Stacy Feit - The Cheesecake Factory, Inc. David M. Overton - The Cheesecake Factory, Inc. Matthew Clark - The Cheesecake Factory, Inc. David M. Gordon - Cheesecake Factory, Inc..

Jeffrey Bernstein - Barclays Capital, Inc. David E. Tarantino - Robert W. Baird & Co., Inc. Brian Bittner - Oppenheimer & Co., Inc. John William Ivankoe - JPMorgan Securities LLC Matthew DiFrisco - Guggenheim Securities LLC Will Slabaugh - Stephens, Inc. Gregory R. Francfort - Bank of America Merrill Lynch Brian M. Vaccaro - Raymond James & Associates, Inc.

Stephen Anderson - Maxim Group LLC.

Good day, ladies and gentlemen, and welcome to The Cheesecake Factory Third Quarter 2017 Earnings Conference Call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference is being recorded.

I would like to introduce your host for today's conference, Stacy Feit, Senior Director of Investor Relations. Please proceed..

Thanks. Good afternoon, and welcome to our third quarter fiscal 2017 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, during this call, we will be discussing earnings per share on an adjusted basis, which excludes impairment and lease terminations.

David Overton will begin today's call with some opening remarks. Matt will then take you through our operating results in detail and provide our outlook for the fourth quarter and the full year 2017, as well as our initial thoughts on 2018. Following that, we'll open the call to questions. With that, I'll turn the call over to David..

Thank you, Stacy. While our third quarter results were impacted by significant hurricane activity, we are so fortunate that our staff members are safe and our restaurants did not sustain any significant damage from the storms.

I want to commend our teams across the restaurants, field management, and corporate support center for coming together to provide relief in every way we could. It is wonderful to see the power of The Cheesecake Factory culture and values even in challenging times.

Excluding the significant weather impact to the quarter, our sales and earnings results were in line with our expectations. As we look forward, we are continuing to invest in the guest experience, which we believe is contributing to stabilization of our underlying sales trends.

First and foremost, we continue to innovate with our menu providing our guest with unique items all made fresh from scratch daily in our restaurants. We couple that with great service and hospitality in a high-energy ambience in premier locations. Today's consumer wants experiential dining, and that is exactly what we provide at the restaurants.

At the same time, our operators are as focused as ever on their restaurant performance as system-wide labor productivity and food efficiency increased year-over-year. We also continue to drive strong manager retention and our hourly staff retention metrics remain industry leading. Turning to off-premise, our national delivery rollout continues.

At present, delivery via third-party provider is available in about 70% of our locations. Just last month, we entered into an agreement with our second provider. We expect about 85% of our restaurants to offer delivery by the end of this year. And we believe we will reach approximately 90% of our restaurants by the first half of 2018.

We are also continuing to work on further improvements to our to-go business including online ordering capability, which could be in pilot by the end of the year. We believe this will be another contributor to support continued growth of our strong off-premise sales.

Based on consumer trends, we saw a nice opportunity to augment our Sunday Brunch, with the addition of Saturday Brunch. Our guests have been asking for it, and with breakfast a growing day part for the broader industry, we felt that now was a great time to expand this offering.

The weekend brunch menu will be served from 10:00 AM to 2:00 PM at all Cheesecake Factory restaurants. Finally, to better align our guest satisfaction measurement with our current initiatives, we recently launched a new platform that leverages the Net Promoter methodology across our restaurants.

We partnered with the leading provider that works with a number of top brands known for excellent guest satisfaction.

We believe this will provide us with more actionable insights to better understand what opportunities need to be addressed, while reinforcing positive staff behaviors to further promote memorable dining occasions at The Cheesecake Factory and drive sales.

On the development front, we opened a second Cheesecake Factory on the Island of Oahu in Kapolei, Hawaii, in September. Our Honolulu location is the highest grossing restaurant in our system, and Kapolei saw lines 150 guests deep all week following the opening.

We also opened a Cheesecake Factory in Minnetonka, Minnesota, in mid-October and expect to open five additional restaurants during the fourth quarter. This will bring us to our anticipated eight company-owned restaurant openings in 2017. We continue to expect four restaurants to open under licensing agreements internationally in 2017.

