Q1 2024 Cheesecake Factory Inc Earnings Call

Participants

Etienne Marcus; Investor Relations; Cheesecake Factory Inc

David Overton; Chairman of the Board and Chief Executive Officer; Cheesecake Factory Inc

David Gordon; President; Cheesecake Factory Inc

Matthew Clark; Chief Financial Officer, Executive Vice President; Cheesecake Factory Inc

David Tarantino; Analyst; Baird

Brian Vaccaro; Analyst; Raymond James & Associates

Jim Salera; Analyst; Stephens

Jon Tower; Analyst; Citigroup

Jeff Bernstein; Analyst; Barclays

Brian Harbour; Analyst; Morgan Stanley & Co

Lauren Silberman; Analyst; Deutsche Bank

Dennis Geiger; Analyst; UBS

Jim Sanderson; Analyst; Northcoast Research

Brian Bittner; Analyst; Oppenheimer & Co

Presentation

Operator

Good afternoon. My name is Brianna, and I will be your conference operator today. At this time, I would like to welcome everyone to the Cheesecake Factory Inc first-quarter 2024 earnings conference call.
Please note that this call is being recorded and all lines have been placed on mute to prevent any background noise. (Operator Instructions)
I'd now like to turn the call over to Etienne Marcus, Vice President of Finance and Investor Relations. Please go ahead.

Etienne Marcus

Yes, good afternoon, and welcome to our first-quarter fiscal 2024 earnings call. On the call with me today are David Overton, our Chairman and Chief Executive Officer; David Gordon, our President; and Matt Clark, our Executive Vice President and Chief Financial Officer.
Before we begin, let me quickly remind you that during this call, items will be discussed that are not based on historical fact and are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
Actual results could be materially different from those stated or implied in forward-looking statements as a result of the factors detailed in today's press release, which is available on our website at investors.cheesecakefactory.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. And in addition, during this conference call, we will be presenting results on an adjusted basis, which exclude impairment of assets and lease terminations and acquisition related expenses.
An explanation of our use of non-GAAP financial measures in reconciliations to the most directly comparable GAAP measures appear in our press release on our website.
As previously described, David Overton will begin today's call with some opening remarks, and David Gordon will provide an operational update. Matt will then review our first quarter financial results and finish up with some commentary on our outlook for the second quarter and full year 2024 before opening the call up to questions. With that, I'll turn the call over to David Overton.

David Overton

Thank you. At CN, we were pleased with our first quarter results with revenues finishing near the high end of our expected range and superior operational execution contributing to better than projected profitability, resulting in 20% year-over-year growth in adjusted earnings per share of The Cheesecake Factory restaurants comparable sales and traffic.
Once again, meaningfully out performed the industry, underscoring the strength of consumer demand for our brand and demonstrating our ability to capture market share execution within the restaurant four walls was outstanding with our operators delivering better than planned results across several key areas.
This performance, combined with slightly better than expected input costs, resulted in consolidated four-wall margins of 15% and adjusted net income margin of 4% for the quarter, both exceeding expectations.
On the development front, we successfully opened five restaurants in the first quarter, including two North Italia restaurants, two FRC restaurants and one Flower Child locations and one Cheesecake Factory restaurant opened in Mexico.
Additionally, subsequent to quarter end, another Cheesecake Factory opened in Asia with five restaurant openings in the first quarter. We remain on track to open as many as 22 new restaurants in 2024, including as many as three to four Cheesecake Factories, six to seven North Italia, six to seven Flower Child and six to seven FRC restaurants.
Before I turn the call over to David Gordon, I'm proud to share that The Cheesecake Factory has been named one on Fortune Magazine's 100 Best Companies to Work For for the 11th consecutive year. This recognition speaks to our culture and our incredible people, and we believe it should continue to support our ability to attract and retain talent as an employer of choice in our industry.
With that, I will now turn the call over to David Gordon to provide an operational update.

