Stacy Feit - Senior Director, IR David Overton - Chairman & CEO David Gordon - President Matt Clark - EVP & CFO.

John Glass - Morgan Stanley Sharon Zackfia - William Blair Jeffrey Bernstein - Barclays David Tarantino - Baird Nicole Miller - Piper Jaffray Gregory Francfort - Bank of America Andy Barish - Jefferies Will Slabaugh - Stephens Matthew DiFrisco - Guggenheim Jeff Farmer - Wells Fargo Karen Holthouse - Goldman Sachs John Ivankoe - J. P.

Morgan Peter Saleh - BTIG Brian Vaccaro - Raymond James Nick Setyan - Wedbush Securities.

Good day, ladies and gentlemen, and welcome to the Q4 2017 Cheesecake Factory Incorporated Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions]. As a reminder, this call is being recorded.

I would now like to turn the conference over to Stacy Feit. Ma'am, you may begin..

Thank you. Good afternoon, and welcome to our fourth 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. David Overton will begin today's call with some opening remarks. And David Gordon will review a number of marketing and operational initiatives.

Matt will then take you through our financial results in detail and provide our outlook for the first quarter and the full-year 2018, including an update on the impact of the new tax legislation. Following that, we'll open the call to questions. With that, I'll turn the call over to David..

Thank you, Stacy. During the fourth quarter, our sales trends started to stabilize. This, coupled with solid operational performance, drove comparable sales and earnings results within our expectations.

We again saw year-over-year increases in food efficiency and labor productivity and we continue to maintain industry-leading retention at both the management and staff level at our restaurants. We were also very active on the development front with six openings during the quarter meeting our objective to open eight company-owned restaurants in 2017.

We achieved a significant milestone with the opening of our first company-owned International Cheesecake Factory restaurant in Toronto to an unprecedented level of demand. We had over 400 people in line on opening day.

Wait times exceeded four hours for a table, guests lined up for over an hour at the bakery for slices of Cheesecake to go and demand continues to be strong. We appreciate the warm welcome we are receiving and look forward to seeing where we can take the Cheesecake Factory brand in Canada in the future.

Domestically, we opened 40 Cheesecake Factory restaurants during the quarter, as well as our second Rock Sugar which is now serving guests in the Chicago area.

In addition, two Cheesecake Factory restaurants opened under licensing agreement internationally during the fourth quarter, including the first location in Bahrain, and the third location in Qatar, a total of four restaurants opened under licensing agreements in 2017, as expected.

Looking forward to 2018, we continue to expect to open as many as four to six company-owned restaurants, including one Grand Lux Café as well as our first location of a fast casual concept, we are developing internally.

We have signed Letter of Intent for a site in Los Angeles area and pending completion of the lease negotiations, we look forward to launching the concept later this year and sharing more details with you then. We also expect as many as four to five restaurants to open internationally under licensing agreements in 2018.

This includes the first location in Beijing which had a solid opening last month and should be a good barometer for the potential in Mainland, China. Underscoring the strength of our culture and values we've honored to be recognized for the fifth consecutive year as one of the 100 Best Companies to Work For by Fortune magazine.

Once again, we were the only restaurant company on the list, solidifying our position as an employer of choice in this tight labor environment. As we celebrate the 40th anniversary of our founding this year, our steadfast commitment to taking exceptional care of our guests and staff members, has been intrigue to our success.

This long-term mindset guides our strategic initiatives and paves the way for a solid future. With that, I'll now turn the call over to David Gordon for a marketing and operational update..

Thank you, David. Consumer research that we completed in the second half of 2017 identified an opportunity to raise awareness with our guests that we prepare our 250 other menu, fresh from scratch and daily in our restaurants.

Our marketing team is in the midst of a meaningful digital and social media campaign highlighting our fresh high quality ingredients and preparation techniques. Utilizing video influencer marketing and other PR we are generating great engagement and guest education.

We have also supported our off-premise business with creative on brand campaigns in conjunction with our main delivery partner. On December 6, we celebrated the holidays early, with a day of 10,000 slices during which we planned to deliver 10,000 complimentary slices of our legendary cheesecake to our guests.

Demand was so strong that we decided to increase our offer to delight even more fans across the country. This drove our strongest week ever of delivery sales and we expect the visibility we received to raise longer-term awareness of our delivery offering. Our takeout business increased to 12% of sales in 2017.

