David Overton - Chairman and CEO David Gordon - President Doug Benn - EVP and CFO Matt Clarke - VP, Strategic Planning.

Jeffrey Bernstein - Barclays Capital Inc. Joe Buckley - Bank of America Merrill Lynch John Glass - Morgan Stanley & Co. Nicole Miller - Piper Jaffray & Co. David Tarantino - Robert W. Baird & Co. Brian Bittner - Oppenheimer & Co. Matthew DiFrisco - Buckingham Research Group Sharon Zackfia - William Blair & Company Will Slabaugh - Stephens Inc.

Amod Gautam - JPMorgan Keith Siegner - UBS Andrew Barish - Jefferies & Company.

Good day, ladies and gentlemen and welcome to the third quarter 2014 The Cheesecake Factory Earnings Conference Call. My name is Sara, and I will be your operator for today. At this time, all participants are in listen-only mode. However, we will open it up later to conduct Q&A.

(Operator Instructions) Just as a reminder; this conference is being recorded for replay. I’d now like to turn the conference over to your host for today, Matt Clarke. Please proceed..

Hello everyone. Good afternoon and welcome to our third quarter fiscal 2014 earnings call. I'm Matt Clarke, Senior Vice President of Finance and Strategy. Joining me on the call today are David Overton, our Chairman and Chief Executive Officer; David Gordon, our President; and Doug Benn, our Executive Vice President and Chief Financial Officer.

Before we begin, let me quickly remind you that during this call, items may 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 factors detailed in today's press release, which is available in the Investors section of our Web site at thecheesecakefactory.com, and is 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. David Overton will begin today's call with some opening remarks.

Doug will then take you through our operating results in detail and provide our outlook for both, the fourth quarter of 2014, as well as our initial thoughts on 2015. Following that, we will open the call to questions. With that, I’ll turn the call over to David..

Thank you, Matt. The third quarter represented a continuation of our consistent and predictable trend of delivering positive comparable sales and outperforming the casual dining industry. Over the last 19 quarters, we raised our already leading average unit volumes to over 10.5 million and captured meaningful market share while doing so.

The hallmarks of our brands have always been to pursue absolute guest satisfaction, while managing our business for the long-term. And we’re accomplishing these goals as evidenced by the ongoing strength of our new restaurant openings throughout the U.S and abroad.

Specifically, with respect to development, we opened two new restaurants during the third quarter, one in Reno, Nevada and the other in Trumbull, Connecticut. We also opened a beautiful new restaurant in Sarasota, Florida to long lines of guests just last week.

The restaurants we opened over the past several years provide a very good measure of the demand for our brand as their sales metrics represent a solid lift over our Company average. The growth plan is being executed well with high quality investments.

This year we continue to plan to open as many as 10 company owned restaurants, including one relocation. These locations are in a mix of new and existing markets with four more openings anticipated over the next several months. Our international growth is also on track.

So far, two Cheesecake Factory locations have opened in the Middle East and one location is opened in Mexico during 2014 with one more planned in the Middle East for the fourth quarter. In total, this year our licensee partners will have double the number of international Cheesecake Factory locations in operation.

In 2015, we currently expect to open as many as 11 company owned restaurants in the United States including one Grand Lux Café. In addition, we expect as many as four restaurants to open internationally under licensing agreements based on the information we have at this time.

This would represent as much as a 50% increase for our overall international business and it continues to contribute as expected to our earnings per share growth. Further, we anticipate that the first restaurant with our licensee in Asia will open in the first part of 2016.

As we’ve said in the past, we do not control the timing of international openings and opening dates may move for a number of reasons. With three excellent licensees, we’re confident about the prospects for the Cheesecake Factory development internationally.

So we feel quite positive about the top line momentum we’re generating, but it is also apparent that we’re currently operating at a very challenging cost environment. Specifically better prices reached an all-time high in the third quarter and our group medical claims experience has also been measurably unfavorable compared to 2013.

