Cheesecake Factory Inc., based in Calabasas Hills, Calif., reported an 86 percent increase in first quarter profits thanks to increased traffic and newly-implemented cost management initiatives. Although the performance exceeded expectations by 6 cents per diluted share, the stock fell nearly 3 percent Friday.

Known for its large portions, extensive menu and decadent desserts, the national restaurant chain earned $18.7 million, or 31 cents per diluted share, in the first quarter ended March 30, up from $10 million, or 17 cents per diluted share, in the same period last year.

Revenues were $405.4 million, up 3.2 percent from $392.8 million in the prior-year period.

CEO David Overton stated in a release, "a continued improvement in guest traffic levels at our restaurants was the basis for the increase in comparable sales, similar to what we experienced throughout most of last year. Guest traffic improved significantly from fourth quarter levels."

Analyst Stephen Anderson of MKM Partners LLC said he “wasn’t too concerned” about the decrease in the stock price, because overall he sees an “improved macro view” and “more confident consumer” boosting sales. According to Anderson, higher than expected earnings posted Thursday by Starbucks Corp. and Chipotle Mexican Grill Inc. will translate into gains for the entire restaurant sector, including Cheesecake Factory. The company’s stock is up 35 percent year to date.

Two new locations, in Newark, Del. and Tucson, Ariz., in the first quarter boosted Cheesecake Factory’s operations to 162 restaurants in 36 states. The company operates restaurants under The Cheesecake Factory and Grand Lux Café brands, as well as two bakery production facilities in California and North Carolina. It owns six restaurants in the Chicago area, including the Grand Lux Café on Michigan Avenue.

During the quarter, Cheesecake Factory also repurchased 487,000 shares of its common stock at a cost of $12.5 million, an indicator that the company is confident and moving forward in 2010.

The company was able to cut expenses by hedging commodity prices and gain leverage from lower workers’ compensation and general liability insurance. Cheesecake Factory has about 60 percent of its commodities contracted, said W. Douglas Benn, chief financial officer, in Thursday’s conference call.

Anderson, who gives the stock a “neutral” rating, said his “concern is growing” for later next year, when commodities prices are expected to increase again, especially for wheat and proteins.

Attempts to gain incremental sales in off-peak periods, primarily at lunchtime and weekday happy hours, allowed Cheesecake Factory to gain some traction through increased average ticket and traffic, according to a note by Anderson. He said the company has separated itself from chains like Applebee’s and T.G.I. Friday’s in the casual dining sector by maintaining its upscale image during the recession.

“The one thing they have at their disposal that their competitors do not is they can implement a price increase of 2-3 percent,” said Anderson, who went on to say restaurants that have trained their customers to expect discounts will have a tough time charging pre-recession prices for their menu items.

Implementation of an effective menu price increase of 0.6 percent in winter 2010 increased comparable sales by 2.7 percent at The Cheesecake Factory restaurants and 4.0 percent at Grand Lux Café.

New additions to The Cheesecake Factory’s “Small Plates & Snacks” menu, including fried zucchini, ahi tartare and parmesan-stuffed dates wrapped with smoked bacon, accounted for some increased sales. The entrée menu was also beefed up with the addition of a charbroiled flat iron steak and Philly-style flat iron steak with white cheddar sauce. Higher dessert sales in off-peak periods and a resurgence in private room bookings resulted in increased ticket growth, according to Anderson’s note.

Overall, the menu mix improved over the quarter supported by stabilization of dessert and  alcoholic beverage sales, said Benn.

The stock closed at $29.57, down 89 cents.