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Cheesecake (CAKE) Down 18% YTD: Can It Bounce Back in 2023?

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Shares of The Cheesecake Factory Incorporated (CAKE - Free Report) have declined 18.1% year to date, compared with the industry’s fall of 9.5%. The dismal performance can be primarily attributed to inflationary pressures.

During the third quarter, the cost of sales, as a percentage of revenues, increased 270 basis points (bps) year over year to 25.2%. The increase was primarily driven by commodity inflation and higher menu pricing.

Labor expenses, as a percentage of total revenues, amounted to 37.4%, up 30 bps from the year-ago quarter’s levels. Other operating costs, as a percentage of total revenues, came in at 27.7%, up 100 bps from the prior-year quarter’s levels.

For fiscal 2022, the company anticipates commodity inflation in the range of 14-15% on an annual basis. Labor inflation is expected at 5% for fiscal 2022.

Can the Stock Stage a Comeback in 2023?

The Zacks Rank #3 (Hold) company’s sales and earnings in fiscal 2023 are expected to witness growth of 6.2% and 89.7% year over year, respectively.

Cheesecake Factory is committed to bolstering sales to stay afloat in the competitive environment. 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 famous indulgences of The Cheesecake Factory.

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The company continues to focus on the development front to drive growth. During the fiscal third quarter, the company opened The Cheesecake Factory in Katy, TX, a North Italia in Dunwoody, GA, and a Fly Bye in Phoenix, AZ.

In fiscal 2022, the company anticipates opening as many as 13 new restaurants comprising three Cheesecake Factory restaurants, four North Italia restaurants and six FRC restaurants (including three Flower Child locations). With a strong pipeline, the company anticipates achieving unit growth of 7% in the upcoming year.

Cheesecake Factory’s technology-enabled initiatives are doing well with feedback on its mobile payment app, CakePay, being positive. The company signed an exclusive national delivery partnership with DoorDash. It expects to reap benefits from these collaborative marketing opportunities.

The company is also witnessing incremental sales from its delivery service, which continues to roll out nationwide. It continues to improve its to-go business, including its online ordering capability. This is a major contributor to growth of the company’s strong off-premise sales channels.

The company is benefiting from robust off-premise sales which contributed approximately 23% of its restaurant sales during third-quarter fiscal 2022. 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 will drive the channel’s performance further in the upcoming periods.

Key Picks

Some better-ranked stocks in the Zacks Retail-Wholesale sector are Tecnoglass Inc. (TGLS - Free Report) , Wingstop Inc. (WING - Free Report) and Chuy's Holdings, Inc. (CHUY - Free Report) .

Tecnoglass currently sports a Zacks Rank #1 (Strong Buy). Shares of the company have gained 14.5% in the past year. You can see the complete list of today's Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for TGLS’ 2023 sales and EPS suggests growth of 11.2% and 9%, respectively, from the year-ago period’s levels.

Wingstop carries a Zacks Rank #2 (Buy), at present. WING has a long-term earnings growth rate of 12%. Shares of WING have decreased 15.6% in the past year.

The Zacks Consensus Estimate for Wingstop’s 2023 sales and EPS suggests growth of 18.3% and 16.1%, respectively, from the comparable year-ago period’s levels.

Chuy’s Holdings currently carries a Zacks Rank #2. CHUY has a trailing four-quarter earnings surprise of 18.6%, on average. Shares of CHUY have declined 0.1% in the past year.

The Zacks Consensus Estimate for Chuy’s Holdings 2023 sales and EPS suggests growth of 8.6% and 10.4%, respectively, from the corresponding year-ago period’s levels.

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