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Cheesecake Factory Banks on Digital Initiatives, Costs High
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The Cheesecake Factory Incorporated (CAKE - Free Report) is poised to benefit from digitalization, menu innovation and off-premise offerings. In the past three months, shares of the company have rallied 37.5% compared with the Zacks Retail – Restaurants industry’s 11.1% growth. However, rise in labor and other operating expenses along with coronavirus-related woes is concerning.
Let us delve into factors highlighting why investors should hold on to the stock for the time being.
Factors Driving Growth
Cheesecake Factory is focusing on various sales-building initiatives to stay afloat during the pandemic. Notably, menu-innovation and advanced digital capabilities are the primary fortes of the company. Going forward, it intends to carry on with menu innovation by adding new Super Food items and the popular indulgences.
Coming to technology-enabled initiatives, the company is receiving positive feedback with regard to its mobile payment app, CakePay. It also continues to improve its to-go business, including online ordering capability. In order to boost consumer convenience, the company has implemented operational changes and technology upgrades, which include contactless menu and payment technology as well as text paging.
The company is also witnessing incremental sales from its delivery service, which continues to be rolled out nationwide. To this extent, it has signed an exclusive national delivery partnership with DoorDash. Notably, the company expects to reap benefits from these collaborative marketing opportunities.
Even though the company has reopened majority of dining rooms with limited capacity post COVID-19 led shutdowns, off-premise operations continue to be a driving factor for overall sales. From the start of the third quarter to Jul 29, off-premise sales accounted for approximately half of its total sales. For restaurants that are operating only in an off-premise model, weekly sales are $4.2 million on average per unit on an annualised basis.
Meanwhile, the restaurant operator has initiated the opening and expansion of patios around the perimeter of restaurants to attract more guests. Notably, this flexible seating layout allows the company to boost sales despite capacity restrictions. Currently, 146 Cheesecake Factory locations have indoor dining rooms open, 36 are open for outdoor dining only and 22 locations are operating an off-premise only model in accordance with local mandates.
Moreover, the company possesses enough liquidity to survive the coronavirus pandemic for some time. As of Jun 30, 2020, the company’s cash balance totaled nearly $250.2 million compared with $81 million at the end of first-quarter 2020. As of Jun 30, 2020, its long-term debt (including operating lease liability) stands at $1.6 billion, almost flat sequentially. Nonetheless, at the end of second-quarter 2020, the company had a debt-to-capital ratio of 0.8, which indicates manageable debt levels.
Concerns
The coronavirus outbreak has rattled the Retail - Restaurants industry, and Cheesecake Factory is not immune to the aftereffects. Owing to the uncertainty of the crisis, the company announced that it is constantly re-evaluating the reopening schedule of restaurants. Moreover, dismal traffic due to social-distancing protocols is likely to hurt the company’s operations for some time.
Moreover, the company has been continuously shouldering increased expenses, which have been detrimental to margins. Higher marketing expenses and costs related to sales-boosting initiatives are building pressure on the company’s margins. The company is also facing high general and administrative expenses.
In second-quarter fiscal 2020, labor costs — as a percentage of sales — increased 530 basis points (bps) to 41.5%. Other operating costs (as a percentage of sales) were 41.1%, compared with 24.7% in the prior-year quarter. General and administrative (G&A) expenses accounted for 12.1% of revenues, up 590 bps from the prior-year quarter.
Some better-ranked stocks in the same space include Papa John's International, Inc. (PZZA - Free Report) , Chuy's Holdings, Inc. (CHUY - Free Report) and El Pollo Loco Holdings, Inc. (LOCO - Free Report) . Papa John's and Chuy's Holdings sport a Zacks Rank #1, while El Pollo Loco carries a Zacks Rank #2 (Buy).
Papa John's has a three-five year earnings per share growth rate of 8%.
Chuy's Holdings’ 2021 earnings are expected to surge 180%.
El Pollo Loco has a trailing four-quarter earnings surprise of 94.1%, on average.
