Cheesecake Optimistic as Dining Rooms Open

Executives with Cheesecake Factory Inc. are confident that the Calabasas restaurant chain will emerge in a strong position once the coronavirus pandemic subsides.In a conference call with analysts on July 29 to discuss fiscal second-quarter results, Chief Executive David Overton and President David Gordon were convinced the company would improve its finances going forward.“We believe our operational excellence and strong financial position will enable us to navigate this dynamic environment as effectively as possible,” Overton said during the call. “While there is little doubt that 2020 has been the toughest period the restaurant industry has ever faced, I’m confident in our ability to continue to navigate through this dynamic landscape and we expect to emerge stronger on the other side of the pandemic,” Gordon added. The company reported on July 29 an adjusted net loss of $46 million (87 cents a share) for the fiscal second quarter ending June 30, compared with adjusted net income of $36.7 million (82 cents) in the same period a year earlier. Revenue decreased 51 percent to $296 million.The share price has dropped 24 percent from the beginning of the year through Oct. 2. It closed at $29.79 on Oct. 7. Analysts who follow Cheesecake Factory were pleased with the second-quarter results. Brian Bittner, an analyst with Oppenheimer & Co. Inc. in New York, said in a research note that the company appears to be executing well even if the path forward remains choppy as the macro economic environment remains uncertain. The company showed improved same-store sales in July with a year-over-year decrease of 32 percent, compared to a 42 percent year-over-year drop in June.“This improvement has been driven by dining rooms reopening, with 71 percent of the system now operating dining rooms on a restricted basis,” Bittner said in the note. Nicole Miller Regan, a senior research analyst with Piper Sandler & Co. in Minneapolis, called the second-quarter results “solid” in a July research note and said she was encouraged to see financial trends improving post-second quarter. “Cheesecake Factory’s off-premise sales mix was strong (as was expected) at 50 percent of quarter-to-date revenues,” Regan said in her research note. “Further, we are encouraged to hear that the company has thus far retained (about) 90 percent of the elevated off-premise (pickup and delivery) sales while also bringing dining rooms back online.” Consumer demandDuring the conference call, Regan asked about consumer behavior and the desire by the public to go out and eat.Gordon responded that the pent-up demand for dining out has resulted in wait times of 20 minutes to an hour at Cheesecake Factory locations across the country on weekends.“It shows the affinity for the brand and it does show that a lot of the surveys that were out there in the beginning (of the pandemic) that one of the first things people would want to do once they got back together was go out and dine,” he added. David Tarantino, a restaurant analyst with Robert W. Baird & Co. in Milwaukee, followed that up by asking if consumer demand was sufficient to get the chain back to 100 percent capacity.Gordon answered that as restrictions are lifted on in-house dining, the company should be able to handle the additional capacity as well as maintain a good chunk of the off-premise orders. Matthew Clark, Cheesecake’s chief financial officer, added that one can see that restaurants with dining rooms allowed to open at 50 percent capacity are doing higher volumes than those restaurants with patio only dining. “So, as we have more capacity, we are doing measurably more volume,” Clark said.  Off-premises orders had already been doing well for Cheesecake even prior to the COVID-19 outbreak.For instance, in 2018 the revenue generated by delivery and pickup orders was 14 percent, as compared to 12 percent during 2017. When fiscal fourth-quarter 2018 earnings were released, Gordon said 15 percent of sales were off-premises. He attributed the increase to a differentiated positioning, a high quality, made-from-scratch menu and value proposition, all supported by creative on-brand marketing.