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Cheesecake Factory Expands in California With New Restaurant


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In an effort to expand presence in domestic market, The Cheesecake Factory IncorporatedCAKE announced the opening of a restaurant in Temecula, CA. This restaurant offers over 250 menu items along with more than 50 cheesecakes and desserts.

Notably, Cheesecake Factory has been expanding in domestic as well as international markets since a long time. Of late, 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. In 2018, it plans to open five company-owned restaurants.

Internationally, the company plans to open restaurants in Mexico during the first quarter of 2019. Overall, management believes that there is potential for 300 Cheesecake Factory locations in 2019, expecting to drive at least 3% unit growth.

Currently, the company operates 216 full-service company-owned restaurants - 200 under The Cheesecake Factory brand, 14 under the Grand Lux café brand and two under the RockSugar Southeast Asian Kitchen brand.

In order to stay afloat in the competitive environment, this Zacks Rank #3 (Hold) company is committed toward bolstering its sales. In fact, Cheesecake Factory's efforts to improve guest experience have been stabilizing sales trend from the fourth quarter of 2017. In the first nine months of 2018, total revenues grew 4.5% compared with the prior-year level, courtesy of improved comparable sales.

So far this year, shares of the company have gained 4.9% compared with the industry 's 10.3% growth.

Headwinds

Rising costs owing to increase in wage rate scenario remain a concern. Pre-opening costs of outlets, given the company's unit expansion plans and expenses related to sales initiatives, are adding to the costs.

In the third quarter of 2018, labor expense ratio was 35.2%, up 30 bps from the year-ago quarter but down 60 bps from the second quarter of 2018. The metric was primarily driven by higher hourly labor, including more wages, overtime and training costs.

Pre-opening expenses were 0.6% of total revenues, flat year over year. Heading into 2019, the company projects food inflation of 1-2%, particularly across poultry, dairy, bread and seafood. Wage inflation is anticipated to be about 6% in 2019.

Key Picks

Better-ranked stocks in the same space include Dunkin' Brands Group, Inc. DNKN , Dave & Buster's Entertainment, Inc. PLAY and Darden Restaurants, Inc. DRI , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

Dunkin' Brands Group has an impressive long-term earnings growth rate of 12.4%.

Dave & Buster's Entertainment delivered positive earnings surprise in each of the trailing four quarters, with the average being 13.7%.

Darden Restaurants reported better-than-expected earnings over the preceding four quarters, with the average being 5.1%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Investing , Business , Stocks
Referenced Symbols: CAKE , PLAY , DRI , DNKN



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