This includes the second Cheesecake Factory location in Qatar that opened in September, the first location in Bahrain that opened this past Sunday, and the third location in Qatar, which is expected to open by year-end. We continue to believe there is potential for 300 domestic Cheesecake Factory locations.

We will invest capital in great sites that meet our rigorous standards, and we also – we always look to balance our ongoing capital allocation decisions with the intent to generate the best long-term returns for our shareholders.

Looking forward to 2018 and given the current industry dynamics, we expect to open as many as four to six company-owned restaurants, including one Grand Lux Cafe. We also expect as many as four to five restaurants to open internationally under licensing agreements in 2018. With that, I will now turn the call over to Matt for our financial review..

Thank you, David. Total revenues for the third quarter of 2017 were $555.4 million. Comparable sales declined 2.3% at The Cheesecake Factory restaurants, including an approximately $0.8% negative impact from more than 100 lost operating days due to the significant hurricane activity during the quarter.

Excluding this weather impact, comparable sales declined 1.5%, which was in line with our expectations. External bakery sales were $12.6 million in the third quarter. Cost of sales was 22.9% of revenues, roughly in line year-over-year. Labor was 34.9% of revenues, an increase of about 160 basis points from the third quarter of last year.

About 35 basis points is attributable to impacts from the hurricanes, while the balance of the increase was primarily driven by higher hourly wage rates, as expected, as well as some deleverage.

Other operating costs were 24.9% of revenues, up 80 basis points from the prior year, the majority of which was due to higher repairs and maintenance expense, marketing costs and utilities versus the third quarter of 2016. G&A was 6.4% of revenues in the third quarter fiscal 2017, in line with the same quarter of the prior year.

Pre-opening expense was approximately $3.4 million in the third quarter of 2017 versus $2 million in the same period last year. We had one opening in the third quarter of 2017, and we did not have any openings in the same period last year.

Our tax rate this quarter was approximately 19% and adjusted earnings per share was $0.56, which includes approximately $0.04 of negative impact from the hurricane activity during the quarter. Excluding the impact from the storms, our bottom line results were in line with our expectations.

Cash flow from operations for the first nine months of 2017 was approximately $154 million. Net of roughly $82 million of cash used for capital expenditures and growth capital investments, we generated about $72 million in free cash flow through the third quarter. That wraps up our business and financial review for the third quarter of 2017.

Now, I'll spend a few minutes on our outlook for the fourth quarter and the full year 2017, as well as our initial thoughts on 2018. As we've done in the past, we continue to provide our best estimate for earnings per share ranges based on realistic comparable sales assumptions and the most current cost information we have at this time.

These assumptions factor in everything we know as of today, which includes quarter to-date trends, what we think will happen in the weeks ahead and the effect of any impacts associated with holidays or weather.

For the fourth quarter of 2017, we're estimating an improved comparable sales trend of between down 1% to flat at The Cheesecake Factory restaurants and diluted earnings per share between $0.50 and $0.54. This is based on an assumed tax rate of approximately 21% to 22%.

With respect to the full year of 2017, we continue to expect comparable sales decline of approximately 1% and we are now estimating adjusted diluted earnings per share between $2.57 and $2.61.

This includes the approximately $0.04 negative impact from the hurricane activity in the third quarter as well as additional impact we are continuing to experience at our Puerto Rico restaurant in the fourth quarter. Regarding our corporate tax rate, we now expect it to be approximately 20% for 2017.

As a reminder, this lower tax rate reflects the adoption of the new accounting rules regarding stock-based compensation. We now expect total capital expenditures this year to be between $110 million and $115 million, and we now anticipate completing between $125 million and $150 million in share repurchases this year.

We drew $30 million on our revolver to support third quarter repurchase activity. Together with our dividend, we plan to return between $175 million and $200 million of capital to shareholders in 2017.

Turning to fiscal 2018, we are currently estimating diluted earnings per share between $2.50 and $2.75 based on an assumed comparable sales range of flat to up 1% at The Cheesecake Factory restaurants. While this earning range reflects the industry cost pressures, importantly, it reflects that we believe our sales trends are stabilizing.

On the cost side, we are currently seeing food inflation of just over 3% for 2018 market basket. This reflects inflation across most of our categories, most notably, higher poultry, dairy, bread and seafood costs.