Delivery via third-party provider is now available in approximately 90% of our locations. We deployed point-of-sale integration with our main delivery provider which is driving operational improvements and efficiencies in the restaurants while enhancing the guest deliver experience.

And, as we continue to look for ways to meet consumer demand for convenience, our nationwide rollout of online ordering For to Go orders is well underway. We expect all domestic Cheesecake Factory restaurants to be live with online ordering by the end of March.

We believe these initiatives will support continued growth of our off-premise sales moving forward. We are leveraging our new guest satisfaction platform to engage with our guests and identify areas of opportunity to further improve both dining and takeout experiences.

Satisfaction scores are highly correlated to comp store sales performance, and over time, we believe learnings from this platform will contribute to our top-line growth.

To further increase brand awareness, and provide other convenient ways to experience the Cheesecake Factory, we're continuing to leverage the power of the brand via new products in the CPG channel.

We just launched our famous brown bread currently available in three formats in grocery stores in the Southeast with nationwide distribution and major retailers anticipated soon. This was a significant story in the media with the likes of food and wine, BuzzFeed, Hip-Hop Sugar, all promoting the product.

Our guests are thrilled to have the option to experience one of their favorite parts of the Cheesecake Factory at home. And this addition also rounds out our current portfolio of the Cheesecake Factory at at-home products available in retailers across the country. And with that, I will now turn the call over to Matt for our financial review..

Thank you, David. Total revenues for the fourth quarter of 2017 were $571.8 million as compared to $603.1 million in the prior year period. As a reminder, the fourth quarter of 2016 had an extra operating week which contributed approximately $54.7 million of sales and about $0.07 in diluted earnings per share.

Comparable sales declined 0.9% at the Cheesecake Factory restaurants on a 13-week versus 13-week basis. Recall that we were lapping solid results in the fourth quarter of 2016, which is particularly notable relative to the broader industry weakness seen during that period last year.

Accordingly, we believe it is more meaningful to evaluate our performance on a two-year stack basis. Our two-year comp outperformed the industry as measured by Knapp-Track by 260 basis points. External bakery sales were $17.2 million in the fourth quarter.

Cost of sales was 23.4% of revenues, an increase of amount 20 basis points from the fourth quarter of last year. This was primarily driven by modest inflation in groceries and dairy. Labor was 34.5% of revenues, an increase of about 90 basis points from the same period last year.

A majority of the increase was attributable to higher hourly wage rates as expected as well as some deleverage. Other operating costs were 24.7% of revenues, up 80 basis points from the prior year. This was primarily driven by higher marketing costs, occupancy expenses, and repairs and maintenance.

G&A was 6.1% of revenues in the fourth quarter of fiscal 2017, down 30 basis points from the same quarter of the prior year. This was primarily attributable to a lower bonus accrual and lower stock-based compensation expense, partially offset by higher legal costs.

Pre-opening expense was approximately $7.6 million in the fourth quarter of 2017 versus $7 million in the same period last year. Finally, during the fourth quarter of 2017, we recorded a pre-tax non-cash impairment charge of $9.1 million related to one Cheesecake Factory restaurant and one Grand Lux Café.

In the period we also recorded a $38.5 million benefit to our tax provision from a revaluation of our deferred tax assets and liabilities related to recently enacted Tax Reform. Excluding the impairment and tax benefit, I just referenced, adjusted earnings per share of $0.53 was in line with our expectations.

Cash flow from operations for 2017 was approximately $239 million, net of roughly $120 million of cash used for capital expenditures, and $18 million in growth capital investments, we generated about $100 million in free cash flow for the year, and we returned nearly $175 million to shareholders via our dividend and share repurchase programs.

That wraps up our financial review for the fourth quarter of 2017. Before we move on to our outlook for the first quarter and full-year of 2018, I will provide a brief review of the estimated impact of the new tax legislation on our corporate tax rate.

These assumptions are based on our analysis of information available thus far, but could change as we receive further clarity on the interpretation and application of the various components. With the new U.S.

corporate statutory rate of 21% and the FICA tip credit preserved, as well as various other pushes and pulls, we now estimate our corporate tax rate for the first quarter and full-year 2018 to be approximately 13% to 14%. Now for the rest of our outlook.

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 first quarter of 2018, we're estimating a return to positive comparable sales in a range of 0.5% to 1.5% at the Cheesecake Factory restaurants and diluted earnings per share between $0.66 and $0.70.

