First-quarter curveballs can’t stop The Cheesecake Factory

Despite omicron and the war in Ukraine, executives said it's been the most stable period since the start of the pandemic.
Cheesecake Factory exterior
Photograph: Shutterstock

The Cheesecake Factory this year has found something that’s been in short supply in the restaurant industry recently: stability.

The first quarter, for the most part, unfolded as the company thought it would along both the top and bottom lines. Same-store sales kept growing, as has become routine for the casual-dining operator recently, up 20.7% year over year.

The relatively ho-hum results came despite another period of curveballs.

“The first quarter had some noise to it starting with omicron and then certainly the start of the war and then inflation spiked up a little bit more,” said CFO Matthew Clark during a call with analysts Wednesday. “But as we look at late March into mid- to late April here, it’s been very consistent and very predictable, kind of Cheesecake-like, I would say. And that’s with all those factors baked into it.”

Quarter-to-date same-store sales were up 8.2% year over year, which executives noted was a true comparison because it was lapping the end of indoor dining restrictions across all of its concepts. 

Cheesecake also exceeded its pre-pandemic staffing levels in the quarter, by 1%, CEO David Overton said.

Even though its more than 200 restaurants are now operating at full strength, on-premise traffic remains about 10% to 15% below 2019 levels, Clark said.

“Certainly we have the capacity to continue to increase that meaningfully,” he said, noting that returning to its pre-pandemic benchmark would generate an additional $1.5 million in annual revenue per store. 

What it’s lacking in dine-in traffic, though, it is more than making up for with delivery and takeout. Off-premise accounted for 28% of Cheesecake’s total sales in the first quarter. 

“We’ve shown the ability to keep on-premise growing while also keeping the off-premise stable, so that net is just kind of moving the dollars higher,” Clark said.

Higher costs for commodities and labor did keep a lid on its margins for the quarter, but the real surprise on the expenses side was an increase in the price of natural gas.

“With the geopolitical news, it spiked back up to even worse levels than we saw in the fall,” Clark said.

For the rest of the year, Cheesecake is expecting 6% labor inflation and commodity inflation in the low- to mid-double digits. Both represent a slight increase compared to prior forecasts. 

But executives said it’s still committed to regaining its 2019 restaurant-level operating margins in the second half of this year. To make that happen, Clark said, it will likely need to raise prices again in the third quarter, and by more than the 1.5% to 2% it had previously referenced.

Cheesecake’s prices are currently 4.7% higher than they were a year ago. But Clark said consumer demand remains strong.

“The tighter the brand’s performance, the better we feel about going forward about our consumer,” he said. “Because that means their day-to-day behavior is not being moved around by these factors anymore, and they’re just deciding that this is the way they’re going to go about their life.”

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