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The Cheesecake Factory, Inc. (NASDAQ:CAKE)
Q4 2017 Earnings Conference Call
Feb. 21, 2018, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Q4 2017 Cheesecake Factory, Inc. 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. If anyone should require operator assistance, please press * then 0 on your touchtone telephone. 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.

Stacy Feit -- Senior Director, Investor Relations

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 Commissions. 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 Matt, we'll open the call to questions. With that, I'll turn the call over to David.

David Overton -- Chairman and Chief Executive Officer

Thank you, Stacy. Turning to 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 continued 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 this 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 four Cheesecake Factory restaurants during the quarter, as well as our second RockSugar, 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 intents for a site in the Los Angeles area and pending completion of the lease negotiation, 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 are 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 integral 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 our marketing and operational update.

David Gordon -- President

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-item menu fresh from scratch and daily in our restaurants.

Our marketing team is in the midst of a meaningful and digital social media campaign, highlighting our fresh, high quality ingredients and preparation techniques. Utilizing video, influence our 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 6th, 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 expect the visibility we received to raise longer-term awareness of our delivery offering.

Our take-out business increased to 12% of sales in 2017. Delivery via third-party providers is now available in approximately 90% of our locations. We deploy point-of-sale integration with our main delivery provider, which is driving operational improvements and efficiencies in the restaurants, while enhancing the guest delivery 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 under way. We expect all domestic Cheesecake Factory restaurants to be live with online ordering by the end of March.

We believe these initiatives will help 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 dine-in and take-out experiences. Satisfaction scores are highly correlated to comp stores 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 to be in 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 in major retailers anticipated soon. This was a significant story in the media, with the likes of Food and Wine, Buzzfeed and POPSUGAR 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 Home products available in retailers across the country.

And, with that, I will now turn the call over to Matt for our financial review.

Matthew Clark -- Vice President and Chief Financial Officer

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% of 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 NapTrack, by 260 basis points.

External bakery sales were $17.2 in the fourth quarter. Cost of sales was 23.4% of revenues, an increase of about 20 basis points from the fourth quarter of last year. This was primarily driven by loss 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 revenue 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 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, which 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 preserve, 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 estimates 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 the 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 expect it 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 is the best defense in this current labor environment. We are also continuing to move forward with more market-based pricing where the wage pressure is most concentrated to help mitigate rising labor costs.

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 under way, 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 and $105 million, including as many as four to six planned company-owned openings. We currently anticipate growth capital contributions to range between $20 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'll take your questions. In order to accommodate as many questions as possible, please limit yourself to one question and then requeue with any additional questions.

Questions and Answers:

Operator

Ladies and gentlemen, if you have a question that this time, please press the * then the no. 1 key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the # key. Once you've asked your question, we ask that you please press your line on mute to prevent any background noise.

Our first question comes from John Glass of Morgan Stanley. Your line is open.

John Glass -- Morgan Stanley -- Managing Director

Thanks very much. Matt, could you maybe just clarify: your change in guidance, is that solely due to the change in the tax rate and all 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?

Matthew Clark -- Vice President and Chief Financial Officer

Yeah, sure, 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 raise the top end and that's the main driver. But we're also looking at, really, three parts to the tax savings: part of it is in the earnings, part of it, we will look to continue to reinvest 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 in a little bit of each if that makes sense.

John Glass -- Morgan Stanley -- Managing Director

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

Matthew Clark -- Vice President and Chief Financial Officer

Yeah. No, the CapEx is the cash CapEx, basically, and then we have a secondary component, which is the growth capital contributions that we're making to our partners at North Italia/Flower Child so there's two pieces to it.

Matthew Clark -- Vice President and Chief Financial Officer

Okay, thank you very much.

Operator

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

Sharon Zackfia -- William Blair and Co. -- Partner

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?

Matthew Clark -- Vice President and Chief Financial Officer

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

Sharon Zackfia -- William Blair and Co. -- Partner

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

Matthew Clark -- Vice President and Chief Financial Officer

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

Sharon Zackfia -- William Blair and Co. -- Partner

Okay. And then a question on the fast-casual concept. I know you're probably not going to want to talk a lot about that at this point, but can you give us 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 a third?

David Overton -- Chairman and Chief Executive Officer

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 profitability's right, that 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's happening. We're excited. We're working on a little bit everyday and we'll see where it goes.

Sharon Zackfia -- William Blair and Co. -- Partner

Okay, great. Thank you.

