The Cheesecake Factory

The Cheesecake Factory is expanding to Canada.

The Cheesecake Factory Rises Above America's Mall Crisis

Even as retail struggles, the casual dining chain continues to gain.

The struggles of the retail industry, especially in malls, have been well documented. In the first quarter, nearly 3,000 retail stores closed, already beating the record highs of 2008, according to a Credit Suisse report. More stores have closed in the quarter than in all of 2016.

Given that the amount of U.S. malls have almost quadrupled to over 1,200 since 1970, their biggest competition might not be the Internet. It might be themselves.

That’s a fact The Cheesecake Factory understands all too well. While it might seem like the upscale casual dining chain would be affected by this negative climate, the brand disagrees.

A point to prove it: CFO and EVP W. Douglas Benn said during a conference call that of the publicized Macy’s closures, of which there have been more than 100, only one of those came in a mall where with a Cheesecake Factory.

Thank the “A-plus malls” strategy.

“We definitely are a destination, we have our own entrance. We operate our own hours. We're open earlier Sundays, we stay open later than the mall, that's why we've always been a tenant of choice,” added Matthew Eliot Clark, SVP of finance and strategy. “And simultaneously, we've only gone into those A-plus malls that continue to reinvest capital to drive their own guest experience and continue to bring people in. So I don't know that we know the specific traffic for every mall, but we know that we're pretty consistent across our base of locations, which are predominantly mall adjacent or in malls.”

The Cheesecake Factory reported its financial results for the first quarter Wednesday. Comparable restaurant sales increased 0.3 percent, resulting in the 29th consecutive quarter of positive gains. Total revenues were $563.4 million compared to $553.7 million in the first quarter of fiscal 2016. Net income and diluted net income per share were 35 million and 71 cents, respectively. These financials came in a bit short of Wall Street forecasts, which called for $565.4 million and 73 cents per share.

Some questioned the health of malls as a possible explanation. Clark said it’s something the company is paying attention to but it’s not the culprit.

“I think it comes and goes. And it depends on the mall,” he said. “And we certainly monitor the number of vacancies in the mall, with leases and all of those kinds of things. But we're pretty happy competing against any restaurant that we believe that a critical mass of a destination for those malls is a benefit to everybody. And so we're happy to see some of the trends in these better malls move toward having movie theaters and more options. It brings people into that space, and we're happy to compete and take market share.”

The Cheesecake Factory expects to open as many as eight company-owned restaurants in fiscal 2017, including a second-quarter relocation of one unit. Internationally, the brand expects to open four to five restaurants. A recent Hong Kong store is included in that mix. The Cheesecake Factory is also headed to Toronto—its first location in Canada. “The response to the announcement has been overwhelming, both in traditional and social media, so we look forward to the opportunity this new market holds for us,” said David M. Gordon, president of The Cheesecake Factory.

Gordon spoke about the brand’s continued foray into technology-driven initiatives. The CakePay app continues to “get great responses from the guests” and they hope to see additional growth. There’s also talk of growing the platform to include things like waitlist management, but that plan is still being discussed internally.

Automated production rolled out earlier this year, which allows the restaurant to automate daily production to improve food efficiency.

The Cheesecake Factory plans to extend its delivery service through DoorDash to around two-third of all units by the end of the year, Gordon said. Currently it’s active in around 100 locations. “We'll move down that path throughout this year, and we'd be hoping to launch an online ordering platform by next year,” he said.

The company, through its subsidiaries, owns and operates 208 full-service, casual dining restaurants throughout the U.S. and Puerto Rico, including 194 restaurants under The Cheesecake Factory mark; 13 restaurants under the Grand Lux Café mark; and one restaurant under the Rock Sugar Pan Asian Kitchen mark.