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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 robust comps growth and sales-building initiatives. Also, focus on Fox Restaurants concepts and expansion efforts bode well. However, supply-chain constraints and commodity inflation are a concern.
Let us discuss the factors that highlight why investors should retain the stock for now.
Growth Catalysts
The company continues to benefit from robust comps growth. During first-quarter fiscal 2023, comps at Cheesecake Factory restaurants increased 5.7% year over year compared with a 20.7% rise reported in the prior-year quarter, driven by an increase in average check of 4.7%. Comparable sales at North Italia increased 9% year over year compared with a 32% rise reported in the prior-year quarter, driven by increased customer traffic and average check by 3.5% and 5.5%, respectively. Average check variations are driven by menu price increases. The company is in the process of implementing a 4.0% price increase in the second quarter of fiscal 2023.
Fox Restaurants concepts sales have continued to build and off-premise volumes were solid. During first-quarter 2023, FRC (excluding Flower Child) recorded sales of $68.6 million, marking a 17% increase compared with the prior year’s levels. Sales per operating week reached $152,200. FRC’s (including Flower Child) average weekly sales were $118,800 and external bakery sales amounted to $14.9 million. The company intends to focus on rewards program and leverage data analytics to boost guest engagement and drive incremental sales.
Cheesecake Factory continues to benefit from its robust off-premise sales. In the first quarter of fiscal 2023, off-premise contributed 23% to Cheesecake Factory’s total restaurant sales. The company stated that off-premise sales remain elevated from pre-pandemic levels. To boost consumer convenience, the company implemented operational changes and technology upgrades, including a contactless menu and payment technology and text paging. We believe that a boost in customer count and targeted off-premise marketing will likely drive the channel’s performance in the upcoming periods.
Cheesecake Factory continues to focus on the development front to drive growth. During the first-quarter 2023, The company opened two new restaurants, comprising of one Flower Child and one Other FRC location. In fiscal 2023, the company anticipates opening 20-22 new restaurants comprising five to six Cheesecake Factory restaurants, five to six North Italia restaurants and 10 FRC restaurants (including three to four Flower Child locations).
Concerns
Image Source: Zacks Investment Research
Shares of CAKE have increased 4% in the year-to-date period compared with the industry’s rise of 10.8%. The downside was primarily driven by supply-chain challenges and inflationary pressures. During the fiscal first quarter, the cost of food and beverage, as a percentage of revenues, increased 10 basis points (bps) year over year to 23.8%. The upside was primarily driven by commodity inflation and higher menu pricing. In the fiscal first quarter, pre-opening costs accounted for $3.1 million compared with the prior year’s quarter’s level reported $1.8 million. For fiscal 2023, the company anticipates pre-opening costs of approximately $24 million and the commodity inflation to be in the high-single digit range and labor inflation to be in the mid-single digit range. The company is cautious about the ongoing uncertain macroeconomic environment. Our model predicts 2023 cost of sales to rise 3.7% year over year.
Zacks Rank & Other Key Picks
The Cheesecake Factory currently sports a Zacks Rank #3 (Hold).
The Zacks Consensus Estimate for MELI’s 2023 sales and EPS indicates a rise of 27.6% and 75%, respectively, from the year-ago period’s levels.
Abercrombie & Fitch Co. (ANF - Free Report) carries a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 480.6%, on average. Shares of ANF have increased 54.9% in the past year.
The Zacks Consensus Estimate for ANF’s 2023 sales and EPS indicates a rise of 3.4% and 660%, respectively, from the year-ago period’s levels.
Chipotle Mexican Grill, Inc. (CMG - Free Report) carries a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 4.7%, on average. Shares of CMG have increased 49.7% in the past year.
The Zacks Consensus Estimate for CMG’s 2023 sales and EPS indicates a rise of 14% and 34%, 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 robust comps growth and sales-building initiatives. Also, focus on Fox Restaurants concepts and expansion efforts bode well. However, supply-chain constraints and commodity inflation are a concern.
