The Cheesecake Factory receives $200M private equity investment

Dive Brief:

The Cheesecake Factory closed a $200 million convertible preferred investment from Roark Capital on Monday, according to a press release.
“This transaction not only meaningfully enhances our liquidity position to navigate the near-term COVID-19 landscape and get our affected staff members back to work as soon as practicable, but also importantly, solidifies our ability to manage the business for the long-term for all of our stakeholders once we emerge on the other side of this crisis,” David Overton, chairman and CEO of The Cheesecake Factory, said in the press release.
The restaurant’s board will be expanded from eight to nine members and Paul Ginsberg, the president of Roark, will join the company’s board of directors as an independent member.

Dive Insight:

The Cheesecake Factory has been hit hard by the novel coronavirus pandemic, especially with state-mandated dine-in closures. It estimated in early April that its Q1 2020 results would be down 13% after its March sales declined 46% even though its results were up 3% for the quarter through February.

The casual dining chain furloughed 41,000 hourly restaurant staff members in late March, its top executives reduced their base salaries, and the chain told its landlords that it wouldn’t be paying April rent in nearly 300 restaurants. While it has already tapped into a $90 million credit line to increase cash, the additional $200 million investment will certainly help pay for many of these expenses.

The investment could also help the chain continue to grow its off-premise channel, which the company said April 2 had increased sales by 85% since the end of the fourth quarter after it had to switch to delivery and takeout only.

Even before the coronavirus hit, a huge investment in a casual dining chain that has struggled with traffic and seen only slight comparable sales growth over the last few years, growing 0.8% in 2019 and 1.7% in 2018, would seem like an odd choice. But The Cheesecake Factory has made moves to diversify, buying Fox Restaurant Concepts in August 2019. Roark Capital has a history in investing in restaurants and its current portfolio includes Miller’s Ale House, Schlotzsky's, Focus Brands Corner Bakery Cafe, so its expertise could help Cheesecake create a strategy to help it get through the current downturn and beyond.