There it is, two feet from your face, tempting your will power. Toasted homemade marshmallow tantalizingly drips down a triangular sliver of Hershey's cheesecake, shifting your attention to the scrumptious swirls of whipped cream flanking this delectable diet-destroying dessert. You could start with the Honey Maid graham cracker angled into the top of the cake and go from there, but once you go in there's no turning back. It's all or nothing. What's it going to be?
Some will dive in while others will resist temptation. You might fall into the latter category but even if that's the case, you must realize as an investor that many people don't fall into your category. That's why menu items like Toasted Marshmallow S'mores Galore keep The Cheesecake Factory (CAKE 0.56%) a popular destination for diners.
Recent results
Third quarter results proved that The Cheesecake Factory remains in high demand. Revenue came in at $469.7 million versus $453.8 million in the year-ago quarter. Diluted earnings per share of $0.50 showed an improvement over $0.49 in the year-ago quarter. If you exclude a pre-tax charge related to the relocation of three restaurants, then diluted EPS came in at $0.52.
The Cheesecake Factory is performing well in the comps area. For the quarter, comps increased 0.8%. This might not stand out in a normal economic environment but in the current economic environment, it actually does stand out in a positive way. This is the 15th consecutive quarter of comps growth. If you look at just The Cheesecake Factory restaurants, which make up 165 of the company's 177 locations, comps improved by an even more impressive 1%.
Additionally, The Cheesecake Factory repurchased 2.1 million shares for $90.2 million in the quarter which brought the year-to-date total to 3.4 million shares for $135.5 million. The Cheesecake Factory plans on repurchasing $65 million worth of shares in the fourth quarter and $200 million worth of shares for the fiscal year.
Based on strong demand for the brand, The Cheesecake Factory aims to open as many as nine new restaurants in FY 2013, four of which have already been opened. It also plans on opening one new location in the Middle East through a licensing agreement.
The Cheesecake Factory has proven highly adept at choosing the right locations for its restaurants. For example, it recently opened two new restaurants, one in Novi, Michigan, and the other in San Juan, Puerto Rico, and both beat company records for first-week sales. The Cheesecake Factory is clearly doing something right, but that doesn't guarantee that it's a better investment option than two of its peers.
The Cheesecake Factory vs. peers
Take a look at top-line comparisons for The Cheesecake Factory, Buffalo Wild Wings (BWLD), and Cracker Barrel Old Country Store (CBRL 4.12%) over the past five years:
CAKE Revenue (TTM) data by YCharts
Buffalo Wild Wings takes the cake. Buffalo Wild Wings has come up with the simple slogan of "Wings. Beer. Sports." If you can't figure out why Buffalo Wild Wings has been so successful, then think of all the late teens and twenty-somethings who want to hang out with their friends and watch the big game, or all those married 30-and-40-somethings who need a break from their high-stress home environments. Yeah, sometimes it really is that simple.
This isn't to say that The Cheesecake Factory and Cracker Barrel have performed poorly on the top line. Actually, they have performed well, just not relatively to Buffalo Wild Wings.
The Cheesecake Factory and Buffalo Wild Wings have been neck-and-neck on the bottom line over the past five years:
CAKE EPS Diluted (TTM) data by YCharts
Cracker Barrel looks as though it's been left behind here. However, it's also a solid company, primarily thanks to its ideal highway locations that attract many customers.Cracker Barrel also adds a revenue stream with its retail side which offers candy, cookware, recipe books, and more.
Cracker Barrel plans to offer a $20 per share special dividend which will require $800 million in funded debt. Cracker Barrel has been performing fine, so this is a bit surprising. However, it's a positive for investors.
In regards to normal dividends, The Cheesecake Factory currently yields 1.20%, whereas Cracker Barrel yields 2.80%. Buffalo Wild Wings doesn't offer any yield. As for valuation, The Cheesecake Factory is trading at 20 times forward earnings. Buffalo Wild Wings is trading at 28 times forward earnings and Cracker Barrel is trading at 17 times forward earnings.
The bottom line
If you're a growth investor, Buffalo Wild Wings presents a better option than The Cheesecake Factory and Cracker Barrel, but you're going to have to pay up for that growth and there is no dividend. If you're looking for dividends, then Cracker Barrel is clearly the best option. If you don't want to pay a premium and you still want some growth with a decent yield, then The Cheesecake Factory might be for you. The one negative is that The Cheesecake Factory is more sensitive to weakening consumer trends than its peers because of its higher pricing. As always, Foolish investors should do their own research before making any investment decisions.