Turning to full-year 2018, we are now estimating diluted earnings per share between $2.64 and $2.80 based on an assumed comparable sales range of flat to up 1% at the Cheesecake Factory restaurants. On the cost side, we continue to see food inflation of 3% for our 2018 market basket.

This reflects inflation across most of our categories notably higher poultry, dairy, and produce costs. We expect this inflation to be front-end loaded with approximately 4% estimated in the first quarter and then expected to moderate each quarter for the balance of the year.

Our procurement team is continuing to evaluate our supply chain to identify potential areas for savings to help mitigate some of the cost pressure we're seeing. Our guidance range also continues to assume wage rate inflation of approximately 5% in 2018.

As David discussed, our staff member retention is strong which the best defense in this current labor environment. We're also continuing to move forward with more market based pricing where the wage pressure is most concentrated to help mitigate rising labor costs.

Looking further ahead, as we celebrate our 40th anniversary this year, and plan for the future, we are making long-term strategic investments to scale the business to support the next phase of the Cheesecake Factory's growth. Our West Coast bakery infrastructure upgrade is underway with anticipated completion this summer.

This will provide us with a more modern and efficient production facility to serve our growing domestic and international restaurant base as well as third-party customers. We also expect to begin implementing the first phase of a new ERP and human capital management system this year.

We anticipate approximately 20 basis points of margin pressure associated with this implementation in 2018, but target maintaining our baseline G&A in the 6.4% to 6.5% of sales range in line with recent years.

Based on the benefit from our new tax rate in 2018, partially offset by ongoing industry labor pressure, the high end of our earnings per share guidance range assumes we meet our objective to maintain a flat net income margin on an adjusted basis in 2018.

We now expect our cash CapEx in 2018 to be between $90 million and $105 million including as many as four to six planned company-owned openings. We currently anticipate growth capital contributions to range between $20 million and $25 million. In aggregate, our anticipated capital spend is in line with our prior two-year average.

In closing, our restaurants generate a substantial amount of cash and we plan to continue to balance investing for growth, while maintaining our dividend and share repurchase programs in 2018. 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]. Our first question comes from John Glass of Morgan Stanley. Your line is open..

Thanks very much.

Matt could you just maybe just clarify, your change in guidance, is that solely due to the change in the tax rate now your other underlying assumptions are the same, it seems to be but I just want to clarify that? And does that presume then you're not reinvesting some of the tax benefits as others have either in labor or other aspects of the business?.

Yes, so John, most of the key assumptions are similar to what we said the last quarter. I think you’re correct on that including importantly returning to a positive sales environment for us.

With respect to the tax piece of it, obviously, we were able to take the bottom end of the guidance off the table which we view that as a positive and slightly raised the top end and that's the main driver.

But we're also looking at really three parts to sort of the tax savings, part of it is in the earnings, part of it we will look to continue to invest in our staff members in various ways, and part of it is we're able to evaluate and move forward with some of these strategic initiatives such as the ERP at corporate.

So it's kind of a balanced approach and a little bit of each, if that makes sense?.

It does.

And you used the term growth CapEx is distinct from CapEx and so I wasn't sure what that meant and is that, it's all part of CapEx, is that part of CapEx, or is that in addition to CapEx and what is that specifically?.

No, the CapEx is the cash CapEx, please, and then, we have a secondary component which is sort of the growth capital contributions that we're making to our partners at North Italia and Flower Child. So there is two pieces to it..

Our next question comes from Sharon Zackfia of William Blair. Your line is now open..

Hi good afternoon. I guess a follow-up on John's question, so I think the math on the taxes is north of $0.30.

So are you reinvesting half of that roughly or more back in the business?.

I would say maybe a little bit more than half, yes..

Okay..

That's about right, Sharon, and then, you can see the other piece of it really coming at the bottom end of the guidance range and narrowing that..

When you say investing in the staff members, is that more about back of house that you're raising wages, I presume the tip waiters are pretty stagnant..

Yes, so a little bit and actually across all the staff, not necessarily specifically in raising wages, could be in other benefits, and also it is across some of the things we're going to be doing for our management teams..

Okay. And then a question on the fast casual concept, I know your plan not to want to going to want a talk a lot about that at this point, but can you give us kind of a trajectory on how you strategically are thinking about it.

So you open one, how long do you sit and watch it, what are the parameters you look to for success, and how quickly would you think about opening a second or third?.

