An Excellent Growth Story Is Baking At The Cheesecake Factory

| About: The Cheesecake (CAKE)

One of the pleasures in life is having a delicious meal at a good price and with the company of friends and family. Such has been the pleasure for the growing amount of patrons visiting The Cheesecake Factory (NASDAQ:CAKE), as evidenced in the growing income and revenue figures announced in the company's recent earnings call on October 24th, 2012. While many of us are familiar with the name as a restaurant, the stock is still mostly absent from the mainstream restaurant buzz and media. However, with the recent earnings release, it is clear that the stock is a well-kept secret that deserves a position in any balanced portfolio or IRA, and should provide solid returns for long-term investors.

The Finances
In the most recent earnings call on October 24th, The Cheesecake Factory, a casual dining restaurant operating in the United States and Dubai, reported a $0.49 cent per share diluted net income for the third quarter of 2012, in line with the Street's expectations and a 36% increase from $0.36 cents per share income just a year prior in 2011. Additionally, revenue increased to $453.8 million, up from $430.4 million in 2011, but still missing the Street's expectations by 5%.

International Growth
The figures at hand are defiant compared to the disappointments from other food and beverage companies, such as McDonald's (NYSE:MCD) and Chipotle (NYSE:CMG), given the rising costs of food and the weakened economic climate worldwide. While The Cheesecake Factory is not immune to the rising cost of food, it is mostly immune to the lack of international exposure, at least for the time being. This does not, however, imply the company will not grow internationally - in fact, it recently opened its first international location in Dubai, United Arab Emirates in August 2012 and plans to open three more restaurants in the Middle East, one in Kuwait in November 2012 and another location in Dubai by the end of 2012, according to the earnings call.

The CEO, David M. Overton, was quoted during the earnings conference as stating, "Our global expansion is off to an excellent start […] discussions with other potential partners around the world continue to progress." As suggested by Mr. Overton, the company is actively seeking to expand globally, which is excellent for a such a profitable, stable brand stateside. Pushing aside the four current and planned restaurant locations, the brand remains, in the meantime, sheltered from international financial weakness, especially in the European region, where there are no locations planned nor open. In this sense, given the time needed to significantly expand abroad, CAKE provides much needed shelter as the other 172 restaurant locations are entirely domestic. With international growth well underway, but remaining cautious, carefully planned, and absent from the economic uncertainty in Europe and southeast Asia, CAKE is a solid stock to ride out the Eurozone's crisis while obtaining some international exposure and a long-term plan to profit off of wide international establishment.

Domestic Growth
Additionally, the chain is growing at a steady pace domestically, as well. Two new restaurants, one in Virginia and one in Texas, are planned to open in November, and then another two, this time in Florida and Illinois, are set to open in December. This is in addition to four new restaurants that have already opened domestically so far in 2012. This growth rate is healthy for a chain that, after 35 years in operation, has only 173 locations total to date. This is in comparison to the more than 2,000 restaurants operated by Darden Brands (NYSE:DRI) (owner of names such as Red Lobster and Olive Garden), and over 1,500 restaurants operated by Brinker International (NYSE:EAT) (owner of Chili's Grill and Bar and Maggiano's Little Italy restaurants). The Cheesecake Factory additionally owns a smaller chain named The Grand Lux Cafe, which at only thirteen locations spread out throughout the domestic United States, could be its own growth story for the company, as well. The future, optimistic plans for more restaurant locations and the current, relatively low amount of established locations provides excellent growth opportunities to a company that already is financial sound and profitable. The Street's predictions agree as well, with analysts calling for an average expectation of $2.16 per share in income for the fiscal year 2013, up from 2012's expectations of $1.91. Finally, the CFO and Vice President, W. Douglas Benn, stated during the earnings conference call that the company expects to open between 8-10 new locations in 2013. This growth rate is very sustainable and proportionate to the company's offerings and financial results. Both internationally and domestically, The Cheesecake Factory is a growth story, complete with proper, patient moderation and planning and solid financial results to back it up. It is highly unlikely the brand will become anywhere near saturated anytime soon - perfect for a long-term investor.

The Investor
In addition to growth, the current situation is excellent for investors. Prices at The Cheesecake Factory are expected to rise in the coming year to match food price inflation of 3-5%. With the amount of growth planned and an increasing amount of customers at same-store locations in spite of industry weakness, in addition to the management's decision to factor in inflation, this should not present any threat to profit nor should it affect the typical check amount, which, according to the CFO, has historically remained stable. Additionally, the Chief Financial Officer stated during the conference call that the company plans to use the "majority" of free cash flow, minus expenditures, to pay continued dividends and perform share repurchases. Currently the stock pays about a 1.4% dividend rate and trades at about 18.5 P/E.

In summary, The Cheesecake Factory is a solid name with an excellent and well-planned growth strategy that should reward investors with a long-term view for years to come.

Disclosure: I am long CAKE. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.