However, we do believe that this commodity cost volatility and medical insurance claim activity are both temporary in nature. In fact, we’ve already seen the butter market start to correct over the last several weeks.

Looking forward, the strength of our brands in competitive positioning have us poised to sustain our long running positive comparable restaurant sales trends as our best-in-class operators continue to focus on delivering a differentiated guest experience.

And by prudently managing our controllable costs, we should be able to leverage these sales increases to help expand our operating margins back to our peak levels over time.

As we execute on our strategy and deliver on our growth objectives, we remain confident in our ability to deliver on our target of averaging mid-teens earnings per share growth over the next five years, while also providing a continuing and meaningful dividend. With that, I’ll turn the call over to Doug..

first, the diary will revert back to a more normalized price structure and that we expect to recapture about three fourths of the 2014 cost increases. We are basing that on a combination of the current butter futures curve and indicative 2015 pricing, we have already received on selected diary products.

Second, our assumption is the group medical insurance costs will be approximately flat year-over-year in 2015 reverting back to slightly above our historical mean. In terms of food cost inflation (technical difficulty) 2% and 3% in 2015 for our restaurants.

Some areas such as beef are expected to be higher, whereas diary we expect to be lower as just noted. As to comparable sales while we were starting to see a modest recovery in the industry, we are basing the midpoint of our guidance for 2015 on our actual performance in 2014 and providing a range of one half of 1% on either side.

We think this provides a reasonable framework to access our earnings per share estimate when taken into conjunction with the information we’ve provided on some of our key cost inputs.

Regarding our corporate tax rate, we expect it to be in a range of between 28% and 29% for 2015 and finally with respect to capital allocation, our earnings per share sensitivity range for 2015 assumes that we will use substantially all of our free cash flow for dividends and share repurchases. With that said, we will take your questions.

In order to accommodate as many questions as possible, please limit yourself to one question and then re-queue with any additional questions..

(Operator Instructions) And our first question comes from Jeffrey Bernstein from Cheesecake Factory (sic) [Barclays Capital]..

I work for Barclays, but waiting for that offer, David..

We will later have you. We will add Jeff. You could volunteer (indiscernible)..

Perfect. In the meantime, two questions, one just on the comp side of things. It seems like the -- I just think you just mentioned and I think we’ve all seen recently that perhaps there has been an acceleration in the comp trends in recent months.

Although there has been some speculation that maybe that’s being driven more by aggressive discounting driving that improvement, which I know you guys don’t typically do.

So I was wondering if you’ve seen that sequential acceleration perhaps July, August, September or perhaps maybe you didn’t because you don’t really compete with that aggressive discounting angle and therefore your customers maybe aren’t drawn to it.

So just trying to get your take for the industry trend that you experienced through the third quarter, and then I had one follow-up..

Okay. You know on a month by month basis when the -- within the quarter, Jeff, our sales trends were generally positive throughout the quarter. If anything they were somewhat higher near the end of the quarter, but not -- I wouldn't say there was a big spike in September by any means. So we really didn't see so much of that.

We feel good that our trends were stronger than the third quarter -- stronger in the third quarter than they have been in about a year and a half.

It’s hard to know if one quarter means that we’re in a different or a better operating environment, but our guidance suggests that we think we will continue to seek steady and predictable sales performance that you’ve seen from us..

Got it.

And I know you guys in the past doesn’t commented that regionally and weekday/weekend and lunch and dinner there was no anomalies there?.

No, geographically we could comment on that. The markets were mostly positive. There is a pretty tight distribution between the highest performing sales markets and the lowest performing sales market, so that that’s been also the case with us and our strongest markets this quarter continued to be Texas, California, Florida and the Southwest.

And I think from the data we have that others are seeing strength in this markets as well..

Jeff, I think that’s one of the key points of our business is that we have continued with that steady predictable performance whether it’s day part or day or day of the week or geography. So we kind of take that as a positive that there is no news to present there..

Yes..

I would just add -- I would add that those sales also continue to be on full margin sales that to your point earlier that there is no discounting that’s driving those continued growth in comps..

