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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 strong comps growth, its off-premise business model and unit-expansion efforts. Also, the focus on FRC-related differentiated concepts and emerging brands bode well. However, inflationary pressures and supply chain challenges pose concerns.
Let us discuss the factors highlighting why investors should retain the stock for now.
Factors Driving Growth
Cheesecake Factory is benefiting from impressive comps performance. During fourth-quarter fiscal 2022, comps at Cheesecake Factory restaurants increased 4% year over year compared with a 33.8% rise reported in the prior-year quarter. Comps rose 11.4% from the 2019 level. Solid off-premise sales and an increase in average check and customer traffic contributed to the company’s performance. The company stated that the momentum had continued in the first quarter of fiscal 2023. From the start of the fiscal first quarter to Feb 21, comps at Cheesecake Factory (across all operating models) increased approximately 9.5% year over year and 17% from the fiscal 2019 level.
Cheesecake Factory continues to benefit from its robust off-premise sales. In the fourth quarter of fiscal 2023, off-premise contributed 23% to Cheesecake Factory’s total restaurant sales. The company stated that off-premise sales remain elevated from pre-pandemic levels. To boost consumer convenience, the company implemented operational changes and technology upgrades, including a contactless menu and payment technology and text paging. We believe that a boost in customer count and targeted off-premise marketing will likely drive the channel’s performance in the upcoming periods.
Increased focus on Fox Restaurant Concepts (or FRC) bodes well. 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.
Meanwhile, the company emphasizes on FRC-related differentiated concepts and emerging brands to drive growth. During the fiscal second quarter, FRC opened its brick-and-mortar location of Fly Bye (a fast-casual dining concept) in the Phoenix market and reported solid sales from the same. The outlet offered Detroit-enhanced stretch-style pizza and crispy chicken. Given the solid customer feedback, the company remains optimistic in this regard and anticipates opening more Fly Bye locations in the upcoming periods.
Cheesecake Factory continues to focus on the development front to drive growth. In fiscal 2023, the company anticipates opening 20-22 new restaurants comprising five to six Cheesecake Factory restaurants, five to six North Italia restaurants and 10 FRC restaurants (including three to four Flower Child locations). Internationally, it intends to open two to three Cheesecake Factory restaurants under a licensing agreement. To this end, the company set aside $165-$175 million in capex to support the unit development and maintenance of its restaurants. With a strong pipeline, the company anticipates achieving unit growth of 7% in the upcoming year.
Concerns
Image Source: Zacks Investment Research
Shares of Cheesecake Factory have declined 12% in the past year against the industry’s growth of 8.8%. The downside was mainly caused by commodity and wage inflation, supply chain challenges and a challenging macro environment. Although most dining services are open, traffic is still low compared with pre-pandemic levels. The company intends to monitor the situation regularly to gauge the impacts of COVID-19.
Cheesecake Factory has been continuously incurring increased expenses, which have been detrimental to margins. During the fiscal fourth quarter, the cost of food and beverage, as a percentage of revenues, increased 170 basis points (bps) year over year to 24.7%. The increase was primarily driven by commodity inflation and higher menu pricing. General and administrative expenses accounted for 6.3% of revenues compared with 6.1% in the prior-year quarter. For the first quarter of fiscal 2023, the company anticipates commodity inflation in the range of 10-12% annually. Labor inflation for the fiscal first quarter is expected at 6%.
Chuy’s Holdings currently sports a Zacks Rank #1. CHUY has a trailing four-quarter earnings surprise of 19.1%, on average. Shares of CHUY have increased 31.1% in the past year.
The Zacks Consensus Estimate for Chuy’s Holdings 2023 sales and EPS suggests growth of 10.8% and 19%, respectively, from the corresponding year-ago period’s levels.
Arcos Dorados currently sports a Zacks Rank #1. ARCO has a long-term earnings growth of 7.8%. Shares of the company have declined 9.6% in the past year.
The Zacks Consensus Estimate for Arcos Dorados’ 2024 sales and EPS suggests growth of 8% and 11.4%, respectively, from the year-ago period’s levels.
Bloomin' Brands currently sports a Zacks Rank #1. BLMN has a long-term earnings growth rate of 12.3%. The stock has gained 19.4% in the past year.
The Zacks Consensus Estimate for Bloomin' Brands 2024 sales and EPS suggests growth of 2.1% and 4.4%, respectively, from the year-ago period’s reported 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 strong comps growth, its off-premise business model and unit-expansion efforts. Also, the focus on FRC-related differentiated concepts and emerging brands bode well. However, inflationary pressures and supply chain challenges pose concerns.
