The Cheesecake Factory

Delivery sales have picked up during COVID-19. For cheesecake especially.

Cheesecake Factory is Taking a Deliberate Approach to Reopening Restaurants

The casual leader is waiting a week to two weeks after mandates lift.

The Cheesecake Factory is one of the highest-volume chains in America, averaging $10.7 million in sales per restaurant in 2019 and 2018, and $10.6 million the year before that.

And here’s a window into COVID-19’s historic assault on the status quo.

Cheesecake Factory’s sales volumes accelerated significantly in recent weeks, the company said Tuesday, doubling its average take from first-quarter off-premises levels—which were up to 22 percent of sales thanks to March shelter-in-place orders and an industry wide pivot away from dining rooms (off-premises mixed 17 percent the previous quarter).

Yet, on an annualized basis, the lift equated to only $4 million per unit on average. Coronavirus is pulling some $6 million-plus from each of Cheesecake Factory’s 206 restaurants when measured on a full fiscal scale.

Still, it’s positive momentum for Cheesecake Factory, which was running more along the $3 million range in the early weeks of COVID-19—or roughly a quarter of the business it typically sees.


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Today, digital represents about 80 percent of the company’s sales, and there are a few factors pushing the weekly numbers higher. It’s in-house online ordering platform (Cheesecake Factory’s most profitable sales channel) eclipsed delivery for the first time since launch in 2018.  

Like many full-service peers, the brand enhanced curbside pickup at most of its restaurants, which has an especially effective option at mall locations thanks to ample parking and entry ways that back right into lots.

Late last year, Cheesecake Factory also renegotiated and extended an exclusive delivery deal with DoorDash. One of the key points was to maintain marketing support and secure top-of-app placement within the delivery radius of locations. President David Gordon said that’s been “incredibly important” during COVID-19.

What’s it’s also done, he added, is put Cheesecake Factory in a position to introduce itself to a fresh wave of social-distancing people dialing up delivery more frequently, or perhaps for the first time. More than a third of the company’s delivery orders since the crisis ignited have come from new guests, Gordon said. And the Cheesecake Factory has roughly doubled its weekly new delivery users since February.

Not surprisingly, people giving Cheesecake Factory a shot are ordering cheesecake. The incident rates have spiked, CFO Matt Clark said. Average checks bumped meaningfully across all channels into the $45–$50 range as the meal replacement trend continues. Clark said brands that can offer a great value that stretches, and feeds multiple people, are positioned to win this rapidly moving occasion. And that’s where The Cheesecake Factory fits, which is why reorder rates have also been positive, even among new users. “Once we get people to use it, they tend to see the value that maybe they hadn't before,” Clark said, adding the brand has tracked best-in-class among its DoorDash category in recent weeks.

The cheesecake focus, which has provided a powerful marketing option, helped the brand step into experiential events, like Easter. Clark said they “sold a ton of whole cheesecakes,” for the holiday.

Earlier this week, the company introduced a limited-time Happy Hour Menu online for pickup and curbside to-go orders, running through May 15. From 2–4:30 p.m. during the week, guests can pick from 10 signature items at $7.50, including full-sized portions of appetizers and a special “Happy Hour” Burger. Additionally, bottles of reserve house wine for $15 and mix-and-match six packs of beer for $12.95 are available.

Naturally, this is the first time Cheesecake Factory has presented a Happy Hour menu to-go. But it speaks to the broader strategy, such as specific lunch promotions, and what’s guiding reopenings.

There are currently 32 locations temporarily closed across the company’s portfolio, but just three of those are Cheesecake Factorys (it runs 294 units total, including North Italia and a collection within the Fox Restaurant Concepts subsidiary, like Flower Child).

CEO David Overton said “several” Cheesecake Factory dining rooms in multiple states could come back into the fold as soon as next week. If it seems like the brand is a bit behind the reopening curve, at least compared to other large casual chains, it’s by design.

Gordon said the chain doesn’t plan to reopen at 25 percent capacity, as many mandate. It’s only interested in 50 percent models that allow “people to be able to come in and have the experience that they had before, although a little bit safer.”

And similar to Texas Roadhouse, Cheesecake Factory is letting the dynamic sort itself out a bit before jumping in. It’s taking an extra week or two once jurisdictions open, Clark said, to evaluate possible reopenings.

“As we look at it right now, it could be 10–15 percent of total capacity that’s online by the end of May,” he said. A steady cadence of reopenings would continue through June, Clark added.

There are myriad reasons for this steady approach, but one is simple logistics. The company wants to reopen with full menus, which is a hallmark of Cheesecake Factory’s business it doesn’t believe can be diluted for customers who take the dine-in leap early on.

A positive spin is that Cheesecake Factory should have no trouble enforcing social distancing, even at half capacity. Restaurants range from 5,000 to 21,000 square feet on the interior. Patios typically represent another 15 percent of square feet.

“The size of our restaurants and our flexible seating layouts will uniquely enable us to ensure ample levels of social distancing while maintaining sufficient seating capacity to generate what we believe could be meaningful sales volumes,” Overton said.

