Financing

The Cheesecake Factory has no plans to sell its smaller brands

The casual-dining restaurant operator pushed back against calls from activist investor JCP Investment Management to spin off North Italia, Flower Child and Culinary Dropout.
Cheesecake Factory
An activist has urged the chain to spin off three of its smaller holdings. | Photo: Shutterstock

The Cheesecake Factory on Tuesday committed to continuing as a multibrand company amid calls from an activist investor to break itself up. 

Last week, the Wall Street Journal reported that JCP Investment Management was privately urging Cheesecake to spin off three of the smaller brands the company acquired when it bought Phoenix-based Fox Restaurant Concepts in 2019: North Italia, Flower Child and Culinary Dropout.

The firm’s thinking, according to the Journal, was that separating the brands would allow them to grow faster while freeing up Cheesecake to focus on its 215-unit namesake concept, creating more value for shareholders in the process.

Cheesecake executives addressed those calls publicly for the first time Tuesday during an earnings call with analysts. Their message: While the company is always open to new strategies, it feels it has a good thing going with its platform approach.

“We think we’re doing a great job incubating these concepts,” said CFO Matt Clark. “There could be a time or place for further strategic assessments for them. But there probably needs to be a little bit more development work that needs to go on.” 

Executives also emphasized the value of having a large portfolio, which allows it to leverage the Cheesecake Factory’s scale to benefit the smaller brands.

The larger chain’s buying power helps the Fox concepts get lower prices on commodities and health insurance, for instance. They also get better rates on third-party delivery commissions via Cheesecake’s exclusive agreement with DoorDash. And they can draw on Cheesecake’s 45 years of operations experience and its sophisticated analytics. 

“The scale benefit overall is very important still at this stage,” Clark said.

The company has ramped up development of its smaller brands recently. It has opened seven of them since July, part of a plan to open 22 total new locations this year.

At the end of the quarter, there were 39 North Italias, 36 Flower Childs and 46 other restaurant locations under the Fox umbrella.

Next year, the company plans to open 24 new restaurants, with a majority of those being from the Fox family. Executives indicated the openings could include up to six North Italias and eight Flower Childs.

Those brands continue to perform well. Same-store sales at North Italia rose 2% year over year in the quarter, and Flower Child’s same-store sales were in the mid-single digits, the best in the system, Clark said.

Same-store sales at The Cheesecake Factory, meanwhile, were up 1.6%—a strong mark amid a challenging time for full-service dining.

That included 4.5% higher prices and 0.8% fewer transactions, though traffic improved each month of the quarter, turning positive in September. Customers also spent about 2% less per visit.

Cheesecake Factory stock was up nearly 6% in after hours trading Tuesday.

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