However, we are in the early stages of contracting for 2018, and our team is working diligently to lock in product at the most favorable prices possible. They are also evaluating supply chain optimization initiatives to identify potential areas for savings to help mitigate some of the cost pressure we're seeing.

Our guidance range also assumes wage rate inflation of approximately 5% in 2018, consistent with the level we have experienced this year. As David discussed, our staff member retention is strong, which is the best defense in the current labor environment.

We are also continuing to move forward with more market-based pricing where the wage pressure is most concentrated to help mitigate rising labor costs. As it relates to other operating expenses, while we have seen some pressure in repairs and maintenance expense in 2017, these costs can fluctuate year-to-year.

Overall, we would expect to see some improvement in other OpEx as a percent of sales in 2018. And we also continue to target holding G&A approximately flat as a percent of sales. Regarding our corporate tax rate, we expect it to be approximately 24% for 2018.

Our total CapEx and investment spending in 2018 is expected to be between $90 million and $120 million including as many as four to six planned company-owned openings and our growth capital investment commitments.

Our restaurants generate a substantial amount of cash and we plan to continue to return all of our free cash flow to shareholders through our dividend and share repurchase program in 2018. In closing, the third quarter was a challenging one given the significant hurricane activity and industry headwinds.

However, we believe the underlying sales fundamentals of our business are improving. We are focused on diligent cost management to support profitability as we manage through the current industry environment, as well as prudent capital allocation to generate the best returns for our shareholders and maintain our mid-teens corporate level ROIC.

Concurrently, we continue to execute on a diversified set of incremental growth opportunities to effectively position the company to achieve our long-term objective of mid-teens total return to shareholders. With that said, we'll 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?.

And our first question comes from John Glass from Morgan Stanley. Your line is open..

Hi. This is Chris (15:19) on for John.

Could you talk about how sales trended through the quarter and what you were seeing in terms of exit momentum and how that relates to the 4Q guide of down 1% to flat?.

Sure, Chris. (15:32) I think the quarter, as most people know in the industry, was a little bit volatile particularly at the start. But I think indicative of the guidance that we're providing for Q4 and next year, we feel that there is an improving trend in our business.

And I think that we had pretty good clarity in the guidance that we gave, and so we feel pretty confident in what we're communicating to you today. Obviously, there are still some headwinds, but I think that for us at least we're starting to see it move in the right direction..

Okay. Thanks. And if I could sneak in one more.

Last quarter, you talked about highlighting value more to the value-focused consumer, any update on the efforts there and if you've been able to bring them back into the restaurant?.

We've had great adoption of the special menu card that we rolled out in spring, I think much higher incident rates than we would from a normal menu change, so I think that that speaks to the effectiveness of what we're seeing with that. I think we'll continue to look to innovate with the menu in a variety of ways.

And the reality we have many, many price points on the menu, and so we'll just continue to reinforce some of our messaging for our guests, but as we see it and how the guests are using the menu, it seems to be working well..

And we're still continuing to use that card today..

Great. Thank you..

And our next question comes from Jeffrey Bernstein from Barclays. Your line is open..

Great. Thank you very much. Two questions as well. The first one is just on the unit growth outlook. I mean, I feel like in the past it was maybe 10 to 12 units per year, which was equating to 5%. Now, it seems like we're taking a step down at least into 2018 in the current environment to more like the low single digit.

Just wondering how you think about that outlook going forward especially as you mentioned there is room for 300 units long term. But it doesn't seem like there's any new malls of your caliber likely opening to any large degree going forward.

So I'm just wondering how you think about the unit growth and the pace of that over the next number of years, whether we should really just expect you to infill existing malls as sites become available, but we should really be thinking about the long-term annual unit growth rate of more or like low single digit versus the prior mid.

And then I had one follow-up..

Sure, Jeff. I think just – let's talk about sort of our earnings algorithm as it relates to the unit growth piece of it. I think, as we've been communicating probably over the past three to four years, we think it really is in a 3% to 4% unit growth for The Cheesecake Factory, and that's what it takes to get to our mid-teens total returns.

Keep in mind that we continue to move forward with other investments. So, in any given year, it has moved up and down a little bit because we are selective with the sites.