In February, Cheesecake Factory began rolling out limited reservations at all 206 locations. At the time, the reason was simple: Wait times were one of its biggest hurdles, and it wanted to cut down on walkways. Additionally, encourage time-sensitive diners to reevaluate the brand, especially those in the mall setting looking for a spontaneous dine-in visit. Say, grabbing dinner before a movie.

Gordon said the initiative could carry positively into the COVID-19 recovery period. “It will be a great advantage to guests as they feel more comfortable to come back into the restaurants through reservations,” he said.

Another benefit—Cheesecake Factory gleans customer data from the system. So it could follow up from a marketing perspective to try to inspire repeat visits during what promises to be a complex few months.

Clark added Cheesecake Factory’s prominent mall footprint shouldn’t affect decision-making for the most part. Units have their own doors and operating hours, and are insulated from whatever happens in the mall itself. Although, the added traffic would be welcomed.

“For the most part, thus far, it would appear that malls are very much in line with that same legislation,” Gordon said of state-by-state mandates. “So I don't think we're going to find ourselves in a situation where we want to do something different than the mall. But if we did, that would be fine as well. As [Clark] said, we have our own entrants. We have all the parking. And if we decided we want to open in a particular location, even if the mall wasn't open yet, we certainly could do that.”

Gordon said all employees will wear masks in the near-term, whether jurisdictions require them or not. “We'll have a few restaurants open next week. We'll learn from those, see how guests and staff are responding. But we'd like to have consistent operations across all of the restaurants nationally,” he said.

Sales results, more on the future

The Cheesecake Factory’s same-store sales declined 12.9 percent in Q1, which ended March 31. Comps were up 3 percent through February before falling 46 percent in March.

Total revenues came in at $615.1 million compared to $599.5 million in the year-ago period, thanks mainly to the acquisition of North Italia and FRC. Preliminary net loss for the period was $3.9 million.

Cheesecake Factory said it recorded pre-tax COVID-19-related charges of $4 million related to healthcare and meal benefits of its furloughed employees. The company announced in March it was furloughing 41,000 hourly workers and reducing Overton’s salary by 20 percent. The board of directors took a similar cut.

It then inked a $200 million deal with Roark Capital in April, which involved selling 200,000 shares of convertible preferred stock to the private-equity giant’s affiliate RC Cake Holdings. Roark is the same firm behind Inspire Brands, FOCUS Brands, and CKE Restaurants.

The preferred shares carry a conversion price of $22.23 and a dividend rate of 9.5 percent, equating to $19 million in annual dividends which will be paid-in-kind for the foreseeable future, BTIG analyst Peter Saleh explained Wednesday in a note. Management indicated the ability to control the size and investor led them to favor preferred stock over other means and didn't want to issue common shares at a discount to an already depressed share price.

Cheesecake Factory ended Q1 with $81 million in cash and $380 million in debt. This reflects cash used in operating activities of about $33 million from the working capital related to COVID-19, CapEx of just under $16 million, and the $90 million revolver drawn announced previously.

Thanks to the Roark Deal, the company’s cash balance was about $260 million as of April 30.

Clark said, on average, open Cheesecake Factory restaurants are cash-flow breakeven at the $4 million annualized level currently running for off-premises-only stores. The company’s cash-burn rate is right around $3.25 million per week.

With that, and the additional capital, plus an anticipated $40 million cash inflow in 2021 from the NOL carryback provision in the CARES Act, Clark said, Cheesecake Factory should have enough liquidity to sustain an off-premises operation for the next 18–24 months.

The company also made waves in April when it said it wouldn't pay rent for the month. Clark said Tuesday, taking the breakeven point into discussion, "with respect to rent, this assumes payment of our common area maintenance fees and property taxes, which together are approximately $1 million per week and an equivalent percent of sales rent multiplier with our pre-COVID levels. While this assumption is not equivalent to our full base rent, it takes into account a variety of rent deferral structures for the second quarter that we have negotiated or are currently in discussions with our landlords on."

As restaurant dining rooms reopen, however, overall cash-flow should alleviate somewhat. Gordon said recent trends suggest Cheesecake Factory will sustain, or at least come close to sustaining, some of the off-premises business it’s picked up throughout COVID-19.

Mainly, this pertains to growth in new guests from DoorDash. And there’s no plan to try self-delivery.

“That's a completely different business, frankly, and I think it takes your focus off of being great restaurateurs, and I think you lose something in that friction between operating two different businesses,” Clark said.

In terms of staffing up, Gordon said Cheesecake Factory has tried to stay in contact with workers over the past six weeks. It’s offered a daily meal program where employees can come in and reconnect with management, as well as get a free meal. It’s continued benefits, too. “We're not anticipating having a struggle to get the restaurants open at that 50 percent capacity level. I know that hearing from staff, even myself, there are a lot of people who want to get back to work that are excited to get back into that a little more social environment as long as they know that it's safe.

He hinted there could be some opportunities on the other side of COVID-19 as well.

“Certainly, we hope that all restaurateurs and great restaurants out there are able to weather the storm. I think we know that some of them probably may not be able to do that. And if that leads to a change in market share or an opportunity to gain more market share because of a less competitive environment, we certainly feel poised to take that market share because of who we are, because of our high-end experiential dining,” he said. “So we would anticipate that potentially that could happen.”