I think that we probably don't need to wait a long time, I would say maybe six months or so just to make sure our profitability is right, and we have everything balanced. And then we would look for another site once we feel really good about it and make sure that we've done all the right things operationally. So that's what is happening. We're excited.

We're working on a little bit everyday and we'll see where it goes..

Our next question comes from Jeffrey Bernstein of Barclays. Your line is now open..

Great, thank you very much. Two questions. One just specific to the comp, the comp looks like it came in at 7.9, I know that was I guess the low-end, you're flat to down 1 that you were expecting when you last spoke early in the fourth quarter, but I'm trying to just compare that to your commentary that sales seem to have stabilized.

So wasn't sure if that was implying that sales trends have improved more recently or again being that the comp came at the very low-end of the range, I just wanted to get a little more color maybe on the trends through the fourth quarter and into the first quarter or kind of how you quantify the stabilization remarks..

Sure. I think it's two-fold. When we look at the quarter versus where Q3 was, it obviously was a moment in the right direction. And I also think throughout the quarter sort of the cadence of our performance was that it continued to improve.

I'm not sure we saw as much of a benefit on the rebound from a hurricane activity as maybe some others did, but we saw the positive momentum continue and then obviously sort of reading into our Q1 guidance we think that that momentum is going in the right direction..

Got it. And then, just broadly on the cost side, I mean the restaurant margins were under significant pressure in 2017. As we now look to 2018, can you just maybe size up, I mean again with the comp that you are projecting of flat to maybe plus 1, but we know food is up 3, and labor is up probably 5 again.

So should we be thinking of the restaurant margins under somewhat significant pressure again or do you think maybe there's a pricing component or some other cost saving initiatives that you anticipate would help to mitigate some of those pressures and allow you to protect your restaurant margin..

Yes, I think if you just dial back to the full-year of 2017, the math is pretty consistent with what we would expect going in and saying that a 1% comp is where we need to hold the margins flat, we were roughly a negative 1% for the year.

And so doing that flow through and adjusting for the 53rd week in 2016 and the speed at which some of the sales movement happened, I think that that was probably realistic to expectations.

Going into 2018, we're looking at slightly lower operating margins offset by the tax piece and we kind of view that really looking at the net income line at this point in time as kind of a trade-off in the short-term.

The big driver in the margins is really minimum wage on the labor line and so that sort of a government push on that end and we get some of that back from the government on the bottom-line.

So we're looking at holding the net income percentage flat given that we're reinvesting some of that savings back into the business too and so that's sort of our thought process going into 2018. And I think roughly speaking at the 1% net of some of those investments that's where we think we can hold restaurant margins flat.

We would look to prudently rebuild those margins in a normal sales environment, right. The first thing we want to do is protect the guests and make sure that the long-term view of the concept is intact and as we get a year of good sales, I think we can continue to build the margins back up..

But we should still assume that market-based pricing, I think you said ultimately the blended pricing will be no less than 2.5% in 2018, so that is still a fair assessment that you'll be running price at least 2.5% for 2018?.

Yes, I think that's a great point on that, as though we think about its somewhere north of 2.5% to 2.75%.

But again one of the main themes around pricing I think in our industry is really that's an average and you have to look more at markets as we're doing today in those markets that have the higher minimum wage are going to get a little bit more pricing than those that aren't taking as much there and it's a sort of balance those pieces out.

So that is correct on the pricing assumption..

Our next question comes from David Tarantino of Baird. Your line is open..

Hi, good afternoon. Just a couple of questions on the sales trends. First, Matt, could you provide a breakdown of the comp composition for the quarter in terms of pricing, traffic, and mix..

Sure. Q4 we had 2.5% pricing, traffic was down 2.8%, and mix was the difference at a negative 0.6%..

Got it. Okay, thank you very much.

And then, as you look into the first quarter, it seems encouraging that you've seen some improvement can you maybe talk about what you think is driving that improvement, if it's the better spending environment, maybe just a function of comparisons or do you think there's something internally that's driving the specific improvement you're expecting?.

Yes, yes, and yes, David. I think, we're seeing a more, what we would consider more normal spending environment and some of that is lapping over initial softness last year as well.

So I think that that's a piece of it and that's how we started to see really last quarter when we gave the guidance and I think for the fourth quarter a little bit more normalization in the patterns and I think it's the pieces that we've been working on as well where we have more to go business and delivery.

We had very great adoption from the special card that we put out last year and I think we're getting some guest traffic as we move forward. So I would say it's a little bit of each of those pieces..

