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Stocks For Mom
by TMF Edible

The Cheesecake Factory, Inc.
(NASDAQ: CAKE)
26950 Agoura Road
Calabasas Hills, CA 91301
(818) 880-9323

Food Industry Weekly

Overheard, at the Edible Mothers Day Brunch:

Mama Edible: Oh, there you are!

TMF Edible: Hi, Mom! Is that some of last year's potato salad still on your chin? Let me wipe that off for you.

Mama: Nope, your father decided to try his hand at a bitter ambrosia salad.

Edible: Figures. Well, I brought you something.

Mama: I hope it's better than what you brought me last year. What were the last three letters of Q-ZAR's (Nasdaq: QZARF) ticker symbol? Oh, yeah, ARF!

Edible: Give it time, that puppy can't soil the house forever.

Mama: So, please tell me you brought me a little bit of whatever the Gardners are sending their mother this year.

Edible: Well, no. But given the fact that Dad has botched dessert, how about a little White Chocolate Chunk Macadamia Nut Cheesecake?

Mama: Yeah, sure. They only serve that at The Cheesecake Factory out by Cocowalk and there's no way your father is going to wait three hours for a table.

Edible: Well, they do ship them you know? Besides, now that you're a shareholder you might as well dig into a little field research.

Mama: That's my boy! You bought me shares of THE CHEESECAKE FACTORY (Nasdaq: CAKE). Peanut Butter Cup Fudge Ripple Cheesecake, you're mine!

Edible: Sure did, and I hope you don't lecture me on going cheap with you again this year. I mean, two years ago I would have had to pay $30 a share. Today, I picked these up for about $20.

Mama: Oh no, I knew there was a catch to this. Pity, I thought the restaurants were still popular.

Edible: They are. Sales have doubled over those two years. The first restaurant is still doing great business and it's been around for 19 years.

Mama: So, if this isn't a fad and they are expanding, why is the stock price contracting?

Edible: Well, the rub is that margins have been under pressure since 1995. Before this past quarter they were reporting lower and lower quarterly earnings. You see, the company hasn't been the best at managing expansion and operating costs. One can probably trace its financial decline to the time when the company constructed a 60,000 square foot bakery in late 1995.

Mama: What? 60,000 square feet for less than 20 restaurants? Take this back! I'm sure Dad can live without his Double Chocolate Upside-Down Jack Daniels Cheesecake... I think.

Edible: No, they also sell to supermarkets, warehouse clubs, even other restaurants. Yet, the bakery is still not running at full-capacity and it has been more of a financial drain than first expected.

Mama: Convince me. Hold my hand. Show me a rainbow.

Edible: Well, if the company gets its act together and brings back even the meager 8% net margins it had going back in the early 1990's, the stock would be selling for 15 times earnings and growing at twice that rate. As a bigger company, one would hope that it can eventually have even higher margins than that.

Mama: So I have to wait?

Edible: They do have 50 cheesecake varieties to go through in the meantime.

Mama: Have fork, will travel!

Edible: And you always said their Bruschetta and Shepherd's Pie were the best!

Mama: So you figure if I wait around long enough my weight and the stock price will both shoot up?

Edible: You look great, Mom. Besides, patience pays. Just like someone waiting for hours at one of their restaurants on a Saturday night. Good things come to those who wait.

Mama: I guess, we waited nine months for you.

Edible: And I'm forever grateful. I love you, Mom!

Mama: And I you!

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