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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 unit-expansion efforts, strong Flower Child performance and a rewards program. This and the focus on marketing initiatives bode well. However, labor and commodity inflation is a concern.
Let us discuss the factors that highlight why investors should retain the stock for now.
Factors Driving Growth
In the past six months, CAKE’s shares have increased 8.1% against the industry’s 2% fall. The company’s performance was backed by strong demand and sales performance of new restaurant openings. Improvements in food efficiency, labor productivity and wage management are added benefits.
Image Source: Zacks Investment Research
During second-quarter fiscal 2024, comps at Cheesecake Factory restaurants inched up 1.4% year over year against a 1.5% rise reported in the prior-year quarter. The uptrend was primarily driven by an increase in average check of 1.6% (based on an increase of 4.5% in menu pricing and 2.9% negative impact from mix), partially offset by lower customer traffic of 0.2%.
Cheesecake Factory continues to focus on the development front to drive growth. During the first six months of the fiscal 2024, the company opened 10 new restaurants. The openings included one The Cheesecake Factory, three North Italia, three Flower Child and three Other FRC locations. The new openings have experienced strong demand, reinforcing confidence in the long-term growth potential of Cheesecake Factory’s experiential brands. In the fiscal 2024, the company expects to open 22 new restaurants. This includes three Cheesecake Factories, six to seven North Italia, six to seven Flour Childs and seven to eight FRC restaurants. It anticipates achieving a long-term target unit growth of 7% in the upcoming periods.
Increased focus on Flower Child restaurants bode well. During the first six months of the fiscal 2024, Flower Child sales increased 8.3% year over year to $70.2 million. Flower Child sales per restaurant operating week increased 3.7% to $84,775 from $81,711 in the comparable period a year ago. With strong consumer demand, an attractive unit economic profile and solid infrastructure support, it is optimistic about accelerating growth in the upcoming periods.
CAKE focuses on a rewards program and leverages data analytics to boost guest engagement and drive incremental sales. During second-quarter fiscal 2024 earnings call, the firm unveiled the ongoing success it is harboring from this rewards program. It states to have been witnessing better-than-expected acquisitions and is encouraged by the increasing level of member activity and engagement. In celebration of 2024 National Cheesecake Day, reward members were offered to enjoy any slice or half price on any dine-in visit on Jul 29 and Jul 30. It aims to move forward with such marketable exclusive offerings for reward members to drive member engagement and incremental traffic for its business over the long term.
Concerns
Cheesecake Factory has been bearing the brunt of high expenses for quite some time. During the first six months of the fiscal 2024, labor expenses were $638.2 million, up from $617.7 million reported in the prior-year quarter. General and administrative expenses during the same period were $114.8 million compared with $108.6 million reported in the prior-year quarter. The company anticipates cost pressures to persist for some time.
For third-quarter 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 approximately $57 million.
Zacks Rank & Key Picks
Cheesecake Factory currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Zacks Retail-Wholesale sector include:
The Zacks Consensus Estimate for TXRH’s 2024 sales and earnings per share (EPS) indicates 15.6% and 39.2% growth, respectively, from the year-earlier actuals.
Wingstop Inc. (WING - Free Report) carries a Zacks Rank #2 (Buy). It has a trailing four-quarter negative earnings surprise of 21.8%, on average. The stock has surged 132.3% in the past year.
The Zacks Consensus Estimate for WING’s 2024 sales and EPS suggests a rise of 36% and 51.2%, respectively, from the year-ago levels.
El Pollo Loco Holdings, Inc. (LOCO - Free Report) carries a Zacks Rank #2. It has a trailing four-quarter earnings surprise of 21.6%, on average. LOCO’s shares have risen 38.1% in the past year.
The Zacks Consensus Estimate for LOCO’s 2025 sales and EPS indicates 2% and 12.7% growth, respectively, from the prior-year figures.
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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 unit-expansion efforts, strong Flower Child performance and a rewards program. This and the focus on marketing initiatives bode well. However, labor and commodity inflation is a concern.
