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Cheesecake Factory Inc (NASDAQ:CAKE)
Q3 2019 Earnings Call
Oct 29, 2019, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen thank you for standing by and welcome to The Cheesecake Factory Third Quarter Fiscal 2019 Earnings Conference Call. [Operator Instructions]

I'd now like to hand the conference over to your speaker today Ms. Stacy Feit. Ma'am please go ahead.

Stacy Feit -- Investor Relations

Thanks Catherine. Good afternoon and welcome to our Third Quarter Fiscal 2019 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 facts 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 and forward looking statements. As a result of the factors detailed in today's press release, which is available on our website at investors stop the Cheesecake Factory calm and in our filings with the Securities and Exchange Commission. All forward looking statements made on this call speak only as of today's date, and the company undertakes no duty to update any forward looking statements. In addition throughout this conference call we will be presenting results on an adjusted basis. An explanation of our use of non-GAAP financial measures and reconciliations to the most directly comparable GAAP measure appear in our press release on our website as previously described. David Overton will begin today's call with some opening remarks and David Gordon will provide an operational and acquisition integration update. Matt will then take you through our financial results in detail and provide our outlook for the fourth quarter and the full year 2019 as well as some initial assumptions for 2020.

With that I'll turn the call over to David Overton.

David Overton -- Chairman of the Board and Chief Executive Officer

Thank you Stacy. We continue to outperform the industry during the third quarter sustaining positive comparable sales at The Cheesecake Factory. Both comp store sales and operating performance were also within our expectations. Operationally our teams managed their restaurants Well, during quarter particularly on the labor front. They grow year over year increases in labor productivity, and how early staff and manager retention as well as a decline in overtime hours work. We also saw food efficiency improve year over year, subsequent quarter end and October 2, we completed the North Italian Fox restaurant concepts acquisitions, reinforcing our leadership position and experiential dining. David Gordon and Matt will provide more detail on the integration and financial assumptions. With regard to development we continue to expect to open 5 Cheesecake Factory restaurants in fiscal 2019.

This includes the Gainesville Florida location that had a tremendous opening during the third quarter capturing over $1 million in sales in the first 3 weeks of operations. We expect to open 3 additional Cheesecake Factory restaurants during the remainder of the year. In mid-October a Flower Child location opened in McLean Virginia and 1 additional Flower Child restaurant is expected to open later in the fourth quarter. We also expect to open 1 North Italia restaurant during the fourth quarter as well. Internationally we now expect 6 locations to open under licensing agreements including the second location in Abu Dhabi which opened during the third quarter and the first location in Macao which recently opened. We expect 2 additional licensed locations to open during the fourth quarter of fiscal 2019. Looking ahead to 2020 we expect our unit growth to meaningfully accelerate with the opening of as many as 20 new restaurants including as many as 6 Cheesecake Factory locations 6 North Italia restaurants and 8 restaurants within the FRC subsidiary which includes as many as 5 Flower Child locations. We also expect as many as 4 Cheesecake Factory restaurants to open internationally under licensing agreements.

With that I'll now turn the call over to David Gordon for an operational update.

David Gordon -- President

Thank you David. We are pleased to see The Cheesecake Factory restaurants increase their comp store sales gap versus the industry during the third quarter. Our off-premise business again supported this performance as we continue to take share in the channel. Off-premise continued to grow comprising approximately 16% of total sales during the third quarter of 2019. We recently renegotiated and extended our delivery agreement with DoorDash which will further improve the economics of the delivery business for us. We also continue to seek year-over-year growth in our online ordering platform for pickup orders. As we discussed on our last call we took another step forward with our marketing during this summer and fall with a test of The Cheesecake Factory TV commercial in 12 markets leveraging our more than 250 dishes made fresh from scratch messaging. We did not expect to see an immediate significant sales lift given the brand building rather than offer focused nature of the spot. However we performed some initial consumer research following the run to measure the results of the campaign and we're encouraged that our messaging resonated and purchase intent increased. In turn we are considering additional targeted media buys in the future.

This campaign complemented our digital marketing efforts including year-round paid search and social advertising influencer marketing and collaborations to make The Cheesecake Factory top of mind. In conjunction with BuzzFeed and DoorDash we launched a content series on BuzzFeed's YouTube channel Tasty. Highlighting our fresh quality ingredients and advanced cooking techniques. The 2 featured videos captured nearly 700000 views. We will continue to use opportunities like these to get eyes on our brand to increase unaided awareness of The Cheesecake Factory. Turning to the North Italia and FRC acquisitions. We closed earlier this month and mobilized immediately to execute our comprehensive integration plan for North Italia. We are maintaining the integrity of North Italia concept and everything that makes it so special to guests while enhancing the systems and processes to further strengthen operations and support the continued national expansion of the concept. I visited each location personally and have been so impressed by the caliber of the teams in place their passion for the concept and their commitment to delivering a great guest experience.