David Gordon

Thank you, David. Our solid performance for the quarter showcases our operations team's proven ability to execute at the highest levels and effectively manage their restaurants to this point, our operators exceeded our expectations in labor productivity, food efficiencies, wage management, and perhaps most importantly, in both hourly and management retention, which were already industry-leading. And for the quarter finished at the highest levels in the past five years.
As we've said before, we believe our staffing success is a key contributor to the improvement in our guest satisfaction scores. After all our people are our greatest resource and enable us to deliver delicious memorable experiences for our guests each and every day.
Supporting this viewpoint, our internally measured Net Promoter Score metrics during the quarter remain near record highs across both dine-in and off-premise channels, including pace of experience, STAFF service and food quality.
These positive guest satisfaction trends further support the Cheesecake Factory's continued outperformance relative to the industry with comparable sales and traffic exceeding a black box casual dining index by 330 basis points and 440 basis points, respectively.
Now turning to sales trends. Cheesecake Factory off-premise sales remained steady at 22% of sales for the first quarter, in line with the 2023 average percentage of sales North Italia first quarter comparable sales increased 3% from the prior year, resulting in annualized AUVs of 7.7 million. Restaurant level profit margin for the adjusted mature North Italia locations was 14.2%, up 120 basis points from Q1 of 2023. Other Fox Restaurant Concepts, annualized AUVs were 7.3 million.
Next, I'd like to provide an update on Flower Child. We remain as enthusiastic as ever about flower child's potential with sales continuing to grow nicely across the concept.
In fact, Q1 comparable sales for Flower Child were the highest of any of our core concepts and sales demand in the newer locations continue to trend well, over the past 18 months, we have successfully implemented several operational and supply chain improvements to enhance the guest experience and drive cost efficiencies.
For example, we implemented a kitchen display system across all restaurants, resulting in improved order throughput and operational efficiencies. The loyalty platform was replaced with a more robust and scalable solution.
Our new restaurant opening training teams were expanded to be able to support our accelerated new unit growth objectives. We are now leveraging the Cheesecake Factory operational reporting platform and deploying operational dashboards to provide improved planning and performance visibility.
And Flower Child's purchasing is now integrated into the broader Cheesecake supply chain operation to take advantage of our scale and purchasing capabilities.
In summary, with strong consumer demand, a robust operations team and support infrastructure now in place and an attractive unit economic profile, we believe Flower Child is well positioned for accelerated growth.
And lastly, we remain pleased with our cheese cake rewards program advancements. As I said previously, we're taking a very deliberate approach as we expand the program and therefore do not anticipate seeing a measurable impact to sales for at least the 1st year. So that said, demand continues to exceed our internal expectations, and we remain encouraged by the level of member activity and engagement that we are now seeing.
We're continuing to test acquisition tactics and activation campaigns to better understand the key elements that are resonating with Rewards members and most effectively increasing membership enrollment engagement and driving frequency.
And with that, let me turn the call over to Matt for our financial review.

