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Cheesecake Joins Club of Slumping Sales Eateries

When Cheesecake Factory Inc. announced that it expects sales for the second quarter to decline about 1 percent, it caught investors by surprise. It marks the first time in seven years the Calabasas restaurant company will report sales in the red – and a reversal from earlier guidance for a 2 percent sales increase. Following the announcement on June 13, Cheesecake shares fell more than 9 percent, and they have roughly maintained that level since then. Shares closed June 21 at $49.80, representing a 16.1 percent decline since the beginnng of the year. At Piper Jaffray’s Annual Consumer Conference after the announcement, Cheesecake Chief Financial Officer Matt Clark said the sales slump was due to bad weather and consumer uncertainty. “The inclement weather, more in the Midwest and the East, impacted our patio usage,” Clark said at the conference. “The shift was just a slight movement, but we felt it was important as a company to talk openly about that.” Sharon Zackfia, an analyst at William Blair & Co. in Chicago, echoed that sentiment in her most recent report on Cheesecake, published June 13. “Cheesecake Factory is somewhat unusual in that roughly 20 percent of its seats are patio seats,” she wrote. “It can be unfavorably affected by weather such as the cool, rainy weather that dominated the East Coast and Midwest in May.” However, she pointed out that due to increased consumer volatility, the company sees the full-year sales projection to be slightly negative instead of the increase it had originally expected. Sales declines may be new for Cheesecake, but they are a trend in the sit-down restaurant sector. Other restaurateurs such as Buffalo Wild Wings and Applebee’s, owned by DineEquity Inc. in Glendale, have reported slumping sales in recent quarters. While Clark did not elaborate about consumer uncertainty, he noted that there was no discernible difference in sales between mall versus off-mall locations, despite the national trend of declining mall attendance by shoppers. Instead, Clark reiterated confidence in the company’s long-term goals. He said Cheesecake will diversify its portfolio with new fast-causal concept restaurants and continued international expansion. Cheesecake is currently a minority investor in two restaurants operated by Fox Restaurant Concepts – North Italy, an upscale-casual concept, and Flowerchild, a healthy food restaurant. “We are excited about fast-casual,” said Clark. “It’s only 3,500 square feet. We feel that it can go in many locations, both urban and suburban.” Clark added that Cheesecake has the option to buy full ownership of either concept if they grow. The company is also working on expanding the Cheesecake brand internationally. A new location in Beijing will open this year, in partnership with Maxim’s Caterers Ltd., a Hong Kong company. The company also has 11 locations across Europe and Middle East, in collaboration with M.H. Alshaya Co., a Kuwaiti company. “Alshaya is now self-autonomous and up in growth projections,” said Clark. “The Mall of Dubai is our second busiest restaurant in the system.”

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