Operator

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

Jeffrey Bernstein -- Barclays Capital, Inc. -- Equity Research Analyst

Great. Thank you very much. Two questions: one, just specific to the comp. The comp looks like it came in at down 0.9 -- I know that was, I guess, the low end of your 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 seemed to have stabilized -- so I wasn't sure if that was implying that sales trends have improved more recently or, again, being that the comp came in at the very low end of the range? I just wanted to get a little more color, really, on the trends through the fourth quarter and into the first quarter or how you quantify the stabilization remark?

Matthew Clark -- Vice President and Chief Financial Officer

Sure, Jeff. I think it's two-fold: when we look at the quarter versus where Q3 was, it obviously was a movement in the right direction and then I also think, throughout the quarter, the cadence of our performance is that it continued to improve. I'm not sure we saw as much of a benefit on the rebound from the hurricane activity as maybe some others did, but we saw the positive movement continue. And then, obviously, reading into our Q1 guidance, we think that that momentum is going in the right direction.

Jeffrey Bernstein -- Barclays Capital, Inc. -- Equity Research Analyst

Got it. And then, just broadly on the cost side, the restaurant margins were under significant pressure in 2017. As we now look to 2018, can you just maybe size up, again, with the comp that you're projecting of flat to maybe plus 1 -- but we know food's up 3 and labor's up probably 5 again -- so should we be thinking of the restaurant margins under somewhat significant pressure again or if you think maybe there's a pricing component or some other cost saving initiative that you anticipate would help to mitigate some of those pressures and allow you to protect your restaurant margin?

Matthew Clark -- Vice President and Chief Financial Officer

Yeah, 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 what we need to hold the margins flat -- we were roughly at 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 view that really looking at the net income line at this point in time as a trade-off in the short-term. The big driver in the margins is really minimum wage on the labor line and so that's 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 in the business, too, and so that's 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 and 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 -- 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.

Jeffrey Bernstein -- Barclays Capital, Inc. -- Equity Research Analyst

But we should still assume that market-based pricing and then you said, ultimately, the blended pricing will be no less than 2.5% in '18 -- so that's still a fair assessment that you'll be running price at least 2.5% for '18?

Matthew Clark -- Vice President and Chief Financial Officer

Yeah, I think that's a great point on that is that, when we think about, it's somewhat 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 and those markets that have the higher minimum wage are going to get a little more pricing than those that aren't taking as much there and it balances those pieces out. So, that is correct on the pricing assumption.

Jeffrey Bernstein -- Barclays Capital, Inc. -- Equity Research Analyst

Great. Thank you.

Operator

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

David Tarantino -- Robert W. Baird & Co. -- Senior Research Analyst

Hi. Good afternoon. Just a couple 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?

Matthew Clark -- Vice President and Chief Financial Officer

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

David Tarantino -- Robert W. Baird & Co. -- Senior Research Analyst

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 this specific improvement you're expecting?

Matthew Clark -- Vice President and Chief Financial Officer

Yes, yes, and yes, David. I think we're seeing what we would consider to be a 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 what we started to see, really, last quarter when we gave the guidance and I think, throughout 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 -- we have more to-go business and delivery, we had very great adoption from the special card that we put out last year and they were getting some guest traffic as we moved forward -- so I would say it's a little bit of each of those pieces.

David Tarantino -- Robert W. Baird & Co. -- Senior Research Analyst

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 it sounds like you had some interesting marketing insights coming out of that -- but, I guess, was there anything in that research that pointed to a specific opportunity other than highlighting your culinary expertise that would be a specific traffic driver or traffic opportunity going forward? And I guess what I'm getting at was there anything related to the value proposition or anything you can do around value perception to drive better traffic trends going forward?

David Gordon -- President

Well, 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 and the breadth of the pricing on the menu is always an opportunity to make sure that 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 really was about guests wanting to understand and, once they really did hear -- although they tasted every time they ate the food -- that we're 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 or we have some videos that we rolled out -- we had about 4 billion media impressions in 2017 -- we think that 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.

David Tarantino -- Robert W. Baird & Co. -- Senior Research Analyst

Great. Thank you.

Operator

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

Nicole Miller -- Piper Jaffray -- Managing Director and Senior Research Analyst

Thank you. Good afternoon. When you look at the international openings for 2018, where are those openings -- existing regions of the world or are you opening up new regions?

David Gordon -- President

They're in the middle east, so they're in existing markets -- they're not in new territories.

Nicole Miller -- Piper Jaffray -- Managing Director and Senior Research Analyst

And then, just in total, when you think about the latest international openings versus the stores that have been open 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 that have been open for a while, is it a good question to ask you how are the comps of those stores or how would you measure the performance of those? Thank you.

