CALABASAS HILLS, Calif. After The Cheesecake Factory Inc. reported higher profit and sales for the first quarter, executives at the company shared positive signs they've seen in customer traffic and purchasing habits, but they remained cautious about the continuing impact of high unemployment.
Same-store sales at both of the company's chains returned to positive territory for the first time since 2007, with a 2.7-percent increase at The Cheesecake Factory and a 4-percent jump at Grand Lux Cafe. Company officials said the sales improvement in the first quarter was primarily based on traffic increases.
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“Guest traffic improved significantly from fourth quarter levels,” said David Overton, chairman and chief executive of The Cheesecake Factory Inc., "and we believe that, as consumers become more comfortable with discretionary spending, they are returning to their favorite restaurants first."
In a conference call late Thursday with investors, Overton said the company's positive sales results were seen in all of its markets, even the economically hard-hit California, which has been particularly soft throughout the recession.
The menu mix also improved during the quarter, Overton said. Guests have returned to pre-recession habits of buying appetizers and desserts, he noted, and alcohol sales improved during the quarter.
The sale of non-alcoholic drinks, however, remain slow, Overton said, indicating that guests are still choosing water over drinks like iced tea or soda.
Overton said cost-cutting measures enacted last year helped fuel the company’s performance. In fiscal 2009, the company reported more than $27 million in savings from cost management, and Overton said another $5.5 million in planned additional savings was seen in the first quarter.
A price increase of 1.4 percent is planned for the second quarter at Cheesecake Factory restaurants, which officials said would help cover rising food costs.
Still, guest satisfaction ratings have remained high, Overton noted.
“It’s hard to know what the next nine months will hold,” he said. “Unemployment is at 9.7 percent, and it’s even higher in places like California, which reached a new high in March of 12.7 percent. As a result, it’s difficult to have a high degree of conviction in the strength of the economy and the pace of recovery.”
Two Cheesecake Factory units opened during the first quarter, and the company is planning one more in the last half of the year.
When asked if The Cheesecake Factory was considering a move into branded grocery products, Overton said he is waiting to see how casual-dining competitors do with their new products coming to supermarket aisles, such as P.F. Chang’s China Bistro.
Noting that California Pizza Kitchen has had success selling its branded frozen pizzas, Overton said, “Pizza is an easy product to sell in grocery stores, but we’ll see how Chang’s does.
“We’ve had many offers” to bring Cheesecake Factory branded food products to stores, he added. “I want to taste everything out there and see how it represents their brands.”
For the March 31-ended first quarter, The Cheesecake Factory's net income totaled $18.7 million, or 31 cents per share, compared with earnings of $10 million, or 17 cents per share, in the same quarter a year ago. Revenue rose 3 percent to $405.4 million. At the end of the quarter, the company operated 162 restaurants, including 148 Cheesecake Factory units, 13 Grand Lux Cafes and one RockSugar Pan Asian Kitchen.
Contact Lisa Jennings at [email protected].