So, some years it has been 6%, some years it's been 10%, (18:40) and I think it will continue to be dependent upon making sure we're hitting the returns from our sites and making sure that we're making good capital allocation decisions. I also don't think that we're limited to the mall redevelopment.

We continue to look at areas in downtown situations and the format for The Cheesecake Factory is very, very flexible. I think really, this year, what you're looking at is an environment where some of the construction costs have moved up a little bit particularly with respect to the hurricane pulling some of the capability out of the industry.

I think you're seeing an environment where the sales are a little bit pressured. We think that leaning in on the stock a little bit repurchases, as we have been, makes good sense. We're confident that the long term will continue to open in that 3% to 4% unit growth rate for The Cheesecake Factory..

And we're certainly not waiting for new mall construction to select sites and analyze where we're going to open in our growth..

Got you. And then the other – the follow-up question I guess was just more on the – you mentioned the underlying sales seem to be stabilizing or getting a little bit better. I'm just wondering if you took out the hurricane impact, the down 1.5% comp for the quarter, which was – seemed like it was in line with your guidance.

But I'm just wondering, as you think more about the mall exposure, I know in the past you've thought of yourself as a destination, but – and I presumably still do, but do you think there's any credence to the fact that, right, as the foot traffic continues to shrink in the malls, whether it's an affluent mall or a lower-end mall, that you are a beneficiary of some stop-in traffic and therefore the comp growth is going to be harder to come by as it was a couple of years ago?.

Well, I think a couple of points on that. When we've done research on our guests, our core guests are actually going to the mall as frequently as they were before.

So, I think going back to the thesis that we put out there when we started to see some sales pressure, and I think we're very transparent about it, some of the more economically focused guests might have been pulling back a little bit, and that also might be where some of the mall traffic has been down.

I do think there's been some good sell-side research that suggests for us maybe it's 50 basis points to 100 basis points of pressure at the low point in this environment.

And do we think that we can recover that? I think we do over time, either bringing back our core guests more or, as David mentioned, introducing Saturday Brunch or other initiatives. When we look at the year, we're down maybe 1% to 2% from where we need to be to meet our long-term total return objectives.

So, I think if we can recapture that 1% to 2%, it will more than offset the 50 basis points to 100 basis points of mall pressure that at least we seem to be seeing..

Great. Thank you very much..

And our next question comes from David Tarantino from Baird. Your line is open..

Hi, good afternoon. Just a clarification on that last point. Does your guidance for Q4 assume that the holiday season will have any structural pressures related to the mall traffic? And then I have a follow-up..

Yeah. David, I think what it assumes is sort of what we have seen in historical years, right. I think you have a little bit higher peaks at the beginning and the end of the holiday season and a little bit lower in between. And that's how we've modeled it out. And with respect to any holiday timing or anything like that, we think it's neutral.

So that's kind of our modeling..

Got it. Understood. And then my question is on the margin outlook for next year. I know you have some cost pressures you outlined.

Can you maybe talk about how are you thinking about your pricing power heading into next year? What type of pricing are you planning to take to deliver the earnings range you mentioned? And, I guess, how does that marry up with your prior comments about needing to focus a little bit more on highlighting value on the menu?.

Sure. So, we're entering into Q4 here with about 2.5% pricing that I wouldn't expect it to be less than that for next year to manage the combined labor and cost of sales piece of it. And obviously, that's got to be coupled with, as we mentioned in the prepared remarks, finding some improvements in the supply chain to help offset that.

So, as always, it has to be a blend of managing costs and taking price. We don't look to make those big step function changes in our labor model or how we execute in the restaurants because we think that the long-term success of the brand is in maintaining the integrity.

So, from a total margin perspective at sort of that price point and those costs pressures, we think we can hold the line at around where we'll end this year from an operating margin perspective.

I think somewhere around 1% comp store sales is where we can leverage or grow for the total business, and that includes the other components, right, G&A and the bakery and international.

And I think what we've seen with respect to ensuring that there's value and that the guest can use that value in the restaurants, we've always had all of those price points. And so there might be a little bit more emphasis, but the mix tends to stabilize pretty well.

So, just because I'm sure that the question will come up, for example in Q3, we had about 2.4% pricing, and our mix was about a negative 0.4%. So we talked about how the guest incident rates on the menu card are much higher than a normal menu change, and yet, the total mix for us is only a negative 0.4%.