During my visits we reviewed the opportunities this acquisition will provide including continued career growth enhanced benefits programs and an even stronger infrastructure to support operations. To that end we began to convert the North Italia restaurants to our point-of-sale system immediately upon the close of the transaction and are scheduled to complete the final conversions this week. We have also negotiated to have our new delivery agreement extended to North Italia and the FRC concepts just one example of the benefits that our scale brings to these brands. We will continue to pursue more of these opportunities over time. My experience working with the North Italia staff members as well as Sam Fox and his team at FRC has reinforced beliefs that our 2 companies can drive greater value as one organization. For the balance of the year we're focused on driving performance at The Cheesecake Factory restaurants and our acquired businesses while continuing to execute a smooth integration.

With that I will now turn the call over to Matt for our financial review.

Matthew E. Clark -- Executive Vice President and Chief Financial Officer

Thank you David. We are pleased to see The Cheesecake Factory restaurants increase their comp store sales gap versus the industry during the third quarter. Our off-premise business again supported this performance as we continue to take share in the channel. Off-premise continued to grow comprising approximately 16% of total sales during the third quarter of 2019. We recently renegotiated and extended our delivery agreement with DoorDash which will further improve the economics of the delivery business for us. We also continue to seek year-over-year growth in our online ordering platform for pickup orders. As we discussed on our last call we took another step forward with our marketing during this summer and fall with a test of The Cheesecake Factory TV commercial in 12 markets leveraging our more than 250 dishes made fresh from scratch messaging. We did not expect to see an immediate significant sales lift given the brand building rather than offer focused nature of the spot. However we performed some initial consumer research following the run to measure the results of the campaign and we're encouraged that our messaging resonated and purchase intent increased. In turn we are considering additional targeted media buys in the future.

This campaign complemented our digital marketing efforts including year-round paid search and social advertising influencer marketing and collaborations to make The Cheesecake Factory top of mind. In conjunction with BuzzFeed and DoorDash we launched a content series on BuzzFeed's YouTube channel Tasty. Highlighting our fresh quality ingredients and advanced cooking techniques. The 2 featured videos captured nearly 700000 views. We will continue to use opportunities like these to get eyes on our brand to increase unaided awareness of The Cheesecake Factory. Turning to the North Italia and FRC acquisitions. We closed earlier this month and mobilized immediately to execute our comprehensive integration plan for North Italia. We are maintaining the integrity of North Italia concept and everything that makes it so special to guests while enhancing the systems and processes to further strengthen operations and support the continued national expansion of the concept. I visited each location personally and have been so impressed by the caliber of the teams in place their passion for the concept and their commitment to delivering a great guest experience.

During my visits we reviewed the opportunities this acquisition will provide including continued career growth enhanced benefits programs and an even stronger infrastructure to support operations. To that end we began to convert the North Italia restaurants to our point-of-sale system immediately upon the close of the transaction and are scheduled to complete the final conversions this week. We have also negotiated to have our new delivery agreement extended to North Italia and the FRC concepts just one example of the benefits that our scale brings to these brands. We will continue to pursue more of these opportunities over time. My experience working with the North Italia staff members as well as Sam Fox and his team at FRC has reinforced beliefs that our 2 companies can drive greater value as one organization. For the balance of the year we're focused on driving performance at The Cheesecake Factory restaurants and our acquired businesses while continuing to execute a smooth integration.

With that I will now turn the call over to Matt for our financial review.

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from the line of John Glass with Morgan Stanley.

John Glass -- Morgan Stanley -- Analyst

Thanks very much, Matt if you could just clarify a few things on how you think about Fox and accretion. You talked about excluding interest expense in the fourth quarter. So I wasn't sure if that was an unusual expense or if that's ongoing. And do you think about the earnings neutrality of this is including the incremental interest expense? Number one. And two I think last quarter you said 15.5% restaurant margin for these brands and you affirmed that today. But you also talked about purchase accounting adjustments. Is that 15.5% is that on a comparable basis it's best you understand it with your current restaurant margin? Or did you not GAAP adjust that? I'm just trying to understand if you still believe that there's any material adjustments you're going to have to make to that guidance that you provided initially or if there is -- it's on the same basis or not?

