flickr: Niall Kennedy
Unfavorable weather is playing a negative role in the brand's same-store sales.

The Cheesecake Factory Warns Sales Could Turn South

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Shares tumbled Tuesday as the company issued a downward revision of its second-quarter guidance.
By Danny Klein June 2017 Chain Restaurants

Ahead of its Tuesday presentation at the William Blair 37th Annual Growth Stock Conference in Chicago, The Cheesecake Factory released updated second-quarter expectations that sent shares tumbling more than 6 percent in premarket trading.

The company said it now expects second-quarter same-store sales to fall around 1 percent—a stark change from the 1—2 percent increase revealed in previous guidance. What changed? David Overton, chairman and chief executive officer, says in a statement that unfavorable weather and “heightened volatility” were to blame.

READ MORE: Why consumers picked The Cheesecake Factory as their No. 1 brand.

“We have continued to outperform the casual dining industry quarter to date, with over half of our regions posting positive comparable sales for the period, including key markets of California, Texas and Florida,” Overton says. “More broadly however, we have seen heightened volatility in week-to-week sales trends, indicative of uncertainty on the part of many consumers. Specifically, we have seen pockets of softness as we moved through the quarter, notably in the East and Midwest where we also faced unfavorable weather that reduced patio usage.”

The company says a dip in same-store sales will hurt second-quarter earnings per share and margins.

“We believe The Cheesecake Factory brand is as strong as ever and our underlying operating metrics remain solid. We are managing the business for the long term, continuing to provide delicious and memorable dining experiences for our guests, while executing on our diversified growth drivers and effectively allocating our strong cash flow to position the company to generate sustained shareholder returns,” Overton says.

The company is also presenting at the Piper Jaffray 37th Annual Consumer Conference in New York City on Wednesday.

The brand will soon forge ahead with new leadership. Executive vice president and chief financial officer W. Douglan Benn is set to retire on July 7. Senior vice president, finance and strategy Matthew Clark will step into the role.

“Our finance organization will be in excellent hands under Matt Clark’s leadership. Matt possesses a deep understanding of our business, as well as the broader restaurant industry, and is a well-respected leader across the company,” Overton said in a statement. “Matt has a track record of driving sound strategic decisions, rigorous financial management and continuous process improvement. This appointment is part of our Board’s long-term senior management succession planning efforts, and we are confident that we will experience a smooth transition as Matt takes over as executive vice president and chief financial officer.”

The Cheesecake Factory is coming off a first quarter that didn’t lack for optimism. Comparable restaurant sales increased 0.3 percent, resulting in the 29th consecutive quarter of gains. Total revenues were $563.4 million compared to $553.7 million in the first quarter of fiscal 2016. Net income and diluted net income per share were 35 million and 71 cents, respectively.

While these numbers did miss Wall Street forecasts slightly, they were positive given the pulse of retail stores across the country, and especially malls, where many of the brand’s units are located. The Cheesecake Factory said at the time that it expected to open as many as eight company-owned restaurants in fiscal 2017, including a second-quarter relocation of one unit. Internationally, the brand planned to open four to five restaurants. A recent Hong Kong store is included in that mix. The Cheesecake Factory is also headed to Toronto—its first location in Canada.

There was also talk of expanded delivery service through DoorDash to around two-thirds of all units by the end of the year.

The company, through its subsidiaries, owns and operates 208 full-service, casual dining restaurants throughout the U.S. and Puerto Rico, including 194 restaurants under The Cheesecake Factory mark; 13 restaurants under the Grand Lux Café mark; and one restaurant under the Rock Sugar Pan Asian Kitchen mark.