated $210 million to support unit development and maintenance needs.
• Restaurant Development Pipeline -- Up to 26 new openings planned for the year, with three-quarters slated for the second half; breakdown includes up to 6 Cheesecake Factories, 6-7 North Italia units, 6-7 Flower Childs, and 7 FRC locations.
• Cheesecake Rewards App Launch -- Achieved top-tier download rankings, including number three overall and number one in Food & Drink during rollout week, and reported "overwhelmingly positive" initial guest feedback.
• Fortune Recognition -- Named to Fortune's 100 Companies to Work For list for the 13th consecutive year.

SUMMARY

The company attributed its quarterly revenue outperformance equally to higher Cheesecake Factory comparable sales and stronger-than-expected Flower Child results. Management provided initial guidance for Q2 revenues between $990 million and $1 billion and projected 26 new restaurant openings in 2026, the majority in the second half. Liquidity remained robust, with $601.6 million available at quarter end, supporting both expansion and capital returns. Strategy emphasized culinary innovation, disciplined cost management, and positive guest and employee feedback as drivers of business momentum.

• David M. Overton said, "First quarter comparable sales at The Cheesecake Factory restaurants increased 1.6%, outperforming the industry and reflecting the strong affinity for our namesake concept."
• Matthew Eliot Clark said, "Cheesecake Factory comps came in above the range that we had provided, and I think they were very stable throughout the quarter," and noted Flower Child's 10% comparable sales growth "was above our expectations; we had thought more in the mid-single digits. Each of those probably contributed about 50% of the beat."
• President David M. Gordon observed, "Operators delivered improvements in labor productivity, food cost management, and other controllable expenses while maintaining strong retention across both hourly staff and management teams and delivering strong guest satisfaction scores."
• Management set expectations for full-year net income margin of approximately 5% and maintained a target of 25 basis points of restaurant-level margin expansion across the portfolio despite anticipated inflation and increased expense investments.

INDUSTRY GLOSSARY

• AUV (Annualized Unit Volume): Average annual sales generated by a restaurant location; a key metric for unit-level financial performance.
• Comparable Sales: Sales from locations open at least a year, measuring organic growth and excluding new unit or closed unit impact.
• Off-Premise Mix: Portion of sales generated from takeout, delivery, and other non-dine-in transactions.
• Restaurant-Level Profit Margin: Operating margin before corporate overhead, depreciation, and certain non-operating items, focused on direct restaurant operations.
• FRC (Fox Restaurant Concepts): The company's portfolio of acquired fast-casual and full-service restaurant brands, including North Italia, Flower Child, The Henry, and others.

Full Conference Call Transcript

Etienne Marcus: Good afternoon, and welcome to our first quarter fiscal 2026 earnings call. On the call with me today are David M. Overton, our Chairman and Chief Executive Officer; David M. Gordon, our President; and Matthew Eliot 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 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 acquisition-related items, impairment of assets, lease termination expense, and other items.

Explanations 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 M. Overton will begin today's call with some opening remarks, and David M. Gordon will provide an operational update. Matthew Eliot Clark will then review our first quarter financial results and provide commentary on our financial outlook before opening the call up to questions. With that, I will turn the call over to David M. Overton.

David M. Overton: Thank you, Etienne. We delivered strong results in the first quarter, exceeding expectations across revenue, margins, and adjusted diluted earnings per share. This performance reflects disciplined execution across our restaurants and continued demand for our differentiated, high-quality concepts. First quarter comparable sales at The Cheesecake Factory restaurants increased 1.6%, outperforming the industry and reflecting the strong affinity for our namesake concept. Culinary innovation continues to be a core strength of our business. Our recent menu additions, new Bites, and expanded bowl options have been well received by guests and highlight the broad appeal of our menu and the value we deliver to our guests. Importantly, these offerings keep the concept fresh and competitively positioned without relying on discounting.

To this point, Cheesecake Factory average weekly sales reached a new all-time high during the quarter, bringing our industry-leading annualized unit volume to nearly $12.8 million. Strong sales and exceptional execution drove further improvement in The Cheesecake Factory's restaurant-level profit margin, and we delivered double-digit growth in adjusted diluted earnings per share year over year. Turning to development, during the first quarter, we opened three restaurants including a North Italia, a Henry, and a Flower Child. In addition, one Cheesecake Factory restaurant opened in the first quarter in Mexico under a licensing agreement, the only international opening we expect this year. Subsequent to quarter-end, we opened a North Italia, marking our 50th location for the concept.