Let us discuss the factors that highlight why investors should retain the stock for now.
Factors Driving Growth
In the past six months, CAKE’s shares have increased 8.1% against the industry’s 2% fall. The company’s performance was backed by strong demand and sales performance of new restaurant openings. Improvements in food efficiency, labor productivity and wage management are added benefits.
Image Source: Zacks Investment Research
During second-quarter fiscal 2024, comps at Cheesecake Factory restaurants inched up 1.4% year over year against a 1.5% rise reported in the prior-year quarter. The uptrend was primarily driven by an increase in average check of 1.6% (based on an increase of 4.5% in menu pricing and 2.9% negative impact from mix), partially offset by lower customer traffic of 0.2%.
Cheesecake Factory continues to focus on the development front to drive growth. During the first six months of the fiscal 2024, the company opened 10 new restaurants. The openings included one The Cheesecake Factory, three North Italia, three Flower Child and three Other FRC locations. The new openings have experienced strong demand, reinforcing confidence in the long-term growth potential of Cheesecake Factory’s experiential brands. In the fiscal 2024, the company expects to open 22 new restaurants. This includes three Cheesecake Factories, six to seven North Italia, six to seven Flour Childs and seven to eight FRC restaurants. It anticipates achieving a long-term target unit growth of 7% in the upcoming periods.
Increased focus on Flower Child restaurants bode well. During the first six months of the fiscal 2024, Flower Child sales increased 8.3% year over year to $70.2 million. Flower Child sales per restaurant operating week increased 3.7% to $84,775 from $81,711 in the comparable period a year ago. With strong consumer demand, an attractive unit economic profile and solid infrastructure support, it is optimistic about accelerating growth in the upcoming periods.
CAKE focuses on a rewards program and leverages data analytics to boost guest engagement and drive incremental sales. During second-quarter fiscal 2024 earnings call, the firm unveiled the ongoing success it is harboring from this rewards program. It states to have been witnessing better-than-expected acquisitions and is encouraged by the increasing level of member activity and engagement. In celebration of 2024 National Cheesecake Day, reward members were offered to enjoy any slice or half price on any dine-in visit on Jul 29 and Jul 30. It aims to move forward with such marketable exclusive offerings for reward members to drive member engagement and incremental traffic for its business over the long term.
Concerns
Cheesecake Factory has been bearing the brunt of high expenses for quite some time. During the first six months of the fiscal 2024, labor expenses were $638.2 million, up from $617.7 million reported in the prior-year quarter. General and administrative expenses during the same period were $114.8 million compared with $108.6 million reported in the prior-year quarter. The company anticipates cost pressures to persist for some time.
For third-quarter 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 approximately $57 million.
Zacks Rank & Key Picks
Cheesecake Factory currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Zacks Retail-Wholesale sector include:
Texas Roadhouse, Inc. (TXRH - Free Report) sports a Zacks Rank #1 (Strong Buy). It has a trailing four-quarter earnings surprise of 0.4%, on average. TXRH’s shares have risen 59.7% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for TXRH’s 2024 sales and earnings per share (EPS) indicates 15.6% and 39.2% growth, respectively, from the year-earlier actuals.
Wingstop Inc. (WING - Free Report) carries a Zacks Rank #2 (Buy). It has a trailing four-quarter negative earnings surprise of 21.8%, on average. The stock has surged 132.3% in the past year.
The Zacks Consensus Estimate for WING’s 2024 sales and EPS suggests a rise of 36% and 51.2%, respectively, from the year-ago levels.
El Pollo Loco Holdings, Inc. (LOCO - Free Report) carries a Zacks Rank #2. It has a trailing four-quarter earnings surprise of 21.6%, on average. LOCO’s shares have risen 38.1% in the past year.
The Zacks Consensus Estimate for LOCO’s 2025 sales and EPS indicates 2% and 12.7% growth, respectively, from the prior-year figures.