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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, an off-premise business model and unit expansion efforts. However, commodity inflation along with coronavirus-related woes pose concerns.
Let us discuss the factors highlighting why investors should retain the stock for the time being.
Factors Driving Growth
Cheesecake Factory is benefiting from an impressive comps performance. During the first, second, third and fourth quarter of fiscal 2021, comps at Cheesecake Factory (across all operating models) increased approximately 220%, 150%, 41.1% and 33.8%, respectively, year over year. Comps in the respective quarters climbed 7%, 7.8%, 8.3% and 7.7%, respectively, from 2019 levels. 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 first-quarter fiscal 2022. Since the start of the fiscal first quarter to Feb 15, 2022, comps at Cheesecake Factory (across all operating models) increased approximately 24.3% year over year.
The company continues to benefit from its robust off-premise sales. In the first, second, third and fourth quarter of fiscal 2021, off-premise contributed approximately 43%, 27%, 28% and 27%, respectively, 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. In order to boost consumer convenience, the company has 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 is likely to drive the channel’s performance further.
Cheesecake Factory continues to focus on the development front to drive growth. During the fiscal fourth quarter, the company opened four new restaurants, including The Cheesecake Factory in Huntsville, AL, North Italia in Orlando and a Blanco and a Culinary Dropout in Denver. It also opened a Cheesecake Factory restaurant in Shanghai under a licensing agreement. Despite the pandemic and associated challenges, the company achieved its development objective of opening 14 new restaurants (across its concepts) in fiscal 2021. Also, the company witnessed solid demand with respect to its openings.
The company anticipates opening as many as five Cheesecake Factory restaurants, five to seven North Italias and seven other FRC restaurants (including three to four Flower Child locations) in fiscal 2022. Also, it plans on opening a Cheesecake Factory restaurant internationally under a licensing agreement. To this end, the company has set aside $150 million in capex to support unit development and maintenance of its restaurants. 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 fallen 32.6% in the past year compared with the industry’s 7.3% fall. The coronavirus crisis caused the dismal performance. During the fourth quarter of fiscal 2021, the company’s operations were negatively impacted by a rise in Omicron cases. Although the majority of 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 lower operations.
Moreover, fluctuations in commodity costs, labor, restaurant-level occupancy expenses, general and administrative expenses and pre-opening expenses are concerns. During the fiscal fourth quarter, the cost of sales, as a percentage of revenues, increased 10 basis points (bps) year over year to 23%, primarily driven by a rise in commodity inflation. Pre-opening costs during the quarter came in at $3.9 million compared with $2.8 million in the prior-year period. For fiscal 2022, the company anticipates commodity inflation of low-double digits annually. Labor inflation is expected at 5% for fiscal 2022.
Some better-ranked stocks in the Zacks Retail-Wholesale sector include BBQ Holdings, Inc. , Arcos Dorados Holdings Inc. (ARCO - Free Report) and Tapestry, Inc. (TPR - Free Report) .
BBQ Holdings sports a Zacks Rank #1. BBQ Holdings has a long-term earnings growth of 14%. Shares of the company have rallied 90.9% in the past year.
The Zacks Consensus Estimate for BBQ Holdings’ 2022 sales and earnings per share (EPS) suggests growth of 40.9% and 66.2%, respectively, from the year-ago period’s levels.
Arcos Dorados sports a Zacks Rank #1. Arcos Dorados has a long-term earnings growth of 31.3%. Shares of the company have risen 60.4% in the past year.
The Zacks Consensus Estimate for Arcos Dorados’ 2022 sales and EPS suggests growth of 10.3% and 62.5%, respectively, from the year-ago period’s levels.
Tapestry carries a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 28.2%, on average. Shares of the company have declined 9.4% in the past year.
The Zacks Consensus Estimate for Tapestry’s 2022 sales and EPS suggests growth of 17.5% and 22.9%, 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 strong comps growth, an off-premise business model and unit expansion efforts. However, commodity inflation along with coronavirus-related woes pose concerns.
Let us discuss the factors highlighting why investors should retain the stock for the time being.
Factors Driving Growth
Cheesecake Factory is benefiting from an impressive comps performance. During the first, second, third and fourth quarter of fiscal 2021, comps at Cheesecake Factory (across all operating models) increased approximately 220%, 150%, 41.1% and 33.8%, respectively, year over year. Comps in the respective quarters climbed 7%, 7.8%, 8.3% and 7.7%, respectively, from 2019 levels. 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 first-quarter fiscal 2022. Since the start of the fiscal first quarter to Feb 15, 2022, comps at Cheesecake Factory (across all operating models) increased approximately 24.3% year over year.
The company continues to benefit from its robust off-premise sales. In the first, second, third and fourth quarter of fiscal 2021, off-premise contributed approximately 43%, 27%, 28% and 27%, respectively, 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. In order to boost consumer convenience, the company has 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 is likely to drive the channel’s performance further.
Cheesecake Factory continues to focus on the development front to drive growth. During the fiscal fourth quarter, the company opened four new restaurants, including The Cheesecake Factory in Huntsville, AL, North Italia in Orlando and a Blanco and a Culinary Dropout in Denver. It also opened a Cheesecake Factory restaurant in Shanghai under a licensing agreement. Despite the pandemic and associated challenges, the company achieved its development objective of opening 14 new restaurants (across its concepts) in fiscal 2021. Also, the company witnessed solid demand with respect to its openings.
The company anticipates opening as many as five Cheesecake Factory restaurants, five to seven North Italias and seven other FRC restaurants (including three to four Flower Child locations) in fiscal 2022. Also, it plans on opening a Cheesecake Factory restaurant internationally under a licensing agreement. To this end, the company has set aside $150 million in capex to support unit development and maintenance of its restaurants. 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 fallen 32.6% in the past year compared with the industry’s 7.3% fall. The coronavirus crisis caused the dismal performance. During the fourth quarter of fiscal 2021, the company’s operations were negatively impacted by a rise in Omicron cases. Although the majority of 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 lower operations.
Moreover, fluctuations in commodity costs, labor, restaurant-level occupancy expenses, general and administrative expenses and pre-opening expenses are concerns. During the fiscal fourth quarter, the cost of sales, as a percentage of revenues, increased 10 basis points (bps) year over year to 23%, primarily driven by a rise in commodity inflation. Pre-opening costs during the quarter came in at $3.9 million compared with $2.8 million in the prior-year period. For fiscal 2022, the company anticipates commodity inflation of low-double digits annually. Labor inflation is expected at 5% 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 include BBQ Holdings, Inc. , Arcos Dorados Holdings Inc. (ARCO - Free Report) and Tapestry, Inc. (TPR - Free Report) .
BBQ Holdings sports a Zacks Rank #1. BBQ Holdings has a long-term earnings growth of 14%. Shares of the company have rallied 90.9% in the past year.
The Zacks Consensus Estimate for BBQ Holdings’ 2022 sales and earnings per share (EPS) suggests growth of 40.9% and 66.2%, respectively, from the year-ago period’s levels.
Arcos Dorados sports a Zacks Rank #1. Arcos Dorados has a long-term earnings growth of 31.3%. Shares of the company have risen 60.4% in the past year.
The Zacks Consensus Estimate for Arcos Dorados’ 2022 sales and EPS suggests growth of 10.3% and 62.5%, respectively, from the year-ago period’s levels.
Tapestry carries a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 28.2%, on average. Shares of the company have declined 9.4% in the past year.
The Zacks Consensus Estimate for Tapestry’s 2022 sales and EPS suggests growth of 17.5% and 22.9%, respectively, from the year-ago period’s levels.