Shares of The Cheesecake Factory Incorporated CAKE have gained 20.7% in the past three months against the industry’s decline of 0.9%. The company is benefiting from strong comps performance, expansion efforts and rewards programs. Also, more focus on the operational enhancements bodes well. However, increased costs and expenses remain concerns.
CAKE’s Growth Catalysts
Cheesecake Factory continues to benefit from impressive comps performance. In the fiscal third quarter of 2024, comps at Cheesecake Factory restaurants inched up 1.6% year over year compared with a 2.4% rise reported in the prior-year quarter.
The company’s comparable sales and traffic at its restaurants again outperformed the industry, highlighting strong consumer demand for the brand and its ability to capture market share. The uptrend was driven by an increase in average check of 2.4% (based on an increase of 4.5% in menu pricing and partially offset by a 2.1% negative impact from mix), partially offset by decreased customer traffic of 0.8%.
CAKE continues to focus on the development front to drive growth. In fiscal 2024, the company expects to open 22 new restaurants, with eight openings planned for the fourth quarter. This includes three Cheesecake Factory locations, six North Italia restaurants, six to seven Flower Child outlets and eight FRC locations. The company still predicts $180-$200 million in Capex to support the unit development and maintenance of its restaurants. It anticipates achieving a long-term target unit growth of 7% in the upcoming periods. In 2025, the company anticipates accelerating its growth by adding 24 new restaurants across its portfolio.
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Over the past several months, the company has successfully implemented several operational and supply chain improvements to enhance the guest experience and drive cost efficiencies. The improvements include the introduction of a kitchen display system across all restaurants (leading to better order throughput and operational efficiencies), and the replacement of the loyalty platform with a more robust and scalable solution. With strong consumer demand, an attractive unit economic profile and solid infrastructure support, the company is optimistic about accelerating growth in the upcoming periods.
The Cheesecake Rewards program continues to exceed expectations, with high levels of member activity and engagement driving positive outcomes. Member satisfaction scores have consistently outperformed expectations, reinforcing confidence in the program's thoughtful, long-term development. The program has proven effective in driving incremental visits from existing customers while attracting new guests, highlighting its role as a significant growth driver for the brand.
CAKE Stock’s Concerns
High costs remain a concern. Pre-opening costs of outlets — given the company’s unit expansion plans, expenses related to sales initiatives, higher labor expenses and additional cleaning costs — are likely to affect profits. During the first nine months of fiscal 2024, labor expenses were $949.2 million, up from $919.3 million reported in the prior-year quarter. General and administrative expenses during the same period were $171 million, up from $162.8 million in the comparable period a year ago.
The company anticipates the cost pressures to continue for some time. For the fourth quarter of fiscal 2024, the company anticipates commodity inflation to be in the low-single digits and net total labor inflation in the mid-single digits. It expects general and administrative expenses for the same time frame to be more than $58 million.
CAKE’s Zacks Rank & Key Picks
Cheesecake Factory currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Zacks Retail-Wholesale sector have been discussed below.
Brinker International, Inc. EAT presently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.
EAT has a trailing four-quarter earnings surprise of 12.1%, on average. The stock has surged 84.1% in the past six months. The consensus estimate for EAT’s fiscal 2025 sales and earnings per share (EPS) indicates growth of 8.8% and 44.2%, respectively, from the year-ago period’s levels.
Sprouts Farmers Market, Inc. SFM currently sports a Zacks Rank of 1. SFM has a trailing four-quarter earnings surprise of 15.3%, on average. The stock has risen 60.9% in the past six months.
The Zacks Consensus Estimate for SFM’s 2025 sales and EPS indicates a rise of 10% and 14.4%, respectively, from the year-ago period’s levels.
Deckers Outdoor Corporation DECK currently carries a Zacks Rank #2 (Buy). The stock has gained 24.9% in the past six months.
DECK has a trailing four-quarter earnings surprise of 41.1%, on average. The Zacks Consensus Estimate for DECK’s fiscal 2025 sales and EPS indicates growth of 13.6% and 13%, respectively, from the year-ago period’s levels.
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