CHEESECAKE FACTORY INC

The Cheesecake Factory Incorporated is a leader in experiential dining, operating in the upscale casual dining segment of the restaurant industry, which is positioned above core casual dining with standards closer to fine dining. The company owns and operates 368 ¹ restaurants throughout the United States and Canada under brands including The Cheesecake Factory (216 ² locations), North Italia (48 ³ locations), Flower Child (43 ⁴ locations) and additional brands within its Fox Restaurant Concepts portfolio (55 ⁵ locations). Internationally, 35 ⁶ The Cheesecake Factory restaurants operate under licensing agreements. The bakery division operates two ⁷ facilities that produce quality cheesecakes and other baked products for its restaurants, international licensees and third-party bakery customers.

The Cheesecake Factory restaurants operate in the upscale casual dining segment and the company believes it is a leader in this segment given the historically high average sales per square foot of its restaurants as compared to others. The restaurant industry is highly competitive with respect to menu and food quality, service, personnel, location, decor and value. The company competes directly and indirectly with national and regional casual dining restaurant chains, as well as independently-owned restaurants, and also faces competition from fast casual and quick-service restaurants, grocery stores and meal kits. Key competitive strengths include an extensive and innovative menu made fresh from scratch, a value proposition with an average check of approximately $31.79 ⁸ during fiscal 2025, a commitment to excellent service and hospitality, high-quality high-profile restaurant locations, distinctive restaurant design and decor, and integration of its bakery operations.

The company generates revenue primarily through sales at its Company-owned restaurants, sales from its bakery operations to licensees and other third-party customers, royalties from licensees' restaurant sales and from consumer packaged goods sales, and licensee development and site fees. Revenues from restaurant sales are recognized when payment is tendered at the point of sale. The company also recognizes a liability upon the sale of its gift cards and recognizes revenue when these gift cards are redeemed in its restaurants, with breakage recognized over a three-year period in proportion to historical redemption trends. The Cheesecake Factory menu features approximately 225 ⁹ items, exclusive of beverage and dessert items, and the company offers approximately 45 ¹⁰ varieties of proprietary cheesecake and other desserts in its restaurants.

The Cheesecake Factory concept is the company's primary brand, with 216 ¹¹ company-operated locations as of February 23, 2026. During fiscal 2025, alcoholic beverage sales represented 11% ¹² of The Cheesecake Factory restaurant sales, and sales through the off-premise channel comprised approximately 21% ¹³ of The Cheesecake Factory restaurant sales. Dessert sales represented approximately 17% ¹⁴ of The Cheesecake Factory sales during fiscal 2025. Average sales per location for The Cheesecake Factory restaurants open for the full year were approximately $12.4 million ¹⁵ for fiscal 2025, and average sales per productive square foot were approximately $1,151 ¹⁶ for fiscal 2025. The company targets approximately 300 ¹⁷ Company-owned and operated The Cheesecake Factory restaurants domestically over time.

North Italia is a modern interpretation of Italian cooking in the upscale casual dining segment, with 48 ¹⁸ company-operated locations as of February 23, 2026. Alcoholic beverage sales represented 23% ¹⁹ of North Italia sales in fiscal 2025, and sales through the off-premise channel comprised approximately 13% ²⁰ of North Italia restaurant sales during fiscal 2025. The average check for each customer was approximately $35.60 ²¹ for lunch and approximately $45.21 ²² for dinner. Average sales per location open for the full year for North Italia restaurants were approximately $7.6 million ²³ for fiscal 2025, or approximately $1,100 ²⁴ per productive square foot. The company believes there is potential for approximately 200 ²⁵ domestic locations over time, which supports its plan for approximately 20% ²⁶ average annual unit growth. Flower Child operates in the fast casual dining segment, with 43 ²⁷ locations as of February 23, 2026. The company believes there is potential for approximately 700 ²⁸ domestic locations over time, which supports its plan for approximately 20% ²⁹ average annual unit growth for this concept. Average sales per location open for the full year for Flower Child restaurants were approximately $4.7 million ³⁰ for fiscal 2025, or approximately $1,300 ³¹ per interior square foot. Sales through the off-premise channel comprised approximately 55% ³² of Flower Child restaurant sales during fiscal 2025. Other FRC concepts, including Culinary Dropout, The Henry and Blanco, had 55 ³³ locations as of February 23, 2026. The company targets approximately 10% to 15% ³⁴ average annual unit growth for the aggregate Other FRC portfolio. Average sales per location open for the full year for Other FRC restaurants were approximately $6.7 million ³⁵ for fiscal 2025, or approximately $1,000 ³⁶ per interior square foot.