Understood. And then the one clarification was just on the cost side. It seems like last year at this time we were talking about seafood and most people were surprised by how much seafood you sold, but butter and dairy seems more down the center of the aisle for you.

I mean is there any ability to contract or maybe hedge, perhaps, so that if it swings violently in one direction or another you can do some sort of financial contracting or I’m just trying to figure out the -- I don’t know if you can just recap what you said the magnitude of that hit was going to be.

Do you think you’re going to recapture three-fourths of it? Any incremental color would be great..

Yes, sure. I would tell you that yes you can contract for some of the diary that we use. Certainly cream cheese, which is a big part of what we use.

Typically, just to give you a little bit of background we’d see that when we -- when we’re looking at contracting we will typically see diary prices fall in the spring in the second quarter and we’d generally complete our contracting by then. That didn't happen this year.

And prices continue to up and at that point, when we were in July, we didn’t really want to get stuck with high-priced products and inventory that were really up for no other reason that we could see other than a true commodity bubble. But we were wrong, they continued higher from there.

So they were around $2.40 or so a pound of butter was as a good proxy in July, but it was over $3 a pound in September. So increased significantly during that time and we do have a big mix of diary. So I’d say that we -- the butter and diary market has started to correct some over last week or two.

So it’s now in more the low $2 range, which is still historically high and we factored that in to our fourth quarter guidance that we gave, our best guess at that. But it’s significantly (technical difficulty) $3 plus all-time high..

But if you got hit by $10 million in ’14, you think that next year it will be presumably down by $7 million, $8 million year-on-year so you will recapture three quarters of that?.

Yes, I think it’s by the way that we’re contemplating Jeff is that over the course of several years, its more normalized inflation. So you're not going to get it all back, because even if prices revert back then there would be some inflation in there.

But I think to your point, we will look at how we can most effectively leg into some of those coverages, whether it’s a more direct hedge on cream cheese or doing that more intermittent throughout the year as well certainly to protect against bubbles like this..

And we did -- we do have indicative pricing from some of our products that would help us to believe that we could certainly make a big impact on lowering our diary costs next year..

Understood. Thank you very much..

Our next question comes from Joe Buckley from Bank of America..

Thank you. A couple questions as well. Doug, I couldn’t hear or (indiscernible) I didn’t hear the comment about the other operating costs. I think you said half of that was attributable to something, and I didn't hear what that was..

Okay. Yes, half of it was attributable to the timing of marketing spend..

Okay, okay.

Okay and then, feel we are going to belabor the commodity markets here, but have you essentially been buying spot for dairy during the second half?.

Yes, Joe. So for the most part that’s true. So we had is what we said in July we had contracted on the cream cheese for about 30% of the full year but then obviously you’re on the spot market for the balance of that during the quarter. And specifically for any of the fluid milk products, they’re very difficult to hedge.

The cream that butter is indicative of pricing for that, you really can't get a direct hedge for that. So, we would have been on the spot market there as well..

Okay. And then can you just update us on the seafood from things we can monitor, it kind of looks like shrimp is down now year-over-year but salmon is still up little bit year-over-year.

Kind of give us an update if that -- they sort of neutralize each other now on the seafood side?.

I think you said exactly what I would say. For our 2015 guidance we factored in that we’re going to get somewhat better shrimp pricing for 2015 and then we got in 2014, but salmon is still going higher. It’s still going up. So we see the shrimp market improving, but it’s not all the way back yet.

So, I will say that our shrimp for next year were about 60% contracted or booked for our shrimp already for next year..

Okay. Okay, thank you..

You are welcome..

All right. Great. Our next question comes from John Glass from Morgan Stanley..

If I can maybe just think of a commodity slightly differently. Doug, at the beginning of the year or late last year you thought commodity inflation might be 4% to 5%. Can you give an earnings forecast around that. And I think you said even, I understand dairy but even with that I think you said it’s going to be 4%.

