Dive Brief:

• The Cheesecake Factory is restoring full pay for all corporate employees and bakery administration employees following a 10% to 20% pay reduction in April, the company said in an SEC filing Wednesday. 
• The company rehired a majority of its approximately 41,000 employees who were furloughed in March and April due to the COVID-19 pandemic. 
• Additionally, the company eliminated 175 employees due to the impacts of COVID-19 on the business and the permanent closure of two restaurants.  

Dive Insight:

The Cheesecake Factory's update illustrates that sales volumes are returning to a level in which a full labor force is necessary, and that business in general is returning to a normalized level as the company phases the reopening of its dine-in operations. The chain was one of the first to furlough its employees and forgo rent payments as the pandemic hit in March.

At the very least, this labor change indicates progress from the throes of the pandemic in Q1 and Q2, in which the company’s sales dropped by nearly 36%, including 66% in April alone. Total revenue fell by 56% year-over-year. Another sign of this progress is the chain’s return to menu innovation with two fall cheesecakes available starting Tuesday. 

According to the company's Q2 earnings report, The Cheesecake Factory has largely stayed afloat thanks to its off-premise business. Restaurants offering only takeout service generated about $4.2 million per unit on average. 

It's also worth noting that the chain has repaid a majority of its deferred rent payments through July, and CEO David Overton said in the earnings release that The Cheesecake Factory exited Q2 in "a solid financial position, with a strong cash balance."

Data from The NPD Group reflects this improvement in the broader industry, reporting that diner purchases at major restaurant companies improved into the single digits during the week ending Aug. 16, after 21 straight weeks of double-digit declines. This improvement also is reflected in the full-service category with customer transactions down 19% during the week ending Aug. 16 versus -76% in mid-April.  

That's not to say it's all smooth sailing ahead for The Cheesecake Factory, however. Earlier this month, the chain was identified by S&P Global as one of the restaurant companies facing bankruptcy risk due to the pandemic, with 12% probability of defaulting in the next year. A potential second wave of COVID-19 expected by some experts to hit in the fall could be more challenging for the company, and the full-service category in general, to overcome.