We maintain our Neutral recommendation on restaurants chain
The Cheesecake Factory Inc.
). While we prefer the company's efforts to expand beyond US, its
relatively favorable food cost outlook and solid return to
shareholders, a sluggish performance in fourth-quarter 2012 keeps
us on the sidelines at the current level.
Why the Reiteration?
Cheesecake, which operates three brands namely The Cheesecake
Factory Restaurant, Grand Lux Café and RockSugar Pan Asian, is
well positioned to sustain its same-stores sales growth driven by
improved guest traffic. Management expects 2013 to be strong,
marking the fourth year of consistent increases in comparable
restaurant sales. The company is also on its way to attain
historically high margin levels in 2013.
Cheesecake also remains steadfast in its goal to expand beyond
the U.S. It opened 3 restaurants in the Middle East under a
license agreement in 2012. Two more units abroad are in the
offing for the company in 2013. The company is all set to
foray into Mexico, Chile and four other Latin American countries
namely Argentina, Brazil, Colombia and Peru by 2021. Management
expects solid return from international growth as evident from
the higher-than-expected volume growth at the three Middle East
However, the company performed sluggishly in the fourth quarter
of 2012 with both earnings and revenues declining year-over-year
and missing the Zacks Consensus Estimate. Same-store sales growth
was muted in the quarter. Operating margin in the fourth quarter
shrank 190 basis points (bps) mainly due to reduced revenues
overshadowing the benign cost structure.
Management is not very hopeful even on comparable store sales
growth in the upcoming first quarter due to the temporary
shutdown of the restaurant in Hawaii owing to a fire and the
adverse impact of the storm that hit the Northeast in early
February this year.
Hence, at the current level, we remain cautious and prefer to
take a wait and see approach till the additional locations
scheduled to open in 2013 and international expansion begin to
contribute nicely to 2013 margins.
Other Stocks to Consider
Some other restaurant industry stocks with a favorable Zacks Rank
Red Robin Gourmet Burgers Inc.
Burger King Worldwide Inc.
Cracker Barrel Old Country Store Inc.
). While Red Robin and Cracker Barrel retain a Zacks Rank #1
(Strong Buy), Burger King carries a Zacks Rank #2 (Buy).
BURGER KING WWD (BKW): Free Stock Analysis
CHEESECAKE FACT (CAKE): Free Stock Analysis
CRACKER BARREL (CBRL): Free Stock Analysis
RED ROBIN GOURM (RRGB): Free Stock Analysis
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