The Cheesecake Factory is looking to acquire the North Italia casual chain from Fox Restaurants during the second half of 2019 and will review how Cheesecake sisters Grand Lux Cafe and RockSugar Southeast Asian Kitchen fit into the company’s expansion strategy.
Executives also revealed yesterday that the opening of Cheesecake’s new fast-casual concept, Social Monk Asian Kitchen, has been pushed back because of permitting delays to the first quarter of 2019. The prototype was originally scheduled to open this fall in Thousand Oaks, Calif.
Cheesecake has no intention of closing or converting the 14 Grand Lux Cafes and two RockSugars that are currently open, and hasn’t decided whether expansion of the brands would be discontinued, executives stressed to financial analysts yesterday. Rather, with North Italia likely to be added to the fold, it’s a matter of how capital would best be deployed, executives explained.
Cheesecake already holds a minority stake in North Italia, a high-volume operation developed and currently run by Sam Fox’s multiconcept organization, based in Phoenix. As part of a deal that was signed in late 2016, Cheesecake also owns a piece of Fox’s Flower Child fast-casual concept. The agreement provided Cheesecake with the opportunity to acquire the brands at a later date.
Cheesecake has been funding the expansion of the two brands, leaving Fox to evolve the concepts and manage units as they open. Cheesecake said it expects to provide $20 million to $25 million in expansion capital to Fox next year before taking control of North Italia.
Cheesecake executives did not divulge their plans for Flower Child. But they did reveal plans to review how Grand Lux and RockSugar fit into their expansion strategy.
“We're not looking at closing sites, we're just doing a review,” Cheesecake EVP Matt Clark told financial analysts. “It's mostly about capital allocation.”
The returns from investing in a new Cheesecake Factory restaurant are greater than the payback from a new Grand Lux, he explained.
Executives also mentioned that Grand Lux’s same-store sales fell 3% during the third quarter, while Cheesecake Factory’s comps rose 1.5%.
All told, the company is looking to open about six to eight restaurants next year, according to CEO David Overton. “More things are being rolled by us, but they're either the wrong size or they're small, too small to take on a basic street-type [Cheesecake],” he said.
The Cheesecake chain finished the quarter on Oct. 2 with 199 units in operation.
A broader array of concepts would enable the company to fit a brand to a site.
But the company showed no signs of slowing down development of its namesake brand. Three Cheesecake restaurants are scheduled to open during the remainder of 2018, following the opening of one so far this year.
“Domestically, we continue to believe there is potential for 300 Cheesecake Factory locations, and I feel good about the real estate opportunities lining up for 2019,” Overton said.
The company generated a net income of $28.5 million, a 7.7% rise from the figure for the year-ago quarter, on revenues of $580.9 million, up 4.6%.