What's Driving The Cheesecake Factory's Turnaround
The Cheesecake Factory, Inc.’s first quarter earnings call for 2018, held April 25, found the executive team hopeful for the future. In its 2017 fourth quarter earnings call, the brand had laid out a new year plan of action that involved a focus on digital initiatives with a delivery-integrated point of sale system and a social media marketing strategy.
Despite a bump in operating costs due to insurance costs, legal settlement expenses, and higher hourly wages, these initiatives, among others, seem to be working for the casual full-service dining brand. The brand's shares were up more than 4 percent in early Thursday trading.
“Comparable sales growth of 2.1 percent at The Cheesecake Factory restaurants was very strong, exceeding our guidance range and meaningfully outperforming the casual dining industry,” said David Overton, chairman and CEO of the brand in his opening statement. He attributed this positive number to the brand’s 2018 initiatives as well as a better consumer spending environment. The Cheesecake Factory's comps dipped 0.9 percent in the fourth quarter of fiscal 2017 after falling 2.3 percent in Q3 and 0.5 percent in Q1. Before the slowdown, the brand had 29 consecutive quarters of positive gains.
“Job No. 1 for us was to return The Cheesecake Factory restaurants to a positive comparable sales trend,” Matthew Clark, executive vice president and CFO, said. “We achieved that objective with very strong sales performance in the first quarter.”
Digital and delivery
All Cheesecake Factory locations now have live and online ordering capacity, with 95 percent of restaurants offering delivery conducted by a third-party provider. “We are seeing good initial reception and receiving great guest feedback, confirming the convenience this new platform offers,” Overton said.
“We still feel really great about the delivery program,” said David Gordon, president. “The delivery sales are 60 to 70 percent incremental for us. From an operating perspective, our restaurants continue to be able to execute the delivery program relatively seamlessly with the recent integration into our POS system from our main delivery provider.” Operations are running much smoother, Gordon said. Delivery time has decreased by 6 to 8 minutes and guest feedback is remaining positive.
When asked if there was a difference between the in-store diner and the delivery consumer, Gordon said there is a higher incident rate for desserts in a delivery order, and the check itself—usually for a party of two—tends to be higher.
“We're going to continue to focus on delivery and off-premise execution to ensure that we're able to perform there, as well as we perform within the four walls of the restaurant,” to make the guest experience the best it can be, Gordon said.
Made with love
Cheesecake Factory’s social campaign “Made With Love” highlighting its fresh, made-from-scratch menu did well in the first quarter, too, according to Gordon. “We have seen traction so far. We did some internal reporting on the impact of those campaigns and saw very positive results in the first quarter from our guests when they were asked about their overall awareness, how they felt about the brand,” he said.
“Utilizing digital and social media campaigns, we continue to highlight our fresh, high-quality ingredients and preparation techniques, as well as our new menu items,” Overton said.
With Cheesecake Factory consumers coming back to the brand in a more normalized pattern—”it seems like the environment at least has stabilized,” Clark said—the brand is looking ahead to future growth.
“We continue to expect to open as many as four to six restaurants including one Grand Lux Cafe,” Overton said. “We expect our first opening in the third quarter. We now expect as many as four restaurants to open internationally under licensing agreements in 2018, including the first location in Beijing which opened in January, and our second international licensed location of the year will open soon in Riyadh, Saudi Arabia.”