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Cheesecake Factory Sliced

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By Rick Aristotle Munarriz (TMF Edible)
April 22, 2003

Is the first cut always the deepest? Casual-dining chain Cheesecake Factory (Nasdaq: CAKE) had an impressive streak going until last night.

Posting 42 consecutive quarters of same-unit sales growth, an amazing run dating back to the company's 1992 stock market debut, one had to wonder if the restaurateur was even mortal in a world of fickle dining tastes.

But, alas, Joe DiMaggio had to play that hitless 57th game, and Cheesecake Factory couldn't weather the elements in its 43rd quarter. Somewhere between the California rains and the late-season East Coast snowstorms lies the reasons for the 2% slide in March quarter comps. The company was also quick to point out that the Easter season fell in April this year, negating another chunk of holiday traffic.

Calendars and storm clouds are perfect scapegoats. After all, it throws the hounds off the scent of introspection. But we won't let Cheesecake Factory off that easily. It was part of this year's Stocks 2003 collection, so we'll be kicking the tires all year long.

The company's average check inches up every quarter. It's now up to $15.78. Is it pricing itself out of the casual-dining market? Is its expansion in established markets starting to cannibalize sales? Cheesecake Factory may be the last to admit it while weathervanes and perpetual calendars are there for the blaming. But looking back at the paltry 0.3% gain in same-store sales back in the December quarter seems to indicate that the chain's popularity is in a rut relative to its previous quarterly gains.

To its credit, Cheesecake Factory was still able to grow diluted earnings by 19% on thicker profit margins. The 65-unit chain is set on opening 14 new locations this year with most of those serving new markets.

But while the stock is now marked down to trading at little more than 20 times next year's projected earnings, the eroded premium is just. This is no longer the Teflon concept.

This current quarter is crucial. The weather's starting to get nice. Easter came in April. Cheesecake Factory will have no excuses this time. The new hitting streak better start now.

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