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Cheesecake Factory posts 2% uptick in 3rd-Q profit

CALABASAS HILLS Calif. The Cheesecake Factory Inc. on Tuesday reported a 2.2-percent increase in net earnings for the third quarter ended Oct. 2, despite slower traffic and a dip in average weekly sales of about 1.1 percent.

Net income was $18.5 million, or 26 cents per diluted share, compared with $18.1 million, or 23 cents per diluted share, in the same period last year.

Revenues were up 15.4 percent to $375.5 million, compared with $325.3 million a year ago, despite a 4-percent drop in bakery sales that the company blamed on the challenging macroeconomic climate. The company wholesales cheesecakes to retailers and other restaurant chains, in addition to selling them through its own casual-dining chains.

The company said restaurant guest traffic remained roughly 1 percent below normal, particularly in California. But it reported a blended same-store sales increase of 1.2 percent during the quarter, largely as a result of the 4.8-percent increase in same-store sales for the 10-unit Grand Lux Cafe brand. Same-store sales were up 1 percent for the 133-unit namesake brand.

"Our comparable sales performance in the third quarter remained relatively consistent with the trends we experienced during the first half of this year," said David Overton, chairman and chief executive of the Cheesecake Factory. He cited "modest" price increases as a reason for the boost in same-store sales.

The company opened six Cheesecake Factory restaurants during the quarter and plans to open another eight before the end of the year, including the 134th unit, scheduled to open this week in Tukwila, Wash., near Seattle. One Grand Lux opened during the third quarter, and another three are planned before the close of fiscal 2007.

Many of the 21 restaurants to open this year are in the population-dense Northeast, where restaurants are averaging weekly sales of more than $250,000, Overton said.

Company officials also said they expected to launch the company's new casual-dining concept, Rock Sugar Pan Asian Kitchen, in Los Angeles in early 2008, not this year, as previously announced.

Seventeen new restaurants are planned for 2008, including 12 to 13 Cheesecake Factory units, three to four Grand Lux Cafes and the one Rock Sugar.

The Grand Lux Cafes planned will be slightly smaller, more efficient units, which, along with fewer restaurant openings, are expected to help reduce capital expenditures next year by about 20 percent, the company said. The savings should result in an estimated free cash flow of about $60 million to $70 million that will be used to support share repurchases under the existing 4.7 million authorization, officials said.

Despite a history of opening restaurant later in the year, company officials projected the launch schedule for 2009 and beyond will likely be more balanced throughout the year.

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