During fiscal 2025, the company opened 25 ³⁷ restaurants comprised of four The Cheesecake Factory, six North Italia, nine Other FRC, and six Flower Child locations. On February 28, 2025, the company issued $575.0 million ³⁸ in aggregate principal amount of convertible senior notes due 2030, with net proceeds of approximately $558.5 million ³⁹ after deducting issuance costs of $16.5 million ⁴⁰. On the same date, the company used part of the net proceeds to repurchase approximately $276.0 million ⁴¹ aggregate principal amount of its 2026 Notes for aggregate consideration of $289.8 million ⁴², which included a premium of $13.8 million ⁴³, resulting in a $15.9 million ⁴⁴ loss on early debt extinguishment. The company repurchased 2.9 million ⁴⁵ shares at a cost of $153.9 million ⁴⁶, excluding excise tax, during fiscal 2025. As of December 30, 2025, the company had cumulatively repurchased 59.9 million ⁴⁷ shares at a total cost of $1,983.6 million ⁴⁸, excluding excise tax, under its share repurchase program. The company also recorded $23.0 million ⁴⁹ of impairment of assets and lease termination expenses primarily related to the impairment of long-lived assets for one North Italia, one Grand Lux Cafe and four Other FRC locations and lease termination expense related to two Grand Lux Cafes and one Other FRC.

Total revenues increased 4.7% ⁵⁰ to $3,751.8 million ⁵¹ for fiscal 2025 compared to $3,581.7 million ⁵² for fiscal 2024, primarily due to additional revenue related to new restaurant openings. Net income was $148.4 million ⁵³ for fiscal 2025 compared to $156.8 million ⁵⁴ for fiscal 2024. Diluted net income per common share was $3.06 ⁵⁵ for fiscal 2025 compared to $3.20 ⁵⁶ for fiscal 2024. Income from operations was $187.3 million ⁵⁷ for fiscal 2025 compared to $178.3 million ⁵⁸ for fiscal 2024. Cash provided by operating activities was $301.3 million ⁵⁹ for fiscal 2025 compared to $268.3 million ⁶⁰ for fiscal 2024.

The company's primary growth vector is investing in new Company-owned restaurant development, which is its top long-term capital allocation priority, with a focus on opening concepts in premier locations within both new and existing markets. The company plans to continue expanding The Cheesecake Factory, North Italia and Flower Child concepts. For The Cheesecake Factory, the company continues to target approximately 300 ⁶¹ Company-owned and operated restaurants domestically over time. For North Italia, the company believes there is potential for approximately 200 ⁶² domestic locations over time, which supports its plan for approximately 20% ⁶³ average annual unit growth. For Flower Child, the company believes there is potential for approximately 700 ⁶⁴ domestic locations over time, which supports its plan for approximately 20% ⁶⁵ average annual unit growth for this concept. For the aggregate Other FRC portfolio, the company targets approximately 10% to 15% ⁶⁶ average annual unit growth, complemented by additional market tests of potential growth concepts. The company expects to open as many as 26 ⁶⁷ new restaurants in fiscal 2026 across its portfolio of concepts, with approximately one third of the openings occurring in the first half of fiscal 2026.

The company's strategy to increase comparable restaurant sales for The Cheesecake Factory concept is driven by growing average check while maintaining customer traffic through continuing to offer innovative, high-quality menu items, focusing on service and hospitality, and continuing to provide customers with convenient options for off-premise dining. The company is continuing efforts on initiatives including menu innovation, increasing customer throughput, leveraging its gift card program, partnering with a third party for delivery services, increasing customer awareness of online ordering capabilities, augmenting marketing programs including its Cheesecake Rewards program, enhancing training programs and leveraging insights from its customer satisfaction measurement platform. The company generally updates The Cheesecake Factory menus twice each year and uses price increases to help offset key operating cost increases. The company is in the process of implementing an approximate 1.5% ⁶⁸ menu price increase in the first quarter of fiscal 2026.