Matthew E. Clark -- Executive Vice President and Chief Financial Officer

Sure John. I'll just talk about the fourth quarter first because there's a lot of moving parts we understand that. We thought it was just easier to kind of give a lump sum number right. Some aspects of the business are making positive contributions. There's still some ongoing preopening that's heavier weighted. There's the interest. So we just thought in order to understand the core Cheesecake Factory business as we've been giving guidance we would just bundle all of those pieces together on a go-forward basis in 2020. We are reaffirming sort of the neutrality aspect of it inclusive of the interest expense. So hopefully that helps kind of define that. I think with respect to the purchase accounting there are just some different pieces to it that are outside of sort of the normal GAAP that you referenced right? So what component of it would be attributable to trade names? Is there going to be any amortization of those? We have to kind of work through all of those pieces and we're just not at the point of giving an estimate for that right now. Of course there would be noncash right because the consideration is put up now. It's just a matter of how that might roll through. Otherwise roughly speaking those estimates were based on our best case assumption understanding GAAP and current operations.

John Glass -- Morgan Stanley -- Analyst

Thank you.

Operator

Your next question comes from the line of Sharon Zackfia with William Blair.

Sharon Zackfia -- William Blair -- Analyst

Hi, good afternoon. I guess a follow-up on John's question. It would be helpful to know kind of what you anticipate the quarterly interest expense to be post acquisition? And then secondarily on the international development for Cheesecake for next year with that step down could you talk about how you're seeing the new smaller format location perform? I think that was something that was done in an effort to try to create a smaller prototype for international if that might open up the potential to reaccelerate in 2021 and beyond?

Matthew E. Clark -- Executive Vice President and Chief Financial Officer

Sure Sharon. I think just simply right now on the interest. Right now we have $335 million on the line. We were sort of estimating around $300-ish million by the beginning of the year and the net interest rate is about 3.5%. And we may pay down a little bit of that as we go but that gives you kind of a run rate.

David Gordon -- President

And Sharon it's David Gordon. Just on the 5500 square foot Cheesecake Factory that's out here in Oxnard California it continues to actually outperform our expectations. Sales remain well above Cheesecake Factory averages. It's operating really really smoothly. So our international partners most specifically in Asia are excited to see that because they do believe it will allow them hopefully to find some real estate sites that are not available today because the current -- well at Cheesecake prior was around 7000 square feet. So it's all positive on that front.

Matthew E. Clark -- Executive Vice President and Chief Financial Officer

And Sharon this is Matt. I think importantly all 3 of the partners that we have continued to look to open restaurants next year. Sometimes that's just timing. I think if I remember right at the beginning of this year we had one kind of slip in from 2018. And so I think we've always said sort of 3% to 5% is the average run rate. And I think we're continuing to do that.

Sharon Zackfia -- William Blair -- Analyst

Thank you.

Operator

Your next question comes from the line of Nicole Miller with Piper Jaffray.

Nicole Miller -- Piper Jaffray -- Analyst

Thank you. Good afternoon, You had commented about industry weakness in terms of same-store sales. I wanted to understand if you could share or delineate casual dining versus fast casual perhaps. So just part A wondering is casual dining giving up some comp to limited service? And if so why? Or is that something about customers not coming out? And then in terms of fast casual and the FRC group specifically how are comps overall at the group? Or if you can share North Italia and Flower Child?

Matthew E. Clark -- Executive Vice President and Chief Financial Officer

Sure. I think it's hard to say for sure Nicole. This is Matt. On fast casual taking share I mean I think we have felt for a while that midweek lunch is an area of opportunity and perhaps some of those sales for us are going to people who are a little more time starved and things like that. But I think when we look at sort of the overall whether it's Black Box or MillerPulse or KNAPP-TRACK or the credit card data I do think that maybe QSR took a little bit of share with the value deals in the third quarter but that -- but then everybody else was kind of in the same vein. And really it was attributable to July. And so kind of what's going on with that month and maybe it has to do with wallet share and the retail spending. I think from our end we came in right where we thought we would which we we're pleased with that because it speaks to the predictability of our business and understanding kind of where things are at which is really helpful for managing and providing guidance. North Italia continues to do well. Year-to-date it's running mid-single-digit comp store sales. And we haven't provided comps yet for the FRC side of things but they continue to do well. We're -- I can just say we're really pleased with the business. The only concept within that group that's really running through in the fast casual mode if you will is Flower Child and we continue to open locations. And obviously that speaks to sort of the bullishness that we have for it.

Nicole Miller -- Piper Jaffray -- Analyst

Okay.

Operator

Your next question comes from the line of David Tarantino with Baird.

David Tarantino -- Baird -- Analyst

Hi, good afternoon, Matt could you -- I think you mentioned that Q4 operating profit overperformed your assumptions. Could you maybe elaborate on what factors drove that upside?

Matthew E. Clark -- Executive Vice President and Chief Financial Officer

David it's Matt. I think you mean Q3 right? And yes it was -- generally speaking I think we were pretty much dead on expectations as we have pretty much been all year and continue to maintain. When we look across the line items versus our plan we're hitting virtually all of them. We had a little bit of a favorable benefit in workers' comp and GL insurance. We've been doing a great job managing that this year. And so it just provided a little bit. I think G&A if you net out the acquisition costs we are slightly favorable to where we're expecting to be to. So -- but otherwise it was just really right on.

David Tarantino -- Baird -- Analyst

Got it. And then a question on the guidance for Q4 again. On the impact I think you said $0.12 to $0.15 from the acquisition. What in there is what you would consider onetime in nature versus something that might be more ongoing? Is the $0.12 to $0.15 inclusive of any onetime charges or it integrates...

Matthew E. Clark -- Executive Vice President and Chief Financial Officer

It is. It's an estimate still because there's definitely -- just like we had in the third quarter right there are some components of the integration as David Gordon mentioned that were literally going through and changing out their POS systems for north for example in this current month. And so there are some direct expenses that are related. Part of it has to do with slightly higher than preopening on a run rate basis as a percentage of it. So again I think we'll be able to provide more clarity on the guidance. But I would look at sort of next year. We're not anticipating significant onetime expenses outside of the interest which is bundled into the neutrality estimate for the EPS outside of whatever the purchase accounting piece is.

David Tarantino -- Baird -- Analyst

But just so we understand what that $0.12 to $0.15 represents. It's the interest expense the preopening expense and is there G&A also in that?

Matthew E. Clark -- Executive Vice President and Chief Financial Officer

Sure. That would be -- it would be a sort of a net contribution from some onetime expenses the interest expense and all of the components associated with the preopening G&A and operations for FRC and North for the quarter.

David Tarantino -- Baird -- Analyst

And does your guidance assume -- does it include the revenue and profit contribution from all the concepts you're acquiring?

Matthew E. Clark -- Executive Vice President and Chief Financial Officer

So we haven't given specific revenue guidance right. We provided comp store sales for Cheesecake Factory but we can certainly get that to you.

David Tarantino -- Baird -- Analyst

Right, thank you very much.

Operator

Your next question comes from the line of Jon Tower with Wells Fargo.

Jon Tower -- Wells Fargo -- Analyst

Great, right, thanks. Just quickly housekeeping. What was delivery mix and online mix in the period? And then specifically for David the marketing messaging here is shifting a little bit that the brand -- Cheesecake brand has been reliant mostly on word-of-mouth historically to grow traffic and clearly with the television tests and now some of the online tests you've been doing that's changing. And I'm curious to hear your thoughts on why and where you think it can go over time given that the spend for the brand I think in 2018 was roughly 0.3% of sales versus the peer set that's closer to 2.5%?

David Gordon -- President

Thanks Jon. This is David. So off-premise was in total 16% of total sales. Delivery made up about 35% of that 16%. Online ordering is now at 13% which is up slightly from where it was last quarter and phone-in is still about 50% of all the transactions. So it continues to be a successful channel for us. And we're pretty happy with the extension and the renegotiation of our DoorDash deal. We feel like they have been great partners and we'll continue to leverage that partnership with marketing as well. As far as the marketing goes I would say it's not that we've changed. I think we're evolving and we're looking at different avenues today than perhaps we have in the past. And if you think about word-of-mouth and what it used to mean just used to mean you would tell your friend. When you stood in front of them today word-of-mouth is social media marketing and it is using those channels in every way whether it's Twitter or Instagram or even the social media influencers to get that word-of-mouth out. So we're going to continue to do that along with the paid search and being on all the time. We've been doing that now throughout all of this year. And that's not that different from what we were doing last year. And as far as the television it really is just a test. It's just to see if the affinity for the brand to be able to continue to increase awareness can make a difference to sales over time. And that without promotion without offer that still stays true to who we are as a concept. And we just want to remind people especially those that maybe aren't thinking of us in some of those other markets as frequently as we'd like that were here. And so we did a little bit of research as I said earlier post the TV commercials and it really seem to resonate. And the more we talk about fresh made from scratch the more we hear from people that they're talking about us more than they had previously. So I'd say that we're evolving and don't have any plans to do that much different than we've done this year but we'll talk about that in February and we'll talk more about next year.

Jon Tower -- Wells Fargo -- Analyst

Does the evolution include potentially spending a little bit more as a percentage of sales going forward?