With these openings, we remain on track to meet our objective of opening as many as 26 new restaurants this year. In summary, we delivered a strong quarter, and as we look ahead, we will remain focused on delivering exceptional food, service, and hospitality—the hallmarks of our success—while continuing to execute our long-term growth strategy. Before I turn the call over, I am pleased to share we were once again recognized by Fortune as one of the 100 Companies to Work For, marking our 13th consecutive year on the list. This recognition, based on direct feedback from our staff, reflects the strength of our culture and the engagement of our people.

We believe this continues to be an important advantage in attracting and retaining talent in a highly competitive labor environment. With that, I will now hand the call to David M. Gordon to provide an operational update.

David M. Gordon: Thank you, David. Our performance this quarter reflects the strength of our operations teams and their ability to execute at a high level in our restaurants while leveraging sales growth to drive flow-through and profitability. Operators delivered improvements in labor productivity, food cost management, and other controllable expenses while maintaining strong retention across both hourly staff and management teams and delivering strong guest satisfaction scores. As David mentioned, our recent menu additions at The Cheesecake Factory restaurants have been well received, which we believe has contributed to the sequential improvements in traffic and check mix. This has allowed us to moderate menu pricing without impacting restaurant-level margins.

Moving on to Cheesecake Rewards, the recent launch of our new mobile app has exceeded expectations, with top-tier download rankings including number three overall and number one in Food & Drink during the rollout week. Early guest feedback has been overwhelmingly positive, particularly around the app's ease of use—from making reservations and browsing the menu to place orders, reordering favorites, and accessing rewards all within the app. We are also seeing solid early traction with increasing adoption of the app for digital ordering, reflecting strong early engagement with the platform. At the same time, we continue to refine the program toward more targeted, behavior-based personalized offers with an increased focus on lifecycle management.

So far this year, we have seen higher engagement, improved incrementality, and greater offer efficiency. I will now turn to additional concept performance details. The Cheesecake Factory's first quarter comparable sales outperformed the Black Box casual dining index by 40 basis points and resulted in annualized AUVs of $12.8 million for the quarter. This performance was supported by an off-premise mix of 22% in line with the prior quarter and prior year. Restaurant-level profit margins increased 10 basis points year over year to 17.5%. North Italia's first quarter annualized AUVs totaled $7.4 million with comparable sales declining 2%. Our focus remains on returning to positive sales growth, and we remain confident in the concept's competitive positioning and long-term opportunity.

At the same time, we are seeing encouraging trends including improved retention across both managers and hourly staff as well as strong early results at new restaurant openings, with average weekly sales at recent openings meaningfully above the system average. In addition, we recently implemented at North Italia a guest feedback platform used at The Cheesecake Factory, which we believe will provide valuable insights into execution and support ongoing improvement. Our new menu, currently being rolled out, introduces a dedicated lunch section featuring lighter options including refreshed salads and additional protein offerings aligned with current guest preferences and thoughtfully priced. We believe this will increase awareness of our lunch offering and strengthen our value proposition in the lunch daypart.

Restaurant-level profit margin for the adjusted mature North Italia locations was 14.8% for the quarter versus 16.6% for the prior year. The decline primarily reflects sales deleverage along with higher building expenses including repairs and maintenance and utilities. Flower Child delivered another standout quarter, meaningfully outpacing the fast casual segment and underscoring the strong affinity for the concept as it continues to take market share. First quarter comparable sales increased 10% for a two-year comparable sales increase of 15%. This strong performance translated into annualized AUVs of $4.9 million, a new quarterly high for the concept. Restaurant-level profit margin for the adjusted Flower Child locations was 19.6% in the first quarter, up 100 basis points from the prior year.

This performance reflects the concept's highly differentiated positioning with a made-from-scratch menu that is both health-focused and craveable, delivering compelling value across a broad range of offerings, all within thoughtfully designed restaurants to provide a more elevated experiential dining experience. Combined with consistent strong execution by our restaurant teams, these strengths continue to drive momentum and strong sales trends. We remain focused on building strong teams to support the concept's continued growth, and we are increasingly confident in the opportunity ahead. Lastly, we expanded our FRC portfolio with the opening of a Henry in Phoenix, which opened to strong demand. Average weekly sales have exceeded $280,000 in the first four weeks for an annualized AUV of over $14 million.