Great. And then last question I guess a bigger picture question on traffic and I think David mentioned a consumer study that you did in the second half and sounds like you have some interesting marketing insights coming out of that.

But I guess was there anything in that research that that sort of pointed to a specific opportunity other than sort of highlighting your culinary expertise that that would be a specific traffic driver or traffic opportunity going forward.

And I guess what I'm getting at is there -- was there anything related to the value proposition or anything you can do around sort of value perception to drive better traffic trends going forward..

I think Matt mentioned, the special menu that we rolled out in the middle of last year with some of the lower pricing points and the breadth of the menu in the press -- the breadth of the pricing on the menu is always an opportunity to make sure the guests see that and realize that and that's why we did the special menu card outside of the menu to highlight those items.

And I think we saw that be effective. So there was maybe a little bit around value, but more importantly it was -- it really was about guest wanting to understand and once they really did here although they tasted every time, they eat the food that were making all those items from scratch every single day. It really seemed to be meaningful for them.

So the marketing we have done this year whether it's our made fresh messaging, we have some videos that we've rolled out, we'd about 4 billion media impressions in 2017. We think that messaging is slowly getting out there and then executing on that obviously within the four walls of the restaurant is going to be key..

Our next question comes from Nicole Miller of Piper Jaffray. Your line is now open..

Thank you. Good afternoon.

When you look at the international openings for 2018 where those opening existing regions of the world are you opening up to a region?.

They're in the Middle East, so they're in existing markets, they're not in new territories..

And then just in total when you think about the latest international openings versus the stores that have been opened for a few years how would you compare and contrast the performance of those? And a second part to that when you look back at the stores have been opened for a while, is it a good question to ask you how do the comp of those stores or how would you measure performance of those? Thank you..

I think we feel really confident in our continued performance whether it's the newest restaurant we just opened up in Beijing which is in a relatively brand new mall that is doing very, very well, still continues probably to be the second busiest restaurant that our partner has after the Cheesecake Factory that's opened in Hong Kong.

So we continue to be received well even in the new territories, and last year, as David said, we opened our third restaurant in Qatar. So there's three restaurants in Qatar that are within 30 miles of each other all doing over our regular system average domestically.

So we continue to see very strong demand in our regional first restaurant in Dubai mall, still continues to be our second busiest restaurant in the entire company.

So if you think about that from a comp perspective the growth continues to be very strong and the demand and the affinity for the brand in some of these parts of the world really is very strong..

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

Hey, I just had one clarification and a question. Just did you say both the net income margins and the restaurant level margins will both be flat or at the high-end of the guidance or flat year-on-year.

And then my question is if I just look at the comp guidance for the quarter and then the year I think it basically assumes a slowdown in the back three quarters of the year and I'm guessing why is that or is there some conservatism baked in there? And then, as you look at your improvement from the fourth quarter to the first quarter, I think the whole industry has seen somewhat of a slowdown and you guys have widened your outperformance versus the industry, can you talk about what you think is driving that specifically.

I know there's a lot in there..

Okay, let's tackle them one at a time, Greg, no problem. So just for clarity on the margin piece at the high-end of the range we are saying that net income percentage would be on an adjusted basis equivalent but there would be some offsetting pressure in the restaurant margins.

So maybe 50 to 60 basis points in the labor line, but benefited on the tax line to equal out on net income, okay?.

Understood..

Okay. On the second piece, I think that there's a couple things.

One the range in the first quarter we do anticipate there's a lot of benefit from the way that the spring break shift comes in and so I think that that's 25 basis points plus and then it's just not enough to round the rest of the year any different way, so I think it's just a matter of math.

I don't think we have a very different perspective at this point relative we'll see how the quarter goes and then into next quarter but it's pretty consistent both the shorter and longer-term perspective with that one holiday shift in mind. And I think the -- yes, go ahead..

Thank you. No. I was just going to ask the last piece sorry. Good job..

Was around the gap and I think it's we look at just I guess maybe is the best way I would conceptualize it we look at it much more on a rolling six quarter basis.

There's always a lot of noise and the holiday shifts and the weather shifts and lapping performance that maybe on a one quarter to next quarter sequentially it may not give the best perspective.

But we track our gap versus the industry on those rolling six quarters and I would tell you it's a pretty defined range we're somewhere 1% to 1.5% better on that rolling basis. So I think that's an easier way to think about rather than trying to guess what changed from last month to this month and there are so many factors involved as you said..

