Cheesecake Factory (CAKE) Outruns Industry: Up 14% in 6 Months

Zacks Equity Research
·4-min read

The Cheesecake Factory Incorporated CAKE is seeing positive effects from increased consumer demand, the opening of new restaurants and the strong performance of its Flower Child brand, along with improved operational efficiency. As a result, the company’s shares have risen by 14.3% in the past six months, in contrast to a 19.8% decline in the industry. Challenges like an uncertain macroeconomic climate and inflationary pressures are potential obstacles.

This Zacks Rank #3 (Hold) company’s earnings and sales in 2024 are expected to grow 17.5% and 4.9% year over year, respectively. In the past 30 days, the Zacks Consensus Estimate for 2024 earnings has witnessed upward revisions of 0.3%.

Growth Catalysts

The company is gaining from strong demand. In the fiscal first quarter of 2024, CAKE reported strong comparable sales and demand trends at newer locations for Flower Child. In the past 18 months, the company has successfully implemented several operational and supply chain improvements to enhance the guest experience and drive cost efficiencies. The improvements include the introduction of a kitchen display system across all restaurants (leading to better order throughput and operational efficiencies) and the replacement of the loyalty platform with a more robust and scalable solution.

In the fiscal first quarter, Flower Child sales increased 10.2% year over year to $34.5 million. Flower Child sales per restaurant operating week came in at $83,673 in the fiscal first quarter compared with $80,282 in the prior-year quarter. With strong consumer demand, an attractive unit economic profile and solid infrastructure support, the company is optimistic about accelerating growth in the upcoming periods.

The company is benefiting from robust off-premise sales. Off-premise sales contributed approximately 22% of CAKE’s restaurant sales in the first-quarter fiscal 2024. It continues to perform well in the delivery channel. To boost consumer convenience, Cheesecake Factory has implemented operational changes and technology upgrades, which include a contactless menu and payment technology. We believe that a boost in customer count coupled with targeted off-premise marketing should drive the channel’s performance further in the upcoming periods.

The company remains committed to development to fuel its growth. In the first quarter of fiscal 2024, it opened five new restaurants, which included two North Italia locations, two FRC restaurants and one Flower Child location. Additionally, it launched a Cheesecake Factory restaurant in Mexico through licensing agreements. After the quarter ended, another Cheesecake Factory restaurant was opened internationally under a licensing agreement in Asia.

For fiscal 2024, management plans to open 22 new restaurants. This includes three to four Cheesecake Factory locations, six to seven North Italia restaurants, six to seven Flower Child locations and six to seven FRC restaurants. The company has allocated capital expenditures in the range of $180-$200 million to support new unit development and restaurant maintenance. It aims to achieve a long-term unit growth target of 7% in the coming periods.

Concerns

The company's operations are influenced by ongoing macroeconomic challenges, which have caused changes in consumer behavior, supply chain disruptions and substantial increases in commodity and wage inflation. Cake faced delays in opening new restaurants due to permitting issues, landlord readiness and ongoing supply chain challenges. The company is cautious about the ongoing uncertain macroeconomic environment. It anticipates the headwinds to persist for some time.

Key Picks

Wingstop Inc. WING sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

It has a trailing four-quarter negative earnings surprise of 21.4%, on average. The stock has surged 116% in the past year. The Zacks Consensus Estimate for WING’s 2024 sales and earnings per share (EPS) indicates a rise of 27.5% and 36.7%, respectively, from the year-ago levels.

Brinker International, Inc. EAT currently carries a Zacks Rank #2 (Buy). It has a trailing four-quarter earnings surprise of 213.4%, on average. EAT’s shares have risen 95.3% in the past year.

The Zacks Consensus Estimate for EAT’s 2024 sales and EPS indicates 5% and 41.3% growth, respectively, from the year-earlier actuals.

El Pollo Loco Holdings, Inc. LOCO currently carries a Zacks Rank #2. It has a trailing four-quarter earnings surprise of 19.4%, on average. LOCO’s shares have risen 25.9% in the past year.

The Zacks Consensus Estimate for LOCO’s 2025 sales and EPS indicates 3.8% and 9.9% growth, respectively, from the prior-year figures.

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The Cheesecake Factory Incorporated (CAKE) : Free Stock Analysis Report

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