And with that, let me turn the call over to Matt for our financial review.

Matthew Eliot Clark: Thank you, David. Let me first provide a high-level recap of our first quarter results versus our expectations I outlined last quarter. Total revenues were $978.8 million, meaningfully above the high end of the range we provided. Adjusted net income margin was 5.2%, and adjusted diluted earnings per share was $1.05, both finishing above our expectations. And we returned $32.6 million to our shareholders in the form of dividends and stock repurchases. Now turning to some more specific details around the quarter. First quarter total sales at The Cheesecake Factory restaurants were $690.5 million, up 3% from the prior year. Total sales for North Italia were $89.5 million, up 7% from the prior year period.

Other FRC sales totaled $104.5 million, up 20% from the prior year, and sales per operating week were $145,200. Flower Child sales totaled $52.6 million, up 21% from the prior year, and sales per operating week were $94,500. External bakery sales were $13.9 million. Now moving to year-over-year expense variance commentary. Specifically, cost of sales decreased 10 basis points, primarily driven by favorable dairy costs, partially offset by higher beef and seafood costs. Labor as a percent of sales declined 20 basis points, primarily driven by labor productivity gains, partially offset by higher group medical. Other operating expenses increased 40 basis points, primarily driven by higher utility and bakery overhead costs.

G&A remained relatively flat as a percent of sales, and depreciation increased 10 basis points from the prior year. Preopening costs for the quarter, including some expenses related to early second quarter openings, totaled $5.5 million compared to $8.1 million in the prior year period. We opened three restaurants during the first quarter versus eight restaurants in 2025. In the first quarter, we recorded a pretax net expense of $2 million primarily related to impairment of assets, lease termination expenses, and FRC acquisition-related items. First quarter GAAP diluted net income per share was $1.02. Adjusted diluted net income per share was $1.05. Now turning to our balance sheet and capital allocation.

The company ended the quarter with total available liquidity of $601.6 million, including a cash balance of $235.1 million and $366.5 million available on a revolving credit facility. Total principal amount of debt outstanding was $644 million, including $69 million in principal amount of 0.375% convertible senior notes due 2026, and $575 million in principal amount of 2% convertible senior notes due 2030. CapEx totaled approximately $43 million during the first quarter for new unit development and maintenance. During the quarter, we completed approximately $18.4 million in share repurchases and returned $14.2 million to shareholders via our dividend. Now let me turn to our outlook.

While we will not be providing specific comparable sales and earnings guidance, we will provide our updated thoughts on our underlying assumptions for Q2 and full-year 2026. Our assumptions factor in everything we know as of today, including net restaurant counts, quarter-to-date trends, our expectations for the weeks ahead, anticipated impacts associated with holiday shifts, and the recent softness in industry sales trends and the current consumer environment. Specifically for Q2, we anticipate total revenues to be between $990 million and $1 billion. Next, at this time, we expect effective commodity inflation of low to mid-single digits for Q2 as our broad market basket remains stable.

We are modeling net total labor inflation of low to mid-single digits when factoring in the latest trends in wage rates and minimum wage increases as well as other components of labor. Other operating expenses are estimated to be approximately 20 basis points higher than prior year, reflecting higher marketing spend to support the launch of our Rewards app. G&A is estimated to be approximately $63 million to $64 million. Depreciation is estimated to be approximately $28 million to $29 million. We are estimating preopening expenses to be approximately $7 million. Based on these assumptions, we would anticipate adjusted net income margin to be about 5.5% at the midpoint of the sales range provided.

For modeling purposes, we are assuming a tax rate of approximately 13% and weighted average shares outstanding of approximately 48.5 million. Turning to fiscal 2026, based on similar assumptions and no material operating or consumer disruptions, we anticipate total revenues for fiscal 2026 to be approximately $3.91 billion at the midpoint of our sensitivity modeling. For sensitivity purposes, we are using a range of plus or minus 1%. We currently estimate total inflation across our commodity basket, labor, and other operating expenses to be in the low to mid-single digit range and fairly consistent across the quarters.

