Release Date: October 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Cheesecake Factory Inc (CAKE, Financial) reported a 49% growth in adjusted earnings per share from the prior year, showcasing strong profitability.
- The company successfully opened four new restaurants in the third quarter and is on track to open as many as 22 new restaurants in 2024.
- Cheesecake Factory's comparable sales and traffic outperformed the industry, indicating strong consumer demand and market share capture.
- Operational improvements led to record high guest satisfaction scores and better restaurant-level margins, with a 180 basis point improvement from Q3 2023.
- The Cheesecake Rewards program is exceeding internal expectations, driving incremental visits from existing guests and attracting new ones.
Negative Points
- Despite positive sales trends, Cheesecake Factory experienced a negative traffic impact of 0.8% in July, although it improved later in the quarter.
- The company faced closures of two Cheesecake Factory locations due to a site condemnation and lease exit, which is unusual for the brand.
- Labor costs remain a challenge, with higher health insurance costs impacting overall expenses despite improvements in labor productivity.
- The company is not providing specific comparable sales and earnings guidance for Q4 2024, which may create uncertainty for investors.
- Cheesecake Factory's external bakery sales showed no significant growth, indicating challenges in that segment despite new distribution agreements.
Q & A Highlights
Q: Can you break down the components of same-store sales given the solid results in a strained environment?
A: Pricing in the quarter was 4.5%, mix was a negative 2.1%, and traffic was a negative 0.8%. The traffic decline was mainly in July, with improvements seen throughout the quarter, resulting in positive traffic in September. - Matthew Clark, CFO
Q: What is driving the traffic trends, especially given the softness other full-service peers are experiencing?
A: The stability of our staff retention and management retention has led to great execution. Our teams are doing a terrific job, with all-time high net promoter scores. We are also seeing incremental lift from our rewards program, which is contributing to our consistent outperformance relative to the industry. - David Gordon, President
Q: Have you seen any change in consumer behavior in recent months, particularly by income cohort or mix changes?
A: Trends have been stable and predictable, with slight improvements in Q3 compared to Q2. We haven't observed significant changes in consumer behavior across our concepts. - Matthew Clark, CFO
Q: Could you expand on the potential separation of growth brands from the core Cheesecake Factory business?
A: The board regularly reviews the portfolio and strategic options to maximize shareholder value. While there could be a time for further strategic assessments, more development work is needed for concepts with 30-40 locations and $100-$300 million in sales. The Cheesecake Factory ecosystem currently benefits these concepts significantly. - Matthew Clark, CFO
Q: Can you provide an update on Flower Child's performance and its geographic impact?
A: Flower Child continues to be the strongest in our system, running mid-single digits with room to accelerate. The geography is national, and we've seen consistent gains across locations. Flower Child is well ahead of the overall fast-casual category, driven by its execution and balanced offering. - Matthew Clark, CFO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