Matthew 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 of $891 million finished towards the high end of the range we provided.
Adjusted net income margin of 4% exceeded the 3.5% guidance we provided and we returned $25.3 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 $668 million, up 2% from the prior year.
Comparable sales declined 0.6% versus the prior year, in line with the industry our Q1 sales were negatively impacted by inclement weather, predominantly in January with trends improving thereafter through the end of the quarter.
Total sales for North Italia were $70.9 million up 12% from the prior year period. Other FRC sales totaled $74.2 million, up 8% from the prior year, and sales per operating week were $140,600. Flower Child sales totaled $34.5 million, up 10% from the prior year. And sales per operating week were $83,700 and external bakery sales were 14.9 million, flat from the prior year.
Now moving to year over year expense variance commentary in the first quarter, we continued to realize some year-over-year improvement across several key line items in the P&L. Specifically, cost of sales decreased 100 basis points, primarily driven by higher menu pricing than commodity inflation. Labor as a percent of sales was essentially flat year over year.
Other operating expenses decreased 40 basis points, primarily driven by reduced costs in areas such as utilities and to-go related expenses. G&a increased 60 basis points, mostly driven by higher staffing and legal costs. Depreciation increased 10 basis points as a percent of sales. Preopening costs were $5.9 million in the quarter compared to $3.1 million in the prior year period.
We opened five restaurants during the first quarter versus two restaurants in the first quarter of 2023 and in the first quarter, we recorded a net expense of $3.2 million, primarily related to impairment of assets and lease terminations, expenses and FRCP acquisition related expenses. First quarter GAAP diluted net income per share was $0.68. Adjusted diluted net income per share was $0.73.
Now turning to our balance sheet and capital allocation, the Company ended the quarter with total available liquidity of approximately $297 million, including a cash balance of about $60 million and approximately $237 million available on our revolving credit facility. Total debt outstanding was unchanged at $475 million, and principal CapEx totaled approximately $37 million during the first quarter for new unit development and maintenance. During the quarter, we completed approximately $12.5 million in share repurchases and returned $12.8 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 2024 for Q2, assuming no material operating or consumer disruptions, we anticipate total revenues be between $890 million and $910 million. This essentially assumes a continuation of February and March trends.
Next, at this time, we expect effective commodity inflation of low single digits for Q2 as our broad market basket remains very stable. We are modeling net total labor inflation of mid single digits when factoring in the latest trends in wage rates and minimum wage increases as well as other components of labor.
G&A is estimated to be about $15 million and depreciation is estimated to be approximately $25 million. Based on these assumptions, we would anticipate net income margin to be about 5.25% at the midpoint of the sales range. Now for the full year, based on similar assumptions and no material operating or consumer disruptions, we would anticipate total revenues for fiscal 2024 to be approximately $3.6 billion.
For sensitivity purposes, we are using a range of plus or minus 1%. We currently estimate total inflation across our commodity baskets, 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 10 basis points higher year over year as a percent of sales and depreciation to be about $100 million for the year.
And given our unit growth expectations, we are estimating preopening expenses to be approximately $28 million, which includes support for some early 2025 openings. Based on these assumptions and assuming consumer trends remain consistent and there are no other material exogenous factors, we would expect full year net income margin of approximately 4.25% at the revenue level I provided with regard to development.
As David Overton highlighted earlier, we plan to open as many as 22 new restaurants this year across our portfolio of concepts with five openings in the first quarter and as many as five openings slated for the second quarter we anticipate our development pipeline of new openings to be relatively balanced across the quarters, and we would anticipate approximately $180 million to $200 million in CapEx to support this year's and some of next year's unit development as well as required maintenance on our restaurants.
In closing, we were pleased with our financial performance for the first quarter with top line trends, stabilizing profit margins, expanding input cost normalizing and solid operational execution.
With the positive results, we believe we are well positioned to once again generate our historically consistent operational and financial results and to continue making progress towards our longer-term goals and the key areas of value creation, growing restaurant comparable sales, expanding restaurant operating margins and accelerating accretive unit growth and with that said, we'll take your questions.

Question and Answer Session

Operator

(Operator Instructions)
David Tarantino, Baird.

David Tarantino

Hi, good afternoon, Matt. Just first a quick a clarification question related to your assumptions. You mentioned that you're assuming that the trends you saw on in February and March were would be the kind of run rate you're assuming in that in the guidance. So could you just elaborate on what you saw in February and March? And then I then I have a follow-up.

Matthew Clark

Sure. So this is Matt.
So if you think about the quarter and Cheesecake Factory comps were negative 0.6. And what we had said on the last call was the impact from those 2.5 weeks of weather in January was about 1.5% to 2% for the entire quarter, right? So the net of those two things being kind of what we saw in the back half of the quarter.
So low single digits positive that.

David Tarantino

Got it. Okay. Thank you for that. And so that was what you'd be embedding in your second quarter guidance?

Matthew Clark

Correct.

David Tarantino

Got it. Okay. And then I guess a lot of companies recently have been talking about consumer softness and I just wanted to get your thoughts on what you're seeing yes, from a consumer perspective, I know you saw improved trends at the at the end of the quarter. But as you kind of step back and look where you are year to date and what what you're seeing on the transaction side or however you want to look at it. Can you talk about kind of the strength of that consumer spending environment and any observations on that front would be helpful. Thank you.

Matthew Clark

Sure. And I'll just preemptively answer the next question around the specifics on pricing, traffic and mix, because it's part of I think that answer right, two pricing levels down for us because we we dropped off that onetime incremental pricing from December '22.
So pricing was at five two. The mix was a negative four three, which showed a slight improvement over the fourth quarter, but as we predicted, was still a piece of the equation. And so that left traffic at a negative 1.5 and all of that traffic piece was related to the January weather. So effectively, we've been running flat traffic now for two quarters.
And so to answer, I think the question we see the consumer that's coming into our restaurants being very steady. You know, we haven't really veered off of that trajectory for a while and done week-to-week. It's kind of it's been predictable. So wherever that is, it's a it's not a not a bad place at all for us.