David Gordon -- President

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

Nicole Miller -- Piper Jaffray -- Managing Director and Senior Research Analyst

Thank you.

Operator

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

Gregory Francfort -- Bank of America Merrill Lynch -- Equity Research Vice President

Hey, I just had one clarification and then 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 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.

Matthew Clark -- Vice President and Chief Financial Officer

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?

Gregory Francfort -- Bank of America Merrill Lynch -- Equity Research Vice President

Understood.

Matthew Clark -- Vice President and Chief Financial Officer

Okay. On the second piece, I think that there's a couple of things: one, the range in the first quarter, we do anticipate. There's a little 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 differently so I think it's just a matter of math. I don't think we have any 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 then I think it was around the gap and I think we look at -- I guess maybe this is just the best way I can contextualize it -- we look at it much more on a rolling six-quarter basis. There's always a lot of noise in the holiday shifts, and the weather shifts, and lapping performance that, maybe, one quarter to the 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 will tell you it's a pretty defined range where somewhere 1% to 1.5% better on that rolling basis. So, I think that's an easier way to think about it, rather than trying to guess what changed from last month to this month and there's so many factors involved, as you said.

Gregory Francfort -- Bank of America Merrill Lynch -- Equity Research Vice President

I completely understand. Thank you for the perspective.

Operator

Our next question comes from Andy Berge of Jeffrey. Your line is now open.

Andy Berge -- Jeffery Financial Services -- Analyst

Yeah, on the cash back to shareholders, are you anticipating similar amounts of buyback in this year's capital allocation plans, Matt?

Matthew Clark -- Vice President and Chief Financial Officer

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 10B501 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'll be predicated a little bit on the vehicle, as well.

Andy Berge -- Jeffery Financial Services -- Analyst

Thank you very much.

Operator

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

Will Slabaugh -- Stephens, Inc. -- Research Analyst

Yeah, thanks, guys. I have 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 since that's been launched.

David Overton -- Chairman and Chief Executive Officer

I think, most importantly for us 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, they 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 about the profitability, we feel like the incrementality we are getting is covering the profitability that we need and any additional costs that there may be. And so, so far, it's been very, very successful and we're very happy with our deliver 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 where the guest demand is.

Will Slabaugh -- Stephens, Inc. -- Research Analyst

Great. And, just a follow-up if I could, on the awareness comment and the increased marketing spend: so, as we know, in the past, Cheesecake's not been a big marketing company and you're putting come more dollars toward building that awareness around your ingredients and preparation. Is there anything to report so far in terms of either through polling your customers or anything that they've shown to be able to say that they've recognized that and you've been rewarded for that so far or is it something that we're supposed to see in the coming quarters?

David Overton -- Chairman and Chief Executive Officer

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 it's still pretty early and so I think the results are still yet to be seen.

Will Slabaugh -- Stephens, Inc. -- Research Analyst

Great. Thank you.

Operator

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

Matthew DiFrisco -- Guggenheim Securities -- Analyst

Thank you. I just have a couple follow-up questions on a couple of specific things you said about the take-out. I think you said it was 12% of sales -- is that including delivery, as well, or is what percent is deliver within there?

David Overton -- Chairman and Chief Executive Officer

That's total to-go sales for 2017.

Matthew DiFrisco -- Guggenheim Securities -- Analyst

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

David Overton -- Chairman and Chief Executive Officer

Overall, take-out was trending higher as of the fourth quarter.

Matthew DiFrisco -- Guggenheim Securities -- Analyst

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

Matthew Clark -- Vice President and Chief Financial Officer

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 of the 12 base at a 1% to 2% rate.

Matthew DiFrisco -- Guggenheim Securities -- Analyst

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

Matthew Clark -- Vice President and Chief Financial Officer

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. And so, I think that it's just a growing category, but the biggest piece of the growth for last year, at least, was in the delivery side.

Matthew DiFrisco -- Guggenheim Securities -- Analyst

Would you be able to disclose what this was for '16?

Matthew Clark -- Vice President and Chief Financial Officer

I don't have '16 in front of me, but we can get back to you on that.

Matthew DiFrisco -- Guggenheim Securities -- Analyst

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

Matthew Clark -- Vice President and Chief Financial Officer

Our pre-opening is about, call it, $9 million to $9.5 million is where we're... And that, obviously, includes the direct and the indirect piece of it. And it depends on how many openings we end up with 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 end up with.

Matthew DiFrisco -- Guggenheim Securities -- Analyst

Okay. I'm just curious, would you call out if the New York City store would be opening in '18 like you did the Hawaii store because it would be a larger pre-opening, presumably?

