The Cheesecake Factory: Menu drove positive 2Q performance

The Cheesecake Factory Inc. reported an almost 15-percent increase in second quarter profit on Wednesday, saying the chain has continued to drive traffic and steal market share despite volatile industry trends.

For the quarter ended July 3, the Calabasas Hills, Calif.-based company said net income increased 14.8 percent to $28.4 million, or 52 cents per share, compared with $24.7 million, or 42 cents per share, a year ago. Revenues increased about 5.6 percent to $454.7 million for the quarter on a same-store sales increase of 1.7 percent companywide.

By brand, The Cheesecake Factory’s same-store sales increased 2.1 percent, but they dropped 2.9 percent for sister brand Grand Lux Café.

In a call to analysts, David Overton, The Cheesecake Factory Inc.’s chair and chief executive, noted that the company has seen 10 consecutive quarters of positive same-store sales and that the namesake brand is outperforming its casual-dining peers.

“We continue to take market share and maintain our outperformance relative to the industry with respect to comparable restaurant sales, particularly growth in guest traffic,” Overton said. “Our business is performing at levels that are healthy, stable and predictable.”

Overton pointed to menu innovation and menu quality as key drivers, saying increased traffic accounted for about 0.5 percent of the jump in same-store sales for The Cheesecake Factory, while average check grew by 1.2 percent. Increased menu prices brought about 2 percent to that increase but were offset by the negative impact of the menu mix, in part because fewer guests were ordering alcoholic drinks.

However, categories like the chain’s lower-calorie Skinnylicious offerings are still performing well, said W. Douglas Benn, the company’s executive vice president and chief financial officer.

Company research indicates the chain is growing its market share — without discounting, Overton noted. “We believe we don’t need to discount to attract guests,” he said.

The company, however, is testing some more traditional marketing methods in one market with a cluster of restaurants, though Benn did not specify what was planned, and there is no expected increase in marketing spend overall.

Meanwhile, the company is continuing to build social media marketing efforts. On July 30, for example, Facebook fans will be invited to celebrate National Cheesecake Day by trying the new Oreo Dream Extreme Cheesecake for half price.

Benn blamed Grand Lux’s same-store sales decline on a few locations. With a small chain of only 14 locations during the quarter, he said, variability is more likely.

Looking back over the past 12 months, Grand Lux’s same-store sales have been basically flat, which he said was “right on industry trends” with an economy that will continue a “sluggish, slow recovery.”

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Growth planned ahead

For the year, seven to eight Cheesecake Factory locations are expected to open. One Cheesecake Factory opened during the second quarter, and the company two weeks ago opened a Grand Lux Café in Cherry Hill, N.J., that features a new design for the interior and patio.

At about 8,700 square feet, the new Grand Lux location is smaller than traditional restaurants, to open up real estate options. The company has also been opening Cheesecake Factory locations with a smaller footprint.

In mid-August, the first Cheesecake Factory to open overseas is expected to debut in Dubai under a licensing agreement with Alshaya, which is planning three restaurants there this year.

Overton said the company has continued to explore other potential partnerships around the world with the goal of evolving The Cheesecake Factory into a global brand. The company may even consider opening corporate-operated units in some overseas markets, like Canada, Puerto Rico or Singapore, he said.

In its outlook for the year, the company said it expects same-store sales companywide to be up between 1.5 percent and 2.5 percent. Earnings per share are expected to be between $1.87 to $1.93, an increase from earlier guidance of between $1.83 and $1.91.

Food costs have eased somewhat and the company revised its expectations for the year, estimating that commodity costs will be flat to an increase of 1 percent. Previous estimates were that costs would increase between 2 percent and 2.5 percent.

The Cheesecake Factory also announced that its board has approved a quarterly dividend of 12 cents per share to be paid on Aug. 21 to shareholders.

In addition to 158 Cheesecake Factory restaurants, the company operated 14 Grand Lux locations at the end of the quarter, as well as one unit of the RockSugar Pan Asian Kitchen concept.

Contact Lisa Jennings at lisa.jennings@penton.com.
Follow her on Twitter: @livetodineout