Inflation Is Deflationary: Cheesecake Factory Edition


Photo: Zingyyellow, Flickr

Courtesy of The Cheesecake Factory, a quick lesson which serves to remind you how nebulous and confusion concepts like inflation and deflation are.The aspirational purveyor of high-caloric means reported mediocre earnings today, and the stock is falling after hours.

Like a lot of restaurants, it’s felt the pinch from high food costs (inflation), and that means costs have to be trimmed elsewhere, namely labour (deflation).

Said CEO David Overton:

“In spite of the high food cost inflation environment, we are managing expenses well, offsetting cost pressures to deliver solid earnings growth. Our operators are doing an outstanding job of running our restaurants efficiently and productively. We are on-track to deliver mid-teens earnings per share growth this year, which is in-line with our longer-term objectives,”

A year over year comparison of this quarter to last shows how much faster food costs are growing as compared to labour (which shrank as a percentage of sales).


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