Oct 23, 2008
Executives
Jill Peters - Investor Relations David Overton - Chairman of the Board, Chief Executive Officer Matt Clark - Vice President, Strategic Planning
Analysts
Steven Kron - Goldman Sachs Matt DiFrisco - Oppenheimer John Glass - Morgan Stanley Bryan Elliott - Raymond James & Associates Destin Tompkins - Morgan Keegan John Ivankoe - J.P. Morgan Mitch Speiser - Buckingham Research Keith Siegner - Credit Suisse Jeffrey Bernstein - Barclays Capital Steve Anderson - MKM Partners
Operator
Good day, ladies and gentlemen, and welcome to the third quarter 2008 Cheesecake Factory earnings conference call. (Operator Instructions) I would now like to turn the presentation over to your host for today’s conference, Ms.
Jill Peters, Vice President of Investor Relations. Please proceed, Madam.
Jill Peters
Thank you. Good afternoon and welcome to our third quarter earnings call, which is also being broadcast live over the Internet.
Also with us today are David Overton, Chairman and Chief Executive Officer; and Matt Clark, Vice President of Strategic Planning. Before we begin, let me quickly remind you that during the call today, 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 differ materially from those stated or implied in forward-looking statements as a result of the factors detailed in today’s press release, which is available in the investor section of our website at 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.
On the call today, David will begin by providing some opening remarks and Matt will go through our operating results in detail, and then provide our current expectations for the remainder of 2008. David will share some final thoughts and then we will open the call to questions.
Without further delay, I will turn the call over to David.
David Overton
Thank you, Jill. I’ll start off with an update on our CFO search, as I know it’s a topic of interest to all of you.
Our executive search firm, Spencer Stewart, has been identifying well-qualified and talented individuals and presenting candidates to us for consideration. We have been interviewing and assessing their qualifications and fit and shortlisting candidates for subsequent rounds of the process.
Recognizing the importance of this position, our goal is to hire a CFO as soon as possible, although it is difficult for us to pinpoint a specific timeframe for that to happen, but we will keep you updated on the progress. While we continue our search, our interim CFO, Cheryl Slomann, has been doing an excellent job managing the accounting and finance area.
As to the quarter, overall revenues and comparable sales came in within our guided range, albeit at the low end. Guest traffic was about flat relative to the second quarter, despite a significantly more difficult quarter resulting from numerous high viewership events that took place during the quarter, hurricanes, and other disruptions for dining occasions.
We are in the midst of unprecedented times, with the global financial crisis, housing market crisis, and rising unemployment destabilizing consumer confidence. In addition, cost pressures are further squeezing restaurant operators’ margins and like many others in casual dining, our earnings were impacted by spikes in commodity and energy costs, although these costs are leveling out from their highs and we are beginning to see some moderation in those pressures in Q4.
Consumer spending remains tight in this economic environment but we believe we are positioned to compete effectively for casual dining market share. While The Cheesecake Factory’s popularity was built on positive word of mouth, we recognize the need in this environment to be proactive and build a formalized approach to marketing our brand.
Our efforts are focused on reaching consumers through high quality marketing initiatives that fit well with our brand positioning. Our concepts are highly differentiated in the industry and we offer guests an unparalleled total experience -- the quality of our food, the innovation in our menu, the inherent value of our shareable portions, the ambience of our restaurants and our commitment to hospitality are tenants of our brand that will continue to distinguish our concepts from others in casual dining and maintain our strong competitive positioning for the long-term.
Near-term, our focus is on three areas -- stimulating sales, managing our margins and protecting our balance sheet. We kicked off our sales initiative in conjunction with our 30th anniversary celebration on July 30th, national cheesecake day, where we offered every slice of cheesecake at the 1978 price of $1.50 per slice.
The response was phenomenal, with guest traffic up 59%. We served almost 335,000 guests that day and lines were long, but guests were willing to wait to be part of the event, demonstrating the power of our brand.
One of the other key learnings from this event was our ability to effectively reach consumers without having to use a national advertising campaign to do it. We used satellite media and radio tours, as well as viral strategies to get the word out and this low-cost strategy proved highly effective.