And so, I think that that can be balanced out, and we always introduce items from a gross margin perspective at full margin. We don't discount. So it's really about balancing that out. And one of the great things was, in the third quarter, we continued to see dessert sales incident rate go up, and so we have that balancing act in our arsenal as well..

Thank you very much..

And our next question comes from Brian Bittner from Oppenheimer. Your line is open..

Thanks, guys. Just for the 2018 guidance you do – as you said, you assume a very sustained stabilization in the sales trends. And the question is, what type of indicators are you guys seeing that backs that confidence right now.

I know the industry has certainly improved in October, but is there anything else that you can just talk to us about that gives you a lot of confidence that there is going to be a very sustained positive stabilization in the business trends?.

Sure. I'll just note a couple internal and external reference points. From an internal perspective, we obviously have great clarity on our restaurant performance, and we look at things like the standard deviation between the performance of the restaurants, the consistency of the day part and the day of week execution.

All of those metrics which have become a little bit tighter again kind of post the slowdown that we saw, and most everybody in the industry saw it kind of middle of the year. So, I think, given 40 years of history of tight performance, when we see it sort of recalibrate to what we're used to, I think that's a really positive indicator.

I think, externally, you look at the broad macroeconomic indicators and consumer confidence is at a pretty high point. I think we've seen, for example, like in the Mastercard SpendingPulse, they saw in October that there's been a pickup in restaurant spending.

And so, given some of those kinds of indicators that we're seeing both internally and externally, I think they support stabilization kind of back to at least that flat to up 1%. I think that we'll hold back on saying that it's going to be more robust until we see it. But I think it at least supports that..

And I appreciate that. And just a quick follow-up. As far as labor cost per operating week or same-store labor cost, however you want to look at it, they've been pretty similar quarter-after-quarter on a year-over-year basis this year.

Should we kind of be expecting a similar type trend in our models in 2018 or do you expect any type of trend change in that cost line on a per store basis?.

I know, I think that's probably pretty fair. I probably – I wouldn't necessarily model out Q3, given the volatility and the hurricanes, it's going to be a little bit skewed.

But I think if you – again, if you look at where your full year model comes out and use that as an indicator, that's probably pretty indicative given the assessment for 5% wage rate pressure. So, Brian, I think that would be fair..

Okay. Thank you..

And our next question comes from John Ivankoe from JPMorgan. Your line is open..

Hi. The question, I think, has maybe a couple of parts, but the question is on the cost of growth that's in your business.

The cost of growth as it relates to maintaining your same-store sales, maintaining your execution, but also the quantitative side, new unit inefficiencies that exist in the P&L that are outside of pre-opening and, of course, costs that are related to G&A that are reflective to growth because you've always been a growth company for basically 40 years.

So, is there a way for us to begin to think about this company of just like how the P&L could look if you really do sustain a lower level of unit growth going forward, in other words, if fiscal 2018 isn't the bottom and that number of unit development kind of eases down from here? So, just to give some more color of, really, the cost of growth that we can't see in the business that might be a future opportunity to perhaps fall..

Yeah. I think for us, John, then when we look at the 2018, that's a fair question, but our algorithm really and what we look forward for to do is continuing to grow. So I don't think that's an exercise that we're going through at this point in time.

And as we look forward and we see the sites for Cheesecake Factory and we continue to support our international partners and we have the potential to acquire North and Flower Child and we continue to grow Grand Lux Cafe, that's something, I guess, we could think about, but not yet at this point in time.

So I don't know that I would have a good answer for you because we're not doing that exercise..

And if I may – and a question for David. You've obviously lived through many different real estate cycles, economic cycles with this brand.

When you think about the investments of this business in 2019, 2020, do you want to continue to put capital to work this late in the cycle or might you have the opportunity to get similar sites at even a lower price if we wait out some number of years?.

No, I don't think that will happen. I think it's probably only really going to get better. And, yeah, I think it's business as usual in terms of picking great sites, growing again, as Matt said, with our new concepts that will come online.

I think we're in good shape for the future and we are going to keep on opening as well as our international partners..

Okay. Thank you..

And our next question comes from Matthew DiFrisco from Guggenheim. Your line is open..

