Activist Urges Cheesecake Factory to Consider Breakup
Houston-based investor is asking the restaurant operator to spin out three brands
An activist investor has built a position in Cheesecake Factory CAKE -1.32%decrease; red down pointing triangle and is urging the restaurant operator to spin off three of its smaller brands into a separate public company, according to people familiar with the matter.
The details
Houston-based JCP Investment Management, which focuses on the restaurant industry, has a roughly 2% stake in Cheesecake Factory, the people said. A regulatory filing in August had revealed the firm’s initial stake in the company.
Calabasas, Calif.-based Cheesecake Factory has a market value of about $2.2 billion, with its stock price up more than 20% so far this year. The S&P 500 has risen about the same amount over that time.
Cheesecake Factory owns and operates more than 300 locations across the U.S. and Canada, including its namesake restaurants and others such as North Italia, according to its website. To many of its customers, Cheesecake Factory is known for its extensive menu, with options ranging from Tex-Mex egg rolls to fettuccine Alfredo and more than a dozen flavors of cheesecake.
The context
JCP has privately argued to Cheesecake Factory executives that three of its restaurant brands in particular would be better off as a separate company focused on faster growth: North Italia, an Italian casual-dining concept; Flower Child, a health-focused fast-casual chain; and Culinary Dropout, a gastropub known for its pretzel bites and fried chicken.
JCP has told Cheesecake Factory that it would be willing to inject capital into the spun-off entity to help with its growth, the people said. By breaking up the company, JCP argues that the separate management teams could better focus on hitting their respective financial targets.
JCP has also recommended that Cheesecake Factory implement a strategic review for several other smaller concepts the activist thinks have struggled and could be of interest to buyers, the people added.
A spokesperson for Cheesecake Factory said the company is aware of JCP’s investment. “We regularly engage with shareholders and consider their perspectives,” the spokesperson said.
After going public 1993, Cheesecake Factory continued growing same-store sales for years and achieved richer valuations than many of its casual-dining peers. Its growth stalled in 2017, when same-store sales fell, and the company told investors it would do more to improve operations.
During the Covid-19 pandemic, Cheesecake Factory went all-in on takeout and delivery, which helped lift the business and the stock price in 2021. More recently, though, its financial performance has trailed industry peers including Texas Roadhouse and Olive Garden parent Darden Restaurants.
Restaurant chains and operators this year are on track to declare the most bankruptcies in decades outside of 2020, when the global pandemic upended the industry. Smaller chains with fewer than 50 locations are seen as particularly vulnerable.
JCP was founded in 2009 by James Pappas, who had previously worked in investment banking. Pappas last year joined the board of directors of United Natural Foods, a wholesale distributor that has been trying to revive its performance. He also served on smoothie-and-juice chain Jamba’s board before the business was bought in 2018.