In fact, The Cheesecake Factory was the most searched phrase on Google at one point during the day, and I think we ended up the day with it being the second-most searched. Our current initiative, which got underway at the beginning of October, is a 30th anniversary guest card program.
During the first two weeks of October, we showed guests our appreciation for their support over the past three decades with a special guest card for use on a subsequent visit. The offer varies from a complementary slice of cheesecake to $10 off the guest’s next visit.
The redemption period began this week so data is limited but we are excited about the program, as it’s a new avenue for us to encourage incremental visits. In addition to internally generating marketing initiatives, we continue to partner with American Express and MasterCard to leverage their casual dining consumer spending data.
We conducted a targeted direct mail offer with American Express in the Los Angeles market in late summer. The redemption rate of 11% far surpassed the average redemption expected by American Express, which again we believe speaks to the popularity of our brand.
In addition to using marketing as a sales driving lever, we continued to leverage the strength of our menu as a means of stimulating sales. We have a number of test menus in our restaurants at various price points which are a complement to our full menu.
These test menus allow us to conduct in-restaurant marketing of our menu in a high-quality way that is unique for us. One of these has a distinct value orientation, providing more options to guests at moderately lower price points in order to respond to their changing needs.
Four of the items on this menu are the number one in their respective categories and we are pleased with guest response to this offering. The breadth of our menu provides us with a strong platform with which to consider a variety of menu options to maintain our relevance to guests, both in terms of food and flavor, as well as portion size and price point.
As we talked about previously, we are also maximizing our delivery channel to provide guests with multiple options in using our restaurants and to ensure that we maintain market share in off-premise dining, whether it’s to go, curb-side, or delivery. About 43% of our restaurants now have home delivery service available.
In addition, we launched our catering initiative in two restaurants in Southern California in September and we are ready to expand it somewhat. On the cost side, we implemented a number of initiatives to enhance our margin management, mostly relating to labor and utility costs.
First with the full rollout of our kitchen management system completed this summer, we reviewed the opportunity to modify the expeditor role in our restaurants, since one of the benefits of KMS is that it automates the process on the cook line. As a result, we reduced our restaurant labor cost by about $5 million on an annualized run-rate.
We will realize about $2 million in labor savings in 2008 from this effort alone. On the utilities side, we continue to evaluate the benefits of the recently expanded program to manage our energy usage and utility costs.
We saw savings of about 25 basis points in the initial group of restaurants testing the program and currently almost 20% of our restaurants are on the program, with plans to continue rollout. We remain focused on driving sales and actively examining our infrastructure for opportunities to streamline our operations and reduce our cost base without sacrificing guest service.
Lastly, I will provide some color on our recent actions regarding our share repurchase plan as it relates to our objective of maintaining a liquid position and strong balance sheet. Last week we temporarily suspended our share repurchase authorization and terminated our 10B51 share repurchase plan.
Given the unprecedented events in the global financial markets and the uncertain impact it will have on our economy, we decided that taking the conservative position of building our cash balance was the most prudent and appropriate action at this time. We believe that conserving cash in an uncertain economic environment is a good approach and gives us the maximum amount of flexibility in the future.
With that, I will turn the call over to Matt Clark to discuss the results and our outlook for the remainder of 2008.
Matt Clark
Thanks, David. I’ll start off the review of our results by taking everyone through the top line.
Total revenues at The Cheesecake Factory for the third quarter increased 8% to $405 million. Our revenue growth this quarter was comprised of an approximate 8% increase in restaurant revenues and a 9% increase in bakery revenues.
First let’s take a look at some details on the restaurants and then we can follow-up with the bakery business in a moment. The 8% increase in restaurant revenues represents an approximate 15% increase in total restaurant operating weeks, resulting primarily from the opening of 23 new restaurants during the trailing 15-month period, coupled with an approximate 6% decrease in average weekly sales.
Overall comparable sales at The Cheesecake Factory and Grand Lux Café restaurants decreased approximately 4.8% for the quarter. By concept, that translates into decreases of 4.7% and 5.1% at The Cheesecake Factory and Grand Lux Café respectively.
The 6% decline in average weekly sales is slightly behind the change in comparable restaurant sales. Nonetheless, our restaurants are still very busy, producing an average of over $10 million in sales on an annualized basis through the third quarter of this year, over two times the industry average.
At The Cheesecake Factory, while comparable sales were generally softer than we would like, the weakness was concentrated in the west and southwest regions and primarily in the suburban areas within those markets, a continuation of the trends we saw in the first half of this year. However, as David noted, we did see stable guest traffic patterns compared to Q2, despite the arguably tougher environment.
At The Cheesecake Factory, we implemented our planned 1% effective menu price increase in our summer menu change and we will have 2.5% of price in our menu for the remainder of the year. We are not capturing our fully menu price increase at this time though, as incident rates are down about 1%, mostly in desserts and beverages, due to guests adjusting their ordering habits in this weak economic climate.
At Grand Lux Café, the majority of the comparable sales decline continues to come from our one unit in California and three units in Florida. Keep in mind that the Grand Lux comp base only has nine units, so performance in four units impacts the overall comp number.
In addition, we still see a little softness in the Las Vegas market; however, between the Grand Lux Venetian and Grand Lux Palazzo locations, we continue to average sales in excess of $900,000 per week during the third quarter, which is great performance in any market or any environment. Moving on to our bakery operations, bakery sales net of inter-company sales increased 9% in the third quarter to $14.3 million versus $13.1 million in the prior year quarter.
The increase is due primarily to higher sales to the warehouse clubs and continues to build on the solid bakery sales performance that was delivered in the first two quarters. That covers our top line performance.
Before I get into the individual components of our income statement for the third quarter, I will address our consolidated operating margin. Our overall operating margin for the quarter was 5.2% versus 7.4% in the comparable quarter last year.
As has been common across the restaurant industry, spikes in commodity and energy costs, as well as higher minimum wages, are broadly pressuring margins. In addition, as we evaluate the different components of our operations, we continue to see some measurable year-over-year pressure at the bakery and Grand Lux Café.
At Grand Lux Café, we experienced the continued impact of the four new restaurants opened since September of last year. On a base of nine, this is a nearly 45% increase.
While expected, this continues to place pressure on the operating margins compared to the prior year, but we do also expect to recoup some of this lost margin as these locations build awareness and sales volume over time. For the quarter, the bakery had about 5% of margin pressure, due primarily to significant commodity cost increases, predominantly in eggs and cream cheese.
These pressures were partially offset by the distribution and production efficiencies we are gaining as we continue to increase utilization in our East Coast bakery facility. We have also implemented price increases to pass through some of these cost pressures and are leveraging our higher third party sales where possible within the bakery operations.
Next, let’s take a look at the individual P&L line items. I will begin with cost of sales, which experienced an increase to 25.7% of revenues for the third quarter, compared to 24.7% in the same quarter last year.
The increase was primarily the result of higher costs for produce, cheese, and general grocery items. The costs for some of our non-contracted items, such as pastas, grains, and cooking oils, rose precipitously, with the overall commodity market surge that occurred in early to mid summer.
This was also compounded by the fuel surcharges that went into effect as the price of gas and diesel escalated during this time as well.
Other operating costs and expenses were 25.6% of revenues for the third quarter, up from the 23.9% reported in the same quarter last year. The increase reflects higher utility costs and the deleverage effect on the lower level of sales in the third quarter.
Approximately 50% of the pressure was a result of the temporary spike in energy prices that culminated in July and August, impacting both natural gas and electricity, with the balance of the pressure associated to the variance in average weekly sales. G&A expenses for the third quarter were 5.3% of revenues, flat relative to the prior year.
As David noted, we continued to aggressively manage our overhead costs for this environment and appropriately scale our infrastructure for our growth plans. Depreciation expense was 4.5% of total revenues for the third quarter, compared to 4.2% for the third quarter of the prior year.
Pre-opening costs incurred during the third quarter were $2.1 million, compared to $8.7 million in the same quarter last year. As expected, we started to see the benefit on the pre-opening line this quarter from fewer openings this year, relative to last, and the related reduction and support infrastructure.
Interest expense included $3 million of expense on the $275 million in outstanding debt we had under the revolving credit facility during the quarter. We have interest rate caller agreements on $250 million of the outstanding revolver balance that mitigates the risk from interest rate variations and keeps our LIBOR rate within a weighted range of approximately 4% to 5%.