David Gordon -- President

I think we'll see. And if it does we would certainly let you know when we do talk about next year.

Jon Tower -- Wells Fargo -- Analyst

Thanks.

Operator

Your next question comes from the line of Will Slabaugh with Stephens Inc.

Will Slabaugh -- Stephens Inc. -- Analyst

You think Scott, You mentioned that POS conversion going on at North. I was wondering if you could talk about any other integration initiatives going on whether that be personnel technology or otherwise at either North or any of the other FRC concepts? And secondarily how we should think about the "integration period" if you will or however you would characterize that?

Matthew E. Clark -- Executive Vice President and Chief Financial Officer

Well this is Matt. I think -- as we said before we're going to be careful about how we proceed. And the businesses are performing well. And you have to watch out for disruption. We were able to plan ahead for North because we had been contemplating that acquisition really from the beginning of the year based on the performance and so some of the pieces around FRC are a little bit newer. And certainly we want to maintain the culture and we're really doing it for growth. That being said we'll look over time to see where those opportunities make sense and whether we can buy chicken together cheaper that would be great or if we can have more secure technology platforms and that are more scalable that would be great. I think we'll learn a lot from the North integration in many of those facets that we can start to apply. But we'll continue to provide an update as we get more visibility into that.

Will Slabaugh -- Stephens Inc. -- Analyst

Okay, thank you.

Operator

Your next question comes from the line of Gregory Francfort with Bank of America.

Gregory Francfort -- Bank of America -- Analyst

Hey, guys, thanks for the question. Maybe if you could just -- I guess 2 quick ones. But can you break down what the unconsolidated affiliates loss was and why it stepped up so much in the quarter? And then the other question is maybe a little bit more forward-thinking. Margins have dropped for a few years now from I guess 19% to 20% to 15% to 16%. And I guess can you help me understand how you think this is going to play out for casual dining because you guys are not alone in terms of a few hundred basis points of margin pressure. I'm curious what point will you start to see the industry have a bigger shakeout? How far away that is and sort of how Cake works through that?

Operator

Sure. Greg this is Matt. I think on the first we can get some details to you offline. But really there were some components with the affiliated loss associated with the transaction. As we noted some of those are accounting adjustments some of those were retention bonuses to key people to a certain point in time. So it would have looked ex for transactions similar to what it has been driven mostly by the upsized G&A and preopening as we've discussed before. So that kind of gives you a range of magnitude to the onetime event that was absorbed there. With regards to the margins I think a couple of things to remember. One is the impact from lease accounting this year depending on how you're looking at the margin structure that can look like anywhere up to 100 basis points impact. And so no doubt there has been pressure over the past three or four years probably a couple percent. I think some of that was the impact from 2017. Certainly a sales environment that was not productive for the industry and a little bit of deleverage. I think if you look at our results now over the past say 5 quarters we've pretty much hit the margin objectives that we set out and it's stable on a year-over-year basis for the year based on our guidance. And so -- and that's with a 1% comp and about 3% pricing. So I think in this environment we're able to maintain that margin. I think it does depend on continuing to have positive comparable sales even if there's a little bit of traffic pressure. We said before that we think the labor escalation has at least peaked it's still running about 5.5% but hasn't gotten worse. Commodities remain sort of in the same range as they have. So that seems very doable for the next leg of this environment as we continue to manage the business the way that we have over the past 1.5 years.

Gregory Francfort -- Bank of America -- Analyst

Thanks a lot.

Operator

Your next question comes from the line of John Ivankoe with JPMorgan.

Hi, thank you. A couple if I may. Firstly in terms of some of the labor efforts that were successful in the third quarter reducing hours and reducing paid overtime. How much of that was easy comparison driven if you will versus how much of that may actually have legs as we kind of think about the model through fiscal '20?

Matthew E. Clark -- Executive Vice President and Chief Financial Officer

John it's Matt. I don't think it was necessarily an easy comparison. I think a big piece for example on the overtime is staffing. And we're just doing a great job truly industry-leading on retention efforts. And I think when you're able to do that it bears fruit. I think we also had a real focus this year on scheduling and forecasting. And I think we're doing just a slightly better job being tight on that. I think all of those continue into the fourth quarter and the first part of next year. As we've always said we're sort of about incremental improvements. And I think that those are paying dividends right now and are continuing in our guidance.

John Ivankoe -- JPMorgan -- Analyst

Okay. Understood. And in terms of food waste I mean a similar question just with the different cost category. How significant was it? And how much of an opportunity is there when you look at your A versus T? I'm sure you have one. How much of a margin gap do you think does exist on the food waste side that perhaps could be captured?

