The Cheesecake Factory's Q3 2025: Contradictions Emerge on Consumer Behavior, Commodity Inflation, and Competitive Environment

Date of Call: October 28, 2025

Financials Results

• Revenue: $907M total revenues, finished near midpoint of guidance; Cheesecake Factory restaurants sales $651.4M, up 1% YOY
• EPS: $0.68 adjusted diluted net income per share (GAAP diluted EPS $0.66)

Guidance:

• Q4 2025 revenue expected $940M–$955M (≈1% step down vs Q3).
• Q4 commodity inflation expected low single digits (beef is primary pressure); modeling ~2% commodity headwind.
• Net labor inflation expected low- to mid-single-digits; group medical timing ~50 bps headwind in Q4.
• Q4 G&A ≈$60M; depreciation ≈$28M; preopening ≈$8M–$9M; adj. net income margin ≈5.1% at midpoint.
• Full-year 2025 net income margin target 4.9% remains intact.
• FY2026: target revenue growth ≈4%–5%; net income margin ≈5% at midpoint; inflation (commodity/labor/other) low- to mid-single-digits.
• Development: up to 25 openings in 2025; up to 26 in 2026. FY2026 cash CapEx ≈$200M–$210M (2025 ≈$190M–$200M).

Business Commentary:

* Sales and Market Performance: - The Cheesecake Factory reported total revenues of $907 million for Q3, aligning with the midpoint of their provided guidance range. - Comparable sales at Cheesecake Factory restaurants increased 0.3% year-over-year, with annualized unit volumes averaging over $12 million. - The stability in performance is attributed to the resilience of their brands and strong demand for high-quality concepts, despite a softer consumer environment and macroeconomic challenges.

• Operational Efficiency and Margin Improvement:
• The company achieved a 4-wall profit margin improvement of 60 basis points year-over-year to 16.3%.

• This was driven by improvements in labor productivity and wage management, supported by strong retention and operational discipline.

• Development and Expansion Strategy:

• The company plans to open as many as 25 new restaurants in 2025 and 26 new restaurants in 2026.

• This expansion strategy is aimed at accelerating development and increasing the portfolio of concepts, focusing on continued growth and market penetration.

• Consumer Behavior and Menu Innovation:

• By leveraging menu innovation, the company's new bites and bowls items have driven higher appetizer attachment rates and contributed to an improvement in check mix.
• This success in menu innovation has helped mitigate the impact of consumer caution and trade-offs in pricing and mix.

Sentiment Analysis:

Overall Tone: Neutral

• Management: "results were solid...earnings and profitability finishing above the high end of our expectations" while also noting they are "navigating a softer macro and consumer environment." They provided cautious near-term assumptions (Q4 revenue $940M–$955M, ~1% traffic step-down) but reiterated confidence in execution, development plans and FY2026 targets.

Q&A:

• Question from Andrew Barish (Jefferies LLC): What consumer behavior is driving increased caution — regional, check management, or traffic?
  Response: Management: It's primarily traffic-driven (slight choppiness), with October softness likely tied in part to the government shutdown.

• Question from Brian Vaccaro (Raymond James & Associates, Inc.): Can you break down comps for Cheesecake and North (price, traffic, mix) and comment on commodity inflation now vs Q3?
  Response: Management: Cheesecake price ≈4%/traffic -2.5%; North price 4%/traffic ~-6%; Q3 commodities were roughly flattish, but expect ~2% commodity inflation in Q4 driven mainly by beef.

• Question from Jon Tower (Citigroup Inc.): Will you promote bites/bowls more next year and how are you thinking about core Cheesecake pricing into 2026?
  Response: Management: Will continue to lean into bites/bowls (separate menu card and Rewards) and expect pricing to moderate (≈3.5% in Q4, nearer ~2% into early 2026).

• Question from Jon Tower (Citigroup Inc.): How much of North Italia's comp decline was cannibalization versus other factors and will you schedule openings to reduce transfer next year?
  Response: Management: Roughly ~2 points of pressure from cannibalization (plus ~1 point from LA fires); site selection can cause near-term transfer but long-term returns drive development decisions.