We also pay a bank margin on top of LIBOR, which will vary based on our debt-to-EBITDA ratio. Our effective tax rate for the third quarter increased to 32%, primarily attributable to timing impacts from state filings and related FIN-48 entries.
We completed share repurchases totaling 9.6 million shares in fiscal 2008 at a total approximate cost of $172 million. This is within our expectations of repurchasing between $150 million and $200 million of our common stock for this year.
This included the repurchase of approximately 4.4 million shares in the third quarter and about 650,000 shares in the fourth quarter, prior to terminating our 10B51 plan. In the aggregate, during 2007 and 2008 combined, we have returned over $420 million of capital to shareholders through share repurchases.
We currently have approximately 7.9 million shares remaining under the 31 million share repurchase authorization. Now let’s move on to the balance sheet and cash flow -- the events in the financial markets during the past six weeks has certainly resulted in a heightened focus on balance sheet risk.
Our balance sheet remains strong, with a solid liquidity position of approximately $56 million in cash and marketable securities as of September 30, 2008. We do have $275 million in long-term debt in our capital structure in the form of a five-year revolving credit facility that is due in April 2012.
We have no principal payments due on the revolver prior to that time. In addition, we have $25 million available on the revolver for back-up liquidity purposes and to support standby letters of credit for our insurance arrangements.
We are not reliant on the credit markets to fund our operations or development plans and continue to expect to finance our CapEx requirements through operating cash flow, landlord construction contributions, and our cash on hand. Speaking of which, our cash flow from operations through the third quarter continued to be strong at approximately $150 million, as reported in our financials.
Our cash and accrued CapEx through the third quarter per the statement of cash flows was approximately $57 million, which includes construction in progress for 2008 and 2009 openings. We generated approximately $25 million in free cash flow after CapEx during the third quarter, and $58 million through the first three quarters of the year.
We continue to expect cash CapEx for 2008 to be in the range of $75 million to $80 million. That wraps up our business and financial review for the third quarter.
I will now spend a few minutes on our fourth quarter 2008 outlook and then turn the call back over to David for some final remarks. Given the uncertain consumer outlook and dynamic cost environment, it is difficult to forecast with precision.
However, we will share our expectations for the balance of the year based on current trends and information that we have as of today. Our expectation for total revenue growth in 2008, including both restaurants and external bakery sales, is approximately 6.5% relative to the prior year.
This assumes comparable sales in the minus 4 to minus 5 range for the full year 2008. For the fourth quarter, this implies revenue growth of about flat to positive 1% and comparable sales in the minus 6 to minus 7 range, relative to the prior year.
These estimates take into consideration the 2008 holiday calendar, which excludes New Year’s Eve for us and which equates to an approximate minus 1% impact on both total revenue growth and comparable restaurant sales for the quarter. Our outlook also takes into consideration the weakness in the overall economy and its impact on consumer spending based on our visibility today.
We expect cost of sales as a percent of revenues to be about 60 to 70 basis points higher for the fourth quarter compared to the fourth quarter of 2007. Although we have seen commodity costs decline from their peak levels in the summer, some grocery items, as well as cheese and produce, are expected to continue at rates higher than prior year levels.
Of note, we have locked in contracts for nearly all of our proteins, including chicken and most seafood, for 2009 at approximately flat pricing relative to 2008. This is in addition to extending our beef contract excluding ground beef through 2009, also at flat pricing relative to 2008.
Back to Q4 of this year, labor expenses are expected to be about 40 to 50 basis points higher for the fourth quarter, relative to the prior year quarter. Other operating costs as a percent of revenues will be approximately 200 basis points higher for the fourth quarter, relative to the prior year, related primarily to deleverage from lower average weekly sales and lapping some favorable adjustments to our self-insurance reserves last year, partially offset by the expected moderation in utility costs.
Our expectation is for G&A expenses for the fourth quarter to be about 10 to 20 basis points lower relative to the fourth quarter of 2007. Depreciation expense will be approximately 30 basis points higher for the fourth quarter compared to the prior year, based on our expected growth and investment plans.
Fourth quarter pre-opening costs will be approximately $3.5 million, resulting in total 2008 pre-opening costs of about $12.5 million. Our newest location in Towson, Maryland, opens today and our last new restaurant for the year is scheduled to open in Annapolis, Maryland in early December.