David Tarantino

Thank you very much.

Operator

Katherine Griffin, Bank of America Securities.

Hi, thank you. Thanks for the question. I wanted to ask first about the about the four-wall margin a little bit better than expected as you said, so I was wondering if you could just further clarify. I think you mentioned input costs, but sort of where where the upside came from. And then the second part of the question is just is this kind of the right level we should be thinking about for the remainder of the year?

Matthew Clark

Sure, Katie, it's Matt. So I think just going back to the last answer for David, on the sales trends, I mean, I think having that steady predictable historical Cheesecake pattern, our operators just did a fantastic job delivering flow-through on the sales.
So a lot of it just goes to the ability to execute in a normalized environment. We saw commodities were I didn't want like roughly flat issuance, but within the predicted range. Utilities were slightly better. I mean, natural gas obviously is low. But I think the most important part of that is just execution and being able to manage the business with a very predictable sales pattern.
So that helped a lot easier. If you think about the rest of the year and every quarter is a little bit different, right? There's seasonality and things so that those numbers might not be the absolute same quarter-to-quarter. Typically do see a little bit of a tick-up and the absolute number for Q2. And then it comes back down in Q3 and goes back up a little bit in Q4. So it moves around. But I think on a full year basis, it's probably close to it somewhere in that in that ballpark.

Okay, thank you. And I was I was curious about the on the Flower Child on purchasing being integrated with our with the Cheesecake supply chain. Can you quantify or just maybe frame what the margin savings from that are?

Matthew Clark

You know, Tom, it's meaningful. I don't know that we are going to give a specific answer, but we've done a lot of work in the protein area, which is in a high cost, and we feel really good that the contributions from that. It's a little bit of a tricky answer because we've done so many other things like David talked about where we are putting in the kitchen system.
Some of the other efficiencies are kind of all blended together, but certainly the margins have moved measurably higher, and we feel very good about accelerating that growth based on the results that we're seeing.

Great.

Operator

Brian Mullan, Piper Sandler.

Thank you. Just actually wanted to follow up on flower child's, some encouraging stuff features you mentioned.
Could you just remind us what kind of AUVs and maybe sort of level margins you're targeting there on the new development and if you could incorporate some of the good work you've done, I just referenced and then is there a long-term target you'd be willing to discuss in terms of the long-term opportunity?
Can this be a national brand one day if things break right?

David Gordon

Sure, Brian, this is David Gordon, I think I'll answer your last question first, and that is yes, we believe that McCann big national concept, part of the reason that we've taken a more fully under our umbrella and leverage things like the supply chain team is because we have a very strong belief in the concept of MEOQ. one AUVs at the run rate of those are 4.4 million average average unit volumes.
So they've been very, very strong. The new markets have been very strong, just opened a new Flower Child in Plano, Texas which is an existing market, but very happy with the sales there thus far. So we think it's very promising and we're excited to open up the six to seven more this year and that continued growth moving into next year and the years beyond.

Okay. Thank you. And then just a question on California.
With the implementation of the new legislation on April first, I know it's a different sector, a segment of the industry, but just wondering if you've observed anything worth calling it all worth calling out at all on the labor side, whatsoever if you'd or if you'd expect to shift things again?

David Gordon

Brian, this is David. I think it's still early, but we haven't seen anything thus far. We continue to remain an employer of choice are able to continue to pay the wages and see the same wage trends in Q1 that we saw at the end of last year, which is a very stable staffing environment. We think that our employee value proposition is very strong. So we're going to monitor it as we as we have been, and we'll see what comes throughout the next quarter. But more likely, it's going to have an impact on QSR and not so much on certainly Cheesecake Factory and even the fast casual, like like Flower Child at this point.

Thank you.

Operator

Brian Vaccaro, Raymond James.

Brian Vaccaro

Hi, thanks and good afternoon. And just circling back on the comp component at Cheesecake Factory Matt, I think you said the mix was down in the low fours. Obviously a much larger drag versus your peers and what we typically hear it.
But can you just remind us what the pieces of what's driving that, kind of what the underlying dynamics are there and then how you see that playing out or normalizing over the next few quarters?