So, what's the difference, I mean were there other pieces that didn’t fall in the place. I’m trying to reconcile what you said at the beginning of the year and you actually fell within that range and that you missed the earnings forecast much more substantially.

So is it really was it dairy or was there other forecast -- and I’m just thinking about commodities now and then maybe talk about just overall forecasting of the business?.

Hi, John this is Matt.

How are you?.

Good..

So, I think that the dairy piece was -- what was the driver that was the variance. So what we said in Doug’s prepared remarks was that actually we were over 4% for the year so I think we came back within a 4% to 5%. Mid way through the first quarter it seemed like it might be more favorable and that was really driven by the grains.

So if you looked at corn and wheat and then the byproducts of those whether that’s pasta or oil seeds. Those have been slightly favorable, so bread would have been slightly favorable in pieces like that.

The other piece is that as Doug said in the fourth quarter we started to see the shrimp come down, has gotten a little bit of a benefit versus where we expected there. So, the other pieces I think were lining up more favorably overall, but the dairy piece because of the way that the bubble worked really impacted the second half.

It peaked right at the end of September and that was really the sole driver there, is almost a 100% of the commodity variability versus expectations in prior year..

And just when you think about forecasting your business overall, like the variability is much higher and you’ve hit the low end or in some cases missed forecast the last six or seven quarters.

When you think about ’15 have you put more contingency in there or maybe some cost savings initiatives, so if some things don’t go the way you think you’re going to go, you can still achieve your targets or are you out there saying, look this is what it is and if anything moves off of these forecast we’re going to end up having a short fall.

How conservative are you now being?.

I would say that we’re being as conservative as we prudently can be. I mean there’s not a perfect crystal ball as you know. So particularly so that’s why we outlined exactly what we’re doing with respect to the dairy assumption for next year. Someone can second guess us and say that they don’t think that that’s a good assumption to make.

So that’s why we’re outlining that major assumption (technical difficulty) medical expenses. So, I would say that we’re not trying to be any more conservative or any more -- we’re just trying to be as right as possible and give a wide enough range so that we can come within that range..

Okay. Thank you..

Our next question comes from Nicole Miller from Piper Jaffray..

Thank you. Good afternoon. Can you please talk a little bit about the Grand Lux.

I think you said it would open, is it at the end of next year potentially? And is this opportunistic and is it a new or existing market and how did the opportunity come to you?.

Well we’re always looking for great sites. So this one and King of Prussia we thought was a great site. Its one of the successful malls in the country, and they were doing an expansion and we were able to get a great spot in that expansion. So, we’re still perfecting Grand Lux, we’re still moving along.

Even though we have one in Cherry Hill it’s probably an hour away or maybe a little bit more. So I’m not sure I really would count it in the same market. We’re just going into an excellent site and it took a long time to negotiate and it was a site that everybody wanted but we got it..

I would just add, Nicole this is David Gordon. Now just as far as Grand Lux even if Cherry Hill continues to really outperform when it comes to service and quality and guest expectations, it could be a little bit busier, yes we’d be happy if it was a little bit busier but its still outperforming all those competitors within that same market.

So we have confidence about the opening in KOP would be successful as well..

Thank you for that color.

And just a housekeeping question, development for next year is it going to be waited like it always historically has been towards the back half of is there a different visibility that you have?.

Now most likely -- it will probably be a little like this year. Usually everything is in last half. We got some more in the front. So I would say maybe it could be as much as 20% in the front and the rest of it in the back half. These things move around like crazy for many, many reasons but we get them done with the year normally..

Thank you very much..

Thanks, Nicole..

Great. Our next question comes from David Tarantino from Robert W. Baird..

Hi. Good afternoon. Doug, I was wondering if you could reconcile the variance in the EPS relative to your guidance. It looks like comps came in towards the high end of guidance but earnings came in $0.09 to $0.10 below the high end of the guidance.

So I was wondering if you could just sort of give the pieces that reconciles that gap?.

