I don't know about you, but I don't think it would be so bad if Cheesecake Factory's (NASDAQ:CAKE) growth slowed a bit. Then at least its loyal customer base may not have to wait almost an hour for a table. Of course, that wouldn't make investors very happy. And neither did the news flow on Tuesday.
Earlier this week, Cheesecake reported sales for its second quarter. Total sales grew 12%, but same-store sales declined by 0.8%, thanks to namesake Cheesecake Factory restaurant comps that fell 1.2%. Management's rather general explanation for the weakness referred to "macro trends impacting the restaurant industry" -- in other words, slowing consumer spending because of increasing interest rates and higher gas prices. However, sales at its newer concept, Grand Lux Cafe, grew comps by an impressive 5.5%.
The big kicker was that the company announced a delay in filing its full financials for the quarter because of an internal review of its stock-option practices. Full results had been expected to come out this week. The market overall has been weak, but the delay -- and investors' concerns over the options -- have contributed to stock-performance doldrums for this company. It just reached a new 52-week low today, in fact.
Right now, casual-dining stocks appear to be bearing the brunt of rising gas prices and interest-rate concerns as customers apparently look to save a buck or two on each meal by avoiding sit-down establishments such as Cheesecake's chains, Applebee's (NASDAQ:APPB), Chili's and Macaroni Grill (both part of Brinker (NYSE:EAT)), and Red Lobster and Olive Garden (both part of Darden (NYSE:DRI)).
Investors already have confirmation that customers are heading to McDonald's (NYSE:MCD), given the fast-food chain's recent strong quarter. That could be a good sign for other fast-food operators, such as Burger King (NYSE:BKC). One would think that Yum! Brands' (NYSE:YUM) Taco Bell and KFC units would also benefit, but that didn't appear to be the case in the most recent quarter. Comps were weaker, meanwhile, for Yum!'s Pizza Hut, as one might expect in the casual-dining realm.
But the long-term picture for Cheesecake has been one of stellar growth and disciplined, steady store openings. Over the past five years, it has grown both sales and earnings in excess of 20% per year. Operating cash flow is strong and growing, and although it's primarily spent on opening new stores, the company has no long-term debt -- all growth is internally funded. And with only 107 stores at recent count, the company appears to have sufficient room for further expansion, especially for the Grand Lux concept, which holds less than a 10% share of the total store base.
The stock-options probe is something to keep an eye on in the near term, and there should be more information to go by when the company releases its full quarterly results. At 20 times earnings, this is still pretty pricey for a restaurant stock, but that's the lowest multiple that investors have been able to pay for Cheesecake Factory in the past five years. If future growth approximates its historical track record, the shares may be a deal. If not, then at least you'll be able to quickly get seated at a Cheesecake Factory table.
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Fool contributor Ryan Fuhrmann is long shares of Mickey D's but has no financial interest in any other company mentioned. Feel free to email him with feedback or to further discuss any companies mentioned here. The Motley Fool has an ironclad disclosure policy.
