Cheesecake Factory Expands Amid a Challenging Environment

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A challenging industry backdrop has been hampering the performance of most restaurant chains, The Cheesecake Factory Inc.CAKE being no exception.

Nonetheless, Cheesecake Factory has been expanding in the domestic as well as international markets despite a soft consumer spending environment in the U.S. restaurant space. The company is focused on opening restaurants at high grade sites to meet the targeted returns.

Recently, the company announced the opening of a restaurant in Minnetonka, MN.

Featuring more than 250 menu options, including nearly 50 lower calorie dishes and more than 50 signature desserts and cheesecakes, the company constantly introduces changes to its menu. Moreover, in keeping with consumer preference for healthy food, the company introduced a category called Super Foods in 2015. The new restaurant will also be featuring Super Foods section.

Notably, Cheesecake Factory currently operates 209 full-service, casual dining restaurants. In addition to the domestic market, the company of late has been foraying into international markets. This is in line with the company's strategy to keep up with industry giants like Yum! Brands, Inc. YUM , McDonalds Corporation MCD and Papa John's International, Inc. PZZA . In 2017, the company plans to open eight company-owned restaurants along with four international restaurants under licensing agreements.

Notably, over the past few quarters, the U.S. restaurant space has not been too enticing for investors. Consequently, same-store sales growth has been dull in a difficult sales environment. Traffic has also been weak. In fact, the second quarter of 2017 marked the sixth consecutive quarter of negative comp sales for the restaurant industry as a whole, thereby making the mood somber.

Cheesecake Factory's sales have also come under pressure. In fact, after posting 29 consecutive quarters of positive comps at The Cheesecake Factory restaurants, the company posted a comps decline in second-quarter 2017.

Continued consumer spending uncertainty might continue to weigh on the company's comps and in turn sales. Nevertheless, increased focus on improving its speed of service and training its servers so that they render higher level of service along with various technology-enabled initiatives to boost comps bode well.

Meanwhile, despite various cost-saving efforts, high labor costs, pre-opening costs of outlets given the company's unit expansion plans and expenses related to sales initiatives are raising expenses and are likely to hurt profits. In fact, the company expects a year-over-year decline in operating margins in 2017 given the labor cost pressure and a less favorable commodity environment.

Even so, we expect the company's continuous expansion plans to add to the top line and boost its overall performance.

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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.

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

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