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Here's Why You Should Retain Cheesecake Factory (CAKE) Stock
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The Cheesecake Factory Incorporated (CAKE - Free Report) is likely to benefit from its off-premise business model, strong comps growth and unit expansion efforts. Also, focus on Fox Restaurant Concepts bode well. However, commodity inflation and coronavirus-related woes are a concern.
Let us discuss the factors highlighting why investors should retain the stock for the time being.
Factors Driving Growth
Cheesecake Factory continues to benefit from its robust off-premise sales. In the first quarter of fiscal 2022, off-premise contributed 28% to Cheesecake Factory’s total restaurant sales. Also, off-premise average weekly sales doubled compared with fiscal 2019 levels. It continues to perform well in the delivery channel. To boost consumer convenience, the company implemented operational changes and technology upgrades, including contactless menu and payment technology and text paging. We believe that a boost in customer count coupled with targeted off-premise marketing will likely drive the channel’s performance further.
The company is also benefiting from impressive comps performance. During the first quarter of fiscal 2022, comps at Cheesecake Factory restaurants increased 20.7% year over year. In the prior-year quarter, comps had increased 2.8% year over year. Solid off-premise sales coupled with sequential improvements in food efficiencies, labor productivity, hourly staff and manager retention contributed to the company’s performance. Nevertheless, the company stated that the momentum had continued in second-quarter fiscal 2022. From the start of the fiscal second quarter to Apr 26, 2022, comps at Cheesecake Factory (across all operating models) increased approximately 8.2% year over year.
Increased focus on Fox Restaurant Concepts (or FRC) bodes well. FRC reinforced its confidence and strength amid the ongoing crisis and paved the path for long-term growth. The in-restaurant kiosk technology enables a faster ordering experience and features artificial intelligence that learns individual guest behavior to provide an enhanced experience. FRC plans to incorporate this technology at future Flower Child locations, complementing the traditional ordering mechanism. On its first-quarter conference call, the company announced FRC concept sales have continued to build and off-premise volumes were solid.
Cheesecake Factory continues to focus on the development front to drive growth. In fiscal 2022, the company anticipates opening 15-16 new restaurants comprising four Cheesecake Factory restaurants, four to five North Italia restaurants and seven FRC restaurants (including three to four Flower Child locations). Also, it anticipates opening a Cheesecake Factory restaurant internationally under a licensing agreement. To this end, the company set aside $150 million in capex to support its restaurants’ unit development and maintenance. With a strong pipeline in place, the company anticipates achieving unit growth of 7% in the upcoming year.
Concerns
Image Source: Zacks Investment Research
Shares of Cheesecake Factory have plunged 39.7% in the past year compared with the industry’s 16.6% fall. The coronavirus crisis caused the dismal performance. The number of open dining rooms and dining room capacity restrictions has fluctuated throughout the pandemic based on state and local mandates, resulting in significant impacts on guest traffic and sales. In January 2022, the company’s operations were negatively impacted by a rise in Omicron cases. Although most dining services are open, traffic is still low compared with pre-pandemic levels. We believe that potential resurgences or new variants of the virus might lead to additional business disruptions, reduced customer traffic and reduced operations.
Fluctuations in commodity costs, labor, restaurant-level occupancy expenses, general and administrative expenses and pre-opening expenses are concerns. During the fiscal first quarter, the cost of sales, as a percentage of revenues, increased 200 basis points (bps) year over year to 23.7% in the fiscal first quarter. The increase was primarily driven by a rise in commodity inflation. Labor expenses, as a percentage of total revenues, amounted to 37.3%, up 70 bps from the year-ago quarter’s levels. For fiscal 2022, the company anticipates commodity inflation of low to mid-double-digits on an annual basis. Labor inflation is expected at 6% for fiscal 2022.
Some better-ranked stocks in the Zacks Retail-Wholesale sector are MarineMax, Inc. (HZO - Free Report) , BBQ Holdings, Inc. and Cracker Barrel Old Country Store (CBRL - Free Report) .
MarineMax sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 32.8%, on average. Shares of the company have declined 19.2% in the past year.
The Zacks Consensus Estimate for MarineMax’s 2022 sales and earnings per share (EPS) suggests growth of 16% and 21.5%, respectively, from the year-ago period’s levels.
BBQ Holdings carries a Zacks Rank #2 (Buy). BBQ Holdings has a long-term earnings growth of 14%. Shares of the company have decreased 14.4% in the past year.
The Zacks Consensus Estimate for BBQ Holdings’ 2022 sales and EPS suggests growth of 46.1% and 67.6%, respectively, from the year-ago period’s levels.
Cracker Barrel carries a Zacks Rank #2. Cracker Barrel has a long-term earnings growth of 9.4%. Shares of the company have declined 33.3% in the past year.
The Zacks Consensus Estimate for Cracker Barrel’s 2022 sales and EPS suggests growth of 17.3% and 33.4%, respectively, from the year-ago period’s levels.