Matthew Clark

Sure. That's right. It's in the low fours, about 1% of that is just the optics of the to-go and how we count that. So, you know, you're about 3% and just as a reminder, for everybody, that's about half of what it was really nine months ago. So what we saw is really outsized. I'm purchasing things like alcohol and attachments in '21 and '22.
So we're still currently running, we call them incident rates, right? It's how much of each type of product to guests are buying on slightly above 2019 levels. So people are really regressing. They're just returning to the normal behaviors. So we anticipated that it would be at this level in Q1.
So it's pretty predictable. So we feel good about our estimates going forward. Q2 will probably come down even a little bit more Q. three, a little bit more by the time we get to Q4. It's going to be pretty close to normal in our our models today.

Brian Vaccaro

Okay, thank you for that. And on the margin front, I wanted to ask about on labor, your labor per operating week, at least on our math, was down between 1% and 2% year on year. It looks like can you can you speak to some of the efficiencies? Is there any way to quantify some of the efficiencies you're seeing. I know sometimes that can be difficult. And then within other OpEx, also some some pretty nice leverage despite some of the rewards marketing in that line too. So is there anything worth calling out or highlighting in that line? Thank you.

Matthew Clark

One on labor for Brian, this is Matt. No, we are seeing extremely good retention levels at the hourly level as well as at the management level. And so that does drive basically productivity, but also very specific areas like overtime, like training, where we're seeing year-over-year improvements, better meaningful?
I think on the other ops line, as we noted, I mean, natural gas certainly is a little bit of it. And I think that where we have some savings that we've been driving through our supply chain and some of the to-go supplies and things like that. So it's been a focus. Obviously, the other OpEx is a little bit bumpy. So we've been paying attention to that and I think our efforts are paying off.

Brian Vaccaro

All right. I'll pass along. Thank you.

Operator

Jim Salera, Stephens.

Jim Salera

Yes, good afternoon and thanks for taking my question. I wanted to drill down a little bit on North Italia. Can you just walk through the daypart trends and maybe how customers are interacting with the brand lunch versus dinner daypart?

David Gordon

Sure, Jim, this is David. I think that it's been pretty steady and stable. It's probably about a 35, 65 mix lunch to dinner at North and then has been that even prior to our acquisition of one of the areas growth at North. I think that's interesting to point out, there's just the off-premise growth over time from off-premise sales at North, we're 14% in the quarter, which I think is the highest quarter that we've had. So we're pretty excited to see that. I think our partnership with DoorDash, some of the marketing benefit we get that has been helpful the north. But as far as daypart mix has been it's been pretty steady and remains very steady.

Jim Salera

Okay. That's great. And if I can ask you a follow up just on the new units, I believe slight beat versus street plus reiterated guidance, which is all great. Are you seeing the permitting environment improve or anything behind the scenes? Maybe you guys have kind of extended out expectations? I know when we've talked with other operators, some of them still have some permitting issues and other ones, you have no data from that. So any color there would be helpful.

David Gordon

Sure. I think we feel confident in the up to 22 restaurants this year and permitting in some cities may be still a slight challenge, but nothing like it was 12 months ago. Our latest update was we had a restaurant in Houston that was having permitting challenges, but those are moving quickly. So some of those tougher cities maybe are still a little bit of a challenge, but nothing that's going to keep us from hitting the target for this year, certainly, so much more stable than they were even 12 months ago from permitting to equipment supplies et cetera, and even labor force to actually work on construction, we feel pretty confident.

Jim Salera

Okay.
That's great.
I guess I'll back in the queue.

Operator

Jon Tower, Citigroup.

Jon Tower

Greg should have a question. Maybe I'll just start on the marketing side. I know as a percentage of your total revenue, it's stepped up by about 30 basis points in 2023, but or $10 million in total. And I think for some of it, the 10-K suggested rewards was a big driver of that but I'm just curious to get your thinking around the spend in 2024.
And do you feel like there's any sort of need to respond in terms of building up your brand awareness in front of consumers in the face of what's going on across the industry with many other casual dining concepts out there blasting their ways right now with kind of price point promotions building brand awareness that way?