Thank you. Just had a – I wanted to clarify something I think I missed, but then I had a question.

Did you guys give the traffic and the check in the quarter?.

We did. We're happy to give it to you. Pricing, it was 2.4%, the mix was a negative 0.4%, so the check average was a positive 2%. So then the difference was the traffic. And so, negative 4.3%. But if we look at it from an adjusted from the hurricane, a negative 3.5%..

Okay.

And then your recovery that you're seeing or the strength or the improvement that you're talking about in the fourth quarter, can you sort of look at that regionally? Are there anything – is there an outlier as far as Florida or Texas that you're seeing in a larger pickup in the economy there post and the recovery from the hurricanes?.

Matt, that's a really good question. I think one of the things that we actually look at to kind of gauge whether it's a good stable trend is that it's really kind of across the country. Frankly, we are still seeing the Northeast and Mid-Atlantic not as strong, if there's anything. But it's not like we're seeing one region or another carry that trend.

I think we're just seeing a modest outlook improvement across the board..

And then my last question sort of on the comps also, if you looked at your store base, and I know when we've toured a couple of your stores especially on the West Coast, there has been a heavy amount of refurbishing done and facelifts actually in Hackensack as well in the East Coast.

So, I mean, is 2018 – is there a potential there where maybe some of the BAND-AID is taken off or maybe you've lived through some disruption of the construction going around you with the broader retail and mall environment that maybe there is a – you get the benefit of the rejuvenated facelift that some of these properties went through? Is it meaningful enough that that is somewhat of the optimism in 2018?.

That – you've got sort of two good questions around that. That one, we think is going to continue. What really is happening because we're in the A malls is they're getting reinvestment dollars, and it's really been happening for three or four years now.

And I don't know what – I don't have that – in front of me the number or the percentage of locations that we're in. But there we're getting – they're getting that reinvestment. So, every year, I don't know if it's 10 or 15 of these locations that those mall owners are refurbishing.

So, I would just expect it to kind of continue next year and stay in the same trend, so not be a positive or a negative. But in the long-term, it's certainly a positive because that is definitely going to benefit those properties and benefit us. But that's been an undercurrent for a while and one that we think is generally a good thing..

Excellent. Okay. Appreciate it. Thank you so much..

And our next question comes from Will Slabaugh from Stephens, Inc. Your line is open..

Yeah. Thanks, guys.

Wonder if, as you look back at the last few quarters of sales softness and analyze what's happened, how would you characterize the reasons for the slowdown at Cheesecake? And in particular, given your history of consistency and fairly meaningful outperformance versus the group, and at the same time, what do you think is driving the current improvement, just given those same sort of historical consistencies that you've had?.

Well, I think in the first question, Will, there definitely was just a shift down in consumer spending in restaurants. And I think that's sort been proven out at this point in time. And so, we're not completely immune from that with a national footprint, and I think that that's a part of it.

We have had – and the communication around the mall presence, and that might be 50 basis points to 100 basis points of it, as we've communicated as well. So, we track really closely all of our own operating metrics. We have a lot of measurements around guest satisfaction and ensuring that we're doing everything consistently the same.

We think that the brand relevance is as high as ever based on the research that we've done that our core guests really love us. So, there's no doubt that we got impacted 1% to 2% from some of this fringe, as we've mentioned.

The key is we've held on to our core guests, and so as consumer spending wallet shifts back a little bit toward the restaurants, we will get our fair share of that as well. I don't think much has changed inside our four walls. We continue to get great reviews.

But if anything, we know we have to work a little bit harder, and we need to recapture that 1% to 2%. So we'll work on doing things like having Saturday Brunch, I think that breakfast has been the only growing day part in the industry for the past couple of years.

And so, if we can get a little bit of share of that, that will help us sort of recover that 1% to 2% that was down..

Got you. And then If I could follow up on one comment that you made around kind of the Northeast and Mid-Atlantic not being quite as strong as some of the other areas.

I'm assuming you're seeing a little bit of a hurricane rebound there, and I didn't know if it was possible to quantify what that is and how you're thinking about that playing out throughout this quarter versus the holiday season..

