The Cheesecake Factory Inc. (CAKE, Financial) created the upscale casual dining segment in 1978 with the introduction of its namesake concept.
The company, through its subsidiaries, owns and operates 205 full-service, casual dining restaurants throughout the U.S. and Puerto Rico, including 192 restaurants under the Cheesecake Factory mark; 12 restaurants under the Grand Lux Café mark and one restaurant under the RockSugar Pan Asian Kitchen mark. Internationally, 13 Cheesecake Factory restaurants operate under licensing agreements in the United Arab Emirates, Kuwait, Qatar, Saudi Arabia, Lebanon, Mexico, and China.
The company’s bakery division operates two production facilities, in Calabasas Hills, California, and Rocky Mount, North Carolina, that produce quality cheesecakes and other baked products for its restaurants, international licensees and third-party bakery customers.
The company recently reported third quarter results that were marked by solid year-over-year operating margin expansion and earnings growth. The company delivered its 27th consecutive quarter of positive comparable sales.
Third Quarter Performance
Total revenues during the quarter were $560.0 million (compared to $526.7 million in the prior year quarter).
Net income and diluted net income per share were $34.6 million and 70 cents, respectively, in the third quarter of fiscal 2016.
Comparable restaurant sales during the quarter increased by 1.7%.
Net income during the quarter was $34.57 million (which was $26.17 million in the prior year quarter).
Cash and cash equivalents as at the end of the quarter were $65.84 million.
Dividend
The company declared a quarterly cash dividend of 24 cents per share on the company’s common stock. The dividend is payable on Nov. 22, 2016 to shareholders of record at the close of business on Nov. 9, 2016.
Share Repurchases
During the third quarter of fiscal 2016, the company repurchased 0.8 million shares of its common stock at a cost of $42.4 million. Year to date, the company has repurchased 2.4 million shares of its common stock at a cost of $119.0 million.
(Source: Company’s website)
Strong Attributes of the Quarter
- Sales leverage
- Effective cost management
- Solid year-over-year operating margin expansion and earnings growth
Focus
- It is expanding into new markets and filling in underserved existing markets.
- Capitalizing on global opportunity.
- Increasing topline revenue from continued comparable sales growth.
- To grow revenue stream by investing in other restaurant concepts.
- Improve labour productivity.
- Increase food efficiencies.
Conclusion
Cheesecake Factory performed well in the casual dining industry during the third quarter and remained a destination of choice in this competitive arena. It is on a growing spree and internationally, the company now expects as many as four restaurants to open under licensing agreements in fiscal 2016.
The company’s progress is the culmination of the investments it has made in the past few years. It generated extensive free cash flow and returned approximately $141 million in cash to the shareholders last year through share repurchases and dividends. This cake baker also introduced a branded mobile payment app, CakePay to enhance guests’ experiences by adding flexibility and convenience.
The Cheesecake Factory is a highly differentiated brand and one that is competitively well positioned. For more than 35 years The Cheesecake Factory has been committed to creating a culture that fosters integrity, respect, responsibility and mutual trust. Revenue growth and margin expansion along with its plan to continue to return a significant amount of capital to shareholders through share repurchases will generate dependable and sustainable earnings per share growth. It has a number of productive restaurants that provide significant returns on capital. The company is doing well will likely reap shareholder returns.
Disclosure: I do not hold any position in the company.