Matthew E. Clark -- Executive Vice President and Chief Financial Officer

Well we run very high efficiencies. I've been pleased to see that we continue over the past two years to improve upon that. So we rolled out a program to really improve on the prep production forecasting. It's prep 2.0 is what we called it and we've seen ongoing benefits from that. There are some other things where we're looking at right now and we're trialing. I think it's a sort of combined effort between labor and cost of goods. And I think that's a good way to think about it right? Because there's a little bit of trade-out with the way that pricing is hitting and you're getting some leverage in cost of sales and some deleverage in labor just based on the inflation rates. But if you think about core costs in total I think our aggregate focus continues about on how can we improve that combination and there -- are there things we can do like buying chicken pre-pounded right? So we talked about that before and we have a pilot running right now to see if that could be something that might be the same price as the chicken we have today but require less labor hours. So I think when we look at those 2 we continue to look in combination.

John Ivankoe -- JPMorgan -- Analyst

Okay great. And then the final one I promise. You guys mentioned kind of the rewritten DoorDash agreement a few times if delivery is between 5% and 6% of sales. I mean how significant is it? I mean is it 5-point savings 10-point savings? I mean when we talk about getting a better deal from DoorDash I mean is that something that we'll notice in the P&L? And was that in place for the third quarter?

Matthew E. Clark -- Executive Vice President and Chief Financial Officer

Our objective has always been to keep the margin in a place that we feel that it balances the business out. So we've talked about needing to make sure that we get them the margin relatively equal to a dine-in guest. I think that this gets us pretty darn close and is a fair deal. I think what the benefit is that it sort of rolls in in the middle of this year. So hopefully it's just one of those initiatives that helps keep us relatively flat core margins going into next year.

John Ivankoe -- JPMorgan -- Analyst

Thank you.

Operator

Your next question comes from the line of Jeffrey Bernstein with Barclays.

Jeffrey Andrew Bernstein -- Barclays Bank -- Analyst

Great, thank you very much. Two questions. Just one on the comp trends I know you mentioned last quarter and I think you mentioned it again today that you were off to a slow start in the quarter that is in the third quarter. I'm just wondering if you can provide any context behind after that tough start whether you saw trends get better and that's ultimately evident in the 0.4% comp for the full quarter? And maybe you could provide the components of that comp as well? And then I had one follow-up.

Matthew E. Clark -- Executive Vice President and Chief Financial Officer

Sure. So about 3.2% pricing mix was a positive 0.9% and traffic was negative 3.7%. But as we've talked about we sort of look at the mix offsetting that. So roughly speaking we're about 1% off trend from the beginning of the year. And essentially all of that was attributable to the July period as we saw sort of the back half of the quarter really be right back on trend. And I think that speaks to the guidance that we're providing. So I think there's been a lot of conjecture about why that might be and Amazon Prime Day or Target matching that maybe just pulling in retail sales. I think nobody really knows. I think there's been some analysis that has shown that the July comps over the past four or five years have been somewhere between 1% to 2% lower than the balance of the year. And so I think that's what we saw. But I feel like from our standpoint we're in the middle of a consistent run of comps right now.

Jeffrey Andrew Bernstein -- Barclays Bank -- Analyst

Got it. And then just in terms of I guess clarification on the guidance related to FRC and North Italia. I think you mentioned it's $0.12 to $0.15 that is being excluded in the fourth quarter despite the acquisition having already closed. So this is just to try and make a clean year. And then therefore you're going to start it fresh including all those costs starting in 2020. Is that correct?

Matthew E. Clark -- Executive Vice President and Chief Financial Officer

Perfect. That's exactly right. And so we're just trying. As we've said we're trying to keep that core guidance so people can understand where we think we are versus where we said. And then we'll have a clean year that includes everything for 2020.

Jeffrey Andrew Bernstein -- Barclays Bank -- Analyst

But the fourth quarter then so you're excluding the revenues also or you're including the revenues from these units but excluding the costs?

Matthew E. Clark -- Executive Vice President and Chief Financial Officer

So again we haven't provided specific revenue guidance and we can help you model that out. We're providing the comp store sales guidance for Cheesecake Factory. We're just giving you that expense to exclude out as a way to sort of bridge the gap so you understand we're contemplating it but it's not in the core guidance.

Jeffrey Andrew Bernstein -- Barclays Bank -- Analyst

Understood. No I just wasn't sure whether you've also stripped out the revenue side. Otherwise it would seem like a mismatch that the revenues are in but the...

