The Cheesecake Factory Incorporated

Ladies and gentlemen, thank you for standing by and welcome to the Cheesecake Factory third quarter physical 2020 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Stacey Fite. Thank you. Please go ahead, ma'am.

Thank you. Good afternoon, and welcome to our third quarter fiscal 2020 earnings call. On the call today are David Overton, our Chairman and Chief Executive Officer, David Gordon, our President, and Matt Clark, our Executive Vice President and Chief Financial Officer. Before we begin, let me quickly remind you that during this call, items will be discussed that are not based on historical fact and are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results could be materially different from those stated or implied in forward-looking statements as a result of the factors detailed in today's press release, which is available on our website at investors.thecheesecakefactory.com and in our filings with the Securities and Exchange Commission. All forward-looking statements made on this call speak only as of today's date, and the company undertakes no duty to update any forward-looking statements. In addition, throughout this conference call, we will be presenting results on an adjusted basis, which reflects the potential impact of the conversion of the company's convertible preferred stock into common stock. An explanation of our use of non-GAAP financial measures and reconciliations to the most directly comparable GAAP measures appear in our press release on our website as previously described. David Overton will begin today's call with some opening remarks and David Gordon will provide an operational update. Matt will then briefly review our third quarter results and provide a current financial update. With that, I'll turn the call over to David Overton. Thank you, Stacey.

Sales at the Cheesecake Factory restaurants continue to build throughout the third quarter with relatively strong comparable sales performance in light of the mandated capacity restrictions related to the COVID-19 pandemic. Third quarter comparable sales declined approximately 23%. We exited the quarter with comp sales down approximately 10% in September as we were able to reopen additional dining rooms. Notably, we had 20 Cheesecake Factory locations with positive comparable sales during the quarter despite only being able to operate on average with 50% indoor dining capacity Those locations. We have been able to achieve this sales recovery given continued strong demand to return to our restaurants coupled with sustained strength in our off-premise business. In fact, we were able to maintain the vast majority of our off-premise sales from the second quarter even with additional restaurants able to partially reopen indoor dining rooms during the third quarter. We believe this underscores the broad consumer appeal and strong guest affinity for the Cheesecake Factory. Our top priority for in-person dining is to provide a safe, comfortable experience for our guests and our staff. We are proud to have been recognized for these efforts in the recent Nation's Restaurant News Consumer Picks COVID Follow-Up Survey. Our large footprints and flexible seating layouts have continued to be an advantage for us during COVID-19. This has also proven true in areas that now allow capacity and access of 50%, where we can drive additional sales while also prioritizing social distancing. Operationally, we continue to perform well across several key performance indicators, including year-over-year improvements in food efficiency and labor productivity, while maintaining the integrity The Cheesecake Factory brand and our competitive differentiators for the long term. We earned the distinctions of number one for quality, number two for service, and number three for ambiance in the 2020 Nation's Restaurant News Consumer Pick Survey that was completed before the pandemic. We are honored to have been recognized by our guests for the tremendous effort our teams put into delivering the Cheesecake Factory experience. which we remain committed to regardless of the challenges presented by the current operating environment. On the development front, two Flower Child locations opened in Houston and Oklahoma City during the third quarter. These have been strong performing openings in spite of COVID-19. The acceptance of Flower Child in a market like Oklahoma City reinforces our confidence in the national potential for the brand. Subsequent to the quarter end, Culinary Dropout opened in Scottsdale, Arizona and posted the strongest weekly sales of FRC restaurants in its first weeks of operations. We continue to monitor operating conditions in markets where we have new units under development and at present expect one Cheesecake Factory and one Blanco open during the remainder of the fourth quarter. We believe our collection of strong concepts coupled with our financial flexibility Thank you, David.