Yes, it was I would say four plus cents related to dairy. $0.04 versus guidance, $0.06 versus last year. So we have factored in some increase in dairy in the third quarter but not what happened. $0.02 plus from group medical versus guidance and again that was versus prior year probably $0.04 so we had factored in some of that, but not enough.

And then I would say that most of the rest is, there’s a penny or two from electric and other miscellaneous expenses none of which are big in individuality for any particular thing..

Okay. Thank you very much for that.

And now those are the same factors that are causing Q4 EPS guidance to be below the prior implied range that you had?.

Yes, those are and then even if you want to look at the implied range, the implied range for dairy we put another $0.03 versus the prior implied range into the fourth quarter of pressure and in group medical another penny in the fourth quarter compared to the prior implied guidance.

So if you want to try to reconcile the year guidance that we last had with the current year guidance you can take all those things I just said and you’ll get about right there..

Great, that’s very helpful. And then one last one for me. The unit openings for next year and I appreciate that the numbers are going up by one opening. But just wondering, why not more. It seems like a great return on investment.

Is it a real estate availability issue, I guess maybe could you get some comments on why you can't push that number even higher..

David certainly if we could, we would. As those A site locations become available we would want to take them and I think if you look at our track record over the past three years we continue to pick sites that are exceeding even some of our own expectation. So we’re being very prudent and cautious in making sure they really are great sites.

As malls continue to be remodeled or new properties come onboard like the opening we just had in Sarasota, Florida. We look at all of those and want to -- we have the capacity certainly and the resources to open more but we’re not going to take a chance.

We’re going to make sure it’s a smart investment and that’s helped us to be as successful as we have been in the past three years, and that’s really the outlook even for next year..

Great. Thank you very much..

Our next question comes from Brian Bittner from Oppenheimer & Company..

Thanks. Trying to think about the operating leverage in your labor model here.

When I strip out the $7 million headwind in medical cost this year, I’m still getting flattish or some slight deleverage on that labor line and that (technical difficulty) just wondering going forward is that how we should think about labor 1.5% comp flat labor is there anything else going on there that you can maybe leverage it better in the future?.

Hi, Brian this is Matt. I think so, our full year comp guidance of 1.5% we generally say that’s about the point in time where we’ll start to see leverage. So as we said, about $7.5 million in group medical and that’s the incremental cost. That’s we’ve curved out the growth piece, so that’s truly impacting the margin.

And then obviously we’ve seen some minimum wage pressure this year.

I think in reality what we’ve done well is be very productive and we’ve absorbed that in the right way while still protecting the guest, but I think at 1.5% comp we feel good about that and we’ve looked at 1.5% comp to maintain on labor so that we can really thread the needle balancing the guests with the profitability..

And if you look at next year and you just consider the labor line and just pick the mid point of the sales range again at 1.5% comp.

We would probably get some kind of benefit on the labor line for next year as compared to this year simply because the international openings will weight in much more heavily on next years labor line than to do this year.

We basically doubled the amount of international openings late in the year this year so that, that revenue with great flow through capabilities will help to improve margins some on every line for next year..

But when I use the labor expenses against just The Cheesecake Factory revenue line item that obviously we’re not incorporating international revenue into that kind of type of modeling now, correct?.

Right..

David, you talked about how many international units you expect to open or the cadence of the opening of the international units in ’15?.

We expect to open four, and I don’t think we’ve talked about the cadence, I don’t know if we have a comment about that. I think so far out of our control we have to do our best estimate to even come up with the fact that we’ll have four..

Okay. Thank you..

You are welcome..

Our next question comes from Matthew DiFrisco from Buckingham Research..

Thank you. Couple of questions and just one bookkeeping thing.

Did you mention the price increase I missed that or what price was in the quarter and what you expect it to be ahead?.

Yes, price in the quarter is about 2% and we expect it to be about 2% going forward. So basically this quarter a 1% price increase replaced a 1% price increase that was rolling on..

So, you’re basically flattish traffic at right now at The Cheesecake Factory?.

