Cheesecake Factory performance steady as new ice cream line launches
The Cheesecake Factory restaurants posted a 0.6 percent comparable restaurant sales increase during the fourth quarter of 2019. Its North Italia subsidiary posted a 4 percent comparable sales increase. Total revenues increased to $694M, including North Italia and Fox Restaurant Concept (FRC) restaurants, up from $585.2M in the same quarter of 2018. Net income totaled $48.7M and diluted net income per share was $1.10.
During fiscal 2019, The Cheesecake Factory added North Italia and FRC to its portfolio. These acquisitions’ results appeared in reported company earnings as of October 2. In addition, the company opened three Cheesecake Factory restaurants, one North Italia Restaurant and two fast-casual Flower Child units.
For 2019, revenues rose to $2,482.7M, up 6.4 percent from the prior year. (The prior year figure does not reflect the results of acquired restaurants). Comparable sales in 2019 increased 0.8 percent at The Cheesecake Factory. Net income for 2019 totaled $127.9M and diluted net income per share was $2.86. Operating margins were down more than 1.5 percentage points compared to prior year.
Labor expenses amounted to only 36.3 percent of sales; this, despite rising wage rates. Labor management tools have controlled labor effectively to a great extent. On a call with analysts, Tim Clark, executive vice president and chief financial officer, credited scheduling and forecasting as reasons labor expense has been well-managed. In 4Q, he said wage inflation came in at 5 percent, compared to 5.5 percent which had been the run rate.
Employee retention has also helped. Fortune Magazine picked The Cheesecake Factory for its list of 100 Best Companies to Work For. Where other companies have struggled to keep good employees, The Cheesecake Factory has excelled. The honor also signals employees’ love for the brand and culture.
The post-acquisition integration of North Italia into the business continues: David Gordon, Cheesecake Factory president, said that the concept’s general managers have responded well. North Italia manager and staff retention has improved during the process and the 4-percent comparable sales increase for the year is another positive sign.
Marketing, CPG initiatives
Recent marketing and retail initiatives have been successful, including sales of Cheesecake Factory’s popular brown bread at retail. Gordon noted that sales doubled in 2019 from 2018 levels. Also, a new line of Cheesecake Factory ice cream debuts at retail over the coming weeks, featuring real pieces of cheesecake blended in. “Inspired by our legendary cheesecakes, 7 flavors will be available at retailers nationwide beginning this month,” said Gordon. He added that Kroger, Albertsons, Safeway, and Target will carry the ice cream, indicating a strong national launch.
The Cheesecake Factory dine-in experience is evolving as restaurants have added reservations into the mix. Specific time slots and tables can be reserved. Executives said this change has been going well, with all restaurants on board. Off-premises, the company will continue to use delivery to drive demand during different parts of the day and advertise creatively with its partner, DoorDash. Delivery accounts for 17 percent of sales.
Looking ahead
Executives expect six Cheesecake Factory restaurants will open in 2020, on top of six North Italia restaurants and 8 new units from FRC. Four Cheesecake Factory units under license will also open internationally. The company ended 2019 with 292 restaurants open across all brands and 26 international locations under license.
During fiscal 2020, Cheesecake Factory restaurants should come in at 1 to 2 percent comparable sales. The company expects North Italia and FRC to deliver $420M in sales. The impact of North Italia and FRC will be neutral, due to interest payments allocated to cover acquisition costs. Executives noted the impact of coronavirus has been minimal as only its restaurant in Shanghai, China has closed.
Photo credit: The Cheesecake Factory
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