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Cheesecake Factory sets timetable for new growth concepts

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With an Asian fast-casual concept set to open next week, The Cheesecake Factory is putting a hold on development of its Grand Lux Cafe and RockSugar Southeast Asian Kitchen full-service brands, executives told investors this week.

Cheesecake will enter the fast-casual market with the launch of the first Social Monk Asian Kitchen, which the company has described as fine fast-casual. Developed in-house by RockSugar chef Mohan Ismail, Social Monk is expected to feature apps, salads, sandwiches, rice and noodle bowls, classic Asian entrees, sides and frozen custard. The recipes will draw on cuisines from across Asia. Beer and wine will also be offered, and each meal will be made to order, according to information provided by the company.

The company also revealed details about the assimilation and financial performance of North Italia, the full-service concept developed by Fox Restaurant Group.  The acquisition of that venture will likely be completed late in the third quarter of this year, executives said. Cheesecake is currently “evaluating potential financing alternatives to fund the currently estimated $150 million to complete the purchase,” CFO Matt Clark told financial analysts. 

He provided the analysts with metrics on North Italia to plug into their economic models: average unit sales of $7 million annually, or roughly $1,200 per square foot. Sixteen branches of the concept are currently open, with six more under development.  

Cheesecake secured an option to buy the brand in an unusual deal struck with Fox in late 2016. That arrangement called for Fox, the multiconcept holding of Sam Fox, to expand and refine the operation using capital provided by Cheesecake. The company has invested $40 million to $45 million in North Italia to date, Clark said.

The arrangement with Fox extends to a fast-casual brand developed by the operator, Flower Child. Cheesecake’s plan calls for absorbing that concept into its stable of restaurants in 2021.

Cheesecake executives indicated that the company is not giving up on its two earlier diversifications, Grand Lux and RockSugar. The company conducted a concept-by-concept review of the return on invested capital. 

As a result of that endeavor, “We are continuing to review the performance of several Grand Lux Cafe locations, have performance improvement plans in place for the two RockSugar restaurants, and have no plans to open additional Grand Lux Cafe or RockSugar locations at this time,” Clark said. 

During the fourth quarter ended Jan. 1, Cheesecake took a noncash impairment charge of $13.9 million against one of its namesake restaurants, a Grand Lux location and one of the two RockSugars. It did not reveal the nature of the impairments.

CEO David Overton noted that the company is in a development mode. Three Cheesecake Factory restaurants opened during Q4, and six are expected to be added domestically during 2019. Five restaurants will open internationally through licensing deals, he added. The chain ended 2018 with about 200 units.

Same-store sales for the company’s namesake brand rose 1.9% for Q4. Total company revenues increased by 2.3%, to $585.2 million. Profits dropped 72% because of impairment charges, to $16.2 million, according to the company. 

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