Well I can give you the breakout. Actually our mix is up; traffic was down about 0.8% for the quarter. So the breakdown is comp of 1.8%, price at 2%, traffic minus 0.8% and mix positive 0.6%..

And then just given you seasonality of the cheesecake and the bakery sales in the winter time and the celebratory time, you normally get a sequential higher relative COG in the fourth quarter it’s usually your highest.

In the environment that we are in with dairy now, are we going to see then a meaningful sequential step up? Is that what's behind your guidance in lowering your number for 4Q?.

That’s part of what's in there too is that, so we have -- in order to sell some of these cheesecakes in the fourth quarter we have had to make a lot of them, and they are in inventory and they are in inventory now at high cost of dairy and that cost has to also be spread through our P&L as those cakes are sold in the fourth quarter.

So that’s part of what we factored into the fourth quarter as well..

And then just on the modeling side of it also your G&A looked like it was managed pretty well in this last couple of quarters, somewhat lower than you’ve historically grown it. Is that sort of the pattern we should think about it on a year-over-year basis? I know you have some lumpy spending in quarters on G&A in 2013.

You have been holding around a 3.5%, 3% rate now.

Is that the model or behind the earnings assumptions around a 3% to 5% type growth rate for G&A?.

I would say that, if you’re looking forward I would expect G&A to be -- remain about flat for next year. And the reason that you’re -- we are managing very well. There’s no doubt about that. We’re managing it very well.

We almost are never over where we think we’re going to be on G&A, but in the last couple of quarters the -- particularly in this quarter the results have caused us to bring the bonus accrual down. So that has helped the G&A line, let’s say that..

Flat meaning relative or absolute dollars?.

Flat meaning relative -- meanings percentages..

Okay. And then I promise my last question. With respect to the hedging comment you made about dairy or at least do you expect three quarter of the dairy headwind to reverse.

Is it correct to assume that is not fully locked in and visible around pricing, that is in anticipation of what the crystal ball is telling you now as far as the direction of things having to work a little bit still that are not unfolded yet for ’15?.

That’s exactly right. There is nothing that -- we have based that on what the futures curve looks like.

So, if you go out and look at butter prices in the futures curve it would tell you butter price is what a $1.80 or something -- $1.75 so they are at, its $2 now so that’s one thing we took into account and then we also took into account the fact that we had discussions with certain of our suppliers about certain products and what indicative pricing they’d give us now if we won the contract today and we know what those are and we know well how they compare with this year..

Why with 2% to 3% food inflation now, wouldn’t you take the liberty of taking a 2% to 3% price increase for ’15 considering that, that is what the market is putting on you and you’re basically with flattish type traffic? Do you think you have that capacity to take 2% to 3% pricing or is something telling you, you can't take 2% to 3% price?.

Well, I think normally what -- just the balance of two conflicting priorities. It’s the desire to grow guest counts with the desire to protect margins and they conflict with each other. And so you’ve got to achieve a balance of what is the right price increase to protect the margins in the short-term with protecting guest counts in the long-term..

Understood..

So that’s how -- there’s no -- this is an art, not a science. So there’s nothing magic about 2%. There’s no reason it couldn’t be 3% other than I think our belief would be that would be too much pricing to take from the guest perspective..

Understood. Thank you..

Our next question comes from Sharon Zackfia from William Blair..

Hi. Good afternoon. I just have a few quick questions.

So I think if I recall correctly dairy used to be kind of a low double digit percent of your cost basket and I’m wondering where that’s kind of running now?.

So, Sharon, if you think about the combination of the restaurants and the bakery together then you’re not that far off. It’s maybe about 15% of the total between the two..

Okay. And then, Doug on the occupancy and other, I appreciate I think half of that increase was a shift in the timing of marketing. But I’m kind of surprised you would have de-levered that absent that on a 1.8% comp. So, was there something else happening there. I think you mentioned electricity.

It was just hard to kind of figure out what was material or if there’s something that’s shifted, where we should expect that to kind of be a pressure point absent shifts in marketing..