David Gordon

Well, I think I'll start by addressing the again the second half of your question. This isn't the first time that we've seen our competitors have a heightened promotion environment and we are pleased with our performance historically during those times.
And even if we look at what Matt said towards the end of the quarter, how strong our traffic was. We certainly are not going to change our promotional environment and become the concept that's doing more discounting because of what we see in the market from excuse me in the marketplace.
So our plan is to stick to our knitting, continue to learn from the rewards program, continue to look at all three phases of that program the published offers the unplugged published offers and the marketable offers throughout time and leverage the data as we continue to gather it to be as strategic as possible with our marketing to build on the one to one relationship that we're hoping to continue to have with our guests to drive some incremental revenue throughout that the rewards program and do it at a at a level that's margin neutral for us.

Jon Tower

Got it. And in terms of thinking about the mark, the rewards program itself, I know you had mentioned it's early days and you're not necessarily or at least you talked about the idea of having relatively low expectations for it.
However, it seems to be exceeding the expectations in terms of sign-ups and such Can you just talk about perhaps how it might be impacting that, but are you seeing greater frequency of use from these consumers early on in the program?
And are you seeing greater spend when they're coming in versus what you're anticipating for?

David Gordon

Sure. Without getting into too much detail, I can tell you that are our early results, certainly see some incremental visits and see some new guest visits. So we find that to be very promising. We have a high email opt-in rate, well above 90% for those guests that are engaging with the program, we see our NPS scores for guests that are in the program being even better than our already highest NPS scores that we've seen historically.
So everything about the program thus far seems to be trending in a very, very positive fashion, and we're excited to be able to share more once we decide to do that in the coming quarters.

Jon Tower

Got it. Thank you. And then just last one for me, maybe, Matt, you can touch on what was going on the G&A in the quarter. I think you'd guided at the higher end of the range of $58 million came in closer to 60 now, what might hit that during the period?

Matthew Clark

Yes, we're really, John, is that we had some legal settlement that was about half of that delta. And then there's a little bit of timing. I think we're going to be fine for the year. We'll make that back up. But just a few things that came in that we anticipated at different periods during the year. So it is really non-core spending.

Jon Tower

Okay. Thanks for taking the questions.

Operator

Jeff Bernstein, Barclays.

Jeff Bernstein

Great. Thank you.
First question is on the unit growth outlook. It's great to hear that you did five in the first quarter, five in the second hopefully and pretty steady in the back half. That's quite an anomaly.
And just wondering, as you think about going into next year, I'm not looking for guidance per se. But would you expect that you could accelerate the number of openings next year?
And if so, which brand do you see having the strongest demand and now that you have more of a portfolio to choose from just wondering which brand you see as having the greatest upside as we think going into next year? Thanks.

David Gordon

Jeff, this is David again. I'll we're certainly not going to get too far over our skis and talk about how many we might have for next year. But I think what's most important is that whether it's North Italia Flower Child or Cheesecake Factory.
The demand for those concepts from landlords remains very, very high. So we're still getting a site real estate opportunities, and we have enough brands including culinary dropout to be able to fit the needs of those landlords everywhere from 3,500 square feet all the way up to 10,000 homes.
So that's why we have such a positive outlook on the potential for next year and certainly still feel pretty good about our unit growth target of some 7% annual unit growth.

Jeff Bernstein

Understood. And then just, Matt, you gave that low single-digit, I think mid-single-digit blended inflation for the full year. I'm just wondering if you can share specifically on the first quarter and second quarter for both commodities and labor. Just kind of where that settles out or where you're expecting it to settle out within that broad range that you gave for the full year? I'm sure, Pfizer and I guess to offset that?

Matthew Clark

Yes. So first quarter, the commodities were like zero to one and labor was around the mid fours. And I would say commodities for the second quarter, probably one ish. So just maybe a half a percent more something like that. I mean, it's obviously a little bit of illusion of precision here, but I would say labor is probably in the four to five range as well and the pricing that you'd expect.
So we're going to run probably about and there is great.

Operator

Brian Harbour, Morgan Stanley.

Brian Harbour

Yes, thanks. Good afternoon and Matt. And kind of four-wall margins, you had nice year-over-year improvement, right kind of in excess of, I think what you'd previously hoped for for this year? And it sounds like some of what you're seeing are structural drivers that could be sticky. Do you think do you think that could continue in coming quarters? Maybe commodities pick up a bit, but what are some of the puts and takes on four-wall margins? Just bigger picture.

