The Cheesecake Factory,
26950 Agoura Road
Calabasas Hills, CA 91301
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
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
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
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
Mama: Have fork, will travel!
Edible: And you always said their Bruschetta and Shepherd's Pie were
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!