Matthew E. Clark -- Executive Vice President and Chief Financial Officer

Correct. We have not provided the revenue guidance for those as well. So I think it's comparable.

Jeffrey Andrew Bernstein -- Barclays Bank -- Analyst

Okay. And the percentage of the $0.12 to $0.15 that's ongoing versus onetime as we think about applying that going into 2020. Can you give -- I know you mentioned there are lots of pieces within there but is the majority onetimes?

Matthew E. Clark -- Executive Vice President and Chief Financial Officer

Yes. I mean I think roughly speaking about half of that is the interest expense which we believe in on a go-forward basis will be covered by the operations. I think you have some heavy preopening relative to the base as well. And let's say incrementally that's another quarter of it and then you have a quarter of it is onetime expenses.

Jeffrey Andrew Bernstein -- Barclays Bank -- Analyst

Gotcha. Very helpful. Thank you.

Operator

Yeah. Your next question comes from the line of Andy Barish with Jefferies.

Andy Barish -- Jefferies -- Analyst

Hey, guys, yeah, Just one more North question or North FRC question as we look out. You've broadly mentioned that restaurant level margins kind of equate to where Cheesecake is running right now North a little bit higher FRC a little bit lower. Is that still kind of what you're thinking for next year I guess without getting too specific? And then just in terms of the new unit economics that you provided those do incorporate higher margins going forward in the North and FRC businesses? Is there anything we should just be aware of there in terms of what's going on?

Matthew E. Clark -- Executive Vice President and Chief Financial Officer

So Andy this is Matt. Just to tackle that second part first. The unit economics contemplate sort of the mature run rate right? And that's sort of the way that I think most people model it out and keeping in mind the extremely high-growth rate for both North and FRC. When we look at the same-store performance for those different groups of restaurants that's what we're looking at when we're providing unit economics in those higher margins. Because obviously if you're opening up 6 or 7 restaurants on a base of 15 you've got some waiting issues with respect to the aggregate margin performance of the concept. So the aggregate margin performance is contemplated for next year in the guidance that we provided previously and posted on the website. The modeling for the new units looks at sort of comp performance to strip out that heavy growth piece.

Andy Barish -- Jefferies -- Analyst

Very helpful. And just quickly on that anything different on the cost side of the equations there the 2 main prime costs labor and...

Matthew E. Clark -- Executive Vice President and Chief Financial Officer

No. It's a good question for modeling. I mean relatively speaking it's pretty close on the FRC for Cheesecake maybe a little bit less labor for North and that's probably the difference a little bit simpler. Cheesecake is a little bit more complicated concept but otherwise sort of proportionately similar.

Andy Barish -- Jefferies -- Analyst

Thank you.

Operator

Your next question comes from the line of Matt DiFrisco with Guggenheim Securities.

Matt DiFrisco -- Guggenheim Securities -- Analyst

Thank you and I apologize in advance for beating a dead horse here. But just to take this a little further as far as the guidance I guess when you say neutral for 2020 are you sort of starting from the base of this adjusted $270 million number? Or is it sort of the GAAP number or so?

Matthew E. Clark -- Executive Vice President and Chief Financial Officer

So the neutral piece is for FRC right? It's a good question. For North FRC and the interest combined so we'll be looking at it from the adjusted perspective of Cheesecake Factory. That's the core business we're looking because obviously it excludes sort of the losses attributable because that piece is carved out and that's the neutral part.

Matt DiFrisco -- Guggenheim Securities -- Analyst

And you are completely -- when you say $0.61 to $0.65 for the fourth quarter it is completely reflective of all of the Cheesecake nothing to do with the acquisition that will be stripped out or bucketed in a different -- when you talk about your guidance here for the $0.61 to $0.65?

Matthew E. Clark -- Executive Vice President and Chief Financial Officer

Yes yes.

Andy Barish -- Jefferies -- Analyst

And then last question I guess more so on the current trends that you're seeing out there I think you would've called it out but is there anything or is it too soon to say sort of what the wildfires going on there? Anything impairing the business? I know you have a large patio business. Is the air quality starting to affect some square footage that might be coming under pressure? Or this is so far you haven't seen any of that?

Matthew E. Clark -- Executive Vice President and Chief Financial Officer

Well everything that we do know is in our guidance. So I think that the range sort of speaks for itself. And the only thing that really contemplate so we called out specifically above and beyond was the holiday shift.

Andy Barish -- Jefferies -- Analyst

Okay, thank you.

Operator

And your last question comes from the line of Dennis Geiger with UBS.

