Sometimes, even the thinnest slice of a really great cheesecake can be more satisfying than the rest of the meal.
Unlike ubiquitous chains such as Darden (NYSE:DRI) or Applebee's (NASDAQ:APPB), there may not be a Cheesecake Factory (NASDAQ:CAKE) waiting on a street corner near you. The company operates a grand total of only around 90 restaurants, including the 16 that were introduced to casual diners for the first time last year. By no means is it toiling away in obscurity, though; the relatively small number of outlets continues to churn out disproportionately large results.
Yesterday, the company posted record fourth-quarter earnings of $0.24 (excluding a two-cent insurance settlement), in line with estimates and a 20% increase from the $0.20 earned a year ago. Revenues for the quarter spiked 24% to $266.1 million, driven by a solid 3% gain in same-store sales. With only modest expansion, Cheesecake Factory has learned to rely on its existing store base for top-line growth, and with only one quarterly exception, the company has never failed to deliver positive comps during its 13-year tenure as a publicly traded company.
Cheesecake Factory has been decidedly cautious with its expansion plans, as it incurs substantial start-up costs to open a new restaurant. However, an expansive menu, ample portion sizes, and sharp attention to detail help ensure that despite a larger floor plan, each new outlet is quickly packed with loyal customers. The company is focused on developing a limited number of high-profile, high-volume locations and boasts an industry-leading $10.8 million in annual sales per unit.
The company's latest crop has taken even less time than usual to recoup costs, since nearly all of last year's new units generated volumes that outpaced expectations. Apparently, Hawaiians in particular have a pronounced sweet tooth. The Honolulu location reported first-year sales of $18.9 million -- setting a new company record.
Building on last year's record expansion, Cheesecake Factory has plans for 18 additional locations on the drawing board for fiscal 2005. At least three of the new restaurants are slated for continued rollout of the company's newest concept -- the Grand Lux Cafe. The prototype model first appeared in Las VegasSands' (NYSE:LVS) Venetian Hotel/Casino several years ago. The success of that venture soon spawned similar layouts in Los Angeles and Chicago (both of which posted double-digit gains in fourth quarter comps), and the three produced a combined total of more than $46 million in revenues in 2004.
Cheesecake Factory's restaurants continue to wallop most rivals, and the company's robust growth rate has annual revenues rapidly closing in on the $1 billion mark. There are few signs of an imminent slowdown on the horizon, as year-to-date same-store sales growth has accelerated to 4%, despite the impact of widespread inclement weather, which forced 20 operating days off the calendar. While Cheesecake Factory's growth looks enticing, its valuation -- the stock trades at around 38 times trailing earnings -- is every bit as rich as one of its signature desserts.
Fool contributor Nathan Slaughter is appealing to the powers that be to consider a new location in the Shreveport, La., market. He owns none of the companies mentioned.
