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The Cheesecake Factory Reported Solid Results For Reopened Stores

Marel profile picture


  • The Cheesecake Factory, along with many other restaurant operators, is going through a rough patch. This is reflected in its share price, down more than 45% YTD.
  • It is very encouraging that reopened restaurants have recaptured approximately 75% of prior year sales levels, on average.
  • The company bought itself substantial time with the Roark Capital investment ($200M) and is now well positioned in case the restaurant industry operating environment takes longer to normalize.
  • The company has taken many actions to preserve liquidity to navigate COVID-19, including suspending the dividend and share repurchases, furloughing staff, skipping rent, reducing executive compensation, etc.
  • The bad news is that only ~25% of the company's restaurants have reopened dining rooms with limited capacity. I expect better days ahead as more restaurants reopen.

The Cheesecake Factory (NASDAQ:CAKE), along with many other restaurant operators, was significantly impacted by the lockdowns. On a YTD basis, CAKE's share price has fallen more than 45% (versus declines of ~9.8% and ~4.6% for the Dow and S&P 500, respectively).

Data by YCharts

Prior to the coronavirus, The Cheesecake Factory (CAKE) was performing fairly well, delivering solid adjusted EPS growth and attractive free cash flow since 2008. The boost in per share metrics was also aided by substantial share repurchases, reducing the share count by ~30%, from 64M shares in 2008 to 44.5M shares in 2019.

Source: CAKE Investor Presentation May 2020, slide 27

Admittedly, adjusted EPS faced headwinds between 2016 and 2019, but the outlook going into 2020 was bright, especially following the acquisition of North Italia and Fox Restaurant Concepts. The anticipated annual unit growth for CAKE's legacy brands was ~3% whereas for North Italia anticipated annual unit growth was more than 20%+ and for Fox Restaurant Concepts around 15%. To put things into perspective, for example, in September 2019 North Italia had 20 locations in 9 states & Washington D.C., with potential for 200 domestic locations over time.

The good news is that these growth projections still hold today, albeit with a different time frame, depending on when the restaurant industry operating environment normalizes.

Source: CAKE Investor Presentation May 2020, slide 24

Investing in CAKE gives you exposure to high quality, diversified, stable and agile restaurant group, with a history of outperforming the industry.

Source: CAKE Investor Presentation May 2020, slide 26

The company owns and operates 294 restaurants throughout the US and Canada under various brands, including:

There are also several brands under the Fox Restaurant Concepts subsidiary:

This article was written by

Marel profile picture
Value-oriented investor focusing on marketable securities, real estate as well as early-stage companies.

Analyst’s Disclosure: I am/we are 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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