You can sum up the continued excellent performance at The Cheesecake Factory (Nasdaq: CAKE ) in one word: boring.
Compared with last year's fourth quarter, revenue increased 23% and earnings shot up 26%. Year over year, 2005's revenue swelled 22%, and net income rose a healthy 28%. All 2005 results benefited from a 53-week year on the company's books.
Results fell within analyst expectations. Yawn. What's new? This company has delivered positive same-store sales numbers for 52 of the 53 quarters since its market debut.
One item worth watching: same-store sales at the signature Cheesecake Factory units. They rose only 0.5% in the fourth quarter (1.1% if estimated hurricane sales losses are factored in). That's at the low end of company guidance for 1% to 2% growth, which reflects semiannual menu price increases. Failure to meet expectations here would be bad news for these premium-priced shares.
The Cheesecake Factory's formula for success relies primarily on new store openings. In 2005, it opened 18 new restaurants; 21 are planned for 2006. Since the company finances its growth from earnings and cash, its cash-rich, debt-free balance sheet should continue to be its hallmark.
The Cheesecake Factory units are high-volume operations. Consider this: Darden Restaurants (NYSE: DRI ) has nearly 1,400 locations, which produce $5.5 billion in total sales. The Cheesecake Factory has 111 locations (roughly 8% of Darden's), yet they produced approximately $1.2 billion in revenue in 2005. That high volume allowed The Cheesecake Factory to keep menu prices competitive while enjoying 2005 operating margins of 10.97% -- substantially above the restaurant industry's average 6.31% margins, and well above the 7.18% and 7.77% margins at Brinker (NYSE: EAT ) and Outback Steakhouse (NYSE: OSI ) , respectively.
Analysts expect the company to grow earnings by 20% a year for the next five years. But the stock sells at 34.2 times trailing earnings, a significant premium to its growth rate. While The Cheesecake Factory's strong balance sheet and consistent growth record are enviable, this is the competitive restaurant business. At current prices, the stock is not what I'd call a good value.