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The Cheesecake Factory puts faith in higher prices

The casual-dining chain said consumers are accepting of price hikes even as sales slowed. It will need to take even more to fight off inflation.
The Cheesecake Factory exterior
Same-store sales rose 1.1% in The Cheesecake Factory's third quarter, and virtually all of that was price. / Photograph: Shutterstock

Same-store sales at The Cheesecake Factory rose just 1.1% in the third quarter despite prices being 6% higher than a year ago.

That’s because traffic growth was virtually flat at 0.1% and menu mix was negative 4.8% for the period.

And yet executives of the 209-unit chain said customers aren’t balking at the higher prices, but rather returning to pre-pandemic behavior. They noted, for instance, that sales over the past two months equal 2019 levels plus price.

“The consumer has accepted the pricing,” CFO Matt Clark said during an earnings call Tuesday, adding that when customers come in, “they’re ordering more than they used to.”

It’s betting guests will be willing to swallow another increase that will bring prices to 8%-8.5% in the fourth quarter. The hike is needed, executives said, to ease the wallop of commodity, labor and utilities inflation, which helped hand Cheesecake a $2.4 million net loss for the period.

Despite the cost pressures, the chain told investors it has a path back to 2019 restaurant-level margins by the end of the year. It’s setting its sights on 15%, which will require adding 5 points to its Q3 margins of 10.1%.

Higher prices will make up the bulk of that. Executives are also banking on stabilized food costs and lower labor costs after a wave of new hires drove up recruiting and training expenses.

Their model also assumes customers will accept even higher prices as inflation continues to rise. The chain was encouraged by the fact that sales increased in each month of the quarter and into October, when comps were running 2.8% higher than a year ago. 

“They’re the best that we’ve seen pretty much all year,” Clark said of the October results. He attributed the growth to consistent execution and more stable staffing.

Still, investors weren’t happy with Cheesecake’s quarterly loss. The company’s stock was down more than 7% in after-hours trading Tuesday.

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