The Annapolis location is the first of the smaller prototype Cheesecake Factory restaurants that we have discussed, which we estimate can deliver about $8 million in average annual sales at an investment cost that will achieve our required rate of return. We expect net interest expense to be about $3.7 million in the fourth quarter and both our Q4 and 2008 full-year tax rate to be approximately 30%.
Lastly, we anticipate a weighted average outstanding share count for the fourth quarter of approximately 60 million shares. This is down 25% from the approximately 80 million shares outstanding at the time we began our share repurchase program in 2007.
I will now turn the call back over to David for some closing remarks.
David Overton
Thank you, Matt. We continue to believe that the weakness we are experiencing is macro driven.
We have confidence in our brands and believe our growing marketing efforts will only increase the strength of our brands. We have a significant market opportunity ahead of us across all three of our concepts and we will apply a high level of discipline to our site selection standards in continuing to expand our concepts in a rational way.
Our restaurants are healthy, cash generators, and we will be prudent in our decisions on the best use of that cash. Before we move into the question-and-answer session, I have a few comments as we look ahead to 2009.
The retail real estate landscape has been a topic of much discussion in the restaurant industry and in the media recently. Given the troubles in the economy, developers are delaying opening dates of new and expanded projects and in some cases running into problems getting financing for their projects.
In addition, some tenants are dropping out of planned development. All of this will result in overall retail development being tempered next year.
In light of this and our belief that it is most prudent to maximize the flexibility of our capital resources and keep our options open until we can get a better read on the economy, we expect to open between three and five new restaurants in 2009, rather than moving ahead with the seven to nine new restaurants that we initially projected. We are also building flexibility into our lease negotiations to give ourselves the ability to delay opening dates until economic circumstances may be more favorable.
So while the final number of units that we will open next year is still fluid, a range of three to five new restaurants represents our best estimate today. We believe disciplined spending on investments is the right approach in this economy and having flexibility on opening dates is beneficial.
Our site standards remain high and focused on the highest return, premium locations based on their availability. As to guidance for 2009, we will provide guidance when we report fourth quarter and full-year 2008 results in early February.
At that time, we will be changing our guidance practices to focus on annual guidance rather than providing both quarterly and annual guidance. In making this decision, we looked at common practices across casual dining and also took into consideration the difficulty in forecasting each quarter’s performance in this environment.
Most importantly, we manage our business on a much longer term horizon than quarter to quarter performance, so this change is directionally more in line with how we think about our business. With that, we will take your questions.
In order to accommodate as many questions as possible in the time that we have left on this call, please limit yourself to one question and then re-sequence with any additional questions. Operator.
Operator
(Operator Instructions) Our first question comes from the line of Steven Kron of Goldman Sachs.
Steven Kron - Goldman Sachs
A couple of questions, if I might, real quick -- I guess if I look at the numbers that you just reported and I look at the same-store sales numbers, which fell within the range that you guys talked about back at the end of July, there was quite a bit more deleverage in the P&L. I know you started -- you talked a little bit about commodity costs maybe inflating more than you would have expected but I guess I’m a bit confused as to why there was the surprise on the deleverage side.
Maybe you can address that. And then secondly, on the commodities side of things, it seems as though you guys have been renegotiating contracts here and you have locked in a decent amount for ’09 at this point.
Could you give us some sense as to what percentage of your basket is currently locked in for ’09 and how that might compare to last year, and what that basket looks like at this point? Thanks.
Matt Clark
Let’s start with the first question -- I think there was maybe modestly more deleverage in the 20 or 30 basis points. You know, the biggest impact was really in the energy and cost of sales as it related to the spike in the commodities market.
As we said, about 50% of the increase year over year in the other operating expense was related to that surge in commodities, so you are talking in the ballpark of over about 100 basis points. So I think it is less about the deleverage, which I think we expected appropriately, and it is more about the external factors causing significant pressure on the P&L, which should for the most part have been temporary in that environment.
