Cheesecake Factory Expands Amid A Challenging Environment

A challenging industry backdrop has been hampering the performance of most restaurant chains and The Cheesecake Factory Inc. (NASDAQ:CAKE) is no exception.

Nonetheless, Cheesecake Factory has been expanding in the domestic as well as international markets, despite a soft consumer spending environment in the U.S. restaurant space. The company remains focused on opening its restaurants at high grade sites to hit targeted returns.

Recently, the company announced the opening of a new restaurant in The Shops at Riverside in Hackensack, N.J. It is located at the south end of The Shops at Riverside at 390 Hackensack Ave., Suite 155, Hackensack, NJ 07601. In fact, this restaurant is a relocation of the company’s former location on the west side of The Shops at Riverside.

The restaurant offers over 250 menu items including the company’s signature 50 lower calorie SkinnyLicious dishes and new Super Foods salads that are handmade with fresh ingredients. More than 50 cheesecakes and desserts are also available here.

Cheesecake Factory currently has 207 company-owned restaurants: 193 under The Cheesecake Factory brand, 13 under the Grand Lux café brand and one under the RockSugar Pan Asian Kitchen brand. Internationally, the company operates 16 restaurants under The Cheesecake Factory brand in the Middle East, Mexico and China under licensing agreements. It operates two bakery production facilities as well.

Besides the domestic market, the company is foraying into lucrative markets like the Middle East, North Africa, Central and Eastern Europe, Russia, Turkey, Mexico, Kuwait and Lebanon and Chile, of late. In 2017, the company plans to open eight company-owned restaurants along with four to five restaurants internationally under licensing agreements. In addition, Cheesecake Factory has marked its entry in China, East Asia, a region known for its economic growth and healthy investment returns.

Notably, in first-quarter 2017, the company posted the 29th consequent quarter of positive comps at The Cheesecake Factory restaurants. Going forward, various initiatives to boost sales and traffic volume like menu innovation, roll-out of an improved server training program, launch of mobile payment app and increased focus on delivery service should aid in keeping up the trend of positive comps.

However, we note that the shares of the company have compared unfavorably with the Zacks categorized Retail-Restaurants industry in the last six months. While, the industry witnessed a gain of 9%, Cheesecake Factory shares have recorded a decline of 8.6% in the same time period.

Thus, continued slowdown in the industry at large remains a potent headwind to the company’s top line while high costs may hurt profits.

Nevertheless, it is to be noted that Cheesecake Factory is one of the most recognized upscale casual restaurants operating in the U.S. Its differentiated menu, operational distinction and unique ambiance appeal to customers.

We thus expect this Zacks Rank #4 (Sell) company’s continuous expansion plans to add immensely to the top line and boost its overall performance as well.

Stocks to Consider

Better-ranked stocks in this sector include Dave & Buster's Entertainment, Inc. (NASDAQ:PLAY) , Darden Restaurants, Inc. (NYSE:DRI) , and Fogo de Chao, Inc. (NASDAQ:FOGO) . While Dave & Buster's sports a Zacks Rank #1 (Strong Buy), Darden and Fogo de Chao carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Dave & Buster's earnings surpassed the Zacks Consensus Estimate in the trailing four quarters, with an average beat of 30.50%. Meanwhile, for fiscal 2017, earnings per share (EPS) is projected to witness a rise of 22.9%.

Darden’s earnings surpassed the Zacks Consensus Estimate in each of the last four quarters, with an average beat of 3.35%. Further, for fiscal 2017, EPS is expected to grow nearly 13%.

The Zacks Consensus Estimate for Fogo de Chao’s 2017 earnings moved up 2.2%, over the past 60 days. Moreover, for 2017, EPS is expected to improve 6.4%.

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