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A challenging industry backdrop has been hampering the performance of most restaurant chains, The Cheesecake Factory Inc. (CAKE - Free Report) being no exception.

Despite soft consumer spending in the U.S. restaurant space, Cheesecake Factory is focused on its expansion plans, both in domestic as well as international markets. Also, the company continues opening restaurants in high-grade sites to achieve targeted returns.

In line with its expansion plans, the company recently announced the opening of a Cheesecake Factory restaurant in Happy Valley, OR, at Clackamas Town Center. The restaurant offers over 250 menu items along with more than 50 cheesecakes and desserts.

The company also opened another restaurant in Oak Brook, IL, under its RockSugar Southeast Asian Kitchen brand, featuring a full-service bar along with an onsite bakery.

Cheesecake Factory currently has 213 company-owned restaurants. Of these, 198 operate under The Cheesecake Factory brand, 13 under the Grand Lux café brand and two under the RockSugar Pan Asian Kitchen brand. Internationally, the company operates 18 The Cheesecake Factory restaurants under licensing agreements. It also manages two bakery production facilities.

Apart from expanding its presence in the domestic market, the company is foraying into lucrative markets of the Middle East, North Africa, Central and Eastern Europe, Russia, Turkey, Mexico, Kuwait, Lebanon and Chile. This is in line with the company’s strategy to keep up with industry peers like Buffalo Wild Wings, Inc. (BWLD - Free Report) and Brinker International Inc. (EAT - Free Report) .

In 2017, the company plans to open eight company-owned restaurants along with four to five restaurants internationally, under licensing agreements. Further, it intends to launch four to six domestic restaurants in 2018, including one Grand Lux Café and four to five international restaurants.

However, in a bleak industry environment, where consumer preference toward spending on dine out services have been volatile, Cheesecake Factory is facing soft comps and declining traffic. Evidently, the company witnessed a comps decline in the last two reported quarters, after 29 consecutive quarters of positive comps at The Cheesecake Factory restaurants.

Additionally, higher labor and pre-openings costs along with expenses related to sales initiatives are likely to dent profits in the near term. The Zacks Consensus Estimate for current-quarter and year earnings have gone down 1.9% and 2.3%, respectively, over the past two months, reflecting analysts’ pessimism over the stock’s prospects.

Moreover, the recent hurricanes — Harvey and Irma — have substantially affected a number of restaurants including Cheesecake Factory and El Pollo Loco Holdings, Inc. (LOCO - Free Report) . 

In the past six months, the company’s shares have lost 13.4% comparing unfavorably with the industry’s gain of 0.4%.


Meanwhile, various sales-boosting initiatives coupled with a differentiated menu, operational distinction and unique ambiance bode well. Also, we expect this Zacks Rank #5 (Strong Sell) company’s continuous expansion plans to drive the top line and boost overall performance.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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