The company's objective is to drive margin expansion over time by leveraging incremental sales to increase restaurant-level margins at The Cheesecake Factory concept, leveraging its bakery operations, international and consumer packaged goods royalty revenue streams and general and administrative expense, and optimizing its restaurant portfolio. The company's commodity and wage inflationary environment began returning to more historical levels in fiscal 2024. The company will continue to take the cost and inflationary environment into consideration when implementing future pricing decisions. The company attempts to negotiate short-term and long-term agreements for some of its principal commodity, supply and equipment requirements, such as certain dairy products and poultry, depending on market conditions and expected demand, and is in the process of contracting for certain key food and non-food supplies for fiscal 2026.

The company anticipates approximately $210 million ⁶⁹ in capital expenditures to support its expected level of unit development in fiscal 2026, as well as required maintenance on its restaurants. This estimate includes new restaurant construction expenses, some of which may be classified as operating lease assets instead of additions to property and equipment in the statement of cash flows. The company continues to evaluate a third bakery production facility in Charlestown, Indiana.

The company plans to employ a balanced capital allocation strategy, comprised of investing in new restaurants that are expected to meet its targeted returns, managing its aggregate debt levels and returning capital to shareholders through its dividend and share repurchase programs. As of December 30, 2025, the company's Board of Directors has authorized a share repurchase program of up to 61.0 million ⁷⁰ shares, of which approximately 1.1 million ⁷¹ shares remained available for repurchase. The company's long-term financial objective is 10% to 15% ⁷² total return to shareholders, on average, defined as earnings per share growth plus dividend yield. Common stock dividends of $52.2 million ⁷³ and $53.0 million ⁷⁴ were paid in fiscal 2025 and 2024, respectively.

The company faces headwinds from ongoing geopolitical and macroeconomic events, including evolving government policies and global trade and tariff dynamics, which could lead to further wage inflation, product and services cost inflation, disruptions in the supply chain, staffing challenges, shifts in consumer behavior, and delays in new restaurant openings. The company experienced high inflation around beef prices compared to historical norms during fiscal 2025 and expects this trend to continue into the foreseeable future. A significant portion of the company's imported items experienced price increases and volatility due to tariffs and regulatory changes in 2025, and the company expects this trend to continue into 2026.

The company's ability to grow comparable restaurant sales could be materially adversely affected by a variety of factors including macroeconomic conditions, perception of its concepts' offerings, the competitive environment, changes in consumer eating habits, the evolving retail landscape, weather conditions, natural disasters, and demographic and economic changes in trade areas. The company also faces risks related to labor cost inflation, as increases in minimum wages and other governmental regulations affecting labor costs have and may continue to significantly increase its labor costs and make it more difficult to fully staff its restaurants.

The company's financial performance is materially exposed to the impact of global and domestic economic conditions on consumer discretionary spending and its costs of operations, including supply chain challenges and significantly increased commodity and wage inflation from geopolitical and macroeconomic events. The company faces significant labor cost inflation risk from increases in minimum wages and tip credit wages, which have and may continue to significantly increase its cost of doing business, and because it employs a large workforce with a complex menu made fresh from scratch requiring more labor than some competitors. The company's inability to grow comparable restaurant sales could materially adversely affect its financial performance, as changes in customer traffic and average check amount may be impacted by a variety of factors including macroeconomic conditions, the competitive environment, and changes in consumer eating habits. The company is subject to health risks associated with its restaurants or products, such as food safety concerns and food-borne illness, which could negatively impact customer traffic, disrupt its food supply chain or cause it to be the target of litigation. The company's failure to effectively develop, grow and operate North Italia, Flower Child and its other branded concepts could materially adversely affect its financial performance, as there is an enhanced level of risk and uncertainty related to the operation and expansion of its less-established restaurant concepts.

Management's message emphasizes the company's strategy driven by a commitment to deliver exceptional food and hospitality, centered primarily on menu innovation, service and operational execution to differentiate its concepts and drive competitively strong performance that is sustainable over the long-term. Financially, management is focused on prudently managing expenses at its restaurants, bakery facilities and corporate support center, while leveraging its scale, purchasing power and operational discipline to support financial performance. Management states that longer-term, it believes its domestic revenue growth (comprised of its targeted annual unit growth of 7% ⁷⁵ in aggregate across concepts and comparable sales growth) combined with margin expansion, planned debt repayments and an anticipated capital return program will support its long-term financial objective of 10% to 15% ⁷⁶ total return to shareholders, on average. Management defines total return as earnings per share growth plus its dividend yield.