Matthew Clark

I mean, I think a lot of it is structural. You know, certainly, we fully caught up with pricing last year. And so you're seeing some of that to benefit like cost of sales where the commodities have normalized and it's lapping a lot of it is operational execution, the stability of the labor force really driving productivity and flow through in the four walls and that certainly should be sticky. I think our outlook, you know, expects that we will continue to have year-over-year margin gains throughout the balance of this year and what how much of it was, how much of that kind of differ by brands?

Brian Harbour

Did you see more of a swing for some of the non Cheesecake brands are some of those kind of starting to perform better? How should we think of brand mix in that?

Matthew Clark

I think it was pretty consistent to our expectations where, you know, where we saw just everywhere a little bit better, right. You know, certainly Cheesecake is 75% to 80% of the business. And so that's the single biggest driver in those margins, you know, provide the most incremental dollars. But as David Gordon mentioned, fire town had very strong sales and deliver great margins in the quarter, too. So we're pretty pleased with the whole portfolio at this point.

Brian Harbour

Thanks.

Operator

Lauren Silberman, Deutsche Bank.

Lauren Silberman

Thanks for the question and congrats on the quarter. Can you talk about whether you're seeing any differences across regions and then visiting the California, a lot of the restaurant industry raised prices in response to the wage rate. Are you seeing any benefit from that or incremental pressure in the market at all?

Matthew Clark

Fairness was I mean, I don't think we've seen very big differences geographically other than the weather because that can certainly impact our sectors for temporary. But it's pretty consistent in California specifically. I don't think we've noticed a real difference again. I think as David mentioned, that's it's pretty early on. So we'll see, you know, if that if that plays out. But but generally speaking, I think business has been pretty consistent and predictable.

Lauren Silberman

Great, thanks. And then on just the North Tower Italia margin, how are you feeling about the path to close the margin gap to Cheesecake? Thank you.

Matthew Clark

Sure. Yes, I think we feel good about that. You know, if you kind of look at where we're at and it doesn't always sync up quarter to quarter because the pricing actions are different between the brands. And so they sometimes it can just be off a little bit.
And certainly on the total margin. And we basically had four brand new restaurants in the quarter to two from really late in December and two that we opened. And so, you know, as we've always said the gap from the mature to the total with more can be three or four present different just based on the cadence of the openings. So we feel like it's basically right on track and it normalizes over the course of a full year.

Lauren Silberman

Thank you very much.

Operator

Dennis Geiger, UBS.

Dennis Geiger

Greg Thank you. I just wanted to ask another on pricing and sort of anything you'd call out that you're seeing from a pricing perspective and any sort of resistance from the customer at all.
And then, Matt, if you gave the 2Q as we think about rest of year on the pricing side, we just kind of assume continued moderation in that pricing level over the balance of the year?

Matthew Clark

Yes. I mean, I think just I would still just use about 4%. You know, when we take it twice a year, we haven't finally decided that's still in process. But I think just for modeling purposes, that's probably a good a good number.
And you know, I mean, from our perspective with flat traffic, obviously the guests are coming in the door are the same as they were before, DO despite the pricing. And so I think that's a positive. We understand the mix. It's behaving like we thought it would be. So, you know, they're not changing their behaviors. It's kind of just normalizing.
So overall, I think that we think that our guests appreciate the value of Cheesecake Factory in North and all of our brands based on the quality, the portion sizes, all the things that have endured for nearly 50 years and people come back to their favorites in O, and I think that's what's happening.

Dennis Geiger

That's great. And one quick follow-up, I guess just on that point, Matt, and I think if you talk to mix earlier where I think both the alcohol and sort of broader attach, you know, it's a little bit more lapping the exuberance from prior years, and you're still about $0.19 potentially really not seeing any observable trade down behavior from any cohort of gastric forget alcoholic even sort of on size, et cetera? Just not seeing that basically.

Matthew Clark

No, that's so I would I would say we're not going to have. That's correct.

Dennis Geiger

Thanks, Matt. Appreciate it.

Operator

Jim Sanderson, Northcoast Research.

Jim Sanderson

Steve, thanks for the question, but I wanted to follow up a little bit more on G&A spending. I think that we guide is looking that's going to outpace revenue growth for this year, but maybe you could talk a little bit more about how you're managing that line item, what we should expect as far as a potential for leverage going forward?

