The brand recently said it shut down 27 locations across its portfolio.
Due to the negative effects that COVID-19 has had on business, The Cheesecake Factory told its landlords that it will not pay upcoming rent in April.
Founder and CEO David Overton said in the letter dated March 18, as shared by Eater, that a large drop in traffic hurt cash flow and struck a major blow to business. He then added, “Due to these extraordinary events, I am asking for your patience, and frankly, your help.”
“Please understand that we do not take this action or make this decision lightly, and while we hope to resume our rent payments as soon as reasonably possible, we simply cannot credit the extent or the duration of the current crisis,” Overton wrote in the letter. “We are continuing to evaluate the implications of this situation on our business and we realize the impact this action will have on our landlords. We appreciate our landlords understanding given the exigency of the current situation.”
Many of the Cheesecake Factory units are either in malls or mall adjacent. In a statement sent to Eater, Cheesecake Factory representatives said the brand has a solid relationship with its landlords and seems confident that both sides can come up with a compromise. The brand employs more than 37,000 in the U.S.
The company operates 294 units across the U.S. and Canada. That includes North Italia and Fox Restaurant Concepts, which it bought for north of $350 million this past summer. The company's affiliated restaurants, including Rock Sugar, will also not make April 1 rent payments, Eater said.
The Cheesecake Factory, which has transitioned to off-premises, temporarily closed 27 units across its concepts, including two Cheesecake Factory units. The brand drew down $90 million from its revolving credit facility to bolster its cash flow and curtailed its planned unit growth for the year. Its evaluating other measures to preserve financial flexibility, as well, such as the refusal to pay rent. The company’s stock has fallen about 51 percent in the past month.
The brand said that its off-premises channel allows the company to “operate sustainably” and that it historically approaches the size of many stand-alone restaurants. Off-premises represented 17 percent of sales for The Cheesecake Factory in Q4. Thirty-five percent of that was delivery, 13 percent online ordering, and walk-in was roughly about 50 percent.
The decision to not pay rent is a result of financial suffering that full-service chains are experiencing across the country. According to Black Box Intelligence’s Daily Tracker, year-over-year comps for full-service brands declined 74 percent on average in recent days.