Yes, there’s no one thing on that line item that’s too material outside of marketing, the marketing timing.

There are a number of small trade off that impacted that line during the quarter but the biggest component of that you said that I mentioned earlier was higher electric cost which was up about the equivalent in the quarter of $0.01 in earnings per share versus the prior year..

Okay.

Can you remind us what you spent on marketing now as a percent of sales?.

About half a percent. I don’t think it’s really changed much over time..

Great. Thank you..

Our next question comes from Will Slabaugh from Stephens Inc..

Thank you, guys. I want to ask you about labor and what you’re expecting going forward given what we’ve seen with medical claims and the recent minimum wage increases. And then also the additional increases coming down the road and sort of back to the pricing question.

First of all, do you expect to be able to leverage labor going forward this year or looking into ’16 or beyond and then secondarily in those markets where you’re having a dramatic minimum wage increase would it be on the table to look at, at least price increases in those markets?.

Well currently we don’t really do tier pricing. We just do it to a very small extent. So I wouldn’t say that’s totally off the table.

We might think about that but as I said earlier I think next year with respect to labor and even factoring in the known minimum wage increase not any that haven’t been legislated but the known minimum wage increases and California is the biggest one for us.

That for the first half of next year we know that’s going to impact us on a year-over-year basis because it didn’t go in until July of this year.

So we’ve factored that in with all of that said for next year I think we can manage our labor productivity and then have the addition of a great influence from the international or royalty such that we can have labor flat to slightly better. That would be what we -- how we would see it right now for next year..

Great. Thank you..

Our next question comes from John Ivankoe from JPMorgan..

Hi. Good afternoon. It’s Amod Gautam filling in. Couple of questions on the capital allocation side.

I guess the first one is, out of the $120 million to $130 million in CapEx, does that include any remodel CapEx and are we coming up to maybe a cycle where I think about 10 years or so you’re probably growing the highest level of absolute number on the domestic units domestically.

So, going forward in the next could of years, should we expect maybe a ramp up in CapEx in terms of reinvestment?.

Well, you probably not -- we do an occasional remodel of a restaurant that’s really old or a remodel of a patio. We do things like that but there are policy for CapEx and for keeping the restaurants running is a like new policy. So, we allocate close to $30 million every year in capital expenditures to keep these properties looking like new.

And additionally there’s another two percent of sales 40 plus million dollars that is expensed through the P&L that can't be capitalized that might be painting or it might be things that are also keeping these properties looking like new.

So (technical difficulty) in the look of the interiors and some of the newer restaurants but really its not that much different than the older restaurants such that there is a big need to remodel. They do have big remodel costs in the budgets to renovate restaurants..

Okay. That’s helpful..

Some money in there, but it won't be a huge number..

Understood. Okay. And secondly, I mean you guys just talked about a long-term domestic restaurant target I think was 300 and obviously you have got pretty robust cash flows and a balance sheet that could potentially support an acquisition or maybe another concept.

So is there a number of Cheesecake’s maybe you’re thinking about where you get to that number and then you more seriously approach the next leg of opportunity domestically and broadly what are kind of the themes that you’re considering about if there was an acquisition being made in terms of fast casual versus casual dining as well as maybe the size of the concept?.

Yes, there’s lot in that question. I would say to you that we would -- we are considering and we look at what is available out there to be acquired -- either acquiring a concept or developing one ourselves.

So, when we look at the longer term time horizon we recognize there’s probably come a time when we’ll need to have another driver to keep our earnings per share growth where we want it to be. We’ve looked at all the restaurants that have sold over the past; I would say four or five years and those that have gone public.

There’s no reason for us not to be informed about what's going on our there. So we have, I couldn’t say we were like interested in any of them in particular but we did look at the possibility of whether we would be interested in them.

So that’s going on currently but we’re going to be very thoughtful about that process and extremely selective about what we would consider..

So hitting the certain number of openings domestically wouldn’t be the driver of that decision, it would be making the best decision for the business in the long run..

Okay. Thanks for the color..

