The Cheesecake Factory saw its shares dip 10.1 percent Tuesday evening following the company’s Q3 earnings report. Revenues had been estimated to reach $799 million in the quarter ending September 2022, but ultimately clocked in at $784 million, which was enough to send stocks tumbling. 

But while Wall Street might have felt some concern over these results, company leaders remained confident in the flagship brand’s points of differentiation and its ability to remain a competitive player—even when menu prices rise next month. Prices already rose by 4.25 percent in the third quarter and 3.25 in the second. Although it’s been a more conservative uptick than many other casual-dining chains, the announcement led some investors to ask whether these increases could have a chilling effect on sales and foot traffic, especially after a less-than-stellar performance in the most recent quarter.

The answer was a resounding no, with leaders pointing to The Cheesecake Factory’s tome-like menu as a shield against rampant inflation.

“I think the hallmark of the Cheesecake Factory is the breadth of the menu. We still have items that are $8 and $9 going up to the low $30s if you want to get a filet, which I would note, probably compares to about $50 even at the most value-focused steakhouses today,” chief financial officer Matt Clark said on the call. 

“And don’t forget the portion sizes,” he added, pointing to substantial dishes (large enough to split in some cases) that cost less than $20. But hearty entrées aren’t the only items guests are ordering and therein, Clark said, lies a critical indicator of The Cheesecake Factory’s overall brand health. At a time when many operators are scrambling to reduce their SKUs and streamline menus, the brand maintains its 20-plus-page menu encompassing some 250 dishes.

“When [guests] do come in, they’re ordering more than they used to. So to me, that says that our large-portion pastas and our great desserts must look like they’re relatively well-priced compared to where everybody else is going because they’re ordering more than they used to,” Clark said.

Still, the brand hasn’t been impervious to the effects of inflation, which leaders said were most noticeable in utilities and building maintenance expenses this past quarter. Clark noted that these input costs appear to be stabilizing, which could bring the brand to upward of 15 percent unit-level margins in 2023. 

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Recruiting and training expenses were also higher than anticipated in the third quarter, due in part to some 350,000-plus applicants and the return of its general managers’ conference—the first to be held since the start of Covid. Like building and utility costs, these workforce expenses are expected to ebb as the labor market settles.

Overall, The Cheesecake Factory did post positive comps, up 1.1 percent from Q3 the previous year. Nevertheless, it paled in comparison to sister concept North Italia, which hit 10 percent and 18 percent comp sales versus 2021 and 2019, respectively. So far the trend is continuing into Q4, with quarter-to-date comps still outperforming figures from both one and three years ago. And when combined with brands under the Fox Restaurant Concepts (FRC) portfolio, North Italia brought in $135 million in revenue in Q3.

Although the 32-unit upscale Italian chain has a smaller and pricier menu, the parent company believes that it, like The Cheesecake Factory, has enough range to bring in value-minded consumers.

“I think North Italia follows a very similar approach, although the menu obviously isn’t as broad but has somewhat of a barbell strategy. You can get a pizza or a pasta still at a very affordable price in North Italia. Or if you want to go in for a high-end dinner, you can also get filet or branzino—that might be in the mid-$30s to close to $40,” Clark said. “So it’s really looking for that experience that you might want. And I think that if you can deliver on that experience, which operators can, the value proposition remains extremely strong.”

Though the remaining restaurants in The Cheesecake holdings are small in unit count, they are delivering enviable sales for the company. FRC locations, including 32-unit fast casual Flower Child, turned in a weekly sales average of $103,000 in the third quarter. 

In terms of growth, North Italia and FRC brands have plenty of runway ahead compared to 210-unit Cheesecake Factory. Supply chain issues and permit delays have pushed back timelines, but the company still plans to open up to 13 new locations in fiscal 2022, which would include three Cheesecake Factory units, four North Italia units, and six FRC units (three of which would be Flower Child).

Next year, it aims to expand with as many as 25 new restaurants, with growth driven primarily by new FRC locations.

“I think our teams are certainly capable of opening 21 to 25 restaurants. We’ve done it historically in the past,” company president David Gordon said on the call. He noted that while those openings were all under one brand (The Cheesecake Factory), the company could hit the same benchmarks with multiple concepts. “I think we’re poised to meet the supply chain challenges and some of the permitting and approval delays that we had in 2023 head on to be able to meet the target for next year,” he said.