Let us discuss the factors highlighting why investors should retain the stock for now.
Factors Driving Growth
Cheesecake Factory is benefiting from impressive comps performance. During fourth-quarter fiscal 2022, comps at Cheesecake Factory restaurants increased 4% year over year compared with a 33.8% rise reported in the prior-year quarter. Comps rose 11.4% from the 2019 level. Solid off-premise sales and an increase in average check and customer traffic contributed to the company’s performance. The company stated that the momentum had continued in the first quarter of fiscal 2023. From the start of the fiscal first quarter to Feb 21, comps at Cheesecake Factory (across all operating models) increased approximately 9.5% year over year and 17% from the fiscal 2019 level.
Cheesecake Factory continues to benefit from its robust off-premise sales. In the fourth quarter of fiscal 2023, off-premise contributed 23% to Cheesecake Factory’s total restaurant sales. The company stated that off-premise sales remain elevated from pre-pandemic levels. To boost consumer convenience, the company implemented operational changes and technology upgrades, including a contactless menu and payment technology and text paging. We believe that a boost in customer count and targeted off-premise marketing will likely drive the channel’s performance in the upcoming periods.
Increased focus on Fox Restaurant Concepts (or FRC) bodes well. 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.
Meanwhile, the company emphasizes on FRC-related differentiated concepts and emerging brands to drive growth. During the fiscal second quarter, FRC opened its brick-and-mortar location of Fly Bye (a fast-casual dining concept) in the Phoenix market and reported solid sales from the same. The outlet offered Detroit-enhanced stretch-style pizza and crispy chicken. Given the solid customer feedback, the company remains optimistic in this regard and anticipates opening more Fly Bye locations in the upcoming periods.
Cheesecake Factory continues to focus on the development front to drive growth. In fiscal 2023, the company anticipates opening 20-22 new restaurants comprising five to six Cheesecake Factory restaurants, five to six North Italia restaurants and 10 FRC restaurants (including three to four Flower Child locations). Internationally, it intends to open two to three Cheesecake Factory restaurants under a licensing agreement. To this end, the company set aside $165-$175 million in capex to support the unit development and maintenance of its restaurants. With a strong pipeline, the company anticipates achieving unit growth of 7% in the upcoming year.
Concerns
Image Source: Zacks Investment Research
Shares of Cheesecake Factory have declined 12% in the past year against the industry’s growth of 8.8%. The downside was mainly caused by commodity and wage inflation, supply chain challenges and a challenging macro environment. Although most dining services are open, traffic is still low compared with pre-pandemic levels. The company intends to monitor the situation regularly to gauge the impacts of COVID-19.
Cheesecake Factory has been continuously incurring increased expenses, which have been detrimental to margins. During the fiscal fourth quarter, the cost of food and beverage, as a percentage of revenues, increased 170 basis points (bps) year over year to 24.7%. The increase was primarily driven by commodity inflation and higher menu pricing. General and administrative expenses accounted for 6.3% of revenues compared with 6.1% in the prior-year quarter. For the first quarter of fiscal 2023, the company anticipates commodity inflation in the range of 10-12% annually. Labor inflation for the fiscal first quarter is expected at 6%.
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 Chuy's Holdings, Inc. (CHUY - Free Report) , Arcos Dorados Holdings Inc. (ARCO - Free Report) and Bloomin' Brands, Inc. (BLMN - Free Report) .
Chuy’s Holdings currently sports a Zacks Rank #1. CHUY has a trailing four-quarter earnings surprise of 19.1%, on average. Shares of CHUY have increased 31.1% in the past year.
The Zacks Consensus Estimate for Chuy’s Holdings 2023 sales and EPS suggests growth of 10.8% and 19%, respectively, from the corresponding year-ago period’s levels.
Arcos Dorados currently sports a Zacks Rank #1. ARCO has a long-term earnings growth of 7.8%. Shares of the company have declined 9.6% in the past year.
The Zacks Consensus Estimate for Arcos Dorados’ 2024 sales and EPS suggests growth of 8% and 11.4%, respectively, from the year-ago period’s levels.
Bloomin' Brands currently sports a Zacks Rank #1. BLMN has a long-term earnings growth rate of 12.3%. The stock has gained 19.4% in the past year.
The Zacks Consensus Estimate for Bloomin' Brands 2024 sales and EPS suggests growth of 2.1% and 4.4%, respectively, from the year-ago period’s reported levels.