Let us discuss the factors that highlight why investors should retain the stock for now.
Growth Catalysts
The company continues to benefit from robust comps growth. During first-quarter fiscal 2023, comps at Cheesecake Factory restaurants increased 5.7% year over year compared with a 20.7% rise reported in the prior-year quarter, driven by an increase in average check of 4.7%. Comparable sales at North Italia increased 9% year over year compared with a 32% rise reported in the prior-year quarter, driven by increased customer traffic and average check by 3.5% and 5.5%, respectively. Average check variations are driven by menu price increases. The company is in the process of implementing a 4.0% price increase in the second quarter of fiscal 2023.
Fox Restaurants concepts sales have continued to build and off-premise volumes were solid. During first-quarter 2023, FRC (excluding Flower Child) recorded sales of $68.6 million, marking a 17% increase compared with the prior year’s levels. Sales per operating week reached $152,200. FRC’s (including Flower Child) average weekly sales were $118,800 and external bakery sales amounted to $14.9 million. The company intends to focus on rewards program and leverage data analytics to boost guest engagement and drive incremental sales.
Cheesecake Factory continues to benefit from its robust off-premise sales. In the first quarter of fiscal 2023, off-premise contributed 23% to Cheesecake Factory’s total restaurant sales. The company stated that off-premise sales remain elevated from pre-pandemic levels. To boost consumer convenience, the company implemented operational changes and technology upgrades, including a contactless menu and payment technology and text paging. We believe that a boost in customer count and targeted off-premise marketing will likely drive the channel’s performance in the upcoming periods.
Cheesecake Factory continues to focus on the development front to drive growth. During the first-quarter 2023, The company opened two new restaurants, comprising of one Flower Child and one Other FRC location. In fiscal 2023, the company anticipates opening 20-22 new restaurants comprising five to six Cheesecake Factory restaurants, five to six North Italia restaurants and 10 FRC restaurants (including three to four Flower Child locations).
Concerns
Image Source: Zacks Investment Research
Shares of CAKE have increased 4% in the year-to-date period compared with the industry’s rise of 10.8%. The downside was primarily driven by supply-chain challenges and inflationary pressures. During the fiscal first quarter, the cost of food and beverage, as a percentage of revenues, increased 10 basis points (bps) year over year to 23.8%. The upside was primarily driven by commodity inflation and higher menu pricing. In the fiscal first quarter, pre-opening costs accounted for $3.1 million compared with the prior year’s quarter’s level reported $1.8 million. For fiscal 2023, the company anticipates pre-opening costs of approximately $24 million and the commodity inflation to be in the high-single digit range and labor inflation to be in the mid-single digit range. The company is cautious about the ongoing uncertain macroeconomic environment. Our model predicts 2023 cost of sales to rise 3.7% year over year.
Zacks Rank & Other Key Picks
The Cheesecake Factory currently sports a Zacks Rank #3 (Hold).
Some top-ranked stocks from the Zacks Retail and Wholesale sector are:
MercadoLibre, Inc. (MELI - Free Report) carries a Zacks Rank #1 (Strong Buy). MELI has a trailing four-quarter earnings surprise of 35%, on average. Shares of MELI have gained 58 in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for MELI’s 2023 sales and EPS indicates a rise of 27.6% and 75%, respectively, from the year-ago period’s levels.
Abercrombie & Fitch Co. (ANF - Free Report) carries a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 480.6%, on average. Shares of ANF have increased 54.9% in the past year.
The Zacks Consensus Estimate for ANF’s 2023 sales and EPS indicates a rise of 3.4% and 660%, respectively, from the year-ago period’s levels.
Chipotle Mexican Grill, Inc. (CMG - Free Report) carries a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 4.7%, on average. Shares of CMG have increased 49.7% in the past year.
The Zacks Consensus Estimate for CMG’s 2023 sales and EPS indicates a rise of 14% and 34%, respectively, from the year-ago period’s levels.