Matthew Clark -- Vice President and Chief Financial Officer

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

Matthew DiFrisco -- Guggenheim Securities -- Analyst

Okay. Thank you so much.

Operator

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

Jeff Farmer -- Wells Fargo Securities -- Equity Research Associate

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

David Gordon -- President

So, we just launched, in the fourth quarter of last year, our new platform for guest satisfaction surveys 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 really too early.

Jeff Farmer -- Wells Fargo Securities -- Equity Research Associate

Okay. And then I heard the wage rate inflation guidance, the menu pricing guidance sounds very similar to what you saw in '17, so is it fair to assume that you could potentially approach another year of 100 basis points of labor costs pressure in '18 versus '17?

Matthew Clark -- Vice President and Chief Financial Officer

I don't think it will be that much for a couple of reasons. One is that we were lapping a 53rd week, so that's part of it. I think the other piece is it will depend on sales and, certainly, at the comps we were in '17, there was a little bit of deleverage pressure within the labor line item. And so, what we said is that 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.

Jeff Farmer -- Wells Fargo Securities -- Equity Research Associate

Okay. And then just one more: I believe I missed this, but did you discuss any counter-shift headwinds or tailwinds for that 1Q same sales numbers?

Matthew Clark -- Vice President and Chief Financial Officer

Yes, in first quarter, we think that there could be a benefit from the spring break shift -- maybe 25 plus basis points in P3.

Jeff Farmer -- Wells Fargo Securities -- Equity Research Associate

Okay. Thank you.

Operator

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

Karen Holthouse -- Goldman Sachs & Co. -- Senior Research Analyst

Hey. Yeah, thanks for taking the question. Just focusing on your still negative menu mix and digging into that a little bit, I would think that 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 that you have there?

Matthew Clark -- Vice President and Chief Financial Officer

Yeah, I think it's a good question, Karen. If you take the full year, it's 20 to 30 basis points, although it accelerated a little bit as we went through the year. I honestly 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 that to normalize again so we don't view that as a problem in the short-term.

Karen Holthouse -- Goldman Sachs & Co. -- Senior Research Analyst

Is there anything that suggests -- one of the things that we've had more conversations about is the pace of redevelopment of mall space -- are you having any incremental mix challenges in areas where you might be seeing higher end competition come into the mall?

Matthew Clark -- Vice President and Chief Financial Officer

No, 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 development, but 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, more chef-driven smaller concepts so I don't think it's been a competitive situation for us.

Karen Holthouse -- Goldman Sachs & Co. -- Senior Research Analyst

I agree. Thank you.

Operator

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

John Ivankoe -- JP Morgan Securities, LLC -- Analyst

Thank you. First, a clarification, Matt: you mentioned G&A baseline is 6.4 to 6.5, I think, in Fiscal '18. Does that include the incremental spend around the ERP and human capital?

Matthew Clark -- Vice President and Chief Financial Officer

No. So, that's a great question. It's 6.4 to 6.5 plus the 15 to 20 basis points for the ERP and human capital management.

John Ivankoe -- JP Morgan Securities, LLC -- Analyst

And I know it's splitting hairs, but do you think that's a discrete event in '18 so you get the leverage in '19?

Matthew Clark -- Vice President and Chief Financial Officer

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'll give you more color.

John Ivankoe -- JP Morgan Securities, LLC -- Analyst

Alright. Thank you. And, obviously, you guys think 24 month -- maybe even sometimes more in terms of your site pipeline -- your free cash flow generation is good, it always has been -- but what are you thinking at '19 at this point? Obviously, where our models are certainly heading, both in terms of number of the company-operated stores and, if it's possible -- if it's not too early -- to give us at least some guardrails around CapEx that might come as a function of those openings and any planned remodels?

Matthew Clark -- Vice President and Chief Financial Officer

Yeah, I think, for this year, we talked about 4 to 6 being prudent because of 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 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, we'll provide that as we get closer.

John Ivankoe -- JP Morgan Securities, LLC -- Analyst

And, certainly, know it's early, but no reason to expect 3% to 4% isn't the number, I guess, for '19 at this point?

Matthew Clark -- Vice President and Chief Financial Officer

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

John Ivankoe -- JP Morgan Securities, LLC -- Analyst

Thank you.

Operator

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

Peter Sala -- BTIG -- Analyst

Great. Thank you. I think you guys 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?

David Gordon -- President

Currently, in the restaurants we've already launches, we have in-restaurant marketing materials that are up. We also have some search engine optimization online that we'll 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 use online ordering, we will try to as fast as we can. We think it's more convenient, it's easier, it's better for the guests, it's more seamless, and it's better for the restaurant so we're going to do what we can while being financially prudent to let guests know what's available.

