Why This Restaurant May Be a Forever Hold Stock

How Cheesecake Factory is different from the others.

Feb 27, 2014 at 12:00PM

Ccf
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."

Cheescake

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. 

Nickey Friedman has no position in any stocks mentioned. The Motley Fool recommends Buffalo Wild Wings and Chipotle Mexican Grill. The Motley Fool owns shares of Buffalo Wild Wings and Chipotle Mexican Grill. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers