The Cheesecake Factory Inc. may be looking to add a new concept to its portfolio to help drive growth, the company said Wednesday.
David Overton, chairman and CEO of the Calabasas Hills, Calif.-based parent to The Cheesecake Factory casual-dining chain, outlined a five-year growth plan during a call Wednesday with analysts following the company’s fourth-quarter earnings report.
Fiscal 2014 results were disappointing, largely due to outside forces, Overton said, particularly higher dairy and beef costs.
But the company remains in growth mode, not only with its 37-year-old namesake brand, but with potential new concepts to come within the next few years.
“We are open to new concepts, whether internal or external, and ways to leverage the power of The Cheesecake Factory brand,” Overton said. “We are actively working on these efforts in a thoughtful and highly selective way, with the goal of having at least a couple of opportunities prime within the next few years.”
Cheesecake Factory president David Gordon said an acquisition of another concept is possible, and it is considering both fast-casual and casual-dining brands.
The company is also looking to improve profitability of its secondary 11-unit Grand Lux Café brand, for which The Cheesecake Factory has stopped providing same-store sales data. Besides one slightly positive quarter in 2013, Grand Lux Café’s same-store sales have been negative for at least two years.
Overton said the core Cheesecake Factory brand still has room for growth. The 177-unit chain has a target of 300 company-owned locations, so it has reached only 60 percent of its potential, he said.
The core brand is just beginning to grow internationally. The company has three licensing agreements and plans to open four or five new restaurants each year in the Middle East and Mexico, with Asia on deck. The company had eight international locations as of the end of the fourth quarter.
Current deals could result in as many as 42 more restaurant openings, Overton said, and licensees are looking to expand their agreements.
The Cheesecake Factory also aims to lift traffic, which declined about 1 percent during fiscal 2014. Raising guest counts by about 14 people per restaurant per day would achieve a 1-percent increase in traffic, Overton said.
Annual same-store sales growth has been between 1 percent to 2 percent, but the goal is to increase traffic to push to the upper end of that sales target, Overton said.
For the fourth quarter ended Dec. 30, The Cheesecake Factory’s 1.4-percent same-store sales increase included a 1.2-percent decline in traffic offset by a 2-percent menu price increase and a 0.6-percent benefit from menu mix.
Guest satisfaction surveys indicate that long wait times at restaurants are a problem, so the company is working to refine throughput and enhance server training to improve the customer experience.
The Cheesecake Factory is also piloting mobile payment in restaurants through a branded app that will let guests use a number of different payment systems, Overton said.
The use of handheld tablets by servers for ordering, however, is unlikely, as The Cheesecake Factory’s menu is too complex, Gordon said.
Additionally, the company plans to build on the success of its digital and physical gift card sales, which increased by an average of about 25 percent in each of the past two years, he said.
Company may raise menu prices
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For the first quarter of 2015, the company expects same-store sales to increase between 3 percent and 4 percent at The Cheesecake Factory.
Doug Benn, The Cheesecake Factory’s chief financial officer and executive vice president, attributed the expected increase to a “more vibrant” economy.
“It looks like more guests are coming in the door,” Benn said. “We just feel that the consumer is stronger and better.”
For fiscal 2015, the company projects a same-store sales increase of between 1.5 percent and 2.5 percent, an upgrade from previous projections of an increase of 1 percent to 2 percent range.
For fiscal 2015, the company anticipates food cost inflation of between 2 percent to 3 percent, with dairy prices expected to ease somewhat.
As a result of commodity pressures and higher labor costs, The Cheesecake Factory may raise menu prices, Benn said.
“I think we are going to have to consider taking additional price,” he said. “Looking forward to the second half of the year, while we are always trying to balance capturing guest traffic and offsetting cost pressures, protecting our margins is certainly a priority, and we would consider taking more pricing than normal, or more than what we have done historically, later in the year in light of cost headwinds, particularly labor wage rates.”
In addition to The Cheesecake Factory and Grand Lux Café, the company operates one location of RockSugar Pan Asian Kitchen.
Contact Lisa Jennings at [email protected].
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