[Management View]
The Cheesecake Factory Inc. management emphasized unit development, menu innovation, and digital loyalty as central to their long-term strategy. Operational improvements, including elevated employee retention, are driving labor cost leverage and enhanced guest experiences. Strategic focus on Flower Child and North Italia was underscored by strong margin gains and accelerated expansion.

[Outlook]
For Q3 FY2025, projected total revenues are between $905 million and $915 million, with adjusted net income margin expected at a 3.25% midpoint. Full-year 2025 revenue guidance is estimated at approximately $3.76 billion, with adjusted net income margin expected to be 4.9%. Plans for up to 25 new units in 2025 remain on track.

[Financial Performance]
Total revenues for Q2 FY2025 were $956 million, exceeding the high end of prior guidance. Cheesecake Factory comparable sales increased 1.2%, driving record average weekly sales. North Italia's annualized AUV rose 2% to $8 million, despite a 1% decline in comparable sales. Flower Child comparable sales increased 4%, with strong margin performance.

[Q&A Highlights]
Question 1: As it relates to the increase in the net income margin for 2025 from 4.75 to 4.9, is this primarily operationally driven at the store level? (Line breaks here)
Answer: Matthew Eliot Clark confirmed that the increase is operationally driven, with better-than-expected 4-wall margins demonstrated by Q2 results. The outlook has increased based on operational excellence and overall sales trends.

Question 2: Does the Q3 revenue outlook assume a base case for Cheesecake Factory same-store sales similar to the second quarter? (Line breaks here)
Answer: Matthew Eliot Clark stated that at the high end, the outlook assumes stable sales similar to Q2, with no reason to forecast greater until it happens.

Question 3: Can you provide perspective on labor retention levels relative to pre-pandemic or prior peaks? (Line breaks here)
Answer: David M. Gordon noted that staff and management retention levels are exceeding pre-pandemic highs, contributing to improved productivity and lower turnover-related expenses. The company continues to leverage labor across the back half of the year.

Question 4: On Cheesecake Factory, can you share the Q2 breakdown related to price, mix, and implied traffic? (Line breaks here)
Answer: Matthew Eliot Clark shared that net effective pricing was about 4%, traffic was negative 1.1%, and mix was the balance. The company is focused on getting traffic back to positive.

Question 5: Did the February menu update see a customer response in terms of innovation? (Line breaks here)
Answer: David M. Gordon confirmed a positive response, with new menu items placed on a separate card to ensure visibility. The new menu is expected to be as successful as the February rollout.

Question 6: Are consumers aware of and responding to lower price point menu items? (Line breaks here)
Answer: David M. Gordon noted that lower price points are visible to guests, with order rates indicating positive response. The strategy is expected to resonate and drive additional sales.

Question 7: Is the operating environment healthier than initially thought? (Line breaks here)
Answer: Matthew Eliot Clark stated the environment has been steady, with strong execution and brand strength. The company remains cautious but feels positive about current conditions.

Question 8: Can you give color on Flower Child's profitability or unit economics? (Line breaks here)
Answer: Matthew Eliot Clark highlighted exceptional performance, with mature unit margins over 20% and AUV nearing $5 million. Returns are in the mid-30s, supporting continued growth.

Question 9: Can you provide the comp breakdown for North Italia? (Line breaks here)
Answer: Etienne Marcus provided the breakdown: price was 4%, mix negative 1%, traffic negative 4%. Matthew Eliot Clark added that new units are performing strongly, with some sales transfer impacting comps.

Question 10: Any trends by income bracket for North Italia? (Line breaks here)
Answer: Matthew Eliot Clark noted similar trends to Cheesecake Factory, with slightly higher average income but strong demand across demographics.

Question 11: How does menu pricing at Cheesecake Factory feed into the fall menu rollout? (Line breaks here)
Answer: Matthew Eliot Clark explained that effective pricing is decreasing, with new items at lower price points driving significant value for consumers.

Question 12: Can you elaborate on North Italia margins in a slightly negative comp environment? (Line breaks here)
Answer: Matthew Eliot Clark attributed margin improvement to operational execution, favorable commodities, and leveraging sales.

Question 13: Is casual dining having a moment, especially experiential? (Line breaks here)
Answer: David M. Gordon emphasized the importance of experiential dining, with high-touch hospitality and quality food driving consumer interest.

Question 14: Can you share more on the rewards program for Cheesecake Factory? (Line breaks here)
Answer: David M. Gordon shared positive acquisition and engagement metrics, with personalized offers driving higher redemption rates.

Question 15: Can you give a sense of Flower Child's store capacity given sales growth? (Line breaks here)
Answer: Matthew Eliot Clark noted strong throughput and catering sales, with mature locations doing $6.5 million to $7 million, indicating a long runway for growth.

Question 16: Any change in traffic trends related to weather? (Line breaks here)
Answer: Matthew Eliot Clark reported steady traffic trends, with weather having minimal impact.

Question 17: Are you doing marketing to hit specific dayparts with new menu items? (Line breaks here)
Answer: David M. Gordon confirmed targeted messaging using rewards data to drive specific daypart behavior.

Question 18: Is there a threshold for Flower Child's new store opening cadence? (Line breaks here)
Answer: David M. Gordon stated comfort with current growth rates, focusing on manager development to ensure quality openings.

Question 19: Can you help understand the dynamics around the $500 million converts? (Line breaks here)
Answer: Matthew Eliot Clark explained the strike prices and potential dilution, noting limited near-term EPS impact from conversion scenarios.

[Sentiment Analysis]
Analysts and management maintained a positive tone, with confidence in operational execution and strategic initiatives. Management expressed cautious optimism regarding the operating environment and future growth.

[Quarterly Comparison]
| Metric | Q2 2025 | Q2 2024 |
| --- | --- | --- |
| Total Revenues | $956 million | N/A |
| Cheesecake Factory Comparable Sales | +1.2% | N/A |
| North Italia AUV | $8 million | N/A |
| Flower Child Comparable Sales | +4% | N/A |
| Adjusted Diluted Net Income Per Share | $1.16 | N/A |

[Risks and Concerns]
Potential risks include macroeconomic changes impacting consumer spending, competitive pressures, and operational challenges in maintaining high retention and productivity levels. Convertible note dilution risk was addressed, with management seeing limited near-term EPS impact.

[Final Takeaway]
The Cheesecake Factory Inc. delivered strong Q2 2025 results, exceeding expectations with record sales and margin improvements. Strategic focus on menu innovation and unit expansion, particularly for Flower Child and North Italia, positions the company for continued growth. Management's cautious optimism reflects confidence in operational execution and brand strength, while addressing potential risks such as convertible note dilution. Investors can expect steady progress towards long-term value creation priorities, supported by a resilient business model and strategic initiatives.