The polished-casual leader's sales have soared in recent months.
The Cheesecake Factory’s $200 million investment deal with Roark Capital in April 2020 was a sign of strange and frantic times. The brand sold 200,000 shares of convertible stock to Roark Capital affiliate RC Cake Holdings as part of the agreement, and Roark, as a preferred shareholder, held priority over common shareholders concerning payouts. Cheesecake Factory also expanded its board to nine members to include Roark president Paul Ginsberg, who joined as an independent member.
At the time, the polished-casual leader came off a March month where same-store sales dropped 46 percent, year-over-year. It furloughed some 41,000 workers and grabbed headlines when it said it wouldn’t pay rent in April. CEO David Overton took a 20-percent pay cut and board members did the same.
Why Cheesecake Factory engaged Roark—the firm behind Inspire Brands and FOCUS—was becoming commonplace during that pandemic trough. The transaction enhanced Cheesecake Factory’s liquidity and gave it air to navigate near-term challenges (nobody knew at the time how long those would last).
But realities have surely changed. Cheesecake Factory’s fiscal 2021 Q2 quarter-to-date comp sales through May 31 lifted about 196 percent, year-over-year. Pulled back to the same period in fiscal 2019—a more reasonable view—same-store sales are up 7 percent. And off-premises is mixing roughly a third of sales. Average weekly take came in at $226,500.
Additionally, as of June 2, nearly all of Cheesecake Factory’s restaurants across its multi-brand portfolio were open for indoor dining, including 206 Cheesecake Factory locations. On average, Cheesecake Factory restaurants with reopened dining rooms operated at 70 percent indoor capacity and 75 percent total on-premise capacity including patios. Just one Cheesecake Factory location ran an off-premise-only model.
Put simply, the “restaurant renaissance,” Dine Brands CEO John Peyton referenced recently is in full swing at experiential-forward Cheesecake Factory. Vaccines. Stimulus checks. Increased mobility. The notion 65 percent of Americans are more likely to celebrate birthdays or holidays with family and friends in 2021 compared to 2020, according to DoorDash’s Deep Dish report. All of these things are benefiting Cheesecake Factory.
June marked another month for increases in foot traffic and in-store visits to food and beverage establishments, according to Zenreach. The company found that across all industries, nationwide restaurant foot traffic was up 48 percent since the start of 2021.
And it should only increase as indoor mask mandates lift.
What’s driving Cheesecake Factory above 2019 levels even at limited capacity, however, is the stickiness of takeout and delivery alongside those dine-in returns. The chain, in Q1, drove off-premises sales equating to more than $4 million on average, per unit, on an annualized basis. Before COVID, it was closer to $1.7 or $1.8 million. The Q1 rate is down from nearly $5 million the previous quarter, but understandably so considering 20 percent more of the system added dine-in service.
Just look at a recent opening in Washington, D.C. The store pushed opening-week sales north of $230,000 at 25 percent indoor capacity.
Overall, weekly sales in March at restaurants with reopened dining rooms measured to about $11.5 million AUVs, outpacing 2019 numbers of $10.76 million
If you stretch the $222,500 per week figure seen in April across a full year, it would be closer to $11.5 million on average, per unit, on an annualized basis.
So as things return to normal, or some more stable version of it, it seemed a natural step the brand would take another look at the Roark transaction.
The company revealed in securities filings Monday it’s reacquiring the majority of Roark’s stake for $457.3 million.
Cheesecake Factory expects to complete the process June 15. This would bring Roark’s Cheesecake interest down to 2.4 million shares of common stock, or 4.6 percent.
Roark will begin by distributing 150,000 of its 200,000 shares to three subsidiaries. Cheesecake Factory then plans to repurchase it for $446.9 million.
The remaining shares (50,000 preferred) will turn into 2,448,381 common shares. Roark founder Neal Aronson will then give him 47,517 common shares to the company for $10.4 million.
He’ll remain the holder of 2.4 million shares.
Ginsberg, the added board member, along with Aronson, won’t be able to chase a controlling interest in the casual chain for 60 days.
Cheesecake Factory is offering $300,000,000 aggregate principal amount of its 0.375 percent convertible senior notes due 2026. Concurrently with this offering, it’s offering, pursuant to a separate prospectus supplement, 3,125,000 shares of the company’s common stock, plus up to an additional 468,750 shares of common stock that the underwriters of the concurrent offering have the option to purchase from Cheesecake Factory.
The company intends to use the proceeds from the offering and the offering to fund the cash consideration of “approximately $457.4 million payable in the preferred stock repurchase and conversion to simplify our capital structure.”