An activist investor is pushing The Cheesecake Factory to spin off three of its smaller brands into a separate, publicly traded company, the Wall Street Journal reported Monday, citing people familiar with the matter.
JCP Investment Management, which owns 2% of Cheesecake’s shares, has privately told management that it believes North Italia, Flower Child and Culinary Dropout would be better off as a separate entity that could focus on growing the brands. JCP said it would invest in the new company to aid that growth, the WSJ reported.
The three concepts are part of Fox Restaurant Concepts, the Phoenix-based multiconcept group that Cheesecake acquired in 2019. Since then, it has brought the Fox brands along slowly, promoting them into the larger Cheesecake development apparatus one at a time. It has begun to ramp up their growth more recently.
North Italia was the first to get a big development push and now has 39 locations, or 18 more than when Cheesecake acquired the brand. Last year, the company said it planned to open new North Italia locations at a rate of 20% per year.
The fast-casual Flower Child came next and now stands at 34, which is 12 more than it had at the time of the acquisition.
And Cheesecake has indicated that it has high hopes for Culinary Dropout, which ended last year with 11 locations. The sports bar chain was on Restaurant Business’ Future 50 list of the fastest-growing small brands this year.
The Cheesecake Factory, meanwhile, has 217 U.S. restaurants, one more than it had last year.
The Calabasas Hills, California-based company plans to open as many as 22 new restaurants this year, including three Cheesecakes, six to seven North Italias, six to seven Flower Childs and seven to eight other Fox restaurants.
The Fox concepts have generally done well. Same-store sales at North Italia rose 2% in the most recent quarter, while total sales at Flower Child rose 7%.
Cheesecake is one of a growing list of chains facing activist investors at a challenging time for restaurants and restaurant stocks. Others include Bloomin’ Brands, BJ’s Restaurants, Starbucks, Red Robin Gourmet Burgers and Potbelly Sandwich Shop.
Houston-based JCP has ties to the restaurant industry and a history of activism. Earlier this month, it took an activist position in Red Robin, arguing that the casual-dining chain is undervalued. It has previously targeted companies including Dine Brands, Fiesta Restaurant Group and Jamba.
The firm is run by James Pappas, the son of Chris Pappas, the former CEO of Luby’s Cafeteria and current CEO of Pappas Restaurants, owner of Pappasito’s Cantina, Pappadeaux Seafood Kitchen and other full-service brands.
Cheesecake Factory stock rose nearly 5% in after hours trading on the news. Its stock is up more than 23% year to date.
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