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Cheesecake Factory Down, Any Way You Slice It

By Colleen Paulson – Updated Apr 5, 2017 at 8:34PM

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Its profits dropped 22% for the quarter, and its debt is increasing.

Double-digit profit drops are not very sweet, even if they come from your favorite flavorsome cheesecake restaurant. The Cheesecake Factory's (Nasdaq: CAKE) 22% decline in net income for the first quarter is hardly a treat to linger over.

Here are the not-so-decadent details. While having 15% more stores this quarter compared with last year helped revenue grow 10.4%, same-store sales at existing establishments declined 1.8%. Employing the infamous weather excuse, management actually blamed its comps performance on a worse-than-average winter, blaming snow for one-third of the drop. The winter wasn't so bad in my neck of the woods (and the Northeast can be pretty bad), so I double-checked, and much of the Midwest and the West did have more snow than usual, so maybe it's not entirely a bogus reason.

Cheesecake Factory just hasn't had a lot of luck lately. Costs outpaced revenue for the quarter, because dairy prices continue to rise. Even with the tough retail environment, Cheesecake Factory still plans to open its first RockSugar Pan Asian Kitchen restaurant next quarter, and the timing couldn't be worse, what with the fears about a rice shortage.

Fast food restaurants have certainly fared better than full-service restaurants lately, with Yum! Brands (NYSE: YUM) reporting 3% growth in U.S. same-store sales for the quarter. But even McDonald's (NYSE: MCD), which generated global comparable sales growth of 7.4% for the first quarter, experienced a drop in U.S. same-store sales for March. An overall sales increase of 4.3% is expected for full-service restaurants for the year, and Darden Restaurants (NYSE: DRI) recently reported that continuing quarterly sales are fattening up on Olive Garden's Italian specialties.

The Cheesecake Factory plans to slow new-store growth this year, opening no more than nine restaurants, versus 20 for 2007. With long-term debt skyrocketing by 57% year over year, opening fewer new restaurants is probably a good thing. The Cheesecake Factory faces a tough road as commodity prices continue to rise and the economy stalls. I'm sure that the Cheesecake Factory is hoping that the rest of the year will be kinder than winter was.

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Fool contributor Colleen Paulson does not hold positions in any of the stocks mentioned above, and she's a sucker for $7 slices of cheesecake. The Fool's disclosure policy likes being snowed in.

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Stocks Mentioned

The Cheesecake Factory Incorporated Stock Quote
The Cheesecake Factory Incorporated
CAKE
$28.43 (-2.44%) $0.71
McDonald's Corporation Stock Quote
McDonald's Corporation
MCD
$245.95 (-0.80%) $-1.99
Yum! Brands, Inc. Stock Quote
Yum! Brands, Inc.
YUM
$110.65 (-0.13%) $0.14
Darden Restaurants, Inc. Stock Quote
Darden Restaurants, Inc.
DRI
$122.39 (-2.44%) $-3.06

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