Peter Sala -- BTIG -- Analyst

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 lost? How should we be thinking about the moderation as we go through the year?

Matthew Clark -- Vice President and Chief Financial Officer

You really nailed both pieces. It's the fact that there's certain comparisons year-over-year in some of those categories that we are locked in. 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.

Peter Sala -- BTIG -- Analyst

Alright. Thank you very much.

Operator

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

Brian Vaccaro -- Raymond James & Associates -- Senior Vice President and Equity Analyst

Thanks. Good afternoon. Towards the beginning of the call, David, you mentioned some food efficiency and labor productivity savings that you realized in '17. Would you be willing to quantify the magnitude of those savings and then also touch on potential cost savings initiatives you will pursue in '18?

Matthew Clark -- Vice President and Chief Financial Officer

So, I think that, when we looked at just ongoing improvements and productivity in labor, we referenced, basically, that despite the sales environment, when we measure things such as guests 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 the environment and savings initiatives, a lot of what our objective is is continuous improvement and making sure that we can limit whatever the deleverage is or impact from those lighter sales environments. We typically go through a very rigorous planning process and have a rolling quarterly forecast where we're looking at all of our restaurants from the bottom up and evaluating the opportunities in the bottom quartile performers to bring them up to more of a season systemwide average. And so, I think, really, when we look at it, that is what we are referring to, Brian.

Brian Vaccaro -- Raymond James & Associates -- Senior Vice President and Equity Analyst

Okay, that's helpful. And then, sorry if I missed it, but what were Grand Lux comps in the fourth quarter?

Matthew Clark -- Vice President and Chief Financial Officer

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

Brian Vaccaro -- Raymond James & Associates -- Senior Vice President and Equity Analyst

Alright. Thank you.

Operator

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

Nick Setyan -- Wedbush Securities -- Managing Director

Thanks for taking the question. In terms of the quarterly comp, are there any geographical differences that are worth calling out or was that an acceleration across the board?

Matthew Clark -- Vice President and Chief Financial Officer

Yeah, Nick, we don't give the color in the intra-quarter. I will say that, in the fourth quarter, we did have half of our geographies as positive. And I think, honestly, in the fourth quarter -- and you can extrapolate this -- we saw broad-based improvements and, California, Texas, Florida continue to be very solid markets and I think that the upper east coast continues to be a little bit softer. So, that's what we saw in the fourth quarter.

Nick Setyan -- Wedbush Securities -- Managing Director

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

Matthew Clark -- Vice President and Chief Financial Officer

Yeah, 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 thing that we saw in 2017, in general, was just some bumpiness with respect to R&M. 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.

Nick Setyan -- Wedbush Securities -- Managing Director

Got it. Thank you.

Operator

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

Matthew DiFrisco -- Guggenheim Securities -- Analyst

Thank you. I'll make it quick. Just, with respect to someone was asking about before with the mall and changing around of traffic and negative traffic, I'm 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?

Matthew Clark -- Vice President and Chief Financial Officer

I think the most effective marketing 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's definitely the headwind on the malls -- and when we've 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 that 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 traditional marketing.

Matthew DiFrisco -- Guggenheim Securities -- Analyst

Understood. Thank you so much.

Operator

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

Duration: 54 minutes

Call participants:

Stacy Feit -- Senior Director, Investor Relations

David Overton -- Chairman and Chief Executive Officer

David Gordon -- President

Matthew Clark -- Vice President and Chief Financial Officer

John Glass -- Morgan Stanley -- Managing Director

Sharon Zackfia -- William Blair and Co. -- Partner

Jeffrey Bernstein -- Barclays Capital, Inc. -- Equity Research Analyst

David Tarantino -- Robert W. Baird & Co. -- Senior Research Analyst

Nicole Miller -- Piper Jaffray -- Managing Director and Senior Research Analyst

Gregory Francfort -- Bank of America Merrill Lynch -- Equity Research Vice President

Andy Berge -- Jeffery Financial Services -- Analyst

Will Slabaugh -- Stephens, Inc. -- Research Analyst

Matthew DiFrisco -- Guggenheim Securities -- Analyst

Jeff Farmer -- Wells Fargo Securities -- Equity Research Associate

Karen Holthouse -- Goldman Sachs & Co. -- Senior Research Analyst

John Ivankoe -- JP Morgan Securities, LLC -- Analyst

Peter Sala -- BTIG -- Analyst

Brian Vaccaro -- Raymond James & Associates -- Senior Vice President and Equity Analyst

Nick Setyan -- Wedbush Securities -- Managing Director

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