CAKE Q1 Earnings Call: Menu Innovation, Margin Expansion, and Prudent Outlook Amid Economic Uncertainty

Restaurant company Cheesecake Factory (NASDAQ:CAKE) met Wall Street’s revenue expectations in Q1 CY2025, with sales up 4% year on year to $927.2 million. Its non-GAAP profit of $0.93 per share was 13.6% above analysts’ consensus estimates.

Is now the time to buy CAKE? Find out in our full research report (it’s free).

StockStory’s Take

The Cheesecake Factory’s first quarter performance was underpinned by improved operational execution, menu innovation, and continued benefits from staff retention. Management credited menu changes, which added over 20 new items across multiple cuisines, for driving guest engagement and positive media coverage. Operational initiatives, particularly those around labor productivity and food cost management, contributed to higher restaurant-level profitability and operating margin expansion compared to last year.

Looking to the remainder of the year, management emphasized a cautious approach to revenue outlook, citing a more uncertain economic environment and updated forecasts for real disposable income growth. CFO Matt Clark stated that the company’s updated revenue assumptions are "prudent in light of recent economic growth and real disposable income forecasts, which have been revised downward by approximately 1%." Management is focused on absorbing potential tariff impacts and leveraging new personalized marketing initiatives, but noted that trends remain stable rather than improving.

Key Insights from Management’s Remarks

Management’s remarks highlighted the operational and strategic drivers behind the quarter’s performance, as well as the levers being pulled to mitigate external headwinds and support growth across its diverse restaurant portfolio.

• Menu innovation and media exposure: The introduction of over 20 new menu items led to substantial media attention, with over 700 media placements and 8 billion potential public relations impressions, nearly double the previous year’s level. This broad exposure helped elevate brand awareness and engage new and returning guests.

• Staff retention and productivity: Continued improvement in both manager and staff retention enabled better guest experiences and operational stability. Enhanced retention has contributed to lower training costs, reduced overtime, and improved labor productivity, which management views as a competitive advantage in a tight labor market.

• Margin expansion via cost management: Restaurant-level profit margins improved due to favorable commodity costs, disciplined labor management, and operational efficiencies. Management noted a 100-basis-point decrease in cost of sales and a 30-basis-point decline in labor costs as a percent of sales, aided by stable commodity pricing and effective cost control.

• Loyalty and targeted marketing: The Cheesecake Rewards program saw continued growth in member sign-ups and positive guest feedback. The company shifted from broad offers to a more personalized approach, which management believes increases engagement and allows for more precise traffic-driving initiatives during specific dayparts.

• Segment and brand performance: Flower Child, one of the company’s fast-casual concepts, posted a 5% increase in comparable sales and strong new unit openings. North Italia, while impacted by regional events such as fires, maintained above-average unit volumes in new markets and showed improved restaurant-level margins. Management attributed these results to operational focus and consumer demand for differentiated dining experiences.

Drivers of Future Performance

Management expects near-term performance to be shaped by stable but cautious consumer demand, proactive cost management, and the ability to offset inflationary and tariff pressures through operational levers and targeted marketing.

• Tariff absorption strategy: Management aims to absorb proposed tariff impacts through cost controls, vendor negotiations, and, if needed, limited price increases, targeting minimal disruption to adjusted net income margins for the year.

• Loyalty program and menu development: The ongoing evolution of the Cheesecake Rewards program and further menu innovation are expected to support guest engagement, with management looking to use data-driven, personalized offers to drive incremental visits and higher ticket sizes.

• Expansion and new unit growth: The company plans to open up to 25 new restaurants across its brands in 2025, with a focus on maintaining strong early sales and operational performance in new locations, which management believes is essential for sustaining revenue growth and offsetting flat same-store sales.

Top Analyst Questions

• David Tarantino (Baird): Asked if the cautious revenue outlook was based on observed trends or a conservative projection. Management responded that both recent noise and a less robust sales environment informed a prudent outlook for the balance of the year.

• Sharon Zackfia (William Blair): Sought quantification of tariff impacts and mitigation plans. Management detailed that most food commodities are domestically sourced, so tariffs will mainly affect small wares and packaging, with strategies including cost reductions and possible minor price increases.

• Andy Barish (Jefferies): Inquired about the impact of menu changes on traffic and pricing. Management explained that introducing lower-priced items has affected mix negatively but aligns with efforts to reinforce value perception for guests.

• Jon Tower (Citi): Probed labor productivity improvements and their sustainability. Management cited ongoing benefits from retention and operational discipline, but expects incremental gains to taper as current best-in-class levels are maintained.

• Jim Sanderson (Northcoast Research): Asked about the effect of tariffs on construction and development costs. Management indicated no significant near-term impact, as most procurement is already completed for this year’s builds, and noted construction costs have returned to pre-pandemic levels.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will be monitoring (1) the effectiveness of menu innovation and personalized loyalty offers in driving incremental guest traffic, (2) the company’s ability to maintain or expand margins while absorbing ongoing inflation and potential tariff-related costs, and (3) the operational performance of new restaurant openings across brands. Additionally, we will watch for any shifts in consumer behavior as economic conditions evolve and for signs that the company’s cost management strategies remain effective.

The Cheesecake Factory currently trades at a forward P/E ratio of 13.9×. Should you load up, cash out, or stay put? The answer lies in our free research report.

High-Quality Stocks for All Market Conditions

Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.

While this leaves much uncertainty around 2025, a few companies are poised for long-term gains regardless of the political or macroeconomic climate, like our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 176% over the last five years.

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today.