And then secondly, as we look at the commodities, we have locked in a very significant percentage of our proteins which represents a good part of the basket for us, and certainly a favorable rate for us. We are looking -- I would say, just to give everybody perspective, that we are currently looking and we will of course remain opportunistic as the commodities continue to come down, but we are currently looking at a total cost of sales in the 3% to 4% range, which would certainly be favorable to the environment that we are looking at this year.
Operator
Our next question comes from the line of Matt DiFrisco of Oppenheimer.
Matt DiFrisco - Oppenheimer
Can you tell us what comprises those three to five new stores in 2009? I thought there were plans initially for two Grand Luxes.
I’m curious how much of that is Cheesecake versus Grand Lux. And then also can you give us a little bit of insight into an environment where you are only opening three to five stores, what happens with G&A?
I guess a lot of your peers out there are slowing growth as well but we’re really not seeing any sort of reduction or benefit from slower growth outside of lower pre-opening. I am curious if there’s further reductions potentially at the G&A level, if we grow at a slower pace.
Matt Clark
I’ll address the G&A, Matt, and then David will talk a little bit about the real estate. You know, certainly we are in a very fluid environment.
I think as we look at it, we are still developing our plan for next year. If you look at what we did this year when we initially dropped the unit development down to the seven level, we did take out about $1 million per quarter on a run-rate basis and we’ll continue to evaluate the ways that we can best scale our business to adapt to a three to five unit operating base.
We certainly didn’t stand still this year, nor would we expect to, but we’ll be in a better position to give you more guidance on that when we update you in February.
David Overton
And several landlords have postponed their sites. They haven’t cancelled them but they are not delivering them when they said they would, for various reasons.
I think some of them, there are [large clients] that either can’t get the money to open or they want to postpone, so we have moved a number of these into 2010. 2010 should be a very good year with that but we have not replaced the 2009 site.
And Grand Lux was one that the landlord had just called and asked if we could open up in 2010 rather than in their opening date late in ’09. So they will be all Cheesecake Factories in 2009 and at this point, it looks like we’ll have I think at least two to three Grand Luxes in 2010.
Operator
Our next question comes from the line of John Glass with Morgan Stanley.
John Glass - Morgan Stanley
Could you quantify maybe how much of a drag that the Grand Lux brand is putting on your margins right now, if you can kind of cut it that way, maybe just order of magnitude? And either Grand Lux or Cheesecake, are there stores that are close to being cash flow break-even or negative, and maybe ones you are -- are we getting close to the point where maybe a closure or two is possible?
Matt Clark
John, let me address the second part first, I think, and just to be clear, all of The Cheesecake Factories remain very good producers of cash and we are very proud of that, and all of the Grand Lux Cafés that have been open at least a year are all producing great cash and we have one or two that are still ramping up that we opened at the [end of last year] and it’s a little bit longer in this environment but positively trending, so our restaurant portfolio is extremely strong in this environment and we feel very confident going into next year with that group. With respect to Grand Lux, I think -- you know, it’s not a huge piece.
I think we are just evaluating how we can maybe ramp some of those restaurants up faster but it’s nominal in the grand scheme of things and we are talking with the group that opened last year, really only in the 10 to 20 basis point impact.
Operator
Our next question comes from the line of Bryan Elliott of Raymond James.
Bryan Elliott - Raymond James & Associates
Actually, a couple of clarifications -- I think I misheard the year-to-date cash flow from ops number. I thought I heard 150 but that doesn’t seem right.
Matt Clark
115, Bryan.
Bryan Elliott - Raymond James & Associates
Okay, thank you. And also, in the answer to the previous question on food inflation, you said all in it looks like 3% to 4%, despite the meat contracts being flat -- did I hear that right?
And I assume that was a calendar ’09 look forward?
Matt Clark
Yeah, that’s right and obviously, as I said, we are still looking opportunistically but I would say we are also cautious about what we have seen in some of the other categories, whether it’s in cheese or produce or the grains. And so we feel very solid on the protein contracts but we are waiting for a little bit more visibility before we give you more precision on the three to four range for now.
Operator
Our next question comes from the line of Destin Tompkins of Morgan Keegan.
Destin Tompkins - Morgan Keegan
My question is on the same-store sales trend. Could you speak to the trend that you saw through the third quarter -- specifically, did it decelerate, was it weaker in September than earlier in the quarter?
