Why This Restaurant May Be a Forever Hold Stock


Source:  The Cheesecake Factory

Though your jaw may drop when you look at their desserts, Cheesecake Factory (NASDAQ: CAKE  ) rarely has jaw-dropping results for any single quarter. Despite this, the company has been a consistent long-term winner. One of the ingredients that points to an even brighter future is a key advantage for Cheesecake Factory that others such as Chipotle Mexican Grill (NYSE: CMG  ) and Buffalo Wild Wings (NASDAQ: BWLD  )  should be watchful of.

The semi-cheesy results
Cheesecake Factory reported fiscal fourth-quarter results on Feb. 12. Revenue increased 2.2% to $475 million. Same-store sales inched up 0.9%, though they gained 1.6% if you exclude the impact of winter storms. It was the 15th quarter of positive same-store sales gains. Adjusted net income was the brightest spot, as it soared 38% to $50.7 million or $0.57 per share.

Chief executive David Overton pointed out that while the results didn't contain the most exciting report in the entire stock market, they outpaced the restaurant industry, which has been consistent. The company has been able to continually gain market share, particularly in California, which is its largest market.

Location, location, location
Even better, new restaurants have been outperforming existing restaurants, which suggests the company is getting better at deciding where to place its locations.

Currently, Cheesecake Factory has just 185 locations (including licensed ones) and plans to open another thirteen to seventeen total locations. Thirteen to seventeen might not sound like much, but that's an increase of between 7% and 9% in a single year. The company is just starting to get more aggressive with international expansion. Last quarter, it entered Saudi Arabia, and the restaurant met "long waits and huge demand."

Source: The Cheesecake Factory

With somewhere in the neighborhood of less than four locations on average per state, it's hard to imagine there isn't still a huge, wide-open market for Cheesecake Factory to expand both domestically and internationally.

Show me the money
Going forward, Cheesecake Factory expects more growth in sales, same-store sales, and earnings per share. If it achieves this, it will be the fifth consecutive year for the chain. Throughout 2013, the company repurchased $210 million worth of stock in the open market. This comes out to around somewhere in the neighborhood of 10% of the market cap returned to shareholders.

Better growth numbers
Chipotle Mexican Grill and Buffalo Wild Wings have been reporting sales growth numbers that Cheesecake Factory could only dream of right now.

For the fiscal fourth quarter, Buffalo Wild Wings reported revenue that popped 12.4% and same-store sales that jumped 5.2% at company-owned locations. Buffalo Wild Wings has an odd fiscal calendar, so if you smooth out the effect of this, revenue actually exploded 22%.

Buffalo Wild Wings didn't stop there. For the first five weeks of 2014, it reported that same-store sales grew another 4.8% despite any negative effects of bad weather. Its growth continues to be amazing when you consider the fact that you can get wings, beer, and TVs just about anywhere.

For Chipotle Mexican Grill, the growth percentage story is similar. Last quarter, Chipotle Mexican Grill saw sales pop 20.7% and same-store sales zoom by 9.3%. While the chain hasn't reported any numbers regarding 2014 yet, Chipotle Mexican Grill sees even more growth for 2014.

Part of the reason for its growing success is Chipotle Mexican Grill's policy of "fresh, but that -- where possible -- are sustainably grown and Responsibly Raised™ with respect for the animals, the land, and the farmers who produce the food." This makes it a bit unique among Mexican food restaurants, but let's face it; you can still get comparable Mexican food just about anywhere as well.

What the Factory has got that Chipotle and Wild Wings don't
What sets Cheesecake Factory apart is if you're in the mood to choose among what seems like 100,000 different cheesecakes, you got one place to go, and that's Cheesecake Factory. Sure, the company has plenty of competition in the casual- dining industry, and you can get plain-Jane cheesecake anywhere. But it has a unique niche that is likely not in danger of direct, head-to-head competition.

Some may even argue that Chipotle Mexican Grill and Buffalo Wild Wings are temporary but hot fads that aren't sustainable. Great food, great marketing, and a great experience, but vulnerable to copycat (or even original) competition. As for Cheesecake Factory, it's just hard to imagine you'll see a Cheesecake Hut or a Cheesecake House chain competing on the same turf any time soon. For that reason, there is an element of downside protection by investing in the Cheesecake Factory brand.

And perhaps the best part is Cheesecake Factory is trading at only 17 times next year's expected earnings. This doesn't seem expensive for patient Fools, as there should be enormous growth long term.

Cheesecake Factory may be a Warren Buffett type of stock
As every savvy investor knows, Warren Buffett didn't make billions by betting on half-baked stocks, no pun intended when talking Cheesecake. He isolated his best few ideas, bet big, and rode them to riches, hardly ever selling. You deserve the same. That's why our CEO, legendary investor Tom Gardner, has permitted us to reveal The Motley Fool's 3 Stocks to Own Forever. These picks are free today! Just click here now to uncover the three companies we love. 


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