Cheesecake Factory ups menu prices to combat food costsCheesecake Factory ups menu prices to combat food costs

Lisa Jennings

Traffic momentum continued across key regions and all dayparts at The Cheesecake Factory in the second quarter, but higher-than-expected food costs will result in a menu price increase in August.

In a call to analysts following a report on second quarter results Wednesday, David Overton, The Cheesecake Factory Inc.’s chair and chief executive, said the company saw its sixth consecutive quarter of positive same-store sales based on improved traffic trends and menu mix.

Overton said he was particularly pleased that same-store sales were at or above average in key markets that previously suffered because of high unemployment rates, including California, Florida and southeast Texas.

All dayparts showed improvements, Overton added, and the chain also saw considerable increases in the mid-afternoon and late-night shoulder periods.

The 2.1-percent increase in blended same-store sales between The Cheesecake Factory brand and sister Grand Lux Café represented a 0.9-percent increase in guest traffic and a 1.2-percent increase in average check. The check was driven by increased sales of nonalcoholic beverages, the company said.

In August, the company will raise menu prices 1.25 percent, which, combined with earlier increases, would bring the total increase for the year to 1.9 percent.

Higher non-contracted food costs, particularly dairy and fish, forced company officials to raise their outlook for food inflation for the year, estimating it will hit about 4 percent, higher than the earlier projected 3 percent increase in food costs.

Inflation is expected to continue to pressure margins in the third quarter, but will moderate in the fourth, said W. Douglas Benn, the company’s executive vice president and chief financial officer.

“Food costs are at their highest point in more than 20 years and no one is immune to the cost pressure,” Benn said. “The related impact to our total cost of sales will affect our earnings per share this year by about 11 cents relative to 2010.”

Still, the company did not change its full-year guidance of same-store sales increases between 1.5 percent and 2.5 percent, and diluted earnings per share to be between $1.62 and $1.70.

Following are other takeaways from the conference call:

Grand Lux: Company officials are planning to open a new prototype next year for the Grand Lux Café brand, which will be smaller at 8,500-square feet.

Overton said the unit also will be designed to be “more approachable,” with the goal of seeing returns similar to The Cheesecake Factory.

Same-store sales for the 13-unit Grand Lux brand was flat in the second quarter, which was a sequential improvement from the decline of 3.8 percent in the first quarter.

Menu labeling: The earnings call Wednesday fell on the same day the Center for Science in the Public Interest awarded The Cheesecake Factory an “Extreme Eating Award” for the extraordinary number of calories and high fat levels of its red velvet cheesecake: 1,540 calories and 59 grams of saturated fat per slice.

When asked how The Cheesecake Factory will react to menu labeling rules to come, Overton said units already post calories in six or seven cities and consumers have not changed their buying habits.

“Desserts have stayed strong,” he said. “They haven’t even moved around the menu. So again, we feel when people go out to eat, it’s very celebratory and they’re eating the foods they enjoy. At home, they will eat more low-cal foods.”

Benn added that The Cheesecake Factory offers lower-calorie items and allows any substitution for health-conscious guests.

Contact Lisa Jennings at [email protected].
Follow her on Twitter: @livetodineout