QUOTE AND NEWS
TheStreet.com  Jul 28  Comment 
NEW YORK (Real Money) -- I'm staying with the food sector here while running with the bulls. It is the one sector showing relative strength and decent setups. For now, I'm containing my focus to short-term views, as the overall market feels very...
Clusterstock  Jul 23  Comment 
There's more good news about the job market besides the strong initial jobless claims report out today. But instead of Labor Department data, this comes from a cheesecake behemoth. In April, we reported that the Cheesecake Factory was...
Market Intelligence Center  Jul 23  Comment 
The Cheesecake Factory Inc. CAKE posted mixed second-quarter 2015 results wherein earnings beat the Zacks Consensus Estimate, but revenues marginally missed the same. Share price of the company rose 4.3% in response. Further, the company increased...
Wall Street Journal  Jul 22  Comment 
Cheesecake Factory Inc. reported better-than expected earnings in its most recent quarter, helped by stronger sales.
newratings.com  Jul 22  Comment 
WASHINGTON (dpa-AFX) - The Cheesecake Factory Incorporated (CAKE) reported second quarter net income of $34.7 million or $0.69, per share compared to $30.0 million or $0.59 per share, last year. On average, 20 analysts polled by Thomson Reuters...




 

Cheesecake Factory (NYSE: CAKE) operates 162 upscale casual dining restaurants under its namesake in the United States. The company also includes 14 Grand Lux Cafes, a growing secondary chain with a more upscale design. Additionally, The Cheesecake Factory owns 1 restaurant under the RockSugar Pan Asian Kitchen mark.[1] The company is unique in that it offers both a broader menu selection and more upscale experience than many of its more casual peers. It is also able to compete with more upscale restaurants, by pricing its selections on the lower end of the upscale casual dining spectrum. Because Cheesecake Factory restaurants operate near capacity, opportunities for same store sales growth are limited. Instead the company has achieved steady growth by increasing its number of stores. At the same time, the company has successfully established both Grand Lux and Cheesecake Factory as two distinct brands in the eyes of consumers, giving the company the opportunity grow both concepts without fear of cannibalization.

In a sluggish economy, even upscale restaurants can feel the effect of consumers tightening the grip on their wallets. The Cheesecake Factory feels this effect even more-so because of it's position as a low-price upscale restaurant. Because its position attracts inspirational middle-class and even lower class consumers, the consumers that feel the effects of a sluggish economy the worst, the Cheesecake Factory will feel the negative effects of these customers cutting back on spending. With lower traffic flow, the company's bottom line will suffer. As a result, in 2009 the company's comparable store sales growth at its restaurants was -2.6%.[2]

Company Overview

The Cheesecake Factory operates 177 upscale, casual, full-service dining restaurants: 162 under the Cheesecake Factory name, 14 Grand Lux Cafes, and 1 RockSugar Pan Asian Kitchen.[1] 96% of the company's sales come from its restaurants and the remaining comes from its bakeries (which are inside the restaurants).

Restaurants[3]

  • The Cheesecake Factory (162 restaurants) is the company's namesake restaurant which appeals to diverse guest base across a broad demographic range. The restaurant's menu features 200 items including pizza, seafood, steaks, chicken, burgers, pastas, salads, sandwiches, and desserts. Desserts represent 15% of the restaurant's revenue. Each restaurant also has a full-service bar. Alcoholic beverage sales account for 13% of the restaurant's revenue.
  • Grand Lux Cafe (14 restaurants) is an upscale restaurant that offers American and international food choices. Each restaurant has a bakery and a bar. The company has two restaurants in casinos in Las Vegas which are open close to 24 hours a day.
  • RockSugar Pan Asian Kitchen (1 restaurant) features a Southeast Asian menu in an upscale dining setting. It's dishes are served Asian family-style.

Business Growth

FY 2009 (ended December 29, 2009)[2]

  • Net sales fell less than 1% to $1.6 billion. Restaurant sales decreased slightly by $2.2 million due to a 2.6% decrease in comparable store sales. The company attributes the decrease in sales to lower traffic due to the sluggish economy. This was offset by slightly higher average checks, mainly due to price increases.
  • Net income fell 18% to $42.8 million. Total costs and expenses increased by $9 million, with general and administrative expense increase accounting for most of the increase.
  • Menu prices increased by 1.2% and 0.8% in the first and third quarters respectively.

Trends and Forces

Sluggish Economy Means Consumers Spend Less

Consumer spending on casual dining is discretionary in nature. In slow economic times, consumer's quickly decrease expenditures on services like dining. The Cheesecake Factory feels this effect even more-so because of it's position as a low-price upscale restaurant. Because its position attracts aspirational middle-class and even lower-class consumers, the consumers that feel the effects of a sluggish economy the worst, the Cheesecake Factory will feel the negative effects of these customers cutting back on spending. With lower traffic flow, the company's bottom line will suffer. As a result, in 2009 the company's comparable store sales growth at its restaurants was -2.6%.[2]

Growth Through Expansion

Because the company's restaurants operate at full capacity, that is the restaurants are typically always full and customers usually have to wait to be seated, growth within already existing restaurants is extremely limited. Since the restaurants are open 7 days a week into the late hours of the night that area of growth has already been exhausted. The only way a full capacity restaurant can grow is if the company makes physical expansions to the building, more chairs and tables are added, or if they raise prices -- all of which are undesirable for the company. Instead, the company must grow by opening new restaurants which is costly and poses risks. The company plans to open three Cheesecake Factory restaurants in 2010.[4]

Rising Costs Creep Up On Profits

Along with labor and rent costs, rising commodity costs will depress profits. The company will be forced to either absorb the impact of higher costs and suffer from lower earnings or pass on its costs to customers by raising prices and risking losing customers. Because the Cheesecake Factory has year-long contracts for many of their commodities, they are partially protected against this. For example, in 2009 the company's bakery business benefited from a year-over-year contracted price for cream cheese, which kept costs down.[5]

Competition

The Cheesecake Factory competes in the casual dining segment, which is defined as full-service restaurants serving moderately-priced food in a casual setting. The Cheesecake Factory has lower prices than their upscale competitors.

Some of The Cheesecake Factory's competing companies are:

Darden Restaurants (DRI): Olive Garden, Red Lobster, Bahama Breeze

McCormick & Schmick's Seafood Restaurants (MSSR)

P.F.Chang's China Bistro (PFCB): P.F. Chang's China Bistro, Pei Wei Asian Diner, Taneko Japanese Tavern

Brinker International (EAT): Chili's, On the Border, Macaroni Grill, Maggiano's

References

  1. 1.0 1.1 [1]
  2. 2.0 2.1 2.2 CAKE 2009 10-K "Selected Financial Data" pg. 25
  3. [2]
  4. CAKE 2009 10-K "Restaurant Expansion" pg. 6
  5. CAKE 2009 10-K "Cost of Sales" pg. 29
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