We are estimating G&A to be about 6.5% of sales, partially driven by our sales growth outlook impacted by the timing of restaurant openings and closures, as well as periodic true-ups related to stock-based compensation. Depreciation is expected to be about $115 million for the year. Given our unit growth expectations, we are estimating preopening expenses to be approximately $35 million to $36 million. Based on these assumptions, we would expect full-year net income margin to be approximately 5% at the sales estimate provided. For modeling purposes, we are assuming a tax rate of approximately 11% and weighted average shares outstanding relatively flat to 2025. With regard to development, we plan to continue accelerating unit growth this year.

At this time, we expect to open as many as 26 new restaurants in 2026, with roughly three-quarters of those openings planned for the second half of the year. This includes as many as six Cheesecake Factories, six to seven North Italias, six to seven Flower Childs, and seven FRC restaurants. We anticipate approximately $210 million in cash CapEx to support unit development as well as required maintenance on our restaurants. Note, this CapEx range includes some new restaurant construction expenses which may be classified as operating lease assets instead of additions to property and equipment in the statement of cash flows.

In closing, our first quarter results reflect a healthy business, solid top line momentum, disciplined cost management, and strong operational execution. Our financial position continues to provide the flexibility to support new unit growth while investing in the business and returning capital to shareholders. With a diversified portfolio of high-quality concepts, experienced operators, and a strong balance sheet, we believe we are well positioned as we move through the year. Looking ahead, we remain focused on consistent execution, comparable sales growth, margin expansion, and long-term shareholder value creation. We will now open the call for questions.

Operator: In order to ask a question, press star then the number one on your telephone keypad. Please ask one question and a follow-up due to time restrictions. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Andy Barish with Jefferies. Please, your line is open.

Andrew Marc Barish: Guys, can you just kind of go through—I know the Cheesecake business has been very consistent on the top line. Just anything quarter-to-date—I know it has been noisy with Easter and spring break shifts—but just anything you are seeing in your guest, any check management that you would be willing to comment on would be helpful.

Matthew Eliot Clark: Sure, Andy. This is Matt. As you know, we are not going to give a specific number, but if you interpolate the revenue guidance for the second quarter, we are expecting to have consistent trends continue for The Cheesecake Factory, and I think we feel cautiously optimistic about the rollout of the app and the incrementality that we have potential to drive there. We rolled out incremental new menu items in the first quarter, and we saw progressively improving incident rate trends on those. So generally, I would say we have a bullish outlook on our business at this time.

Operator: Your next question comes from the line of Jeff Farmer with Gordon Haskett. Your line is open.

Jeffrey Daniel Farmer: Thanks. Matt, you mentioned that the Q1 revenue performance exceeded the guidance, but what was the primary driver of that outperformance relative to your guidance? And as a follow-up, when the conflict in Iran really kicked off in early March and gas prices jumped, did you see any impact on same-store sales for any of the businesses?

Matthew Eliot Clark: Yeah, Jeff. This is Matt. It was a couple of factors. Obviously, Cheesecake Factory comps came in above the range that we had provided, and I think they were very stable throughout the quarter, so that was a positive. And then certainly Flower Child—10%—was above our expectations; we had thought more in the mid-single digits. Each of those probably contributed about 50% of the beat. On your follow-up, we were pretty steady throughout the quarter. We were looking at that as well and parsing it, and throughout the portfolio we continued to be steady. There is a little bit of spring break movement, but even that was probably more muted than we thought.

It was very balanced throughout the quarter, and we did not see any trade down either. So I would say both the guest traffic and the mix were steady throughout.

Operator: Your next question comes from the line of Jim Salera with Stephens. Your line is open.

James Ronald Salera: Hey, guys. Good afternoon. Thanks for taking our questions. Maybe a two-part question. One, just some housekeeping: Are you able to provide the breakout of Cheesecake Factory comps—the traffic, the pricing, and then the mix components? And then as we look at the strong results in the quarter, I know historically you have talked about GDP and jobs numbers as having a big influence on guest traffic and engagement with the brand. I do not think we have had necessarily very good job numbers this year—they have not been horrible, but kind of continuing the slow growth from 2025—but then we see your results accelerating.