Matthew Clark

Sure. Like I said for the quarter, we had a couple of items that were sort of out of pocket. But I think generally, you know, our goal is to trying to get back towards a 6% level and some of those just the timing of the spend versus the timing of openings or revenue can just be a little bit different on the margin side. So that is still our goal I think we do a good job of managing the core functions of the business, and I feel pretty confident that we'll get that aligned in the next year or two.

Jim Sanderson

You know quick polling question. I know to tell you could you provide traffic and check mix or traffic checks the two? Do you have that?

David Gordon

I do.

Matthew Clark

Okay.

David Gordon

Traffic was negative 1% for the first quarter, price was 8% and mix was negative 4%.

Matthew Clark

And I think that would be we would add the same comment where, you know, they were also impacted just like Cheesecake. So I think we would have been in positive traffic territory if it weren't for the weather in January.

Jim Sanderson

Yep, understood. Thank you.

Operator

Rahul Krotthapalli, JPMorgan.

Perrigo's all just wanted to ask on the kitchen display system. Can you discuss or quantify to the extent possible how much of the total output of sufficiency impacted you had earnings this quarter and is this something new or did you have something in place for a while on the lines of kitchen management system or if this is just a fully blown upgrade on what is the pace of rollout?

David Gordon

Hi, Rob, this is David. Just for clarity, the kitchen display system as it Flower Child is where we rolled that out. We have had a kitchen display system at Cheesecake Factory for numerous years. So the full rollout was probably done at the beginning of the quarter a Flower Child, and we're not sharing any of that data at this point.
But we do know that it's made and some good strides have benefits for the guest experience with throughput, the dining experience being faster than it was previously and really allowing them to manage the throughput of off-premise dining because at Flower Child, you're talking about a 55% off-premise mix.
And one of our goals is to ensure that that high off-premise mix does not extend the dine in time for any guests that are coming in and dining with us. So it's been very beneficial to this point. And this fully rolled out at all the flower child's, and we're including it at all the new restaurants as we open them as well.

That's helpful.
Thanks lot.

Operator

Brian Bittner, Oppenheimer.

Brian Bittner

Thanks. And I apologize if this has been addressed, but I'm ask it anyway, just on the margin, some of the margin expansion was very impressive. You know, it might have a choppy sales environment out there. And I know you've talked a lot about and some wins in the quarter that helped you outperform on the margin.
But on that other operating expense line on the leverage there, it was pretty unexpected and positive. And I think you mentioned utilities and I think you mentioned some to-go item packaging. Are those pretty structural new opportunities that you are driving in other OpEx line?
And should we continue to expect this type of leverage in that line because if you got it with sales slightly negative and now sales are going to be better than that. I'm just curious if we're still going to get a lot of margin expansion from from other operating expenses?

Matthew Clark

So Brian, I think you got most of that, right. I think we would say on the utility costs can vary outside of the control of the Company. So that's not necessarily a permanent structure. We'll see where that goes to. Certainly the supply chain savings will continue, but we're not factoring in any continued leverage in that line item at this point in time.
If we can manifest and improve it, that will be great. But I think, you know, we'll see how each quarter plays out. And certainly we expect the cost of sales benefits to continue at a very meaningful rate, and we would expect labor to be about equal just like it was.

Brian Bittner

So just kind of running through the P&L or in English on this flattish underlying traffic trend that you're speaking to. Obviously, it's way better than the industry data in this quarter your your same-store sales were in line one while many are missing. And I guess it just begs the question. What do you think is setting you apart from your peers, is it simply your lack of exposure to that maybe lowering consumer? Because obviously, as you know, most management teams are citing the low and consumers is it just is your portfolio positioned such that doesn't affect you as much? Or how would you unpack why you're driving such outperformance on the traffic?

Matthew Clark

Well, I think just an opinion, David Gordon touched on it earlier when he was talking about the environments that we've seen in 50 years come and go with advertising and consumers or whatnot. And I think the reality is that if you execute really well with a really great product, people are going to pick you over your competitor.
And so that's what you tend to see is a flight to quality rights as you're going out, maybe a little bit less, but you don't want that to be really great some experience. And so I think that's what we deliver. And I think that's the big difference.

Brian Bittner

Thanks.

Operator

There are no further questions at this time. This will conclude today's conference call. Thank you all for your participation. You may now disconnect.