Dennis Geiger -- UBS -- Analyst

Great, thanks for the question, Just a follow-up maybe on the longer-term margin question. And whether or not you're able to share some kind of longer-term margin target at this time? Or maybe how similar you're thinking about the targets relative to previous targets? And then maybe if that's difficult Matt is there anything else to add kind of on the margin recapture maybe whether those 4 or 5 pillars that you've talked about previously if those are still generally notable opportunities for you if there's anything incremental to add?

Matthew E. Clark -- Executive Vice President and Chief Financial Officer

Sure. Sure sure. This is Matt. So yes I think that those are all still in play right? I mean I think sort of walking through the call today the key is comp store sales keeping that in that 1% to 2% range. I think we have proven that if that's the case we're holding 4-wall margins flat. That's the sort of the anchor. Cheesecake Factory is still the majority of the business right? And I think in addition to that we're delivering on the G&A leverage that we talked about getting that tenth a year. We're continuing to build international restaurants with our partners. And so for next year again right in the middle of the range. So I think that the accretion of the North margins over time. Obviously it's a small piece but we'll build. So I think we're executing on all of those. Right now if we look forward we have the levers in place with the accelerated growth in the capital returns program to kind of hit our aggregate total returns target without expanding margins. But of course that does continue to be our goal. And I think we're confident that we can manage flat core margins in the 1% to 2% comp store sales range.

Dennis Geiger -- UBS -- Analyst

Great. And then if I could just get one other one in. Just as it relates to pricing as you kind of look out a little bit. If you're happy with kind of that 3% level given what you're seeing from a cost perspective? And then on the other side the macro environment and how the consumer is if that's a good level as we look ahead a little late?

Matthew E. Clark -- Executive Vice President and Chief Financial Officer

Well I think it's a realistic level based on the cost pressures. I think most restaurant companies again we think are right in the middle of the average there based on where labor and cost of sales are again. And you look at different geographies will have slightly different pricing levels as warranted based on the economics. It's a little bit art and a little bit science. And certainly you want to be in a position to not take as much pricing as you have to. But I think we're comfortable being in the middle of the range given the depth of the menu and the ability for us to sort of manage it different than everybody else.

Dennis Geiger -- UBS -- Analyst

Thanks.

Operator

You do have a question from the line of Brian Vaccaro with Raymond James.

Brian Vaccaro -- Raymond James -- Analyst

And thanks Just one more quick one on off-premise. It seems that off-premise sales mix and also deliveries that has plateaued here a bit for you and others here in the third quarter. Just curious on what you believe is driving that? And Matt does your Q4 comp guidance assumes sort of a less tailwind of off-premise growth that's offset by an improvement in dine-in trends? And if so anything you -- specific that you'd point out marketing or other initiatives that might help dine-in trends at the year-end?

Matthew E. Clark -- Executive Vice President and Chief Financial Officer

I think the first part of that is that just based on the -- who does the driving and who does the ordering. It does appear that sort of the college seasonality and summer time seasonality of what people are doing creates a little bit of an up and down in the off-premise business and the delivery business. We've seen that now. Even as it's been growing quite a bit you really can't compare the second quarter to the third quarter as a percentage and get an accurate representation of sort of whether it's plateaued or not. So we still feel like it's growing. We've said all along that we think that if that can grow 1% to 2% a year we're going to be happy. And that's what we believe. I think other people have put bigger numbers out there maybe overshooting it. So that seems to be on track for at least for us and we feel positive about that. So our fourth quarter guidance just assumes all of the pieces that have been working for us in the past 3 quarters.

Operator

And there are no further questions at this time.

Stacy Feit -- Investor Relations

Great. Thank you for joining today.

Operator

[Operator Closing Remarks]

Duration: 51 minutes

Call participants:

Stacy Feit -- Investor Relations

David Overton -- Chairman of the Board and Chief Executive Officer

David Gordon -- President

Matthew E. Clark -- Executive Vice President and Chief Financial Officer

John Glass -- Morgan Stanley -- Analyst

Sharon Zackfia -- William Blair -- Analyst

Nicole Miller -- Piper Jaffray -- Analyst

David Tarantino -- Baird -- Analyst

Jon Tower -- Wells Fargo -- Analyst

Will Slabaugh -- Stephens Inc. -- Analyst

Gregory Francfort -- Bank of America -- Analyst

John Ivankoe -- JPMorgan -- Analyst

Jeffrey Andrew Bernstein -- Barclays Bank -- Analyst

Andy Barish -- Jefferies -- Analyst

Matt DiFrisco -- Guggenheim Securities -- Analyst

Dennis Geiger -- UBS -- Analyst

Brian Vaccaro -- Raymond James -- Analyst

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