• Question from Sharon Zackfia (William Blair & Company L.L.C.): Did the shutdown-related softness begin in October or late Q3?
  Response: Management: Some choppiness began in September but a clearer shift occurred in October, consistent with prior shutdowns causing a ~1%–2% temporary dip.

• Question from David Tarantino (Robert W. Baird & Co.): How sustainable are labor-productivity gains given slightly negative traffic?
  Response: Management: Productivity gains from improved retention and lower turnover are sustainable near-term tailwinds, supporting margin resilience despite softer traffic.

• Question from Hyun Jin Cho (Goldman Sachs Group, Inc.): What is driving Flower Child's strong performance and how are Q4 trends tracking?
  Response: Management: Flower Child's differentiation (menu variety, favorable price points, hospitality and quality) is driving outperformance and management expects the strength to continue.

• Question from Hyun Jin Cho (Goldman Sachs Group, Inc.): How will North Italia communicate value amid the lower-price competition?
  Response: Management: Using targeted offers (e.g., $25 small plate + pasta lunch), seasonal menu updates and internal marketing to communicate value.

• Question from Sara Senatore (BofA Securities): Are you seeing weakness among higher-income guests and where is the competitive pressure coming from?
  Response: Management: Some trade-down from higher-income guests (midweek lunch); competition is driven by pervasive discounting/deals and expanded off-premise capacity rather than a single competitor type.

• Question from Brian Bittner (Oppenheimer & Co. Inc.): Is mix impact from bites/bowls unfolding as expected and how should we model mix for 2026?
  Response: Management: Mix has been in line with forecasts and initially added low-1% benefit; model a ~-1% mix impact for 2026 as a conservative assumption.

• Question from Brian Harbour (Morgan Stanley): Is North's weakness honeymoon effect or sales transfer?
  Response: Management: Primarily sales transfer—strong openings can pull sales from nearby units rather than a pure honeymoon effect.

• Question from Jeffrey Bernstein (Barclays Bank PLC): How are sequential comp trends evolving and what do you assume to close 2025?
  Response: Management: Expect roughly a 1% lower traffic run rate in Q4 versus Q3; view the slowdown as macro-driven and likely not long-lived.

• Question from Jeffrey Bernstein (Barclays Bank PLC): How should we think about commodities for 2026 and beef trajectory?
  Response: Management: Overall commodity backdrop constructive (dairy and crops favorable), beef is the main pressure; expect commodities ~1%–2% in 2026 with labor somewhat higher.

• Question from Lauren Silberman (Deutsche Bank AG): Is deceleration broad-based geographically and will similar trends persist into early '26?
  Response: Management: Cheesecake is generally stable geographically with D.C.-area more affected; they are cautious and are planning for potential continuation into Q1, referencing a 6–8 month historical shutdown effect.

• Question from John Ivankoe (JPMorgan Chase & Co): Any geographic tightening in kitchen/labor (undocumented worker dynamic) or market-specific labor pressure?
  Response: Management: No geographic tightening observed—applicant flow remains strong and retention is best-in-class, keeping labor stable for them.

• Question from John Ivankoe (JPMorgan Chase & Co): Why hasn't Cheesecake had an app and what will the new app deliver?
  Response: Management: Without Rewards an app lacked value; launching a rewards app in H1 2026 to enable reservations, easier off-premise ordering, repeat orders and reward tracking.

• Question from Dennis Geiger (UBS Investment Bank): Will loyalty contribution in 2026 mirror 2025 or build materially?
  Response: Management: Rewards are producing incremental contribution today and should build in 2026, but the company isn't quantifying a specific uplift yet.

• Question from Dennis Geiger (UBS Investment Bank): Any change in delivery performance this quarter?
  Response: Management: Off-premise remains stable at ~21% of sales (delivery ≈10%), with no material sequential change.

• Question from Jeffrey Farmer (Gordon Haskett Research Advisors): What is implied Q4 Cheesecake same-store sales from your $940M–$955M guidance?
  Response: Management: Implied Cheesecake comps for Q4 are roughly -1% to flat versus the prior year.

• Question from Jeffrey Farmer (Gordon Haskett Research Advisors): Any behavior shift among the under-35 or younger demo across concepts?
  Response: Management: No clear signal isolated to the under-35 cohort; weakness appears broad-based across multiple cohorts.