And then on the negative 6 to 7 assumption for the fourth quarter, I think I heard that right, does that speak to the trend you have seen quarter to date? And can you maybe quantify how much drag you are expecting from those holiday shifts and maybe what part of that is just the core trend in the business?
Matt Clark
Sure. I think we’ll go back and we’ll look at the third quarter first -- July and August for us were pretty stable, certainly September -- there was a little bit more volatility and I think as you look at where we came in, it was at the lower end, albeit within the range, and so there was a modest bit of pressure that occurred in September.
And I think we’ve incorporated that into our visibility. It’s kind of been about the same run-rate into October and that is what we are guiding to.
And within the outlook for the fourth quarter, about 1% impact from the timing of the holidays and the way that the calendar lays out, a negative 1% is what is built in. So the visibility is what we are guiding to and that negative 1% is within the visibility that we have given you.
Operator
Our next question comes from the line of John Ivankoe of J.P. Morgan.
John Ivankoe - J.P. Morgan
Sorry if any of these are repetitive, just a couple of quick ones -- firstly, if you could give us CapEx for ’09. Secondly, if you could talk about whether you are contemplating either yea or nay or just possible taking pricing for your winter menu price increase.
And thirdly, on the balance sheet, is there an absolute level of net debt that you are comfortable with -- in other words, that would allow you to again buy back stock, whether in terms of absolute levels of debt-to-EBITDA that you feel very comfortable with in this current environment, or is that not the way that we should be thinking about it right now?
Matt Clark
Okay, so let’s go through that one at a time -- from a CapEx standpoint, we will give more guidance in February but I can tell you if you kind of look at our CapEx for this year that we are guiding to and back out approximately three units at average cost, that will give you something to model with. It will be a proxy until we talk to you again in February.
And then with respect to pricing, we are very cognizant of the margin pressures and making sure that we try to tow the line and I think we will continue to watch in this fluid environment a lot of factors. We are looking at our guest traffic, we are looking at commodities, we are looking at consumer sentiment, and we will take as much and as deep a look as we possibly can before committing.
Certainly we know that we need to at least be in the range that we are at this year, at a minimum, so we are targeting in that direction. And then third, with respect to the debt, we are very comfortable with where we are today.
We think it’s been good for all concerned but I think we are comfortable with where we are at and we will look to build our cash and then utilize that cash as we see fit next year, not really looking to increase the debt position at this time.
Operator
Our next question comes from the line of Mitch Speiser of Buckingham Research.
Mitch Speiser - Buckingham Research
Could you just give us, perhaps in rank order, just the comp trends, kind of weekday versus weekend, lunch and dinner in the third quarter? And if there were any changes versus the trends you have seen in the first and second quarter.
Thanks.
Matt Clark
We haven’t really seen much of a difference. I think if you look at our second quarter versus third quarter, our comps were very similar.
Our guest traffic patterns were very similar. I think we probably held our market share as good as anybody.
Clearly in this environment the one thing you see is the weekends are still very, very busy in our restaurants and if there’s any pressure, it’s really during the week and you see a little bit of the shoulders come off, and so that’s been very consistent with what we have discussed in prior quarters and we didn’t really see a change from that in the third quarter.
Operator
Our next question comes from the line of Keith Siegner.
Keith Siegner - Credit Suisse
Just one quick question -- since last quarter, you have hired a CMO and last quarter, you talked a little bit about some marketing initiatives. I was just wondering if you could update us on where do you stand on that program?
What’s been put in place or are there any other marketing programs coming soon -- just any information you could give us on and around those plans would be great. Thanks.
David Overton
Well, we just went through a couple of them, which was National Cheesecake Day -- as I said, we are in the middle of the cheesecake or the guest cards that we are giving out. We have given out more than about 1.7 million of those internally to try to achieve some incremental visits from our guests, so those are pretty big programs.
We have already done all of our research across the country, which Mark has wanted to do to make sure that he truly understood the nature of our guests in each of our markets and how we distinguish that. And then once that information is all sorted out, we will move ahead with different plans for different parts of the country, starting next year.
So we have a few things in that we have really kind of done internally that Mark has generated and then once the information gets in, we’ll have bigger plans for next year.
Operator
(Operator Instructions) Our next question comes from the line of Matt DiFrisco.
