As sales slump, Cheesecake Factory adjusts strategy

CALABASAS HILLS Calif. After reporting a 19-percent drop in second-quarter profit and warning of further declines in same-store sales for its two main brands, The Cheesecake Factory Inc. said Thursday that it would try to shake the downturn in part by reconsidering the value perception of its namesake chain.

Officials also aired plans to expand a six-market test of delivery service to 62 units of The Cheesecake Factory, encompassing 13 markets, within a month, and to implement an energy management program that has helped to cut utility costs by 0.25 of a percentage point in test stores.

In addition, the executives cited management changes and menu price increases as further aids in navigating strong economic headwinds.

Sales for the second quarter ended July 1 were soft overall, particularly in parts of Florida, California and Las Vegas, according to the company, which operates 143 namesake units and 13 Grand Lux Cafes. Same-store sales for the quarter fell 4.1 percent for The Cheesecake Factory brand and 4.5 percent for the Grand Lux chain.

Net income declined to $19.1 million, or 29 cents per share, compared with $23.7 million, or 33 cents per share, a year ago. Latest-quarter revenues were up 9 percent to $407.1 million, driven by restaurant openings, including the new RockSugar Pan Asian Kitchen.

“There’s no doubt the consumer environment remains a challenge,” said David Overton, chairman and chief executive. He predicted that same-store sales would fall between 4 percent and 5 percent systemwide for the third quarter. For the full year, same-store sales are expected to drop between 3 percent and 4 percent.

To help offset traffic declines, The Cheesecake Factory’s test of delivery will be expanded immediately, Overton indicated. He said the service could be added at half of the restaurants where third-party delivery companies are available.

Menu prices at the chain went up 1 percent with the introduction of the summer menu. Officials said they would gauge consumer response before considering additional price increases for the winter menu.

Overton said the chain also would look at “tweaking” the Cheesecake Factory’s value proposition by region. “I think we’re still seen as offering value, but you have to be careful in this environment,” he said.

Officials said the company’s new RockSugar Pan Asian Kitchen concept, which opened last month in Los Angeles, has growth potential, based on sales of $1,000 per square foot in the first few weeks.

Overton noted several key changes to the company’s management team during the second quarter, including the hiring of Mark Mears as senior vice president and chief marketing officer. In June, David Gordon, a former regional vice president was promoted to senior vice president of operations. Gordon will essentially replace Russ Bendel, former president and chief operating officer of the restaurant division, who stepped down in May to head Santa Barbara, Calif.-based The Habit Burger Grill chain.

When asked by analysts, Overton declined to give a reason for CFO Dixon’s sudden departure, though he said it was “unrelated to our business results.”