Our next question comes from Keith Siegner from UBS..

Just a follow-up question on the marketing. You’ve done an excellent job in the last few years of taking a 50 basis points of sales spend and getting a lot of mileage out of it in really kind of unique ways.

But as marketing across the sector kind of evolves, especially with all the digital and other programs that are out there now, how do you see your marketing program sort of evolving as we move forward and do you think the 50 basis points remain the appropriate spend, anything along those lines of either how you spend the marketing and what's the right amount as we move forward in this environment would be helpful.

Thanks..

I think we tried as you said use marketing in a very strategic way to strengthen and protect the brand and retain and grow our market share, and we’re very involved in marketing now with using social and digital media to directly engage our guests.

We now have over 5 million Facebook fans for instance and over 250,000 Twitter followers or Instagram, we’re on Pinterest. So we’re getting a lot of exposure and social media is obviously evolving into a very visual medium and that’s a good thing for us because our food in our restaurants are very visual.

We also did get a lot of publicity exposure through TV for instance local TV network, morning cooking shows. We use special occasions such as National Cheesecake Day to have a big presence both digitally and in restaurants. So publicity is a big part of our marketing.

So whether half a percent is the right number in audit, it has to do more with the return on investment of any additional marketing money that might be spent. So, to consider spending on additional marketing money you wouldn’t want us to say that, that we’re now spending 1.5% but we’re making less money.

Our sales are better but we’re making less money. So that’s part of the consideration and we think right now that, the current spend rate is what we should use..

That’s helpful. And maybe one follow-up.

One of the hallmarks of being a Cheesecake customer all these years is, you wait in the line more often than not, and there are some concepts that it started to toy around with various options to provide solutions for long lines in various concepts and I’m wondering, as you think about these various technological solutions out there, is that something you have considered or is there any optionality on that front or not? Thanks..

Thanks for the question. Well I think we’ve answered those questions a couple of times around technology. We certainly want guest to have access to the restaurants as easily as possible. So right now we’re actually testing in quite a few restaurants text paging is as example.

So instead of having to wait in line and get a paddle pager and have a lot of people standing around the whole stand and the restaurant maybe even appearing to be busier than it is, we’re enabling guests to leave their phones number, travel around the mall, relieve some pressure at the whole-stand in the restaurants and we’ve seen some pretty good success around that.

At the same time that energy that’s created, people want to be where people are and so that busyness in the restaurants and that buss that happens at Cheesecake Factory is part of the attraction of the brand. We don’t want to lose that as well. So we have been very strategic and careful about how we’re going to use technology.

I think I have said before that we don’t really see within our service model using anything at the table or tabletop (technical difficulty) brand that we currently are.

However where we can improve the guest experience to your point around long lines, we are continuing to experiment and we will continue to experiment throughout this year and moving into next year..

Thank you very much..

All right, great. And we do have time for one more question, its coming from Andy Barish from Jefferies..

Hi, guys. Just one on the international front. I forget exactly how the deals are structured.

But with three openings in the third quarter was there any material fees that were recognized through the income statement?.

Not into the third quarter..

But are there opening fees associated with these stores or is that not the way the deals are structured?.

Generally we don’t have opening fees, we do have development fees..

Okay.

And then, just finally on the 2015 labor puzzle, how much Affordable Care Act cost are you baking in incrementally for next year?.

For next year incrementally not really -- we don’t really think the Affordable Care Act is having that big an impact on our medical spend. As we’ve said it’s a lot mainly Andy large claims activity, which by their nature if there are large claims that shouldn’t be large claims all the time or they won’t be called large anymore.

So that is -- we taken that into account, but the Affordable Care Act, we’ve had plans that have qualified under the Affordable Care Act available to our employees for a long time and its not really having -- other than maybe a few more people on the plan. Its really not having a that big an impact, certainly manageable for us..

Okay. Thank you..

You’re welcome..

All right. Great. That seems to be all the time that we have for questions today. So that does conclude our conference. Thanks for your participation. You can disconnect and have a great day..