Matt DiFrisco - Oppenheimer
Thanks. I just had a follow-up question on the same-store sales trends that you reported for this quarter.
You said I think that it’s primarily west and southwest, with a little bit of an impact from the Vegas store as well, the Grand Lux store there. I am curious -- should we imply then that you are seeing negative but not as negative or are you actually seeing positive trends?
Because some of the channel checks suggest I think that even in places in the Northeast, there’s a drastic drop-off as of late, at least, in the retail traffic and that it’s being shared by some restaurants as well.
Matt Clark
I would say it’s mixed. You know, what we’ve talked about before remained consistent -- we are stronger in the urban environments and we have seen some positive trends there.
We are less strong and quite a bit softer in some of the more suburban and deeper suburban locations, and I think really it’s tied to housing, as we’ve indicated, and that can be true in any part of the geography. So we can have positive trends in the Northeast that are related to being urban and in the west, you just see more of the housing crisis going on, and so I think you’ve got a greater preponderance in that geography.
But really more it’s based on where the housing impacts are and the urban/suburban mix, rather than geographically.
Operator
Our next question comes from the line of Jeffrey Bernstein of Barclays Capital.
Jeffrey Bernstein - Barclays Capital
Thank you. A couple of questions just on reviving sales -- one I think you mentioned delivery now being in north of 40% of your stores and the to go option now being available.
Just wondering, at least in the stores that it is in, if you could talk a little bit about the results you are seeing thus far in terms of sales lift or how those margins compare to kind of your in-store. And then second, I think you mentioned Grand Lux comp in California or Florida where you have four stores being -- I don’t know how you characterized it, whether it was significantly negative but are there any initiatives that you can do in a local market area to perhaps revive -- I know it’s hard for you to assess the Grand Lux brand when four of the nine stores are struggling like that but I’m just wondering if you can approach it on a store-by-store basis and what you might be doing on that front.
Thanks.
Matt Clark
Let’s go with that second part first again, I think, and to just clarify on the Grand Lux, you know, it’s very similar to where the Cheesecake Factory is. I don’t think that we will classify either the L.A.
store or Florida as being significantly down, but it’s just a little bit softer than the rest of the mix and Vegas actually is holding up quite well. We do think it’s interesting to look at some targeted marketing for Florida and certainly I am sure that Mark, our CMO, is addressing that and I think that that makes sense and will warrant some actions for us and I think with three high-volume restaurants in the South Florida market, we certainly could do something that makes sense.
David Overton
There is a plan. There has already been money allocated and local PR companies contacted, so Grand Lux has its own individual plan separate from Cheesecake, to answer that.
Matt Clark
And then with regard to the delivery and the to-go, we have seen -- you know, it’s early but in some of our locations, significant success and a lot of receptivity. We believe it’s all incremental, as this is a brand new channel for us and the margins generally are in line.
There are some trade-outs, of course, but really probably pretty close to what we are experiencing in-store. And we’ve seen a variety of lifts but it is measurable, I will tell you, at this point in time, in some locations and certainly as it matures a little bit more, we may be able to provide a little bit more visibility on that.
Operator
Our final question comes from the line of Steve Anderson of MKM Partners.
Steve Anderson - MKM Partners
One question about in discussions with suppliers, have they hinted at all about removal or at least a reduction in some of the fuel surcharges with gasoline, diesel fuel having come down 30% since the summer?
Matt Clark
Yeah, you know, a lot of those are tied to specific levels and so we don’t even have to renegotiate on many instances because we are already starting to come down below the levels that are targeted for where those kick in. I think if you remember back to the middle of summer, I mean, gas was well above $4, so you crossed over some of the pre-arranged thresholds.
So yeah, I think that naturally, that that is going to occur. And as we look at negotiating for next year, we will certainly be cognizant of where we want to target and make sure that we bake that into our overall guidance on cost of sales when we talk to you in February.
David Overton
We are on those every day going back and making sure that those charges are taken off as soon as possible.
Steve Anderson - MKM Partners
Thank you.
Operator
You have no further questions.
David Overton
Okay, well then thank you, everyone. Bye-bye.
Operator
Thank you for your participation in today’s conference. This concludes the presentation.
You may now disconnect. Good day.