I completely understand. Thank you for the perspective..

Our next question comes from Andy Barish of Jefferies. Your line is open..

Yes. Are you on the cash back to shareholders are you anticipating sort of similar amounts of buyback in this year's capital allocation plans, Matt..

I think our general plan is to return all free cash flow and you can do the math and it might be a little bit less than it was in 2017. But just keep in mind that it's also based on the way that we structure it with the 10b5-1 grids and when the stock goes lower, we buy a little bit more, when the stock goes up we buy a little bit less.

So I think the math contemplates a little bit less, but it will be predicated a little bit on the vehicle as well..

Our next question comes from Will Slabaugh of Stephens. Your line is open..

Yes, thanks guys. I had a question on delivery. Can you give us your early assessment on the lift that you're seeing if it’s quantifiable at this point? If you have any feel for incrementality as well and then also any profitability implications as that's been launched..

I think most importantly for us I think as we look at total to go sales and we believe delivery is a driver of the total off-premise sales. If you go back and look at 2016 there were about 11%, 2017 it moved up to 12%, and even north of that in the fourth quarter of last year.

So we do believe that a portion of that is being driven by the delivery business. Not to get into the details above the profitability we feel like the incrementality we are getting is covering the profitability that we need and any additional cost that there may be.

And so, so far it's been very, very successful and we're very happy with our delivery partners as well and the integration we've done into the POS where 90% of the Cheesecake Factory is now. So it's the beginning of this delivery journey and we're going to continue to execute at the highest level because we know it's what, where the guest demand is..

Great. And just a follow-up if I could on the awareness comment and then increased marketing spend.

So as we know in the past Cheesecake has not been a big marketing company and you're putting some more dollars toward building that awareness around your ingredients and preparation; is there anything to report so far in terms of either through pulling your customers or anything that they've shown to be able to say that they've sort of recognized that and you've been rewarded for that so far; or is this something that we're supposed to see in the coming quarters..

I think it's early but just to clarify we have not increased our marketing spend and everything we're doing the videos, the social media influencers, everything we've done to get the 4 billion impressions we got last year was really at no additional marketing expense.

So we've been doing that, it's been about six months now, and is still pretty early, and so I think the results are still yet to be seen..

Our next question comes from Matthew DiFrisco of Guggenheim. Your line is now open..

Thank you. I just have a couple follow-up questions and a couple of specific things you said about the takeout I think you said was 12% of sales or was that; is that including delivery as well or is that --.

Yes..

What percent is delivery within there?.

That's total to go sales for 2017..

So obviously, you’re trending higher than that as the year ended and more stores have delivery?.

Overall takeout was trending higher as of the fourth quarter..

Okay.

Would you disclose that for us on what that is?.

I think Matt we would take that trajectory to believe that we'd be in the 13% to 14% range in 2018. So hard to know exactly but we believe we can continue to grow it off the 12 base, so a 1% to 2% rate..

And is that primarily delivery or can you give us a base of what that was a year ago just for context?.

I think delivery is making up the biggest piece of the growth area. I think to go in general is a growth opportunity for us. And so we will continue to look at ensuring we have as David said great execution and we're currently rolling out our own online ordering platform that will be available in all of our restaurants by the end of this quarter.

So I think that's just a growing category but the bigger piece of the growth for last year at least was in the delivery side..

Would you be able to disclose what this was for 2016?.

I don't have 2016 in front of me but we can get back to you on that..

Okay.

And then, I think I might have missed it, did you give a pre-opening number for 2018 because I was just curious if one of those openings is planned to be New York?.

Our pre-opening is above call it $9 million to $9.5 million is sort of where and that obvious includes the direct and the indirect piece of it. And depends on how many openings we end up within that -- in that four to six. So even if we have higher cost areas of openings, it will also vary depending on the exact number that we end up with..

Okay.

I'm just curious if would you call out if the New York City store would be opening in 2018 like you did the Hawaii store because it would be a larger pre-opening presumably?.

I think that would be exciting and so as we figure out if that's a site that would make sense for us and we get farther down, I'm sure you will hear about it..

Our next question comes from Jeff Farmer of Wells Fargo. Your line is open..

Great, thanks.

Just one quick follow-up, you guys did discuss some consumer research but are there any customer satisfaction or speed of service metrics that shed any light on the larger traffic declines that you guys have seen in recent quarters?.