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Here's Why You Should Retain Cheesecake Factory (CAKE) Stock
The Cheesecake Factory Incorporated (CAKE - Free Report) is likely to benefit from its off-premise business model, strong comps growth and unit expansion efforts. Also, focus on Fox Restaurant Concepts bode well. However, commodity inflation and coronavirus-related woes are a concern.
Let us discuss the factors highlighting why investors should retain the stock for the time being.
Factors Driving Growth
Cheesecake Factory continues to benefit from its robust off-premise sales. In the first quarter of fiscal 2022, off-premise contributed 28% to Cheesecake Factory’s total restaurant sales. Also, off-premise average weekly sales doubled compared with fiscal 2019 levels. It continues to perform well in the delivery channel. To boost consumer convenience, the company implemented operational changes and technology upgrades, including contactless menu and payment technology and text paging. We believe that a boost in customer count coupled with targeted off-premise marketing will likely drive the channel’s performance further.
The company is also benefiting from impressive comps performance. During the first quarter of fiscal 2022, comps at Cheesecake Factory restaurants increased 20.7% year over year. In the prior-year quarter, comps had increased 2.8% year over year. Solid off-premise sales coupled with sequential improvements in food efficiencies, labor productivity, hourly staff and manager retention contributed to the company’s performance. Nevertheless, the company stated that the momentum had continued in second-quarter fiscal 2022. From the start of the fiscal second quarter to Apr 26, 2022, comps at Cheesecake Factory (across all operating models) increased approximately 8.2% year over year.
Increased focus on Fox Restaurant Concepts (or FRC) bodes well. FRC reinforced its confidence and strength amid the ongoing crisis and paved the path for long-term growth. The in-restaurant kiosk technology enables a faster ordering experience and features artificial intelligence that learns individual guest behavior to provide an enhanced experience. FRC plans to incorporate this technology at future Flower Child locations, complementing the traditional ordering mechanism. On its first-quarter conference call, the company announced FRC concept sales have continued to build and off-premise volumes were solid.
Cheesecake Factory continues to focus on the development front to drive growth. In fiscal 2022, the company anticipates opening 15-16 new restaurants comprising four Cheesecake Factory restaurants, four to five North Italia restaurants and seven FRC restaurants (including three to four Flower Child locations). Also, it anticipates opening a Cheesecake Factory restaurant internationally under a licensing agreement. To this end, the company set aside $150 million in capex to support its restaurants’ unit development and maintenance. With a strong pipeline in place, the company anticipates achieving unit growth of 7% in the upcoming year.
Concerns
Image Source: Zacks Investment Research
Shares of Cheesecake Factory have plunged 39.7% in the past year compared with the industry’s 16.6% fall. The coronavirus crisis caused the dismal performance. The number of open dining rooms and dining room capacity restrictions has fluctuated throughout the pandemic based on state and local mandates, resulting in significant impacts on guest traffic and sales. In January 2022, the company’s operations were negatively impacted by a rise in Omicron cases. Although most dining services are open, traffic is still low compared with pre-pandemic levels. We believe that potential resurgences or new variants of the virus might lead to additional business disruptions, reduced customer traffic and reduced operations.
Fluctuations in commodity costs, labor, restaurant-level occupancy expenses, general and administrative expenses and pre-opening expenses are concerns. During the fiscal first quarter, the cost of sales, as a percentage of revenues, increased 200 basis points (bps) year over year to 23.7% in the fiscal first quarter. The increase was primarily driven by a rise in commodity inflation. Labor expenses, as a percentage of total revenues, amounted to 37.3%, up 70 bps from the year-ago quarter’s levels. For fiscal 2022, the company anticipates commodity inflation of low to mid-double-digits on an annual basis. Labor inflation is expected at 6% for fiscal 2022.
Zacks Rank & Key Picks
Cheesecake Factory currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some better-ranked stocks in the Zacks Retail-Wholesale sector are MarineMax, Inc. (HZO - Free Report) , BBQ Holdings, Inc. and Cracker Barrel Old Country Store (CBRL - Free Report) .
MarineMax sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 32.8%, on average. Shares of the company have declined 19.2% in the past year.
The Zacks Consensus Estimate for MarineMax’s 2022 sales and earnings per share (EPS) suggests growth of 16% and 21.5%, respectively, from the year-ago period’s levels.
BBQ Holdings carries a Zacks Rank #2 (Buy). BBQ Holdings has a long-term earnings growth of 14%. Shares of the company have decreased 14.4% in the past year.
The Zacks Consensus Estimate for BBQ Holdings’ 2022 sales and EPS suggests growth of 46.1% and 67.6%, respectively, from the year-ago period’s levels.
Cracker Barrel carries a Zacks Rank #2. Cracker Barrel has a long-term earnings growth of 9.4%. Shares of the company have declined 33.3% in the past year.
The Zacks Consensus Estimate for Cracker Barrel’s 2022 sales and EPS suggests growth of 17.3% and 33.4%, respectively, from the year-ago period’s levels.