Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Cheesecake Factory's Sweeter Prospects

The Cheesecake Factory (Nasdaq: CAKE  ) may have much more expansion opportunity than previously believed. That's good news for long-term-minded shareholders.

All along, the restaurateur's top executives have been telling investors that they estimated the U.S. market could hold roughly 200 Cheesecake Factory units. In recent quarters, the company has used sites which offer, on average, 5% less seating productivity than older restaurants. The more limited layout gives the concept greater opportunity to fill out existing markets, while penetrating smaller markets like Albany and Omaha.

Based on remarks from management in its fourth-quarter earnings conference call, these newer, smaller units are performing much better than expected. This suggests that the U.S. market can likely sustain more than the previously estimated 200 Factory locations. It also means there's ample growth left in this concept; at the close of the 2006 calendar year, it had just 123 units in operation.

More room for new story growth is good news for Cheesecake Factory, because sales growth from units opened for more than a year is starting to flatline. In the fourth quarter, same-store sales for Factory concepts increased just 0.4% year over year.

In the long term, management expects annual comps growth for the entire company, including its upscale concept Grand Lux Cafe, in a narrow 1%-to-2% range. That means the 18% top-line increase management forecasts for 2007 will be driven primarily by new unit openings.

Cheesecake Factory will open as many as 21 new locations in 2007, including a handful of its Grand Lux sites. As in previous years, most of these openings will take place in the second half of the year. From there, it takes anywhere from 90 to 120 days for these locations to reach management's desired level of profitability.

Between the company's better-than-expected long-term expansion opportunities and its highly differentiated concept, which stands out from other casual diners such as Applebee's (Nasdaq: APPB  ) , Ruby Tuesday (NYSE: RI  ) , and Darden (NYSE: DRI  ) brands, investors have good reason to take a closer look at Cheesecake Factory.

Related Foolishness:

Check out our suite of investing newsletters with a 30-day free trial.

Fool contributor Jeremy MacNealy has no financial interest in any company mentioned. The Motley Fool has a disclosure policy.

Read/Post Comments (0) | Recommend This Article (27)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 521770, ~/Articles/ArticleHandler.aspx, 10/27/2016 7:23:43 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 10 hours ago Sponsored by:
DOW 18,199.33 30.06 0.17%
S&P 500 2,139.43 -3.73 -0.17%
NASD 5,250.27 -33.13 -0.63%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/26/2016 4:00 PM
CAKE $49.12 Down -0.24 -0.48%
The Cheesecake Fac… CAPS Rating: ***
DRI $61.16 Down -0.56 -0.91%
Darden Restaurants CAPS Rating: ***