The Cheesecake Factory Incorporated (NASDAQ:CAKE) is positioned to capitalize on robust same-store sales growth, a successful off-premise business model, and strategic expansion initiatives. Despite concerns about uncertain macroeconomic conditions, there are compelling reasons for investors to retain their stake in the stock. Let’s delve into the factors supporting this stance.
Growth Drivers
Cheesecake Factory’s impressive same-store sales performance is a key driver for its growth. In the fiscal third quarter, the company witnessed a 2.4% year-over-year increase in same-store sales at its restaurants, slightly below expectations but a notable improvement from the prior-year quarter’s 1.1%. The surge was fueled by a 3.4% rise in the average check, attributed to a 9.5% menu pricing increase, partially offset by a 6.1% negative impact from the menu mix. Importantly, same-store sales soared by 12.6% compared to 2019 levels, indicating sustained momentum.
The company’s off-premise sales are also contributing significantly, constituting approximately 21% of restaurant sales in the third quarter of fiscal 2023. With operational enhancements such as a contactless menu, payment technology, and text paging, coupled with targeted marketing efforts, Cheesecake Factory anticipates continued growth in this segment.
Furthermore, Cheesecake Factory is driving growth through FRC-related differentiated concepts. In the fiscal third quarter, the culinary dropout concept in Charlotte, NC, reported solid sales. With plans to open a new location in Atlanta in 2023 and two to three locations across Southeast, Texas, and Southern California over the next two years, the company aims to leverage the success of its emerging brands.
The company remains committed to expansion, with expectations to open approximately 16 new restaurants in fiscal 2023. This includes a diverse mix of Cheesecake Factory, North Italia, and FRC restaurants, reflecting a strategic approach to capture varied market segments. The projected unit growth of 7% in the upcoming year indicates a robust pipeline.
Macroeconomics Concerns
Despite these positive indicators, Cheesecake Factory’s stock has witnessed an 11.5% decline in the past year, in contrast to the industry’s growth of 3.1%. The decline is attributed to a volatile macroeconomic environment that has posed challenges.
During the fiscal third quarter, the company faced supply chain challenges, restaurant openings, and commodity inflation delays. These factors, coupled with ongoing uncertainties in the macroeconomic landscape, have prompted caution. Cheesecake Factory acknowledges the persisting headwinds but remains optimistic about navigating through these challenges in the long term.
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