I was hoping maybe you could just bridge what is happening at your restaurants that is maybe leading you to outperform relative to the macro backdrop as a whole.

Matthew Eliot Clark: Sure, Jim. This is Matt. On the specifics of The Cheesecake Factory, pricing was at 3.3%. As we have noted previously, that is coming down; it will be 3% in the subsequent quarters. Just given the timing of what was rolling off in the quarter, it was at 3.3. Mix was negative 0.3%, so we saw pretty material stabilization there, really benefiting particularly from the Bites being add-ons and not substitutions, and we feel really positive about that. Traffic was negative 1.4%, which was a material improvement over the Q4 results.

Also, for the record, the total weather impact for the company was about 1.7% of sales in the prior year, so the net really was about 70 to 75 basis points if you think about that. So pretty close to getting back to flat traffic for Cheesecake Factory in a like-for-like basis—really positive movement there. And I think there are a lot of factors at play regarding the economy. Certainly, if you subscribe to the “K-shaped” economy component, many of our concepts in our portfolio benefit from higher income cohorts, and I think there is a piece of that.

The flexibility of the menu, particularly at Cheesecake Factory and Flower Child, will benefit us with a tail here in the whole GLP-1 thing—right? You can get anything you want to eat; at Cheesecake Factory you can get steamed salmon with broccoli if that is what you want and heavy up on the proteins, and certainly at Flower as well. We believe in the three primary tentpoles of restaurateuring—menu, hospitality, and service—and we are excelling in those, so we are probably taking some share for those reasons. Even though the jobs have not been great, to your point, the news cycle around layoffs is not as bad as it sounds. It is big news, but it has been steady.

The job market has been steady. Discretionary income is up slightly, and it is up a bit more than we are taking price. So from a wallet perspective, there is that. Lastly, I just read today that where people’s wallets are going is toward experiences, not just goods, and we are experiential dining, not transactional. So I think for all of those reasons.

David M. Gordon: Jim, this is David Gordon. I would add the continued retention we see in the restaurants at the hourly staff and management level, quarter after quarter, allows the operations teams to execute as well as they ever have. We continue to see that type of execution in the results of our net promoter scores continuing to be positive. That has a flywheel effect of wanting to come back and having those types of experiences that Matt just mentioned. That can never be overlooked.

Operator: Your next question comes from the line of Jeff Bernstein with Barclays. Your line is open.

Analyst: Hi. Good afternoon. This is Pradek on for Jeff. Just a quick housekeeping question: Can we also have the components of the comp at North Italia, please? And then I have a real question. I appreciate that your brands skew to relatively higher-income consumers, but with elevated gas prices, inflation north of 3%, and ongoing stock market volatility, it just seems like everyone is frustrated these days to some degree. Are you seeing any trade down from fine dining and other higher-end casual dining customers into your brands? Do you currently think you are capitalizing on that, or is there an opportunity to capitalize on that frustration?

And secondly, in terms of whatever read you have on your own customers, do you see any check management in terms of alcohol, appetizers, or add-ons?

Etienne Marcus: Yeah. This is Etienne. Happy to provide that. For the components at North Italia, mix was positive 1% for the quarter, price was about 3%, and traffic was negative 6%.

David M. Gordon: Sure. This is David Gordon on your broader question. A couple of things. The incident rates and the add-ons have remained incredibly consistent. As Matt touched on earlier, some of the early check management that people were anticipating with the Bites really did not materialize—we saw people attaching Bites along with the rest of their meal at Cheesecake Factory. As far as the high-end consumer and white tablecloth, if you look at Flower Child, I think Flower Child may be taking market share from QSR or from some in fast casual that have had to take more price to protect margins over time. Flower Child has not had to do that and has an elevated experience.

Along with the elevated experience, the quality of the food, the menu innovation, and the ongoing LTOs, I think we are taking market share from the consumer that feels pinched—whether that is your typical fast casual or QSR. I think that has benefited Flower Child.

Operator: Your next question comes from the line of Samantha Chang with Goldman Sachs. Your line is open.

Samantha Chang: Hi. This is Samantha on for Christine Cho. Thanks for taking my question, and congrats on the strong results. With the new Cheesecake mobile app launched earlier this month, I know you mentioned that guest feedback has been positive so far. Could you touch on any additional or early observations that you have from the app rollout regarding member engagement and frequency, and how do you expect personalization to evolve following this launch?

