The Cheesecake Factory's 3Q traffic growth bucks casual-dining trends

The Cheesecake Factory Inc. reported a 32-percent increase in profit on Wednesday, citing traffic growth that has defied casual-dining trends.

Brands such as Buffalo Wild Wings, Chili’s and Maggiano’s have reported negative traffic trends or warned of cautious consumers in reporting late summer results so far. But Cheesecake Factory officials boasted of meaningful gains in traffic for their namesake brand, noting that sales have increased during off-peak shoulder periods of mid-afternoon and late night.

For the quarter ended Oct. 2, The Cheesecake Factory recorded net income of $27.2 million, or 49 cents per share, compared with $20.6 million, or 36 cents per share, a year ago.

Revenues rose 5 percent to $453.8 million on same-store sales that increased 2.5 percent systemwide, including a 1.5-percent increase in traffic.

By brand, same-store sales rose 2.9 percent for the namesake Cheesecake Factory chain, including a 1.9-percent increase in traffic. Sister brand Grand Lux Café, however, recorded a same-store sales decrease of 2 percent.

David Overton, The Cheesecake Factory Inc.’s chief executive, said the company has made “meaningful gains” in guest traffic during the quarter, particularly in September, when the casual dining segment as a whole was experiencing declines, he said.

“Our determined focus on driving sales even during the busiest shifts and maintaining high-quality in food and service are key success factors,” he said. “People want a consistently good experience, and they know they can depend on us to deliver it.”

Results for Grand Lux Café, however, remain challenging. Doug Benn, the company’s chief financial officer, said the brand’s two-year trends are improving, with same-store sales falling only 0.5 percent in the past 12 months. Grand Lux tends to perform closer to industry averages, unlike The Cheesecake Factory brand, he noted.

Overton said the company is moving forward with a new design for Grand Lux after opening a smaller format 8,700-square-foot location in Cherry Hill, N.J. earlier this year that he described as “more approachable.”

The company said the new Grand Lux design is expected to reach performance levels similar to those at The Cheesecake Factory — about $1,000 per square foot.

Commodity costs are expected to be a challenge next year, but the company said macroeconomic trends are likely to be similar to this year. Estimating that food costs will increase between 3 percent and 5 percent in fiscal 2013, The Cheesecake Factory is expecting to increase menu prices about 2 percent, said Benn.

“We’re going to walk that fine line of balancing the desire to offset costs with our equal, or greater, desire to continue to have that gap between us and the industry with respect to guest traffic growth,” Benn said.

At the end of the quarter, the company had opened four of eight new restaurants planned for 2012. The first international location opened in Dubai in August under a licensing agreement, the first of three expected to open in the Middle East this year. Next year, eight to 10 new company-owned domestic locations are planned, including two or three relocations as leases expire, as well as four licensed international units.

For the fourth quarter, the company projected earnings per share of between 50 cents and 53 cents, based on an estimated same-store sales increase of between 1 percent and 2 percent, lapping a strong quarter last year that included an extra week. The company also expects the presidential debate and election to have a negative impact on fourth-quarter results, Benn said.

The Calabasas Hills, Calif.-based company ended the quarter with 173 restaurants, including 158 Cheesecake Factory units, 14 Grand Lux Cafes and one RockSugar Pan Asian Kitchen.

Contact Lisa Jennings at [email protected].
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