• Question from William Prause (Stephens Inc.): How is consumer engagement per ad dollar trending and will you need more marketing spend in 2026?
  Response: Management: Increasing investment focused on Rewards and social media (targeted, on-brand) rather than national TV to drive engagement.

• Question from William Prause (Stephens Inc.): Any notable step change in the Hispanic consumer cohort due to recent immigration policy changes?
  Response: Management: No single-cohort step change identified; softness reflects multiple macro factors and is expected to normalize over the next few months.

Contradiction Point 1

Consumer Behavior and Market Environment

It involves differing perspectives on consumer behavior and the competitive environment, which are crucial for understanding market trends and strategic positioning.

What factors in consumer behavior are causing increased caution in the current environment? Are these factors regional or related to check management? - Andrew Barish (Jefferies LLC)

2025Q3: It's really the last piece. It's mostly in the traffic. We've seen pretty stable sales in the mid-single digits, which is quite good. - Matthew Clark(CFO)

Is the 2025 net income margin increase from 4.75% to 4.9% primarily driven by operational improvements at the store level? How does this relate to expectations for 4-wall margin expansion? - Brian John Bittner (Oppenheimer)

2025Q2: We are seeing some softness in the current environment, particularly in traffic trends. We know that pricing is starting to hold a little bit better as we move forward. - Matthew Clark(CFO)

Contradiction Point 2

Commodity Inflation and Margin Outlook

It involves differing expectations regarding commodity inflation and its impact on margins, which are critical for financial planning and investor expectations.

What is the margin outlook for Q4 and what was commodity inflation in Q3? How will commodity inflation affect Q4? - Brian Vaccaro (Raymond James & Associates, Inc., Research Division)

2025Q3: When we think about commodities, obviously beef has moved up another step. So we wouldn't expect to see the same degree of year-over-year favorability that we did certainly in the third quarter, and I would think it would be more like a full 2%, really all of that delta coming from beef and so thinking about those margin line items, you can do the math there that the favorability will be cut in half or something like that on the cost of sales. - Matthew Clark(CFO)

Can you address challenges in controlling labor and other costs? Do you have flexibility to offset wage inflation or absorbing it at the margin? - Andrew D. North (Baird)

2025Q2: When we think about the year-over-year impact of inflation to cost of goods sold, the way we think about that is that we believe it will moderate significantly in the second and third quarters of fiscal '25 versus the first with a second half improvement. - Matthew Clark(CFO)

Contradiction Point 3

Consumer Behavior and Market Conditions

It reflects differing perspectives on consumer behavior and market conditions, which can impact business strategies and financial performance.

What's driving increased consumer caution? Is it regional or check management? - Andrew Barish(Jefferies)

2025Q3: It's really the last piece. It's mostly in the traffic. We've seen pretty stable As David Gordon noted too, the bites and bowls are going well, and we're getting good attachment there. And I would say, really, the more cautionary tone is associated with the fourth quarter. And I think, frankly, there's probably been an impact from the government shutdown and we're looking forward to having that resolved. - Matthew Clark(CFO)

Is the current macroeconomic environment already impacting your business, or are you projecting this impact for the rest of the year? - David Tarantino(Baird)

2025Q1: The environment doesn't feel as robust as three months ago, but the business remains stable and predictable. There's a lot of noise from events like the fires in Los Angeles and holiday shifts. We're managing it well and expect that stability to continue. - Matt Clark(CFO)

Contradiction Point 4

Competitive Environment and Consumer Engagement

It involves differing assessments of the competitive environment and consumer engagement, which are crucial for understanding the company's strategic response to market conditions.

Is weakness filtering through to higher income levels? And is competition primarily from other polished casual chains or independent operators? - Sara Senatore(BofA Securities, Research Division)

2025Q3: It's really the competitive environment isn't just a number of competitors, but the extent to which every restaurant is offering some sort of BOGO or discount or whatnot. The off-premise has expanded capacity, so it's not just the number of competitors, it's the way that the consumers use them that has made the environment more competitive. - Matthew Clark(CFO)

Will labor efficiency continue, and how has value messaging evolved compared to prior years? - Christine Cho(Goldman Sachs)

2024Q4: The consumer behavior appears consistent, with no significant changes noted. - David Gordon(CEO)