David M. Gordon: Sure, Samantha. This is David again. We still have not discussed any actual numbers around the rewards program, and I would anticipate you should not expect that either when it comes to the number of downloads or members that have joined since they have downloaded the app. What I will say is that we are very pleased, and we will continue to use data to make sure that the marketing spend is getting us the best ROI in the long run. We are super happy with the launch early on. As I stated in the opening prepared remarks, engagement in the App Store and the Google Play Store right in the beginning was very, very high.

Operator: Next question comes from the line of John Ivankoe with JPMorgan. Your line is open.

John Ivankoe: Hi. Thank you. A couple on North Italia. First, can you comment on performance in existing large markets like New York—[inaudible]—and then secondly, your newest market openings in Northern California—[inaudible]—how those are trending relative to system averages?

David M. Gordon: For North Italia, New York has been very well received for any individual location—very strong performance in an existing market. In the new market in Northern California roughly about a month ago, that would have been our busiest opening if we had not just opened in Brea. New markets have been very, very well received. We will continue down the path this year of about 50% new-to-existing markets, and we are pleased with the early results.

Operator: Your next question comes from the line of Jim Sanderson with Northcoast Research. Your line is open.

James Jon Sanderson: Hey, thanks for the question and congratulations on a great quarter. Wondering if you could talk a little bit more about store margin at North Italia—that was a bit lower than expected—and what the unlocks or remedies are to get that back up to the mid-to-high teens.

Matthew Eliot Clark: Sure, Jim. This is Matt. A couple of things. There is certainly a little bit of pressure from the comp and some deleverage on more of the fixed cost piece. It is also about making sure that we are investing the right amounts in labor, as well as having, as David talked about in the prepared remarks, the right menu offerings at thoughtful prices. There is also a little bit of mix in what constitutes “mature”—every year a different group rolls into the mature margin set. This quarter happened to have a couple of higher-cost markets in that set, so on a comp basis it did not move quite as much—some of it is optics.

The most important thing, though, is to continue to focus, as David said, on positive comp store sales. That is really the primary attribute to recapturing the margin piece. Overall, we feel very confident that the mature margins should be in that 16% to 18% range on an ongoing basis that we have talked about. We are close to striking distance, and some is just moving pieces that happened to be in Q1, but there is certainly a lot of focus on recovering that.

James Jon Sanderson: Just a follow-up to that. How would leaning into lunch impact the store margin just in general?

Matthew Eliot Clark: It is really about aggregate traffic. From a lunch perspective, the incrementality and recapturing that traffic—the flow-through is attractive. We have the teams there and a staffing level already set, so you are able to recapture margins at a higher rate than the average. That is the key. Ultimately, we believe the biggest lever on the margin side is to bring in more people when we have capacity.

James Jon Sanderson: Alright. And just last question for me. Stepping back, how should we look at the ability for you to consistently expand consolidated store margin over time? It looks pretty much flattish with prior years on an annualized basis. What is the formula to get back to modest expansion?

Matthew Eliot Clark: Our full-year guidance still calls for about 25 basis points of four-wall margin expansion in total. Certainly, every quarter will have a little bit of ups and downs—Group Medical, or, for example, produce prices were higher in the first quarter because of weather conditions. Our outlook for the year remains unchanged because a lot of that is timing that was already anticipated and built into our expectations for the quarter. We feel very confident that 25 basis points a year is still attainable across the portfolio, and that is our plan for this year. That would put us north of the 16% kind of range, and that is inclusive of the growth of adding 26 new restaurants.

That is still our target and still very viable.

Operator: Your next question comes from the line of John Tower with Citi. Your line is open.

Karen Holthouse: Hi. This is Karen Holthouse on for John Tower this evening. Anecdotally, it seems that there is more social content coming out that is showing up in our feeds more often and is more engaging. Could you comment on anything you are doing differently on your end, how you are measuring engagement in that channel, and how meaningful you think that can be as part of a go-forward marketing strategy?

David M. Gordon: Thanks, Karen. We have a pretty strong social presence across Instagram, and in the past six months we have dipped our toe in the water on TikTok here and there, using influencers, paid and nonpaid, [inaudible].

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. Parts of this article were created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.