Can Cheesecake Factory Investors Have Their Cake And Eat It Too?

Cheesecake Factory  (NASDAQ: CAKE  ) reported strong earnings results on Oct. 23, but it's the continued capital returned to shareholders that is most impressive. Cheesecake Factory continues to pay a decent dividend, and its stock buybacks are quite aggressive. The company continues to execute and position itself both for the short and long term. Despite shares trading near all-time highs, Cheesecake Factory remains an enticing investment opportunity.

Cheesecake Factory reported total revenue of $469.7 million for the fiscal third quarter, up 3.5% vs. last year. Adjusted net income was $28.1 million, or $0.52 per share. Compared to $0.49 last year, this is an improvement of over 6%. Not bad.

Now the fun part
Same-store sales were up a modest 0.8%, but it was the 15th straight quarter of positive growth on a year-over-year basis. More importantly, CEO David Overton claimed, "[We] outpaced the industry by one of its widest margins during this time frame, which is noteworthy in the context of soft industry trends and a highly promotional environment." This implies that even though Cheesecake Factory didn't engage in promotions like its competitors did, it still managed to outpace them.

Its dividend payout of $0.14 per quarter represents a yield of just over 1%. This is nothing to write home about, but its stock buybacks tell a different story. Cheesecake Factory bought back $90.2 million of shares last quarter alone. It expects to buy back a total of $200 million of shares for 2013.

Even with a market cap of $2.5 billion at the time of this writing, the buyback for 2013 is a return of capital of 8% to shareholders. This also sends a strong signal about management's confidence in the long term future, as well as its confidence that the current stock price is undervalued. Cheesecake Factory expects to purchase another $65 million of shares in the open market during the fourth quarter as part of the $200 million 2013 total. Fewer shares outstanding means higher future earnings per share as well.

Buybacks from other restaurants
The Cheesecake Factory isn't the only restaurant chain buying back shares. Panera Bread Company (NASDAQ: PNRA  ) and Famous Dave's of America (NASDAQ: DAVE  ) also reported results recently and both reported buying back shares. This suggests Cheesecake Factory's optimism about the future is shared among others in the industry and gives credence to the theory that there's a strong operating environment ahead.

Panera Bread purchased over 1 million shares last quarter, which represents over $170 million worth of purchases. This is quite aggressive considering its $4.5 billion market cap at the time of this writing. Annualized, that's a rate of 15% of capital returned at this market cap. What's more is the company continued to pick up the pace by buying another $68 million worth of stock in the first 27 days of the fourth quarter.

Famous Dave's of America repurchased a seemingly modest $1.2 million shares last quarter, but the chain is much smaller than Cheesecake Factory or Panera Bread. What's aggressive about its buyback is Famous Dave's actually had a decline in same-store sales and doesn't have a lot of cash on its balance sheet. It ended the quarter with $1.78 million in cash, which means it used up 40% of its cash in the quarter buying back stock. If that doesn't spell forward-looking confidence, I don't know what does.

Foolish final thoughts
Clearly, Panera Bread Company, and Famous Dave's of America are confident about the future, which is a great sign. Cheesecake Factory is my favorite of the three. While other restaurants are spending money on promoting themselves, Cheesecake Factory is opting to forgo spending on promotion in order to buy back more shares and return value to shareholders. While all three companies may do well in the future, look for Cheesecake Factory to outpace.

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