So we just launched in the fourth quarter of last year, our new platform for guest satisfaction survey, so it’s still early, we’re just gathering all the data, we need to have a really good sample of information to be able to directionally use that data to inform those types of decisions. So it's still little too early..

Okay.

And then I heard the wage rate inflation guidance, the menu pricing guidance sounds very similar to what you saw in 2017, so is it fair to assume that you could potentially approach another year of 100 basis points of labor cost pressure in 2018 versus 2017?.

I don't think it will be that much for a couple of reasons. One is that we're lapping a 53rd week and so that's part of it. I think the other piece is it will depend on sales and certainly the comps we were in 2017 there was a little bit of deleverage pressure within the labor line item.

And so what we said is we think at the high-end, it’s more like 50 to 70 basis points and that includes some of the investments that we're making as well..

Okay.

And then just one more I believe I missed this but you discussed any calendar shift headwinds or tailwinds for that 1Q same-store sales number?.

Yes. In first quarter, we think that there could be a benefit from the spring break shift maybe 25 plus basis points in Q3..

Our next question comes from Karen Holthouse of Goldman Sachs. Your line is open..

Hi thanks for taking the question. Just kind of focusing on your still negative menu mix and digging into that a little bit, I would think that sort of accelerating growth in off-premise would actually be a nice tailwind there.

So just what are the drivers of that, is that correctable is it a reason it’s not necessarily a bad thing, any color you have there?.

Yes, I think it's a good question, Karen. When we look at sort of the -- if you take the full-year, it's 20 to 30 basis points although accelerated a little bit as we went through the year.

I also think most of that is attributable to the value we put on the menu through the special card and we view that as a positive it's just because we had such good adoption of it and longer-term that will be a benefit.

And then obviously as we lap back around that we would expect it sort of to normalize again, so we don't view that as a problem in the short-term..

Is there anything that suggest, one of the things that we've had more conversations about is the pace of redevelopment of mall space? Are you having a sort of incremental mix challenges in areas where you might be seeing sort of higher end competition coming to the mall?.

No, I mean I think that it has been as we have discussed for five or six years there's been more restaurants moving into malls and more developments, but that not really from a competitive perspective.

We like that revitalization in those areas and I think that we're just viewed very differently as a mini anchor and really those are in some instances much more chef-driven smaller concept, so I don't think it's been a competitive situation for us..

Our next question comes from John Ivankoe of J. P. Morgan. Your line is now open..

Thank you. And first a clarification, Matt, you mentioned G&A baseline at 6.4% to 6.5% I think in fiscal 2018.

Does that include the incremental spend around the ERP and human capital?.

No, so to answer your question, it's 6.4% to 6.5% plus the 15 to 20 basis points for the ERP and human capital management..

And I know it's splitting here but I mean do you think that's a discrete event in 2018, so you get the leverage in 2019?.

That's a great question. I don't know that we have enough, we'll provide more clarity as we get through the year, I do think that there possibly could be some spillover into next year, but ultimately it will come back and as we progress, John, we will give you more color..

Okay, all right. Thank you.

And obviously you guys think 24 months maybe even sometimes more in terms of your site pipeline, your free cash flow generation it's good as always has been, but like what are you thinking at 2019 at this point obviously where our models are certainly heading, both in terms of the number of company-operated stores and if it's possible that, if it's not too early to give us at least some guardrails around CapEx that might come as a function of those openings in any planned remodels?.

Yes, I think for this year we talked about four to six being prudent because some of the real headwinds last year not only in the operating environment, but also in the CapEx side of things and the construction environment.

Our longer-term goal is 3% to 4% for the unit growth from a core business and that's what we would expect at this point in time absent anything else. We'll give more specifics as we get closer and we also have to evaluate our partnerships with North Italia for example and what that commitment could mean.

And so I don't know that we have an exact number for you today, but certainly will provide that as we get closer..

And certainly no it's early but no reason to expect 3% to 4% isn't the number I guess for 2019 at this point?.

That's a long-term objective for us. We will -- I think we'll evaluate the construction environment, we will evaluate the overall restaurant environments, and we'll look at the size that come before us. So I think it's we continue to be nimble in delivering total shareholder return..

Our next question comes from Peter Saleh of BTIG. Your line is now open..

Great, thank you. I think you've mentioned that in March you'll launch online ordering nationwide. Just curious how you plan to build awareness around that capability going forward once it's nationwide and how quickly do you think you can transition folks or customers to this platform..

