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The Cheesecake Factory: Trends Indicate Substantial Growth Ahead For Dine-In Leader

Poonam A. Arora profile picture
Poonam A. Arora


  • F1Q2021 revenues of ~$627 million beat analyst projections by ~$24 million.
  • Loss Per Share of $0.03 beat consensus estimates by $0.03.
  • Off-premise sales continued to be strong across all CAKE brands despite additional dine-in capacity coming on-board.
  • We’re maintaining our 1-year Price Target of $71/share for CAKE. Reiterate Buy Rating.

National Chain Restaurants Waffle House And Cheesecake Factory Close Some Locations Due To Coronavirus Economic Slowdown
Photo by Maddie Meyer/Getty Images News via Getty Images

Investment Conclusion

We were highly encouraged by The Cheesecake Factory’s (NASDAQ:CAKE) F1Q2021 financial performance. The primary factor driving our upbeat opinion was the strong recovery in retail sales experienced by

This article was written by

Poonam A. Arora profile picture
Currently, I work as an investment analyst at Seamist Capital. Previously, since 2006, I was on the sell-side, in a research analyst role. The banks I have worked for include the Stanford Group, Madison Williams, Roth Capital, and WR Hambrecht. I have passed the FINRA exams for Series 7, 63, 86, and 87. My educational background includes a Bachelors Degree in Finance and Investments and a Masters Degree in Finance. Currently, I rank among top 5% of bloggers and among top 10% of analysts on TipRanks.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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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Comments (16)

Thanks for the article. Can you offer any insight on recent capitol raise news? As i read it, the new funds will be used to repurchase 200k class A shares. Won’t that kinda balance out any share dilution? Or am i looking at it wrong?
@zbarr, they are also proposing selling more common shares, so the dilution stays about where it was under the preferred shares scenario - that is, the dilution was first cooked in when the preferred-convertible shares were issued and I think is largely unchanged in this new deal. I think the new deal is an attempt to cut the duration of the 9% preferred dividends.
With Retail and hospitality stocks, I just walk around and see what I observe. Cheesecake Factory for years has always been packed. I don't care what people say, as long as I see constantly busy waiters and lines I believe in the company. LONG Cake
@Kann352, I did NOT go today because it was already too crowded, even with Los Angeles new reduced shutdown level and more seating. Tomorrow Mother's Day likely to be mobbed as usual. Good for shareholders (and waiters) anyway.
To see new all-time highs on this stock by May 2022, after the last year, would be astounding, but two things seem to facilitate it - increased margins from North Italia, and general market alpha, of course. Still long, and even picked up another 100 shares near the bottom last year.
You have been right on concerning price action. I’m long and CAKE it's my largest position. I actually thought of selling in the 40’s range after disastrous
stock plummet to $15. Luckily I’m still long. Your article is exceptional except how do you account on the BALANCE SHEET for the Convertible Note that has a debt obligation of 200 million and converts to 20% dilution for CAKE? They have more debt than you're asserting? Correct?
Poonam A. Arora profile picture
@kroyals Hi kroyals,

CAKE secured $200 million from Roark Capital in form of a convertible preferred investment, which is represented on the balance sheet as preferred stock. The company pays a preferred dividend to Roark Capital every quarter.

Roark can convert the preferred equity into common stock for $22.23/share. However, given that the private equity firm has only been provided 200,000 preferred shares, the deal appears reasonable for CAKE, in my opinion.

The long-term debt that appears on the balance sheet is associated with the $400 million revolver CAKE has secured, of which ~$97 million is available for use.
@Poonam A. Arora Thanks for your response. This probably has more to do with GAAP accounting than the company. Listing the convertible as "preferred stock" basically hides the fact that this really is a debt structure and CAKE will be significantly diluted once Roark Capital converts. EPS will also take a big hit. I'm not sure if the market fully understands this issue.
Poonam A. Arora profile picture
@kroyals It’s important to note that CAKE has exchanged only 200,000 in preferred equity for $200 million. If it’s a one-to-one conversion into common stock, even at a conversion price of $22.23/share, CAKE got a good deal, in my judgement.

Although, I agree on the long-term impact on EPS and market price of shares. However, given that CAKE urgently needed funds during the pandemic, I believe they made a good deal.

In addition, in my research I found out that there were ~20 entities willing to hand out funds to CAKE when they were attempting to raise capital during the initial days of the pandemic. Surely, the company must have gone with the best deal available.
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