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
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Cheesecake Factory Banks on Digital Initiatives, Costs High
The Cheesecake Factory Incorporated (CAKE - Free Report) is poised to benefit from digitalization, menu innovation and off-premise offerings. In the past three months, shares of the company have rallied 37.5% compared with the Zacks Retail – Restaurants industry’s 11.1% growth. However, rise in labor and other operating expenses along with coronavirus-related woes is concerning.
Let us delve into factors highlighting why investors should hold on to the stock for the time being.
Factors Driving Growth
Cheesecake Factory is focusing on various sales-building initiatives to stay afloat during the pandemic. Notably, menu-innovation and advanced digital capabilities are the primary fortes of the company. Going forward, it intends to carry on with menu innovation by adding new Super Food items and the popular indulgences.
Coming to technology-enabled initiatives, the company is receiving positive feedback with regard to its mobile payment app, CakePay. It also continues to improve its to-go business, including online ordering capability. In order to boost consumer convenience, the company has implemented operational changes and technology upgrades, which include contactless menu and payment technology as well as text paging.
The company is also witnessing incremental sales from its delivery service, which continues to be rolled out nationwide. To this extent, it has signed an exclusive national delivery partnership with DoorDash. Notably, the company expects to reap benefits from these collaborative marketing opportunities.
Even though the company has reopened majority of dining rooms with limited capacity post COVID-19 led shutdowns, off-premise operations continue to be a driving factor for overall sales. From the start of the third quarter to Jul 29, off-premise sales accounted for approximately half of its total sales. For restaurants that are operating only in an off-premise model, weekly sales are $4.2 million on average per unit on an annualised basis.
Meanwhile, the restaurant operator has initiated the opening and expansion of patios around the perimeter of restaurants to attract more guests. Notably, this flexible seating layout allows the company to boost sales despite capacity restrictions. Currently, 146 Cheesecake Factory locations have indoor dining rooms open, 36 are open for outdoor dining only and 22 locations are operating an off-premise only model in accordance with local mandates.
Moreover, the company possesses enough liquidity to survive the coronavirus pandemic for some time. As of Jun 30, 2020, the company’s cash balance totaled nearly $250.2 million compared with $81 million at the end of first-quarter 2020. As of Jun 30, 2020, its long-term debt (including operating lease liability) stands at $1.6 billion, almost flat sequentially. Nonetheless, at the end of second-quarter 2020, the company had a debt-to-capital ratio of 0.8, which indicates manageable debt levels.
Concerns
The coronavirus outbreak has rattled the Retail - Restaurants industry, and Cheesecake Factory is not immune to the aftereffects. Owing to the uncertainty of the crisis, the company announced that it is constantly re-evaluating the reopening schedule of restaurants. Moreover, dismal traffic due to social-distancing protocols is likely to hurt the company’s operations for some time.
Moreover, the company has been continuously shouldering increased expenses, which have been detrimental to margins. Higher marketing expenses and costs related to sales-boosting initiatives are building pressure on the company’s margins. The company is also facing high general and administrative expenses.
In second-quarter fiscal 2020, labor costs — as a percentage of sales — increased 530 basis points (bps) to 41.5%. Other operating costs (as a percentage of sales) were 41.1%, compared with 24.7% in the prior-year quarter. General and administrative (G&A) expenses accounted for 12.1% of revenues, up 590 bps from the prior-year quarter.
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 same space include Papa John's International, Inc. (PZZA - Free Report) , Chuy's Holdings, Inc. (CHUY - Free Report) and El Pollo Loco Holdings, Inc. (LOCO - Free Report) . Papa John's and Chuy's Holdings sport a Zacks Rank #1, while El Pollo Loco carries a Zacks Rank #2 (Buy).
Papa John's has a three-five year earnings per share growth rate of 8%.
Chuy's Holdings’ 2021 earnings are expected to surge 180%.
El Pollo Loco has a trailing four-quarter earnings surprise of 94.1%, on average.
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
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