We have currently in the restaurants we've already launched we have in-restaurant marketing materials that are up. We also have some search engine optimization online that we will be using as we rollout across the country, and our ability to enable people and to persuade them to not sit on hold and to go on use online ordering.

We will try to do as fast as we can, we think it's more convenient, it's easier, it's better for the guest, it's more seamless, and it's better for the restaurant. So we're going to do what we can, while being financially prudent, so let guests know that's available..

Great, thanks. And then my second question is on the food inflation side I think you said 4% inflation in the first quarter and then moderating.

What gives you confidence that it will moderate throughout the year and not stay at this level is it more just comparisons or is it what you have locked, how should we'd be thinking about the moderation as we go through the year?.

You really nailed both pieces. It's the fact that there are certain comparisons year-over-year in some of those categories that we are locked in I mean typically at this time we're contracted about two-thirds and so we have some good visibility just into the seasonal shift year-over-year on those trends..

Our next question comes from Brian Vaccaro of Raymond James. Your line is now open..

Thanks. Good afternoon.

So towards the beginning of the call, David, you mentioned some food efficiency and labor productivity savings that you realized in 2017? Would you be willing to quantify the magnitude of those savings and then also touch on potential cost savings initiatives you'll pursue in 2018?.

So I think that when we looked at just ongoing improvements in productivity and labor.

We referenced basically that despite the sales environment when we measure things such as guest per labor hour, or sales per labor hour, we actually improved year-over-year in each of those categories as well as food efficiencies when you compare theoretical to actual.

Really when we look at kind of the environment and savings initiatives a lot of what our objective is this continuous improvement and making sure that we can limit whatever the de-leverage is or impact from the lighter sales environment. We typically go through a very rigorous planning process, and have a rolling quarterly forecast.

We're looking at all of our restaurants from a bottom up and evaluating the opportunities and the bottom quartile performers to bring them up to be a more of a seasoned system wide average and so I think really when we look at it, that was we're referring to, Brian..

Okay, that's helpful.

And then, sorry if I missed it, but what was Grand Lux comps in the fourth quarter?.

Positive 0.1%. So we have volatility because there's not that many in the comp base but we do have good performance particularly in the Las Vegas locations and move them up into the positive category..

Our next question comes from Nick Setyan of Wedbush Securities. Your lie is now open..

Thanks for taking the question. In terms of the quarter-to-date comp are there any geographical differences that are worth calling out or was that an acceleration across the board..

Nick, we don't give the color in the interim quarter. I will say that in the fourth quarter we did have half of our geographies as positive.

And I think also in the fourth quarter and you can extrapolate this, we saw broad-based improvement and California, Texas, Florida, continued to be very solid markets, and I think that the sort of the upper East Coast continues to be a little bit softer, so that's what we saw in the fourth quarter..

Got it.

And just specifically on the other operating costs, aside from the 90 basis points of the lower comp or the de-leverage coming from the lower comp; is there any other moving pieces I mean in terms of the delivery piece versus some other pieces that drove the de-leverage in Q4 and how should we think about those pieces as we move into 2018?.

Yes, so two things on the other OpEx. One, the delivery commission does go into that line item and I don't know that it's very large, but certainly a couple of tenths. The other things that we saw in 2017 in general was just some bumpiness with respect to RNM.

Regarding 2018, we essentially factored those trends into our guidance, and so I think that we have provided for a reasonable estimate for each of those pieces for the bottom-line..

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

Thank you. I'll make it quick.

Hey just with respect to someone was asking before about the mall and changing around a traffic and negative traffic, curious have you guys revisited in the context of so much persistent negative traffic to maybe revisit marketing and taking some of the tax savings and looking to maybe draw in the traffic that otherwise the real estate would have done in years past but now that retail tenants aren’t driving the people to the stores as much, perhaps you have a different view of marketing now?.

I think the most effective margin for us Matt, is still as David Gordon mentioned the Social Media Avenues. 85% to 90% of our guests are coming to us as a destination and I think there is definitely the headwind in the malls and when we quantified that before we think it’s 50 to 100 basis points.

And so really rather than trying to drive it through marketing we believe that looking at other ways to drive convenience for those guests just might not want to come to the mall through delivery or making their to go experience through online ordering, we think that's a more effective way in conjunction with the Social Media platforms than just sort of traditional marketing..

And I'm showing no further questions at this time. Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day..