Yeah. I think it's probably, yeah, too early for us to think about a hurricane rebound in the Northeast part of it. With regards to the overall holiday season, I think, as we've said, we don't really expect there to be any difference from how it has been the past couple of years.

I think that you'll have higher peaks and lower valleys, and there's no real holiday shift. Then, I guess, a couple consumer reports that we've seen are calling for a robust holiday spending. So, if that were to be true and it were to be 4% to 5%, then I think we'd all be a little bit happier than we were last year..

Got it. Thank you..

And our next question comes from Gregory Francfort from Bank of America. Your line is open..

Hey, guys.

Can you just talk about the decision to add a little bit of debt to the balance sheet to buy back the stock? And is that something you guys will be open to doing more of, or is it something that you would maybe look to pay back down the debt as you move into 2018 and 2019?.

Greg, I think the way we've communicated our repurchase program is we have several kind of key tenants. One is strategically, so we've been a tremendously consistent returner of capital, and we've reduced waste so a little over 3% a year on average. And so we're going to be in the market pretty consistently every year.

But that being said, obviously, the old credo of buy low is what we also try to do and so, opportunistically, we thought this is a pretty good time to lean into the stock a little bit.

We know we're not contemplating a permanent shift to our capital structure at this point in time, but certainly buying a little bit more and a little bit faster when the stock has been hit, I think, makes a lot of sense. So we'll give further updates on our outlook on that next year.

But right now, it's not meant to indicate anything other than this is the opportunistic time to complete some of our ongoing repurchase program..

Got it. And maybe if I sneak one more in.

Just on the holiday season, are you approaching the holiday season this year differently at all in terms of marketing spend to try to drive customers into the door or I guess any different approach kind of given what the industry went through last year in November and December?.

I think we will continue to do things that we think are on brand, which can be fun, it can be innovative, think about National Cheesecake Day and things like that. It's not going to be a meaningful increase in spend.

It will just be a more creative way to reach our guests, and obviously, we'll continue to utilize digital platforms like social media to do that. And so that – I think I would look more for that, Greg, than just a raw increase in spending..

And we'll continue with our Gift Card program and our Slice of Joy program that we do during the holidays to move traffic into Q1 as well, which has been a very successful program for us..

Got it. Thank you..

And our next question comes from Brian Vaccaro from Raymond James. Your line is open..

Good evening, and thanks for taking my questions.

Just following up on that last one, sorry, if I missed it, Matt, but what was the debt balance at the end of Q3?.

$30 million..

Okay, great. And you mentioned earlier in the call some incremental success on labor productivity and food cost savings initiatives.

Could you provide some more color on each of those buckets and maybe quantify the savings, but also comment on any future savings you might be considering into 2018, any future initiatives?.

Brian, I think what we said is, in order to kind of continue to manage the margins to the Q4 and 2018 guidance, it's a balance between taking a certain degree of pricing and ongoing cost management. And so, for example, on the supply chain activities, can we find some optimization there.

We actually don't look for those big step function changes in our business model and so we're not going to be looking for something significant like that. But we have managed labor I think very tightly this year, and it's really around the processes that we implement within the four walls.

So, it's more of an ongoing strategy than it is, I would say, specific initiatives, and it's that balancing act between pricing and cost management..

Okay.

And, Matt, what were Grand Lux comps in the quarter?.

So, Grand Lux, I believe, was negative 3.5%, but it was impacted even a little bit more by the hurricanes given the presence in Houston and Florida weighted, and that was about 140 basis points impact from for them. So about a negative 2.1% adjusted..

All right. That's great.

And then last one, on the development outlook in 2018, are there any relocations planned at this point?.

No. Not at this point..

Okay. Great. Thank you..

And our next question comes from Stephen Anderson from Maxim Group. Your line is open..

Yes, good afternoon.

I want to ask a – and embedded in your fourth quarter guidance, okay, how should we account for any calendar shifts particularly with Christmas occurring on a Monday this year and the New Year also on Monday?.

When we look at that and obviously try to do a day-by-day assessment, it kind of all nets out, so we're not factoring in any material impacts either way, Stephen. So, hopefully, that will be right..

Okay. Thanks..

And at this time, I am showing no further questions..

Great. Thank you all for joining today. And we look forward to speaking to you on the next call..

Well, ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect. Everyone have a great day..