Higher food costs and slower consumer spending have created a bland environment for restaurants these days, but Cheesecake Factory's (NASDAQ:CAKE) latest quarter delivered mouthwatering top- and bottom-line results. However, management suggested that continued economic weakness could slow future growth.
Third-quarter revenue grew 15.4%, aided by the opening of six new Cheesecake Factory locations and one new Grand Lux Cafe. Efficient labor-cost management helped offset higher input costs, leading to earnings-per-share growth of 13%. Menu price increases helped same-store sales inch up 1.2%.
The company's challenged comps growth is relatively consistent when compared to its competitors. On Tuesday, Brinker (NYSE:EAT) reported flat same-store sales for its 2008 Q1, and earlier this month, Ruby Tuesday (NYSE:RT) reported a 4.8% decline in same-store sales for its latest quarter. Darden Restaurants (NYSE:DRI), however, has experienced better results more recently, reporting a 7% improvement in same-store sales growth at its Red Lobster restaurants, and a 4.8% rise at its Olive Garden locations.
Cheesecake Factory's expansion is still on track for the rest of this year, aiming to add 21 new restaurant locations. While growth will slow in fiscal 2008, management has plans to improve operating margins by increasing leverage and lowering pre-opening costs. The reduction of new openings should generate additional free cash flow, which management plans to use to buy back shares.
For a company whose dessert menu now accounts for approximately 15% of its total restaurant sales, there's little doubt that these new openings will be well-received. However, it might take an uptick in the casual dining environment and stronger comps growth to give Cheesecake Factory shares the boost they need.
