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Cheesecake Factory explores new expansion options

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The Cheesecake Factory is testing a smaller version of its namesake concept while stripping food and labor costs out of its Social Monk Asian Kitchen fast-casual startup in preparation for expanding it, management told investors Wednesday.

Meanwhile, the company expressed satisfaction with the performance of North Italia outside that full-service restaurant concept’s home base of Arizona. North Italia was created by Scottsdale-based Fox Restaurants, which is expanding the concept with capital provided by Cheesecake. 

Executives of the latter said Cheesecake lost $1.5 million on its investment in North Italia and another Fox Restaurants concept it’s funding, a fast casual called Flower Child, during the first quarter because of high opening costs. They reaffirmed plans to exercise an option to buy North Italia later this year, but did not address their plans for Flower Child.

The officials dashed any notions that Cheesecake may be focusing its expansion on upstarts rather than the company’s high-volume namesake operation. Officials expect to end the year with six more Cheesecakes in operation, including the downsized store that recently opened in Oxnard, Calif., off a base of 202 units.

At 5,500 square feet, the new format is significantly smaller than a typical Cheesecake, which can range as high as 17,000 square feet. The new restaurant will be watched to “determine if this business model can capture sufficient productivity and efficiencies in a smaller footprint,” Cheesecake CEO David Overton told investors.

“If we are successful, we would look to export the model to our international partners as it could support additional real estate opportunities, particularly in Asia, where larger locations are difficult to find,” Overton added.

Wait times will be a key consideration, said Cheesecake President David Gordon. “It's currently exceeding our sales-per-square-foot expectations and we've seen an even flow of guests throughout the day,” he continued. “The wait times are not that much different than some of our busiest openings at the end of last year.”

Overton hedged when asked by a financial analyst about the possibility of using the smaller format in the U.S. market. “If we think we're operating really, really well and we get the returns we want, [it] could possibly lead to some other sites over time, who knows?” he said. “But that wasn't the original intent.”

Officials didn’t even mention Cheesecake’s other two concepts, Grand Lux Cafe and RockSugar Southeast Asian Kitchen, during its quarterly earnings call. The company operates 14 units of the former and two of the latter. 

Same-store sales for the Cheesecake brand rose 1.3% for the first quarter ended April 2, the company said. It posted net income for the period of $27 million, up 3.7% from the figure for the year-ago quarter, on revenues of $599.5 million, an increase of 2.5%.

 

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